New amendments that were supposed to drop empowerment requirements for platinum and diamonds are having the opposite effect; unsettling miners still haunted by the 51% empowerment law that drove out investment.
President Emmerson Mnangagwa’s government has once again amended the indigenisation law, giving itself discretionary powers to “secure” majority shareholding in any mining enterprise, rattling investors who had cheered the administration’s moves to roll back the local ownership regulations.
Soon after assuming power in 2017, Mnangagwa undertook to relax a 2008 law that required majority local shareholding in all major businesses. The government amended the Indigenisation and Economic Empowerment Act through the 2018 budget.
The 2018 amendment scrapped the 51% local ownership requirement for most businesses, but kept them for the diamond and platinum mining sector.
Even then, government signalled, through deals such as the Alrosa transaction, that it was willing to allow foreign investors control of capital-intensive projects in the diamond and platinum sectors as well.
Even the ruling ZANU-PF renounced the 51% local ownership policy last September, with the party’s finance chief Patrick Chinamasa saying the indigenisation programme was “ill conceived”.
But with the mining industry expecting the progressive relaxation of local ownership rules to be given the effect of law, the wording in the latest amendments will in fact have the effect of tightening the regulations.
Section 36 of the Finance Act No 2 of 2020, which gives effect to the 2021 national budget, expands the 51% state control rule to any “such mineral as may be prescribed by the Minister in consultation with the Minister responsible for Mines and the Minister responsible for Finance.”
The Chamber of Mines, in a recent note to members, says the changes had intended to lift empowerment requirements on platinum and diamonds.
“This amendment brings into force the policy to remove diamond and platinum from complying with the equity provisions of the Indigenisation and Economic Empowerment Act. This brings to closure the Chamber appeal to ensure that the policy is enshrined into law,” the Chamber of Mines says in an advisory to its members.
However, the miners say the drafting of the law leaves the industry exposed to expropriation.
“The resultant wording of the amendments as introduced leave room for the Minister responsible for indigenisation to prescribe minerals that shall be owned through appropriate designated entities.”
While government officials insist nothing has chamged, the Chamber says it will consult government on the laws to have them redrafted for clarity.
“It is suggested that the Chamber of Mines engages the Minister of Mines with these views to understand the government’s thinking on the matter. If the position is not strong, the Chamber may need to engage behind the scenes to secure a more robust wording.”
That wording, says the Chamber, would be “one that does not provide options for the Minister responsible for Indigenisation to prescribe any sector for compliance with the 51% equity requirements”.
Legal commentators Veritas said the changes would allow the Minister to preserve any sector for locals.
“The Minister has not yet prescribed any minerals for the purpose of section 3, so currently the section is inoperative. But at any time she may decide to reserve particular sectors of the mining industry for indigenous miners, and she can give effect to that decision simply by consulting two colleagues – the Minister of Mines and Mining Development and the Minister of Finance and Economic Development – and publishing a short notice in the Gazette designating the particular minerals that are to be reserved.”
A separate legal opinion by Manokore Attorneys said: “The Amendment allows local partners to come in and alter foreign investors’ capital structures so significantly as to more than half their participation in equity.”