Zimbabwe: indigenisation review

Wednesday, 28 May, 2014

An intriguing piece for you today courtesy of AllAfrica, whence we learn the Zim government is “…moving away from demanding equity in foreign-owned companies exploiting natural resources in the country [and] towards a new model.”

Unnamed “experts” in the country are apparently arguing that it’s time government redefined the (in some quarters) infamous Indigenisation and Economic Empowerment Act to clarify recent changes and “turn around the economy by stimulating extraction of mineral resources in partnership with experienced and trustworthy international partners.” Hard to see a downside for industry if it does what it says. The danger, naturally, would be that it didn't.

At the policy level, two vehicles are suggested to effect the changes: the Production Sharing Model (PSM) and the Joint Empowerment Investment Model (JEIM), both of which have been applied in the past to oil and gas resources in the Middle East and Latin America.

Related sensitivities aren't likely to dissipate any time soon: the  policy review is already generating reaction at home, with the government frantically insisting it doesn't constitute a climbdown, and emphasising the fact that the proposed models technically mean that 100 per cent of resources are in fact indigenised  - "with the only debate pertaining to the percentage of sharing proceeds from the investment with investors."

The Act currently obliges foreign-owned businesses worth at least half a million US dollars to allocate a 51 percent shareholding to indigenous Zimbabweans. The PSM model mitigates this by allowing investors to recover initial capital investment, receive an appropriate return and recoup operational costs. Under JEIM, “indigenous Zimbabweans will be encouraged to enter joint ventures to generate capital to build wholly Zimbabwean-owned enterprises.”

The AllAfrica article's worth a look for anyone with an interest in the Zimbabwean extractives sector. Other highlights include:

- Discussion of the changes by “a source close to policy development”
- Particular implications for exploration and development of natural resources
- Insight into the government’s current difficulties accessing risk capital
- A look at the probable nature of production sharing contracts
- Examples of countries currently operating PSA for sub-soil assets, and specifics of those respective arrangements
- Analysis from a former World Bank representative in Zimbabwe, Dr Nginya Mungai Lenneiye of Kenya.