Indigenization Boon For Workers In Zimbabwe

Workers in Zimbabwe are beginning to benefit from Employee Share Ownership Schemes being set up under the Indigenisation and Economic Empowerment drive. Above, President Mugabe launches the Schweppes Employee Share Ownership Scheme in December 2011., a photo by Pan-African News Wire File Photos on Flickr.

Indigenisation boon for workers

Tuesday, 01 May 2012 00:00
Tawanda Musarurwa Business Reporter
Zimbabwe Herald

THE Government has approved more than 100 Employee Share Ownership Plans from foreign-owned companies that will see workers reaping the benefits of the indigenisation and economic empowerment drive. The schemes are a critical element of
ensuring that workers obtain significant benefits from the country’s economic activity.

Reliable sources in the Ministry of Youth Development, Indigenisation and Empowerment say over 100 mining companies have had their Employee Share Ownership Plans (ESOPs) approved.

“The ministry has approved over 100 ESOPs proposals by foreign mining firms operating in the country,” said the sources. “These should be launched during the course of this year.”

Big mining companies, such as Zimbabwe Platinum Holdings, Mimosa and Anglo Platinum have already launched their employee share schemes (alongside community share ownership schemes).

This is in addition to ESOPs by non-mining companies such as Meikles and Old Mutual.

The resource companies expected to launch their employee share schemes include New Dawn Mining Corporation, Caledonia Mining, Marange Resources and Pretoria Portland Cement.

Basically, an employee share ownership scheme is a contribution plan that provides a company’s workers with an ownership interest in the company.

Under such schemes, companies provide their employees with stock ownership, typically at no cost to the employees.

Shares are given to employees and are held in the scheme’s trust until the employee retires or leaves the company, or earlier diversification opportunities, creating an opportunity for workers to amass long-term savings and benefits from their work.

Employee share ownership schemes are envisioned in the Indigenisation and Economic Empowerment (General) Regulations of 2010.

The model of Zimbabwe’s indigenisation law places prominence on wealth creation (that is growing the national cake) through broad-based participation of the indigenous people in economic activity.

Observers have noted that employee ownership in firms appears to increase production and profitability, and improving employees' dedication and sense of ownership insofar as it increases their financial risk if the company does not perform well.

Zimbabwe National Chamber of Commerce immediate past president Mr Trust Chikohora said Zimbabwean workers should look forward to the ESOPs.

“ESOPs create an opportunity for workers to also take part in the ownership of the enterprises that they work for and this is an exciting development which workers should look forward to,” he said.

“It should go a long way towards achieving the goal of establishing congruency between the workers, management and the shareowners.”

In terms of the country’s indigenisation and economic empowerment law, foreign-owned firms are required to set aside a 5 percent (and up to 28 percent) stake for ordinary workers.

On the other hand, management share ownership schemes should not exceed 5 percent.

Although they are a critical component of the local indigenisation and economic empowerment drive, employee share ownership schemes are commonplace across the globe.

In the United States, for example, there are approximately 11 300 employee share ownership plans for over 13 million employees, according to the country’s National Centre for Employee Ownership.

The source added that in terms of the indigenisation law, the setting up of employee share schemes is not mandatory, but discretionary.

However, despite them being non-coerced, a number of foreign-owned firms across the range of sectors have been actively setting up structures and modalities for the implementation of their employee share ownership schemes.

Last week, British American Tobacco company concluded a deal with the Ministry of Youth Development, Indigenisation and Empowerment to give its workers approximately 10 percent of the company’s shares.

Pretoria Portland Cement (PPC), South Africa’s biggest cement producer, has also since agreed to extend a cumulative 5 percent shareholding of the company to its workers.

Prior to the proposal, PPC employees owned 1,3 percent of the firm.

In November last year, Meikles Ltd launched its Employee Share Ownership Trust following an earlier approval by the company’s shareholders to set aside 24 million shares for purchase by the employees through the trust.

The 24 million shares accounted for approximately 10 percent of Meikles Ltd’s current issued shares. According to the company, the trust is in the process of mobilising finance to acquire the shares.

The Meikles employee share ownership trust is one of the most comprehensive launched to date.

In addition to the trust per se, the executives and senior managers of the group, including some non-executive directors and other indigenous persons currently not involved with the Meikles Group (“consortium”), have formed a special purpose vehicle.

The objective of the SPV is to acquire at least 10 percent equity in Meikles Ltd.

The consortium is currently sourcing funds on the market to purchase shares on the stock market. Thus, this arrangement does not involve the issue of new shares by Meikles Ltd. But those shares will be bought at prevailing market prices from the stock market.

It is conceivable that the employees of the group could end up with a shareholding of up to 10 percent in Meikles Ltd, once the fund-raising efforts by the trust yield the desired result.

In addition, the consortium will end up with at least 10 percent equity in Meikles Ltd. Thus, the employees, including management’s involvement is likely to be a shareholding of at least 20 percent when the shares are secured by both the trust and the consortium.

Schweppes Zimbabwe Ltd last year also launched its Employee and Management Share Ownership Scheme.

The Schweppes deal was structured in such a way that Coca-Cola Ltd, a foreign-owned firm, which used to have controlling shares in Schweppes Zimbabwe Limited, disposed off a 51 percent stake to employees.

This resulted in management getting 20 percent equity while workers acquired a 31 percent stake in the beverages manufacturing company.

The Ministry of Youth Development has indicated that it is would carry out training initiatives for employees with regards to the ESOPs being set up.

“When an ESOP is set up, it is critical that employees, as new owners, know their rights and obligations, and one of our critical mandates as a ministry in terms of the indigenisation law is to provide for that capacitating,” said a ministry official.

As indicated earlier, employee share ownership schemes are not peculiar to Zimbabwe’s indigenisation and economic empowerment drive. However, within the local context they are now a critical element in ensuring that Zimbabweans are economically empowered.

But despite a generally positive response from most companies, there have been exceptions.

One notable case concerns Masawara’s acquisition of BP-Shell assets in the country, and the subsequent setting up of FMI Energy Zimbabwe.

Last year, Alternative Investment Market-listed company Masawara plc completed its acquisition for £30 million sterling (US$48,1 million) of BP Zimbabwe and Shell Zimbabwe, which together own petroleum products importer and distributor BP Shell Marketing Services (BPSMS),
But employees in the firm — led by the workers’ committee chairman Mr Stanford Tafirenyika — have misgivings about how the deal panned out, which has left them out in the cold.

They contend that Masawara has reneged on pledges made to the Ministry of Youth Development, Indigenisation and Empowerment in respect of compliance to the indigenisation law.

According to the ministry source, part of the BP-Shell deal included a 10 percent ESOP component, which went wrong because FMI wanted to set up a management-run trust, as opposed to one run by employees.

The National Indigenisation and Economic Empowerment Board has since called for the revocation of the deal.

Meanwhile, born out of the indigenisation drive is the Zimbabwe ESOPs National Association, whose key objective is to inform, lobby, mediate and research on the development of ESOPs in the country.