Lessons from the Telecel Zimbabwe saga - corporate xenophobia

THE liberalisation of Zimbabwe's telecommunications industry, especially the introduction of mobile phone networks, came at a time of heightened racial as well as anti-foreign hostilities pushed principally by non-state actors inspired by the South African black economic empowerment experiences. The non-state actors involved in the push for indigenisation mobilized support by advocating anti-white policies in commerce and industry.

This prompted the ruling Zanu PF party to shift its position on what was framed as the unfinished part of the struggle for self-determination. The ruling party was forced to redefine the meaning of indigenisation by shifting the emphasis from land related racial issues toward foreign and white economic domination. The indigenous actors understood the importance of using politics to alter the ownership landscape of assets.

By acquiescing to calls for the indigenisation of the economy, state actors also knew that a real danger existed of losing international support from foreign donors and development finance institutions. However, the trajectory of the indigenisation narrative has exposed its utility in shaping and redefining the character and personality of state actors who increasingly have realised the politically seductive power of targeting "foreigners," a loose term to describe all non-citizens and members of the settler community.
 
The need to construct new political identities was self-evident in the mid-1990s as it was generally felt that the post-colonial experience had failed, through the intermediation of liberal political reforms, to significantly alter the inherited class and racial economic relationships. The indigenisation debate in post-colonial Zimbabwe has principally been driven by actors who are in the main, financially challenged. The ruling party's response to indigenisation dramatically altered the terms of the debate in the direction of state-driven models premised on using state-power to drive the process of asset acquisition by indigenous actors.

Indigenisation was and remains targeted at whites, foreigners and, to some extent, Asians as enemies of the nation-state and the term was specifically chosen to express an exclusive sense of authentic Zimbabwean identity. It marked the first phase of the rejection of President Robert Mugabe's reconciliation policy and the liberal definition of the hitherto socialist approach to citizenship as prescribed in the constitution. The ruling party recognised the powerful mobilizing potential of the indigenisation issue and could, therefore, not risk being left behind.

The ownership structure of Zimbabwe's mobile phone networks necessarily has to be located within the ambit of racial nationalism and the rejection of the principle of non-discrimination based on race. The worldview that informed the indigenisation and affirmative action programs were informed by an idea that the post-colonial economy remained dominated by non-Africans.

Even with respect to the Telecel matter, any attempt to redefine the concept will not change the feelings of continued frustration among African businessmen and women that notwithstanding the fact that Zimbabwe has been independent for 35 years, the commanding heights of the economy are still controlled by so-called foreigners. Proponents of indigenization, therefore, were very active in pushing for the liberalization of the telecommunication space.

Accordingly, the principle of indigenisation in Zimbabwe was premised on state actors using state power to alter the shareholding of enterprises and, in so doing, a real danger existed and continues to exist, of concentrating too much wealth and ownership in the hands of a few privileged individuals who are fortunate to be beneficiaries of state benevolence through licensing and other measures.

The experience of the mobile phone network industry has nothing to do with racism for the liberalisation occurred under the watch of a black government who must have known about the legal and financial consequences of using the state and not the market to drive transformation. Indigenisation provided an alternative to the obsolete socialist approach to economic transformation.

Although it is enshrined in the constitution that Zimbabwe belongs to all who live in it, indigenisation sought to create a new class of citizenship and identity. The initial three network licenses were granted to three corporate entities i.e. Netone, TZ and Econet. It is the personalities of these entities that we must be concerned about in order to resolve the issues of nationality and identity. What defines corporate nationality? Normally, the nationality of a corporation is defined by a combination of a number of factors including the place of registration, the nationality of shareholders, directors and management.

However, it is the limited liability protection enjoyed by shareholders that separates them from the company in which they hold shares. In the case of Telecel Zimbabwe (TZ), it has only two shareholders i.e. Telecel International ("TI"), a company incorporated in the British Virgin Island, holding 60% of the issued share capital, and the Empowerment Corporation ("EC"), a company incorporated in terms of the laws of Zimbabwe. Both TZ and EC are companies that are duly incorporated in Zimbabwe and as such are subject to the laws of the country. TI is, in turn, wholly owned by Global Telecom (GT), a company that is also in turn owned Vimpelcom.

The ownership of TZ has not changed since incorporation but the ultimate control of TZ's parent company has changed hands three times. Such change of ownership of GT has and should not have altered the identity and nationality of TZ.

Can a company be classified in racial terms?

A company has its own separate identity from that of its shareholders and is characterised by freely transferrable shares. It is the company that acts as a vehicle for delivering the promise to customers and not its shareholders. Shareholders have only limited powers to appoint the board members who in turn appoint officers to manage the day-to-day affairs of the company under the board's authority.

A company is deemed to be a person under the law and, in determining jurisdiction for the purpose of litigation or law enforcement, a corporation like TZ is deemed to be a resident of Zimbabwe, the country of its incorporation as well as its principal place of business or registered office which are both located in the territory of Zimbabwe.

It would be incorrect, therefore, for anyone to characterise a company in racial or ethnic terms yet it is common practice to describe a company in racial or ethnic terms.

Can a corporation be described as "foreign"?

A corporation is founded in contract, where its personality and character is derived from a corporate charter that represents a contract between the jurisdiction, in this case, Zimbabwe, and the corporation or between the corporation and its shareholders, or among the shareholders.

TZ, just like Econet, has a nexus of contracts which hold that TI and EC are not the owners of TZ but like, any other creditors that are unsecured, provide capital in anticipation of a return on their investment. In the case of TZ, it is common cause that EC had no capital to inject into the business. The basis on which TZ was granted a license would appear that TI would hold 60% of the issued share capital in TZ.

However, the terms of the license was amended with a new condition, even before the indigenisation law was enacted, that TI's shareholding should be reduced to 49% within a five-year period from the date of signing of the agreement. It is Hon. Supa Mandiwanzira's contention that between 2003 and 2007, TZ failed to comply with the amended license condition resulting in the cancellation of the license on 9 August 2007.

However, on August 10, 2007, TZ appealed to the then Minister Goche against the cancellation of the license. The appeal was then determined in 2010, again with the condition that TZ should comply with the indigenisation requirement. It is common cause that TZ has not yet complied with the amended shareholding requirement. It is also not in doubt that the original license was granted on the basis of a 60%:40% shareholding in favour of TI. It is also not in dispute that Potraz came into existence in 2001 well after TZ had commenced operations.

Accordingly, the amendment to the licence condition was retrospective as it sought to change the basis on which TI consented to invest. It cannot be far-fetched to conclude that the amendment was motivated by the indigenous shareholders who stood to benefit from its implementation notwithstanding the fact that they had not contributed to the financing of the project. The legality and enforceability of the amendment is a question that needs to be interrogated on its own, suffice to say that Potraz has and had no jurisdiction to administer the indigenisation program at all.

By amending the terms of the license after the event, it is clear that this act was tainted by bad faith. The absurdity of the amendment is easily exposed by the fact that the effect of it was to impose an obligation that fell outside the purview of the company in that the Potraz was fixed with the knowledge that TZ had no capacity to cause its parents to alter their holdings in it as any alteration that was not market driven would upset the whole basis on which the company was organised and funded.

It was known and ought to have been known that it was TI that exclusively caused the company to have a life yet the financial consequences of the amendment on TI's identity and survival were not taken into account. By an act of state, TI's identity moved from being a foreign-controlled company to a potentially indigenously controlled entity. No regard was taken into account about the relationship between shareholding, financing and control of the company. The EC, being a proxy of indigenous shareholders, has and ought to have pre-emptive rights on the shares held by TI.

It is my assumption that TZ was nominally capitalised to allow EC to be issued with 40% of the issued share capital in the company. It is TZ that required the capital injection and not its shareholders. In the premises, it can safely be assumed that in order to procure the equipment to operate the network, one of the shareholders provided the needed capital as loans to TZ. The basis on which TZ was organised was that TI would hold 60% of the shares and EC the balance of 40% and TI was misled into believing that it would hold on to the majority control in perpetuity in recognition of the funding arrangement.

It was known at the time that the shareholder who provided the necessary capital bore the risk of loss in the event that revenues generated by TZ would be less than the costs related to the enterprise of generating the revenues. It is, TZ, therefore, that has the obligation to repay the loan. TZ is incapable of acquiring the status of a foreign company simply because the shares are held by a foreign domiciled entity. A shareholder has no contractual nexus with a company in which he or she holds shares to allow for them to have any legal claims in respect of dividends.

On the contrary, it is the directors of the company who have the legal authority to act on behalf of a company and to decide in their discretion whether or not to pay any dividends to the shareholders. Although appointed by shareholders, the directors act on behalf of the company and not its shareholders. It is this separation that exposes the fallacy of the proposition that the mere holding of shares in a company results in the company being controlled by its shareholders. Shareholders are only paid dividends after tax on profit has been determined and after the amount to be retained by the company has been determined.

In the case of land reform, the identity and personality of land was changed by an act of state without having regard to the financial and operational consequences. It would appear that the issues regarding the TZ license are not that clear. It is TZ's position that it has not defaulted as there exists an agreement providing for deferred payments of the license fee. However, the contradictions between the indigenisation requirement and the license fee compliance will have to be resolved as a matter of urgency.
 
If TI were to elect to make a payment on behalf of TZ as has been intimated by Hon. Mandiwanzira then the financial effect of any such payment would result in the dilution of EC's shareholding which dilution is prohibited in terms of the amended license requirement. TZ has no funds to make good on the license and, therefore, the company would have to rely on shareholder support. TZ has not paid any dividends to shareholders and, therefore, the value of the company to shareholders is closer to zero. In the circumstances, the amended requirement was a disguised form of nationalisation.

At the end of the day, the proponents of indigenisation do not make any distinction between indigenisation and corporate xenophobia. According to the logic that informed the amendment, a national can only be an indigenous person and nationalisation, therefore, is consistent with the idea that economic assets must be controlled by authentic Zimbabweans.