About Maren de Klerk
“Being a commercial attorney for 25 years , I want to share my life , thoughts and also document my interests, views and ideas for my family and friends; that way it can help in my healing process and help my family and friends better understand my sometimes idiosyncratic personality” Maren de klerk
COMMENTS ON THE NATIONAL EQUITABLE ECONOMIC EMPOWERMENT FRAMEWORK BILL
1. The NEEEF Bill’s broad purpose is for the bringing about socio-economic transformation in order to enhance equity, social justice and empowerment of the previously disadvantaged majority, and promote a higher economic growth rate, increased employment and more equitable income distribution; and implement a national policy on the National Economic Empowerment Framework so as to promote the economic unity of the nation, protect the common market, and promote equal opportunity and equal access to Government services.
2. NEEEF shall be obligatory to all enterprises. Government shall use all the regulatory, licensing and market mechanisms at its disposal to ensure compliance. These will include, but not limited to, Government procurement of goods and services, work permits, access rights to natural resources, e.g. fishing, mining, hunting and tourism, etc., as well as issue of business licences, trading, telecommunications and financial services. Government expects all businesses to proactively embrace the national transformation framework and participate wholeheartedly in the transformation of asset ownership and empowerment.
3. The NEEEF will promote transformation in business through six empowerment pillars (of which the first three are mandatory and all are subject to scoring):
2) Management Control and Employment Equity
3) Human Resources and Skills Development
4) Entrepreneurship Development and Marketing
5) Corporate Social Responsibilities
6) Value Addition, Technology and Innovation
4. In part V, the Bill distinguishes between new enterprizes and existing enterprizes.
4.1 Section 23(1) of the Bill states, in relation to new enterprizes that “any private sector enterprize1 that is established after the commencement of this Act, may commence business only when such enterprize has secured 25 percent ownership by a racially disadvantaged person2 or persons or such higher percentage as may be determined by the Minister by notice in the Gazette” (own emphasis)
4.2 In effect this means that after commencement of the NEEEF Act, no new enterprize may be constituted unless a minimum of 25% is owned by racially disadvantaged persons. More concerting is the fact that the Minister may raise that minimum percentage by notice, and no limit is set on such percentage.
4.3 Section 23(2) and (3) determines that if a private enterprize is owned and controlled by a previously disadvantaged person3, they may only transfer
1 Private Sector Enterprize is defined as ‘any business carried on for gain or reward by an individual, a body corporate, an unincorporated body of persons or a trust in the production supply or distribution of goods or the provision of any service’
2 ‘Racially disadvantaged person’ is defined as “all persons who belong to a racial or ethnic group which has or is, directly or indirectly, disadvantaged as a consequence of social, economic or educational imbalances arising out of racially discriminating laws or practices before the Independence of Namibia.”
3 Previously disadvantaged person is defined as‘ means person contemplated in Article 23(2) and (3) of the Constitution and includes –
a) racially disadvantaged persons
b) women; and
c) persons with any disability …’
such shares or part thereof to another person that is previously disadvantaged irrespective if such enterprize is domestic/foreign owned.
5. Although it seems, at first glance that the intention is only to target new businesses, upon a proper reading of the Bill4, it soon becomes clear that Government will utilize all the regulatory licensing mechanisms at its disposal to ensure compliance for all businesses.
4 Section 4(2) for example lists one of the objectives of the Economic Empowerment Framework as follows: “(to) achieve a substantial change in the racial composition of ownership and management structures and in the skilled occupation of existing and new private sector enterprises.” (own emphasis)
6. The nett effect of this is that Government will be able for ‘force’ existing private business enterprize(s) to have a certain stipulated minimum percentage of racially disadvantaged persons as owners, before any license is issued to such a private business enterprize. It is also disconcerting that the Minister, in terms of the NEEEF Bill, can change/amend the provisions of the Bill by way of Regulation and the Bill therefore need not be changed by Parliament. This wide ranging power is not only dangerous in any Constitution, but also open for abuse.
7. The Namibian Constitution and in particular Article 21(1)(j) thereof, lists one of the fundamental freedoms as:
“All persons shall have the right to practice any professions, or carry on any occupations, trade or business.”
8. Article 21(2) of the Constitution determines that the fundamental freedom listed in Article 21(1), may be restricted by laws that imposes reasonable restrictions on the exercise of the fundamental rights and freedoms which are necessary in a democratic society and are required in the interest of the sovereignity and integrity of Namibia, national security, public order, decency or morality, or in relation to contempt of court, defamation or incitement to an offence. (own emphasis)
9. It is submitted that certain of the provisions of the NEEEF Bill, in particular Section 24 thereof, abridges the fundamental right as mentioned in Article 21(j) of the Constitution.
10. However, the object of the NEEEF Bill does not fall under any of the categories listed in Article 21(2) of the Constitution as listed above, i.e. for national security, public order, decency or morality, or in relation to contempt of court, defamation or incitement to any offence.
11.1 The NEEEF Bill ostensibly relies on the provisions of Article 23 of the Constitution to justify its encroachment. It should be borne in mind that the purpose and ambit of Article 23 can clearly not be and constitutes the breaching and infringement of those rights entrenched in chapter 3 of the Constitution with particular reference to the following Articles, namely Article 13, Article 16, Article 17, Article 21.
11.2 In this regard the provisions of Article 22 is telling, for the simple reason that the only Article to which Article 23 makes reference to and to which Article 23 has a bearing upon, is in fact Article 10.
11.3 It thus follows that the rights entrenched in the aforegoing Articles can never be limited or restricted but by the operation of Article 22, which Article in any event has no application in the context of the above stated Articles 13, 16, 17 and 21.
11.4 It is also important to note that Article 23 and the purpose thereof, as intended by the Constitution, can and could never have been an infringement of those rights and freedoms entrenched in Chapter 3, as is clear from the express wording of Article 23 which only makes reference to Article 10 and to none of the other Articles mentioned hereinbefore.
12. Furthermore, a Constitution is a contract concluded between Government and its people, including minorities. Hence the need and the fact that Chapter 3 of the Constitution can in no way be amended/changed, except in the expansion of the rights contained therein, but certainly not in the limitation thereof.
13. As such, it is submitted that certain sections of the NEEEF Bill will not withstand Constitutional scrutiny.
14. It is certainly questionable how 25 years after Independence the Government wants to impose restrictions on ownership of new businesses that will be constituted after promulgation of the NEEEF Bill.
15. It further poses the question as to why people who were born after Independence and who recently became economically active should be ‘punished’ for something they had nothing to do with or were not part of?
OWNERSHIP OF IMMOVABLE PROPERTIES
16. A large number of immovable properties in Namibia are registered in Companies/Close Corporations or Trusts.
17. Some of these properties are owned as investments and are leased out by the owners thereby receiving rental income, i.e. a business carried on for reward.
18. When one considers the definition of ‘private sector enterprize’ as discussed above, it must follow that such property entities fall squarely within the ambit of the definition of ‘private sector enterprize’.
19. It is submitted that it could never have been the intention of the legislature to include such companies and as such, they should be excluded from the definition of ‘private sector enterprize’. In light of Article 16 of the Constitution, this will also not withstand Constitutional scrutiny.
20. By way of analogy, the current definition of ‘private sector enterprize’ will also encompass professions, such as doctors and architects. Again this is in conflict with Article 21(j) of the Constitution. It begs the question how does a professional person share/dispose of his/her practice to a previously disadvantaged person/ group? Or is the final aim of the Bill to effectively do away with sole proprietors?
21. On a strict interpretation of the Bill, it follows that the Bill may be read as a mechanism by which the Government mandates the expropriation of ownership in the form of movable/immovable and incorporeal property which constitutes a disguised way in which such property is expropriated. This flies in the face of express provisions of Article 16 of the Constitution, which only allows such expropriation to be done in favour of the State against due compensation.
22. In light of the above, it is submitted that the definition of ‘private sector enterprize’ must be extensively reworded/redefined to inter alia exclude any reference to an ‘individual’ and/or property entities.
ECONOMIC POLICY CONSIDERATIONS
23. One of the aims of the NEEEF Bill as contained in the preamble, is to promote a higher economic growth rate, increased employment and more equitable income distributions.
24. Poverty in any society has many roots. The most important ones are:
(i) discrimination against minorities;
(ii) little property wealth;
(iii) a less advantageous house background;
(iv) impediments to education, job opportunities, or training.
25. What the NEEEF Bill inter alia aims to do is to redistribute assets in the form of part ownership of any new ‘private sector enterprize’ to previously disadvantaged persons. This cannot be done in light of the provisions of Article 16 of the Constitution.
26. However, redistribution has its costs, because attempts to reduce income inequality may harm incentives and reduce the size of national output. These include high administrative costs, reduced incentives to work and to save, reduced motivation for entrepreneurship as well as other intangible socio-economic costs and benefits.
27. As pointed out by Hayek and Friedman:
‘Economic reforms and government coercions are the road to serfdom. By attempting to get a fairer division of the pie, you will simply be reducing the size of the pie. If you tamper with the price mechanism, shortages will occur. But, most important, personal and economic freedom are inseparable. Once you start down the route to government regulation and planning of the economy, the freedom to speak minds and select political leaders will be jeopardized.’
28. One only has to look at Zimbabwe and Venezuela to clearly see what the effects of owner regulation and Government interference has done to that economy and its people.
29. Redistribution policies, in whatever guise, have never created sustainable wealth. In the Namibian context it will certainly never render the desired result, as the outcome will always be short lived, as it can never create lasting wealth.
30. As the South African Chief Executive of the National Employers Association of South Africa, Gerhard Papenfus, in a recently published opinion piece5, so poignantly pointed out:
5 Gerhard Papenfus, NDR – a path of disempowerment, uncertainty and poverty – 18 Aug 2016, published in BizNews.com
‘The recovery of Germany after the Second World War was the result of the collective resolve of the German people. Fortunately for them, there was nobody to take from. It was left to them to rebuild something from nothing. There was nobody else to blame for their misery, nobody else to take from and nothing left to redistribute. It was their responsibility to build a prosperous Germany out of the ashes of war.’
‘In South Africa, the complete opposite is taking place. Instead of encouraging people to tap into yet undiscovered potential, instead of encouraging people to develop and to take responsibility for their own lives, to develop those attributes which will lead to sustained improved quality of living, the “previously disadvantaged” are made to believe that they must find their fortunes in laying claim to that which others already have…’
‘Through this message the already disadvantaged are stripped of their potential and self-esteem, binding them into a state of permanent helplessness.
Those who are fortunate to realise that entitlement and redistribution, in the long run, is a cul-de-sac, will continue to be innovative, compelled to always be vigilant for new opportunities and be inspired to explore unchartered territories. This is the sphere where real wealth, in terms of the broader meaning of the word, can be found.
The beneficiaries of redistribution policies do not need to apply these attributes. For them, wealth lies in that which is easy to access and which somebody else has already accumulated.
Perhaps that explains the level of crime, corruption and the blistering pace of self-enrichment; it is a desperate ‘grab-what-you-can-get’ attitude – while the resources are still available. Crime, corruption and redistribution policies all fall in this category.
Those unfortunate enough to be caught in this trap of disempowerment, do not believe themselves capable of creating anything and therefore place themselves in a permanent state of poverty from which they cannot escape.’
30. It is also not clear in terms of the Bill how NEEEF will promote higher economic growth.
face of the provisions of the International Convention on the Elimination of all Forms of Facial Discrimination6 to which Namibia is also a signatory.
6 See Article 2 of the International Convention on the Elimination of All Forms of Racial Discrimination on 11 November 1982 Namibia ratified this Convention
CONFLICT WITH EXISTING LAWS
32. Some of the provisions of the NEEEF Bill are clearly in conflict with existing laws.
33. Companies Act
33.1 One example is the preemptive right for co-shareholders in a company as envisaged by Articles 21, 22, 23 and 24 of Table B of the Companies Act, Act 28 of 2004.
33.2 The proposed provisions of Sections 23(2) and (3) are in direct conflict with the provisions contained in the Companies Act and the corresponding sections in the Close Corporations Act.
33.3 It is submitted that this situation which intends to limit the free transferability of incorporeals like shares, is also untenable and must be addressed.
34.1 A second example concerns Trust. In terms of the definition of ‘private sector enterprize’, a Trust is included. This is untenable in law, because the dogmatic basis of a Trust relates to the control of property which is ‘handed over’ by the Founder of a Trust to the Trustees which must administer same for the benefit of a beneficiary.
31. Ostensibly Affirmative Action policies in Namibia are supposed to be of limited time application. It is however clear that this Bill will create a situation where Affirmative Action shall be applied in perpetuity. If this is so, it also flies in the
34.2 In a testamentary trust in particular, the trustees are persons entrusted with the control of property with which they are bound to deal with for the benefit of others. So, if a parent wants to protect his relatives against themselves or to provide for a child’s education by setting up a Testamentary Trust and that Trust owns a property which is rented out, it would follow that the Trust would resort under the provisions of the NEEEF Bill.
34.3 If 25% of a Trust has to be allocated to a racially or previously disadvantaged person, how will that work when it comes to Trusts, as Trustees are purely the administrators of the Trust Property on behalf of the Trust, or is the idea that a racially or previously disadvantaged person now suddenly be included as a 25% Beneficiary? If it is the latter, then it flies in the face of the underlying dogmatic principles of a Trust.
34.4 Apart from the fact that this result could not have been intended by the Legislature, it is submitted that this Will will also not withstand Constitutional Security as it flagrantly infringes upon the provisions of Article 16 of the Constitution.
34.5 It is submitted that the general inclusion of ‘Trust’ in the definition is unsound and should be qualified as ‘a business Trust’ only in order to clearly distinguish and exclude inter vivos and testamentary trusts from the Definition of private sector enterprize.
35. The International Convention on the Elimination of All Forms of Racial Discrimination
Furthermore, it is submitted that the NEEEF Bill contravenes the International Convention on the Elimination of All Forms of Racial discrimination mentioned under paragraph 31 above. In terms of Article 27, when circumstances so warrant, affirmative action policies for specific racial groups can be used to ensure the full and equal enjoyment of human rights and fundamental freedoms. However, these measures must be finite and shall in no case entail as a consequence the maintenance of unequal or separate rights for different racial groups after the objectives for which they were taken have been achieved.
7 Article 2 of the Convention
36. The Bill is also flawed in various respects.
37. Firstly it assumes that all private sector enterprizes are successful businesses and that they are technically solvent.
38. It is not necessarily always the case. It therefore begs the question that who, as a previously/racially disadvantaged person, would want to acquire shares in a business that is not making a profit or is technically insolvent?
39. Secondly, why is ‘an individual’ included in the definition of private sector enterprize? Does this mean that even a person that has a one man business will be forced to transfer shares to a previously/racially disadvantaged person even though such a person never intended to have a partner divide his business?
40. Section 23(1) of the Bill would effectively prohibit a person who is not racially disadvantaged from establishing his/her own business which is a flagrant disregard of an individual’s business rights as contained in Article 21 of the Constitution.
41. It is submitted that this cannot have been the true intention of the Legislature, as the Bill will then effectively do away with sole proprietorships in all its forms.
42. In the event of the proposed Bill being passed without major amendments, it will no doubt result in many business people including professionals, having no choice but to contest the Bill.
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