Investor optimism following the November 2017 fall of President Robert Mugabe has weakened as President Emmerson Mnangagwa’s government has been slow to follow through on reforms to improve the ease of doing business, and a protracted currency crisis strains the economy. The Transitional Stabilization Program, announced in 2018, includes structural and fiscal reforms that, if fully implemented, would resolve many of the economy’s fundamental weaknesses. The new government did move quickly to amend the restrictive indigenization (local ownership) law to apply only to the diamond and platinum sectors, opening other sectors to unrestricted foreign ownership. Nevertheless, investors remain cautious. Zimbabwe has attracted low investment inflows of less than USD 500 million annually over the past decade. Between 2014 and 2017, foreign direct investment inflows fell from USD 545 million to USD 289 million, but rose to approximately USD 470 million in 2018. The government announced its commitment to improving transparency, streamlining business regulations, and removing corruption, but the last two years have brought only modest progress.
Zimbabwe’s incentives to attract FDI include tax breaks for new investment by foreign and domestic companies, and making capital expenditures on new factories, machinery, and improvements fully tax deductible. The government waives import taxes and surtaxes on capital equipment. The government has been working to improve the business environment by reducing the regulatory costs measured in the World Bank’s Ease of Doing Business index, but the pace of such reforms has been slow, and policy inconsistency remains a major challenge to foreign investors. In addition, corruption remains rife and there is little protection of property rights, particularly with respect to agricultural land. Historically, the government has resorted at times to expropriating land without compensation, although it has indicated a new commitment to protecting property rights.
Zimbabwe’s period of hyperinflation ended in 2009 with the country’s commitment to the use of the multicurrency monetary regime, under which the U.S. dollar dominated most transactions. This restored a degree of business confidence in the country until November 2016, when Zimbabwe introduced a surrogate currency (the “bond note”) used only for domestic transactions. The local currency has since lost value, and the country is currently experiencing a binding foreign exchange shortage that makes it difficult for companies to meet their foreign payment obligations. In February 2019, the Reserve Bank of Zimbabwe (RBZ) officially unpegged the local currency from the U.S. dollar and created an interbank market for foreign exchange, but has failed to implement a market-clearing exchange rate regime. Therefore, it remains difficult to access dollars at the official exchange rate, and an unstable black market for U.S. dollars persists.
Zimbabwe’s arrears in payments to international financial institutions and Zimbabwe’s high external debt (public and private) of over USD 10.7 billion complicate the situation by limiting the country’s ability to access official development assistance at concessional rates. Additionally, the country’s banks do not offer financing for periods longer than two years, with most financing available for 180 days or less.
Zimbabwe’s sectors that attract the most investor interest include agriculture (tobacco, in particular), mining, energy, and tourism. Investors appreciate the high education levels of Zimbabwean workers.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||160 of 175||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||155 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||113 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2017||$ 37||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2017||$ 985||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The government has a clear desire to attract greater FDI in order to improve the country’s competitiveness. The government encourages public-private partnerships in order to enhance technological development, while also emphasizing the need to improve the investment climate by restoring the rule of law and sanctity of contracts. Implementation has been limited.
Zimbabwe’s Indigenization and Economic Empowerment law limits the amount of shares owned by foreigners in the diamonds and platinum sectors to 49 percent with specific indigenous organizations owning the remaining 51 percent. The government has signaled it intends to remove these restrictions. There are also smaller sectors “reserved” for Zimbabweans.
The Zimbabwe Investment Authority (ZIA) promotes and facilitates both foreign direct investment and local investment. ZIA facilitates and processes investment applications for approval. ZIA’s website is . The country encourages companies to register with ZIA and the process currently takes approximately 90 days. The government has announced plans for a more powerful, streamlined entity (a “one-stop shop”) – the Zimbabwe Investment Development Authority (ZIDA).
While the new government of President Emerson Mnangagwa commits to prioritizing investment retention, there are as of yet no mechanisms and formal structures through which this is done.
Limits on Foreign Control and Right to Private Ownership and Establishment
While there is a right for foreign and domestic private entities to establish and own business enterprises and engage in all forms of remunerative activity, foreign ownership of businesses in the diamonds and platinum sectors is limited to 49 percent (or less in certain reserved sectors), as outlined above.
In 2007, the government passed the Indigenization and Economic Empowerment Act, which required that “indigenous Zimbabweans” (i.e. black Zimbabweans) own at least 51 percent of all enterprises valued over USD 500,000. A March 2018 amendment to the law limits these restrictions to the diamond and platinum sectors.
Foreign investors are free to invest in the non-resource sectors without any restrictions as the government aims to achieve technology transfer, create employment, and achieve value addition. The government further reserves certain sectors such as passenger busses, taxis and car hire services, employment agencies, grain milling, bakeries, advertising, dairy processing and estate agencies for Zimbabweans.
The country screens FDI through the Zimbabwe Investment Authority (ZIA) in liaison with relevant line ministries to confirm compliance with the country’s investment regulations. Once an investor meets the criteria, ZIA issues the company or entity with an investment certificate.
According to the country’s laws, U.S. investors are not especially disadvantaged or singled out by any of the ownership or control mechanisms relative to other foreign investors. In its investment guidelines, the government states its commitment to non-discrimination between foreign and domestic investors and among foreign investors.
Other Investment Policy Reviews
In the past three years, the government has not conducted an investment policy review through the Organization for Economic Cooperation and Development (OECD), the World Trade Organization (WTO) or the United Nations Conference on Trade and Development (UNCTAD).
The government expressed its desire to reduce the time it takes to start up a business. It has also committed itself to improving the transparency and predictability of its policies and to dealing decisively with corruption.
Zimbabwe does not have a fully online registration process. One is able to begin the process and conduct a name search online via the ZimConnect web portal. The Zimbabwe Investment Authority (ZIA) is the country’s investment promotion body set up to facilitate both foreign direct investment and local investment. ZIA’s website is . According to the World Bank, it takes on average 32 days to start a business and requires nine distinct processes, with costs greater than an individual’s average annual income.
Zimbabwe does not promote or incentivize outward investment because of the tight foreign exchange constraint. Any outward investment requires approval by exchange control authorities.
2. Bilateral Investment Agreements and Taxation Treaties
Zimbabwe has investment treaties with 35 countries but ratified only ten of these treaties, including those with the Netherlands, Denmark, Yugoslavia, China, Germany, Russia, South Africa, and Switzerland. Two other investment agreements with India and Iran are awaiting ratification before they go into effect. In spite of these agreements, the government has failed to protect investments undertaken by nationals from these countries, particularly with regard to land. In 2009, for example, an army officer seized a farm belonging to a German national but the government did not intervene, despite its assurance that Zimbabwe would honor all obligations and commitments to international investors. Some claimants protected by investment treaties have pursued arbitration through the International Centre for Settlement of Investment Disputes. The German Pezold family won a landmark USD 196 million judgment, but has received only partial payment.
The United States does have a Trade and Investment Framework Agreement (TIFA) with the Common Market for Eastern and Southern Africa (COMESA), of which Zimbabwe is a member. This TIFA provides a mechanism to talk about disputes, although the protection offered by the TIFA is much more limited than protection typically provided by a bilateral investment treaty.
The United States does not have a bilateral taxation and/or investment treaty with Zimbabwe.
4. Industrial Policies
There are a number of incentives depending on the form of investment and the sectors. For investment designed to develop industrial parks and investment in tourism development zones and joint ventures in the form of the build, own, operate, and transfer (BOOT) and build, operate, and transfer (BOT), the investors will not pay tax in the first five years after which they will pay tax at the rate of 25 percent compared to the normal tax rate of 35 percent. For BOOT and BOT joint ventures, investors will not pay tax for the first five years after which they will pay tax at the rate of 15 percent per annum. Investors within the mining sector exporting 50 percent of output will have reduced corporation tax of 20 percent and receive import duty exemption on imported capital goods while losses are carried forward indefinitely for mining operations. Moreover, the government generally allows for duty exemptions in the importation of raw materials used in the manufacture of goods for export.
Foreign Trade Zones/Free Ports/Trade Facilitation
The government promulgated legislation creating Export Processing Zones (EPZs) in 1996. Zimbabwe now has approximately 183 EPZ-designated companies. Benefits include a five-year tax holiday, duty-free importation of raw materials and capital equipment for use in the EPZ, and no tax liability from capital gains arising from the sale of property forming part of the investment in EPZs. Since January 2004, the government has generally required that foreign capital comprise a majority of the investment. The requirement on EPZ-designated companies to export at least 80 percent of output has constrained foreign investment in the zones. The merger between the Zimbabwe Investment Centre and the Zimbabwe Export Processing Zones Authority, which began in 2006, has completed and the Zimbabwe Investment Authority now performs both roles. Zimbabwe has recently passed amendments to the Zimbabwe Investment Authority Act to include Special Economic Zones. However, to date, activities in special economic zones have not been meaningful in spite of the generous incentives offered to investors in these areas.
Although there are no discriminatory import or export policies affecting foreign firms, the government’s approval criteria heavily favor export-oriented projects. Import duties and related taxes range as high as 110 percent. Export Processing Zone-designated companies must export at least 80 percent of output.
Performance and Data Localization Requirements
The government mandates local employment except for specialized skills that are in short supply locally. There are no general performance requirements for businesses located outside Export Processing and Special Economic Zones. Government policy, however, encourages investment in enterprises that contribute to rural development, job creation, exports, the addition of domestic value to primary products, use of local materials, and the transfer of appropriate technologies.
Government participation is required for new investments in strategic industries such as energy, public water provision, and railways. The terms of government participation are determined on a case-by-case basis during license approval. The few foreign investors (for example, from China, Russia, and Iran) in reserved strategic industries have either purchased existing companies or have supplied equipment and spares on credit.
The government encourages foreign investors to make maximum use of Zimbabwean management and technical personnel, and any investment proposal that involves the employment of foreigners must present a strong case in order to obtain work and residence permits. Normally, the maximum contract period for a foreigner is three years but with possible extension to five years for individuals with highly specialized skills.
While currently there is no forced localization in which foreign investors must use domestic content in goods, the government is in the process of developing a local content policy designed to encourage the use of local inputs in production.
The government does not require foreign IT providers to turn over source code and/or provide access to surveillance. Only banks are required to maintain all their data in the country through the escrow agreement.
The new government investment guidelines do not permit mandatory and/or arbitrary performance requirements that distort or limit the expansion of trade and investment.
6. Financial Sector
Capital Markets and Portfolio Investment
Zimbabwe’s stock market currently has 56 publicly-listed companies, but just 12 of them account for about 75 percent of total market capitalization, which stood at USD 5.7 billion on March 25, 2019. In September 1996, the government opened the stock and money markets to limited foreign portfolio investment. Since then, a maximum of 49 percent of any locally-listed company can be foreign-owned in line with the indigenization policy framework, with any single investor allowed to acquire up to 15 percent of the outstanding shares.
There is a 1.48 percent withholding tax on the sale of marketable securities, while the tax on purchasing stands at 1.73 percent. Totaling 3.21 percent, the rates are comparable with the average of 3.5 percent for the region. As a way of raising funds for the state, the government mandated that insurance companies and pension funds invest between 25 and 35 percent of their portfolios in prescribed government bonds. Zimbabwe’s hyperinflation, which ended with the 2009 dollarization, wiped out the value of domestic debt instruments. However, the government has been borrowing from the local market by issuing Treasury Bills (TBs) to financial institutions to finance government expenditure. Official statistics show that by the end of 2017, the government had issued in excess of USD 2 billion worth of TBs to financial institutions.
Money and Banking System
Three major international commercial banks and a number of regional and domestic banks operate in Zimbabwe, with a total of over 200 branches. The central bank (Reserve Bank of Zimbabwe (RBZ)) believes that the banking sector is generally stable in spite of a harsh operating environment characterized by high credit risk and liquidity constraints. As most international banks reduce risk (de-risking) in the face of high penalties for non-compliance with prudential guidelines in developed countries, most Zimbabwean correspondent banking relationships are in jeopardy. As of December 31, 2018, the sector had 19 operating institutions, comprising 13 commercial banks, five building societies and one savings bank. According to the RBZ, as of December 2018, all operating banking institutions complied with the prescribed minimum core capital requirements. The level of non-performing loans increased somewhat from 7.08 percent in December 2017 to 8.25 percent by December 2018 largely reflecting a decline in credit quality due to the poor operating environment. The RBZ still believes the NPLs of financial institutions will fall due to banks adopting credit risk management tools in line with the internationally accepted accounting standards.
According to the central bank, the total deposits (including interbank deposits), rose from USD 8.48 billion in December 2017 to USD 10.32 billion by December 2018. The RBZ reports that as of December 31, 2018, total nostro foreign currency deposits amounted to USD 673.81 million, mostly dominated by corporates (97.17 percent).
Foreign Exchange and Remittances
In 2009, the government lifted exchange controls and demonetized the Zimbabwe dollar. The RBZ permitted bank accounts and transactions in the following currencies: Euro, Botswana pula, South African rand, British pound, U.S. dollar, Chinese yuan, Australian dollar, Indian rupee, and Japanese yen, with most business conducted in U.S. dollars. Zimbabwe’s export performance rose but at a slower pace than imports. Weak investment inflows and Zimbabwe’s fiscal and current account deficits gradually resulted in a shortage of foreign exchange. In response to a binding cash crisis, the government introduced a surrogate currency, the bond note, in 2016 which traded on a 1:1 basis with the U.S. dollar, but the shortage of dollars meant RBZ would only allocate U.S. dollars to priority payments, to others payments after a delay, or – when the situation reached a crisis in late 2018 and early 2019 – not at all. Businesses have resorted to a black market for foreign exchange in order to make external payments. On February 20, 2019, the RBZ introduced the real time gross settlement (RTGS) dollar (incorporating the RTGS balances, bond notes and coins) whose value against the U.S. dollar should be market-determined (via a new interbank foreign exchange market emerged), but RBZ has not allowed the official rate to fall in line with market pressures. The black market persists. Since October 2018, banks have set up distinct foreign currency accounts denominated in U.S. dollars. The government’s arrears on over USD 7 billion in external debt block the country’s access to multilateral financing. These conditions severely constrain external financing for the economy, which has resulted in rising external payments arrears for necessary imports.
In line with recommendations from the Southern African Development Community (SADC) and the IMF, the government revised the Foreign Exchange Control Act, which regulated currency conversions and transfers before the withdrawal of the Zimbabwe dollar. With these changes and the liberalization of most current account transactions, exporters retained 100 percent of their foreign currency receipts for their own use until 2016. From 2016 to February 2019, the RBZ retained 50 percent of the foreign exchange generated by export proceeds (distributing the equivalent amount to the exporter in local currency), shared among competing foreign payments needs based on a priority list. In February 2019, the government raised the amount most exporters can retain for their own use to 80 percent, 55 percent for gold producers, 50 percent for all other minerals, and 30 percent for tobacco and cotton farmers. Moreover, foreigners can remit capital appreciation, dividend income and after tax profits provided the foreign exchange is available.
Sovereign Wealth Funds
Zimbabwe does not have a sovereign wealth fund (SWF). The government set aside USUSD 1 million toward administrative costs related to the setting up of the Sovereign Wealth Fund in its 2016 Budget. Although the government proposed to capitalize the SWF through a charge of up to 25 percent on royalty collections on mineral sales, as well as on special dividend on the sale of diamond, gas, granite and other minerals, the concept has not progressed any further.
8. Responsible Business Conduct
Following dollarization in 2009, there has been increased awareness of standards for responsible business conduct (RBC), driven by the private sector through the Standards Association of Zimbabwe. The private sector developed the National Corporate Governance Code of Zimbabwe (ZimCode), which is a framework designed to guide Zimbabwean companies on RBC. An industrial advocacy group, the Confederation of Zimbabwe Industries, has a standing committee on business ethics and standards that drives ethical conduct within the Zimbabwean private sector. The organization has developed its own charter according to OECD guidelines, highlighting good corporate governance and ethical behavior. The Zimbabwean government has not taken any measures to encourage RBC and it does not take RBC policies or practices into its procurement decisions.
Firms that demonstrate corporate social responsibility do not automatically garner favorable treatment from consumers, employees, and government. With regard to indigenization, foreign companies receive formal indigenization credits of up to 31 percent for conducting CSR determined by the extent to which the activity achieves the government’s socio-economic objectives.
Although the Zimbabwean government has considered implementing the World Bank’s Extractive Industries Transparency Initiative (EITI) principles in order to strengthen accountability, good governance, and transparency in the mining sector, it has yet to launch an EITI program. However, the government has stated its intention to adopt a domestic initiative called the Zimbabwe Mining Revenue Transparency Initiative (ZMRTI), though it has made little progress in implementing the initiative.
In 2005, the government enacted an Anti-Corruption Act that established a government-appointed Zimbabwe Anti-Corruption Commission (ZACC) to investigate corruption. The 2009 – 13 government of national unity (GNU) enhanced the institutional capacity of the ZACC with members appointed from civil society and the private sector. However, when the ZACC’s term of office expired, the new ZACC did not include civil society and private sector representatives. The government has a track record of prosecuting individuals selectively, focusing on those who have fallen out of favor with the ruling party and ignoring transgressions by members of the favored elite. Accusations of corruption seldom result in formal charges and convictions. Many corruption charges stem from opaque procurement processes.
While the laws to combat corruption exist, enforcement of the laws is weak as law enforcement agencies lack political will and resources. As a result, Transparency International ranked Zimbabwe 160 out of 175 countries and territories surveyed in 2018. The Mnangagwa government has committed itself to eradicate corruption. Since December 2017, ZACC has arrested and brought before the courts a number of high-ranking officials, mostly aligned to the Mugabe faction from the previous government. In spite of this, the courts have not sent many of the accused persons to prison.
Existing rules on the Zimbabwe Stock Exchange compel listed companies to disclose, through annual reports, minimum disclosure requirements.
The government also created a policy to improve accountability in the use of state resources through the introduction of the Public Finance Management Act in March 2010. Nevertheless, corruption remains endemic, especially within the diamond sector where production and export figures are largely unreliable. The government has introduced a diamond policy that focuses on ensuring the 100 percent government ownership of all alluvial diamonds in the ground and the involvement of the Zimbabwe Revenue Authority (ZIMRA) in the entire value chain of diamond production.
While Zimbabwe signed the United Nations Convention against Corruption on February 20, 2004 and ratified the treaty on February 20, 2007, it is not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
Resources to Report Corruption
Transparency International Zimbabwe
96 Central Avenue
P O Box CY 434, Causeway
+263 4 793 246/7
10. Political and Security Environment
Political parties, labor organizations, and civil-society groups sometimes encounter state-sponsored intimidation and repression from government security forces and Zimbabwe African National Union – Patriotic Front (ZANU–PF)-linked activists. Disagreements between and within political parties occasionally resulted in violence targeting political party members.
Political tensions and civil unrest persist under the government of President Emmerson Mnangagwa who came into power following the military intervention of November 2017 that resulted in the departure of longstanding dictator Robert Mugabe. On August 1, 2018, the army used live ammunition to disperse people demonstrating against the delay in announcing official presidential election results, leaving six people dead. Following demonstrations against a 140 percent increase in fuel prices on January 14, 2019, security forces responded with excessive violence and human rights abuses, including the use of live ammunition, arbitrary beatings and arrests, resulting in 17 deaths and hundreds injured over the course of weeks. The crackdown targeted members of the opposition political party, civil society groups, and labor leaders. Political uncertainty remains high.
Violent crime, such as assault, carjacking, and home invasion, is common. Local police lack the resources to respond effectively to serious criminal incidents.
11. Labor Policies and Practices
Decades of political and economic crises have led to the emigration of many of Zimbabwe’s skilled and well-educated citizens. Formal sector employment has fallen significantly. Anecdotal evidence shows widespread youth unemployment as the country continues to produce graduates without a matching growth in employment opportunities. As a result, most end up joining the informal sector estimated at over 90 percent of the workforce.
The government encourages foreign investors to make maximum use of Zimbabwean management and technical personnel.
The country’s labor laws make it very difficult for employers to adjust employment in response to an economic downturn except in the Special Economic Zones (SEZs) where labor laws do not apply. Outside the SEZs, the employer must engage the employees and their representatives and agree to adopt measures to avoid retrenchment. If the measures fail, the employer can retrench and pay an all-inclusive package of one month salary for each two years of service or the pro rata share thereof.
The labor laws differentiate between layoffs and severance with the former falling under retrenchment where the retrenchment law must apply. The law does not accept unfair dismissal or layoffs of employees. The 2015 amendments to the act only permit terminations of contracts to be in terms of a registered code of conduct, expiry of a contract of fixed term duration, or mutual agreement. There is no unemployment insurance or other safety net programs for workers laid off for economic reasons.
Employers in all sectors rely heavily on temporary or contract workers because there is no need to follow termination procedures. The employee will only wait for the expiry of the agreed period of employment. The Labor Amendment Act of 2015, however, now requires employment councils to put a limit on the number of times employers can renew short-term contracts.
The government does not waive labor laws in order to attract or retain investment, except in the case of SEZs.
Labor unions affiliated to the Zimbabwe Congress of Trade Unions (ZCTU) are independent of the government and those affiliated to the Zimbabwe Federation of Trade Unions (ZFTU) and the Zimbabwe Industrial Revolution Workers Federation support the government.
Collective bargaining takes place through a National Employment Council (NEC) in each industry, comprising representatives from labor, business, and government. The agreements apply to the entire sector regardless of whether or not all employees are members to the council or not, except for managerial employees.
The country has a labor dispute resolution process that starts at company level through disciplinary committees or grievance committees. If the issue is not resolved at this level, the aggrieved party can appeal to either the employment council or the Labor Court depending on the industrial agreement. Other redress is through the Ministry of Public Service Labor and Social Welfare in which labor officers settle disputes for industries without employment councils. From the Labor Court, an aggrieved party can appeal to the Supreme Court.
Labor inspection is minimal due to a lack of inspectors, and there is discrimination in practice. The government continues to harass labor unions and their leaders. Labor leaders were among the targets of the January 2019 violent government crackdown.
The government is a member of the International Labor Organization (ILO) and has ratified conventions protecting worker rights. The country has been subject to ILO supervisory mechanisms for practices that limit workers’ rights to freely associate, organize, and hold labor union meetings.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
*Zimbabwe National Statistical Agency
Table 3: Sources and Destination of FDI
Data not available.
Table 4: Sources of Portfolio Investment
Data not available.