Transparency of the Regulatory System
The government officially encourages competition within the private sector and seeks to improve the ease of doing business, but the bureaucracy within regulatory agencies still lacks transparency, and corruption is prevalent. Investors have complained of policy inconsistency and unpredictability. Moreover, Zimbabwe does not have a centralized online location where key regulatory actions are published and investors have to contact ZIDA.
The government at times uses statutory instruments and temporary presidential powers to alter legislation impacting economic policy. These powers have limited duration – the government must pass legislation within six months for the presidential powers to become permanent. These measures, which can appear without warning, often surprise businesses and lack implementation details, leading firms to delay major business decisions until gaining clarity. For example, the government unexpectedly prohibited the use of foreign currencies for domestic transactions in June 2019 but lifted the ban in March 2020, amidst the COVID-19 pandemic and growing economic pressure. The government has made changes to share of foreign currency earnings that exporters must surrender to the central bank without warning or stakeholder consultations. The standard legislative process, on the other hand, does provide ample opportunity for public review and comment before the final passage of new laws. The development of regulations follows a standard process and includes a period for public review and comment.
According to the Department of State’s 2020 Fiscal Transparency Report, public budget documents do not provide a full picture of government expenditures, and there is a notable lack of transparency regarding state-owned enterprises and the extraction of natural resources. The information on public finances is generally unreliable, as actual revenue and expenditure have deviated significantly from the enacted budgets. Information on some debt obligations is publicly available, but not information on contingent debt.
International Regulatory Considerations
Zimbabwe is a member of the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA), and it is a signatory to the SADC and COMESA trade protocols establishing free trade areas (FTA) with the aim of growing into a customs union. Zimbabwe is also a member of the African Continental Free Trade Area (AfCFTA) which came into force on January 1, 2021, with the aim of creating a single continental market and paving the way for the establishment of a customs union. Although the country is also a member of the World Trade Organization (WTO), it normally notifies only SADC and COMESA of measures it intends to implement.
Legal System and Judicial Independence
According to the country’s law and constitution, Zimbabwe has an independent judicial system whose decisions are binding on the other branches of government. The country has written commercial law and, in 2019, established four commercial courts at the magistrate level. The government also trained 55 magistrates in the same year. Administration of justice in commercial cases that do not touch on political interests is still generally impartial, but for politicized cases government interference in the court system has hindered the delivery of impartial justice. Regulations or enforcement actions are appealable and are adjudicated in the national court system.
Laws and Regulations on Foreign Direct Investment
As noted above, in 2020, foreign investors are free to invest in most sectors including mining without any restrictions following the amendment to the Indigenization and Economic Empowerment Act which required majority ownership by indigenous Zimbabweans, as the government aims to bring in new technologies, generate employment, and value-added manufacturing. In certain sectors, such as primary agriculture, transport services, and retail and wholesale trade including distribution, foreign investors may not own more than 35 percent equity.
The ZIDA (found at https://www.zidainvest.com/ ), which now acts a one-stop shop for investors, promotes and facilitates both local and foreign direct investment.
Competition and Antitrust Laws
The government officially encourages competition within the private sector according to the Zimbabwe Competition Act. The Act provided for the formation of the Tariff and Competition Commission charged with investigating restrictive practices, mergers, and monopolies in the country. The Competition and Tariff Commission (CTC) is an autonomous statutory body established in 2001 with the dual mandate of implementing and enforcing Zimbabwe’s competition policy and law and executing the country’s trade tariffs policy. The Act provides for transparent norms and procedures. Although the decision of the Commission is final, any aggrieved party can appeal to the Administrative Court against that decision.
Expropriation and Compensation
In 2000, the government began to seize privately-owned agricultural land and transfer ownership to government officials and other regime supporters. In April of that year, the government amended the constitution to grant the state’s right to assert eminent domain, with compensation limited to the improvements made on the land. In September 2005, the government amended the constitution again to transfer ownership of all expropriated land to the government. Since the passage of this amendment, top government officials, supporters of the ruling Zimbabwe African National Union – Patriotic Front (ZANU-PF) party, and members of the security forces have continued to disrupt production on commercial farms, including those owned by foreign investors and those covered by bilateral investment agreements. Similarly, government officials have sought to impose politically connected individuals as indigenous partners on privately and foreign-owned wildlife conservancies.
In 2006, the government began to issue 99-year leases for land seized from commercial farmers, retaining the right to withdraw the lease at any time for any reason. These leases, however, are not readily transferable, and banks do not accept them as collateral for borrowing and investment purposes. The government continues to seize commercial farms without compensating titleholders, who have no recourse to the courts. The seizures continue to raise serious questions about respect for property rights and the rule of law in Zimbabwe.
In 2017, the government announced its intention to compensate farmers who lost their land and made small partial payments to the most vulnerable claimants. In July 2020, the government and white commercial farmers who lost land to the land reform program signed a US$3.5 billion global compensation agreement (GCA) for improvements made by commercial farmers on the farms. The government promised to pay a 50 percent deposit within 12 months of signing the GCA and 25% of the remainder in each subsequent year so that it makes full payment over five years. Given fiscal constraints, it remains unclear how the government will finance this sum.
ICSID Convention and New York Convention
Zimbabwe acceded to the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of Other States and to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1994. However, the government does not always accept binding international arbitration of investment disputes between foreign investors and the state.
Investor-State Dispute Settlement
The government is signatory to several bilateral investment agreements with several countries (see above) in which international arbitration of investment disputes is recognized. As noted above, Zimbabwe does not have a Bilateral Investment Treaty or Free Trade Agreement with an investment chapter with the United States.
Local courts recognize and enforce foreign arbitral awards issued against the government, but there is a history of extrajudicial action against foreign investors. For example, senior politicians declined to support enforcement of a 2008 SADC Tribunal decision ordering Zimbabwe to return expropriated commercial farms to the original owners. Once an investor has exhausted the administrative and judicial remedies available locally, the government of Zimbabwe agrees, in theory, to submit matters for settlement by arbitration according to the rules and procedures promulgated by the United Nations Commission on International Trade Law (UNCITRAL). However, this has not occurred in practice.
International Commercial Arbitration and Foreign Courts
Domestic legislation on arbitration is modeled after the United Nations Commission on International Trade Law (UNCITRAL) model law, with minor modifications. This law covers both domestic and international arbitration. As noted above, local courts recognize and enforce foreign arbitral awards issued against the government, but there is a history of extrajudicial action against foreign investors. For example, senior politicians declined to support enforcement of a 2008 SADC Tribunal decision ordering Zimbabwe to return expropriated commercial farms to the original owners. Once an investor has exhausted the administrative and judicial remedies available locally, the government of Zimbabwe agrees, in theory, to submit matters for settlement by arbitration according to the rules and procedures promulgated by the United Nations Commission on International Trade Law. However, this has not occurred in practice.
In the event of insolvency or bankruptcy, Zimbabwe applies the Insolvency Act. All creditors have equal rights against an insolvent estate. In terms of resolving insolvency, Zimbabwe ranks 142 out of 190 economies in the World Bank’s 2020 Doing Business Report. Zimbabwe does not criminalize bankruptcy unless it is the result of fraud, but the government blacklists a person declared bankrupt from undertaking any new business.