2011 Investment Climate Statement - Zimbabwe

2011 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2011

Overview of Foreign Investment Climate

Zimbabwe's economy grew in real terms by 8.1 percent in 2010 and 5.7 percent in 2009 according to the government's estimates. This reversed a decade-long decline that saw Zimbabwe's economy contract by roughly 50 percent. Government corruption and mismanagement remain important concerns, however. Government policies have eroded the rule of law and undermined the security of property rights. An uncertain domestic political environment tends to magnify risks for investors. In the absence of comprehensive reforms, Zimbabwe's investment climate will remain generally poor. The government estimated Zimbabwe's rate of inflation in 2010 at 4 percent. Under Zimbabwe's multi-currency monetary regime, in which most business is conducted in U.S. dollars, changes in the price level are primarily related to the exchange rate between the South African rand and the U.S. dollar because Zimbabwe imports a significant proportion of its products from South Africa.

Zimbabwe generally ranks poorly in global comparisons of economic competitiveness and corruption.




TI Corruption Index


134 of 178

Heritage Economic Freedom


178 of 179

World Bank Doing Business


157 of 183

MCC Gov’t Effectiveness


-0.76 (8%)

MCC Rule of Law


-0.92 (3%)

MCC Control of Corruption


-0.60 (10%)

MCC Fiscal Policy


-4.6 (14%)

MCC Trade Policy


44.8 (3%)

MCC Regulatory Quality


-1.55 (5%)

MCC Business Start Up


0.431 (0%)

MCC Land Rights Access


0.399 (9%)

MCC Natural Resource Mgmt


74.88 (82%)

Openness to Foreign Investment

Government policy papers recognize the need for foreign direct investment to improve the country's competitiveness. This includes encouraging public-private partnerships in order to enhance technological development. Official statements also emphasize the need to improve the investment climate by restoring the rule of law and sanctity of contracts. But the government's actions are often inconsistent with this sentiment, undermining investor confidence. Despite extremely difficult economic conditions over the past decade, a few U.S. companies maintained subsidiaries in Zimbabwe, largely holdovers from better years a decade and more ago. Many others sell their products through certified dealers.

The government's priority sectors for foreign investment are manufacturing, mining, and infrastructure development. In 2008 the government introduced the Indigenization Act, which requires that "indigenous Zimbabweans" own at least 51 percent of all enterprises. In March 2010 the government issued regulations to implement the Indigenization Act. These regulations created new uncertainty further harming the investment climate. The government then decided to revise the regulations and established committees that will propose sector-specific thresholds for indigenous ownership of businesses. Until the committees publish their recommendations and the government acts on them, the consequences of the Indigenization Act will remain uncertain. The government also intends to introduce amendments to the Mines and Minerals Act that may also set limits on foreign ownership in the mining industry.

The government reserves several sectors for local investors. Under current laws, foreign investors wishing to participate in these sectors may only do so by entering into joint venture arrangements with local partners. Foreign investors may not own more than 35 percent of the operation. These rules apply to the following industries:


-- Primary production of food and cash crops

-- Primary horticulture

-- Game, wildlife ranching, and livestock

-- Forestry

-- Fishing and fish farming

-- Poultry farming

-- Grain milling

-- Sugar refining


-- Road haulage

-- Passenger bus, taxi, and car hire services

-- Tourist transportation

-- Rail operations

Retail and wholesale trade, including distribution

-- Barber shops, hairdressing, and beauty salons

-- Commercial photography

-- Employment agencies

-- Estate agencies

-- Valet services

-- Manufacturing, marketing, and distribution of armaments

-- Water provision for domestic and industrial purposes

-- Bakery and confectionary

-- Tobacco packaging and grading post auction

-- Cigarette manufacturing

Foreign investors wishing to start a new project in Zimbabwe must first register with, and be approved by, the Zimbabwe Investment Authority (ZIA), which then issues an investment certificate. In 2010 the ZIA reported that approval of investment applications took 49 days. In 2011 the government intends to reduce this to five days by means of a "one-stop shop" investment center to coordinate the work of officials from the ZIA and other agencies.

All private firms are required to incorporate and register with the Registrar of Companies within the framework of their investment certificate or exchange-control approval. Foreign investment in existing companies requires approval from the Reserve Bank of Zimbabwe (RBZ), as the central bank is known. Applications are submitted to the RBZ's Exchange Control Department through the investor's commercial bank or merchant bank or other authorized foreign-exchange dealer. Foreign investors with valid investment certificates may acquire real estate.

In the mid-1990s, the government identified privatization of state-owned enterprises as a priority, but only two have been successfully privatized since then. Although the government set up a ministry responsible for state-owned enterprises, this ministry still lacks the authority to set and implement privatization policy. Lack of political will, the enterprises' operational inefficiencies, and weak balance sheets make it unlikely that privatization will accelerate in the near term.

As Zimbabwe's relations with the U.S. and European nations deteriorated in recent years, the government began to encourage economic ties with Asian countries, particularly China. Under this "Look East" policy, some Asian investors have been offered access to reserved sectors, sometimes at the expense of local or established foreign investors. Despite the official emphasis placed on these ties and a few high-profile project announcements, Asian investment is still a small fraction of existing investment from South Africa and the United Kingdom.

Conversion and Transfer Policies

Until the end of 2008, Zimbabwe's exchange-rate policies made it difficult for firms to obtain foreign currency, and this in turn resulted in shortages of fuel, electric power, and other imported goods. Other consequences included defaults on public- and private-sector debt and a sharp decline in industrial, agricultural, and mining operations. In 2009 the government lifted exchange controls and withdrew the Zimbabwe dollar from circulation. Foreign currencies are now used for all transactions in Zimbabwe, with most business being conducted in U.S. dollars. Zimbabwe's export performance is recovering slowly, and the government's debt arrears block access to multilateral financing. These conditions severely constrain external financing for the economy. The RBZ has not restored foreign-currency accounts it confiscated from banks' depositors prior to official dollarization in 2009. In line with recommendation from the Southern African Development Community (SADC) and the IMF, the government has revised the Foreign Exchange Control Act, which regulated currency conversions and transfers before the withdrawal of the Zimbabwe dollar. With these changes, exporters now retain 100 percent of their foreign-currency receipts for their own use.

Expropriation and Compensation

Despite previous provisions in Zimbabwe's constitution that prohibit the acquisition of private property without compensation, in 2000 the government sanctioned uncompensated seizures of privately owned agricultural land. Many of the farms seized were subsequently transferred to government officials and other regime supporters. The government in April 2000 amended the constitution to authorize the compulsory acquisition of privately owned commercial farms 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 President Mugabe's ZANU-PF party, and members of the security forces have continued to disrupt production on commercial farms, including those owned by foreign investors and covered by bilateral investment agreements.

In 2006 the government began to issue 99-year leases for land seized from commercial farms. These leases, however, are not readily transferable. The government retains the right to withdraw the lease at any time.

The government's program to seize commercial farms without either the intention or the funds to compensate the titleholders, who have no recourse to the courts, has raised serious questions about respect for property rights and the rule of law in Zimbabwe. Accordingly, Zimbabwe was ranked 120 out of 183 countries considered with respect to the country's ability to protect investment under the World Bank's 2011 "Doing Business" report.

President Mugabe and other politicians have in the past threatened to target the mining and manufacturing sectors for similar forced indigenization. In 2008 the government amended the Mines and Minerals Act, outlining indigenization requirements for mining. For strategic energy minerals (coal, methane, uranium), the legislation would require mining companies engaged in extraction or exploitation to transfer ownership to the state of 51 percent of the shares; 25 percent would be without compensation. For precious metals and precious stones, 25 percent of the shares must be transferred to the state without compensation and a further 26 percent is required to be owned by the state or by indigenous Zimbabweans. At the end of 2010, the government was deliberating amendments to the Mines and Minerals Act which may include a prohibition on foreign ownership of alluvial diamond concessions, introduce a “use it or lose it” provision for unexploited mining concessions, and introduce new “indigenous” ownership requirements in the sector.

In March 2008, the government enacted the Indigenization and Economic Empowerment Bill that mandates, over time, 51 percent indigenous ownership of businesses. As noted above, there is continuing uncertainty over how the government will implement the Indigenization Act.

Dispute Settlement

Zimbabwe has 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 the event of an investment dispute, the Government of Zimbabwe agrees, in theory, to submit the matter for settlement by arbitration according to the rules and procedures promulgated by the United Nations Commission on International Trade Law (UNCITRAL) once the investor has exhausted the administrative and judicial remedies available locally. On the other hand, Constitutional Amendment 17, enacted in 2005, removed the right of landowners whose land has been acquired by the government to challenge the acquisition in court.

A group of Dutch farmers whose farms were seized under the land reform program took their case to the International Centre for the Settlement of Investment Disputes (ICSID) in April 2005, demanding that Zimbabwe honor its investment agreement with the Netherlands. The case was heard by a tribunal in Paris in November 2007, and the tribunal issued a verdict favorable to the farmers. Zimbabwe's government acknowledged that the farmers had been deprived of their land without payment of compensation but disputed the amount the farmers claimed in damages.

In a related case, a three-judge panel of the SADC Tribunal in Windhoek, Namibia, ruled in 2008 that Zimbabwe's violent land reform exercise discriminated against a group of white farmers who filed an application challenging the seizure of their farms. The government has refused to recognize the ruling and in September 2009 it said Zimbabwe had withdrawn from the jurisdiction of the SADC Tribunal. This appeared to be a bid to stop the effect of adverse judgments against it by the Windhoek-based court. The government argued that the protocol establishing the Tribunal had not been ratified by the required two-thirds majority of the total membership of SADC. This position was adopted by SADC at a Summit meeting in August 2010 and the Tribunal is currently defunct.

Government efforts to influence and intimidate the judiciary since the late 1990s have raised serious concerns about investors receiving a fair hearing in local courts. In addition, the government and ruling elite have ignored numerous adverse judgments, and senior officials have reiterated publicly that court orders that are not politically acceptable to ZANU-PF will not be honored. Administration of justice in those commercial cases that lack political overtones is still generally impartial. As government revenue has declined, however, court resources have dwindled and dockets have become backlogged.

Performance Requirements/Incentives

Several tax breaks are available for new investment by foreign and domestic companies. Capital expenditures on new factories, machinery, and improvements are fully deductible and the government waives import tax and surtax on capital equipment. Other incentives for investors include:

-- Investment allowance of 15 percent in the year of purchase of industrial and commercial buildings, staff housing and articles, implements, and machinery;

-- Twenty-five percent special initial allowance on the cost of industrial buildings and commercial buildings and machinery in growth-point areas is granted as a rebate for the first four years;

-- Special mining lease provisions entitling the holder to specific incentive packages to be negotiated with the Ministry of Mines;

-- Refund of value added tax (15 percent) for capital goods purchased in Zimbabwe and intended for use in priority projects or investment in growth points.

There are no general performance requirements outside of Export Processing Zones. Government policy, however, encourages investment in enterprises that contribute to rural development, job creation, exports, use of local materials, and transfer of appropriate technologies.

There are no discriminatory import or export policies affecting foreign firms, although the government's approval criteria are heavily skewed toward 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.

Government participation is required in new investments in strategic industries such as energy, public water provision, railways, and armaments. The terms of government participation are determined on a case-by-case basis during license approval. The few foreign investors (for example from China and Iran) in reserved strategic industries have either purchased existing companies or have supplied equipment and spares on credit.

Foreign investors are expected 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 for doing so in order to obtain work and residence permits. Normally, the maximum contract period for a foreigner is three years, but this can be extended to five years for individuals with highly specialized skills. Foreigners who have prior permission from the RBZ may remit one third of their salaries.

Right to Private Ownership and Establishment

Although Zimbabwean law guarantees the right to private ownership, this right is increasingly not respected in practice. As noted above, the government has in recent years seized thousands of private farms and conservancies, including ones belonging to Americans and other foreign investors, without due process or compensation. Most of these property owners held Zimbabwe Investment Authority investment certificates and purchased their land after independence in 1980. Despite repeated U.S. protests, the government has not addressed the expropriation of property belonging to U.S. citizens.

Protection of Property Rights

Prior to 2009, the government's demonstrated desire to expand its control of the economy put many investments, particularly in real property, at risk. The government's 2005 Operation Restore Order resulted in more than 700,000 persons losing their homes, their means of livelihood, or both, according to United Nations estimates. Many of these properties had proper titles and licenses. Although Operation Restore Order officially ended in 2005, the government continued to evict smaller numbers of people from their homes and businesses, primarily in and around Harare, in 2006, 2007, and 2010. In addition to the thousands of agricultural properties seized under land reform during the past ten years, in late 2005 the government for the first time authorized the seizure of non-agricultural land for the purpose of residential construction in a Harare suburb.

Since independence, Zimbabwe has applied international patent and trademark conventions. It is a member of the World Intellectual Property Organization. Generally, the government seeks to honor intellectual property ownership and rights, although there are serious doubts about its ability to enforce these obligations due to a lack of expertise and manpower. Pirating of videos and computer software is common.

The judiciary generally upholds the sanctity of contracts between private companies. In the case of contracts involving the government or politically influential individuals, however, judgments sometimes appear biased.

Transparency of the Regulatory System

The government's officially stated policy is to encourage competition within the private sector. But bureaucratic functions of regulatory agencies lack transparency, and corruption within the regulatory system is increasingly worrisome.

The adoption of the multi-currency system in 2009 stabilized prices and removed the need for price controls. Consequently, the government no longer controls prices of goods and services. Nevertheless, the National Incomes and Prices Commission still exists to monitor price developments at home relative to those in the region.

Efficient Capital Markets and Portfolio Investment

Zimbabwe's stock market has 79 publicly-listed companies. In September 1996, the government opened the stock and money markets to limited foreign portfolio investment. Since then, a maximum of 40 percent of any locally-listed company can be foreign-owned with any single investor allowed to acquire up to 10 percent of the outstanding shares. Investment on the Zimbabwe Stock Exchange (ZSE) surged in real terms in 2007 and most of 2008, underpinned by undervalued assets and the expectation of imminent political change. Furthermore, foreign investors expected that most companies registered on the ZSE were already compliant with the new Indigenization Act. The introduction of stringent trading conditions on November 17, 2008, which required all trades to be backed by a letter from a bank confirming the availability of funds, burst the speculative bubble. Between November 20, 2008, and February 19, 2009, there was no trading activity on the exchange. Following dollarization of the economy in March 2009 and the re-opening of the ZSE, trading has been characterized by thin volumes. Moreover, the public stock of many smaller companies is closely held. Yet market capitalization grew substantially from about US$1 billion in February to around US$4.1 billion by the end of December 2009. With uncertainty over implementation of the Indigenization Act however, share values weakened over much of 2010 and market capitalization at the end of the year remained essentially unchanged from 2009.

There is a 1.48-percent withholding tax on the sale of marketable securities, while the tax on buying amounts is pegged at 1.73 percent. At a total of 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 came to an end with the 2009 dollarization, wiped out the value of domestic debt instruments, and the government currently does not issue bonds.

Zimbabwe's severe economic problems drove foreign direct investment (FDI) inflows from US$103 million in 2005 to US$40 million in 2006, according to the World Investment Report compiled by the United Nations Conference on Trade and Development (UNCTAD). Net FDI rose from US$44 million in 2008 to US$60 million in 2009.

Once relatively robust by regional standards, Zimbabwe's financial sector has contracted greatly in recent years as business evaporated. Three major international commercial banks and a number of regional and domestic banks operate with a total of over 200 branches. Following the well-publicized failure of a number of financial institutions in 2003, primarily due to fraud and inept management, Reserve Bank regulations were tightened. Nonetheless, financial institutions have an uncertain future due to liquidity constraints arising from low foreign currency inflows and lack of a deep local money market. In Zimbabwe's dollarized economy and due to the effects of hyperinflation, the RBZ does not have the resources to act as lender of last resort for the banking system. Total bank deposits rose from just US$300 million in February 2009 to US$2.3 billion by September 2010. On average, banks in Zimbabwe lend around 62 percent of their deposits. This is significantly lower than the regional average of 75 percent, mainly due to banks' concerns about volatility of deposits and the absence of an interbank lending system.

Competition from State-Owned Enterprises (SOEs)

Zimbabwe has 76 SOEs. Many SOEs support vital infrastructure—for energy and transportation, for example—so that competition within the sectors where SOEs operate tends to be limited. However, the GOZ is now inviting private investors to participate in infrastructural projects through public-private partnerships. Most SOEs have performed poorly in recent years due to lack of maintenance and investment, thereby imposing significant costs on the rest of the economy. Corruption is endemic among SOEs, with senior management appointed by politicians primarily from retired army personnel and staffs bloated with redundant employees. Further, almost all SOEs are under-capitalized because the government lacks financial resources. Most SOEs are saddled with debts accumulated through unsustainable, GOZ-imposed pricing models designed to benefit consumers. The state-owned Grain Marketing Board, for example, has for years purchased grain locally at above-market prices and sold it at a significant loss.

Until the advent of the coalition government in February 2009, most SOEs operated without a board of directors. Most do not produce financial accounts on time. Of the 76 SOEs, 44 have not submitted audited financial statements or held annual general meetings over the past five years as required by law. Poor management and the GOZ’s failure to privatize made Zimbabwe’s SOEs dependent on subsidies.

Corporate Social Responsibility

According to an industrial advocacy group, the Confederation of Zimbabwe Industries, there is a general awareness of corporate social responsibility among producers. The organization has developed its own charter according to OECD guidelines, highlighting good corporate governance and ethical behavior. Firms that demonstrate corporate social responsibility do not automatically get favorable treatment. However, with regard to indigenization, foreign companies may be able to earn credits for community-service activities.

Political Violence

Political parties and civil-society groups that oppose ZANU-PF and President Mugabe routinely encounter state-sponsored intimidation and repression from government security forces and ZANU-PF activists. This environment persisted even after the main opposition party, the Movement for Democratic Change (MDC), joined ZANU-PF in a transitional unity government in February 2009. Individuals and companies out of favor with ZANU-PF routinely suffer harassment and bureaucratic obstacles in their business dealings. On occasion, domestic businesspeople out of favor with the government have been incarcerated for allegedly engaging in illegal business practices.

Despite widespread dissatisfaction with government policy, there have been no large-scale demonstrations. Sporadic cases of looting by soldiers and small-scale demonstrations have occurred in recent years. The disappearance of ammunition and weapons from a government armory in October 2009 resulted in a number of soldiers and MDC supporters being arrested and charged with theft.


There is widespread corruption in government. Implementation of the government's ongoing redistribution of expropriated commercial farms has substantially favored the ZANU-PF elite and lacks transparency.

In 2005 the government enacted an Anti-Corruption Act that established a government-appointed Anti-Corruption Commission to investigate corruption; however, it includes no members from civil society or the private sector. The Ministry of State Enterprises, Anti-Monopolies, and Anti-Corruption was also established to oversee and coordinate the government's efforts to combat corruption; however, government officials and police lack sufficient political backing at senior levels of the government to investigate cases effectively. The government prosecutes individuals selectively, focusing on those who have fallen out of favor with ZANU-PF and ignoring transgressions by members of the favored elite.

Although the inclusive government formed in February 2009 intended to enhance the institutional capacity of the Anti-Corruption Commission, its members have not yet been appointed. The government has, however, improved accountability in the use of state resources through the introduction of the Public Finance Management Act in March 2010.

Bilateral Investment Agreements

The U.S. has no bilateral investment or trade treaty with Zimbabwe. Zimbabwe has investment treaties with 17 countries; only six of these treaties (with the Netherlands, Denmark, Germany, South Korea, South Africa, and Switzerland) have been ratified. 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 a farm belonging to a German national was seized by an army officer and the government did not intervene, despite its assurance that Zimbabwe would honor all obligations and commitments to international investors.

OPIC and Other Investment Insurance Programs

The U.S. Government and Zimbabwe concluded an OPIC agreement in April 1999. Zimbabwe acceded to the World Bank's Multilateral Investment Guarantee Agency (MIGA) in September 1989. Support from the Export-Import Bank of the U.S. is not available in Zimbabwe. Many other major donor countries have also suspended their trade finance and export promotion programs, as well as investment insurance, due largely to Zimbabwe's mounting multilateral and bilateral debt arrears and deteriorating investment climate.


Zimbabwe's interconnected economic and political crises prompted many of the country's most skilled and well educated citizens to emigrate, leading to widespread labor shortages for managerial and technical jobs. At the same time, the decade-long severe contraction of the economy caused formal sector employment to drop significantly. Meaningful unemployment statistics are not available, however. Independent analysts estimate that only about 700,000 people, or roughly 7 percent of Zimbabwe's population, are employed in the formal sector. As noted above, foreign investors are encouraged to hire local nationals.

The country's HIV/AIDS epidemic is also taking a heavy toll on the workforce. The government estimated in 2009 that 13.7 percent of adults were infected with HIV.

The government is a signatory to International Labor Organization (ILO) conventions protecting worker rights, although the world body has designated Zimbabwe as a "notorious country" for its continued attempts to limit workers' right to organize and hold labor union meetings. The 1985 Labor Relations Act set strict standards for occupational health and safety, but enforcement is fairly lax and inconsistent across the industrial sectors. In November 2008 an ILO-appointed commission found Zimbabwe in breach of ILO Conventions 87 and 98. The new Minister of Labor promised to implement all the ILO’s recommendations relating to freedom of association and protection of the right to organize as well as the right to collective bargaining.

Collective bargaining takes place through a National Employment Council (NEC) in each industry, comprising representatives from labor, business, and government. In addition, the Zimbabwe Congress of Trade Unions (ZCTU), the country's umbrella labor organization, advocates for workers' rights.

A Tripartite Negotiating Forum (TNF) was established in 2001 for labor, business, and government to tackle macro-social issues. These talks have been fitful and unproductive since their inception. A continuing impasse for the TNF is disagreement between business and labor over indexing wages to a measure of poverty. But no suitable measure currently exists.

The government continues to harass labor unions and their leaders. In May 2008, prior to the presidential run-off in June, police arrested leaders of the ZCTU for "spreading falsehoods prejudicial to the state." In November 2009, the ZCTU president and four union members were arrested for allegedly violating the Public Order and Security Act by holding consultative meetings with workers without police permission even though trade unions are exempt from seeking police authority. Under Zimbabwe labor law, the government can intervene in the ZCTU's internal affairs if it determines that the leadership is not acting in the workers' interest. To undercut the strength of the ZCTU, the government created an alternative umbrella organization, the Zimbabwe Federation of Trade Unions (ZFTU), after ZANU-PF fared poorly in the 2000 parliamentary elections. Outside of the government, however, the ZFTU is not regarded as a legitimate labor organization. The ZCTU remains the voice of labor in Zimbabwe and the country's official and internationally recognized labor organization.

Foreign Trade Zones/Free Trade Zones

The government promulgated legislation creating Export Processing Zones (EPZs) in 1996. Zimbabwe now has 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 been completed and the new institution—the Zimbabwe Investment Authority—now serves as a one-stop shop for both local and foreign investors.

Foreign Direct Investment Statistics

Net Direct Investment Flows 2000-2008 (US$ million)





















Source: UNCTAD, World Investment Report 2010