Investment Climate Statements for 2016 - Zimbabwe

Executive Summary

While the government of Zimbabwe has implemented a number of measures since 2009 designed to attract foreign direct investment (FDI), many of its macroeconomic policies, such as the indigenization and economic empowerment laws, are significant deterrents. The country’s commitment to the use of the multicurrency monetary regime, under which the U.S. dollar dominates most transactions, continues to stabilize and restore business confidence in the economy as it removes the exchange-rate risk associated with the use of domestic currencies.

In addition, Zimbabwe’s successful completion of the International Monetary Fund (IMF) fifteen-month Staff-Monitored Program (SMP) acted as a useful anchor for implementation of more sound macroeconomic policies. Zimbabwe also has a number of incentives designed to attract FDI, including tax breaks for new investment by foreign and domestic companies and allowing capital expenditures on new factories, machinery, and improvements to be fully tax deductible. The government also waives import taxes and surtaxes on capital equipment.

In spite of these positive developments, the country still needs to implement a comprehensive economic reform program designed to address the debt burden and attract foreign financial inflows at concessionary rates. In addition, corruption is rife and there is little protection of property rights, particularly with respect to agricultural land. The government routinely expropriates land without compensation. Moreover, the inconsistent application of “indigenization” regulations, which sets minimum ownership levels by black Zimbabweans of enterprises valued over $500,000 at 51 percent in most economic sectors, continues to discourage investment.

Zimbabwe’s arrears in payments to international financial institutions and high external debt overhang of over $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. As a result of these negative factors, Zimbabwe generally ranks poorly in global comparisons of economic competitiveness.

Table 1

Measure	Year	Index or Rank	Website Address
TI Corruption Perceptions index	2015	150 of 175	transparency.org/cpi2015/results
World Bank’s Doing Business Report “Ease of Doing Business”	2015	155 of 189	doingbusiness.org/rankings
Global Innovation Index	2015	133 of 143	globalinnovationindex.org/content/page/data-analysis
U.S. FDI in partner country ($M USD, stock positions)	N/A	N/A	N/A
World Bank GNI per capita	2014	USD 680	data.worldbank.org/indicator/NY.GNP.PCAP.CD

Millennium Challenge Corporation Country Scorecard

The Millennium Challenge Corporation, a U.S. Government entity charged with delivering development grants to countries that have demonstrated a commitment to reform, produced scorecards for countries with a per capita gross national income (GNI) of $4,125 or less. The most recent scorecard for Sri Lanka is available here: http://www.mcc.gov/pages/selection/scorecards. Details on each of the MCC’s indicators and a guide to reading the scorecards are available here: http://www.mcc.gov/pages/docs/doc/report-guide-to-the-indicators-and-the-selection-process-fy-2015.

1. Openness To, and Restrictions Upon, Foreign Investment

Attitude toward Foreign Direct Investment

The government’s policies reflect the need to attract greater FDI in order to improve the country's competitiveness, even if those policies are not fully supported in practice. 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. The statements and actions of many senior government officials, however, are inconsistent with the desire to attract FDI and undermine investor confidence.

Despite extremely difficult economic conditions over the past decade, some U.S. companies have maintained subsidiaries in Zimbabwe. Other U.S. companies prefer to sell their products locally through certified dealers. Following commitment to implement limited economic reforms under the International Monetary Fund’s (IMF) staff monitored programs (SMP) between 2013 and 2015, Zimbabwe witnessed a progressive increase in net FDI from $373 million in 2013 to $473 million in 2014, a figure which falls well short of its neighbors in the region.

In 2007, the government passed the Indigenization and Economic Empowerment Act, which requires that "indigenous Zimbabweans" (i.e. black Zimbabweans) own at least 51 percent of all enterprises valued over $500,000. 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. Application of the Indigenization Act is inconsistent, resulting in many questions regarding compliance with the Act.

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).

Laws/Regulations on Foreign Direct Investment

As noted above, the Indigenization and Economic Empowerment Act requires that "indigenous Zimbabweans" (black Zimbabweans) own at least 51 percent of all enterprises valued over $500,000. 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. Application of the Indigenization Act is inconsistent, resulting in many questions regarding compliance with the Act. Moreover, there has been repeated executive interference in cases that have political overtones in.

Business Registration

Zimbabwe does not have an online registration process. 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 http://www.investzim.com/. The country encourages companies to register with ZIA and the process currently takes 90 days.

The country defines micro, small and medium-sized enterprises (MSMEs) as businesses with turnover ranging from one dollar to $999,999. As a special tax incentive, MSMEs may be eligible for 100 percent special initial allowance (SIA) on qualifying capital assets over a period of four years at 25% per year.

Industrial Promotion

The government, through ZIA, encourages investment in a number of sectors including agribusiness, energy and mining, food processing and packaging, health technologies, industrial equipment and supplies, manufacturing industries, textiles, apparel and sporting goods. The information is available on ZIA's website at: http://www.investzim.com/

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 is limited to 49 percent (or less in certain sectors), as outlined above..

Zimbabwean law guarantees the right to private ownership although the government has increasingly ignored this right in practice. Since 2000, the government has seized thousands of private farms and conservancies, including those belonging to Americans and other foreign investors, without due process or compensation. Most of these property owners held ZIA investment certificates and purchased their land for fair market value after Zimbabwe’s independence in 1980. Despite repeated U.S. advocacy, the government has not addressed the expropriation of property belonging to U.S. citizens.

Privatization Program

Since the start of the privatization program of its 76 state-owned enterprises (SOEs) in the 1990s, the government has only successfully privatized two parastatals. The government established a ministry responsible for state-owned enterprises in 2009 but disbanded it in 2013. Inter-SOE debts of nearly $1 billion pose challenges for privatization plans because they further weaken the entities’ balance sheets. In addition, lack of political will and the enterprises' operational inefficiencies make it unlikely that privatization will accelerate in the near term.

Screening of FDI

The country screens FDI through the Zimbabwe Investment Authority (ZIA) in liaison with line ministries to confirm compliance with the country's investment and indigenization regulations. Once ZIA criteria are met, it issues the company or entity with an investment certificate.

A foreign investor wishing to establish a business in Zimbabwe requires an investment license issued by the Zimbabwe Investment Authority (ZIA) as defined by the ZIA Act and must obtain operating permits from relevant government agencies. In addition, the foreign investor must satisfy the previously described sector-based indigenization requirements. This is the only formal screening of FDI. Investment into an existing company requires the approval of the Exchange Control Authority of the Reserve Bank of Zimbabwe (RBZ). The government's priority sectors for foreign investment are agriculture, construction, building and heavy equipment, automotive and ground transportation, chemicals, petrochemicals, plastics and composites, energy and mining, industrial equipment and supplies, metal manufacturing, and products and textiles, apparel and sporting goods.

Competition Law

The government's official policy is to encourage competition within the private sector with the enactment of 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.

2. Conversion and Transfer Policies

Foreign Exchange

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 demonetized the Zimbabwe dollar. The RBZ now permits 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 is recovering slowly, but the government's arrears on over $10 billion in external debt 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 bank depositors prior to official dollarization in 2009.

Remittance Policies

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. With these changes and the liberalization of most current account transactions, exporters now retain 100 percent of their foreign currency receipts for their own use. In addition, foreigners can remit capital appreciation, dividend income and after tax profits without exchange control approval.

Zimbabwe is a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG). The country still awaits the results of the 2014 Financial Action Task Force (FATF) assessment of Zimbabwe's compliance with the international standards on money laundering and terrorism financing, and the authorities believe that the results will be positive.

3. Expropriation and Compensation

Despite provisions in Zimbabwe's previous constitution that prohibit the acquisition of private property without compensation, in 2000 the government began to sanction uncompensated seizures of privately owned agricultural land, serially amending the constitution to grant the government increasingly broad authorities to do so after the fact. The authorities subsequently transferred many of the farms seized to government officials and other regime supporters. In April 2000, the government 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 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 farms. These leases, however, are not readily transferable. The government retains the right to withdraw the lease at any time for any reason. The government's program to seize commercial farms without compensating 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. As a result, Zimbabwe ranked 87 out of 189 countries considered with respect to the country's ability to protect minority investors in the World Bank's 2015 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 required 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. The 2008 legislation directs a transfer of 25 percent of the shares in precious metals and precious stones to the state without compensation and a further 26 percent to the state or to indigenous Zimbabweans. The government is still deliberating amendments to the Mines and Minerals Act, which may include a “use it or lose it” provision for unexploited mining concessions and new “indigenous” ownership requirements in the sector in line with the Indigenization Act. In addition, the government intends to amend the provisions of the Precious Stones Trade Act relevant to diamonds to enforce, among other things, 100 percent government ownership of all alluvial diamonds in the ground, immediate separation of diamond mining and marketing activities, and the promotion of value addition through the prohibition of exports of unpolished diamonds.

4. Dispute Settlement

Legal System, Specialized Courts, Judicial Independence, Judgments of Foreign Courts

According to law, Zimbabwe has an independent judicial system whose decisions are binding on the other branches of government. There are no specialized commercial courts in the country. Administration of justice in commercial cases that lack political overtones is still generally impartial. As government revenue declined, however, court resources have dwindled and dockets have become backlogged. In practice, the executive threatens judicial independence in cases that have political overtones through continuous interference in the decisions of the local courts. Politicians sometimes interfere in decisions of foreign courts that are considered unfavorable to Zimbabwe’s interests. 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.

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. Most disputes take months if not years to resolve.

Bankruptcy

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 148 out of 189 economies in the World Bank’s 2015 Doing Business Report.

Investment Disputes

A group of Dutch farmers who lost their land under the “fast track land reform” program of the 2000s took their case to the International Centre for the Settlement of Investment Disputes in April 2005 demanding that Zimbabwe honor its investment agreement with the Netherlands. At a hearing in Paris in November 2007, the tribunal issued a verdict favorable to the farmers. Although the Zimbabwean government acknowledged the debt owed to the farmers with respect to payment of compensation for the expropriated land, it disputed the amount the farmers claimed in damages.

In 2008, a three-judge panel of the SADC Tribunal in Namibia ruled 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 refused to recognize the ruling and in September 2009 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 Zimbabwean government argued that it had not ratified the protocol establishing the Tribunal. The SADC Summit meeting of August 2010 endorsed this position and dissolved the Tribunal in early 2012.

In 2010, a South African High Court attached a Zimbabwe government-owned property in Cape Town to satisfy the Tribunal’s order, but the Zimbabwean government appealed to the South African Supreme Court. On September 20, 2012, however, the South African Supreme Court ruled in favor of granting the sale proceeds of the government of Zimbabwe’s seized property to the Zimbabwean farmer as compensation for seizure of his farm.

International Arbitration

The United States does not have a bilateral investment treaty with Zimbabwe. 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 the protection typically provided by a bilateral investment treaty.

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.

Duration of Dispute Resolution – Local Courts

Most disputes take years to resolve. Local courts lack funding and other resources necessary to hear cases in a timely manner.

5. Performance Requirements and Investment Incentives

WTO/TRIMS

Zimbabwe has been a member of the World Trade Organization (WTO) since March 5, 1995. A 2011 report by the WTO on the country’s trade policies and practices concluded that Zimbabwe needed to improve its business environment. The WTO cited governance issues and recommended further liberalization of the Zimbabwean trade regime with a view to attracting foreign investment. The review also noted that enhancement of and full compliance with multilateral commitments would increase the credibility of the regime and make it more predictable.

Investment Incentives

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 do not pay tax in the first five years after which they pay tax at the rate of 25 percent compared to the normal tax rate of 35 percent. For joint ventures in the form of the build, own, operate and transfer (BOOT) and build operate and transfer (BOT), investors do not pay tax for the first five years after which they pay tax at the rate of 15 percent per annum. Investors within the mining sector exporting 50 percent of output have reduced corporation tax of 20 percent and receive import duty exemption on imported capital goods.

Research and Development

Due to financial constraints, the government does not subsidize research and development programs on a national level.

Performance Requirements

There are no general performance requirements for businesses located outside Export Processing 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.

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.

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.

Data Storage

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 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.

6. Protection of Property Rights

Real Property

The government enforces interests in residential and commercial properties in cities although this is not the case with agricultural land. Mortgages and liens do exist for urban properties although liquidity constraints have led to a fall in the number of mortgage loans. According to the World Bank's 2015 Doing Business Report, Zimbabwe is ranked 94 out of 189 countries in terms of registering property. The recording of mortgages is generally reliable. With regard to agricultural land, the government provides and protects use rights of indigenous people and it is currently in the process of developing new 99-year leases that will guarantee use, with the government retaining ownership of all agricultural land.

Intellectual Property Rights

Zimbabwe applies international patent and trademark conventions, and it is a member of the World Intellectual Property Organization. Generally, the government seeks to honor intellectual property ownership and rights, although a lack of expertise and manpower and rampant corruption limit its ability to enforce these obligations. Pirating of videos, music, and computer software is common.

It does not appear that the government enacted new IP related laws or regulations over the past year. The country does not publish information on the seizures of counterfeit goods.

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/.

Resources for Rights Holders

Contact at U.S. Embassy Harare

Name: Christopher Corkey
Title: Economic and Commercial Officer
Telephone Number: +263-4-250-593
Email Address: CorkeyCT@state.gov

7. Transparency of the Regulatory System

The government's official policy is to encourage competition within the private sector, but the bureaucracy within regulatory agencies lacks transparency, and corruption within the regulatory system is believed to be rampant.

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 (NIPC) still monitors trends in domestic prices relative to those in the region. The NIPC raised concerns over the decision by private schools to raise fees for 2012 without clearance from the government.

The government introduces import taxes arbitrarily to support certain inefficient producers who continue to lobby for protection against more competitive imports. In late 2012, the Ministry of Finance announced a 25 percent surtax on selected imported products including soaps, meat products, beverages, dairy products, and cooking oil starting January 1, 2013 as well as other import taxes on beer, cigarettes, and chickens brought in from outside the Southern African Development Community (SADC) and the Common Market for Eastern and Southern African regions (COMESA).

It is not apparent that nongovernmental organizations or private sector associations manage informal regulatory processes.

8. Efficient Capital Markets and Portfolio Investment

Zimbabwe's stock market currently has 58 publicly-listed companies, but just 17 of them account for over 80 percent of total market capitalization, which stood at $2.8 billion on March 8, 2016. 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 came to an end with the 2009 dollarization, wiped out the value of domestic debt instruments, and the government has only recently restarted issuing Treasury Bills.

According to the World Investment Report compiled by the United Nations Conference on Trade and Development (UNCTAD), Zimbabwe's net foreign direct investment (FDI) rose slightly from $373 million in 2013 to $473 million in 2014. This resulted from implementation of positive reforms under the IMF’s SMP between 2013 and 2015.

Three major international commercial banks and a number of regional and domestic banks operate in Zimbabwe, 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, the RZB tightened regulations. Nonetheless, financial institutions have an uncertain future due to the reluctance of citizens to trust their deposits to banks and an increase in bad loans on bank balance sheets. During the beginning of 2015, two local institutions surrendered their banking licenses to the RBZ while a third was placed under curatorship by the central bank. The central bank cancelled the banking license of fourth locally-owned bank in 2013. During the last quarter of 2015, the Reserve Bank licensed four financial institutions and two of these started operating in January 2016. As a result of Zimbabwe's dollarized economy and the effects of hyperinflation, the RBZ did not have the resources to act as lender of last resort for the banking system between 2009 and 2013. In early 2014, however, the central bank received a $200 million injection from the African Export Import Bank (Afrexim Bank) to revitalize Zimbabwe’s inter-bank lending market under the Afreximbank Trade Debt Backed Securities (AFTRADES). The facility supported banks to the tune of $178.8 million as at the end of December 2015.

Money and Banking System, Hostile Takeovers

The 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 of December 2015, the sector had 18 operating institutions, comprising 13 commercial banks, one merchant bank, three building societies and one savings bank. All operating banking institutions except the merchant bank complied with the prescribed minimum core capital requirements. The level of non-performing loans improved somewhat from just over 20 percent in September 2014 to 10.87 percent by December 2015 largely due to a general improvement in credit management and the selling of qualifying bad assets to the Zimbabwe Asset Management Company, set up to cleanse banks’ balance sheets through acquisition and restructuring of non-performing loans.

According to the central bank, the total deposits (excluding interbank deposits), rose from $4.4 billion in December 2014 to $5.6 billion by December 2015. Demand deposits accounted for 46.2 percent of the total while time deposits accounted for 33.8 percent.

The central bank received a $200 million injection from the African Export Import Bank (Afrexim Bank) to revitalize Zimbabwe’s inter-bank lending market which started operating on March 23, 2015 (see above).

9. Competition from State-Owned Enterprises

Zimbabwe has 76 state-owned enterprises (SOEs), defined as companies wholly-owned by the state. Many SOEs support vital infrastructure, including energy, mining, and agribusiness. As a result, competition within the sectors where SOEs operate tends to be limited. However, the government of Zimbabwe (GOZ) invites private investors to participate in infrastructure projects through public-private partnerships (PPPs). Most SOEs have public function mandates, although in more recent years, they perform hybrid activities of satisfying their public functions while making profits.

Zimbabwe does not appear to subscribe to the Organization for Economic Cooperation and Development (OECD) guidelines on corporate governance of SOEs. SOEs operate under the same taxes and same value added tax rebate policies as private sector companies. The SOEs face a number of challenges that include persistent power outages, mismanagement, lack of maintenance, inadequate investment, a lack of liquidity and access to credit, and debt overhangs. As a result, the SOEs have performed poorly in recent years. Few SOEs produce publicly available financial data and ever fewer audited financial data. This has imposed significant costs on the rest of the economy.

OECD Guidelines on Corporate Governance of SOEs

The government wholly owns the SOEs and they report through the responsible line ministers. Until February 2009, most SOEs operated without boards of directors. Poor management and the GOZ’s failure to privatize SOEs rendered them almost entirely dependent on subsidies. Following the inclusive government in 2009, each SOE has had an independent board of directors. Normally, responsible line ministers appointment the boards on the basis of political considerations. Currently, there is no existing corporate governance code to guide the operations of these companies, giving rise to cases of abuses and malpractices at a number of these entities. The corporate governance challenges prevalent in Zimbabwe are on disclosure, ethical conduct, remuneration practices, conflict of interest, shadow directors and multi/cross directorships.

Sovereign Wealth Funds

Zimbabwe does not have a sovereign wealth fund (SWF). The government set aside US$1 million toward administrative costs related to the setting up of the Sovereign Wealth Fund in its 2016 Budget. The government proposes to capitalize the SWF through a charge of up to 25% on royalty collections on mineral sales, as well as on special dividend on the sale of diamond, gas, granite and other minerals.

10. Responsible Business Conduct

Following dollarization in 2009, there is 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 which drive 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) but it has made little progress in implementing the initiative.

11. 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-linked activists. This environment persisted even during the period of the coalition government when the main opposition parties, the Movement for Democratic Change-Tsvangirai (MDC-T) and the Movement for Democratic Change-Ncube (MDC-N), joined ZANU-PF in a Government of National Unity (GNU) from February 2009 to June 2013. Individuals and companies out of favor with ZANU-PF routinely suffer harassment and bureaucratic obstacles in their business dealings.

Despite perceived widespread dissatisfaction with government policy, there have not been large-scale demonstrations since the July 2013 general elections. Disagreements between and within political parties occasionally resulted in violence targeting political party members. In December 2013, customers broke the windows at a bank branch which had run out of funds to distribute to depositors. Such violence is sporadic.

12. Corruption

In 2005, the government enacted an Anti-Corruption Act that established a government-appointed Anti-Corruption Commission (ACC) to investigate corruption. However, the ACC did not include any members from civil society or the private sector. The government of national unity (GNU) enhanced the institutional capacity of the ACC with members appointed from civil society and the private sector. However, when the ACC’s term of office expired, the new ACC did not include civil society and private sector representatives. 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. Accusations of corruption are used a political tool but seldom result in formal charges and convictions.

While the laws to combat corruption exist, enforcement of the laws is weak as the law enforcement agencies lack the political will and resources to do their job effectively. As a result, Transparency International ranked Zimbabwe 150 out of 175 countries and territories surveyed in 2015.

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. In spite of this, corruption is still endemic, especially within the diamond sector where production and export figures are largely unreliable. In this respect, 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.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

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

Although Zimbabwe's Constitution allows for the establishment of the Zimbabwe Ant-Corruption Commission, it is currently not constituted.

Contact at watchdog organization:

Name: Transparency International Zimbabwe
Address: 96 Central Avenue
PO Box CY 434, Causeway
Harare
Telephone Number: +263-4-793 247/77
Email Address: nfo@tizim.org

13. Bilateral Investment Agreements

Bilateral Taxation Treaties

The United States has no bilateral investment or trade treaty with Zimbabwe. Zimbabwe has investment treaties with 17 countries but ratified only seven of these treaties (with the Netherlands, Denmark, Germany, South Korea, South Africa, Botswana, and Switzerland). Three other investment agreements with Russia, 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.

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.

14. OPIC and Other Investment Insurance Programs

The U.S. government and Zimbabwe concluded an OPIC agreement in April 1999 which permits OPIC to conduct transactions in Zimbabwe. Zimbabwe acceded to the World Bank's Multilateral Investment Guarantee Agency in September 1989. Support from the Export-Import Bank of the United States is not available in Zimbabwe. Finance and export promotion programs, as well as investment insurance offered through the international financial institutions, remain limited due largely to Zimbabwe's mounting multilateral and bilateral debt arrears and deteriorating investment climate.

15. Labor

Zimbabwe's interconnected economic and political crises from 1998 through 2008 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. The Zimbabwe Statistical Agency (Zimstat) began to compile meaningful employment statistics in 2010. According to these figures, Zimbabwe’s non-farm employment rose from 721,000 in December 2011 to 802,000 in June 2012 (the latest date for which official data are available). Anecdotal evidence shows widespread youth unemployment as the country continues to churn out graduates without any meaningful employment growth. As a result, most end up joining the informal sector estimated at over 90 percent of the workforce.

Although the country's HIV/AIDS epidemic had previously taken a heavier toll on the workforce, in 2014, 15 percent of adults were living with HIV/AIDS.

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. 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 termination of contract 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 any sector tend to use temporary or contract workers because it is easy to lay them off as there is no need to follow termination procedures. The employee will only wait for the expiry of the agreed period of the contract ranging from 3 months renewed occasionally. 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.

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.

The ZCTU called for a demonstration on August 8, 2015 to protest against massive job losses as a result of the Supreme Court decision allowing employers to terminate contracts of employment on three-month notice under the common law. The police banned the activity and riot police camped at ZCTU offices for a week, preventing workers from gathering and accessing union offices. Following the ZCTU appeal to the High Court on August 22, 2015, the demonstration went ahead.

Labor inspection is very minimal and there is discrimination in practice. The government continues to harass labor unions and their leaders. In December 2012, for example, the police arrested two ZCTU officials for allegedly holding an unsanctioned protest march to celebrate Human Rights Day in the city of Bulawayo, even though the police had sanctioned it beforehand. Under Zimbabwe labor law, the government can intervene in ZCTU's internal affairs if it determines that the leadership is misusing funds.

The government enacted some amendments to the labor act in 2015 to compel employers who dismissed workers from July 2015 as a result of the Supreme Court judgment to pay retroactive compensation. While employers are unhappy with such a provision, trade unions are somewhat pleased with the decision. But the compensation is limited to one month salary for each two years of service or a share thereof. It violates trade union and employers’ right to freedom of association by giving power to the Minister to investigate and appoint administrators in situations where there is alleged mismanagement of the trade union.

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.

16. 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 been completed and the new institution—ZIA—now serves as a one-stop shop for both local and foreign investors. Zimbabwe is currently in the process of amending the Zimbabwe Investment Authority Act to include Special Economic Zones. However, to date, activities in special economic zones overall have not been meaningful.

17. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy

	Host Country Statistical source*		USG or international statistical source		USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Economic Data	Year	Amount	Year	Amount
Host Country Gross Domestic Product (GDP) ($M USD)	2014	$14,171	2014	$14,196	www.worldbank.org/en/country
Foreign Direct Investment	Host Country Statistical source*		USG or international statistical source		USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions)	2013	N/A	2013	(D)	http://bea.gov/international/direct_investment_ multinational_companies_comprehensive_data.htm
Host country’s FDI in the United States ($M USD, stock positions)	2013	N/A	2013	N/A	http://bea.gov/international/direct_investment_ multinational_companies_comprehensive_data.htm
Total inbound stock of FDI as % host GDP	2014	N/A	2014	3.8	N/A

* Zimbabwe National Statistical Agency

Table 3: Sources and Destination of FDI

Data not available for Zimbabwe.

Table 4: Sources of Portfolio Investment

Data not available for Zimbabwe.

18. Contact for More Information

Name: Joseph Muzulu
Title: Economic Specialist
Address: U.S. Embassy Harare, 172 H. Chitepo Avenue, Harare
Telephone Number: +236 4 250 593
Email Address: muzuluj@state.gov

ecoi.net description:: Annual report on investment climate, incl. information on legal and regulatory system, political violence, corruption, labour and economic issues, etc. (as of March 2016)

Country:: Zimbabwe
Source:: USDOS – US Department of State (Author)
Published:: 5 July 2016
Original link:: http://www.state.gov/e/eb/rls/othr/ics/2016/af/254261.htm
Document type:: Periodical Report
Language:: English
Document ID:: 1078049 (former ID 332441)