Towards a new economic order? Zimbabwe looks to the future
Clement M. Ruzengwe, Partner at HLB Zimbabwe
In recent years Zimbabwe has become a byword for hyperinflation and economic misrule – ironic for a country once nicknamed Africa’s breadbasket.
The removal of Robert Mugabe – after thirty-seven controversial years – was welcomed by many in the international community, and the new government has taken steps to attract foreign investment.
A new vision?
Zimbabwe’s new leader, President Emmerson Mnangagwa, assumed power in November 2017. In his inauguration speech, President Mnangagwa announced a new vision for the country’s economy, suggesting a welcome shift toward foreign investment and economic development. For years Zimbabwe has suffered from international isolation due to inability to service its international debts. The President has sought to engage international financial institutions to resolve this issue.
Mnangagwa’s vision is investor friendly, and aimed at businesses both the West and East. This new direction was reiterated in the National Budget Statement presented by on 7 December 2017.
Delivered by the newly reappointed Minister of Finance, Mr Patrick Chinamasa, the Budget Statement was aptly titled: “Towards a New Economic Order”.
There are many reasons to feel optimistic about Mnangagwa’s Zimbabwe, the most important one being the assurances made by the President guaranteeing the security of investments coming into the country. The President has spoken of implementing a set of consistent and transparent policies to make Zimbabwe’s economy a competitive investment destination – embracing the need for the participation of foreign private investment in the domestic economy.
The Budget Statement also clearly highlighted the new Government’s commitment to honour existing Bilateral Investment Promotion and Protection Agreements (BIPPAs). Where there have been violations, the Government has undertaken to engage the respective parties, and reach an amicable position – including paying appropriate compensation in the case of land which had been acquired under BIPPA arrangements. The Government’s willingness to apply the principles of good corporate governance provides further reassurance of the security of investments.
One key reform is the virtual abandonment of Indigenisation laws. The reform of these laws – which prevented foreign investors from holding more than a 49% stake in local companies – has opened up the market favourably. However, Diamond and Platinum mining continue to be covered under the old law. Although there is a reserved sector, reserved for locals, restrictions can be relaxed where the proposed investment meets certain criteria, such as employment creation.
One of the most important features of the National Budget was the expansion and acceleration of pre-existing “Ease of Doing Business” reforms – coupled with a commitment to make them more practical and relevant. An undertaking was also made to fast-track the amendment of certain laws – including the Deeds Amendment Bill, Shop Licencing Amendment Bill, and Public Sector Governance Bill – designed to make it easier to do business and invest.
The Minister acknowledged the uncompetitive cost structure of the local industry in comparison with the Southern Africa Development Cooperation (SADC) region. The Government intends to bring the cost structure into line with the region, making the country’s exports more competitive.
The Government is also committed to enhancing the effectiveness of its One Stop Shop Investment Centre by introducing on-line services.
Public Sector Enterprises have been the bane of Zimbabwe’s economy, and a drain on scarce resources. The government intends to prioritise public sector enterprise reforms.
Corruption has also been an albatross around the economy’s neck. The President has made his intention to stamp out corruption very clear, and a number of high profile arrests have been made. A three-month moratorium has been announced for those who illegally externalised cash and other assets to make arrangements to return them. Those who do not comply will be prosecuted. A tax amnesty running from 1 January to 30 June 2018 has also been announced to encourage compliance.
Recently the country introduced Special Economic Zones (SEZs), complete with certain investment incentives, to promote economic development. With the assistance of interested development partners the Government now intends to move ahead and develop the required basic infrastructure to operationalize these SEZs.
A number of taxation incentives were announced by the Minister Chinamasa in his budget, and are being considered by Parliament for finalisation. These include:
- A price discount on diamonds sold to domestic companies engaged in socially beneficial activities, and a reduction in ground rental fees from $3,000 to $225 per hectare for diamond mining companies
- Duty rebates on a number of industries and imports. These include cement manufacturing, and the furniture, dairy, textile and clothing industries, soap manufacturing and the tourism sector.
- A five-year tax holiday for investments in power generation and income tax rate of 15% thereafter.
In addition, a number of tax treaties are in place to prevent double taxation and provide for preferential tax rates. Treaties have been agreed with the United Kingdom, Germany, France, Sweden, the Netherlands, South Africa, Bulgaria, Poland, Malaysia, Canada and Mauritius. More have been negotiated but are yet to come into force.
Zimbabwe is ready for foreign investment. Although infrastructure is run down, it is worth noting that it is in place and all that is required is to upgrade it. Zimbabwe is home to a large, literate workforce, yearning to be productive. Zimbabwe abounds with vast quantities of untapped resources and offers a plethora of opportunities in mining, infrastructure development, tourism and agriculture, to name just a few. This, combined with the investor friendly pronunciations and budget statement, provides foreign investors with virtually unlimited options.
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