Mugabe government relaxes rules on foreign-owned firms

In a bid to turn Zimbabwe’s ailing economy around, President Robert Mugabe’s government has ordered amendments to its controversial indigenisation law, which forces foreign-owned companies to cede a majority stake to local investors.

The cabinet this week confirmed that changes would be made to the law introduced in 2008 to make it clearer, more investor-friendly and more flexible in its application to industries ranging from mining to banking and retail.

When the law was first introduced by Mr Mugabe’s Zanu-PF party, which was in a powersharing arrangement at the time with the current opposition, the Movement for Democratic Change, it was touted as a way to uplift ordinary Zimbabweans.

And since then the government has methodically targeted foreign-owned companies in the different economic sectors to comply with the law and cede 51 per cent of their operations to locals.

Patronage system

However, critics of the law accuse Zanu-PF of using it as a way to keep intact the patronage system that enriches Mr Mugabe’s allies, and say only those close to the ruling party ever benefit.

They warn the long-term effect of indigenisation will be akin to the disastrous land reform policy that saw commercial agriculture in the country collapse between 2000 and 2005 after the majority of white-owned farms were forcibly taken from their owners.

In the run-up to the general election Zanu-PF won last year the party claimed its indigenisation policy would help put the economy back into the hands of ordinary Zimbabweans, but the current economic situation appears to have forced an about-turn.

The Zimbabwean economy nearly collapsed in 2008 after violent elections, but a subsequent power-sharing arrangement helped to stabilise things. However, large-scale investment is needed to support the level of economic development needed to create jobs for the near 80 per cent of the working population that is unemployed.

Economic growth fell in 2013 to 3 per cent from 10.6 per cent the year before, and factories are closing down every month. According to the ministry of finance some 15 factories closed last February alone.

Mishandling of economy

In addition, analysts say Zanu-PF believes its poor showing in the 2008 general elections was down to mishandling of the economy over the previous decade. As a result, now that it is back in control the party is determined not to make the same mistake between now and the next general elections in 2018.

On Wednesday finance minister Patrick Chinamasa told parliament the cabinet had decided changes to the indigenisation law would be made over the coming months.

“We want a win-win situation. We are aware that investors don’t come here for charity. They come to make money,” Mr Chinamasa was reported as saying.

The amendments are expected to include allowing foreign investors to recover their initial capital investment, and a return on investment and operational costs before any profit- sharing takes place.

But it is unclear which sectors will benefit from the proposed amendments and whether others will still be subjected to the original law. Earlier this month parliament proposed limiting foreign ownership in banks to 25 per cent.