Zimbabwe mulls new Investment Bill
Zimbabwe is enacting a new Investment Bill in the next 100 days to do a legislative make-over of its investment profile, but the provisions being proposed fall too short of what the country requires to effectively regulate foreign and domestic investments.
The proposed legislation – still at a preliminary stage – adds to the inclusive government’s string of investment promotion measures engendered since its formation in February last year, including agreeing bilateral investment treaties (BIT) with potential sources of foreign direct investment (FDI).
It principally aims to improve the country’s economic rating and attract the interest of international fund managers, traditionally kept away by its presumed high country risk, according to Tapiwa Mashakada, the new Minister of Economic Planning and Investment Promotion.
“We want to fight our barriers to investment so that the environment is friendly,” Mashakada said.
“The Bill will have incentives that include tax breaks, cuts in fees and turnaround times, profit remittances, duties and obligations for investors. It will also include section propriation.”
Zimbabwe bases its recovery on an autonomous inflow of FDI – a key component of economic growth – and targets raising its contribution to gross domestic product (GDP) to about 30% by 2013 from under 10% last year.
Despite notable improvement in key indicators, the country is still rated unfavourably under the World Bank/International Finance Corporation (IFC)’s Doing Business Report and the World Economic Forum (WEF)’s Global Competitiveness Index, two of the world’s most widely followed gauges of economic competitiveness.
The 2010 Doing Business Report ranked the country 159 out of the 183 economies surveyed, one step up from 2009 when the sample was two countries smaller, citing persistent concerns over institutional barriers related to trade and investment. The country currently sits among the world’s worst economies in terms of protecting investors and general ease of doing business. The ranks are an important determinant of the global distribution of FDI.
The proposed legislative changes therefore represent an effort by Zimbabwe policy makers to put these institutional warts and pimples under surgery.
But taking it against what experts recommend for developing countries, the biggest shortcoming of the proposed law lies in its narrow preoccupation with incentives and guarantees for investors to the neglect of safeguard measures and investment remedies for the host country.
“Zimbabwe and other developing countries should not just open up to investment without regulating the investments,” Linda Yueh, a professor with the London School of Economics said, citing the example of China, the world’s third largest economy and fastest growing emerging market.
“In 1979, China undertook market reforms and started attracting FDI. Foreign capital came in to make up for the lack of domestic savings, and by 1992, it constituted about half of investment funds in the country.
The same year China opened to the world.”
“But China did not just open up to trade and investment; it deliberately set out to regulate the investments. It insisted on joint ventures and managed to control FDI. The joint ventures promoted technology and skills transfers that benefited entrepreneurs.
"The local industry learnt from the partnerships. The country loosened the requirement only after the local industry had grown in size and competitiveness.”
“At present, the ratio of FDI has contracted and domestic investment has increased.”
Yuen says China’s investment laws set out to confine FDI strictly to high technology deals and set high thresholds to restrict medium-sized operations, statutorily reserving these for local players.
The regulations also laid out the sectors that were open to FDI, proscribing others, and directed responsible authorities to approve deals with investors with a proven track record only, she said.
These are the kind of provisions that would address Zimbabwe’s industrialisation challenges at the moment.
But in the absence as it were of a comprehensive investment law that seeks to wring benefits out of FDI, the country’s investment authorities since “dollarisation” last year have focused entirely on attracting foreign investment per se, approving deals worth less than $0,5m. These include small grocery retail shops and boutiques for second hand clothes, which have literally crowded out local entrepreneurs.
But the proposed investment law treats these issues as peripheral.
It principally aims to improve the country’s economic rating and attract the interest of international fund managers, traditionally kept away by its presumed high country risk, according to Tapiwa Mashakada, the new Minister of Economic Planning and Investment Promotion.
“We want to fight our barriers to investment so that the environment is friendly,” Mashakada said.
“The Bill will have incentives that include tax breaks, cuts in fees and turnaround times, profit remittances, duties and obligations for investors. It will also include section propriation.”
Zimbabwe bases its recovery on an autonomous inflow of FDI – a key component of economic growth – and targets raising its contribution to gross domestic product (GDP) to about 30% by 2013 from under 10% last year.
Despite notable improvement in key indicators, the country is still rated unfavourably under the World Bank/International Finance Corporation (IFC)’s Doing Business Report and the World Economic Forum (WEF)’s Global Competitiveness Index, two of the world’s most widely followed gauges of economic competitiveness.
The 2010 Doing Business Report ranked the country 159 out of the 183 economies surveyed, one step up from 2009 when the sample was two countries smaller, citing persistent concerns over institutional barriers related to trade and investment. The country currently sits among the world’s worst economies in terms of protecting investors and general ease of doing business. The ranks are an important determinant of the global distribution of FDI.
The proposed legislative changes therefore represent an effort by Zimbabwe policy makers to put these institutional warts and pimples under surgery.
But taking it against what experts recommend for developing countries, the biggest shortcoming of the proposed law lies in its narrow preoccupation with incentives and guarantees for investors to the neglect of safeguard measures and investment remedies for the host country.
“Zimbabwe and other developing countries should not just open up to investment without regulating the investments,” Linda Yueh, a professor with the London School of Economics said, citing the example of China, the world’s third largest economy and fastest growing emerging market.
“In 1979, China undertook market reforms and started attracting FDI. Foreign capital came in to make up for the lack of domestic savings, and by 1992, it constituted about half of investment funds in the country.
The same year China opened to the world.”
“But China did not just open up to trade and investment; it deliberately set out to regulate the investments. It insisted on joint ventures and managed to control FDI. The joint ventures promoted technology and skills transfers that benefited entrepreneurs.
"The local industry learnt from the partnerships. The country loosened the requirement only after the local industry had grown in size and competitiveness.”
“At present, the ratio of FDI has contracted and domestic investment has increased.”
Yuen says China’s investment laws set out to confine FDI strictly to high technology deals and set high thresholds to restrict medium-sized operations, statutorily reserving these for local players.
The regulations also laid out the sectors that were open to FDI, proscribing others, and directed responsible authorities to approve deals with investors with a proven track record only, she said.
These are the kind of provisions that would address Zimbabwe’s industrialisation challenges at the moment.
But in the absence as it were of a comprehensive investment law that seeks to wring benefits out of FDI, the country’s investment authorities since “dollarisation” last year have focused entirely on attracting foreign investment per se, approving deals worth less than $0,5m. These include small grocery retail shops and boutiques for second hand clothes, which have literally crowded out local entrepreneurs.
But the proposed investment law treats these issues as peripheral.
