Government yesterday made a major U-turn on the indigenisation policy by exempting foreign investors from a requirement to cede 51% of their stakes to locals.
Presenting the Mid Term Fiscal Policy Statement, Finance minister Tendai Biti said government had agreed to relax the contentious regulations in a bid to allay investor fears.
He said foreign direct investments (FDI) would be a game-changer in catapulting regional economies to growth.
Biti said the government would soon amend the empowerment law compelling foreign-owned companies to dispose 51% interest to black Zimbabweans and rationalise the Zimbabwe Investment Authority with the same law.
This decision follows a crisis in the economy that has seen revenue flows stagnating while expenditure continued to rise.
So dire is the state of the country’s state coffers that a special Cabinet meeting was convened mid-last month to address challenges besetting the fragile coalition government. At its peak FDI accounted for 20% of the country’s Gross Domestic Product (GDP).
Experts say the figure has in recent years gone down due to policy discord within government as well a perceived high country risk.
“We therefore propose that in respect of (by the way this is a government decision) new foreign direct investments, FDI will not have to comply with Section 3 of the Indeginisation and Economic Empowerment Act (that is) the 51% rule,” Biti said.
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“However the Indigenisation and Economic Empowerment Act and the Investment Act should be amended to require from an investor their own localisation plan, be it an employee share trust. “This important decision, I hope, creates a balance between our indigenisation programme and the obligation and imperator of attracting FDI in this country.”
The minister said the country’s capital inflows, which ordinarily finance the current account deficit, continue to underperform as reflected through insignificant foreign direct and portfolio investment as well as overseas development assistance.
Zimbabwe’s FDI almost doubled in 2011 to $387 million according to the United Nations Conference on Trade and Development World Investment Report 2012, compared to regional peers such as Zambia and Angola which averaged $2,9 billion.
“The external position remains unsustainable with almost 10 days of import cover and a widening current account deficit now estimated at about 20% of GDP, which is also way off the Sadc recommended threshold of 9% of GDP,” Biti said.
“The mounting current account deficit is directly aggravating the liquidity crunch in the economy and if not arrested, will threaten the stability of the financial sector, as experienced in most developed economies.
“This current account deficit is largely financed through short term capital inflows, accumulation of arrears and depletion of domestic assets, which under dollarisation are in foreign currency.
“This affects the liquidity position in the economy and, hence, has severe consequences on other sectors.”
