Zimbabwe’s investment legislation landscape has undergone a tremendous shift in recent times. Having slipped 4 places to 161 out of a ranked 190 countries on the World Bank’s Ease of Doing Business 2016 rankings, the country is currently undertaking a number of fast-tracked legislative reforms, aimed at facilitating and accelerating implementation of foreign direct investment. As a signal of the recognition of a good investment climate in order to attract capital, there appears to be an acknowledgment of the need to create and foster an enabling regulatory environment, which is conducive to investment.
However, that does not tell the full story. Often viewed as the economic pariah of the Southern African region, there has been an increasing realisation by the Government of Zimbabwe and other key stakeholders for the need for ‘re-engagement, recalibration and recapitalisation’, and a concerted effort to make the country investor-friendly. This has resulted in widespread reforms and legislative amendments and harmonisation of key pieces of legislation under the auspices of the Office of the President and the Cabinet in order to increase the country’s foreign direct investment profile.
The ease of doing business reforms have the resultant effect of significantly altering the legal investment landscape in Zimbabwe. There is a strong emphasis on the removal of bureaucratic and time costly processes, which hamper or frustrate the investment process and the extensive measures being taken by the Government are a reflection of how the efforts of the country are increasingly geared towards making Zimbabwe an attractive investment destination in light of our national competitiveness agenda. Practically, the positive yields being reaped include the introduction of a central credit registry system, and e-filing system for all tax registration as well as the proposed digitisation of the Deeds and Company registry to name a few.
What follows below is a summary of the various pieces of key legislative and regulatory considerations for prospective investors, looking to invest in Zimbabwe.
Zimbabwe’s company laws allow for establishing of different types of commercial entities. Where a foreign investor does not seek to take up equity in a local company, they have the option to enter into joint ventures with locals. For projects in key sectors such as energy, these may be granted ‘National Project Status’, entitling the investor to a number of tax and fiscal incentives. It is also permissible for investors to enter into partnership with Government through Public Private Partnerships (‘PPP’s), through the recently enacted Joint Ventures Act [Chapter 22:22].
Foreign investors are also encouraged to obtain a Zimbabwe Investment License which in effect legitimises its operations in Zimbabwe. Licensed investors are accorded the full protection of Zimbabwean laws in the event of investment dispute, and further, they may take advantage of any applicable Bilateral Investment Protection treaties of their respective countries. Holders of investment licenses are also able to repatriate their initial capital investment and are entitled to remit 100% of their dividend out of the country as well as being eligible to obtain investor residence permits for its shareholders.
Where an investor is seeking to take up equity in a local company, they must comply with the provisions of the Indigenisation and Economic Empowerment Act [Chapter 14:33], which endeavours to promote local participation in the economy through encouragement of shareholding in local companies by ‘indigenous Zimbabweans’. The thresholds for such desired participation are on a sector by sector basis. In April 2016, the President clarified the implementation modalities for compliance with the empowerment policy in a measure to address policy inconsistencies with the resultant position that a sectoral approach must be undertaken in assessing the extent of compliance. However, the aforementioned clarification by the President is in the process of being incorporated into appropriate legislative amendments to give it the force of law.
“Often viewed as the economic pariah of the Southern African region, there has been an increasing realisation by the Government of Zimbabwe and other key stakeholders for the need for ‘re-engagement, recalibration and recapitalisation’, and a concerted effort to make the country investor-friendly.”
Whilst the overall intent of the Act is to promote local empowerment, in our experience, this will not in all instances be achieved through direct equity disposal to locals, but rather, through undertaking of other empowerment initiatives (such as skills transfer, creation of employment, beneficiation, creation of linkages, introduction of new technologies etc) undertaken by the foreign investor that will be used as a counterweight to equity disposal in assessing the extent of compliance. As such, there remains a discretion on the relevant line Minister to allow or grant a dispensation for a local partner to hold a lesser shareholding than the foreign partner or to grant a longer timeframe for compliance.
Though a liberalised exchange control policy, potential foreign investors are permitted to bring an unlimited amount of foreign currency into the country. Equity may be brought into Zimbabwe in the form of cash or machinery and equipment, and such contributions must be noted through formal banking channels in order to facilitate remittances.
There are certain key differences associated with financing an investment in Zimbabwe through debt or equity. The preferential gearing ratio is 1:1, although this may be relaxed upon granting of such approval by the Exchange Control authorities. Thin Capitalisation rules do apply. The primary consideration with regards to equity investments in Zimbabwe concerns the ability of a potential foreign investor to comply with Zimbabwe’s indigenisation legislation. Our experience is that all equity considerations are guided by commercial efficacy and there is nothing at law that prescribes how a business should be capitalised in terms of equity structures and issuances.
The other option available for a potential investor is in the form of debt. Investing in Zimbabwe using debt is subject to approval by the Reserve Bank Zimbabwe’s External Loans and Exchange Control Review Committee (the “ELECRC”)’s foreign exchange guidelines. The ELECRC is tasked with implementing an effective debt management policy by sanctioning and monitoring all new loan commitments undertaken by all sectors of the economy.
All external loans which are approved by the ELECRC or Zimbabwe’s Exchange Control Authorities must be registered with Exchange Control authorities. It is worth noting that all applications to the ELECRC will only be only be considered provided the applicants are in compliance with Zimbabwe’s exchange control rules and guidelines on external borrowings.
The prior approval limit of external loans/and or trade credits was amended in 2016 upwards of loans of up to US$20 000 000.00. As such, all external private or public loans above US$20 000 000.00 require prior ELECRC approval. External loans that are below the US$20 000 000.00 threshold do not require prior ELECRC approval, but do require Authorised Dealer approval.
The general position is that Zimbabwe allows for the repatriation of 100% of capital invested plus any dividends earned.
The primary risk faced by foreign investors wishing to repatriate profits accrued from investments in Zimbabwe stems from a failure by foreign investors to repatriate said profits in accordance and conformity with Zimbabwe’s exchange control laws.
The Exchange Control Regulations stipulate that unless otherwise authorised by an exchange control authority, no person shall export or cause to be exported from Zimbabwe any Zimbabwean currency or any foreign currency.
The Exchange Control Regulations also provides that Investors may remit offshore any capital plus appreciation as well as dividends in full, as and when they accrue, with the proviso that such remittance of any dividend or profits from Zimbabwe must be effected through an Authorised Dealer.
In light of the provisions of the Exchange Control Regulations, in order for an investor to limit the risks attendant on repatriating profits from Zimbabwe, they must engage the services of a reputable and reliable Authorised Dealer and ensuring formalisation of its investment. In the current context, the repatriation of dividends and profits, principal and interest of any foreign loan, management fees, royalties and net proceeds of sale or liquidation of the business or disinvestment is made less stringent in respect of Exchange Control approval.
“Zimbabwe’s company laws allow
for establishing of different types of commercial entities. Where a foreign investor does not seek to take up equity in a local company, they have the option to enter into joint ventures with locals.”
The latest notable legislative development pertaining to investments is the recent enactment of the Special Economic Zones Act [Chapter 14:34] in 2016 which was promulgated in order to ‘’provide for the establishment of special economic zones, and the administration, control, regulatory measures and incentives in connection therewith’’. The obvious advantage of this piece of legislation is that it will foster a conducive environment (either through identified geographical or sectoral areas) which will be subject to various incentives and dispensations.
Whilst the SEZ Authority itself that will operationalise the Act has not yet been constituted, the Government has already rolled out and introduced in the early part of this year some fiscal tax incentives which include the following:
This piece of legislation, through its implementation can be utilised as a barometer to assess the true political will and policy consistency that has often been so far viewed as lacking in the country’s investment policies. Whilst Zimbabwe still has to overcome negative perceptions and economic regression, from ongoing experience in our firm, we remain confident that the measures outlined herald a positive step towards the fulfilment of the country’s vast investment potential and as an accelerator to the country’s economic growth.
Further and detailed information pertaining to doing business in Zimbabwe can be obtained from our recently updated guide, which is freely accessible on our website resources section at www.manokore.com
“Some of the major concerns regarding investment risk include the unpredictability in the change of laws, the possibility of expropriation of property, as well the implementation of sanctions on Zimbabwe.”
Farai Nyabereka is a Senior Associate and heads up the Regulatory & Compliance Department. Farai has extensive experience dealing with regulatory issues in commercial transactions across different sectors and has a keen understanding of the legislative and regulatory implications (ranging from investment licensing requirements, exchange control approvals, local empowerment laws) in respect of investments in Zimbabwe for a variety of local and international Clients. Farai regularly engages in obtaining regulatory approvals and successful filings for Clients as well as advising on compliance matters.
Carole Bamu is an Associate at Manokore Attorneys in Zimbabwe. Carole holds a Bachelor of Law (LLB) Honours from University of Kwa Zulu Natal, South Africa; and has been with the firm since 2015. She is the key Associate in the Banking and Finance Practice and has a profound interest in commercial law as a whole but particularly in banking law. Email: CBamu@manokore.com