Cablegate: 2002 Investment Climate Statement for Zimbabwe

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 11 HARARE 001385

SIPDIS

STATE FOR EB/IFD/OIA, AF/S, AF/EPS
USDOC FOR 4510 ERIC HENDERSON
STATE PASS USTR FOR ROSA WHITAKER
STATE PASS NSC FOR SENIOR AFRICA DIRECTOR JENDAI
FRAZIER
LONDON FOR CGURNEY
PARIS FOR NEARY
TREASURY FOR OASIA/ED BARBER AND C. WALKER
STATE PASS EXIM/MLHALEY, TDA/JRICHTER/JMNEWELL,
OPIC/RNEHRA

E.O. 12958: N/A
TAGS: EINV KTDB EFIN ETRD ECON EIND ZI
SUBJECT: 2002 INVESTMENT CLIMATE STATEMENT FOR ZIMBABWE

REF: STATE 88106

A. Zimbabwe's Investment Policies and Practices

Government of Zimbabwe (GOZ) officials have generally
recognized that foreign investment is needed to bring
in necessary capital, technology and skills to create
the jobs and opportunity that its available workforce
desperately needs. However, over the last three years
the investment and operating climate in Zimbabwe has
substantially worsened. Potential investors need to
assess carefully this tougher and more hostile
environment, and to also factor in and plan for the
government's goals for indigenization (black economic
empowerment), privatization, and land
reform/resettlement. Food shortages, caused primarily
by government policies and actions and exacerbated by a
regional drought, are set to grow more severe and will
effect all sectors of the economy and populace. The
recent trend of the isolation of Zimbabwe, in terms of
bilateral relations and acceptable policies, will
continue and will make doing business more difficult.

The increasingly harsh and one-sided political
environment, exacerbated by a severely declining
economy, has contributed to great uncertainty about
government policies affecting the country's near-term
outlook and future. Government rhetoric and actions
over the past several years have caused substantial
damage to Zimbabwe's image as a potential investment
destination, and the absence of clear indications on
what steps the government will take to halt and reverse
the country's severe economic slide makes assessment
and planning very difficult. For example, in the
latest Africa Competitiveness Report by the Davos,
Switzerland-based World Economic Forum, Zimbabwe is
ranked 23 out of 24 countries surveyed. The main
reasons for the low ranking are poor government
policies vis--vis business and investment, political
violence, price controls, asset seizure without
compensation and other non-open market practices. We
urge potential or interested investors to contact the
Economic/Commercial section of the Embassy for our
assistance and latest information.

In the first decade following Zimbabwe's independence
in 1980, the GOZ was highly suspicious of western
investors. Investment proposals required a long and
detailed evaluation process to determine whether they
were a "good fit" with Zimbabwe's developmental needs.
During this same period, Zimbabwe's economy was
characterized by a very high level of central state
planning and control, based on the Marxist model. That
situation improved after 1991, when the government
embarked on a market opening effort and an Economic
Structural Adjustment Program (ESAP) supported by the
World Bank and the IMF. In late 1992, the Zimbabwe
Parliament promulgated the Investment Centre Act that
provided a statutory basis for the Zimbabwe Investment
Centre (ZIC), a one-stop shop ("mitigating the
bureaucratic maze" in its own words), that is often the
first port of call for all potential investors.

Reviews of ZIC's utility and helpfulness by potential
foreign investors are mixed, though generally positive,
with the most common complaints being its opaqueness,
slow speed and alleged occasional susceptibility to
political influence. In 1995, government failure to
meet targets for budget and civil service cuts and lack
of progress in privatizing parastatals led the IMF to
suspend funding for ESAP. In 1996, the government
announced a second plan, the Zimbabwe Program for
Economic and Social Transformation (ZIMPREST), running
through the year 2000, aimed at further liberalizing
and opening the economy to free-market forces. The
results of this latest effort, which never received the
support of the country's political leadership, have
been very poor and far below expectations.

A1. Openness to Foreign Investment

In May 1989, the GOZ published guidelines for foreign
investors in "The Promotion of Investment: Policy and
Regulations." This document, updated in September
1991, is commonly called the "Investment Code" and has
two dominant themes: it recognizes that foreign capital
has played an important role in Zimbabwe's development,
but it stresses that Zimbabweans should participate
more fully in the country's economy. Accordingly, it
notes that the GOZ prefers majority Zimbabwean
participation in new investment projects and specifies
that the degree of local ownership will be a prime
criterion in the evaluation of investment proposals.

The GOZ will consider majority or even 100 percent
foreign ownership in high-priority projects, but will
encourage arrangements for the eventual transfer of
majority ownership to Zimbabwean interests. It is GOZ
policy to take part in new investments by entering into
joint ventures with private or domestic investors in
strategic and basic infrastructure projects. However,
given the government's cumulative deficit and resultant
capital shortage, this type of activity is moribund at
present. Outside of these areas, official GOZ
participation will not be the general rule. Regarding
privatization of Zimbabwe's parastatal companies,
progress has been very slow in the decade since it was
identified as a priority, with only about six
organizations out of the 57 earmarked making the
transition. Arguments about the allowable extent of
foreign investment, retention amount for
indigenization, pricing and means of offering have yet
to be clearly or transparently resolved.

Other criteria for evaluation of proposed new
investments are:

- Socio-economic benefits for rural areas

- Transfer of technology and training opportunities for
Zimbabweans

- Generation of substantial employment opportunities

- Balance of payment benefits through production of new
exports

- Access to scarce managerial resources and to foreign
markets

- Intensive use of local raw materials and processed
inputs

- Use of labor-intensive technology easily adaptable to
Zimbabwe's needs

- Substantial research and development expenditures

In June 1994, the GOZ gazetted an amendment to its
investment regulations that listed specific sectors of
the economy, industries, and business categories that
are "reserved for domestic investors." (This latter
designation includes foreigners who have been granted
residency status.)

In agriculture and forestry, the following sectors are
reserved:

A) Primary production of food and cash crops
B) Primary horticulture
C) Game, wildlife ranching and livestock development
D) Forestry
E) Fishing and fish farming
F) Poultry farming

In transportation, the following sectors are reserved:

A) Road haulage
B) Passenger bus, taxis and car hire service of any
kind
C) Tourist transportation (excluding airlines)

Other reserved businesses and industries are:

A) Retail/wholesale trade, including distribution of
locally produced goods
B) Barber shops, hairdressing and beauty salons
C) Commercial photography
D) Employment agencies
E) Estate agencies
F) Valet services
G) Armaments manufacture, marketing, and distribution
H) Public water provision for domestic and industrial
purposes
I) Railways operations
J) Grain mill products
K) Bakery products
L) Sugar products
M) Tobacco packaging and grading (post-auction)
N) Tobacco products

Not all proposals for investment must be submitted to
ZIC. One hundred percent locally-owned investments can
be registered with the Registrar of Companies without
going through ZIC. ZIC approval is required only when
there is foreign participation, including:

- Any proposal to establish a new business or project

- Proposals to expand an existing business that have a
foreign exchange component

- Any proposal to acquire the whole or any portion of a
Zimbabwean business by the purchase of assets (this
requires exchange control approval).

The ZIC is authorized to approve proposals involving
any foreign investor in any business field. After
approval of a project, if foreign staffing or
management is desired, the Ministry of Home Affairs
through the department of immigration is responsible
for the issuance of work permits for expatriate staff.
Both initial and renewal issuance of work permits has,
at times, proved problematic for foreign companies and
investors.

ZIC's address and contact numbers are:

Zimbabwe Investment Centre
Investment House
109 Rotten Row
P.O. Box 5950
Harare

Telephone: 757931/4
Fax: (263) (4) 757937
E-mail: ZIC@harare.iafrica.com

A2. Right to private ownership and establishment

The GOZ, under President Mugabe's leadership, has a
strong, residual desire to control as much of the
economy as it can and only grudgingly implemented key
areas of reform, and recently we are seeing a reversal
of such reform. Privatization of state-owned
companies, liberalization of foreign exchange policies,
removal of price controls from food, staples and energy
are areas where progress has been sub-optimal or
negative. The local ownership requirement and the
large areas of the economy where foreign investment is
not allowed are other hindrances to business
establishment and free cross-border capital and equity
flows.

A3. Protection of Intellectual Property Rights
Since independence, Zimbabwe has applied international
patent and trademark conventions. It is a member of
the World Intellectual Property Organization.
Generally, the GOZ seeks to honor intellectual property
ownership and rights, although there are serious doubts
about its ability to enforce these obligations. The
Embassy is not aware of any grievances over such
issues, although pirating of videocassettes and
computer software is common. Remittances for
royalties, technical services and management fees have
been suspended by many companies with overseas ties,
due to the severe hard currency shortage experienced in
Zimbabwe since year end 1999.

A4. Performance Requirements/Incentives

Several tax breaks are available for new investment by
foreign and domestic companies. Capital expenditures
on new factories, machinery and improvements are fully
deductible and the GOZ waives import tax and surtax on
capital equipment. Other incentives for investors
include:

- Investment allowance of 15 percent in the year of
purchase of industrial and commercial buildings, staff
housing and articles, implements and machinery

- Investment allowance of 50 percent in the year of
purchase for training, buildings and equipment

- Twenty-five percent special initial allowance on
cost of industrial buildings and commercial buildings
and machinery in growth point areas is granted as a
rebate for the first four years

- Special mining lease provisions entitle the holder
to specific incentive packages to be negotiated with
the Ministry of Mines.

Import duties (the reduction of which had been under
discussion with both the IMF and the World Bank) and
related taxes range up to more than 100 percent since
their temporary hike following the Zimbabwe dollar's
devaluation in 1999. The GOZ also has provided for the
refund of sales taxes (15 percent) for capital goods
purchased in Zimbabwe and intended for use in priority
projects or investment in growth points.

Any investment proposal that involves the employment of
expatriates must present a strong case for doing so in
order to obtain a work and residence permit. Normally,
the maximum contract period for an expatriate is three
years, but this will be extended to five years for
expatriates with highly specialized skills.
Expatriates who have prior permission from the Reserve
Bank's exchange control department will be permitted to
remit one-third of their salaries.

There are no general performance requirements.
Official policy, however, especially welcomes
investment in enterprises that contribute to rural
development, job creation, exports, use of local
materials, and transfer of appropriate technology.
There are no discriminatory import or export policies
affecting foreign firms, although as noted earlier, the
GOZ's approval criteria are heavily weighted toward
export-oriented projects, especially from foreign
investors.

Joint ventures are very strongly encouraged. While
official policy supports "the maximum Zimbabwean
participation" in any new investment project, no
specific requirements for local participation have been
defined. However, experience has shown that 30 percent
local participation is a widely accepted benchmark
minimum. Foreign investors are expected to provide for
domestic equity participation at or prior to startup,
and can expect to be approached early on by a wide
range of potential partners, with some government
officials desiring shares at no cost. Companies are
expected to make maximum use of Zimbabwean managerial
and technical personnel. Subject to Reserve Bank
approval, foreign companies are allowed to provide
capital equipment as an equity contribution to a joint
venture.

The Government of Zimbabwe's policy calls for
Government participation in new investments in
"strategic" industries such as energy and mining. The
terms of government participation will be determined on
a case-by-case basis. However, the government's lack
of funds (the cause of the dearth of new major
investment projects), means that this policy has not
been tested in practice for some time.

At the urging of western donors, the IMF and the World
Bank, the GOZ promulgated legislation establishing
export processing zones (EPZ's) and appointed an EPZ
authority in 1996. However, a trade performance
statute requires eligible companies to export at least
80 percent of output, a requirement that has limited
foreign investment in the new zones. Other benefits
include a five-year tax holiday, duty-free importation
of raw materials, no tax liability from capital gains
arising from the sale of property forming part of the
investment in designated processing zones, and duty-
free importation of capital equipment for use in the
EPZ.

The newly-formed Revenue Authority (combining the
formerly separate Departments of Customs, Excise and
the Tax Bureau) continues to charge designated
companies duties on exempted inputs and equipment. The
EPZ authority approved over 15 projects in 2001.
However, the economic slowdown, high inflation and
interest rates, and the very uncertain outlook have
slowed or halted movement on startup and completion.

In the original legislation, the provisions of the
Labor Relations Act (LRA) would not apply within the
zones. Due to strong advocacy from the labor movement,
the Ministry of Public Service, Labor and Social
Welfare has entered into discussions with the Ministry
of Justice to amend the act so that the LRA indeed
would apply.

A5. Transparency of the Regulatory System

GOZ official policy is to encourage competition within
the private sector, and the government is concerned
about an "over-concentration" of market clout among
only a few companies in several industries. At
present, many bureaucratic functions in this still
heavily controlled economy are less than fully
transparent and can by no means be considered
streamlined. Corruption within the regulatory system
is increasingly worrisome. However, GOZ regulators
generally perform their functions forthrightly, though
slippage can be expected to increase.

A6: Corruption

According to anecdotal evidence and a survey conducted
by Transparency International-Zimbabwe, corruption,
already at high and chronic levels, is increasing
within government. Many companies and the police do
not have appropriate tools or skills for investigating
and checking corruption, though the legislative and
criminal law framework exists (for example, acceptance
of bribes is a criminal offense). Several U.S. firms
have protested problems involving major government
tenders and the lack of transparency in the government
tender board's management of the cases. Tenders in the
telecommunications, power, defense and aviation sectors
have been particularly notorious. Cases involving high
or prominent ruling party or government officials
usually do not reach court, regardless of the magnitude
or egregiousness of the offense.

In the second quarter of 2000, Parliament adopted a
constitutional amendment that provides for the creation
of an anti-corruption commission, however, to date it
has not been funded or staffed. The Zimbabwe Republic
Police have historically been generally well
disciplined, but do not give the stamping out of
corruption any special priority. Recent instances of
massive corruption show that in many government
entities, especially the parastatals, corrupt practices
are widespread. The government's electioneering
tactics over the last two years as well as the seizure
and theft from commercial farms has caused a widespread
dissolution of respect for the rule of law, and this
trend looks set to continue in the near term. Unless
such practices are aggressively checked, Zimbabwe's
investment and business climate will suffer further
serious damage.

A7. Labor

As noted elsewhere in this report, there is a growing
shortage of professional, technical and service skills
in the workforce, caused primarily by emigration
brought about by declining living standards and the
mutually reinforcing political and economic crises.
This is despite the fact that Zimbabwe still has one of
the best-educated labor forces in Africa. Shrinkage of
the economy in recent years, and the commercial farm
invasions in the same period have caused formal sector
employment to drop fairly precipitously. With at least
300,000 secondary school graduates or dropouts entering
the job market every year, the unemployment rate has
been steadily rising, and now stands at a minimum of 65
or 70 percent. The reduced business activity,
declining profitability of companies and surplus labor
have caused wage increases to lag behind inflation. As
a consequence, disposable incomes and standards of
living have fallen for the majority of the formally
employed. Increasingly severe food shortages will
effect all Zimbabweans, and urban wage earners will
face special challenges in securing adequate food
supplies.

The country's HIV/AIDS epidemic (over one in four adult
Zimbabweans are HIV positive) also is taking a heavy
toll on the workforce, with the worst effects of the
disease still to come. For example, the AIDS mortality
rate is currently estimated at over 2000 deaths/week,
or 100,000 per year, and will climb sharply in coming
years. Some businesses are trying to mitigate the
impact through workplace HIV/AIDS prevention
initiatives, but such actions will not cause a change
in the near-term impacts of the epidemic.

The GOZ largely adheres to International Labor
Organization conventions protecting worker rights. The
1985 Labor Relations Act sets strict standards for
occupational health and safety, but enforcement is
fairly lax and not consistent throughout the industrial
sectors. In addition, the GOZ sets a maximum workweek
and minimum wage. The workweek averages 40 hours, but
can go as high as 60. The law mandates a 24-hour rest
period each week. Although minimum wages are
ostensibly set by the government along sectoral lines,
in practice there is currently no common policy. Due
to the hyper-inflationary situation, each sector
negotiates wages that it can afford to pay. Some
workers are also provided allowances and expenses for
food, transportation, and housing. As already noted,
wage increases have lagged considerably behind the rate
of inflation (currently exceeding 100%), causing a
serious drop in disposable income and purchasing power.

One of the most sobering labor developments concerns
the displacement of commercial farm workers. Due to
the disruptions on commercial farms, there are
currently over 300,000 displaced agricultural workers
in Zimbabwe. In addition to having no work and no
income, many of these laborers - and their families -
now have no home. The ripple affect of this
displacement on the economy will continue to be felt
for years, as will the accompanying loss in
agricultural production.

Labor relations have become particularly fractious
between labor and government in Zimbabwe since 1997, as
economic conditions in the country have deteriorated.
They are less so between labor and management. Workers
negotiate wages and other benefits with employers
during the annual collective bargaining season, which
runs from approximately May to July each year. A
National Employment Council (NEC) in each industry,
comprising representatives from labor, business, and
government, is the vehicle through which the collective
bargaining takes place. In addition, the Zimbabwe
Congress of Trade Unions (ZCTU), the country's umbrella
labor organization, consisting of 35 member unions and
approximately 270,000 members, is the traditional
advocate for workers to both business and government.
Through both the NEC and the ZCTU, workers in all
sectors have demanded repeated salary increases in 2001
and 2002 to compensate for the high inflation and
increased cost of living, in some cases striking until
their demands were addressed. In almost all
industries, employers have approved more than one
salary hike per year in response to the inflation rate.

Although the GOZ still maintains an historically
paternalistic attitude toward labor, reserving the
right to intervene in issues of concern in the
workplace, the high profile and politicization of the
ZCTU in recent years has forced government to attempt
to claw back a greater deal of control over workers.
Both before and since the recent presidential
elections, the government has threatened the ZCTU with
elimination, and has taken steps to marginalize the
traditional unions and also the formal labor dispute
resolution mechanism. Notably, in 2000, "war vet"
groups - using tactics similar to those adopted in the
farm invasions - invaded a limited number of factories
and workplaces, usually claiming to represent the
interests of terminated or disciplined workers.
Employing intimidation, violence and sometimes
kidnapping the efforts, directed mainly at mostly white
management, were in most cases thinly veiled extortion
attempts.

Since that time, the GOZ has capitalized on the
"successes" of the war vets in their labor-problem-
solving role by creating the Zimbabwe Federation of
Trade Unions (ZFTU), as an alternative umbrella
organization that is challenging the ZCTU's historic
control over organized labor. Deemed by no one outside
of government or the government-controlled media as a
legitimate labor organization, the ZFTU is still being
promoted by the GOZ as the true, indigenous and
nationalist umbrella labor organ. The GOZ has
repeatedly backed attempts by the ZFTU to persuade
workers - often utilizing threats, coercion,
harassment, and outright force - to shift their
allegiance and their union dues from the ZCTU to the
ZFTU. At the time of this report the struggle for
primacy between the two organizations goes on, although
the ZCTU still remains the "official" and
internationally recognized voice of organized labor in
Zimbabwe.

A8. Efficient Capital Markets and Portfolio
Investment

Zimbabwe's stock market (about 65 companies listed) is
small, trading is quite thin, and the public stock
float of many of the smaller companies is closely held.
In September 1996, the GOZ opened the stock and money
markets to limited foreign portfolio investment. Since
then, a maximum of 40 percent of any locally listed
company can be foreign-owned with a single investor
acquiring a maximum of 10 percent of the shares on
offer. Foreign participation in the bond market is
restricted to the primary market and only 35 percent of
invested capital may be placed in bonds. The major
opportunity for foreign investors is in the equity
market. New portfolio investment in Zimbabwe has been
very limited in recent quarters as the country's macro-
economic outlook and fundamentals continue to decline.

Zimbabwe's financial sector is, relative to the
business base and in comparison to all its neighbors
but for South Africa, quite large and well developed.
An impressive variety of financial instruments are
traded, though thinly, including debentures, private
sector bonds, bankers acceptances, treasury bills,
municipal and utility bonds. Two major international
commercial banks and a number of regional and domestic
banks operate with over 200 branches total. The
merchant banks are quite sophisticated and agile. The
well-publicized failure of a number of financial
institutions, primarily due to fraud and inept
management, has raised concern over the oversight
capability of the Reserve Bank and the financial
soundness of a number of the smaller players. The
government's action to peg the exchange rate of the
Zimbabwe dollar in January 1999 (halting devaluation)
and the introduction of price controls on many basic
goods has raised concern about a return to the
centrally controlled economy of the 1980s. Revised
banking regulations have been criticized for reducing
the independence of the central bank in carrying out
its monetary policies. While the RBZ is a major force
in setting interest rates (through reserve
requirements, T-Bill issuance and the discount rate),
rates up until 2001 had been primarily market driven.
In addition, a parallel market for hard currency at non-
official rates has become established. There have been
no instances of hostile takeovers within the financial
sector. One sign of Zimbabwe's perilous economic state
is a very low savings base, now estimated at only 6
percent of GDP, down from 9 percent last year. This
implies very poor domestic investment in the future,
and deserves to be noted.

A9. Conversion Transfer Policies

Zimbabwe is currently experiencing an acute hard
currency shortage that is more than two years old and,
among other things has caused fuel shortages, default
on sovereign debt, shortages of imported goods and
components, and a sharp decline in industrial,
agricultural and mining operations.

In 1991 under the ESAP program, the GOZ began to
liberalize dividend remittability above the prior 25
percent cap. Advantage was given first to new,
post-independence investors and especially to those
with an export orientation. On January 1, 1994, the
GOZ raised the rate of repatriation for pre-1979
investments from a maximum of 25 to 50 percent of
after-tax profits. As of January 1, 1995, all foreign
investors in Zimbabwe may remit up to 100 percent of
their after-tax profits.

Blocked remittances, and/or pre-May 1993 profits that
could not be sent overseas, were held in below market
rate interest bearing accounts or government
securities. Previously, these funds could be
reinvested in projects as long as they were matched by
an inflow of foreign currency (on a one-to-one basis).
Profits from these new investments could be remitted at
a rate of 100 percent. In September 1995, the Reserve
Bank of Zimbabwe (RBZ) announced and followed-up on
plans to remove restrictions on the repatriation of
blocked funds and dividends, and most such funds were
released over a three-year period.

An initial foreign capital investment made after
September 1, 1979 may be fully repatriated, less any
income transferred, without restriction. The corporate
profits tax rate for both foreign and domestic
companies is 37.5 percent. The GOZ allows a variety of
deductions for depreciation, training, research, and
investment in growth points.

Despite making the Zimbabwe dollar convertible for
current account purposes, the GOZ still strictly
controls capital outflows. These controls extend to
prospective outward investment, as well as to dividend
remittances. Relatively few Zimbabwean firms have made
investments outside the country, and most of these are
in neighboring nations. Traditionally, however,
investment by Zimbabweans outside their country has
been something of a sore point with the GOZ, which
suspects that they may actually represent disinvestment
from Zimbabwe or capital flight, rather than true
foreign investment. A case in point are a number of
textile manufacturers who relocated to Botswana a few
years ago in order to take advantage of that country's
easy access to imports and foreign exchange for the
purpose of exporting back into Zimbabwe.

A10. Expropriation and Compensation

Zimbabwe's constitution prohibits the acquisition of
private property, agricultural land excepted, without
compensation, and the GOZ has repeatedly stressed that
it is committed to maintaining the legal protection of
private property. Recent rhetoric and actions by the
president and top cabinet members, including the
government's sanctioning of land invasions by "war
veterans," and the previous Parliament's approval in
April 2000 of Constitutional Amendment No. 16
authorizing the compulsory acquisition of privately
owned commercial farms with compensation limited to the
improvements made on the land, calls into question the
government's respect for property rights.
Additionally, over the last year a number of statements
have been made by the President and government
officials that indicate that the mining sector may next
be targeted for greater indigenization. What
parameters and compensation standards will be followed
if this objective is acted upon remain to be seen.

While land reform and distribution is recognized as a
necessary step to create long-term stability and
enhanced economic participation by citizens in
Zimbabwe, the current program fails in targeting these
goals. In too many instances prime properties are
going to ruling party cadres, and the resettled peasant
population lacks the skills and resources to utilize
the land they have been dropped upon. Transparency and
an orderly strategy to maintain production have been
grossly lacking. The government's program to acquire
land (of large mainly white-owned commercial farms) and
resettle it whether or not it has the funds to
compensate the owners has raised serious questions
about respect for property rights and the rule of law,
and the future viability of this core economic sector.
Besides the fate of the country's largest export
producing sector, Zimbabwe's food self-reliance is also
under threat from the government's actions.

A11. Dispute Settlement

In the event of any investment dispute, the Government
of Zimbabwe will agree to submit the matter for
settlement by arbitration, according to the rules and
procedures promulgated by the United Nations Commission
on International Trade Law (UNCITRAL), once the
investor has exhausted the administrative and judicial
remedies available locally. We are not aware of any
investors who have resorted to this option.
To increase investor confidence, the GOZ acceded to the
1965 convention on the settlement of investment
disputes between states and nationals of other states,
and to the 1958 New York convention on the recognition
and enforcement of foreign arbitral awards. Zimbabwe's
judiciary has a well-deserved reputation for fairness
and independence, though recent government actions
intimidating the judiciary and new appointments to the
bench raise concerns in this area.

A12. Political Violence

Since the Government's loss in a February 2000
constitutional referendum, ruling party supporters
sanctioned and supported by the Government have
systematically attacked members of the opposition
Movement for Democratic Change (MDC) and anyone
suspected of supporting them. In the months preceding
the June 2000 parliamentary elections and the March
2002 presidential election, the political violence
intensified and ruling party supporters, including
liberation war veterans and government-trained militia,
perpetrated widespread abuses and killed more than 150
people.

War veterans and other ruling party faithful continue
to occupy most of the country's commercial farms and
brutalize and intimidate white farmers and their black
workforce. Demonstrations and violent unrest,
committed by both sides, continue to occur periodically
in high-density suburbs and peri-urban areas.
Continued economic decline, including looming serious
food shortages, may very well translate into further
violence and protests in urban centers, as was
sporadically seen in 1998 and 2000 when government-
controlled consumer prices were sharply increased.
During the first few years of independence, ethnic-
based strife between the two major political parties
(ZANU and ZAPU) resulted in the deaths and arrests of
thousands of Ndebeles in the western regions of the
country with much of the violence in Matabeleland
carried out by the North Korean-trained "fifth brigade"
in a so-called purging exercise known as the
"Gukurahundi". The 1987 unity accord that merged the
two parties put an end to that period of violence.
With little prospect of a political solution to the
ongoing economic crisis, it is not possible to predict
when the situation may stabilize.

B. Bilateral Investment Agreements

Zimbabwe currently has bilateral investment agreements
in force with Germany, the United Kingdom, Portugal,
Switzerland, Malaysia, Mozambique, China and is
negotiating (albeit slowly) bilateral investment
treaties with Italy and the Netherlands. However,
commercial farms covered under some of the foregoing
treaties remain listed for acquisition under current
legislation, thereby denying the owner benefits such as
free use and full, market compensation that are covered
in the treaty. A bilateral investment treaty with the
United States is not in effect.

C. OPIC and Other Investment Insurance Programs

The GOZ and the U.S. government concluded an updated
OPIC agreement in April 1999. Zimbabwe acceded to the
World Bank's multilateral investment guarantee agency
(MIGA) in September 1989. Many major donor countries
have suspended their trade finance and export promotion
programs, as well as investment coverage, due largely
to mounting arrears caused by Zimbabwe's recent
difficulty in meeting its foreign debt obligations in a
timely manner.

D. Foreign direct investment value

Foreign investment has played a crucial role in
Zimbabwe's development. At the end of the 1970's,
foreigners owned an estimated 70-80 percent of the
listed corporate sector. Today, offshore ownership of
shares on the Zimbabwe Stock Exchange has fallen to
approximately 25 percent (about 5 percent individuals,
the remainder institutional or corporate). However,
from independence in 1980 until the introduction of the
precursor of the structural adjustment program in 1990,
new foreign investment amounted to only about U.S. $27
million. A survey conducted in the late 1980's by the
Confederation of Zimbabwe Industries (CZI) indicated
that 25 percent of industrial concerns have some
foreign ownership. Because these include many of
Zimbabwe's largest companies, they still account for 40-
50 percent of industrial output. Estimates of the
value of overall foreign investment run as high as U.S.
$5 billion (replacement cost). Foreign direct
investment in the last three years has all but dried
up, as the government's focus on political objectives
at substantial cost to the economy continue and a
return to better policies and practices seems no
closer.

Major Foreign Investors

The vast majority of foreign investment predates
independence and is held by British and South African
interests. The largest investors are Anglo-American
(SA), Lonrho (UK), and, until recently, BHP
(Australia), which together dominate the mining and
lumber industries and have large interests in
manufacturing, agriculture (primarily tobacco, coffee,
tea and sugar), and retailing. During the 1980's the
GOZ bought interests in a number of foreign-owned
firms, in some cases buying them out completely -- but
always on a willing buyer/willing seller basis. Many
foreign-owned firms, especially South African,
localized their Zimbabwean subsidiaries through
management buy-outs. The creation of the Southern
African Development Community (SADC) with a specific
mandate to promote economic integration in the region
and to facilitate flows of trade and investment is
still a work in progress. The U.S. government, through
the U.S./SADC forum is strongly committed to working to
improve the viability of SADC.

There are about 40 U.S. companies operating in
Zimbabwe, with estimated assets of more than U.S. $250
million (historical basis). Some of the familiar brand
or company names include IBM; Coca-Cola; H.J. Heinz;
Colgate; NCR; 3M; Caterpillar; Compaq Computer, and
Cargill. U.S. firms play a major role in the tobacco
processing industry and are major players in the
distribution of retail petroleum products (Mobil and
Caltex).

SULLIVAN

© Scoop Media