Zimbabwe is one of the countries in the world with 60 tradable minerals and top important minerals such as gold, platinum, diamond, coal and nickel. It is a remarkable resource center and its diversified economy makes it an attractive destination for investment, not forgetting to mention the good climate. The priority areas for investment include mining, manufacturing, tourism, ICT and infrastructure development. However, for Zimbabwe to be able to attract investors, it needs to have a predictable, transparent and non-discriminatory business climate and it should have a balanced framework on rules of foreign direct investment. Investors need assurance that there is a fair and non-discriminatory framework in terms of the investment in Zimbabwe. A rules-based system increases the opportunities of attracting investors. The new dispensation post Former President Mugabe era has regulated policies to make sure that investors, whether foreign or local are afforded adequate protection.
Security in terms of property rights is essential to all foreign investors as it ensures that they will not face the arbitrary disposition of any property they may invest in and suffer loss. Therefore, the Government of Zimbabwe has enacted certain laws that govern investors and investments and it has also signed a number of international treaties that ensure and guarantee protection to investors and their investments. This paper will look into laws that govern investment and investors as well as certain procedures that investors should follow when they want to invest in the country.
GENERAL LAWS THAT GOVERN INVESTMENT
- Constitution of Zimbabwe
- Zimbabwe Investment Authority Act
- Special Economic Zones Act
- Indigenization and Economic Empowerment Act
a) Constitution of Zimbabwe
The supreme law of the land which is the Constitution of Zimbabwe 2013 guarantees any person, whether a citizen or not the right to acquire, hold, occupy, use, transfer, lease or dispose all forms of property, either individually or in association with others1. Zimbabwe also observes equal treatment and protection of the law and guarantees against discrimination. Section 56 (3) of the Constitution of Zimbabwe states that every person has a right not to be treated in an unfairly discriminatory manner on such grounds as their nationality, race, colour etc. This means that whether you are a foreign investor or a local investor you have a right to administrative conduct that is impartial, proportionate and lawful2. The provision is important in that it guarantees administrative justice in any dispute or issue that may arise with regards investments that fall within the Zimbabwean jurisdiction. The constitution protects against compulsory acquisition of land without adequate compensation.3
b) Zimbabwe Investment Authority Act [Chapter 14.30]
The Zimbabwe Investment Authority (ZIA) is the country's investment promotion body set up to promote and facilitate both foreign direct investment and local investment.4 This was done to create a quicker and easier facilitation of investment. It deals with what are called Greenfield investments, that is investments in new projects. There is a ZIA board that was established5 for the purpose of applications for investment licences and to plan and implement investment promotion strategies for purposes of encouraging investment among other functions. The investment licence is required for purposes of income, taxation, export and exchange controls and import tariff dispensation. The Board fixes the period of validity of an investment licence. This means that the Board has the discretion for the duration of an investment licence depending on the type of the investment. The Act also places a mandate on the Minister to publish guidelines for investment that provide for general and special incentives for investment. The topic on various incentives will be dealt with later in this paper.
c) Special Economic Zones Act
This is an ACT that governs investments in sectors of the country that have been declared Special Economic Zones by the SEZ Board. These are areas in which business and trade laws are different from the rest of the country. The SEZs are located within the country's national borders and their arms include increased trade, increased investment, job creation and effective administration. As a way to encourage businesses to set up in these zones, financial policies are introduced as well as special incentives. The benefits a company gains by being in a special economic zone may mean that it can produce and trade goods at a lower price.
The SEZs have their own laws that apply in those areas that are different from the rest of the country. These policies typically regard investing taxation, trading quotas, customs and labor regulations. The SEZ Authority has a duty to establish the Special Economic Zones, to attract Foreign Direct Investment in Special Economic Zones and also to grant investment licences to Special Economic Zones among other things.6 The period for validity of an investment licence in a special economic zone area shall be 10 years from the date of issue 7 and is renewable.8 This Act protects licenced investments in Special Economic Zones from compulsory acquisition unless with a law which complies with section 71 of the Constitution.9
d) The Indeginisation and Economic Empowerment Act
The Government of Zimbabwe has amended the Indigenization and Economic Empowerment Act in an attempt to attract investors to come and invest in the country. Section 3 of the Indigenization Act allows foreign investors to own 100% shareholding in all other minerals except for platinum and diamonds which the foreign investor is expected to jointly own with the nationals on a 49/51% basis in favour of the nationals or government.10
WAYS OF INVESTING IN ZIMBABWE
There are 3 ways in which investors come into a country viz;
- Those that want to partner with a local company also called brownfields investments (exchange control department)
- Those that want to start a new company also known as greenfield investments
- Those that want to buy shares (stock exchange)
When an investor comes to invest in Zimbabwe, the first thing to do is to approach the respective ministries they want to invest in. The reason being that you should gather enough information and make an informed decision before starting the registering process. For example, if you want to invest in mining then you should approach the Ministry of Mines and if it is in the Energy Industry then Ministry of Energy and ZERA (Zimbabwe Energy Regulatory Authority). It is important to approach these ministries because each ministry has specific requirements in which failure to meet the requirements means you cannot operate in that sector. From the Ministry you can then approach ZIA to apply for an investment licence.
Investing in an existing company (brownfield investments)
If you want to invest in an existing company (dilution) you have to approach the Reserve Bank of Zimbabwe (RBZ) and get approval. The RBZ gives what is called an exchange control approval. Thereafter, you approach the Zimbabwe Investment Authority for an investment licence. The biggest advantage of Brownfields investments is that it permits tapping into existing skills, knowledge and finance, as well as accessing customer groups.
The government of Zimbabwe is encouraging local companies to enter into joint ventures with foreign companies because the formation of joint ventures is a swift and cheap route to development of a foreign business they are involved with here in Zimbabwe, than if it were to rely solely on their own resources and efforts to launch and fully operate. The Government of Zimbabwe encourages partnerships between international firms and local firms. Recently the Infrastructure Development Bank of Zimbabwe (IDBZ) signed a memorandum of understanding with Wah Kong Enterprises Limited (WKEL), which will see the Chinese firm partnering with the bank to implement university students and staff accommodation projects. Possible benefits of forming a JV include political connections, existing facilities, and an efficient distribution channel.
Investing in new projects ( Greenfields projects)
This is a situation whereby an investor wants to set up a company from scratch, also called Greenfields projects where there is direct ownership. Direct ownership provides a high degree of control when it comes to operations, but it requires a high level of resources and a high degree of commitment. After approaching the respective ministries and after registering the company, an investor who wants to invest in a Greenfield project should then approach ZIA for an investment licence. There is a non-refundable application fee of US$ 500. A company that wishes to obtain an investment licence with ZIA should register the company first and obtain various licences from the respective areas of investment, for example environmental assessment reports if it's a mining project. Upon approval, the investor must pay a licence fee of US$2 500.
Investing on the Zimbabwe stock exchange
The Zimbabwe Stock Exchange provides an alternative avenue for foreign Portfolio Investment injection into the local economy through the stock market. This is the buying of shares of certain companies that are listed on the Zimbabwe Stock Exchange. Investing in stock helps in creating financial security and independence. It also means that you now have a say in the affairs of the company. When the company holds meetings where shareholders come together to vote on important matters like the appointment of directors, executive compensation and dividend payment, you also sit and decide over such important matters. There are various active companies listed on the Zimbabwe stock exchange from various sectors of the economy including mining, agriculture, tourism services and manufacturing.
An investor who wants to buy shares has to go through a stock broker. The list of registered brokers is found on the ZSE website. The broker will then give an account form which has to be completed. Requirements include a national ID and a valid bank account. It is important that for an investor to buy shares on the ZSE he/she should have a custodian; the custodian being a financial institution that holds customers' securities for safe keeping to minimize risk of theft or loss. After opening a trade account with the broker, the broker will provide bank details for the funding of the account. An investor then has to identify stocks to buy and place an order with the stockbroker who then places the order on the ZSE via ZSE Automated Trading systems. The order can be placed on the phone or in person, for example "buy 500 shares of Delta Beverages at the current market price". After the purchase, an electronic share certificate is issued that will be sent to your custodian.11
RESIDENTIAL PERMITS FOR INVESTORS OR THEIR EMPLOYEES
An investor who wishes to stay in Zimbabwe after he has invested in the country can apply for a residential permit with Immigration of Zimbabwe. He can do this after he has obtained an investment licence from either the Zimbabwe Investment Authority or the Special Economic Zones Board.
- Fully completed Residence Permit application forms in duplicate.
- A written application letter by the prospective investor stating the project proposal
- Zimbabwe Investment Authority certificate of approval.
- Certificate of incorporation from the Registrar of Companies.
- Local bank statement for the funds transferred.
- Bill of lading or Customs clearance papers for the importation of capital equipment.
- Permit can be processed within fourteen normal working days after submission of the application.
REGISTRATION FOR TAXES
The laws of Zimbabwe require every person conducting a business to register for tax. Registration is done by the Zimbabwe Revenue Authority. After an investor has obtained an investment license, they can approach the Zimbabwe Revenue Authority for tax registration.
All clients, including individuals, companies, partnerships and co-operatives who want to venture into any business are required to register with ZIMRA online and comply with all obligations as stipulated in the legislation. With regards income tax, there is no regulated time in which you are supposed to register for it. Companies are supposed to register for income tax when they start receiving income. To register, clients are required to have a bank account among other requirements.12
Value added tax
Any person who intends to carry on trade must be registered online with ZIMRA for value added tax. You are supposed to be registered within 30 days from the date on which you reach the threshold which is US$60,000 sales per year or when you realize or project or there are signs based on your forecasts that you will reach your threshold. In instances where you make money that exceeds the threshold for the first month and there is a likelihood that you will exceed the threshold you should register. That is called compulsory registration. Voluntary Registration is when you can register for VAT even if you don't meet the threshold.
Pay As You Earn (PAYE)
As for PAYE tax (pay as you earn) you should register within 14 days after you have become an employer. Every business person who becomes an employer is required to apply to the Commissioner General for registration within 14 days of becoming an employer.
Customs and Excise
If you intend to import goods, you are still required to register with ZIMRA so that you have the BP number that will identify you as an importer. You will need a clearing agent approved and registered with ZIMRA to handle your importations or you may register with ZIMRA to do your own clearances. For exports, you will also need an agent to handle the exports or register on your own with ZIMRA.
The Minister responsible for investment has a mandate to publish guidelines for investment that provide for investment incentives that apply to all investments including those in the Special Economic Zones. These incentives which were published by the Minister in January 2018 in an article called the Investment Guidelines and Opportunities in Zimbabwe are part of the economic reform packages being rolled out to attract investment. They comprise of fiscal and non-fiscal incentives for investors.13
Fiscal incentives in the SEZs include:
- corporate tax exemption for the first five years of operation and a corporate tax rate of 15 percent thereafter, while specialized expatriate staff will be taxed at a flat rate of 15 percent. There is also
- scope for duty free importation of capital equipment and exemptions for non-residents withholding tax on royalties. Raw materials and intermediate products imported for use by companies in SEZs will be imported duty-free, but the exemption will not apply where raw materials are produced locally.
- Inputs which include raw materials and intermediate products imported for use by companies set up in the SEZs be imported duty free. The duty exemption will however not apply where such raw materials are produced in Zimbabwe.
Non fiscal incentives
- Automatic work permits for expatriates for investments above US$50 million and 5 working days processing period of work permits for investment below US$50 million
- Automatic residence permits for investment above US$50 million and 5 working days processing period for investment below USD$50 million.
- Dedicated power and water supply companies operating in Special Economic Zones.
SECURITY FOR INVESTMENTS
The main regulator in Zimbabwe when investment security is concerned is the Securities and Exchange Commission. The Securities and Exchange Commission of Zimbabwe was established through the enactment of the Securities Act (Chapter 24:25). Section 3 of the Act provides for the establishment of the Commission which is the regulatory body for the securities and capital markets in Zimbabwe. Commissioners were appointed on 1 September 2008 whilst the Secretariat was established in 2009. Amongst its key functions, the commission regulates the exchange of securities, the licensing of approved dealers and promoting investor education.
One of the significant measures that have been put in place to secure an investors investment is:
a) The Investor protection fund
In terms of the Securities Act (Chapter 24:25) the Securities and Exchange Commission was obliged to create the Investor Protection Fund, for the purpose of providing compensation to investors for losses suffered as a direct result of a financial collapse of a market player licensed by the Commission for being unable to meet its liabilities through insolvency, malpractice or other causes. An investor will therefore have recourse to the Fund where a licensed entity is unable, or likely to be unable, to pay its liabilities, in the event of (a) cessation of trading, or (b) such firm having insufficient assets to meet its liabilities or (c) insolvency declared by a competent court in Zimbabwe.
Zimbabwe is also a signatory to a number of bilateral and international agreements that guarantee investment security to all investors in accordance with international best practices. These include:
- Multilateral investment Guarantee Agency [MIGA]
- International convention on settlement of Disputes [ICSID]
- New York Convention on the enforcement of arbitral awards
- United Nations Convention on International Trade Law
- The World Trade Organisation
THE INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT DISPUTES (ICSID)
Zimbabwe became a member of ICSID on the 25th of March 1991. ICSID is an international arbitration institution established in 1966 for legal dispute resolution and conciliation between international. It is an autonomous, multilateral specialized institution that encourages the international flow of investment and mitigates non-commercial risks by a treaty drafted by the International Bank for Reconstruction and Development's executive directors and signed by member countries. Its decisions are final and binding.
WORLD TRADE ORGANISATION (WTO)14
Zimbabwe became a member of the World Trade Organization in March 1995. The WTO's role is to facilitate international trade in goods by progressively and eliminating national governmental issues that are restrictive to trade. Its purpose is to provide legal rules for international commerce that will facilitate the smooth operation of international trade. By virtue of being a member of the WTO the principles and agreements that are comprised are legally binding on all members of the WTO. The WTO is governed by the most favored nation principle (MFN). The MFN enables the nationals of the contracting parties to benefit from favorable treatment that may be given to nationals of 3rd states. When a favorable treatment is extended to one state by way of its citizens who engage in goods, citizens of a 3rd state engaging in trade of the same goods are entitled to claim the same treatment.
The WTO is also governed by the National Treatment principle. It entitles the foreign investors to be treated the same way the national investors are treated. It encourages that a foreign investor and its investments are accorded treatment no less favorable than that which the local investors are given by the State
Investors and lenders in today's dynamic investment climate understand the potential benefits of investing in emerging markets. They also understand the critical importance of addressing the political risks that may accompany an investment in such markets. By virtue of being a member of this organization Zimbabwe guarantees security for all trading deals investments.
MIGA (MULTILATERAL INVESTMENT GUARANTEE AGENCY)
- Currency inconvertibility and transfer restriction
- War, terrorism, and civil disturbance
- Breach of contract
- Non-honoring of financial obligations
MIGA provides political risk insurance (guarantees) for projects in a broad range of sectors in developing member countries, covering all regions of the world.
MIGA guarantees offer much more than just the assurance that losses will be recovered. The Insurance also benefits investors and lenders by:
- Deterring harmful actions.
- Resolving disputes
- Accessing funding
- Lowering borrowing costs
- Increasing tenors
- Providing environmental and social expertise
NEW YORK CONVENTION ON THE ENFORCEMENT OF ARBITRAL AWARDS
New York Arbitration Convention" or the "New York Convention", is one of the key instruments in international arbitration. The New York Convention applies to the recognition and enforcement of foreign arbitral awards and the referral by a court to arbitration. Zimbabwe signed the New York convention on the convention of arbitral award on the 29th September 1994.
The Government has embarked on a journey to make Zimbabwe safe for investors again. It is with great regret that the execution of the land redistribution has had unfortunate outcomes and consequences and the Government is setting up mechanisms to address these. The Government of Zimbabwe has not forgotten and it has acknowledged the role that was played by both foreign and domestic investors, and wish to express its commitment to companies that invest in the country and to be consistent in its implementation of policies. The Government of Zimbabwe has committed itself to treating all foreign and domestic investors and investments as favorably as any other investor in situations relating to the establishment, expansion and operation of their investments. The Government of Zimbabwe has embarked on a journey to compensate the farmers who lost their investments through the Land Reform Program. The Government is also working on establishing a tribunal based on international good practices to determine among other things the value of compensation payable and modalities of payment to those that lost their land as a result of the Land Reform Program.
REFORMS FOR SMOOTHER INVESTMENT
The Government of Zimbabwe is committed to improve the investment platform in Zimbabwe and various measures are currently being put in place to attract investors but more importantly, to secure an investment once it is there. Some of the imminent reform measures in place are:
- Special Commercial
This reform falls under the wing of the judiciary and it serves mostly for dispute resolution in matters that arise from purely commercial transactions. This special court aims at curtailing the lengthy time of dispute resolution and also to improve the quality of adjudication in commercial matters. Very complicated legal questions arise from complex transactions and justice will only be served by a competent panel of judicial officers. A solid and competent judiciary is vital to the survival of any investor. When the judiciary can be relied on, it brings balance to the investment environment, as our courts are a key feature in attracting investment.
- Zimbabwe Anti Corruption
This commission obtains its existence from the Constitution of Zimbabwe as well as the Zimbabwe Anti-Corruption Commission Act. Its key constitutional functions include: combatting corruption, promoting honesty and financial discipline and directing the commissioner general of police to investigate corruption and to report back to the commission. The anti-corruption commission investigates both public and private sectors which makes it an ideal tool to deal with underhand dealings of any individual or government agency that want to solicit bribes from investors. The Commission is mandated to report to parliament, annually, its operations and findings and this assists with regard to accounting to the public. What separates the anti-corruption commission from the other law enforcement agents is that it is specialized, particularly addressing concerns arising from corrupt activities.
The investment route in Zimbabwe is straightforward and with the aid of a competent legal representative, the processes are even smoother and faster. Zimbabwe is open for investment and efforts are being made to align all the laws and processes to ease the doing of business in the country.
1. Section 72 of the Constitution of Zimbabwe 2013
2. Section 56 (3) on the Constitution of Zimbabwe 2013
3. Section 72(3) of the Constitution of Zimbabwe 2013
4. Investment Guidelines and opportunities in Zimbabwe January 2018
5. Section 4 of the ZIA Act [Chapter 14:30]
6. Section 18 of SEZ Act [Chapter 14:34] (herein after referred to as SEZ Act)
7. Section 27 of SEZ Act.
8. Section 28 of SEZ Act.
9. Section 35 of SEZ Act
10. Section 3 of the Indigenization and Empowerment Act [ Chapter 14:33]
13. Investment guidelines and opportunities in Zimbabwe
14. Foreign investor Protection in Zimbabwe, the Principle of non-discriminaton
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.