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RBZ acts on capital flight

Godfrey Marawanyika

IN a bid to staunch investment flight from Zimbabwe, the Reserve Bank has tightened regulations for firms that wish to pull out of the country so that remittances are pai

d over a 20-year period instead of the current 72 months time-frame.

The latest changes are with effect from last month.

Contained in an RBZ document titled, “Exchange Control Guidelines on Foreign Exchange Transactions”, the new regulations apply to companies that invested in the country and are in the process of winding down their operations.

Current exchange control regulations state that disinvestment proceeds arising out of post-May 1993 are freely remittable.

Investors may remit offshore any capital plus appreciation as well as dividends in full, and when they accrue.

Under exchange control, capital appreciation is remitted through 4%, six-year government bonds.

“Accelerated remittance is possible where there is localisation (15%) (sic), discount (75%) to the company’s net asset value and dividend savings,” the exchange control guidelines say. “Where the above is not met, the remittances will be made through the 4%, 20-year government external bonds.”

Over the past six years Zimbabwe has experienced massive capital flight because of the hostile operating environment which was worsened by the shortage of foreign currency.

The situation was exacerbated in 2002 by company and farm invasions that generated a lot of international hostility for violating property rights.

President Robert Mugabe has declared 2005 “a year of investment”.

The RBZ said to facilitate the pull-out, documentation such as the date when the investment was made, details of how the foreign investment was funded as well as receipts of funds in foreign currency through normal banking channels, would be required.

Such companies are also expected to submit their latest audited financial statements, an agreement of sale where the disinvestment is by way of sale of shares, providing names of buyers and indicating whether the shares are being disposed of “at par or at a premium or at a discount”.

The RBZ said capital account transactions are still to be liberalised, adding that all applications pertaining to the receipt or payment of capital transfers/acquisitions/disposal of non-financial assets or transactions associated with
change of ownership must apply to the Exchange Control Review Committee.

The committee considers and makes decisions on all applications relating to the capital account.

The guidelines state that investors may only remit the initial “capital outlay plus appreciation”.

On mergers and takeovers, the RBZ said information pertaining to issues such as details of ownership structure or control of the merging entities should be submitted to exchange control authorities.

The exchange control authorities must also be given details of the share acquisitions to facilitate the merger and change of directorship, annual reports of the merging entities, their market share, which should be supported by a letter from the Anti-Monopolies and Competition Commission.

The RBZ said any offshore borrowings and cross-border investments will require prior exchange control authority.

Analysts said that the new developments are meant to ensure that resources remain in the country and stop capital flight, as investors will now have to wait for 20 years to get their proceeds.

“This might result in other potential investors adopting a wait and see attitude but the directive is also meant to ensure that the country does not release foreign currency to pay firms that are pulling out of the country,” said a bank economist who requested anonymity.

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