Controversy rocks economic zones

ZIMBABWE’S broke government has created more confusion on its controversial indigenisation law by cherry-picking countries that will receive preferential treatment under the newly designated Special Economic Zones (SEZs).

By Hazel Ndebele

The southern African country last month enacted the Special Economic Zones Act, which critics described as a partial climb-down on the indigenisation law, compelling foreign firms to cede 51% shareholding to locals.

Desperate to attract foreign direct investment, the government is offering incentives to Iran, India, Rwanda, Kenya, Zambia and Gabon under SEZs where investors will enjoy exemption from a controversial indigenisation law, among other things. New clarifications on indigenisation are expected soon.

However, this raises questions on government’s sincerity to attracting investment.

Zimbabwe has been increasingly seen as a bad investment destination due to unpredictable policies and a poor business environment.

As a result, foreign investors are opting for other countries in southern Africa.

Most foreign business delegations have cited the contentious indigenisation law which states that indigenous persons should own at least 51% of every company as a stumbling block to investment, as well as official disregard for property rights and the rule of law.

The country, going through a deep economic crisis now in its second decade, is desperate for investment.

A special economic zone is an area in which business and trade laws differ from those in the rest of the country.

SEZs are located within a country’s national borders, and their aims include: increased trade, investment, job creation and effective administration. President Robert Mugabe last month signed into law the Special Economic Zones Act.

A document seen by this newspaper shows that Iranian investors who decide to invest in Zimbabwe will have the privilege of exporting goods without being subjected to cumbersome formalities. Moreover for Iran, all goods imported to the SEZ for the required production or services will be exempted from the general import and export laws.

Investors from Gabon will enjoy 100% foreign ownership of their businesses as their shares will not be diluted by the indigenisation law. In addition, electricity rates will be subsided for SEZ-based Gabonese companies and investors from that country will not be charged tax on land, property and dividends. The investors will also not be charged custom duty on import of plant and machinery or spare parts for industries.

The document also elaborates that India will have duty-free import or domestic procurement of goods as well as 100% income tax exemption on export income for SEZ units for the first five years.

Indians will also be exempt from minimum alternate tax, central sales tax, service tax, and enjoy single window clearance for State approvals as well as exemption from State sales tax and other levies by the State.

Zambia, Kenya and Rwanda will also enjoy incentives as the government tries to lure investors into the country.

“People have been sceptical that business delegations who visit the country will yield positive results. However, as we speak we have a Russian delegation in the country and I can confirm that Russian investment is taking shape as we have already signed different memoranda of understanding,” said Macro-Economic Planning and Investment Promotion permanent secretary Desire Sibanda in an interview with the Zimbabwe Independent this week.

“We also have South Africans who have shown interest in investing in Zimbabwe’s mining sector, particularly gold processing.”

Zimbabwe last year hosted more than 80 business delegations from several countries among them Germany, United Kingdom, France, China, Russia, Turkey, South Africa and Nigeria, but the visits did not yield positive results as investors chose to invest elsewhere.