A conducive and transparent business environment is critical to establishing a sound foundation for sustainable economic recovery.
Zimbabwe’s indigenization law is in the news again. Foreign investors remain wary that the edict, meant to ensure that the indigenous people in the Southern African nation benefit more fully from its abundant natural resources, might be amended to their detriment.
Under the indigenization law, Zimbabwe’s foreign-owned companies, such as mining concerns, banks and other businesses, were to transfer 51 percent ownership – that is, controlling interest -- to black nationals or state-approved agencies. The terms under which the ownership stakes are acquired remain vague, however, and there are many reports of inconsistent application of the rules for different groups.
Deals tend to be negotiated on a case by case basis behind closed doors. With government finances strained – officials have said the Treasury doesn’t have enough money to conduct the upcoming presidential election – talk has been revived in some circles of waiving compensation for corporate shares to help boost the economy.
Since 2009 when Zimbabwe adopted currency and other reforms that ended the country’s notorious hyperinflation, the economy has stabilized. Further improvements are possible with the establishment of a more conducive business environment and the protection of property rights. A threat of expropriation of foreign investments, particularly if it comes without the consent of owners or is not compensated, could derail this.
The United States supports the fundamental concept that the citizens of Zimbabwe should be the primary beneficiaries of their nation’s resources. The challenge is to find ways to do that while still welcoming foreign direct investment. A conducive and transparent business environment in which the rules are clear and equally applied to all is critical to establishing a sound foundation for sustainable economic recovery.
That could also provide the financial means to expand beyond the dominant mining and agricultural sectors to boost and diversify the economy by developing tourism, manufacturing and other industries. American firms are skilled at forming joint ventures to comply with host country rules and are happy to partner with Zimbabwean businesses. But if investments risk being taken without compensation, why would an investor choose Zimbabwe over a more conducive African investment destination?