New rules rattle Zim businesses

Zimbabwe's fragile recovery could be undermined by a new local ownership law that economists say will frighten off desperately needed foreign investment. Under the law, which took effect Monday, foreign companies valued at more than $500 000 must divest 51% of their shares to non-white locals within five years.

They have 45 days to report their efforts at complying with the rule. The biggest targets include local subsidiaries of British banks Barclays and Standard Chartered, as well as mining companies such as Impala Platinum, AngloPlatinum, and Rio Tinto.

"For foreign investors, this is a severe warning that this is not the country you can invest in at the moment," said Tony Hawkins, professor at the University of Zimbabwe's school of business.

"The so-called unity government is deeply split over the regulations and there is a lot of uncertainty about what shape they are going to take," he added.

Industry Minister Welshman Ncube said Wednesday that the cabinet would review the law, but that does not suspend the measures, which have sharply divided what is an already strained unity government.

Prime Minister Morgan Tsvangirai, the former opposition leader who became premier one year ago, has declared the law "null and void" because it was passed by the previous parliament in 2007 but not enacted until now.

His Movement for Democratic Change (MDC) accused President Robert Mugabe's ZANU-PF party of trying to cash in on foreign business.

"ZANU-PF simply wants to create a new arena for looting and abuse," the MDC said, saying the measure would only benefit "the well-connected elite and the ZANU-PF chefs."

The Zimbabwe Congress of Trade Unions, the main labour body, also voiced fear that the law "could lead to a creation of new minority blacks who will just replace the minority whites (who owned the business previously)."

Mugabe, in power since independence in 1980, insists the law will end colonial-era disparities in the economy.

"Our indigenisation programme, like the land reform programme, is designed to correct historical imbalances in the ownership of our resources," Mugabe said last weekend.

Those remarks did little to reassure investors. Since 2000, most white-owned farms in Zimbabwe have been forcibly resettled by Mugabe supporters in a violent and politically charged campaign.

Farm production, once the backbone of the economy, has plunged. Mining, which become Zimbabwe's main production sector, now appears to be in the firing line.

Since the law was published one month ago, Zimbabwe's stock market has tumbled about 10 percent, while mining shares have plunged 20 percent.

Foreign companies already have headaches working in Zimbabwe. Food giant Nestle briefly suspended operations in December over a dispute about buying milk from Mugabe's family farm.

South African retailer Shoprite backed out of a possible deal to buy Zimbabwe's OK Bazaars for reasons never made public.

After a decade of economic collapse, marked by world-record hyperinflation that ended only one year ago, most Zimbabweans are struggling to survive.

But the head of the indigenisation programme, David Chapfika, said the government would provide financing to buy shares - while insisting that the scheme was not nationalisation.

'Total disaster'

"We are not going to be involved in politics. The idea is to grow, grow, grow and expand the economic cake for everybody," he told AFP.

Zimbabwe struggles just to its pay civil servants but Chapfika said government would raise money with a new tax on companies or by floating international bonds - even though the government cannot honour bonds already issued.

"We need indigenisation but the way they are trying to do it with these regulations will only kill the economy completely," independent economist Eric Bloch told AFP.

"This will frighten away all foreign investors, local investors and all lines of credit required to recover the economy. As it stands, it's a total disaster."

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