In a bid to attract more Foreign Direct Investment (FDI), the government of Zimbabwe has repealed its indigenisation policy through the Companies and Business Entities Bill.
The indigenous policy, which mandated international companies to surrender 51 percent of ownership to locals before incorporation, is deemed unfavourable to foreign investors.
According to business expert, Busisa Moyo, the new policy is a welcome move which effectively kills the previous unattractive Indigenization instrument and enables foreign entities to set up businesses in Zimbabwe with great ease.
With the new bill, foreign firms are now able to set up operations without adhering to the 51-49 percent shareholding. To establish a business in Zimbabwe, they are now simply required to lodge with the Minister a copy of its constitutive documents, a list of directors resident or to be resident in Zimbabwe and if it is a subsidiary, the name of its holdings company, Clause 228 of Chapter III of the New Companies Bill states.
Controversial indigenous policy
Despite stiff resistance from the opposition, former president Robert Mugabe signed into law the Indigenization and Economic Empowerment Bill in 2008, giving Zimbabweans the right to take over and control many foreign-owned companies in the country.
With a crumbling economy and currency crisis, implementation of the Act took eight years to materialise as cabinet members expressed reservations on the content and implementation of the law. Since its full enforcement, Zimbabwe’s economy has only gone from bad to worse.
Although the need to redress the skewed ownership of productive assets propels the process of indigenisation in many countries, Zimbabwe’s indigenous policy has attracted severe criticism since it was formulated.
It is often dismissed by many as a statutory instrument designed to suit the interests of politicians, contrary to assurances that it seeks to empower ordinary citizens. Also, it came at a time when Zimbabwe’s economy was already falling rapidly – the country had the world’s highest inflation rate in 2008.
The retrogressive nature of the policy results in loss of foreign investment and spurs mismanagement of state-owned productive assets and corruption, Hannah Onifade writes on Ventures Africa.
However, following its repeal last week, there are hopes the new business bill will pave the way for foreign investors wishing to establish operations in the country and help revive the economy deeply engrossed in crisis.
The indigenous Act, which initially stated that majority shareholding of public companies and any other business should be owned by indigenous Zimbabweans, was amended in 2018, applying to only companies involved in the diamond or platinum extractive industries and the economic sectors reserved for Zimbabwean citizens.
“In my humble view, the old Indigenization policy must be removed on the diamond and platinum sector as well. We can fix tax strangers but welcome them to open up businesses, bring technology and skills,” Busisa Moyo remarked.