Zimbabwe: Public Policy / Regulatory Developments In Zimbabwe

Privatisation of State Institutions

Several State-Owned Enterprises (SOEs) have been earmarked for privatisation by the Zimbabwean government under its public enterprises reform framework for 2018-2020. The policy targets mainly SOEs which have been struggling over the years, principally due to mismanagement and undercapitalisation.¹  In this process the government is also intent on attracting foreign investors.²  In terms of the framework, the targeted entities have been given between six and nine months to conclude privatisation deals with investors, with the view towards either partial or full privatisation.³

Separation of Nostro Foreign Currency Accounts and RTGS Foreign Currency Accounts

One of the greatest hindrances to investment in Zimbabwe, especially for foreign investors, has been the absence of foreign currency to back the payment of dividends or when exiting. This has been caused by the delusional policy of alleging that a surrogate currency called the bond note is equal to a United States Dollar in value and is denoted in USD. The effect of this was that real USD deposited into your account and these bond notes were somehow added together and the bank account marked in USD. The result of this was a shortage of foreign currency on the market.

In its October 2018 Monetary Policy Statement, the Reserve Bank of Zimbabwe directed the banking institutions to open separate Nostro Foreign Currency Accounts and RTGS Foreign Currency Accounts.⁴ The deadline for such implementation was given as 15 October 2018. The Nostro Foreign Currency Accounts will exclusively hold foreign currency free funds, diaspora remittances, international organisations' remittances, portfolio investment inflows, loan proceeds and export retention proceeds. The RTGS Foreign Currency Accounts will hold local funds which are only capable of being utilised locally, i.e. a de facto local currency. The policy is also meant to encourage banking of foreign currency and address fears by both locals and foreign investors that foreign currency will be incapable of being repatriated or used abroad, once banked in Zimbabwe.

The government is also in the process of promulgating a law that will protect the foreign currency accounts from being raided by the government and give security to investors that their money will be safe.⁵

Proposed new legislation: the Companies and Other Business Entities Bill

A new Act to replace and update the law governing companies and private business corporations is on the cards. The statute is meant to replace the Companies Act which is currently in force, which was passed in 1951 and has become outdated. The proposed new Act is still a Bill, and will need to be approved by Parliament, and assented to by the President. However, some of the notable provisions which are contained in the Bill (which are not in the 1951 Companies Act) are: the introduction of an Electronic Registry for the incorporation and registration of domestic and foreign companies; the inclusion of provisions to further protect shareholders and investors; the establishment of an inspectorate to improve enforcement of the provisions of the Act; and also the inclusion of provisions to combat the use of companies for criminal purposes, among other things.

Proposed compensation for former white farmers

The government has indicated that it will be compensating the over 4,000 white commercial farmers who were displaced from their farms during the Zimbabwean Land Reform Programme. The Land Reform Programme which was carried out from 1998 resulted in farm owners, mainly white, losing their farms to the government.⁶ This public policy initiative is aimed at facilitating the country's international re-engagement efforts and also boosting investor confidence regarding private property rights in Zimbabwe.⁷

Footnotes

1. These SOEs are in mining, telecommunications, manufacturing and hospitality industries. Some of them can be easily turned around and provide great investment opportunities at very low entry costs.

2. This is in line with the government's new initiative of promoting FDI after the scrapping of the restrictive foreign ownership under the now amended Indigenisation laws.

3. A number of the SOEs have started putting up adverts for expressions of interest in order to comply with this policy directive.

4. The latter is to retain and receive the bond note balances which are still USD denominated. At least there is a tacit acknowledgement that the bond note and the USD are not at par although officially it is being denied.

5. This is significant from a Zimbabwean perspective in that the Reserve Bank of Zimbabwe previously directed banks to deposit with it all the amounts that were in FCAs and then compensated the account holders with a local currency. This destroyed the confidence of locals and foreign investors in keeping their forex with local banks leading to extensive externalisation of forex resulting partly in the current depleted forex reserves situation.

6. Some black locals also lost their farms during this period.

7. This lack of compensation has been a stumbling block in the re-engagement process with IMF, World Bank, the Paris Club and other international financiers. We expect this to help in improving the investment climate in the country.

Dentons takes this opportunity to thank Vulindlela Bongani Sibanda (Partner) and Kelvin Tatenda Madzedze (Associate Partner) at MawereSibanda Law Firm, for their contribution to this month's newsletter.

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