ZIMBABWE: An Introduction to General Business Law

Environmental Scan – Doing Business in Zimbabwe

Incorporation of legal entities 

At the initial stage there is the incorporation of legal entities, primarily joint stock companies to be registered in terms of the Companies and Other Business Entities Act [Chapter 24:31] with the timelines of up to six weeks for the incorporation processes. The next waterfall would involve the licensing of the business in terms of the Zimbabwe Investment and Development Agency (“ZIDA”) which covers both local investments as well as foreign direct investments. There is a form of application and the subsequent licensing for greenfield investments would approve inflows and outflows in various sectors and also provide for exchange control authorisations and immigration status. If the investment is in existing companies or projects, exchange control is required to be sought from the exchange control authority, being the Reserve Bank of Zimbabwe for purposes of inflows and outflows. Thereafter, the next phase in the investment cycle would be registration for tax purposes as a prelude to the standard Know Your Client form and opening banking and other accounts.

National Development Strategy 

The government continues with its national development policy initiatives and programmes to transform the economy provided for under the National Development Strategy 1 (“NDS1”) which covers the period 2021 to 2025. The objective is to build the Zimbabwean economy into an upper-middle class economy by the year 2030. The thrust of the NDS1, the blueprint for economic recovery, is transformational growth of the Zimbabwe local economy. This could be obtained through stable macroeconomic conditions and an improvement in the operating environment through the ease of doing business indices rigorously applied and environment improved.

The Zimbabwean economy is anchored around three pillars being:

(i) trade of the country’s commodities such as tobacco, minerals comprising primarily of gold, platinum metal groups matte, chromite, nickel.

(ii) investments comprising local industrial value chains derived from the agricultural produce as well as mining, constituting local industry and foreign direct investment; and

(iii) tourism to showcase the natural attributes of the land such as the world heritage Victoria Falls.

Economic Outlook 

In general 

Since 2019 one of the main challenges in doing business in Zimbabwe relates to Zimbabwe being a multicurrency operating environment. There has been a massive issue since 2019 over the introduction of taxes in foreign currency as well as local currency. Differences in interpretation between the tax authority, the Zimbabwe Revenue Authority (“ZIMRA”), and taxpayers abound. This has resulted in ZIMRA appointing agents for tax administration purposes and has resulted in garnishment of taxpayers’ accounts and consequently significant tax disputes arising. The majority of this litigation is ongoing, and this has resulted in uncertainty in the operating environment. It has, however, given opportunity for the legal sector to advise and execute domestic remedies availed by tax legislation to challenge tax authorities. Some test cases have been decided and others are in the pipeline.

The second challenge in doing business in Zimbabwe has been the difficulties in the repatriation of dividends and capital outflows from Zimbabwe. This has been a result of the country’s legacy debt overhang with the Bretton Woods Institutions, being the World Bank and the International Monetary Fund, the Paris Club, other financial and multilateral creditors, suppliers, and more recently the global settlement agreement with white farmers as well as local borrowings through treasury bills (listed as USD7.5 billion by the debt management office in the Ministry of Finance of Zimbabwe). The debt situation, together with macroeconomic instability primarily induced by the lack of a single exchange rate mechanism for pricing discovery has led to strain in the country’s capacity to meet its foreign obligations.

The final issue pertains to the soft issues of governance around constitutionalism through the amendment of laws, in order to align to the 2013 Constitution of Zimbabwe. 27 laws are still to be aligned including the Electoral Act. Although white papers have since been presented, there has been a lack of capacity at the Attorney General’s office to draft these laws. This has adversely impacted on justice delivery and the rule of law. Be that as it may, it is fair to say that the three pillars of state, being:

1. the legislature;
2. the executive; and
3. the judiciary

are functioning. However, institutional capacity at some of the key public counters such as the companies office, the deeds office and indeed the Judicial Service Commission amongst others has weakened, thereby having impact on the justice delivery system. Overall, access to justice delivery exists and the legal profession is able to marshal its role as an independent profession to protect the rule of law.

In detail 

The Zimbabwean economy has been going through reforms. However, annual inflation, which was recorded at 60% in December 2021, spiralled to 285% in August 2022, before easing to 243.8% in December 2022. This was largely influenced by international inflation, effects of the war in Ukraine and locally by growing disparities between the official exchange rates and the informal exchange rates, feeding into pricing of goods and services. The monetary policy statements continue to demonstrate a synchronised emphasis and approach on stability of exchange rates and inflation as the coordinated targets of economic policy.

In 2021, the Zimbabwean economy experienced a real output growth of about 7%. According to the World Bank, real GDP growth is expected at 3.6% in 2023/2024, supported by a better agricultural season and slowing inflation.

According to the Zimbabwe National Chamber of Commerce, the Zimbabwean economy had seen industry and business capacity utilisation growing from 45.5% in 2021 to 63% as at December 2022. The agriculture, hunting, fishing and forestry capacity utilisation however fell to 58% from 80% in 2021, while the electricity, gas, steam and air conditioning supply operated below 50%.

Cotton yield is expected to be 57,000 tonnes during the 2023 season compared to 137,762 tonnes produced in 2021/2022 marketing season. It is predicted that the country shall receive above average rainfall amounts for the 2022/2023 cropping season, therefore boosting cereal crops production prospects. According to the Food Agricultural Organisation, maize imports are projected to rise between 100,000 and 200,000 tonnes in 2022/23.

The country has significant reserve of minerals including platinum metal groups. Moreover, Zimbabwe is the second highest holder of gold, chrome, coal, diamonds and lithium reserves. There was an increase in gold delivered to Fidelity Printers and Refineries (Private) Ltd, with gold output reaching 35.38 tonnes in 2022, a 19.5% increase from 2021. This was spurred by the incentives that have been introduced in gold marketing. Significantly, Zimbabwe introduced the Incremental Export Incentive Scheme in terms of which gold producers who deliver gold quantities above their average monthly deliveries are entitled to a foreign currency receipts retention level of 80% of the incremental portion of the delivered gold. Further, and in order to encourage listing on the Victoria Falls Stock Exchange (VFSE), entities listed on the VFSE are entitled to 100% retention of the foreign currency export receipts. The existence of new mining projects and timely payments also encouraged greater output. As at November 2022, mineral revenues were projected to increase by 8% form an estimated 6.5 billion in 2022 to around 7 billion in 2023, with gold expected to rise to 45 tonnes in 2023. Generally, the capacity utilisation is expected to reach 84% in 2023, up from 81% in 2022. The current legal framework allows foreign investors to own 100% shareholding in mining entities.

The country has installed capacity to produce 2,200 MW of hydro and thermal power, but currently less than half of the installed capacity is being produced. This means that there is a huge shortfall which needs to be imported from the Southern African Power Pool. This has been a major challenge due to power shortages being experienced by other Southern African countries. There is urgent need to add new electricity generation capacity in the country and this presents an opportunity for renewable power generation such as solar.

The country is expected to hold its general elections in 2023.

The scan above identifies the areas of opportunity, the nature of services that we provide and the growing optimism in the Zimbabwean economy with stability and reduced inflation due to planning and economic growth, assuring investors of returns on their investments.