ZIMBABWE: An Introduction

Introduction 

Over the last five years, Zimbabwe’s government has emphasised the ease of doing business as one of its driving policies with the government introducing policies aimed at fostering investment and growth in various sectors, including mining, capital markets and renewable energy.

The Zimbabwean government’s approach has been to provide a legal and policy framework that seeks to achieve three major goals:

– attracting foreign investment;

– optimising efficiency of incorporation and compliance processes; and

– ensuring growth of the local job market and value retention through beneficiation of strategic resources.

Below is an overview of significant developments which have taken place in the last 24 months in Zimbabwe.

Investment and Mining 

Investor licences and, more specifically the Special Economic Zones Investor licences, afford several incentives to the general pool of investors operating in the special economic zones. These incentives are a measure to attract foreign direct investment into the country and provide a soft landing for the investing companies. In particular, the tax breaks provided to mining companies for the first phase of their projects were seen as a means to assist investors in the mining sector to manage and reduce costs during the capital-intensive construction and development phase of their mining projects.

Lithium Rush, Local Beneficiation and a Shift in Policy 

Owing to this incentive framework, over the past three years Zimbabwe has seen a boom in the mining industry, with lithium in particular attracting significant foreign direct investment in 2021 and 2022.

Following this boom, on 6 January 2023 the Zimbabwean Minister of Mines and Mining Development issued an order prohibiting the export of unprocessed raw base mineral ores through the Base Minerals Export Control (Unbeneficiated Base Mineral Ores) Order, 2023. This was in an effort to ensure that Zimbabwe benefits from the processing of raw materials and the use of the final product, increasing the local job market and fully utilising the value of the resources within the country. To that end, the order states that no unbeneficiated base mineral ores shall be exported from Zimbabwe to another country except with the written permission of the Minister and it sets conditions which are to be met in an application to export.

Furthermore, on 30 December 2022, The Finance (No 2) Act 10/2022 changed the definition of a licensed investor to exclude the holders of licences “whose licensed activity is mining.” This change means that licensed investors in mining will no longer be entitled to the reduced rates of income tax and other incentives they previously enjoyed even if they meet the threshold of a qualifying degree of export orientation.

These measures are not unique to Zimbabwe – indeed, local beneficiation is commonplace in other mineral rich countries around the world – however, they demonstrate the balancing act that the government faces with regards to attracting foreign direct investment into Zimbabwe, whilst also ensuring that enough value is retained in the country to achieve the government’s vision of becoming an upper middle-income society by 2030. This balancing act will become more pronounced with Zimbabwe’s general elections scheduled to take place in 2023, but the introduction of an incentive framework was a positive starting point, nonetheless.

Capital Markets  

Real estate investment trusts (REITS) 

The introduction of the REIT deepens Zimbabwe’s capital markets by providing a new investment vehicle through which investors can access affordable quality investments with significantly low costs and tax efficient structures. The amendments to the Collective Investments Schemes Act (24:19) and the Securities and Exchange Act (24:25) in 2019 and 2020, respectively, paved the way for the registration and listing of the first Zimbabwean REIT on the Zimbabwe Stock Exchange (ZSE) in November of 2022.

This has created an additional mechanism through which significant capital has been and will continue to be created, to develop further assets for the benefit of the greater Zimbabwean landscape. The first REIT was seeded by two modern retail developments in Harare, with a combined net estimated income of USD1,712,291 per annum with new REITs in the pipeline.

The introduction of REITs is poised to assist in the revival of the local real estate sector through easy, transparent and regulated accrual of finance for reinvestment. The inaugural REIT offering has also been hailed for its additional support to the Insurance and Pensions Commission (IPEC) and Ministry of Finance and Economic Development in their efforts to provide liquidity to real estate investments and deepen the savings pool through REIT products. The REIT product is set to improve confidence in the capital markets with the pending declaration of dividends and development of infrastructure.

The Victoria Falls Stock Exchange (VFX)

Despite initial challenges attracting investors, the VFX is fully operational and is steadily gaining traction. Operating in a Special Economic Zone, the VFX attracts investors particularly as it exclusively operates using the United States dollar, it has lower trading fees and more flexible exchange control requirements than the Zimbabwe Stock Exchange. It currently has seven listed companies with more expected to be registered shortly.

Renewable Energy 

Zimbabwe currently holds vast renewable energy resources, with primary sources being hydro, solar, wind, biomass, sawmill waste, biogas and forestry waste. Currently the energy supply in Zimbabwe is 70% hydropower and 29% coal. Zimbabwe relies heavily on the hydro power plant situated in Kariba and its thermal power plants which generate a total of 1,970 MW per year. However, power generation at these stations is often limited due to reliance on dilapidated infrastructure and climate change, which has resulted in low water levels at the main hydro plant in Kariba.

Due to the challenges being faced by Zimbabwe from a power generation perspective, there has been an increased focus on solar energy as a means of diversifying Zimbabwe’s power generation framework. Zimbabwe’s location and climate provide an attractive opportunity for investment in solar energy technology and the government is looking to provide incentives to attract investment in solar energy.

The low electrification rate in Zimbabwe presents plenty of opportunities for either direct investment as an independent power producer (IPPs) in the sector or joint venture participation with the power utility. There are also opportunities in the coal, biomass and waste, and oil and gas sectors.

The country has large deposits of coal resources. The large deposits and the good quality ore present an opportunity for investment in the exploration of the deposits, mining and extraction of coal and developing the existing infrastructure to bring it up to speed with new technologies.

Biomass and waste also present an investment opportunity for power generation. The country has huge deposits of wood waste, municipal waste and agricultural waste which can be used to generate power. This remains an untapped area which can be potentially exploited in the next ten years. The main issues are a lack of funding into the exploration of the resource and infrastructure to build a base for the use of this alternative source of power.

Another upstream investment opportunity is in the potential availability of petroleum and gas in Muzarabani, currently at exploration stage. The result of this first phase of the project could potentially unlock opportunities in the midstream and downstream sectors in the coming years.