A bill initially drafted and proposed in 2015 was signed into law by Zimbabwe’s President Robert Mugabe in late October 2016, heralding the development of a Special Economic Zones (SEZ) programme aimed at facilitating major Chinese-Zimbabwean business projects and attracting new foreign development to the economically troubled southern African nation.
President Robert Mugabe signed the Special Economic Zones Bill signed into law on 31 October, 2016 in Zimbabwe’s capital, Harare. The expressed goal of the bill is attracting foreign businesses to invest in mining, agriculture, energy, and light industry. A complete list of tax and customs incentives has yet to be published, but is likely to include an initial waiver of corporate taxes for active companies, and relaxed duties on the import of machinery and raw materials. The bill also mentions special protections of investors’ rights, a topic which is sensitive in light of previous disputes between Zimbabwe’s government and foreign firms. A 2016 indigenisation law forced foreign firms operating in the country to sell a majority stake to Zimbabwean interests, creating a number of major disputes.
The law was initially rejected by President Mugabe, who indicated that it was inconsistent with Zimbabwe’s labour laws, which call for the protection and training of an indigenous labour force. The bill’s eventual adoption thus followed an amendment process guided by the president’s office. Foreign firms are likely to benefit from relaxed standards regarding the ratio of foreign to local skilled labour.
Eastern promises: Zimbabwe has in the past years adopted an official “Look East” policy which favours trade with China, encouraging Chinese-Zimbabwean joint ventures, looking to Chinese financing to build infrastructure, and piloting marketing initiatives aimed at bringing Chinese tourists to the country’s rich ecological tourism sites. The Special Economic Zones Bill is foremost a means of establishing the conditions for greater Chinese investment.
Zimbabwe’s The Herald News agency reports that the first zones will be built in Harare, as well as near the urban centre of Bulawayo and the major tourist attraction Victoria Falls. Speaking as part of a Chinese delegation to Zimbabwe in October 2016, Mr Fang Hengshan, deputy secretary-general of China’s National Development and Reform Commission, was quoted in The Herald speaking to the potential benefits of the SEZs: “We will implement the important consensus reached by the two countries, and also deepen cooperation in line with the Belt & Road Initiative (BRI) … We will also enhance the development of all of Zimbabwe’s new special economic zones.”
Nearly 100 Chinese firms currently operate in Zimbabwe, and China has accounted for a majority of the country’s foreign direct investment in recent years. Major investments include gold and diamond mining operations, energy generation, agricultural production, and road and train infrastructure. Zimbabwe has also courted Japanese and Russian investments in recent years.
Infrastructure lagging: To create fully operational SEZs, Zimbabwe faces numerous challenges, beginning with creating a stable political and investment environment after years of contentious elections, U.S. and European sanctions against President Mugabe and other high-level officials, controversial policies toward foreign businesses, and disastrous currency management. The sanctions and aggressive government policy, in particular, have led to massive foreign currency reserve shortages, and an inability to pay longstanding debts to multilaterals has also put off potential investors.
Perhaps the most important consideration, however, is infrastructure. Zimbabwe has recently passed through an energy crisis in the wake of its inability to pay neighbouring Mozambique and South Africa for energy imports, and rail, air, and highway upgrades are needed to make an SEZs programme truly viable. Economists at African Development Bank have reported that Zimbabwe’s total infrastructure gap stands at about $20 billion USD, and without recourse to traditional multilateral banks for financing, the country has to rely on its foreign backers to bridge the divide.
Quoted in AllAfrica, Finance and Economic Development Minister Patrick Chinamasa addressed the need for infrastructure improvements to foster the new SEZs, saying “the major factor affecting SEZ is infrastructure.” Mr Chinamasa called upon Zimbabwe’s Chinese partners, particularly the China Industrial International Group Zimbabwe, asking “that they commit themselves into developing, putting infrastructure, water, roads, factories together to attract Chinese investors” to Zimbabwe’s SEZs.
Outlook: Zimbabwe’s investment climate is far from the normalcy and stability that multinationals prefer, and the country will not be able to rely on the guidance of the World Bank and other specialist organisations that have guided similar SEZs programmes elsewhere on the African continent. It appears that Zimbabwe’s SEZs will in large measure be dependent on Chinese organisations for the initial expertise, as well as for financing infrastructure projects and bringing the initial investors and skilled labour force. If the SEZs are afforded favourable conditions and Zimbabwe is able to offer confidence to investors in upholding the incentives in the long-term, other foreign firms may start to dip their toes back into the Zimbabwean market.