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New threat to Zim economy
Ignatius Banda, Mail & Guardian (SA)
September 24, 2007

Zimbabwean businesses have warned Robert Mugabe's government that legislation allowing for the seizure of foreign-owned companies will have dire consequences on an economy that already is ravaged by crisis.

Anxiety is rising after the government moved closer to passing the law with a second reading of the Bill in Parliament this week. Business leaders, desperate to stop the Bill, have warned government to concentrate on economic recovery, instead of pressing for expropriation of foreign assets.

Foreign investment in Zimbabwe would plunge by up to 30% upon enactment of the Bill, while the economy -- which has shrunk 50% since 2000 -- will face further ruin, they said.

Two of the largest foreign-owned banks, Standard Chartered and Stanbic, have warned that they could be forced to withdraw from the country if they lose their majority stakes.

"Removal of the possibility to hold a controlling interest might make it difficult for existing companies or potential new investors being able to justify their continued interest in the country," Standard Chartered said in a report prepared for three parliamentary committees examining the legislation.

Standard Bank, which has announced a plan to sell up to 30% of its business in Zimbabwe to black staff members, said foreign banks would not allow the use of their corporate identities by businesses in which they no longer held majority control.

"International banks who see their shareholding cut to 49% would refuse to allow the new entity to use their brand name and other intellectual property belonging to the international group, requiring that the new bank develops its own brand identity, which would not be immediately recognisable to the outside world," Stanbic warned in its own submission.

"Acquisition of equity in foreign-owned entities, without sufficient funding, has the danger of being seen negatively as expropriation."

Seizing 51% of foreign assets in Zimbabwe "would make our country relatively less attractive to foreign investors when compared with countries with significantly lower thresholds", Standard Bank said.

Foreign banks have provided much of the support for agriculture and their withdrawal would further weaken what was once the mainstay of Zimbabwe's economy. Barclays and MBCA, which is owned by Nedbank, are the two other major -foreign-owned banks in Zimbabwe.

Jack Murehwa, president of the Chamber of Mines, said the proposed legislation was vague on how government intended to treat existing agreements and would further weaken Zimbabwe's international standing.

"Zimbabwe is now seen as a high-risk destination because of uncertainty over security of tenure and lack of confidence in the rule of law," he said.

Mugabe has been increasing his control of the economy in recent months, ordering price cuts and threatening the takeover of private businesses, which he accuses of undermining his rule. His policies have worsened the crisis and raised tension.

This week government cheered official data showing that inflation had dropped to 6 592% from 7 600% in July. But the figure is still the highest in the world and critics point out that real inflation is probably much higher.

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