Zimbabwe and South Africa to sign long awaited investment deal

ZIMBABWE is close to signing a bilateral investment treaty with South Africa, paving the way for what could be a sharp increase in private sector investment in its troubled northern neighbour, according to officials in both countries.

The treaty would provide mechanisms to help resolve disputes and sharply reduce the price of political risk insurance, helping ease concerns about Zimbabwe’s political stability that have inhibited investment despite interest from South African groups ranging from mining companies to banks and retailers.  

“There is huge interest but the biggest stumbling block has been the [failure] to finalise an investment treaty,” said Ufikile Khumalo, of South Africa’s Industrial Development Corporation. The government development bank earlier this week made its first loan to a Zimbabwe business since Robert Mugabe, Zimbabwe’s president, agreed to form a coalition government with his political rival, Morgan Tsvangirai in February.

News of the investment treaty comes as the Zimbabwe economy continues to stabilise following the abolition of the local currency and amid signs that the South African government is keen to encourage closer bilateral ties.

It also follows Mr Tsvangirai’s decision late on Thursday to re-engage with his Zanu-PF coalition partners inside the power-sharing administration. Mr Tsvangirai, who withdrew his Movement for Democratic Change from the country’s unity government last month because of differences with Mr Mugabe, agreed to rejoin the coalition at a summit in Mozambique attended by southern African leaders including Jacob Zuma, South Africa’s president.

Earlier this week, Tendai Biti, Zimbabwe’s MDC finance minister, played down differences with Zanu-PF and said that the investment agreement would be signed in South Africa in the last week of November.

The IDC loan extended a $10m (£6m, €6.7m) facility to the London-listed miner Mwana Africa, allowing the company to step up gold production that it resumed in Zimbabwe in October. Mr Khumalo said other investments could soon follow and that commitments to Zimbabwean-based businesses might eventually reach 10 per cent of the corporation’s portfolio, which totalled nearly $9bn in 2008.

Local businesses believed they could steal a march on their more risk-averse rivals outside the region, he said. There was still some uncertainty about the willingness of the Zimbabwe government to include investments in land – a politically controversial area – within the terms of the treaty, he said, but “outside of this, everything has been agreed upon”. 

Mr Biti indicated that other issues that have worried potential investors were being resolved. Kingdom Meikles, the retail, hotel and banking group that was until recently Zimbabwe’s biggest listed company, was no longer subject to government intervention, he said. So-called “specification measures” under which government agents were appointed to run the company’s affairs in September had been lifted, paving the way for the de-merger of the group.

Mr Biti insisted that the government, including Mr Mugabe, wanted to take a flexible approach to foreign investors.

Separately, he told news agencies on Friday that a local newspaper report on proposed draft legislation to force foreign-owned companies to allocate a 51 per cent majority stake to black Zimbabweans was “speculative”. Financial Times