On 7th February 2020, the Zimbabwe government gazetted the much anticipated Zimbabwe Investment and Development Agency Act [Chapter 14:37]. The Act was introduced in order to promote and facilitate investment in the country, and also repealed and replaced the Special Economic Zones Act [Chapter 14:34]. This effectively made the ZIDA act the new legislation governing and responsible for the success of Special Economic Zones (SEZs) in Zimbabwe.
The ZIDA Act has introduced a host of concessions aimed at boosting investment in Special Economic Zones. This article will highlight a few of these measures and will also analyse whether the SEZs regime the ZIDA act seeks to implement will make SEZs an attractive investment opportunity in Zimbabwe.
What are Special Economic Zones?
Special Economic Zones in Zimbabwe are designated geographical areas where business activity in those areas is subject to different rules compared to the rest of the economy. For instance, business activity in those areas is subjected to special incentives with respect to exchange control regulations and customs duty.
Statutory interventions to aid the development of Special Economic Zones
Besides the ZIDA Act, a number of statutory interventions have been made towards the advancement of the concept.
Zimbabwe currently has an acute shortage of foreign currency and, as such; has stringent exchange control regulations governing movement of funds out of the country. Section 8 (1) of the Third Schedule of the ZIDA act has put in place special incentives that relax these rules for investors operating in SEZs. Section 8 (1) provides that
“A licensed investor operating in a special economic zone may move funds necessary for his or her approved activity into and out of such special economic zone without having to obtain permission under the Exchange Control Act [Chapter 22:05].”
The Government also gazetted Statutory Instrument No. 59 of 2017 (Customs and Excise (Special Economic Zones) (Rebate) Regulations, 2017. Section 3 of these Regulations guarantees investors operating in SEZs a rebate on duty for raw materials, intermediate products and machinery imported with the sole purpose of using them in the SEZs. The ZIDA act is still relatively new, but such policies could prove to be a success as they give investors flexibility to operate.
Some of the challenges faced
Issues relating to infrastructure
It must also be noted that apart from fiscal concessions, the success of Special Economic Zones also depends on external factors such as general infrastructure. For instance, Special Economic Zones attract foreign investors if the zone has a strong system of road, rail and power which facilitates easy movement of goods and services in and out of the zone. The ZIDA act places the burden of building the general network of infrastructure on developers, and the investors themselves operating in the SEZ. Putting this burden on investors has proven to be ineffective in promoting Special Investment Zones as investors are not keen to invest in these infrastructures. World over, it is usually the responsibility of the host country’s government to do so. Moreover, another challenge that has come with placing this burden on developers and investors is that areas are effectively granted SEZ status without first securing a developer who would develop the zone.
Policy and structural issues
The success of SEZs in Zimbabwe has also been challenged by the general performance of the economy which has not provided the necessary enabling operating environment for them to perform. Inconsistency in policy making and currency volatility have been stumbling blocks. Section 17 of the ZIDA Act was inserted to act as a buffer. Section 17 guarantees investors protection against nationalisation and expropriation of investments. Expropriation or nationalisation can only be done for a public purpose, and even when they are done for a public purpose, the investor is entitled to full compensation. The effectiveness of the section on the ground is up for debate.
In conclusion, the success of SEZs largely depends on fiscal concessions, a modern system of infrastructure within the zone and an economic environment where investors’ believe their investments will be safe. The ZIDA act seeks to address these issues and only time will tell whether the policies included in the act will provide a successful Special Economic Zones regime in Zimbabwe.
Read the original publication at MawereSibanda.