09 Jul Unpacking the new Zimbabwe Investment Development Agency Act: Could it promote investment into renewable energy in Zimbabwe?
Before the COVID-19 pandemic struck, Zimbabwe was steadily reforming its renewable energy policies and investment laws. In February 2020 the government of Zimbabwe introduced a progressive investment law, the Zimbabwe Investment Development Agency Act [Chapter14:37], the “ZIDA Act” and in March 2020, launched a National Renewable Energy Policy, (“NREP”). The risk of doing business in Zimbabwe particularly within the renewable energy could be significantly offset by the launch of the National Renewable Energy Policy and the promulgation of the much needed ZIDA Act. In this article I unpack the provisions of the new ZIDA Act and discuss the opportunities it creates to promote much needed investment into renewable energy in Zimbabwe.
The ZIDA Act
The ZIDA Act brings together under the single roof of the Zimbabwe Investment Development Agency, (the “Agency”) the former Special Economic Zones Authority, the former Joint Ventures Unit, (which regulated Private Public Partnerships), and the former Zimbabwe Investment Authority. Accordingly, the ZIDA Act repeals and replaces the Special Economic Zones Act [Chapter 14:34]; the Joint Ventures Act [Chapter 22:22] and the Zimbabwe Investment Authority Act [Chapter 14:30]. The ZIDA Act establishes a One Stop Investment Services centre, that brings together officials from regulatory authorities and government departments required in establishing and regulating greenfield or brownfield investments. These include the immigration department, the PPPs unit, the Zimbabwe Revenue Authority, the Environmental Management Agency, the Reserve Bank, the Companies Office, the National Social Security Authority, the Energy Regulatory Authority, the department of mines and minerals, the department responsible for local authorities, the Tourism Authority and the department of labour. The ZIDA Act guarantees local and foreign investors comprehensive investor protections, sets out frameworks for speeding up the business establishment process, sets out a framework for the granting of fiscal and non-fiscal investor incentives, and regulates investments into special economic zones and Private Public Partnerships, (PPPs).
Challenges faced by investors in renewable energy
Zimbabwe has strong potential for electricity generation from hydro and solar resources. To date only a fraction of its hydro potential has been realised. According to the African EU Renewable Energy Cooperation Program, solar PV has a technical potential of over 300 MW. The gross theoretical hydropower potential is 18,500 GWh/year. The technically feasible potential is 17,500 GWh/year, of which 19% has been exploited. The demand for power in Zimbabwe is also high. According to GET.invest, a multi-donor platform supported by the European Union, Germany, Sweden, the Netherlands, and Austria; the Zimbabwe Electricity Supply Authority’s generation capacity was measured in February 2016 as producing at only 845 MW, against a projected national demand of 2,200 MW. Zimbabwe has an installed capacity of approximately 1,940 MW. The country is importing power from its Southern African Power Pool partners South Africa, Mozambique, and the DRC. However, recent foreign currency shortages have made power imports increasingly unsustainable.
Despite the high potential for power generation from renewable energy sources and high local and regional demand, investment into power generation from renewable energy sources in Zimbabwe remains subdued. The question is what discourages investment into renewable energies in Zimbabwe? The fundamental deterrent to investment in Zimbabwe is unfavourable and uncertain exchange control, currency and fiscal policies. Investors need to be assured that they can put money into the country and take out their gains in a freely tradable currency. Zimbabwe’s laws do not provide investors that comfort. When Zimbabwe started facing acute foreign currency shortages late 2017 early 2018, its fiscal policy environment became unstable. To put it into context, within a space of two years, the government of Zimbabwe has enacted the following far reaching fiscal and currency laws:
- Statutory Instrument 205 of 2018, October 2018, Finance (Rate and Incidence of Intermediated Money Transfer Tax) Regulations, introduced the infamous 2% tax on electronic transactions;
- Statutory Instrument 33 of 2019, February 2019, Presidential Powers (Temporary Measures) (Amendment of Reserve Bank of Zimbabwe Act and Issue of Real Time Gross Settlement Electronic Dollars (RTGS Dollars) Regulations, introduced the use of an electronic currency;
- Statutory Instrument 142 of 2019, June 2019, Reserve Bank of Zimbabwe (Legal Tender) Regulations, all foreign currencies declared illegal and the Zimbabwe dollar declared the sole legal tender in the country, effectively ended the dollarization project;
- Statutory Instrument 212 of 2019, September 2019, Exchange Control (Exclusive Use of Zimbabwe Dollar for Domestic Transactions) Regulations, banned the use of foreign currency in local transactions and introduced civil penalties for breach, further entrenched de-dollarization; and
- Statutory Instrument 85 of 2020, March 2020, Exchange Control (Exclusive Use of Zimbabwe Dollar for Domestic Transactions) (Amendment) Regulations, partially re-introduced the use of foreign currency in local transactions ostensibly as a COVID-19 pandemic relief measure.
In addition to the above, the Reserve Bank of Zimbabwe which has the authority to regulate exchange control, regularly sets and amends foreign currency retention thresholds for exporters and external payment priorities for foreign obligations. Currently, exporters are not able to retain 100% of their foreign currency earnings and are required to sell a percentage of their foreign currency to the Reserve Bank in exchange for the Zimbabwe dollar which is not internationally tradable. Similarly, foreign payments such as the servicing of foreign debt, divestment proceeds or dividend payments are not automatically made upon request, the Reserve Bank makes payments according to predetermined priority criteria. Accordingly, currency risk remains the biggest deterrent to investing in Zimbabwe’s renewable energy potential.
The potential for the ZIDA Act to promote investment into renewable energy in Zimbabwe
Part VI of the former Special Economic Zones Act [Chapter 14:34], (the “SEZ Act”), made inroads into granting investors certain much needed exchange control exemptions. However, because the SEZ Act required licensed investors to obtain prior approval from the Reserve Bank before most of the exchange control exemptions could be enjoyed, practically, it proved difficult for licensed special economic zones investors to use their special economic zones status to enjoy exchange control exemptions and ring fence their investments from the ever changing currency and exchange control regime. The ZIDA Act is significantly different and provides more optimism for investors. Section 18(1) of the ZIDA Act states that licensed investors may without restriction or delay in a freely convertible currency transfer funds into and out of Zimbabwe. Section 18(4) of the ZIDA Act further states that the government may restrict transfers or payments related to investments only temporarily, in a non-discriminatory manner, in good faith and when there is a serious balance-of-payments or external financial difficulties. Accordingly, section 18 of the ZIDA Act enshrines the right of investors to be able to transfer money in and out Zimbabwe, and limits the circumstances under which that right may be restricted. Section 30(1) of the ZIDA Act obligates the Agency in consultation with the Minister of Finance and Economic Development, (the “Minister of Finance”) to make guidelines and grant general incentives to foreign or local investors or grant special incentives to a special class of investors. Furthermore, section 30(2) of the ZIDA Act mandates the Agency to take all reasonable steps that are necessary to ensure that any incentives published in guidelines made in terms of the ZIDA Act are granted to the licensed investors concerned. Accordingly, the ZIDA Act in general and in particular section and 18 and 30 creates enough scope for a special class of investment such as a renewable energy power generation project to be exempted from most exchange control regulations and be ring-fenced from the unstable currency and fiscal policy environment.
The ZIDA Act gives more comfort to investors than its predecessors as investors should be able to transfer money in and out of Zimbabwe with fewer restrictions and that once incentives are granted, the Agency is required to ensure that those incentives are practically implemented. Although guidelines in terms of section 30 of the ZIDA Act and regulations in terms section 46 of ZIDA Act are yet to be promulgated, the framework provided by the ZIDA Act is a step in the right direction in attracting much needed investment in Zimbabwe. The ZIDA Act sets out significant scope for the Agency and the Minister of Finance to put in place favourable exchange control and currency exemptions for investors investing in renewable energy. Coupled with the recently launched NREP, the ZIDA Act could significantly offset the risk of doing business in Zimbabwe. In terms of the NREP, certain regulatory approvals for energy projects will be relaxed, timelines shortened and fiscal incentives granted. Zimbabwe, like other countries on the continent, recognises that stable and affordable energy is critical to its growth and has taken important strides to ensure that this is achievable.
Executive at LNP Attorneys and Member of the Law Society of Zimbabwe
Methembeni’s areas of expertise are mining law and international development cooperation. Methembeni is South African trained and Zimbabwean qualified and has vast experience in Zimbabwean mining, employment and regulatory and compliance matters. Methembeni is uniquely placed to service South African clients looking to do business in Zimbabwe and Africa. Methembeni facilitates cross border mining transactions into Africa in general and Zimbabwe in particular.