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From independence in 1980 until 1991, the government was very defensive toward

foreign investment, subjecting each proposal to careful scrutiny and requiring foreign

investors to get permission from the Foreign Investment Center for the development of 

any new enterprise in Zimbabwe. Enterprises could be 100% foreign owned, especially 

in priority areas, but there was (and is) in effect a strong preference for joint ventures

 with at least 30% local participation.

In 1991 there was some revision of the regulations but the emphasis on indigenization

remained at least as strong as the emphasis on the need to attract foreign investment.

There is a long list of reserved sectors, but priority areas are offered a schedule of tax

and tariff exemptions and incentives. Incentives are aimed at encouraging capital

investments, the transfer of technology, the utilization of local raw materials, the

development of rural areas, the use of labor-intensive methods, and the hiring of local

personnel. Industries geared toward exporting that meet EPZ requirements receive tax

holidays and customs free trade. In 1992, as part of a structural reform program under

the IMF's Enhanced Structural Adjustment Facility (ESAF), the Zimbabwe Investment

Centre (ZIC) was established as a one-stop shop for investment approval. In 1995,

disbursements under the ESAF program were suspended for failure to meet IMF

targets, and in 1996, the government substituted a second plan, the Zimbabwe Program

for Economic and Social Transformation (ZIMPREST), whose operations investors have

found much less satisfactory. By the late 1990s, political turbulence and the

government's defiance of the IMF had greatly increased investor risk, and brought

foreign direct investment flows to a standstill.

In 1998, foreign direct investment (FDI) in Zimbabwe totaled over $444 million; by 

2001, FDI in-flow had fallen to $5.4 million. There has been a comparable decline in

foreign portfolio investment, reflected in the transformation of Zimbabwe's capital

account balance, from a surplus in 1995 equal to 7.1% of GDP to a deficit in 2002 equal

to 6.5% of GDP. The lack of foreign currency in the country has made investment even

less attractive because of the near-impossibility of converting earnings out of the rapidly 

depreciating local currency, which the government in any cases restricts. The

suspension of IMF funding, with its negative implications about the credit-worthiness of 

the country, has limited most business transactions to a cash basis. The situation was

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  worsened in June 2003, when the IMF suspended Zimbabwe's voting rights in the

organization for failure to make effective efforts to repay arrears of about $305 million

to the fund. Zimbabwe's total arrears increased from $700 million at the end of 2001 to

$1.5 billion at the end of 2002. Somewhat ironically, the Zimbabwe Stock Exchange

(ZSE), founded in 1896 and open to foreign investment since 1993, has been the best- or

second-best-performing emerging market stock exchange since 1999, propelled by 

inflation rates that in 2003 were reaching 300%.

Most foreign investment in Zimbabwe has roots in the colonial era, such as the mining

conglomerate Anglo-American of Zimbabwe (AMZIM), and the timber company 

Lonrho, long the country's two largest investors. In 2001 Lonrho sold its timber

holdings in Zimbabwe to Brotherhood Holdings Ltd. for a cash payment of $275 million.

 AMZIM, after selling off a number of subsidiaries, announced in June 2003 that it was

relocating its headquarters to South Africa. Government policy allows squatters to take

over, at times forcefully, white-owned commercial farms. When Zimbabwe was

Rhodesia, white farmers, constituting less than 1% of the population, controlled over

one-third of the land. Under Zimbabwe's investment regime investments in agriculture

  were discouraged and underutilized land was subject to fair-value purchase by the

government for redistribution to family farmers. This policy primarily affected the 50%

of the 11 million ha of agricultural estates created prior to independence. The United

States provided some funding for a land-for-purchase program from 1980 to 1997, but

  by 1998 the government had rejected this gradualist approach as too slow. By 2003,

over 4,000 white-owned farms had been taken against the will of the owners.