Pharma Heal faces some very distinct challenges when considering Zimbabwe as a new market. During the past couple of years Zimbabwe has rank in the bottom 2 percent in economic freedom globally, and was last in their region among 46 countries in 2013. Zimbabwe continues to state that they desire greater foreign investment but their policies and governance have sent investors signals that are unlikely to attract significant interest. Zimbabwe’s Indigenization and Empowerment Act limits foreign ownership by making it necessary for indigenous Zimbabweans to own 51 percent of shares of foreign companies. Additionally, foreign investors may not own more than 35 percent of government reserved industries including, agriculture, transportation, retail and wholesale trade, as well as distribution. These industries must be entered through joint-ventures with local entities. Phama Heal may be able to avoid the 51 percent requirement if the business plan intends to keep net asset value below $500,000 USD as this appears to be the threshold for healthcare industry compliance. Otherwise, it is unlikely that Pharma Heal will avoid the 51 percent requirement mandated, but compliance may be delayed as Zimbabwe lacks the capital to fund local investments, though an indigenous implementation plan will have to be filed. Pharma Heal will also want to ensure that operations do not fall into the government reserved industries to mitigate greater loss of management control.
Five years ago Pharma Heal would have encountered exchange rate issues within Zimbabwe. But now foreign currencies are utilized for all transactions with U.S. dollar being the predominant currency. Revisions to the Foreign Exchange Control Act has allows exports to “retain 100 percent of their foreign-currency receipts for their own use and most current account transactions have been liberalized” (U.S. State Department, 2013). These exchange control changes coincided with movement away from the Zimbabwe dollar as the national currency and its removal from circulation. Hyperinflation made the Zimbabwe dollar virtually worthless before it was abandoned.
It is also worth noting that there are a number of entities within Zimbabwe that U.S. persons and firms are prohibited from conducting business with. To avoid potential penalties Pharma Heal should consult the sanctions program and Specially Designated Nationals List (SDN) managed by the U.S. Department of the Treasury Office of Foreign Assets Control.
Deloitte. (2013). Doing Business in Zimbabwe The Jewel of Africa. Retrieved from http://www.deloitte.com/assets/Dcom-India/Local%20Assets/Documents/Africa/Doing_Business_in_Zimbabwe.pdf
The Heritage Foundation. (2014). 2014 Index of Economic Freedom: Zimbabwe. Retrieved from http://www.heritage.org/index/country/zimbabwe
U.S. State Department. (2013). 2013 Investment Climate Statement – Zimbabwe. Retrieved from http://www.state.gov/e/eb/rls/othr/ics/2013/204764.htm
Expropriation without compensation is a considerable risk in Zimbabwe. Arguably, many of Zimbabwe’s economic woes can be tied to the seizure of commercial farmlands since the turn of the century, leading to the flight of foreign investment and mismanagement of the agricultural industry that was a large portion of country’s GDP. Many non-indigenous private and commercial landowners received no compensation for their loss and awards from tribunals have largely been ignored with Zimbabwe going so far as to withdraw from the SADC Tribunal’s jurisdiction in 2009.
The right to private ownership is enshrined in Zimbabwean law, yet the previous example illustrates the government’s willingness to set the law aside when convenient. Americans were among the foreign investors that were victims of expropriation, but despite U.S. protests the issue remains unresolved. The likelihood that arbitrary violations of the law or re-writing the constitution to fit a corrupt agenda is high as the party and regime responsible for the turmoil for the past 3 ½ decades is still in power and was re-elected last year.
The government has continued to seize property but there is little chance for dispute resolution. Zimbabwe’s withdrawal from the SADC Tribunal’s jurisdiction in 2009 demonstrates the lengths Zimbabwe is willing to go to avoid dispute settlement. Furthermore, it is unlikely that foreign investors will receive favorable outcomes in local judicial proceedings regardless of the verdict as officials often ignore politically unpalatable rulings.
Pharma Heal would be wise to invest in insurance if seeking to conduct business or acquire property in Zimbabwe. Parma Heal would be wiser to look to neighboring countries with more favorable investment outlooks to setup operations.
U.S. State Department. (2013). 2013 Investment Climate Statement – Zimbabwe. Retrieved from http://www.state.gov/e/eb/rls/othr/ics/2013/204764.htm