HARARE – The Economist Intelligence Unit (EIU) says Zimbabwe’s controversial indigenisation rules, currently being watered down following objections from business and Prime Minister Morgan Tsvangirai’s MDC-T party, will mostly affect existing firms owned by local whites and Asians as most foreign investors will be forced to stay out of the country.

The London-based think-tank noted that, despite the hullaballoo caused by the publication of the Economic Indigenisation and Empowerment Regulations last month, “relatively few operating in the country” will be affected by the controversial law.

Citing UN figures, the think-tank said Zimbabwe does not have a large stock of foreign-owned capital.

According to figures published by the UN Conference on Trade & Development, Zimbabwe’s inward stock of foreign direct investment totalled US$1.5 billion in 2009 against figures of US$8.5 billion for Zambia and US$120 billion for South Africa.

World Bank data also show that foreign investment inflows since 1980 have averaged less than US$30 million a year and more than half of the total was for a single project – the Zimplats platinum mine at Chegutu.

“What is more, most Zimbabwean businesses will fall well below the US$500 000 threshold,” the EIU said.

Some of the larger existing companies that exceed the threshold are already 51 percent locally owned.

EIU said it will be extremely difficult to apply the rules to Zimbabwe Stock Exchange-listed firms like brewer Delta Corporation which is effectively controlled by a foreign company, SAB-Miller, but in which local pension funds and institutional investors have a very large domestic shareholding.

“Because the funds invested belong overwhelmingly to black Zimbabweans it will be difficult to claim that Delta is not indigenous,” it said.

The only companies likely to be affected included cigarette manufacturer BAT Zimbabwe which is 80 percent British-owned, UK-controlled financial institutions Barclays Bank and Standard Chartered Bank, food group Nestlé, mining giants Rio Tinto and Zimplats, and AON Insurance.

EIU said South African-owned businesses should be immune from the regulations because they are covered by the bilateral investment-protection agreement signed late last year.

The agreement requires that fair compensation be paid, which is not likely under current conditions in Zimbabwe.

“On the face of it then, only a relatively small number of firms will be affected. Those most at risk are not the high-profile multinationals but local businesses owned by minorities — whites or Asians — with assets above the threshold,” the EIU said.

The think-tank also warned of the emergence of a new class of “freelance operators” who are well-connected black businesspeople who would act as fronts for foreign business interests in order to circumvent the regulatory requirements.

“In addition, there is a very real danger that freelance operators will seek to exploit the regulatory uncertainty by offering to “facilitate” empowerment deals that will satisfy the authorities while leaving the owners with effective control of their operations,” it said.

The organisation however said the greatest impact of the controversial indigenisation regulations would be on the country’s international investment image already battered by a decade of poor policies and lack of respect for property rights.