Zimbabwe is believed to have lost over $2,5 billion in capital flights and trade misinvoicing between 2008 and 2013 due to the country’s controversial empowerment laws, a local think-tank has said.
A latest report by the Zimbabwe Economic Policy Analysis and Research Unit (Zeparu) revealed that unrecorded capital outflows occur through trade with different countries including Canada, China, Germany, Greece, Italy and United States.
Zeparu noted that these countries were used as gateways of capital out of Zimbabwe in the five-year period.
“The highest capital flight through trade misinvoicing was done through Italy with a total amount of approximately $120 million from 2008 to 2013,” the think-tank said in a report titled Capital flight and trade misinvoicing in Zimbabwe.
“During this period, the Indigenisation and Economic Empowerment policy might have scared investors. Investment risk might have continued to be present even during the multi-currency period,” Zeparu said.
Zimbabwe enacted the Indigenisation Act in 2008, which requires foreign-owned firms to cede at least 51 percent shares to locals. However, economic experts said the law is the biggest obstacle to investing in the mineral-rich country.
Zimbabwe has the second largest reserves of platinum and chrome, but has lagged behind neighbours like Mozambique and Zambia in attracting foreign investment largely due to President Robert Mugabe’s economic empowerment drive and high political risk.
Outside mining, foreign investors are interested in Zimbabwe’s manufacturing and tourism sectors and infrastructure projects like power generation, but are often discouraged by the indigenisation law and red tape.
The leading research firm said the ownership of mining companies has left the mining sector vulnerable to smuggling and illicit flows, as the government policies are deemed hostile to foreign investors.
“There is a need to put in place strict measures to monitor both local and foreign-owned mining companies to curb capital flight. The results also show that during the period of macro-economic and political stability, the contribution of the mining sector to economic growth increased and capital flight was lower.
“This suggests that political and macro-economic stability is needed to prevent capital flight,” Zeparu added.
Meanwhile, Zimbabwe also recorded illegal capital inflows from South Africa, Belgium, Australia, United Kingdom and Zambia.
According to Zeparu, the highest illegal inflows come from South Africa — Zimbabwe’s largest trading partner.
“Many Zimbabweans are residing in South Africa. As such, the high capital inflows are possibly due to the ease of hiding money in both exports and imports. This might suggest a lack of tight border controls between the countries, creating avenues for these inflows of unrecorded capital,” Zeparu said.
The research unit pointed out that a disaggregation of minerals reveals that trade misinvoicing for pearls and precious metals was largely driven by export misinvoicing rather than import misinvoicing.
The import misinvoicing was a channel for unrecorded capital inflows into the country.
This may indicate a misclassification of processed mineral products as raw materials and minerals to evade taxes.
According to Global Financial Integrity Report, Zimbabwe has lost an accumulative $12 billion in the last three decades