JOHANNESBURG—President Robert Mugabe’s government will review controversial legislation that has deterred foreign investment and dented Zimbabwe’s economy, an official said on Thursday.
The administration is setting up a special task force to amend the so-called indigenization law, which requires foreign-owned companies to cede a 51% stake in their business to locals, said Mr. Mugabe’s spokesman George Charamba.
Mr. Mugabe’s government, which won a disputed election last year, said it aimed to make the law more flexible in its application to industries ranging from mining and banking to retail and food processing.
“The law is standing in the way of foreign direct investment,” said Mr. Charamba, who has been briefed on cabinet meetings.
The amendments to the 2008 law, which the government says it will push through in the next few months, reflect an urgent government effort to avoid a repeat of recent history—when an economic implosion nearly drove Mr. Mugabe from power. Some investors are taking note of the changed tone from officials, and cautiously stepping up investment in Zimbabwe.
“They’re not idiots,” said Andrew Lapping, a Cape Town fund manager at Allan Gray Proprietary Ltd. who is investing in Zimbabwe’s platinum sector. “Zimbabwe is the place I’m most bullish about.”
The country’s growth fell in 2013 to 3% from 10.6% the year before. Mining companies have invested money to maintain output but say they haven’t grown as much as they would if the investment climate was more favorable and clearer. The International Monetary Fund forecasts 4.2% growth in 2014, helped by exports.
Yet some economists warn Zimbabwe’s economy is at risk of sliding into recession, as unemployment soars and local banks become more reluctant to lend. Some 15 factories closed in Zimbabwe in February, the latest figures from the ministry of finance show, and power cuts slowed those still in operation.
About a decade ago, Zimbabwe narrowly averted an economic collapse after a campaign of violent farm seizures scared away business and drew sanctions from Western countries. Between 2000 and 2008, Zimbabwe’s economy contracted by half and a loaf of bread soared to 80 trillion Zimbabwe dollars. A violent 2008 vote forced Mr. Mugabe into a coalition government with the Movement for Democratic Change.
Mr. Mugabe, who turned 90 in February, and his Zanu-PF party had argued that forcing foreign companies to hand over majority control was the way to uplift ordinary Zimbabweans. But officials now say the 51% stake demand isn’t set in stone.
Mr. Charamba said the government will likely decide to ease that requirement for banks and retailers. The requirement could ease for foreign miners, too, if a company invests in other operations to process the mined material, such as a refinery, or community projects.
“We’re saying come and discuss your plans with us and how you can help empower our young people who are unemployed and undertrained,” said deputy minister of indigenization Mathius Tongofa.
Talk of reviewing the indigenization laws, however, hasn’t stopped a separate effort to target banks foreign banks in Zimbabwe. The country’s parliament earlier this month, proposed limiting foreign ownership in banks to 25%. Mr. Charamba said the government will also address that initiative in the coming months and is aware of the need for clarity of law.
Some banks warn they won’t stick around if such proposals become law. “The politics are valid, but there has to be a money-making environment” said Ebenezer Essoka, Africa vice chairman for Standard Chartered Plc. “We’re having conversations.”
Some mining companies, though, are testing the potentially friendlier investment terrain. This week, the world’s second biggest platinum producer Impala Platinum Holdings Ltd.IMP.JO +0.36% ‘s Zimbabwe unit, called Zimplats, said it would spend $100 million to refurbish an existing base metal refinery in Zimbabwe over the next two years.
Nickel company Mwana Africa said this week that it would spend $26 million to upgrade one of its smelters in the country. Caledonia Mining, CAL.T +1.11% which has a 49% stake in a gold mine in Zimbabwe, said it could consider other opportunities in the country, said Mark Learmonth, vice president of investor relations at gold miner.
“We have to play that by ear as events unfold,” he said.