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 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.