ZIMBABWEAN Prime Minister Morgan Tsvangirai on Wednesday condemned the country's new law requiring foreign-owned firms to give a majority stake to blacks as "warped".

Investors have raised concern over the new indigenisation law - which requires that foreign companies worth more than R3.9-million sell a majority of their equity to Zimbabwean blacks by 2015.

The law was passed in 2007 before President Robert Mugabe's Zanu-PF formed a coalition with Tsvangirai's Movement for Democratic Change. "The flawed nature of the current indigenisation policy and our toxic politics are major issues affecting investor confidence," said Tsvangirai on his recent trip to the US, where he had gone to lure investors to his troubled country.

"The warped indigenisation policy has eroded investor confidence and created a sceptical international business community that has developed a wait-and-see attitude."

He said the situation would only stabilise when an election has been held and a clear government policy on investment was outlined.

Tsvangirai has maintained that the law could scare away badly needed foreign investors. It is seen by some as a controversial extension of Zimbabwe's policy to seize white-owned farms. The law's critics argue that most Zimbabweans are too poor to own stakes in companies that might require injections of capital.

They fear that the equity will end up in the hands of wealthy officials.

On Monday, the country's empowerment minister and Mugabe's ally, Savious Kasukuwere, told the German Press Agency dpa that the law would still be enforced.

Foreign firms operating in Zimbabwe, which include mining groups and banks, including Rio Tinto and the British financial giant Barclays, were required to submit their plans to Harare by last Sunday. On Tuesday, a government body appointed by Kasukuwere said about 700 foreign companies had missed the deadline to submit proposals on how they would comply with the controversial law and risked having their licences cancelled or suspended