Zimbabwe is hurting investor confidence and stalling recovery by promoting a law to force the transfer of foreign-owned firms to local ownership, Prime Minister Morgan Tsvangirai said on Wednesday.

President Robert Mugabe, Tsvangirai's partner in a fragile coalition set up two years ago after disputed 2008 elections, is championing the law that would require foreign firms to sell majority share holdings to local blacks.

The warped indigenisation policy has eroded investor confidence and created a sceptical international business community that has developed a wait-and-see attitude, Tsvangirai told reporters after returning from a trip to the United States.

The heavily criticised law is aimed mainly at mining firms and banks operating in a resource-rich state that has become an economic basket case because of what analysts say are years of mismanagement by Mugabe's government.

The world's leading platinum miner, Anglo American Platinum , number two producer Impala Platinum and Rio Tinto which operates a diamond mine, are some of the major foreign firms operating in Zimbabwe.

Critics see the law as a way for the government to squeeze cash out of foreign firms operating in Zimbabwe and say the money will go to top officials, not to ordinary people, who rank among the poorest in the world.

Tsvangirai, who previously has clashed with Mugabe over the ownership policy, said the economy is recovering under the power-sharing government, but risks sliding back because of policy uncertainty.

A major reason for the law could be to allow Mugabe's ZANU-PF party to build up a war chest ahead of national elections that could come as early as next year, analysts said.

The world is ready to do business with us as long as we stop violence and develop a clear indigenisation policy that empowers ordinary people, he said, briefing journalists after a trip to the United States.

He said the implementation of the law in the mining sector has run into some legal challenges.

Tsvangirai said only free and fair elections, conducted after broad electoral reforms called for by his party and regional leaders, would help resolve the current impasse in economic policy coordination.