· Law could force firms to hand over 51% of shares · Wealth would reward supporters, say analysts

President Robert Mugabe's government is preparing to seize majority shares in all of Zimbabwe's foreign-owned businesses and mines, a move that economists warn would be as damaging as the widespread land seizures in the country.

Top of the list of companies expected to be targeted are London-listed mining groups such as Rio Tinto and Anglo American, though recent remarks by Zimbabwean ministers suggested banks such as Standard Chartered and Barclays could also be hit.

One minister said "imperialist companies" would be targeted as they had been operating with what the president described as a "sinister, regime-change agenda", according to reports.

Last night, a senior source at one British company with a presence in Zimbabwe said any such move would "confirm Mugabe as operating what is, to all intents and purposes, a terrorist regime".

Mr Mugabe's cabinet has approved proposed legislation to force all foreign-owned companies to cede 51% of their shares to black Zimbabweans. The empowerment bill is going through a final drafting process before it is presented to parliament, said top government officials.

The Mugabe government has already drafted an amendment to the Mining Act, which requires all foreign-owned mines to have 51% of their shares owned by "indigenous" Zimbabweans.

In both proposed bills it is widely understood that the new black Zimbabwean shareholders would have to be closely tied to Mr Mugabe's ruling party, Zanu-PF. Officials have said that if companies cannot find acceptable indigenous Zimbabweans then the government can make suggestions.

Economists warn the actions would severely hurt Zimbabwe's already battered economy, which is suffering 3,700% inflation, the world's highest. Zimbabwe's economy has shrunk by 50% since 1999, an unprecedented contraction in a country not at war, according to the World Bank.

The seizure of majority stakes in businesses and mines would increase inefficiency, mismanagement and corruption, according to many business executives, who point to the disastrous land seizures. Once a food exporter, Zimbabwe has been reliant on international food aid for six consecutive years.

Independent analysts say the new moves are simply the latest example of Mr Mugabe's plundering of the economy.

"Mugabe operates on a patronage system and he is running out of farms to give away to his supporters," said the independent Harare economist John Robertson. "Now he is looking for new areas of the economy to hand over. If this legislation becomes law, it will be like legalising theft. It will be a death knell to many companies."

Cabinet approval of corporate seizure legislation has been widely anticipated by many multinational groups. British American Tobacco once counted Zimbabwe among its lead growers but has dramatically scaled down operations in the country. Rio Tinto sold off its gold and nickel mining operations to locally owned Rio Zim in 2003.

Barclays and Standard Chartered, which each employ almost 1,000 staff in Zimbabwe, have received criticism from Mugabe's opponents for their continued commitment to the country. Yesterday Barclays issued a statement saying: "We are assessing the potential impact of the proposed legislation on our business in Zimbabwe. It is early days and the proposed bill may not become law."

It is expected Mr Mugabe will announce the bills when he opens the new parliamentary session in June. Once tabled, the bills are virtually assured of passage because of Zanu-PF's dominance of the House of Assembly and the Senate. But the government may just hold the draft legislation as a threat to businesses. The mining legislation has been awaiting presentation to parliament for two years.

Several ministers are not in favour of the move. In particular, the Reserve Bank governor, Gideon Gono, is understood to be against it, arguing that the actions will stop any new foreign investment at a time when the economy desperately needs foreign currency.