Zimbabwe will transfer ownership of all foreign-owned firms that support Western sanctions against President Robert Mugabe's government to locals and investors from "friendly" countries, a state newspaper reported yesterday.

The southern African state is struggling with an economic crisis many blame on Mr Mugabe's policies, which has left it with an inflation rate of over 2.2 million per cent and chronic shortages of food and other basic needs.

Mr Mugabe's government blames the crisis on sabotage by enemies angry over his seizures of white-owned farms for blacks, and has followed up that policy with another controversial law seeking to transfer majority ownership of foreign-owned firms to locals.

The Sunday Mail said Zimbabwe had begun auditing the ownership of Western firms in the country as part of a black empowerment drive "and to counter the possible withdrawal of investment under sanctions imposed and proposed by Britain and the US".

Mr Mugabe - fighting to retain power after winning a runoff poll boycotted by his rival - says Zimbabwe's severe economic crisis is due to sabotage by former colonial master Britain, its EU allies and the US.

The Sunday Mail paper said preliminary results of Zimbabwe's audit of foreign investments showed that 499 companies enjoyed British investments. Of these, 309 had majority shareholders in Britain and 97 were wholly owned by Britons.

The audit also found 353 firms with shareholders from other European countries, the weekly said in a story largely attributed to unnamed government sources.

"A high-ranking government source told the Sunday Mail that these companies would be targeted for takeover by local investors and companies from friendly countries, particularly those in the Far East, should they heed calls by the US and European governments for them to disinvest from Zimbabwe," it said.