* Empowerment seen as political rhetoric by Tsvangirai
* Worries of fresh economic damage rise
By Jon Herskovitz
JOHANNESBURG, March 1 (Reuters) - Zimbabwe's demand that foreign companies turn over majority stakes to locals is being driven by upcoming elections and scaring investors away, Prime Minister Morgan Tsvangirai said on Thursday.
Mining firms, banks and retailers have grown increasingly worried about the law, pushed by Tsvangirai's rival and coalition partner, President Robert Mugabe.
"It is political rhetoric," Tsvangirai told an investment forum in Johannesburg. "The indigenisation law as it currently is - there is no talk of nationalisation. There is no talk of grabbing property."
Tsvangirai said politicians can make promises of bringing riches to the masses, but the law states market prices must be paid for the stakes in foreign firms and there is not enough money in private hands to make that happen.
"Our people don't have the necessary resources to buy the equity that is currently existing in the economy," he said.
Zimbabwe's economy was a basket case, with inflation running at astronomical levels, before a coalition was formed between Mugabe and his long-time foe Tsvangirai after a disputed election in 2008.
The deal helped stabilise the economy and reverse a decade of steep decline but progress could be dashed by national elections required by next year under the power-sharing agreement.
Tsvangirai said his coalition partners "have twisted a very noble cause" of empowering poor blacks.
"This is a price that we are paying as a coalition government of no shared vision and no shared values," he said, adding that the mixed message was "a proper recipe for turning away investors".
Analysts see a more sinister side to the indigenisation law, which they feel will be exploited by Mugabe's ZANU-PF party to squeeze money out of foreign firms to finance its election campaign and employ thugs to intimidate voters.
Mugabe, in power since the country gained independence from Britain in 1980, and top ZANU-PF officials have been hit with international sanctions for suspected political violence and killing campaigns to stay in power.
"(The law) is little more than an extortion scheme, with rival players offering companies 'protection' in return for pay and equity stakes," said Anne Fruhauf, Africa analyst for the Eurasia Group political risk consultancy.
Mining firms risk losing their claims in the country with the world's second-largest platinum reserves if they do not comply. Many are waiting for a future government more amenable to international investment before they increase production.
Impala Platinum, the world's second-largest platinum producer, has offered to hand over between 25 percent and 30 percent in equity and make up the balance through "credits" it hoped to receive in exchange for giving up some of its land five years ago.
But the minister in charge of the black empowerment drive, Saviour Kasukuwere, has rejected part of the Implats proposal and has given the company until Wednesday next week to hand over 29.5 percent of its Zimplats operation.