“Economic Planning and Investment Promotion Minister Tapiwa Mashakada recently dropped some interesting statistics about foreign direct investment (FDI)’s state of play in Zimbabwe.
At the paltry and underwhelming level of $105 million for the whole of 2010, Zimbabwe is to all intents and purposes a laggard, falling behind some of its regional peers by anything between 33% and 1 800%.
All this is despite a panoply of comparative advantages such as a huge mineral resource base, a stable multi-currency regime, the lowest inflation rate in Sadc and a skilled workforce which is the second most literate in Africa.
With such an impressive array of positives, where are we losing the plot, I wonder? Indigenisation laws have been fingered as the greatest “scarecrow” for investment, but negative investor sentiment is in no small part due to a high country risk profile attributable to an uncertain political outlook.
It is, however, heartening to note that despite this perceived high country risk profile, the financial services sector in Zimbabwe has still managed to attract external equity and debt finance.
The premier finance group attracted $16 million in two transactions with separate investors while NMB Bank Limited raised $10,3 million. Other banks such as ZABG, Kingdom Bank Limited, Trust Bank, IDBZ, Agribank and Genesis Investment Bank are on a beauty parade seeking the attention of international suitors.
The PFG transaction under which Ecobank Transnational Inc acquired a 70% stake instead of the maximum of 51% required by indigenisation laws clearly demonstrated that in an eyeball-to-eyeball situation, the authorities can agree to flexible equity arrangements that take into consideration the timidity of foreign capital.
Banks have been able to access foreign lines of credit, though at a premium to account for risk factors. That said, Zimbabwe’s FDI debacle is manifestly out of character with the general air of optimism engulfing most parts of Africa.
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Afro-pessimism is gradually fading away, and in its place is a new air of optimism about Africa’s growth prospects. Economists forecast growth will average at least 5% a year for the next decade. So, what is driving this growth?
Today, two main themes underpin Africa’s growth. Firstly, Africa’s mineral and agricultural resources are in great demand whether one looks east or west and incidentally, Zimbabwe has an abundance of both and in fact mining and agriculture are driving Africa’s growth yet regrettably that is where the similarity ends.
Secondly, Africa’s growing middle class provides a burgeoning market for banking, insurance, mortgage and telecommunication services.
These growing populations also have significant infrastructural requirements which have to be met. By 2040, Africa will — alongside Asia — be home to the world’ largest working-age population and also home to one in five of the planet’s young people.
While it is acknowledged investing in Africa is not for the faint-hearted because of a myriad of challenges ranging from corruption, poor infrastructure and a high cost of doing business, the risk of investing on the continent is often exaggerated to “caricature” proportions.
Sadly, this negative portrayal of “yesterday’s Africa” is causing jaundiced investors to miscalculate Africa’s investment risk, which deprives them of an opportunity to participate in profitable and growing markets. Anyway, as one Sasha Planting says: “. . . If you want to wait until there is no risk, go invest in Switzerland and be thankful for 1,4% return on your 10-year government bond”.
To illustrate how perception — rather than reality — can cloud investor sentiment with ugly consequences, I always make it a point to ask first time foreign visitors to Zimbabwe what their impression of the country is and the response is often a confession the image they had is totally out of sync with what they discover on the ground.
Visitors are often forced to admit even at its worst, Zimbabwe’s infrastructural capabilities or “the sense of things working” is much better than in most other African countries that attract comparatively higher levels of investment.
Early this year President Paul Kagame of Rwanda challenged investors to base their investment decisions to invest in Africa on facts and realities of each country, rather than sweeping generalisations of the continent.
However, for those in the know, Africa presents an alternative to the traditional Western markets. To those who are not burdened by unfounded perceptions, Africa can provide international investors with interesting exposures that yield very competitive rates of return. And for the savvy investor, Africa is certainly open for business. But what about our beloved Zimbabwe?
I would say it is open too, which is why the presentation of the Budget today is an opportunity to sell Zimbabwe to the world.
Signals emanating from the 2012 Budget are eagerly awaited on the investment radars of many international investors including those whose 450 applications worth $2,8 billion were approved in 2010. They wish to put their money where their mouth is.
The Budget must go beyond fulfilling the statutory obligation of dividing the national cake; it must also seek to market the country as a viable investment destination in an environment in which the bar of competitiveness has already been raised by many other African countries such as Ghana, Botswana and Rwanda who are also open for business.
For its part, Zimbabwe must seek to defy the stereotype of an African nation and rise above cheap politicking if it is to attract investment which is commensurate with its potential.
As for skeptical investors and their cousins the Afro-pessimists, I quote Clifford Sachs, ReNaissance Capital’s Africa CEO:
“There is a saying that you need to get on a camel when it’s sitting down because once it gets up, it’s close to impossible to hitch a ride.”
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