From crumbs to slices: Zimbabwe’s quest for foreign direct investment

The announcement earlier this year that Zimbabwe’s inward foreign direct investment (FDI) had increased from $387 million to $400 million, was welcomed as a major milestone that coincided with the country’s return to relative macroeconomic stability.

Comment by Dr Eldrede Kahiya

However, captains of industry and policymakers alike know too well that $400 million symbolises mere crumbs of a much larger global FDI pie worth trillions of dollars.

Zimbabwe needs a much heavier dose of FDI across multiple sectors and industries to improve productivity and through-put.

As a matter of fact, speaking at a conference in Perth in 2011, Economic Planning and Investment Promotion minister Tapiwa Mashakada pointed out that the mining sector alone was in need of a $6 billion FDI injection.

For this reason, momentous attention is being devoted towards stimulating FDI inflows.

In this regard, I commend the Zimbabwe Investment Authority (ZIA) and the Ministry of Economic Planning and Investment Promotion (MEPIP) for developing a “one-stop-shop” multi-stakeholder initiative for attracting FDI.

It is also pleasing to see Zimbabwean business and political brain-trust playing a leading role at the various trade and investment fora springing up everywhere around the world.
Although I value dialogue, I also recognise that Zimbabwe is at a juncture where decisive action is probably more vital than discussion.

Without turning this article into a full-fledged treatise on theories of FDI, I will highlight a few factors investors consider before opening their wallets.

Investors consider, among other things, issues such as ease of starting a business, ease of running a business, economic freedom, investment policies, corruption, rule of law and enforcement of contracts.

These elements constitute what is generally known as the investment climate of a country.

How is Zimbabwe ranked in terms of these factors? Transparency International (2012) ranks Zimbabwe 163 out of 174 for overall levels of corruption while Heritage/Wall Street (2012) ranks Zimbabwe 175 out of 177 when it comes to economic freedoms.

This index is a composite aggregating factor such as regulatory efficiency, rule of law and open(ness) of markets.

World Bank affiliate International Finance Corporation (IFC) ranks Zimbabwe 172/185 in terms of ease of doing business, 143/185 for ease of starting a business, 157/185 for getting power connected to a new business and 111/174 when it comes to enforcing contracts.

Are these rankings necessarily accurate? Having worked with problematic international data before, I’m inclined to think that there may be some inaccuracies inherent in the sources and methodologies used to derive such rankings.

However, the rankings are relevant in as far as they provide rationale as to why Zimbabwe ends up with the crumbs of inward FDI pie.

It is vital to note that investors also look to qualitative sources to disconfirm or corroborate the numeric data provided by these international agencies.

They will peruse trade or investment-related literature from the particular country they are considering in order to provide context to the financial and numeric data described above.

This is where Zimbabwe is often found wanting. In my international travels, I have met Zimbabwean envoys who, either do not care, or are completely oblivious of the country’s investment and development drive.

Additionally, there are two specific aspects that should give captains of industry and policy makers, insomniac nights.

Firstly, Zimbabwe is fairing a lot worse than its regional
neighbours and indeed most of Africa. For instance regarding corruption, South Africa, Malawi and Zambia rank no worse than the 80th, with Botswana occupying the 30th spot.

Further, South Africa (82nd), Namibia (41st) and Botswana(68th) are much better at enforcing commercial contracts than Zimbabwe.

Did I mention Zimbabwe is ranked dead last among the 45 African countries included in the Heritage/Wall Street index of economic freedom?

Secondly, the impact of these factors on the country’s ability to attract FDI is acknowledged and clearly articulated in Zimbabwe’s Medium Term Plan (MTP).

Yet, IFC contends that within the decision making circles, there is no legitimate commitment towards addressing the underlying political, regulatory and economic issues.

Thus, while these challenges are not insurmountable, the fortitude to come up with a lasting solution is often lacking because Zimbabwe has fostered an environment which routinely sacrifices imaginative and innovative business thought on the altar of populism.

For example, it is public knowledge that the indigenisation and empowerment policy, in its raw form, is incompatible
with the goal of attracting inward FDI.

What with the arbitrary 51% threshold? While Mashakada has reiterated that the indigenisation policy does not amount to nationalisation or expropriation and that its boundaries have to be flexible, his sentiments are regularly contradicted by other players within the same multi-stakeholder unit tasked with generating FDI.

For the record, I’m not opposed to the notion of holding foreign investors accountable for their operations as well
as economic and social obligations.

Look no further than theWorld Investment Report for 2013 which confirms what most of us have always known, that for inward FDI destined for Africa, foreign investors remit most of the
income back to their home countries.

The on-going debate in Zambia vis-à-vis the operations of Mopani Copper Mines, a subsidiary of UK-based commodity giant Glencore, amid allegations of environmental degradation, pollution and tax evasion, provides relevant anecdotal evidence.

Thus, by attaching explicit expectations and conditions to foreign investments, Zimbabwean policymakers are acting within their rights.
However, such expectations should not be prescribed via capricious ownership requirements whose real benefits to the wider economy are dubious at best.

Under the current conditions characterised by concerns over ease of starting a business, ease of running a business, getting power connected to a business, economic freedoms, corruption, rule of law, enforcement of contracts and draconian indigenisation policies, Zimbabwe’s bid to raise as much as $9,2 billion by 2015 to help fund MTEP, will remain an outrageous fantasy.

Dr Eldrede Kahiya is an academic based in Christchurch, New Zealand. He can be contacted via email at: Eldrede.Kahiya@cpit.ac.nz

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1 Comment

  1. Sorry, Doc., maybe being far away from home has caused you to fall for neo-liberal economics. But if you were back here at home, we now believe in the concept of resource nationalism for two reasons. The first is to deal with the illegally imposed sanctions by the West. The second is the need to chart an independent Zimbo path of development away from the vampires of corporate capitalism. Unlike the traditional unbridled FDI from neo liberal economists, we prefer ours to be joint ventures under our own terms & conditions which we can always negotiate with those interested in our resources. This is how the Asian Tigers, Australia, Norway & South American countries have transformed their economies. Even South Africa under apartheid followed a similar approach. Zimbabwe is setting the goals of the renaissance of the African Lions in trans-formative economics.

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