Policy inconsistencies
Statutory instruments and judgments have been passed to favour policies that support political agendas. This selective application of law means that there is disregard for the rule of law and this hinders investor confidence. The inconsistencies around mining laws (EPOs, permits and licences), land tenure and property rights has inhibited foreign investment in Zimbabwe. The farm invasions and land seizures discourage investors from investing in an uncertain business environment for fear or arbitrary acquisition of land without compensation.
The red tape and bureaucracy in government
There is over-regulation around trade policies particularly the importation of goods. There is no independent oversight to avoid corrupt and biased negotiations regarding which investors are approved. For instance the renewal of import and export licences must be done every three months and there are a lot of agencies which must be consulted before a business can begin operating.
The corruption, delay and frustration behind establishing a business becomes a determinant in whether a company decides to invest. The cost of doing business in comparison to regional peers will fare much higher. This will push the potential investors to more favourable climates.
Conclusion and recommendations
There must clear regulatory and policy changes that shift to a decentralized system away from an overregulated, centralised state-system, to allow for private contractors and competitors. Long-term economic policies (i.e. 10-20 years) are required, which are fair, favourable and transparent and not subject to change as based on the political leader governing the country.
This must be overseen by an independent judiciary and legal framework that protects investors’ returns over a long stretch and period of time such as the Zimbabwe Investment Authority established to oversee licensing in terms of Section 7 of the Zimbabwe Investment Authority Act and the Zimbabwe Investment code sections 25 and 39.
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This will guarantee the security of foreign investment and allow for investor confidence, predictability and certainty. An open, transparent and accountable regulatory system is required to create an attractive business climate.
The factors responsible for low foreign direct investment inflows in Zimbabwe are inflation, a lack of trade openness, and gross capital formation.
Policies reducing the impact of institutional factors like corruption, weak governance and perceived political risk need to be implemented. Policy inconsistencies and credibility must be considered in policy formulation.
Zimbabwe should create a “hospitable investment climate by reducing corruption, uncertainties, poor governance and policy inconsistencies.” These variables affect foreign investment and make Zimbabwe risky to foreign investors.
Zimbabwe should vigorously pursue further opening of its economy in order to create global linkages and synergies that are a prerequisite for foreign direct investment attraction.
Its policies and regulatory framework should foster savings, safeguard property rights, minimise barriers to international trade, lower inflation, and create minimal regulatory barriers to encourage domestic capital formation as a prerequisite for foreign direct investment attraction in Zimbabwe.
