Zimbabwe should do more to protect foreign investment

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Tichaona-Zindoga

By Tichaona Zindoga

THE recent case in which a Chinese company, Freestone Mines, was forced off a quarry project in Mutare following a public outcry indicates deeper problems within Zimbabwe’s investment environment, with government at the centre of many a failure and negligence.

The incident could be a turning point where countries with local investments could start demanding redress of government’s poor policies, lack of due diligence and strict monitoring, the absence of which could cost potential investors dearly.

In the Freestone case, the company responded to an invitation by the local authority to engage in quarry mining — which had long been part of the city’s investment and developmental plans — and won. It proceeded to sign an agreement with the council, but was stopped dead by an unprecedented outcry from residents.

In some respects, the venture was ill-fated, coming as it did during an election season, and also at a time when civil society organisations (CSOs) have been campaigning against Chinese investments in the country.

However, observers and those closely involved in the issue say Zimbabwe’s care-free attitude could become the centre of focus.

It has been questioned, for example, why authorities approved the deal when Mutare City Council itself had not reached consensus with the local community and without the benefit of environmental impact assessment and issuance of a certificate?

Questions also arise as to why residents had been left in the dark about the deal, only to know through the agitation of civil society organisations?

CSOs, which had campaigned spiritedly against the Dangamvura quarry project, celebrated when Freestone announced that it would no longer pursue the project, and cheekily applauded the Chinese company.

The company bowed not just to local pressure, but it also heeded advice from the Chinese embassy in Harare to halt operations. The embassy also suggested that the company should return to China.

However, there is a strong feeling that, apart from its culpability, the company  was also a victim of circumstances.

Observers argue that if authorities at the level of local and central governments had done their homework, the company would not have been given the greenlight to start operations since they were potentially harmful to the environment as well as the community, particularly affecting its water supplies.

Strangely, Mutare City Council as well as the Environmental Management Agency (Ema) appeared to concur that the company consulted with the community and applied for environmental certification — or more technically — what is commonly referred to as the environmental impact assessment (EIA) certificate.

Key challenge to authorities, judging from the Freestone saga, is addressing a number of grey areas or deficiencies that are still prevalent in local investment approval and implementation processes, including, but not limited to, how should the environmental assessment be enhanced before the start of the project; how qualification of the enterprises and the projects should be assessed prior; agreements between companies and authorities should be scrutinised and brought before local communities for approval before commencement of the project.

From a moral and legal perspective, there should also be a mechanism that protects investors from being the scapegoat of the lack of regulation that authorities must enforce.

Turning point

Freestone Mines gave a glimpse into what has been exposed from across the country where foreign companies have invested in recent years, with the Chinese flying into a storm.

For a number of years now, investors and analysts have expressed concern over policy inconsistencies and poor regulatory mechanisms that have had an effect on businesses whether big or small; local or foreign.

These concerns continue to niggle investors

Interestingly, a statement by the Chamber of Chinese Enterprises in Zimbabwe (the chamber) which recently outlined a nine-point-plan guidance for Chinese companies, also indirectly pointed to a number of deficiencies in Zimbabwe’s investment environment.

The investors are not stupid — and authorities and policymakers must take note!

There are a number of issues that have affected the investment climate and lack of action in these areas could result in capital becoming very timid to come to Zimbabwe, especially if companies are blamed for the inadequacies of authorities. These areas include:

Need for due diligence in certifying investments and projects

Government must perform due diligence on companies before giving them an opportunity to embark on projects. Quality matters. Interestingly, the Chinese embassy in Zimbabwe has clearly stated that it is equally mindful of the need for high-quality and ethical investors coming to Zimbabwe and will not condone poor or corrupt practices.

Inspection and supervision

Connected to the above, there have been concerns that where some companies have been granted licences, authorities have been found wanting, and should be strict in ensuring compliance through monitoring and supervision in terms of licences.

Consultations and familiarisation with communities

Consulting communities about economic projects is imperative.  If authorities consult residents and stakeholders about their developmental aspirations and project desirability, there will be more unity and acceptability of investments.

Poor profit-sharing mechanisms

Government must ensure that environmental and social losses arising from investments do not outstrip the benefits, as has been the case in most natural resource sector investments — at least from the perspective of most communities. Government must modernise and harmonise regulations with respect to community and local authority benefits.

Relocation policies

Relocations caused by economic projects have been an emotive issue all over the world for centuries. When it comes to local projects, there have been sensitivities about people being moved from their ancestral lands. Further, there have been concerns about the quality and quantum of compensation such as relocations as well as who is responsible for relocating people and when. Many investors feel that the responsibility to relocate people should rest with the State and that it should initiate this process before it allocates projects.

A clearer and proactive policy is needed, and much appreciated if it lifts the burden off companies.

CSR obligations

There should be a policy on the range and size; quality and quantum of community and corporate social responsibility programmes.

Authorities need to specify in terms of the law what companies need to invest socially in terms of their bottom line so that there can be fair judgment of whether companies are responsible or not.

This will also be crucial in protecting companies from undue pressure to part with resources exerted by corrupt individuals or government departments.

Protect companies from corruption

Connected to the above, there is need for clarity on companies’ obligations in terms of laws and regulations. Government should move quickly to sniff out rent-seeking behaviour and stop corruption as it often leads to unhealthy outcomes. Stopping and punishing corruption could also reduce the cost of doing business in Zimbabwe so that investors can pay more to workers and service providers, not to greedy individuals.

Promotion of cultural diversity and education

Lastly, authorities in Zimbabwe should do more to promote harmonious relations between local and foreign communities. A number of disharmonious incidents have arisen out of cultural differences that include language. As a receiving country, Zimbabwe should invest in educating communities to better relate with investors and break cultural barriers through education and exchanges. It could constitute an important pillar of people-to-people relations that China already espouses as part of its foreign policy. The challenge is for Zimbabwean authorities to consider a systematic way to promote cultural diversity and good relations with investors, thereby minimising risks of racism and xenophobia, whose flames have begun to be fanned by external forces.

For Zimbabwe to succeed in luring and retaining high quality foreign direct investment, especially from China, it needs to do more on both policy and practical levels. Recent events have proved that there is still a long way to go.

  •  Tichaona Zindoga is a journalist, publisher and researcher.