RECENT pronouncements by Information minister Monica Mutsvangwa that the government would award citizenship rights to deserving investors do not demonstrate the commitment by President Emmerson Mnangagwa’s administration to introducing key reforms towards attracting foreign direct investment (FDI) to Zimbabwe.
Riding on the mantra: “Zimbabwe Is Open for Business”, Mutsvangwa’s reasoning was premised on the assumption that offering citizenship rights would result in foreign investors flocking to Harare ahead of other global investment destinations with robust frameworks to attract capital.
Zimbabwe is planning to use the citizenship drawcard to lure foreign investors when it hosts the Pan-African Congress in 2023, as it gears to rebrand its investment outlook.
As global trends show, there is a striking nexus between countries which have lax citizenship rules and an upsurge in money laundering and illicit financial flows (IFIs), often disguised as FDI.
In the worst cases, capital-starved nations which dangle citizenship rights to lure foreign investors often end up attracting criminals whose enterprises fuel IFFs.
Generally, most of these “investors” often face accusations of flouting labour-related regulations ranging from abusing the workforce, tax evasion, environmental degradation, child employment and underpaying workers.
In the case of Zimbabwe, while granting citizenship rights may seem like a sweetener to attract foreign investors, revamping the whole business environment would be crucial towards attracting meaningful FDI.
At the heart of that agenda to reform Zimbabwe’s hostile business climate will be tackling widespread corruption, upholding property rights, enhancing macro-economic stability and fostering policy consistency.
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On the political front, Mnangagwa's administration should also demonstrate a tangible will to persuade the West to scrap its sanctions against Zimbabwe as investors are spooked by blacklisted investment destinations.
The economic and travel embargoes, which were slapped on Zimbabwe for abusing public resources, human rights violations and breakdown of the rule of law have been in place for the past two decades.
Economist Tawanda Purazeni contends that without overhauling Zimbabwe’s investment climate, primarily centred on uprooting widespread public and private corruption, the Southern African country’s drive to attract foreign investors would be futile.
“Being a citizen of a country gives assurances and the confidence to invest more. This is the strategy used the world over to attract investments, especially to those who have excess funds to invest,” Purazeni said.
“However, this strategy is more applicable to stable economies hinged on economic fundamentals. Respect for property rights, for instance, is key for this strategy to be a success. The macro-economic performance as guided by the real interest rate is also key as it determines the return on the chosen investment portfolio. High levels of corruption and rent-seeking behaviour are also deterrent factors.”
On the macro-economic front, punctured by currency volatilities, runaway inflation hovering around 268% and settling the US$11 billion public debt would be crucial steps towards setting Zimbabwe on a firm trajectory attractive to investment mobilisation.
However, with annual food inflation of 359%, the highest in the world, Zimbabwe faces serious hurdles in its bid to lure foreign capital. Fostering macro-economic stability, Tshwane University public affairs associate professor Ricky Mukonza argues, would add impetus to Zimbabwe’s goal to bring investment to the Southern African country with a gross domestic product (GDP) under US$30 billion.
Foreign investment inflows started declining at the time Zimbabwe introduced bond notes and coins in 2016, having initially introduced the multiple currency system dominated by the greenback.
“What is being announced as a new strategy is actually what other countries like South Africa have been doing for some time as a way of attracting investors. While it’s a good idea, it doesn’t create sufficient conditions for attracting investment. A lot still has to be done,” Mukonza said. “Zimbabwe needs to focus on measures that will create a stable macroeconomic environment. Measures that address liquidity issues, curb inflation, guarantee property rights, and broadly give assurance that there is stability economically. Another factor which would help is offering favourable tax conditions.”
In what turned out to be Zimbabwe's worst episode in history, marked by rapid capital flight, long-time ruler Robert Mugabe’s government embarked on a chaotic land redistribution exercise in 2000, which resulted in mostly white farmers losing their land without compensation.
At that time, Mugabe was excoriated globally for disregarding property rights as he forged ahead with implementing populist policies when his rule was facing a stern test from the opposition.
Mukonza observed that property rights would be the tonic to refocus Zimbabwe’s fragile economy on a firm recovery and growth path.
“Observance of property rights assures investors that their assets are safe and they do not run the risk of losing them through arbitrary actions as has been witnessed in the land reform actions around 2000. Other necessary reforms include political reforms such as ensuring free and fair elections, ensuring the independence of key democratic institutions such as the courts, and general observance of the rule of law. Reforms that allow Zimbabwe to have good relations with progressive nations on the globe,” Mukonza postured.
Sprucing Zimbabwe’s investment destination would also require mobilising domestic and foreign capital to revamp the country’s shambolic transport, Information Communication Technology (ICT), water, energy and banking system to position these sub-sectors as economic enablers.
As global trends have shown, investors tend to gravitate towards destinations with functional infrastructure.
However, even with functional infrastructure, investors are also wary of the tariffs on these goods and services as they make their investment decisions.
Using the cost of power, with the region requiring at least 5 000 megawatts to bridge its deficit, Zimbabwe’s cost of power is among the highest. This also applies to water tariffs.
Foreign investment inflows to Zimbabwe doubled to US$745 million in 2018 from just US$345 million in 2017 before plummeting 62% to a paltry US$280 million in 2019.