THE importance of having certainty regarding policy and regulatory framework, among other measures, to attract significant investment in Zimbabwe, cannot be overemphasised.
The southern Africa nation is endowed with abundant natural resources such as diamond, gold, coal, iron ore, chromium ore, vanadium, asbestos, nickel, copper, lithium, tin, and platinum group metals among others, but alas, it is struggling to attract meaningful foreign direct investment (FDI).
The country’s FDIs averaged US$350 million in the last decade against a Southern African Development Community (SADC) regional average of US$1,2 billion.
Last year, it nosedived further to US$259 million from US$745 million recorded in 2018, according to reports.
But why does a country with such vast natural resources attract so little FDI?
Analysts have identified quite several factors and these include corruption; targeted sanctions; perceptions (the gap between perception and reality); lack of transparency, consistency, and accountability, and ease of doing business, just to mention a few.
Sound legal framework
To improve the investment climate, analysts have said Zimbabwe needs to restore the rule of law and the sanctity of contracts. They say this will require the protection of investments in domestic legal frameworks and through international investment agreements.
“Foreign businesses will be looking for a sound legal framework for investment, which is in turn underpinned by consistent and clear rules and regulations relating to investment protection,” writes Joseph Otoo, a senior associate in Mayer Brown International LLP’s construction & engineering and international arbitration groups.
“This will help to foster legal certainty, particularly in sectors such as energy, natural resources, and infrastructure where significant capital is invested over the long term,” he said.
The government has in the past been accused of interfering in cases that have political overtones through influencing decisions of the local courts.
This has resulted in a lack of trust in the courts and the judicial process.
Corruption in the southern African nation has become endemic in the political, private and civil sectors, making doing business in the country difficult.
The Auditor-General’s reports always unearth rampant cases of corruption in both government departments and State-owned enterprises, but nothing had been done to the perpetrators except to ‘catch & release’ them.
The country is the 158 least corrupt nation out of 180 countries, according to the 2019 Corruption Perceptions Index reported by Transparency International.
Policy inconsistency is one of the reasons why Zimbabwe is struggling to attract massive FDI inflows. There is too much discord and incoherence when it comes to policy pronouncements. A good example is the issue of currency.
Both John Mangudya, the central bank boss and Finance minister Mthuli Ncube, have been inconsistent about this issue. Right now it is difficult to tell whether Zimbabwe has abandoned multi-currency regime or not, as some companies are still allowed to trade in forex locally while others are not.
Economist, Reginald Shoko said policy inconsistency creates an environment that is not stable, unpredictable and impossible to plan around.
As such, there is a need for greater policy consistency and re-engagement with international investors if we are to attract investors.
We may argue back and forth but the reality will remain—sanctions chase away capital. The United States of America slapped Zimbabwe with targeted or restrictive sanctions in early 2000 following the land reform programme.
Ever since then, Zimbabwe has been struggling to receive enough foreign direct investment because most firms and companies аге handicapped. For instance, the Industrial Development Corporation (IDC), а wholly State-owned enterprise, which was also put under sanctions, is ailing.
The parastatals had interests in а number of Zimbabwean companies such as Olivine, Sable Chemicals, Chemplex, and Zimbabwe Fertiliser Company. These companies have been under-performing as а result of sanctions as they had no access to credit lines.
As а result of sanctions, Standard Chartered ordered IDC to close its accounts with the bank, further crippling its operations.
Economists have estimated that the country’s state enterprises account for 14% of the country’s GDP, making them а key component of the economy.
Also due to these sanctions, Zimbabwe’s credit ratings are unfavorable.
The targeted sanctions also inhibit investment making it very difficult for private sector companies to engage with foreign investors.
Zimbabwe’s perception outside there is discouraging. The country is perceived as too poor, violent, backward, among others. In some of his writings, Ritesh Anand, the founder and managing director of Invictus Capital, says many investors who visit Zimbabwe are pleasantly surprised at how peaceful the country is, the state of infrastructure, especially roads and how wonderful and educated the people are.
Anand says international perceptions of Zimbabwe will improve once the country has restored its relationship with its former colonial master, Britain.
“Changing perceptions and restoring investor confidence is key to attracting investment. The lack of domestic liquidity makes it difficult to stimulate growth from within,” he writes.
Lack of transparency & accountability
According to Open Budget Survey 2017, Zimbabwe ranked 23 out of 100 countries in budget transparency, an unimpressive ranking, which has an effect of pushing away investors and external funding.
Open Budget Index can determine the level of funding from non-governmental organisations and world bodies such as the International Monetary Fund and the World Bank. In addition, such openness indices are used by international investors to gauge the level of fiscal transparency in a country.
There is also no transparency when it comes to deals and loans signed by the President and some government ministers.
“Failures to be governed by budgetary constraints have been swept aside by forcing Bills through Parliament to condone excess spending by ministry officials, exposures of corruption by the Auditor General have apparently been set aside by the Attorney General and government officials are free to establish business operations and to use their influence to overwhelm private-sector competitors,” says John Robertson, an economic analyst.
Such problems are seen as severely discouraging, even threatening, to investors, he said.
Government officials are not accountable to anyone. They can do whatever they want to do with public funds and never called to account. This also chases away capital.
Ease of doing business
Zimbabwe has been struggling to attract FDI due to bottlenecks associated with doing business in the country. It is ranked 140 among 190 economies in the ease of doing business, according to the latest World Bank annual ratings. The rank of Zimbabwe improved to 140 in 2019 from 155 in 2018.
The ease of doing business index ranks countries against each other based on how the regulatory environment is conducive to business operation stronger protections of property rights. Economies with a high rank (1 to 20) have simpler and more friendly regulations for businesses.
In a bid to improve ease of doing business, the government came up with a one-stop investment centre, a very commendable development if implemented.
The government should address investor concerns and provide a simpler, more consistent policy framework. Sound regulatory framework to attract significant investment in the country should be crafted and fully implemented. Policy inconsistencies, corruption among other ills should be done away with.
Surely, the country cannot afford to continue singing the blues and chasing shadows when it comes to FDI. The country should take advantage of its natural resources and stop playing second fiddle to other countries in the region.
Finally, Zimbabwe needs to create a favorable environment that includes stable macro-economic conditions, stable political environment, stable currency, stable exchange rate, attractive policies, respect for property rights and rule of law.
This article first appeared in the March 2020 Issue of the Mining Zimbabwe Magazine