Massive slump in foreign investment

The Zimbabwe Investment Authority (ZIA) recently disclosed that Foreign Direct Investment (FDI) it licensed in the first quarter of 2013 amounted to approximately US$33 million, as compared to approximately US$136 million in the same period in 2012.

Column by Eric Bloch

Effectively therefore, intended FDI declined by almost 76%.  That horrendous decline in foreign investor interest in Zimbabwe as an investment destination should send a very loud message to Government, and especially so, as much of Africa is attaining very considerable FDI growth.  Tragically, however, that message is falling on deaf ears, for there are none so deaf as those who will not hear.

That Zimbabwe is not attracting considerable FDI, in contrast to the substantial extent of such investment in various other countries in Africa, is not because it does not have numerous, and diverse, positive resources which provide opportunity for investment.

Zimbabwe has a wealth of very valuable mineral resources, many of which are currently only minimally exploited.  There is exceptional potential for tourism sector development.

Manufacturing in Zimbabwe could yield considerable benefits to investors, and especially so where there is value-addition to Zimbabwe’s countless primary products of high quality in both the agriculture and mining sectors.

Similarly, many opportunities exist for positive investment in the provision of technological and other services.  The reality as to Zimbabwe’s inability to attract substantial FDI is that it is perceived, regionally and internationally, as having no investment security and that its governance and legislative environment is unconducive to attaining satisfactory, ongoing, investment yields.

Undoubtedly those (mainly within Government) who have been, and continue to be, culpable for the many investment deterrents would allege, albeit falsely, that in no manner are they blameworthy.

They maintain that the lack of considerable investment is almost wholly due to the imposition, by certain western countries, of the allegedly “illegal” international sanctions.

Such a contention is devoid of substance as, on the one hand, those restrictions that have been imposed relate solely to transactions, provision of funding and the like, to the Zimbabwean Government, its parastatals and other underlying entities, as well as 21 specified individuals, and not on the economy as a whole.

It is also evident that attribution as to the absence of much investment is unfounded in that the restrictions have only been imposed by certain developed countries, and yet there is also little investment from countries that have not imposed the embargoes.  Zimbabwe repeatedly professes a “Look East” policy but currently there is little investment from the east, be it from China, India, Malaysia, Russia, the Arab states, and many others.

The foremost deterrent of FDI is the manner that Zimbabwe vigorously pursues economic indigenisation, forcefully prescribing and enforcing that not less than 51% ownership of all economically engaged enterprises must be held by indigenous Zimbabweans.

Intending investors are invariably willing to have indigenous co-investors, but not to an extent that the non-indigenous investor may only be possessed of a minority stake in the enterprise, not exceeding 49% and, therefore, devoid of authority and control of the investment undertaking, despite provision of all, or the greater portion, of the funding, the transferral of technologies and usage of patents and trademarks, devoid of appropriate recompense.

Moreover, more often than not, the indigenous participants in the enterprise are not selected by the investor, but (to all intents and purposes) imposed upon the investor by the State.  This imposition, and enforcement, by the State is unacceptable to most potential foreign direct investors.

The abhorrence of such possible investors is compounded by the large extent to which Zimbabwe has demonstrated contemptuous disregard for the many Bilateral Investment Promotion and Protection Agreements (BIPPAs), and by Government’s blatant disregard for property rights.

Interactive with the negative consequences of the Indigenisation and Economic Empowerment policies (which have grievously failed to empower the majority of Zimbabwe’s immensely impoverished population, and has in fact increased that poverty, and the resultant hardships and suffering, by intensifying the extent of unemployment, and has almost solely increased the wealth of the few who are politically well-connected) is repeated racism, with statements such as those recently made by War Veterans’ leader, Jabulani Sibanda, that Zimbabwe does not want whites, and that all whites should reside solely in the western countries from which they, or their ancestors, emanated.

As if these obstacles to potential investors converting their real, but deeply-concerned and grave reservations as to effecting investment in Zimbabwe, do not suffice to starve Zimbabwe of the considerable investment which is a prerequisite to any substantial economic recovery, and national wellbeing, numerous others have been created, and continued, by many in Government.  That is so despite the fact that the primary onus to achieve, and continue, a positive economy, is the responsibility and obligation of those who govern the country.  Amongst the very many other factors that destroy potential investor willingness to invest are:

The endlessly deplorable inability of many parastatals, and local authorities, to provide the utilities and services which are essential for the viable operations of almost all enterprises, including the provision of energy, water, rail transportation, reliable air services, effective telecommunications, and much else.

In most instances the key constraint upon the provision of unimpeded, reliable, supply of the essential utilities and services is that the enterprises are pronouncedly under-capitalised, and in some instances due to the gross incapability of some senior management, whose appointments were not driven by their suitability and capability to fulfill their duties, but solely by their connections with those effecting the appointments.

Taxation policies, which are almost wholly only such as perceived by Government to enhance its revenue inflows, with myopic failure to recognise that those inflows can best be enhanced by achieving considerable national economic growth.

Some of the destructive policies include prescription of taxation rates significantly greater than applied elsewhere in Southern Africa, a near total absence of export incentives (greatly needed if Zimbabwean exports are to be competitive with those of other countries which do incentivise exports), and excessively high duties and other imposts on many imports of essential manufacturing inputs.

Compounding these ills is the magnitude of bureaucracy at Zimbabwe’s border posts, occasioning very frequent, prolonged delays in the clearance of imports and exports.

Very extensive corruption in numerous avenues of Government, and the private sector, with the Anti-Corruption Commission repeatedly being emasculated when it seeks to investigate allegations of corrupt practices being pursued by those possessed of relationships with empowered politicians,  Instead of corruption being contained and curbed, it is endlessly intensifying, and becoming more pronounced, with the State doing almost naught to curb it.
For decades the devolution of governmental administration from the capital city has been minimal, with ministries’ offices, and those of parastatals, in other centres generally being devoid of authority, their sole roles being, to all intents and purposes, only acting as “post offices” for the transmission of matters to their head offices in Harare.  Consequential delays are often extremely great, with resultant negative economic impacts.
Continuing monetary market instability and illiquidity, due primarily to the fears of the private sector as to the market’s stability, provoked by recurrent expectations of a premature reinstatement of Zimbabwean currency, devoid of any support of appropriate reserves.  Although the Minister of Finance, Tendai Biti, has repeatedly stated that reinstatement of Zimbabwean currency will not be entertained until the economy has attained, and maintained, real and comprehensive economic recovery and growth for at least 2 years, others frequently suggest otherwise, including a resolution at the ZANU-PF Congress last December, calling for reversion to Zimbabwean currency.
These are some of the hindrances to Zimbabwe attracting the substantial FDI that is vitally essential for any great economic upturn, and almost entirely the onus is upon Government to contain and reverse the massive slump in foreign investment that has afflicted Zimbabwe for many years.

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