As Zimbabwe’s economy continues to sink deeper into a recession, creating a favourable investment climate becomes even more critical to reverse the crisis. Not enough attention is being given to the economy as more businesses face closure placing hordes more on the streets, hence the country is experiencing a rapid informalisation of the economy. The sharp slowdown in economic activity combined with the devastating effects of the drought should be cause for concern for the authorities.
The Ritesh Anand Column
According to recent estimates, over three million people (24% of the rural population) in Zimbabwe are in need of food aid. Zimbabwe therefore urgently needs to address its economic challenges and reverse the sharp decline in economic activity. The country needs to spur investment through the development of a policy framework for investment.
The policy framework for investment addresses the issue of sustainable and inclusive development through the lens of private sector-led development. An investment climate focus provides a coherent and comprehensive way of addressing the challenges of growth and development, one which looks at the issue at a micro level from the viewpoint of the principal agent for productivity improvements: the firm. This focus is not meant to accord primacy to the concerns of private investors; private and social returns from investment are not always congruous and governments appropriately have a broader development agenda than corporate profitability. But it does provide a framework for understanding how policies interact and affect outcomes while also bringing out the critical issue of best practice in governance.
The framework should consider all forms of investment involving all types of firms. A good investment climate is one that provides opportunities for all investors: public and private, large and small, and foreign and domestic. The heterogeneity of investors, the diversity of factors which drive investment decisions and the multiple policy objectives pursued by governments all call for a “whole of government” perspective so as to increase policy coherence. This policy coherence applies to each component of the investment climate, whether encouraging foreign investment, promoting linkages and technology spillovers, raising the quality of the workforce, improving infrastructure or any other area.
Blind pursuit of some aspects of investment policy such as ownership, for example, could be detrimental to an economy. The framework should also take into account current economic conditions and the hopes and aspirations of its people.
The framework for investment should be non-prescriptive; there is no one-size-fits-all approach to private sector development that has worked in any country in all sectors and at all times. It’s imperative that the framework recognises the role of competition in stimulating productivity, growth and the related principle of non-discrimination and national treatment, but it also recognises the economic efficiency is only one part of the equation. Public governance matters as much as policies for the investment climate.
The investment framework should take into consideration not just policies themselves, but also how they are developed, co-ordinated, implemented, evaluated and ultimately modified. Investment involves a judgment about the future.
But what matters for investors are all the principles embodied in the notion of the rule of law: predictability, transparency, credibility, accountability and fairness. Zimbabwe needs to develop a suitable framework in response to this complexity — fostering a flexible, “whole of government” approach, which recognises that investment climate improvements require not just policy reform, but also changes in the way governments go about their business.
Investment is central to growth and sustainable development. It expands an economy’s productive capacity and drives job creation and income growth. Most investment is undertaken by domestic firms, but international investment can provide additional advantages beyond its contribution to the capital stock. It can serve as a conduit for the local diffusion of technology and expertise such as the creation of local supplier linkages and improved access to international markets.
Zimbabwe needs to develop a framework that interprets investment in its broadest sense. Investment can take many forms: from physical assets to human or intellectual capital. It can add capacity or simply improve the efficiency of existing assets such as through a change of ownership. Under the right conditions, it raises overall output both through factor accumulation and by introducing new techniques and processes which boost productivity and ultimately the country’s standard of living.
A good investment climate helps to mobilise capital, skills, technology and intermediate inputs to allow firms to expand. It helps to channel resources to more productive uses and, through competitive pressure and the discipline imposed by shareholders and creditors, ensures that all firms strive to improve their efficiency and forces inefficient ones to exit. It should allow enterprises to invest productively and profitably, but it is not just about reducing the cost of doing business and raising corporate profitability. It should also ensure that investment brings about the highest possible economic and social impact.
Zimbabwe desperately needs to develop a policy framework for investment. The framework needs to take into account current economic conditions and the need to raise capital. The heterogeneity of investors, the diversity of factors which drive investment decisions and the multiple policy objectives pursued by governments, all call for a “whole of government” perspective so as to increase policy coherence.
What Zimbabwe lacks is clarity and consistency of investment policies. We have failed to create a policy framework for investment that engenders confidence and boosts economic activity. We lack a common vision and there is little, if any, focus on the economy.