Policy see-saws spike turnaround hopes
BOTSWANA is one of Africa’s success stories in the field of mining investment. Our neighbour has not reinvented business practice to attract a myriad of investors in its mining sector but simply exercised pragmatism and cons
istency which have paid dividends.
Doing business in that country is predictable as the government has tried as much as possible not to scare away investors by issuing acerbic statements or shifting policies. Sensible, market-friendly policies and stable government have served Botswana well over the years.
On the economic freedom index, published by The Economist last year, Botswana scored 2,5 where a score of 1 is “most free” and 5 “least free”. All exchange controls have been abolished, and corporate tax is 15% (exactly half of Zimbabwe’s). With a per capita GDP of approximately US$6 600 and foreign reserves of $6 billion, it is not surprising that both Moody’s and Standard & Poor’s have upgraded Botswana’s credit rating.
Zimbabwe’s per capita GDP is around US$300, the country has no known forex reserves and its rankings on the Moody’s and Standard & Poor’s is close to 10.
It may sound “bookish” to adopt the Botswana template but it has been proven that it works. There is no high price to pay for the Zimbabwean government to follow suit.
Given the enormous challenges facing the economy, which include hyperinflation, negative real interest rates, a chronic shortage of foreign exchange and capital flight, investment in the country is high risk. It follows that countries which are high-risk have to do more to convince investors to pour money into greenfield projects and joint ventures.
Despite Zimbabwe’s more developed infrastructure and a large skills base, to an investor with the option to choose between coming here and going to Botswana, Zimbabwe will remain the second choice. This has however not jolted our rulers into fashioning policy to improve the country’s competitive edge.
Prudent business sense in trying to attract investment has always been subverted by dense political dogma which seeks to promote a bankrupt nationalism above employment-creation and poverty reduction.
The tax stand-off between government and Zimplats as reported in this paper last week exposes the political risk that has for years scared away investors. It further confirms international fears about business security in Zimbabwe where policies are made on the hoof.
After giving the company a tax holiday and signing a clear agreement, the government is now shifting goal posts by demanding that the company pays the tax.
At the signing of the agreement, the government had said it would amend the law to accommodate provisions of the investment agreement. Whether by design or omission, this did not happen and there is no excuse for this kind of sloppiness.
Further policy see-saws have been justified in the name of black empowerment or returning national wealth. But this is a threadbare ruse which the world can see right through. There is no coherent empowerment policy in place, the absence of which has promoted a policy of patronage and asset-stripping in agriculture and manufacturing. Mining is next.
There is a belief that wealth should simply cascade from whites to blacks notwithstanding the repercussions on the economy.
These negative politics put further weight on the country’s risk factor as this mode of empowerment is a fertile breeding ground for corruption which this country has become notorious for. Investors will always think twice about investing money in a country where the political/electoral system is designed or distorted to ensure the domination of a particular party.
There is more weighting on the risk if evidence abounds of restrictions on the activity of political parties through the creation of obstacles affecting civic society and the media.
But our government is still engrossed in the notion that because it is under sanctions it has to come up with desperate measures to save the situation. But desperate measures should make the situation better, not worse. There can still be desperate measures designed to attract investment and keep those already doing business here happy.
There has been too much emphasis on the carrot and stick mode of regulating industry. The stick has always been wielded more often than the carrot. This is why the Zimbabwe Investment Centre has been busy approving investment plans which are never implemented.
Zimbabwe needs a consolidated investment policy which provides would-be investors with crucial details including tax holidays, foreign currency retention, and a transparent empowerment policy. Laws should be amended so that they are in sync with policy and ministers and bureaucrats must not promise investors measures that cannot be provided under the existing legal regime.
Above all, there must be confidence that policy generally will not be changed every time a ruling politician opens his or her mouth, that macro-economic distortions will be fully addressed, and that the judicial system will not be suborned to serve the interests of a party that elevates populist posturing over sound long-term planning.