Nine months on, nothing to show for ‘year of investment’

By Shakeman Mugari

IT is almost nine months since President Robert Mugabe announced 2005 would be the year of investment. But with three months before year-end no significant investment has taken place.

If anything this year has been characterised by ma

ssive capital flight as the economy continues to sink further into the doldrums. More companies have closed against a background of escalating operational costs, foreign currency shortages and a fuel crisis.

A number of other companies are on the brink of collapse. In his State of the Nation address to parliament on December 9, Mugabe announced proudly that the economy was on a recovery path.

“Mr Speaker, the coming year should be one of investment, during which we should consolidate and grow our economy for more jobs and improved living conditions for our people,” Mugabe said. “Foreigners only come to an economy which is driven by the confidence of its real owners. As the true owners of the Zimbabwean economy, we have to work singularly hard for its growth.”

Despite Mugabe’s misplaced confidence, there is no investment flowing into the country or signs of economic recovery.

“Mr Speaker, we close the year on a high note as the economy is showing concrete signs of recovery,” said Mugabe.

He said inflation had slowed while the exchange rate had largely stabilised and that the momentum was likely to continue into this year.

“The exchange rate has largely stabilised, allowing for a predictable environment for business decision-making,” Mugabe said.

The president forecast a better performance in economic growth for this year saying that the Gross Domestic Product (GDP), which was initially set to decline by 8,5% in 2004, was projected to decline by less that 5%. He projected growth in foreign currency inflows saying that the export capacity had improved. Mugabe announced that the struggling sectors of agriculture, tourism and manufacturing were also beginning to improve.

However, developments in recent months make a mockery of the president’s predictions. With only three months to go to year-end the economy has sunk to new levels. The fuel and foreign currency crisis has worsened. The standard of living for Zimbabweans has degenerated to record-low levels. The bumper harvest that Mugabe predicted has turned out to be a famine leaving almost a third of the country facing starvation.

Apart from the few Chinese shops that have invaded Harare, there has been no major international investment to talk about. In employment terms, there are more people out of their jobs now than there were nine months ago. Almost all the gains that Mugabe mentioned in his speech have been dramatically reversed. Inflation, which had retreated to 127,2% in January this year, is now trotting back to 2003’s record high of 622% with last month’s figure reaching 265,1%. Experts say it would continue to accelerate because of the rising fuel prices.

The value of the Zimbabwean dollar which Mugabe said had “stabilised” has been eroded drastically in the past nine months. Things have fallen apart and the hemorrhage is likely to continue unless there is a major policy shift both in economics and politics. Analysts say they don’t see any investment coming Zimbabwe’s way unless the politics are corrected and government stops promulgating laws that scare away investors.

Perhaps the major deterrent to international investors is the political risk factor which government has failed to address. The recently promulgated Constitutional Amendment Act, which Mugabe signed last week seeks to nationalise land. This has worsened political risk. The law is a direct assault on property rights which is one of the major indicators that investors consider before they commit their capital into any country.

Government has also passed the Troubled Financial Institutions (Resolution) Act, which allows it to take over troubled financial institutions without compensation to the owners. That law has since been used to take over three banks to form the Zimbabwe Allied Banking Group (ZABG) which now faces collapse.

“The politics is wrong and no investor wants to invest in a country which is politically unstable like Zimbabwe,” said Zimbabwe Congress of Trade Unions (ZCTU) economist Prosper Chitambara. “The nationalisation of land and the constant takeover threat to business by government makes Zimbabwe an unsuitable investment destination.”

Chitambara said there was need for dialogue among major political parties to break the standoff, which is currently hurting the economy. But judging by Zanu PF’s stance on dialogue, talks seem a far-fetched idea. Mugabe is hostile to the idea of talks between his party and the main opposition Movement for Democratic Change (MDC).

The crisis has also been worsened by the serious policy inconsistencies that are rampant in the government. There is a widening gulf between what the government wants to achieve and what is right for the economy. Analysts say Mugabe’s recent attacks on the International Monetary Fund (IMF) soon after Zimbabwe got a six-months reprieve is an indication of the differences in the policy thrust between the government and Reserve Bank of Zimbabwe (RBZ). Despite governor Gideon Gono’s posturing that the country would aim to improve relations with the fund, Mugabe announced that Zimbabwe had no interest in being friends with the IMF and would never be.

Analysts say this indicates that government has no plan to implement measures that the fund had recommended to get the economy back on track. The IMF’s advice for Harare to abolish the dual interest rate and foreign exchange regimes has fallen on deaf ears and so has been the advice to eliminate state controls in the market.

The analysts say given the government’s standoff with the IMF, there was very little chance that Harare would implement the recommendations. Zimbabwe National Chamber of Commerce (ZNCC) president Luxon Zembe says government has failed to put in place policies conducive for investment. He said the policy confusion was the major worry for investors who might be interested in coming to Zimbabwe.

For instance on empowerment in the mining sector, the Zimbabwe Investment Centre (ZIC) says 30% should be given to indigenous groups but politicians says locals are entitled to 50%. Finance Minister Murerwa says local investment groups should be given 40%.

“The confusion in the empowerment policy in the mining sector is reflected in the whole government. This is what is killing the economy,” said Zembe. He said there was no way investors could come to Zimbabwe when it is clear that the monetary and fiscal authorities are pulling in different directions.

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