HomeBusiness DigestZim must honour Bippas to attract investors — analysts

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THE signing of bilateral investment promotion and protection agreements (Bippas) is a sign that the host country is committed to attracting foreign direct investment (FDI), but there may still be a number of impediments which hinder the flow of FDI into a country.

Zimbabwe has only six effective Bippas, five of them ratified 12 years ago, oldest with Germany, coming into effect in February 1996.

In 1998 Zimbabwe ratified Bippas with China, Denmark, Namibia, Switzerland and Yugoslavia and more were signed after 2000 but they await ratification to have legal effect.

There is a three-stage process before a Bippa comes into effect. These steps include negotiation, signing of the agreement and finally is the ratification, which gives it legal effect.

Bippas are designed to encourage investor confidence by setting high standards of investor protection applicable in international law.

Key elements which are usually contained in the agreements include provisions for equal and non-discriminatory treatment of investors and their investments, compensation for expropriation, transfer of capital and returns, and access to independent settlement of disputes.

Last year Zimbabwe signed a Bippa with South Africa which has raised a number of issues with one side  seeing a lot of opportunities which would come with the signing. On the other hand, there are pessimists who question the commitment of the Zimbabwean government in protecting investments.

The sceptics have had their argument buttressed by the treatment of Nestlé Zimbabwe which was under threat from monetary authorities, indigenous businesspeople and political party activists who wanted the dairy processing company to accept milk from a company owned by First Lady Grace Mugabe.

Nestlé should have enjoyed all the protections specified under Bippas as it is owned by a Swiss company which is one of the six countries which has ratified investment agreements.

Problems at Nestlé came at a time when the ink on the Bippa with South Africa had hardly dried, which invited further criticism of the readiness of Zimbabwe to honour such instruments.

South African businesspeople were hopeful that the Bippa would give them the necessary protection and footing to contribute towards the rebuilding of the Zimbabwean economy.

After all, these were companies had enjoyed close to a decade of growth at a time when local companies were sliding down.

As the Murray & Roberts (South Africa) executive, Caswell Makama, pointed out, these agreements should give them the comfort that their investment was safe.

“If they say a tender should be granted to the lowest tenderer that should stand,” said Makama. “Bippas hopefully should provide us with that comfort. They should give us that protection where we feel there is unfairness.”

Makama added: “If you look at infrastructure in South Africa for instance, you would probably see that we are building the biggest infrastructure in the world. When this is completed, what would stop us from coming to Zimbabwe? We would have to pay through the nose if this is done by any other country. We have paid that price and we are willing to share our knowledge with Zimbabwe.”

These statements show the potential which the country has in terms of attracting foreign direct investment, but unfortunately, the signing of the Bippa is not an end in itself as there are other factors which also come into play.

Zimbabwe is replete with cases of how Bippas have either been ignored or have not been implemented to the letter and spirit.

As the Nestlé case shows, there are times when emotions and political affinity take precedence over instruments which are binding under international law.

At times, the laws which are promulgated in the country, for example the proposed indigenisation law, would create problems over the status of the Bippas and in some cases municipal law would take precedence over international law.

An analyst with a financial institution who asked for anonymity said the timing and the handling of the Nestlé issue was likely to scare off potential investors.

“This was the worst public relations exercise by a nation which is still trying to attract investment,” he said. “It would not make sense to run around looking for scapegoats because we should look at the overall impact of what has been happening since September. Do you think a potential investor would convince shareholders and the board that they should pour millions of dollars into the country at a time when a company (Nestlé) that has been operating in Zimbabwe for more than 50 years is threatened?”

John Robertson, another economic analyst, said the country was unlikely to attract new investment as a result of what has been happening to Nestlé and also the invasion of a banana plantation in the Burma Valley, just outside Mutare.

“It shows that these Bippas have not been taken seriously by Zanu PF while MDC may want to take them seriously,” said Robertson. “Where this would lead to we may not know but it is really bad that we would not be attracting new investment.”

Robertson said the damage to the image of the country was bad and political interference has to be stopped.

He cited the issue of continued farm invasions as another case which may scare off investors.

Past president of the Zimbabwe National Chamber of Commerce Luxon Zembe said Bippas were a critical instrument in ensuring that the country attracted investment if they were honoured.

“What is important is to honour and respect them and in the past our biggest challenge was that we have not been honouring them and this is the time to recover and restore our credibility,” said Zembe. “This is part of the rule of law, to say we are a people of integrity and when we put pen to paper we respect it unless negotiated otherwise.”

Zembe said it was time to correct where the country had messed up in terms of respect of Bippas as failure to do so would become a reference point which may put off potential investors.

Generally, Zimbabwe has been found wanting on satisfying key elements of Bippas, especially on the issue of compensation for appropriated farms and conservancies under the land reform programme. Most of the farmers were not compensated.

 

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Leornard Makombe/Bernard Mpofu

 

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