Foreign direct investment an unmet expectation

WHEN the GNU came into effect a year ago there were high expectations on the “expected flood” of foreign direct investment (FDI). Many anticipated that the economy would get a boost from foreign capital directed towards the ample opportunities the country presents.

There were extremely optimistic FDI figures thrown around’ at the signing of the GNU. The general sentiment was that investors who had a historical presence in Zimbabwe, such as the South African and British companies, would re-establish their presence in the country.
Over the last decade, FDI into the country peaked at US$444 million in 1998 before it became virtually non-existent as the political environment deteriorated thereby increasing country risk.  The Chinese global influence was also expected to contribute towards more FDI coming into the country.
The general perception was that the “Look East” policy tends to be more effective as the investment consideration model from China does not come with “strings attached” to the developments on the political front. The question to be asked is, have any of these expectations been met and to what degree?
There has been excitement generated by the press of “impending” corporate transactions from external investors but for most cases these have not materialised.  In late 2009 the local press reported that China and Zimbabwe had signed an accord which would see China investing US$8 billion towards mining, housing and energy. The state utilities privatisation scheme which had also generated interest has been slow in implementation. The Zisco privatisation which aroused interest is yet to be concluded.
Furthermore there has been an unclear position on how the other utilities would be privatised, if at all. Public-Private Partnerships have not materialized with most deals reaching the Memorandum of Understanding (MOU) stage, but none have been concluded due to the economic uncertainty.
The political front has not been stable with unresolved issues pertaining to the GNU resulting in investors waiting on the sidelines. Policy enactments with the latest one being the “Indigenization Act” have also dampened investor sentiment and reduced the amount of long-term finance available.
If the banking sector deposits are anything to go by, the Zimbabwean banking sector is currently sitting on US$1,3 billion which in the broader global perspective is insignificant. The sector has not been able to mobilise external credit lines for specific projects due to the perceived country risk. The country currently does not have a sovereign credit rating which also has an impact on its ability to mobilise funding from both the private investors and international funding institutions. African countries with a good credit rating like Ghana and Congo Brazzaville have been able to raise sovereign debt through US$ denominated bonds for infrastructure development among other country needs.
The recession did not help the situation as liquidity dried up and investors started looking at opportunities which made the most commercial sense with emphasis being on the return on investment and other risk factors. There was competition amongst emerging market economies for the same “US dollar” which would be invested in the best market amongst a plethora of opportunities.
The country presents a lot of compelling investment cases: a learned workforce with a literacy rate of 90% which is amongst the highest in Africa.
The key to ensuring that FDI inflows are harnessed into the country will be the creation of an enabling environment where there is security guaranteed for foreign investments without policy inconsistencies.
Respect of property rights will also instil confidence in would-be investors. A Bilateral Investment Promotion and Protection Agreement (Bippa) with South Africa was signed late last year — after protracted negotiations — which offers protection to South African investments in the country against possible forfeiture. This also gives an assurance that they will be able to take their money out. If this agreement is observed to the letter it should also stimulate FDI; assuming all other factors are also in sync.

By Precious Mhlandhla

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