Candid Comment: How to lure equity investment

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Itai Masuku

TWO reports of fundamental interest have come out over the last week, and that is UNCTAD’s World Investment Report 2012, particularly the aspect on foreign direct investment (FDI) flows throughout the world, and another one on investing in emerging markets by Clear Path Analysis.
We start with the UNCTAD report, which has good news and bad news. The good news is that for once, Zimbabwe tops the list of sub-Saharan countries that received the highest share of FDI last year. According to the report, FDI increased to US$387 million in 2011 from US$166 million in 2010. The report said in Africa, Zimbabwe attracted the largest greenfield investment. This was the US$4 billion investment from the Essar Group (India) which contributed the bulk of the rise in Zimbabwe’s greenfield investments from $0,8 billion in 2010 to US$5,8 billion in 2011, making the country the largest recipient among African land-locked developing countries (LLDCs). The bad news, however, is that the investment is yet to materialise, even though it was recorded in 2011. As we now know, implementation of the Essar deal has been hanging in the balance for reasons ranging from disputes over mining rights to possibly upcoming ones over the indigenisation regulations.
As for indirect investment, it may be pertinent to quote Clear Path Analysis’ perspective on how this may impact Africa in general and Zimbabwe in particular:
“With an uncertain future ahead, financial markets are looking into alternative investments. The opportunities arising from emerging regions and their equity markets are a tempting proposition for institutional asset-owner groups and complementing this trend, emerging market central banks and governments are increasingly responding to calls for responsible fiscal and monetary responsibility.”
The report says appetite for emerging markets is reaching an all-time high. The salient takeaway from this quotation is what are terror twins for Zimbabwe; fiscal discipline and monetary responsibility. It is worrying that we appear not to be faring well on these. The IMF Article IV report on Zimbabwe pointed out that we may have a budget overrun of nearly US$1 billion this year.
These figures actually come from our own governance structures and the point is our governance structures have admitted to the IMF, before us their citizens, that we are headed for budgetary disaster. And unlike the past, they just can’t print money. However, this is not to say that the other terror twin, that of monetary policy doesn’t apply. How our monetary sector has been run leaves a lot to be desired as is now out for all to see. We really need a banking sector that is safer and sounder than that of Europe. Why? Because Europe can withstand some shocks to its system by virtue of its robustness. Again intolerance of corporate sleaze in those countries is instructive as seen by the punitive measures being meted out to those responsible; something unheard of in our circles.
As the IMF report aptly notes: “A vigorous programme of reforms focused on raising the productivity of government expenditures, reducing financial sector vulnerabilities, addressing infrastructure bottlenecks, increasing competitiveness and improving the business environment, higher rates of economic growth would be achievable on the basis of stronger investment both private and public.”
That way government’s target of increasing foreign investment flows by 400% over the next five years to US$4 billion per annum could be achievable.

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