ECONOMIC recovery is being hampered by low levels of investment, especially Foreign Direct Investment (FDI), despite huge interest from regional and international investors, a report reviewing implementation of the Medium Term Plan (MTP) crafted by Ministry of Economic Planning and Investment Promotion indicates.
Report by Owen Gagare
Besides low investment levels, other major challenges facing the implementation of the MTP – a five year development plan (2011-2015) whose aim is to ensure the country achieves broad-based and inclusive sustainable growth and development – include infrastructure bottlenecks, liquidity crunch, debt, drought, shrinking fiscal space for capital expenditures, late disbursement of funds from Treasury, delays by the State Procurement Board, and policy inconsistences and uncertainties.
In the first annual MTP implementation progress report, released recently, the ministry says FDI “continues to remain anemic at below 3% of GDP”, while domestic investment levels of about 3% of GDP were lower than thresholds of between 30-40% which are consistent with rapid and sustainable rates of economic growth.
The Zimbabwe Investment Authority (ZIA) however approved investment applications worth US$6 billion last year, although actual commitments totalled only $387 million.
“This has been largely due to foreign investor concerns over implementation of the indigenisation and empowerment regulations and general policy inconsistences in the country,” the Economic Planning and Investment Promotion ministry report says.
Policy contradictions also made it difficult for the country to attract investment and credit lines while they increased the country’s risk and the cost of doing business.
The dilapidated infrastructure, especially road and rail, as well as the shortage of energy and challenges water and sanitation have also weakened the country’s competitiveness, militating against meeting MTP targets.
Key productive sectors of the economy have also been affected by the liquidity crunch, slowing down growth.
“The debt overhang has negatively impacted on the country’s credit worthiness leading to limited offshore credit lines and FDI inflows,” the report says.
The drought which hit the country in the last agricultural season contributed heavily and was responsible for the downward revision of growth in 2012 from the MTP target of 7,8% to 5,6%.
Further, implementation of the MTP was also being adversely affected by a shrinking capital budget and constricted fiscal space.
“The resource requirement of the MTP of about $2 billion per year over the five-year period, represents some 66% of the national budget. When combined with government recurrent spending now reaching 85% of the budget, it highlights serious budgetary constraints facing capital spending,” it says.
“There is need to contain high government operational costs, as well as, to boost private investment in-order to generate higher rates of economic growth that would help improve budget revenue inflows.”
Besides the budget underperformance, the late disbursement of ministerial allocations by Treasury was also a major challenge, while bottlenecks within the government tendering and procurement system is also affecting the implementation of MTP flagship projects and programmes.
MTP flagship projects include the rehabilitation of Hwange Thermal Power Station, Kariba Hydro Power Station construction of Tokwe Mukosi Dam, Plumtree-Mutare Road, Lupane State University and Mtshabezi Water project, among other projects.
“Delays within the tendering system have increased costs and affected the completion of a number of MTP projects and programmes,” the report notes.