De-dollarisation an albatross to FDI

Respect Gwenzi

UNDER the “New Dispensation”, government has gone on a “Zimbabwe is open for business” crusade in a bid to mobilise inbound investment, but as the latest figures reveal, there is very little to show for it, as foreign direct investment (FDI) inflows for 2019 tumbled to the lowest position in nearly a decade.

FDI inflows for 2019 slumped by 65% from US$745 million in 2018 to a mere US$259 million in 2019, reaching its lowest position in nine years, the most recent Monetary Policy Statement reveals. The figures are a pale shadow of the gigantic balance of US$27 billion in investments commitment the new government claimed to have secured in 2019 alone. 2018 was, however, a relatively better off year, as Zimbabwe, under President Mnangagwa’s leadership, attracted US$750 million in FDI, the highest attracted by the country in close to 20 years. So how possible was it that in the first full-year of Mnangagwa’s leadership, the country generated the highest level of FDI, only to skid to a record low barely a year later? Something fundamental should have happened to result in a reversal of such a rare positive feat.

Before we delve into that, a comparative analysis of the regional performance shows that, generally, Zimbabwe has lagged behind the region, and has in recent history come behind South Africa, Zambia and Mozambique. Our southern neighbour, South Africa, generated US$3,6 billion in the nine months to September 30, 2019. Over the same period, our northern counterpart, Zambia, doubled our full-year performance to reach US$565 million.

Over the five-year period between 2013 and 2018, Zimbabwe generated US$2,8 billion in FDI inflows. When juxtaposed with other regional players, the figure stands lower than that of South Africa, Mozambique and Zambia which accumulated US$27 billion, US$23 billion and US$7 billion respectively.

Over the five-year period, the only country worse than Zimbabwe is Botswana at US$1,5 billion. Feeding the regional trend are largely investor-friendly policies over the past decade. In Mozambique, a liquefied natural gas (LNG) discovery by Exxon Mobil, as well as infrastructure developments in recent years have changed that country’s FDI trajectory. Zambia has seen a flexing in policy and the implementation of tax-free regimes in a bid to attract international investors. Zambia developed two Special Economic Zones (SEZs), the first, in partnership with China Non-Ferrous Metal Mining Corporation. The second is in the copper-rich town of Chambishi and focusses on copper-related industries.

However, a red flag has been raised as Zambia now grapples with an external debt of just over US$10 billion. Back home, Zimbabwe is suffering from a ballooning confidence deficit, policy inconsistency, severe corruption, gross mismanagement of SOEs, industry capacity under-utilisation which is at its lowest in a decade, currency woes, forex shortages, a shrinking agricultural sector — the list is endless.

Zimbabwe’s US$9 billion foreign debt has had a dampening effect insofar as investor perception is concerned. The pace of debt accumulation by African economies, with particular reference to sub-Saharan Africa (SSA), has been red-flagged by the World Bank. Going by the bank’s data, total external debt for SSA jumped nearly 150% to US$583 billion in 2018, from US$236 billion in 2008 as the average public debt now settles at 59% of gross domestic product (GDP) for the sub-region. To answer an earlier question on what went wrong within the space of a year, coming from the highest FDI levels in 20 years to the lowest in nine years in the succeeding year, research shows the key drivers of FDI underperformance in 2019 relate to the scrapping of the multicurrency regime, a key policy shift which affected the economy’s fundamental base.

Investors were no longer guaranteed US dollar returns and had to evaluate on the basis of inflation and exchange rate risk. They further had to deal with foreign currency shortages which made it difficult to remit dividends. 2019 was the same year political tensions heightened following a contested 2018 election which has left the nation terribly divided. Failure by government to find a solution to the legacy debt owed to multinational financiers has also been a huge factor in deterring new capital.

Gwenzi is a financial analyst and managing director of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — respect@equityaxis.net

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