ZIMBABWE’s failure to attract foreign direct investment (FDI) in 2019, with investment plummeting by more than 50%, demonstrates that President Emmerson Mnangagwa’s “Zimbabwe is open for business” mantra is a dismal flop.
It is also testimony to government’s failure to implement far-reaching political and economic reforms to create conditions conducive for investment.
Zimbabwe’s FDI declined sharply from US$717,1 million in 2018 to US$259 million in 2019, according to Reserve Bank of Zimbabwe (RBZ) governor John Mangudya.
Similarly, net portfolio investment inflows fell significantly from US$54 million in 2018 to just US$3,7 million in 2019.
This paints a grim picture of Mnangagwa’s performance in his first year as elected President.
The paltry FDI figures clearly indicate that Mnangagwa’s administration has failed to attract meaningful interest in the country where foreign businesses are smothered by an unfriendly economic environment, policy inconsistencies and unsustainable levels of inflation.
Upon taking over the levers of power, Mnangagwa’s mantra, “Zimbabwe is open for business”, reverberated around the world as he sought to lure investors. Many initially responded positively, as evidenced by numerous expressions of interest received, but the enthusiasm has waned.
There has been little to suggest that the business environment has improved.The country still scores poorly on the Ease of Doing Business Index, at 140 out of 190 countries.
Although the open for business mantra was a sign of renewed hope for foreign businesses, government has failed to walk the talk on reforms.While some investors are still sitting on the fence hoping Mnangagwa will soon see the light and reform, others have shelved investment plans and taken their money elsewhere in Africa and beyond.
Zimbabwe’s failure to implement far-reaching economic reforms, coupled with policies that inhibit foreign-owned firms from repatriating their profits, is scaring away investors.
Among the many concerns of investors is government’s failure to honour foreign payments with several foreign-owned listed firms failing to repatriate profits.
European investors, in particular, have in the past complained about the country’s exchange control measures where the RBZ retains a percentage of export earnings. Investors also feel their hard-earned cash is not safe in the country’s banks as the RBZ has in the past been accused of illegally raiding accounts.
Former finance minister Tendai Biti blamed the poor FDI inflows on policy inconsistencies, saying investors were uncomfortable with the current economic environment.
“No investor in his right mind will invest millions of dollars in an environment where the local currency is devaluing at such a rate,” Biti said.Biti also said investors remained jittery about the political crisis obtaining in Zimbabwe arising from the 2018 disputed election. He said the country will continue with a high-premium risk if government does not deal with corruption and policy inconsistencies.
“As long as we fail to resolve these, this country will continue with the high-risk premium,” Biti said.Zimbabwe has also failed to make headways on re-engagement which has since derailed due to lack of political will to reform.
With Western countries demanding timeous implementation of political and economic reforms, Mnangagwa risks losing international goodwill which he enjoyed after staging a military coup that toppled his former mentor, the late ex-president Robert Mugabe in November 2017.
Two years after the coup, Mnangagwa finds himself on the diplomatic back-foot following several incidents of army killings and police brutality that have drawn widespread international condemnation.
The army has been implicated in killing six people on August 1, 2018 and 17 others in January last year. Several people were also injured, imprisoned, raped and abducted during Mnangagwa’s short stay in power.
This has also militated against Mnangagwa’s drive to promote investment.“This is not a conducive environment. We are one of the most corrupt countries in Africa and no one will invest here,” Biti said.
Failure by foreign investors to repatriate funds has also led to massive disinvestment on the Zimbabwe Stock Exchange (ZSE) with investments plummeting to 20% from 50%.
Mangudya also painted a bleak picture of a 93% plunge in net portfolio investments, with FDI falling 64% in 2019. This means that foreign investors are now disinterested in portfolio investments which span a wide range of asset classes such as stocks, government bonds, corporate bonds, Treasury Bills, real estate investment trusts (REITs), exchange-traded funds (ETFs), mutual funds and certificates of deposit, among others.
Economist Tafadzwa Chikumbu said: “The thing is that our country risk is now so high due to policy inconsistencies, currency crisis, sovereign currency debt which is making it difficult for investors to repatriate their money when they invest. This is because the country has no foreign currency to give them. These are the things that investors look at before they look at the incentives.”
Government’s decision to re-introduce the Zimbabwean dollar last year irked many investors who had set their sights on Zimbabwe. This is coupled with currency volatility where the Zimdollar is playing second fiddle to other currencies has also raised concerns where investors fear losing their hard-earned cash to inflation.
“The challenges we have are multifaceted. We are suffering from the root causes manifesting in symptoms. We need to build our economy first and fix the currency issue as well as the confidence issue. The problem is we are trying to build external confidence before we build it internally,” Chikumbu observed.
Political commentator Stephen Chan said the political environment in Zimbabwe remained toxic, discouraging foreign investors.
“The perception of the political situation in Zimbabwe is toxic. This is because there is no sign of upwards movement in transparency and freedom of organised expression on the part of opposition parties and civil society groups. These provide crucial indicators of political freedom,” Chan said.