Addressing investor concerns on Zim

Victor Bhoroma

THE sharp decline in foreign direct investment (FDI) inflows from US$717 million in 2018 to US$259 million in 2019 highlights the country’s persistent challenges in attracting long-term investment despite the abundance of opportunities in the local market.

Short-term investments as represented by portfolio investments (purchases of local financial securities and equities) also plunged by more than 93% to US$3,7 million in the same period, indicating a sharp deterioration in the investment climate within the last 12 months.

In the past two years, Zimbabwe announced a plethora of high-level investment deals and commitments worth over US$27 billion, but only US$976 million was realised. However, the recent amendments to the Indigenisation and Empowerment Act helped the country to realise an all-time FDI high of US$717 million in 2018 and to jump 15 places on the World Bank Ease of Doing Business rank to 140 out of 190 ranked countries.

Zimbabwe has a highly diversified mineral resource base of over 60 commercially exploitable minerals dominated by two prominent geological features, namely the Great Dyke and the ancient Greenstone Belts. These geological formations are home to the world’s second largest resource of platinum group of metals (PGMs), as well as billions of dollars’ worth of reserves in nickel, gold, copper, iron, chrome, lithium and rare earth elements (REE), which fetch high prices on the world market.

In agriculture, the country has vast tracts of arable, flat and fertile land, which can be utilised for a diverse range of farming activities from cereals, cotton, tobacco, sugar, horticulture, livestock, tea, coffee and timber.

The country is also a top travel destination in tourism boasting of five Unesco World Heritage Sites in the Victoria Falls, Mana Pools, Great Zimbabwe, Khami Ruins and Matopos. These world famous tourist hotspots add to the over 26 game parks and a very hospitable and hardworking citizenry.

Despite all the above resource endowments and potential, FDI to match Zimbabwe’s regional counterparts has been elusive. In 2019 alone, the country’s neighbours (South Africa, Mozambique, Zambia and Botswana) received a combined US$9,73 billion with South Africa and Mozambique doing particularly well.

Investors are still concerned about Zimbabwe’s business climate which they deem hostile as compared to other Sadc destinations. To ensure a change of fortunes, the government has to address the following investor concerns on Zimbabwe:

Dividends repatriation, exit

The country’s foreign exchange regulations have been a pain to most investors who have been resilient in the past 20 years when most investors either disinvested or adopted a wait and see approach.

Multinational corporations such as the AB InBev-owned Delta Beverages, British American Tobacco (BAT), Total Zimbabwe, Zimplats, PPC, Nestle, Nedbank, Tongaat Hulett, Unilever and other foreign-owned companies on the Zimbabwe Stock Exchange (ZSE) and beyond have found it very difficult to remit dividends to their shareholders or settle their foreign obligations due to the country’s regulations or foreign currency shortages on the interbank market.

Gold miners RioZim and Metallon Gold had to resort to suing the central bank in order to get their foreign earnings. To attract investment, investors need a guarantee that they will be able to repatriate their earnings and exit the market (if necessary) without exchange control and regulatory bottlenecks.

Policy inconsistency

Policy consistency is a fundamental piece to the economic puzzle, without which it becomes difficult to attract both domestic and foreign investment.
Zimbabwe’s policy inconsistency on foreign exchange controls (and monetary policy), mining laws (EPOs and licensing), land tenure (title deeds in agriculture), petroleum importation and grain marketing regulations have dented investor sentiments on the local market.

These inconsistencies add on to various other controls and overregulation in sectors such as railway transportation, telecommunications, media and broadcasting where the government remains the shareholder, law maker, regulator, policy maker and consumer, all at the same time. To guarantee investment, Zimbabwe needs to adopt 10-20-year domestic policies that do not change with change of personnel in government.

Property rights, rule of law

If Zimbabwe is to attract meaningful investment inflows, then there have to be guarantees to property rights and respect for the rule of law.

Cases such as the arbitrary acquisition of land belonging to Zimbabwe Platinum Mines (Zimplats) and outright disregard of court orders in the Gaika Mine (Kwekwe) and RioZim (Darwendale) invasion disputes scare away genuine investors in mining.

Equally damaging are the politically connected farm invasions at Lesbury Farm (Rusape) and Farfell Coffee Estate (Chipinge) which were bad examples of how to treat foreign investment.

To this day, land is still being used as a political tool at the expense of agricultural production and not many investors have political influence to protect themselves from such land seizures.

To guarantee agricultural productivity and food security, there have to be guarantees to land tenure especially for proven producers under A1 and A2 land holding. The current state of affairs means that land is a dead asset, while political consideration carries the day over food security, import substitution and poverty alleviation.

Bureaucracy in government

Bureaucratic red tape in the application of licences, permits and investment proposals still reigns supreme.Instead of investment inquiries being handled by independent government agencies such as the Zimbabwe Investment Authority (ZIA) or the Zimbabwe Investment and Development Agency (ZIDA), there have been murky investment deals between mysterious foreign investors and politicians to a point where genuine investors are crowded out, and there is no parliamentary oversight. Businesses operating in Zimbabwe also have to renew import and export licences after every three months while going through over 10 agencies in each case so as to trade.

Equally frustrating for new investors are the number of agencies (10) investors have to physically visit to successfully register their businesses and start operating in Zimbabwe. High-profile investors have reported cases of being frustrated by government officials or being asked for bribes and no action has been taken in most of the reported cases.

On the other end, gaps in infrastructure and key enablers such as electricity also rank highly among investor concerns as power outages add to the cost of doing business in Zimbabwe which is already very high as compared to regional peers and major trading partners.

Zimbabwe’s investment climate has been described as cumbersome, murky and heavily centralised by various potential investors. New investments in key sectors such as mining, agriculture and manufacturing are politicised to levels where an ordinary investor would naturally adopt a wait-and-see attitude or take the investment elsewhere in Africa.

It is imperative to point out that money has the same rules, and investors look at markets where they can be able to repatriate their capital without overregulation or policy discord on the government. The selective application of the law and outright disregard for the rule of law have no place in a country which parades its openness for business.

Investors envisage an investment environment where their property is protected by the law (independent judiciary) and not by political interests as those can shift overnight. Finally, the government would also need to do away with its obsession for control and centralisation of investment approvals by letting Zida play its role independent of political influence. This will also help fight the cancer of corruption that has torn apart Zimbabwe’s economic fabric.

Bhoroma is a marketer by profession, freelance economic analyst and holds an MBA from the University of Zimbabwe. — vbhoroma@gmail.com or Twitter: @VictorBhoroma1.