HomeOpinionInvestment still hampered by volatile business climate

Investment still hampered by volatile business climate

By Victor Bhoroma

FOREIGN direct investment (FDI) into Zimbabwe remains very low, with the latest central bank monetary policy stating that the country received a meagre US$22,35 million in the first half of 2021.

In 2020, the FDI inflow figure declined to US$194 million from US$259 million in 2019. The forecast for 2021 is that the figure will be around US$140 million (the lowest since 2011), before declining further in 2022 and 2023. FDI into Zimbabwe is mainly directed towards the mining sector with diamonds, gold, nickel and platinum leading on targeted minerals.

Investment in infrastructure and manufacturing remains distressing while other key sectors such as agriculture, tourism, healthcare, financial services and real estate receive significantly lower investment when compared to regional peers in Southern Africa. China remains the biggest investor in Zimbabwe, while Russia, Iran and India are also important investors in the country. The European Union, United Kingdom and United States have shifted their investments to other markets in Southern Africa such as South Africa, Mozambique, Angola and Zambia.

In the past three years, Zimbabwe has made progress on the amending of the indigenisation and empowerment regulations, which used to restrict foreign ownership of local businesses to 49% and in the obtaining construction permits, bank loans and resolving insolvency.

However, the waning investment figures point to pertinent policy blunders and investor concerns that have not been resolved in the past three years by the government.

The worrying business climate does not unnerve foreign investors only. It also hinders investment by local businesses and re-investment of profits earned by multinational companies operating in the country.

This means that investors are always making frantic efforts to move their dividends and capital out of Zimbabwe to other markets in the region, such as South Africa or Zambia, which fare better.

Africa, Sadc perspective

The Covid-19 pandemic had a significant impact on FDI inflows into Africa as inflows to the continent declined by 16% in 2020 to US$40 billion, from the 2019 figure. FDI to Southern Africa decreased by 16% to US$4,3 billion even as repatriation of capital by multinational corporations (MNCs) in Angola slowed down.

Mozambique and South Africa accounted for most FDI inflows in Southern Africa. South Africa received US$3,1 billion while Mozambique received US$2,2 billion.

The latter is benefitting significantly from the implementation of a US$20 billion gas project where energy giant Total is investing. In Zambia, investment inflows declined from US$548 million in 2019 to US$234 million in 2020 while Namibia and Botswana received US$175 million and US$80 million, respectively.

Despite boasting of billions in reserves of natural resources, tracts of underutilised arable land and water bodies, industrial potential and various tourism hotspots; Investment inflows into Zimbabwe has declined and in some sectors it has remained elusive due to some unresolved concerns below:

Policy consistency: Zimbabwe’s policy flip-flows on foreign exchange controls, legal tender, mining laws (EPOs & licensing), land tenure (title deeds), energy regulation and grain marketing regulations have dented investor sentiment. In 2020 alone, the country promulgated over 600 Statutory Instruments (SIs) with the majority of these delegated statutes impacting business operations and rarely being ratified by the legislature. Currently, players in the market are sweating over SI 127 of 2021, which compels businesses to quote and sell products using a government pegged foreign currency exchange rate. These inconsistences add on to various other controls and overregulation in sectors such as railway transportation, telecommunications, media and broadcasting where the government remains the shareholder, lawmaker, regulator, policy maker and consumer 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. Investment and trade policies should align with other southern African countries, who compete for the same investment inflows and are endowed with similar natural resources.

Dividends and capital repatriation: Foreign investor interest on the Zimbabwe Stock Exchange (ZSE) and local businesses has declined due to stringent foreign exchange controls, especially restrictions on repatriating dividends and capital for foreign investors and lack of a competitive foreign exchange mechanism. The same applies to guaranteed exit when divesting from Zimbabwe. The country’s foreign exchange regulations have been a pain to most investors who seek formal channels to repatriate dividends. In the end, potential investors hold onto their capital or invest elsewhere in the region where exchange rate losses are minimal and capital movement is not restricted. To improve the business climate and attract investment, the government needs to reform the current exchange controls and regulatory bottlenecks to ensure that investors use formal banking channels to repatriate their dividends and move capital out (subject to normal exchange control regulations and due diligence).

Property rights and rule of law: For Zimbabwe to attract meaningful investment inflows, there has to be guarantees to property rights for any type of business or investor, and respect for rule of law. The unending cases of arbitrary acquisition of private land or farms and outright disregard of court orders by politically exposed persons (PEPs) scares away genuine 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 invasions or seizures. To guarantee agricultural productivity, food import substitution and food security, there has to be guarantees to land tenure especially for A1 and A2 farmers with a track record. The current state of affairs mean that land is a dead asset, while political consideration carriers the day over food security, import substitution and poverty alleviation. New investments in key sectors, such as mining and agriculture, 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 that money has the same rules and investors look at markets where they can be able to repatriate their capital without overregulation or consistent policy discord from the government.

The unpredictability of the government’s economic policies and the unstable political and economic climate in recent years has undermined foreign investment.

The country has a very rich natural potential (second largest reserve of platinum and chrome; diamonds, coal, gold, platinum, copper, nickel, tin) and an adequate infrastructure (except for recurrent power cuts), which represent genuine assets to foreign investors.

Finally, the government would also need to do away with its obsession for control through temporary legislation and allow free market policies to shape private sector investment in the economy.

This will also help fight the cancer of corruption that has torn apart Zimbabwe’s economic fabric. The declining investment figures point to fundamental investment constraints that require attention from the government to back up the millions invested in international re-engagement efforts by the country’s foreign missions.

  • Bhoroma is an economic analyst. He holds an MBA from the University of Zimbabwe. — vbhoroma@gmail.com or Twitter: @VictorBhoroma1.

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