Success depends on promoting exports, reining-in state deficits

Brian K Mataruka, a partner and head of Insolvency and Business Rescue: Gill, Godlonton & Gerrans Legal Practitioners, an alliance firm of Norton Rose Fulbright, this week spoke to Kenneth Chikanga of Independent Media Solutions about current sentiments that Zimbabwe is open for business

KC: With the repealed Indigenisation Act, provisions that were seen by investors as a stumbling block to foreign direct investment (FDI), do you now anticipate more investment in Zimbabwe?

BM: The Indigenisation Act and the regulations enacted thereunder were a hindrance to FDI. The provisions were promulgated on racial lines and entailed that an investor would not have majority control of their investment. The repeal of the provisions under the Finance Act 1 of 2018 makes ownership of businesses open to all Zimbabwean citizens, irrespective of race.

The economy expects an immediate to short-term boom in FDI in the extractive industry, where the indigenisation regulations no longer apply – with the exception of platinum and diamond mining.

However, there are still issues of remittances. A shortage of foreign currency has meant that it has become difficult for investors to remit profits out of the country.

This will hinder short- to medium-term investments in the country.

KC: What does Zimbabwe’s Ministry of Finance need to do to fix the currency situation?

BM: There have been a plethora of changes, such as the re-introduction of domestic currency, or adopting the South African rand.

However, the introduction or re-introduction of any currency will not solve the deep structural issues facing the economy. The ministry of finance must adopt policies to promote exports. It is imperative that the country ensures that it achieves a balance of payments between its exports and imports, which will be difficult to achieve considering that the manufacturing capacity of Zimbabwe is way below capacity, and the country virtually depends on imports for most of the goods which are used domestically and in industry.

Furthermore, there is a need for fiscal discipline from the government. There is a need to rein-in the ballooning deficits being financed by treasury bills.

KC: President Emmerson Mnangagwa recently gave amnesty to companies which are accused of externalising money outside the country, a situation that was blamed as the cause of the cash crisis. How has this exercise been handled by the government, and what has been its impact on business?

BM: Industry is generally unaware how this process was conducted, and the criterion used in the naming and shaming exercise. There have been a number of concerns from industry that they were not given an opportunity to respond to the list prior to its publication, therefore breaching their common law right to respond, referred to as the audi alteram partem rule.

Furthermore, a number of the companies included in the list have stated that they can account for the payments in the form of imported goods, and all that the banks should have done should have been to enquire on the evidence of the imports, which could have been availed to the banks and confirmed that there was no externalisation.

This view has further addressed the notion that the exercise was done improperly and it ought to have included a reconciliation exercise with the entities involved before publication of information which carried a high risk of being incorrect.

Possibly the only positive aspect to arise from this exercise is that there seems to be some effort by the government to clean up the economy, though the process has its shortfalls and has been widely criticised as failing to deal with some people whom the nation thought would be part of the list, albeit with no evidence on the part of civilians, other than what they suspect.

KC: Because of problems in attracting FDI as a result of former president Robert Mugabe’s policies, how secure are the assets of investors, given that the land issue is still an emotive issue in Zimbabwe?

BM: The government has committed to ensuring that the rule of law is upheld and that investment into the country is safe.

In respect of agriculture, a number of white farmers have begun returning to the farming districts, under different arrangements with local farmers, where, in some instances, there is sharing of land and expertise.

Agriculture is open to both local and international investors, as it does not fall under the 12 reserved sectors and, therefore, any investor who ventures into agriculture can do so and own the enterprise 100percent.

The government may balance the political issues by emphasising the opportunities that lie in employment creation and growth of industry and infrastructural development, which would most likely come with largescale commercial farming.

KC: Please give some insight about other sectors, like tourism?

BM: There has been recent investment in the tourism sector, specifically with the $150million investment into the upgrading of the Victoria Falls airport. This investment is strategic for two reasons: first, because of the centrality of the Victoria Falls in the SADC region.

The investment in Victoria Falls airport should see it emerge as a regional aviation hub. Second, tourism into Africa is expected to grow at an average rate of 5.5 percent a year.

Thus, to take advantage of growth, Zimbabwe’s ports of entry need to have the requisite capacity to deal with the increase in tourists.