The elu­sive FDI to Zim­babwe: Is there an end in sight?

Sunday News (Zimbabwe) - - Front Page -

WITH the cur­rent mantra on re-en­gage­ment, one pon­ders on the ques­tion of for­eign di­rect in­vest­ment (FDI) and whether we should as a na­tion be chas­ing af­ter the for­eign cap­i­tal and in­vestors or maybe it is high time we come up with other op­tions to kick start the econ­omy. This se­ries of ar­ti­cles will look at the amount of FDI gen­er­ated by Zim­babwe since In­de­pen­dence and seek to find al­ter­na­tives to this jour­ney of court­ing for­eign fun­ders, lest we per­ish as a coun­try wait­ing for some out­siders to come to our eco­nomic res­cue.

His­tor­i­cal FDI per­for­mance in


For­eign di­rect in­vest­ment are the net in­flows of in­vest­ment to ac­quire a last­ing man­age­ment in­ter­est (10 per­cent or more of vot­ing stock) in an en­ter­prise op­er­at­ing in an econ­omy other than that of the in­vestor. It is the sum of eq­uity cap­i­tal, rein­vest­ment of earn­ings, other long-term cap­i­tal, and short-term cap­i­tal as shown in the balance of pay­ments. At the time of in­de­pen­dence in 1980, the new Zim­bab­wean Govern­ment adopted a highly con­trolled and in­ward-look­ing econ­omy. For­eign cap­i­tal con­sti­tuted about 70 per­cent of the to­tal cap­i­tal stock and FDI dom­i­nated for­eign cap­i­tal in­flows (Clarke, 1980). In the first 10 years of in­de­pen­dence, the new Govern­ment con­tin­ued with highly in­ter­ven­tion­ist eco­nomic poli­cies in­her­ited from the colo­nial regime. The busi­ness environment was highly reg­u­lated through a sys­tem of price con­trols, labour mar­ket re­stric­tions and in­vest­ment con­trol pro­ce­dures.

Ap­provals of for­eign in­vestors’ pro­pos­als in­volved an ex­ces­sively long process. For­eign firms were re­quired to get per­mis­sion from the For­eign In­vest­ment Cen­tre (FIC) for the devel­op­ment of any new en­ter­prises in Zim­babwe. Own­er­ship re­stric­tions in some sec­tors re­quired at least 30 per­cent lo­cal par­tic­i­pa­tion in an en­ter­prise.

Poli­cies on repa­tri­a­tion of prof­its also re­mained re­stric­tive. Be­cause of the pol­icy environment, which was un­favourable to for­eign in­vestors, FDI in­flows were very low dur­ing the first decade of in­de­pen­dence (Gwen­hamo 2009).

As the Govern­ment came to grips with per­sis­tently low lev­els of fixed cap­i­tal for­ma­tion in the late 1980s, the at­ti­tude and poli­cies to­wards for­eign in­vestors be­gan to change. In 1989, a new in­vest­ment code was adopted. The re­sult was to in­crease the pro­por­tion of af­ter-tax prof­its that Multi­na­tional Com­pa­nies (MNCs) could repa­tri­ate from 50 to 100 per­cent.

FDI in the 1990s

In 1990, the Govern­ment adopted the IMF-funded Eco­nomic Struc­tural Ad­just­ment Pro­gramme (ESAP) de­signed to elim­i­nate eco­nomic poli­cies of con­trols and re­stric­tions. Pro­mo­tion of FDI was one of the key ar­eas and pol­icy was de­signed to achieve in­creased in­flows of FDI.

In 1992, as part of the struc­tural re­form, the Zim­babwe In­vest­ment Cen­tre (ZIC) was es­tab­lished as a one-stop shop for in­vest­ment ap­provals. Tar­iffs and tax ex­emp­tions were also of­fered to en­cour­age for­eign cap­i­tal in­vest­ments, trans­fer of tech­nol­ogy, the util­i­sa­tion of lo­cal raw ma­te­ri­als, the devel­op­ment of ru­ral ar­eas and the use of labour-in­ten­sive pro­duc­tion tech­niques.

For­eign firms geared to­wards ex­port­ing also ben­e­fited from the ex­port pro­cess­ing zones in­cen­tives in the form of tax hol­i­days and cus­toms free trade. The re­turn to a lib­eral econ­omy and en­thu­si­as­tic pro­mo­tion of FDI re­sulted in the surge of FDI in­flows av­er­ag­ing above US$50 mil­lion per year be­tween 1990 and 1997. In 1998, FDI in­flows reached a record high of US$444 mil­lion.

The sharp surge in FDI in­flows in 1998 was partly driven by the pri­vati­sa­tion and lib­er­al­i­sa­tion wave in the Zim­bab­wean econ­omy. This saw sub­stan­tial in­flows of for­eign cap­i­tal par­tic­u­larly from South African firms into var­i­ous sec­tors of the Zim­bab­wean econ­omy. In the late 1990s, the coun­try be­gan to ex­pe­ri­ence in­sta­bil­ity and macro-eco­nomic im­bal­ances.

Nose dive in in­vestor con­fi­dence post


In­vestor con­fi­dence was fur­ther rat­tled in 2000 when the in­ter­na­tional com­mu­nity did not buy into the land re­form ex­er­cise. The sud­den re­ver­sal of FDI in­flows cou­pled with fall­ing do­mes­tic in­vest­ment had de­press­ing ef­fects on the gross fixed for­ma­tion which fell from a record high of 25 per­cent of GDP in 1995 to only 17 per­cent of GDP by 2005. For in­stance, be­tween Jan­uary and June 2014, Zim­babwe at­tracted only US$67 mil­lion com­pared to US$165 mil­lion in the same pe­riod the pre­vi­ous year (Re­serve Bank of Zim­babwe Au­gust 2014 Mon­e­tary Pol­icy State­ment). In the 10 months to Oc­to­ber 2014, the coun­try re­ceived for­eign di­rect in­vest­ment (FDI) amount­ing to US$146,6 mil­lion com­pared to US$311,3 mil­lion dur­ing the same pe­riod in 2013, a marked de­cline of over 50 per­cent.

In 2015, Africa re­ceived FDI of over US$82 billion with Mozam­bique get­ting US$8 billion of it, that is 10 per­cent of FDI in­flows into Africa. Zam­bia re­ceiv­ing $8 billion in FDI be­tween 1980 and 2013, Mozam­bique $16 billion but only $1,8 billion for Zim­babwe.

Zim­babwe de­spite boast­ing of abun­dance in nat­u­ral re­sources like gold, di­a­monds, coal, plat­inum, nickel, cop­per, iron ore, you name it, we have it has found the go­ing tough in lur­ing in­vestors be­cause of some of our poli­cies like the In­di­geni­sa­tion laws, poor rat­ing in the Ease of Do­ing Busi­ness In­dex and many such other global busi­ness in­dices. Pol­icy In­con­sis­tency and FDI in


Since the adop­tion of the US dol­lar as the of­fi­cial cur­rency, there have been im­prove­ments in trade, busi­ness, fis­cal, labour and mon­e­tary free­doms. There was also a grow­ing con­sen­sus that the busi­ness environment, for ex­am­ple, the re­stricted li­cens­ing pol­icy should be im­proved. Yet, in the 2017 Eco­nomic In­dex Free­dom, the Her­itage Foun­da­tion ranks Zim­babwe as one of the least eco­nom­i­cally free coun­tries, only ranked higher than Eritrea, The Repub­lic of Congo, Cuba, Venezuela and North Korea.

In March 2016, then In­di­geni­sa­tion Min­is­ter threat­ened for­eign firms with clo­sure if they did not com­ply with the In­di­geni­sa­tion Law en­acted in 2007. The law, be­fore it was amended by the new Govern­ment, lim­ited for­eign own­er­ship of com­pa­nies to 49 per­cent.

The un­pre­dictabil­ity of the Govern­ment’s eco­nomic poli­cies and the un­sta­ble po­lit­i­cal and eco­nomic cli­mate in re­cent years has un­der­mined for­eign in­vest­ment. BMI cur­rently ranks Zim­babwe 43rd out of 48 states in Sub-Sa­ha­ran Africa and 191st out of 201 coun­tries world­wide for trade and in­vest­ment at­trac­tive­ness.

Even though Zim­babwe is known for com­ing up with lofty pol­icy blue­prints that are meant to cre­ate a vi­able in­vest­ment cli­mate, the Sec­ond Ad­min­is­tra­tion should then stick to its own time­lines and break with the past of un­ful­filled dead­lines. The Min­istry of Macro-Eco­nomic Plan­ning and In­vest­ment Pro­mo­tion com­mented in Oc­to­ber 2017 said that the cre­ation of Spe­cial Eco­nomic Zones (SEZs) were ex­pected to at­tract for­eign di­rect in­vest­ment (FDI) and trans­late into ex­por­tled eco­nomic growth in the land­locked coun­try. The Govern­ment adopted the SEZ Act in Oc­to­ber 2016 and rolled out con­sul­ta­tive meet­ings and sen­si­ti­sa­tion work­shops for stake­hold­ers in the lat­ter part of 2017. The SEZs will of­fer in­vestors tax and ad­min­is­tra­tive ben­e­fits and in­cen­tives. Ad­di­tion­ally, for­eign in­vestors will not have to com­ply with the in­di­geni­sa­tion laws within the SEZs, which is bound to pro­mote FDI in Zim­babwe. Out­side of these meet­ings noth­ing tan­gi­ble has been done around the SEZs and two years down the line no em­ploy­ment has been cre­ated or real in­vest­ment come even though the SEZ ini­tia­tive is the one that was ex­pected to be the panacea to our in­vest­ment headaches.

The ques­tion then be­comes how Zim­babwe can make it­self more mar­ketable and at­trac­tive to for­eign cap­i­tal. The coun­try has un­par­al­leled abun­dance of nat­u­ral re­sources and very ed­u­cated work force and rel­a­tively in­tact in­fra­struc­ture.

And in the next in­stal­ment one will look at di­as­pora re­mit­tances among other av­enues to for­eign cur­rency and whether these can be har­nessed for lo­cal in­vest­ment, es­pe­cially bear­ing in mind that this group of Zim­bab­weans brought in a com­bined US$1 billion per year in most years past.

But­ler Tambo is a Pol­icy An­a­lyst who can be con­tacted on but­ler­[email protected] com

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