eBusiness Weekly
Nixon Shingi Chekenya —
“It was the best of times, it was the worst of times, it was the age of foolishness…it was the spring of hope, it was the winter of despair…” wrote novelist Charles Dickens.
This statement seems so befitting in describing the situation in Zimbabwe; with regard to the economic meltdown it has gone through, stalled economic growth and low foreign investments. It is indeed times of economic misery and instability in the country; but there is hope for a better Zimbabwe. Zimbabwe needs to build a foundation upon which there can be sustained economic growth and new job opportunities for the present and future generations. Economic policies, laws and regulations must be revised in such a way that it leads to increased huge capital flows into the economy.
One major economic challenge of Less Developed Countries such as Zimbabwe is that they do not have enough savings to finance their investments and as such are in great need of foreign capital in terms of Foreign Direct Investment. FDI is an important element of sustainable economic growth. Low FDI and portfolio investments in Zimbabwe are a puzzle in their own right. This is against the background that Zimbabwe has a highly educated workforce, and a rich mineral resource base which, in principle, should lure investors. This begs the question: What needs to be done to attract FDI into Zimbabwe?
Poverty eradication is one of the goals which Zimbabwe has to achieve. Rural and urban poverty in the country, which points to a bleak future for many if not addressed with immediate effect, is characterised by socio-economic hardship like high rates of unemployment, homelessness, hunger, crime and misery. Effects of insignificant/poor growth rates for the past two and a half decades have been felt in the country. However, the country has a possible way out. To this effect, Chinake (1997) vividly states that “we can no longer afford to be miserable about the past; neither should we be gloomy about the future…”
Among the developing nations China, Sudan, India and Nigeria are the major recipients of FDI reaching billions of dollars per year. Zimbabwe has been receiving below half of the figures annually. Why is there poor FDI accumulation in Zimbabwe if the nation is endowed with a rich mineral base? What are the issues that need to be addressed and how? Why is Zimbabwe fighting for scraps of capital flows instead of being a major recipient of FDI?
To a greater extent, there are a number of macro-economic factors and institutional factors that have to be addressed to position ourselves as a favourable country for investment. We risk continuing in the same trajectory of economic meltdown and state fragility that we have trodden for the past two decades if we assume that all is well in our economy. It is a sign of profound wisdom for us to address our mess first before we can preach the gospel of ‘investment in the New Zimbabwe’.
It is time for us as a nation to go back to the basics. We need to understand what’s hindering capital inflows into our beautiful Zimbabwe. On one front, poor infrastructural development is to blame for low FDI inflows. The country has not been doing well in terms of infrastructural set-up. On infrastructure, Zimbabwe was ranked at 123 after scoring 2,5 points and macroeconomic environment 101 after getting 4,1 points in 2016. This is no good ranking at all.
Infrastructure development remains poor with the country ranked 123 out of 138 countries in the 2016-17 Global Competitiveness Report. It had a score of 2.5 out of a possible 7. According to the 2016 Ibrahim Index of African Governance, Zimbabwe was ranked 34 out of 54 countries in 2015 in the infrastructure sub-category with a score of 34.1 out of 100, down from 41.6 out of 100 in 2014.
In the 2016 -17 Global Competitiveness Report, inadequate supply of infrastructure is the fifth most problematic factor for doing business with the country ranked 123 out of 138 countries with a score of 2.5 in terms of infrastructure. The Bank estimates that about USD 14.2 billion is needed to resuscitate Zimbabwe’s infrastructure. The high rate of recurrent expenditure crowds out capital expenditure necessary for infrastructure rehabilitation and development. The government has however accessed some donor funding to rehabilitate water and sewerage infrastructure in a number of urban centers.
In terms of competitiveness, much has to be done. Strenuous regulations have been retarding economic growth in the economy. There has been downward trend in the global competitiveness measure. According to Economist John Robertson, “Zimbabwe has remained an unattractive country to invest. There are too many licences and permits required to start business in the country.
These are high costs which makes the country uncompetitive. I think we will remain low on attracting investments. The low ranking is slowing chances of getting new business in the country and yet we need investments, but we can’t have investment growth when we don’t have a good investment climate.
The country is in a difficult position, which needs to be fixed,” if investment is to be realised in Zimbabwe. Another economist, Clemence Machadu, feels that “The marginal slip in the GC Index is somehow a reflection of our economic performance last year where we registered a decline in growth.
The persistent contraction in GDP, which reached a seven-year low of 0,6 percent last year, also implies deteriorating productivity with diseconomies of scale also creeping in — all weighing down our competitive edge,”
The investment climate remains knotty with Zimbabwe moving four places down in the ease of doing business rankings from 157 out of 190 countries in 2016 to 161 in 2017. The country is ranked 126 out of 138 in the 2016-17 Global Competitiveness Report with a score of 3.4 out of a possible 7. Some progress has been made to improve the regulatory environment. However, more needs to be done to improve the investment climate in terms of the policy, institutional and physical environment in which the private sector operates.
The Government should provide greater policy clarity, consistency and certainty on its economic policies. The number of taxes and tariffs should be reduced and simplified. Amendments to the Companies Act also need to be expedited. Despite some positive spinoffs from policy measures outlined above, private sector performance in 2018 is likely to remain under considerable stress in the absence of a holistic approach to address the underlying fundamental problems affecting local competitiveness and business confidence.
Zimbabwe ranks among countries with high levels of corruption in the world. The 2016-17 Global Competitiveness Report identifies corruption as the third most problematic factor for doing business and attracting FDI in Zimbabwe. According to the 2016 Ibrahim Index of African Governance, Zimbabwe is ranked 49 out of 54 countries in the business environment sub-category for 2015 with a score of 15.5 out of 100. Tighter corruption laws will go a long way in improving the investment climate.
In terms of services, delivery and operational efficiency remain pathetic and inadequate owing to central and local government budget constraints. This is demonstrated by the unreliable supply of electricity and water, which has affected business confidence. The government needs to accelerate the reform of state-owned enterprises and parastatals to improve their operational efficiency and transform them into profit-making enterprises that can contribute meaningfully to the treasury.
On a more controversial note, the indigenisation policy appears rigid and unclear. The enactment of Zimbabwe’s indigenisation policy as well as the promulgation of relevant enabling legislation, in its current state, worsened the economic slowdown of the last two decades. The 51/49 ratio is not favourable and sustainable given our current state of economic affairs. This could be a good policy position at a later stage of development, and not now. As for now, we need a revision and legislation of the changes on this policy to encourage foreign investors to inject their capital into the economy.
As policymakers are running around in their quest to find an immediate solution to rescue the ‘ship’ from continued economic meltdown, and setting in motion a new economic agenda, attracting Foreign Direct Investment can actually champion the process. This will be a noble idea because FDI has the potential to awaken the economy and be the lifesaver to an otherwise ‘sinking ship’.
