Govt policies undermining FDI
GOVERNMENT’S unpredictability of economic policies, foreign currency allocation and the unstable political and economic climate will continue to undermine foreign investment, analysts have said.
This comes as Harare, which urgently requires fresh capital injections of close to US$2 billion to stabilise its economy, according to various independent experts, cannot access loans or a bailout from multilateral institutions such as the International Monetary Fund and World Bank due to legacy debts dating back to the early 2000s.
“To mitigate against these challenges the risks associated with investing in Zimbabwe need to be reduced, and it is essential that investor confidence is boosted.
“A great deal needs to be done to restore investor confidence, including concrete legal steps to protect FDI, such as an investor-state dispute settlement mechanism backed by international treaties and political commitment to honouring them,” IH said in an Equity Strategy paper.
Whilst FDI inflows to Sub-Saharan Africa (SSA) have increased significantly, Zimbabwe has not benefited much from this boom.
Malawi, Botswana and Namibia are among some of the other SSA countries with relatively low FDI inflows.
In 2018, Zimbabwe’s FDI stock reached US$5,44 billion, and accounted for 20 percent of GDP.
Similarly, inflows increased by 113 percent to US$745 million in 2018, compared to FDI inflows of about $2,71 billion in Mozambique and $1,11 billion in Zambia.
Key investors in Zimbabwe include China, Russia, Iran and India, with FDI mainly directed towards the mining sector (diamonds, gold, nickel, platinum), infrastructure, the wood industry, healthcare, water and sanitation, financial services, tourism, manufacturing and agriculture.
Foreign investors have also been dominating the local Mergers and Acquisitions environment, with 73 percent of all approved mergers since 2017 concluded by foreign investors.
To date, Zimbabwe has signed 33 bilateral trade treaties, of which only 10 of them are in force.
Analysts say Zimbabwe should implement comprehensive economic reforms aimed at attracting foreign direct investment urgently needed to resuscitate the southern African country’s moribund economy.
Zhao Baogang, the Chinese deputy ambassador to Zimbabwe, recently said that President Emmerson Mnangagwa should bite the bullet and implement sustainable reforms to halt deteriorating economic conditions.
“The best way forward is to attract foreign direct investment and to come up with a raft of reform measures designed to attract new capital,” he said.
Mnangagwa’s government has taken steps to reintroduce the Zimbabwean dollar, cut the budget deficit, remove subsidies on fuel and power and repeal laws curbing public and media freedoms.
“However, the currency reforms and austerity measures have compounded ordinary people’s hardships in an economy where unemployment is estimated at about 80 percent.
Baogang said without reforms, it would be difficult for Harare to reach out to the international community.
“Zimbabwe can also learn from neighbouring countries such as Mozambique, Zambia and South Africa, which are attracting more FDI,” he added.
Zimbabwe has pledged to improve the ease of doing business and transparency, streamline business regulations and curb corruption in order to attract private capital, but progress over the last two years has been very slow.