FDI will jump start Zimbabwe’s development
By Davison Todson Gomo
Zimbabwe has been grappling with development challenges for some time now and understandably so given that the country has had a prolonged history of confrontation with its traditional business partners in the West following a fall out over land reform.
Writers of all sorts both domestic and foreign have had their say rightly or wrongly on why Zimbabwe’s economy experienced severe difficulties in the last two decades or so.
Seriously speaking, the UK government under Prime Minister Blair went on the offensive very much unnecessarily and campaigned vigorously to discredit Harare on virtually insecure political grounds.
Unfortunately for Zimbabwe, the Europeans, Americans, Canadians, Australians and New Zealanders joined the Blair machine and condemned Zimbabwe for a nonexistent crime.
Following a call for the boycott and isolation of Zimbabwe internationally by the western allies and the imposition of illegal sanctions, the economy of Zimbabwe was severely affected leading to the melt down that has now become proverbial.
Even though the actions of the western countries were largely responsible for destroying the economy of Zimbabwe, the blame for the collapse was put on the shoulders of one man and his government.
Attempts to remove the ZANU PF government failed despite all efforts by western allies to effect regime change supported by a moribund opposition front and an assortment of NGOs.
The rest is now history as ZANU PF successfully won the battle and is back in power by popular will and the President has regained the trust of the people while opposition parties have practically disintegrated and fizzled into thin air.
The western powers no longer have the strength to fight ZANU PF and even if they are not comfortable with the ZANU PF government but opposition parties are so weak that there is no option but to seek some kind of working relationship with the ruling party.
It makes sense to work with a clever enemy than be stuck with a weak and clueless friend. The whole policy of re engagement is driven by fatigue with an opposition that cannot tell which way it is going.
In the meantime, ZANU PF decided to make new friends and China was a new and exciting option.
Initially, every one poured scorn on the decision to Look East but with time, every one including Europeans realized that China was growing at a phenomenal rate and its economies of scale transformed it into a serious global player and as is already the case, China displaced and overtook Germany and Japan and thus became the second largest economy.
Zimbabwe benefitted from this relationship and in fact the Zimbabwe- China business ties have deepened and the likelihood is that the trend will continue into the future to the benefit of both countries.
Despite the phenomenal investment by Chinese firms into different sectors of the economy, Zimbabwe needs more foreign direct investment in order to grow its economy and the question is how does Zimbabwe do it? What exactly should Zimbabwe do to attract foreign direct investment?
It is important to note that Zimbabwe is generally perceived as a politically risky environment and its macroeconomic stability is doubted by many investors and indeed, the financial services sector is seen as weak and unstable including the country’s contracting principles.
On a separate note and at this stage, it is fair to say that a lot of investors have been expressing mixed feelings about the impact of the Indigenization and Economic Empowerment policy on foreign direct investment.
This has not been made easy by internal sceptics who have very recklessly blamed this policy for keeping investors away. It is not my intention to discuss the merits or demerits of the Indigenization policy in this write up.
We can leave it for another day except to say that I am less persuaded to believe that this policy is the major reason why investors have been ambivalent towards Zimbabwe.
Clearly, the Zimbabwe Government came up with a very clear blue print that sets out how government envisages dealing with investment and development issues. [ZIMASSET]
In this policy, it is clear that government aims to reduce poverty, increase incomes, generate employment, improve the quality of the business environment and indeed commits to the sustainable use of natural resources.
Recent policy pronouncements demonstrate that government is keen and committed to create a strong foundation of macroeconomic stability, a clear focus on boosting competitiveness, enhancing productivity and setting clear rules underpinning private sector activity.
All these initiatives are set in the ZIMASSET Policy and any investor should find this level of clarity absolutely convincing. But why is foreign direct investment not coming through?
There are a number of practical decisions and actions on the ground that need urgent attention in order to put in place various instruments as well as action plans to address important factors that could make a difference in terms of creating an atmosphere that might encourage foreign investors to take a plunge. For example;
Government needs to address as a matter of urgency the problems associated with energy supply and the cost thereto which together choke out all growth prospects of the economy.
At the moment, energy costs are crippling industry and no investor will choose to go into a country where energy supplies are erratic and unreliable apart from the fact that the costs are too high.
Another area of great concern is the transport sector which by all accounts is in bad shape and needs rehabilitation as a matter of urgency otherwise it has a negative impact on operational costs.
The net effect of the state of affairs of in our transport system is that it makes Zimbabwe less competitive than most countries in the region.
There are other concerns that make Zimbabwe appear as less ready to create institutional legal and policy frame works more favorable to investors be they local or foreign.
A lot of work needs to be done to remove this perception because it does not help our effort at promoting our country as a safe investment destination.
We can no longer afford to just praise ourselves as having done all we can to prepare the ground for interested foreign investors to come to Zimbabwe. The reality is that they get offers from not just countries in the region but almost from everywhere in the world.
There is need to remove all procedural bottle necks and to ensure that Immigration, Customs, ZIMRA, ZIA, NIEEB etc are ready to deal with investor timely, professionally, efficiently and with integrity.
Some observers say that permission to invest still takes unnecessarily too long and decisions are too centralized. Although not entirely proven, but there is a strong perception that there are too many requirements from various points in government that do not seem to be working towards the same purpose.
The number of areas that need urgent attention are many but another one that needs special mention is the absence of a reliable telecoms system and its generally expensive compared to other countries. All these problems combine to slow down the rate at which investors make investment decisions and commitments.
What is the way out?
First and foremost, government needs to overcome the perceived reluctance to accept foreign presence in the economy and ministers need to read from the same script in order to reduce disconnections with respect to policy positions. Policy clarity and consistency helps to pacify the investor
In order to attract foreign companies, government could allocate special permits to companies that choose to place their investment in certain areas of the country in order to boost development country wide rather than concentrating everything in the capital city.
The special permits could offer an assortment of incentives that make it worthwhile to invest in regions. This strategy can rejuvenate regional towns that are currently struggling to cope at the moment.
Although government badly needs some money right now, but it might be useful to use tariffs as an incentive especially to encourage beneficiation through refining minerals, petro chemicals and agro products. These tariffs must apply to both foreign and locals investors.
It might be useful that government considers to offer land for free to entice investors to invest in provinces and in strategic industries and to even consider to lower corporation tax for investments in certain sectors where companies are bringing new technology and perhaps creating employment in local areas.
There might be a good case to open up the energy sector to foreign direct investment and to adjust policy to allow investment in urban transportation and the metro rail system in order to enhance ease of movement of people and in the process perhaps decongest the cities.
Government have already put plans for a policy on Joint Ventures and this must be extended to state owned enterprises so that it can allow for the mobilization of finance and the technology that is so critical for the modernization of the public infrastructure.
Last but not least, government must not pay lip service to corruption. There must be seriousness in dealing with rogue elements because corruption has the capacity to undo everything government is doing to revive the economy.
The inauguration of the Corporate Governance Code is a step in the right direction and government must avoid implementing this Code by exception. The rules must be followed and upheld at all cost as this is one way to prove that we intend to go back to basics of good and responsible leadership.