via FDI evades domestic industry | The Herald December 17, 2013 by Golden Sibanda
THE Confederation of Zimbabwe Industries, the country’s biggest sector lobby group, says the manufacturing sector has not realised new inflows of foreign direct investment over the last three years. As such, CZI says Finance and Economic Development Minister Patrick Chinamasa’s 2014 National Budget should contain measures to create the confidence required to woo foreign investment and save industry from collapse. Minister Chinamasa will present the 2014 National Budget to an expectant nation on Thursday after skipping the traditional practice of presenting it in November. This was done to allow for extensive stakeholder consultations.
While a myriad of factors are at the centre of Zimbabwe’s economic crisis, lack of access to capital remains the single biggest problem to recovery efforts.
Although a number of alternatives to unlocking capital exist, most would take much longer compared to unlocking international lines of credit and foreign investment provided the right signals are sent to inspire investor confidence. The call for policy measures that could inspire investor confidence in the domestic economy is informed by the understanding that Treasury has little resource capacity to manoeuvre in order to rejuvenate the frail economy.
“We have not had significant inflows into the manufacturing sector in terms of foreign direct investment over the last three years,” said CZI president Mr Charles Msipa.
The CZI boss said while sectors such as the mining sector have realised some notable new FDI in recent years, there has only been fresh capital for replacement, refurbishment or rehabilitation of old equipment.
“We should actually be actively promoting FDI into the manufacturing sector for both existing new investors because without value addition and beneficiation you cannot export and create meaningful economic activity.”
Without fresh capital inflows, Zimbabwe’s manufacturing industry has struggled to produce at reasonable costs and to compete against imported products. Capacity utilisation plunged from 44,9 percent in 2012 to 39,9 percent. Even the fresh capital to replenish existing machinery and equipment has been limited and spread over time due to limited resources.
Meanwhile, low-priced South African and Asian imports have flooded the local market.
Imports have thus continued to drain the little available liquidity in the economy while increasing the trade deficit to unsustainable levels in what has also stalled efforts aimed at rebuilding local productive capacity.
And the CZI believes the fiscal policy would need to pronounce measures that enable access to affordable capital or lines of credit, as tight liquidity and deteriorating macro-economic conditions in 2013 have further dented business and consumer confidence in the domestic economy.
Mr Msipa said the National Budget should spell out measures to address bottlenecks in consistent power and water supply, the major constraining factors cited by industry in the CZI 2013 Manufacturing Survey.
Apart from addressing the issue of access to fresh capital or affordable lines of credit and resolving utilities infrastructure deficit, Mr Msipa said Minister Chinamasa should restore the Reserve Bank’s lender of last resort capacity.
“It is like an eco-system, when you do not have a healthy financial system; the rest of the economy suffers. The minister needs to capacitate the Reserve Bank Zimbabwe as the lender of last resort,” Mr Msipa said.
The CZI also implored Minister Chinamasa to expedite securitisation of the country’s minerals to use the resources for purposes of attracting lines of credit to improve liquidity in the economy.
Further, the industrial lobby group believes that privatisation of underperforming parastatals and State enterprises was critical to mobilising resources required to improve liquidity and economic activity.
COMMENTS
“… lack of access to capital remains the single biggest problem to recovery efforts.”
Hmmm, let’s see, why would foreign investors not want to put their money into Zimbabwe?
Maybe it’s because 51% has to be given away to the locals. That might be an impediment.
Maybe it’s because 30% of every dollar spent in Zimbabwe is consumed by graft and corruption. That might be a factor.
However, when you combine the two causes, that means that 81% of every dollar invested in Zimbabwe is lost to the original investor.
That means that the only investor that will be interested in putting their money into the country will be those who presume that their profits will exceed 81%.
Since the “indigenous partner,” gets 51% of the company’s returns that means that for the foreign investor to just break even, the enterprise has to make a 163.3% annual PROFIT on the original investment.
Profit is usually between 4% – 20% of most company’s annual INCOME after expenses like labor, materials, machinery and interest.
What this means is that if the investor has $1Million to invest, in Zimbabwe the enterprise that he’s investing in will need to make a PROFIT of $1.633Million – that’s not income, but profit left over after expenses. If we assume 10% profitability, then the fictional Zimbabwean company would need to have annual gross sales of $16.33Million for the investor to break even on his initial $1Million investment. After all those acrobatics, he still hasn’t made any profit on his initial $1Million investment – he just hasn’t lost any money, yet.
Very few companies anywhere have ever translated a $1Million investment into $16.33Million Gross Sales in a year.
Other then diamonds or maybe platinum, would you have faith that any Zimbabwean company could ever perform that well? Of course not! And real mining companies are capital intensive endeavors. Meaning that after they invest in the machinery and trained personnel to operate them, that their profit is on the lower end of percentage of gross profits.
So after thinking about all of the above, if you’re a foreign investor you take your money elsewhere – and Mugabe stamps his foot and blames shopping and travel limits on he and his wife for the failure of the national economy.
Well said!!!!!!! You are busy indigenizing the economy so foreigners got the message loud and clear. Would would a foreigner take part in the indigenisation of the Zimbabwean economy. So we need indigenous direct investment. Imagine indigenising Standard Chartered Bank when indigenous banks are collapsing on ZANU PFU watch. Maybe you dont get it you ZANOIDS, your indigenisation law is daylight robbery as DL explained above. When you make an investment you expect a good rate of return. But as DL has argued, investors will simply be donating their hard earned cash. Do not confuse investors with donors. Even donors have their own ground rules, they do not just donate. There wont be any FDIs until mbavha dzaMugabe dzabva. SATANI!!!!!!!!!!
Pathetic whinging from a free for nothing culture. How can u expect foreign direct investment when zanupf criminals grab 50 per cent for zilch in the disguise of indiginisation
Definitely something is going to give in 2014..Company closures, Government failing to pay wages hence creation of the Zim dollar, no money in the banks etc
That Allied Bank incident is the Svosve beginning of a bigger land invasion…The fall of the Roman(Zanu) Empire has began. A sick man normally dies the day when you thought he looks well..On the 31st July 2013 Zanu looked well, ululated and called it “resounding victory.”
God is on the side of the people of Zimbabwe..a nation that is now scattered because of selfish people.