Where does Zim fall short in attracting FDI?

via Where does Zim fall short in attracting FDI? – NewsDay Zimbabwe November 11, 2015

There are two probable ways for Zimbabwe to grow the gross domestic product (GDP): increasing investment and growing exports much faster than imports. Consumption at the moment as a GDP growth contributor is constrained. It is in fact too high to a point where it is detrimental to the economy’s wellbeing.

In spite of that, most people still live well below the poverty datum line of $1,25 per day, or $5 per family of four.

With GDP per capita around $1 000, there is virtually no money for investment locally. Investment finance to create new jobs in a measurable way has to be courted from abroad, but four little issues, according to a recent report by the National Economic Consultative Forum (NECF), are blocking the way. How right is the NECF?

The NECF, a grouping of civil society, the private sector, trade unions and government, in its Zimbabwe National Competitiveness Report, feels Zimbabwe’s ability to attract foreign direct investment (FDI) is badly frustrated by the following factors:

lhigh cost of labour;

lerratic electricity supplies;

lhigh taxes; and

l poor transport infrastructure.

To its credit, the NECF’s report recognised human capital as the nation’s number one (renewable) natural resource. The report was launched at the end of last month (October). Erroneously, however, the report calls for the swift establishment of a “Competitiveness Commission to address impediments to the country’s (lack of) competitiveness”. Instead the NECF should have called for the pruning of commissions in the country.

The country has too many commissions, most duplicating the work of bloated line ministries and/or other equally bloated but underfunded institutions. The result is a stretched resource envelope.

In addition, some other little issues are also held responsible for repelling FDI. These include:

l Low labour productivity, or, conversely, high labour cost. The real problem, however, is lack of capital and capital investment.

l High interest rates and a rise in non-performing loans, when the problems are lack of savings, corruption, cultural collapse reflecting as both poor corporate and national governance and under-capitalised banks.

l High water (and electricity) charges when the problem is poverty and non-payment for the commodity when supplied. As a result, both Zesa and Zinwa are sinking under the weight of their non-performing debtors’ books.

l High cost of transport, when the actual causes are a preference on road transport, small consignments, high government taxes on fuel and lack of investment in railways and power stations to power electric locomotives.

That the report avoided the real causes of Zimbabwe’s unattractiveness as an FDI destination is obvious. Of the actual reasons for the lack of Zimbabwe’s competitiveness, the following four may have pride of place.

The first one involves the uncertainty surrounding the national leadership and Zanu PF’s succession issues. The second is the indigenisation and empowerment Act. The third is the still inconclusive land reform programme and property rights deficiencies usually summarised as the lack of the rule of law. The fourth is corruption. These first four causes of FDI deficiency, inter-linked as they are, can all be grouped together under poor public and institutional governance. They are common in many developing countries and need not be intractable. For one thing, they have been well-researched and probable solutions documented.

Daniel Kaufmann knows a thing or two about our less than unique but rather chronic and critical problems. He writes:
“Traditional corruption is defined in terms of individual public officials who abuse public office for private gain. But corruption has wider reach. It is a costly symptom of institutional failure, often involving a network of politicians, organisations, companies, and private individuals colluding to benefit from access to power, public resources, and policymaking at the expense of the public good.”

In that expanded definition of corruption, he nails Zimbabwe’s problems on the head. Laws are enacted first and foremost to benefit a corrupt cabal. The state, which otherwise should look after the poor and vulnerable, is usually not in a position to do so having been captured by an elite. The political parties too are not spared, being at the service of those that provide financing for their day-to-day activities.

Kaufman and his colleagues have established six validated Worldwide Governance Indicators (WGI). These are:

l Voice (of the poor and civil society) and accountability (by government);

l Political stability and absence of violence;

l Government effectiveness;

l Poor regulatory framework or regulatory quality;

l Rule of law; and

l Corruption.

Zimbabwe falls foul of most of them, in particular corruption. The distinguished scholar noted that “corruption is one among several measures of broader governance because it stems from weaknesses in other governance dimensions”. It is these weaknesses that the NECF should have sought to address.

Had the NECF done so, it would have led it to the urgent need for institutional and political reforms, with the primary goals of strengthening institutions and avoiding state and institution capture.

Without that, there is “legalised corruption” which manifests itself as bloated, but legal, structures, donations to political parties by bankrupt state-owned enterprises, which are actually legalised theft, information dissemination by government, which is nothing but propaganda, failure to conclude the land reform programme as the elite milks it and policies that repel FDI such as the indigenisation Act that positions the elite for more looting and holding on to state power under cover of pseudo-nationalistic positions.

Until these weaknesses are addressed, Zimbabwe’s mega deals will remain pipedreams as opposed to pipelines.

COMMENTS

WORDPRESS: 4
  • comment-avatar
    william mills 7 years ago

    This is a laudatory piece for the most part, but ‘low IQ’s are Africa’s curse’, says a lecturer from the london school of economics. Indeed it is a problem for most of SSA that can never be fixed. So get a grip folks, it can and will get much worse.

    Adios.

  • comment-avatar
    Yayano 7 years ago

    The top two for me are:
    1. corruption
    2. lack of rule of law
    You can’t go past that.

  • comment-avatar
    mandevu 7 years ago

    Internationally, private sector will tell you that political stability, policy clarity and rule of law are paramount when assessing risk. All three of these are a problem here in Zimbabwe

  • comment-avatar
    Tinomunamataishe 7 years ago

    I think corruption is one of the biggest hindrances if not the biggest. Under Robert Mugabe’s leadership corruption has been allowed to become part and parcel of daily business transactions and most investors are not prepared to lose unaccounted for money through corrupt officials.

    Competing against nations like Botswana where the government actively fights corruption, Zimbabwe will struggle to wrest the better deals in terms of investment and will have to wait for investors who will allow themselves to dance to the tune of corruption.

    The other problem not mentioned here is the clear lack of a leader. Mugabe is now just a figurehead with little or no control of what’s going on and therefore no one will be prepared to sink their money into a country with multiple centres of power and deficient in leadership.

    There is a need for a substantial hands on leader who will be abreast of what’s going on rather than a geriatric leader whose concern is now his own health and wanton grandstanding here and there.