Respect property rights – SA envoy
Financial Gazette
6/3/2020
Paul Nyakazeya
Group Digital Editor
ZIMBABWE must urgently correct issues around property rights, bilateral agreements, dividend repatriation and the elimination of cartels-driven graft as well as encouragement of industrial competition if it is to attract foreign direct investment (FDI), and resuscitate its floundering economy,. South African ambassador Mphakama Mbete says.
This comes as the International Monetary Fund (IMF) has slammed the government for implementing “half-backed policies” and several other oganisations, including America’s RAND Corporation have warned the country risks sinking further into the mire if it remains on “a parasitic path”.
“Nations with extractive political and economic institutions are likely to be poor compared to those with inclusive economic institutions, where the rule of law is protected against rent-seeking and political manipulation,” Mbete said, before quoting Daron Acemoglu and James Robinson’s book “Why nations fail” to emphasise that Zimbabwe’s “open for business” policy would fail if there are no reforms.
“However, in order to attract significant flows of direct investment, it is import that Zimbabwe improves its record concerning… security of tenure and investment protection… the need to open up the economy… and establishment of new credibilities (and) optimal debt servicing,” he said.
“We believe that in a highly competitive environment for FDI, these are but a few of the basic conditions that must be upheld…
“In our view, failure to do so means that investment capital will always look past Zimbabwe to other safer havens,” Mbete said, adding Harare’s “neglected industries can only be revived if basic services such as energy, fuel and water… are provided in a consistent manner”.
Political dialogue, he said, was also key for the country’s success and Mbete’s warning also comes as the Reserve Bank of Zimbabwe has revealed that FDI inflows had significantly declined to US$259 million in 2019 from US$717,1 million in 2018 due to perceived country risk.
In preliminary and Article IV report, the IMF has said Zimbabwe’s socio-economic reforms were “off-track, marred by policy missteps and thus delaying much-needed re-engagements”.
And economist Brains Muchemwa says part of Harare’s problems emanated from a few private sector hands or interests, which were dictating public policy and funnelling funds for self-serving interests, hence there was no progressive policymaking frameworks.
“Until such a time that the policy makers create an equal environment for domestic business to prosper, it will be a difficult task to try and attract foreign investment in Zimbabwe,” he said.
On the other hand, Ranga Makwata said there was so much policy inconsistencies in Zimbabwe, which made planning difficult and largely affected investors through constant changes.
“The country has generally failed to attract FDI because of its policies that are perceived to be prejudicial to investors and… those galvanising expropriation i.e. land reforms..,” he said, adding the last two years have also seen a massive disinvestment by portfolio investors on the Zimbabwe Stock Exchange.
“So rather than preaching (an empty) ‘open for business’ message, we need to assure existing investors (to) sell Zimbabwean opportunities outside,” Makwata said.
And monetary policy committee member Eddie Cross says he agrees with Mbete, as this was the view of many well-wishers across the world.
Trust Chikohora, the ex-Zimbabwe National Chamber of Commerce president, also concurred with the South African envoy.
“It would be advisable to take heed of his counsel because South Africa is (our) biggest trading partner… Investors want to know their capital is safe,” he said, adding global flinders want efficient and transparent systems.
Akribos Research Service said government should adopt and put emphasis on pro-business reforms to enhance exporters’ capacity to rake in foreign currency and capacitate industry, so as to improve hard cash supplies, reduce imports and revive the country’s economic fortunes.
“It is concerning to note that subsidies on fuel, grain, power and other undisclosed commodities — underpinned by a money supply growth of 80 percent, 316 percent of money in circulation and transferable deposits — are persisting,” it said.
“Given that there still remains high demand for grain, electricity and other essential imports… going into 2020, we are concerned that the pressure to meet these costs through undue money supply growth remains high,” the Harare-based outfit said in a recent research note.
“This, therefore, heightens the risk associated with currency weakness and resultant high inflation..,” Akribos said.
“Key to (pro-business) such reforms (are) a truly market-determined exchange rate to generators of foreign currency — through the interbank market — and minimal acquittal, surrender and conversion requirements or demands,” it said.
“This would improve the trust deficit in the financial services sector and assist in shoring up the foreign currency required in the economy.”