Setting the tone for FDIs

22 Jan, 2017 - 00:01 0 Views

The Sunday Mail

Clemence Machadu Insight
Howdy folks!
Zimbabwe is in urgent need of foreign direct investment to propel growth. The country’s gross domestic product has been receding from double digit growths posted between 2010 and 2012 to a lower growth rate of 0,6 percent registered last year.
Zimbabwe’s economic blueprint, Zim-Asset, requires $27 billion to be fully implemented, meaning that about $5,4 billion is required every year.
The country’s national budgets have however been averaging $4 billion (with more than 90 percent going towards salaries) since 2013 when the policy was launched.
The need for FDI is necessitated by the fact that domestic sources for mobilising funds are intermittent.
Domestic savings, for instance, are estimated at -11 percent of GDP, which implies a huge savings-investment gap.
Government, through the Ministry of Macro-Economic Planning and Investment Promotion, has therefore since targeted FDI levels of 25 percent of the country’s GDP starting this year. If Zimbabwe attains such a level of FDI, it will be the highest record since the multi-currency era.
Given that Zimbabwe is projecting to attain real GDP (at market prices) levels of $12,6 billion this year, it implies that Government is also targeting FDI levels of $3,2 billion, which is about 500 percent higher compared to 2016 levels.
Capital inflows in 2016 were expected to reach $693 million, against $1,2 billion recorded in 2015.
While Zimbabwe is targeting to attract these dynamic levels of FDI, Ernst & Young recently predicted that FDI inflows will slow down in the next 18 months in Sub-Saharan Africa as investors adjust their investment strategies.
The international auditing firm said investors were likely to concentrate on countries with better growth prospects.
Zimbabwe has been projected to grow by a modest 1,7 percent this year, while other countries in the region have higher growth prospects for the year.
Government says that it aims to promote FDI this year through road shows to Zimbabwe’s major investment source markets, leveraging on the special economic zones, launching an “Invest in Zimbabwe” handbook to facilitate dissemination of information to investors among other measures.
What is clear is that many countries in the region have already implemented these and other measures in their scramble for foreign investment.
Other African nations have gone to the extent of relaxing their citizenship to investors bringing in high amounts of money.
Zimbabwe is also hoping to benefit something from its continuous re-engagement process with the international financial institutions.
Whether America, which holds the biggest quota in multilateral institutions, has already set a bad precedent by extending its sanctions on Zimbabwe, it remains to be seen how the international community will warm up to Zimbabwe this year.
Capital is coward, as a popular saying goes, and it will take a fusion of good policies and consistency to lure investors.
Countries that seek to attract foreign investment should also put in place strong and ascertainable policies that attract foreign investors.
A country which only crafts policies that incentivise locals can discourage FDI in its economy. The indigenisation policy, for instance, was criticised as rigid by most foreign investors, which compelled Zimbabwean authorities to make it flexible.
On top of that, there were contradictions in the interpretation of the indigenisation law by Government officials, last year, which prompted President Mugabe to issue out a statement to clarify the correct position.
However, that position is yet to be incorporated into law, and the indigenisation confusion might continue to discourage foreign investment this year until it is decisively dealt with.
As Zimbabwe slowly enters into the election mode, politics will also decide how much foreign investment the country will win.
Countries with uncertain political environments are normally repellent to foreign investment as investors will simply take a wait-and-see attitude on them.
So it will be advisable for politicians not to interfere with policies as there is still life after elections.
Further, serious investors also look at the state of corruption and trust in institutions such as the judiciary before making investment decisions.
Zimbabwe needs to act boldly in dealing with corruption.
Another important aspect in luring FDI is the cost of production. Most investors have a global mindset when committing their resources given how the international barriers to trade are being eliminated.
Investors therefore want to produce not only for the country they are investing in, but for the whole world.
They will hence consider countries that have lower costs of production so that they can accrue profit from exporting to the world.
While Zimbabwe is endowed with abundant natural resources which are crucial in the production of goods and services, it should also package them in a manner that ensures that it can easily access high levels of FDI. Otherwise the targets will remain a pie in the sky.
Later folks!

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