Emmerson Njanjamangezi, Group Features Editor 
AUTHORITIES must ramp up efforts to improve Zimbabwe’s business climate to boost both local and foreign direct investment (FDI), business and economists say.
This comes as FDI inflows into the country have declined markedly overall in the past two decades — recording a 62,4 percent drop in 2019 to US$280 million, and a further 30,7 percent dip in 2020 to US$194 million.
Finance Minister, Mthuli Ncube
It also comes as FDI has made up just one percent of the country’s Gross Domestic Product since 2000, in sharp contrast to say 1996, when its proportion of GDP was around 25 percent.
In its inaugural State of Industry & Commerce Survey, which was launched in Harare last week, the Zimbabwe National Chamber of Commerce (ZNCC) said the government still had much to do to attract more FDI into the country.
The major survey was conducted in partnership with Zimbabwe’s number one business publication, The Financial Gazette, as well as the Friedrich Naumann Foundation (FNF).
“The Zimbabwe Investment and Development Agency (Zida) needs to be allocated adequate financial resources to allow it to digitalise and integrate its systems with other institutions such as the Registrar of Companies and Zimra (the Zimbabwe Revenue Authority).
“This will help in achieving the goal of a one-stop-shop for investment.
“The National Competitiveness Commission (NCC) should be capacitated to allow it to undertake in-depth research into the various factors impeding the ease-of-doing business and competitiveness,” the ZNCC said. “NCC should send delegates to countries such as Seychelles and Rwanda to learn from their experiences.
“Government should also come up with a simplified tax regime that encourages the formalisation of businesses given the high level of informality in the economy,” it added.
ZNCC also noted that Zimbabwe still compared badly with other Sadc states such as Mauritius, South Africa, Zambia and Botswana on the World Bank’s Ease of Doing Business Index.
“The low ranking negatively affects the attractiveness of the country as an investment destination since most investors prefer countries ranked below 50.
“The obtaining ease-of-doing business scores and rankings imply that Zimbabwe is relatively less attractive to investors than its regional peers.
“New Zealand is the best performer globally, while Mauritius is the best performing country in Africa, with a global ranking of 13,” ZNCC said.
The survey also observed that enforcing contracts and getting electricity remained among the major areas of concern in the country, while the tax system was also characterised by too many tax heads and high rates.
Gift Mugano
“The tax system does not promote compliance and investment, but rather promotes tax evasion, defaults, informalisation of businesses and company closures. The system is penalising the complying formal businesses the most.
“The system is punitive given the prevailing operating environment, as it increases the cost of doing business — rendering local products uncompetitive,” it added.
On the positive side, ZNCC said the overall business confidence showed that more companies considered 2021 to have been a better year than 2020.
“However, regarding expectations for 2022, the situation is to the contrary, with slightly more companies being pessimistic.
“Uncertainty about the future of the Covid-19 pandemic and the impending campaign season ahead of the 2023 general elections were pointed out as the main reasons behind the scepticism,” it added.
Weighing in, economist Gift Mugano said it was worrying that Finance minister Mthuli Ncube had omitted the issue of FDI altogether in his 2022 national budget.
“We are a bit worried about this omission because the way we are financing our programmes, particularly infrastructure, is not quite sustainable. Yes, we are seeing progress, but that comes with a high cost.
President Emmerson Mnangagwa
“FDI, which is a long-term investment, could have come in handy to stabilise some of the challenges that we are facing, because it doesn’t push the government to increase money supply … to finance local projects,” he said.
Mugano also said the FDI prospects for 2022 were gloomy, as even locals were not investing sufficiently in the country.
“The major constraint to FDI in the country is the lack of respect for property rights, corruption, and macro-economic stability.
“From 2018 to date, we have noted several policy inconsistencies and high inflation. Inflation rose from five percent in 2018 to 837 percent in July 2020 because of these policies.
“When you have such a rise in inflation, you go back again to dollarisation. This is because people just discard the local currency.
“This makes it difficult for investors to come to Zimbabwe with a long-term investment plan, when there is a challenge of currency stability,” Mugano said.
He also bemoaned the fact that the country was ranked lowly on the Corruption Perception Index, Economic Freedom Index, as well as the Global Competitiveness Index.
“If you are at the bottom of all these rankings, then you are not considered open for business … Zambia is getting over US$2 billion a year in FDI and we are getting US$285 million per year.
“We are thus, getting 10 percent of what Zambia is getting. To encourage FDI into this country, the government must recognise that there is a huge challenge with regards to corruption, respect for private property and the policy framework in the country.
“I guess the government recognises this, because when you look at what they have done at Zida, it is evidence that they are trying to streamline business processes in terms of licences and registration. They are also capacitating Zacc.
“But the question is that do we have strong enough institutions, which are able to deliver their mandate when they are established? The answer as we stand is no,” Mugano said further. Another economist, Victor Bhoroma, said foreign investment inflows into the country were continuing on a downward trajectory.
“In 2022, FDI will likely fall below US$100 million, as potential investment will be affected by the prospect of violence and disputed elections in 2023. “Key concerns also still emanate from a stringent exchange control regime, where investors find it hard to repatriate their dividends to their home countries.
“Similarly, exchange losses emanating from a pegged auction rate, lack of guarantees to property rights, flawed rule of law and lack of monetary policy consistency are notable hindrances,” Bhoroma said.
To encourage FDI inflows, the government needed to allow free movement of capital in and out of the country, while also respecting property rights and allowing for a market driven foreign exchange market.
“That way, investors do not suffer any exchange rate losses and the central bank does not need to shoulder the burden of queuing dividend transfers to offshore accounts.
“It has largely, thus far, been more rhetoric than action or implementation of policies that improve the business climate.
“There has been no movement on aspects that require transparency and reforms such as enacting the new Mines and Minerals Act … land tenure and independent judiciary,” Bhoroma added.
However, leading global provider of credit intelligence, Fitch Solutions, have projected a modest rise in FDI inflows next year.
“Covering short-term external financing needs is likely to remain challenging given still limited foreign investment flows.
“We expect a modest rise in foreign direct investment in 2021 with a focus on the mining sector.
“However, this comes after a 62,4 percent drop in FDI in 2019 to US$280 million and a further 30,7 percent decline to US$194 million in 2020, according to data from the UN Conference on Trade and Development.
“In addition, we expect macro-economic imbalances and lack of policy predictability to continue to act as a constraint on FDI outside the mining sector over the coming quarters,” Fitch said.
Similarly, Caledonia Mining Group — which operates the Blanket Mine and is exploring for other gold deposits in the country — also said Zimbabwe had put in significant efforts to stimulate investment.
In a recent note to shareholders, Caledonia chief executive, Steve Curtis, said Zimbabwe was a highly prospective and under-explored gold region.
“The Zimbabwean government has a commercial and pragmatic approach with several encouraging policy measures which include genuine attempts to stimulate investment. “Caledonia will continue to evaluate investment opportunities in the gold and precious metals sector within Zimbabwe,” he said.
