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ZIMBABWE: Investment Dwindles in the Face of A Defiant Government

Ignatius Banda

BULAWAYO, Dec 13 2007 (IPS) - Recent international reports show Zimbabwe’s economic decline hastened by continued capital flight, with the troubled country cited as one of the worst investment destinations in the world.

Economic analysts say the continued injection of foreign direct investment (FDI) largely depends on the reversal of the Zimbabwean government’s controversial political and economic policies.

These policies have adversely affected the country’s economic performance, leaving it with record inflation chasing the 10,000 percent mark.

Despite this crisis, the country has enacted controversial legislation that forces foreign-owned firms to ‘‘indigenise’’ ownership, a move which could further alienate potential investors.

The Indigenisation and Empowerment Act, which was passed in the second house of parliament two months ago, is aimed at increasing black Zimbabweans’ economic participation with a view to reaching at least 51 percent ‘‘indigenous ownership’’ of businesses.

This comes amid reports that many foreign-owned firms have already closed shop after President Robert Mugabe’s controversial price-cuts which saw massive shortages of basic requirements.

South African retail chains have been affected by the government’s price freeze, including South Africa’s largest clothing retail company Edgars, which re-opened its doors because of government demands. The continued operation of South African companies Shoprite and Makro may also be hanging in the balance.

According to government statistics, FDI stood at more than 400 million dollars in 1998 on the eve of the country’s economic woes.

The United Nations Conference on Trade and Development (UNCTAD) found in its annual World Investment Report issued just more than a month ago that FDI in Zimbabwe fell from around 103 million dollars in 2005 to 30 million dollars in the year prior to the report’s release.

This came shortly after the World Bank and its International Finance Corporation announced in their Doing Business Report 2008 in September this year that Zimbabwe is one of the worst countries in the world to do business in. The World Bank survey analyses the conditions put in place by governments to encourage and facilitate business investment.

Reserve Bank of Zimbabwe figures show that the country only attracted 5.4 million dollars in foreign direct investment in 2001. This was during the height of the violent land invasions which claimed the lives of both farmers and farm workers as veterans of the country’s 1970s war of liberation unleashed a terror campaign on white-owned farms.

However, foreign-owned businesses still remained untouched at that time, possibly because of legal intricacies.

This has changed with the introduction of the Indigenisation and Empowerment Act which will lead to a reduction in foreign ownership in multinational companies doing business in the country. This means the expropriation trend is being extended.

The measures announced by the government also target major foreign exchange earners such as mining companies at a time when the country is battling acute foreign currency shortages. A cloud hangs over the continued operations of mining concerns such as Zimplats, Anglo Zimbabwe, Bindura Nickel Corporation and Falgold.

Reserve Bank governor Gideon Gono has warned that the proposed ‘‘takeover’’ of foreign-owned firms will cause further haemorrhage in the tottering economy. He has also expressed concern that the undermining of property rights and the ‘‘indigenisation’’ drive will have unintended consequences, such as deterring FDI.

A Bulawayo-based economist, who spoke to IPS on condition of anonymity, says the regime ‘‘imposed sanctions on itself’’ by refusing to respect principles such as property rights.

‘‘The Zimbabwean government has been belligerent for a long time. The language the officials speak is not the kind that encourages investment. Gross domestic product has shrunk and the only thing to encourage economic growth is resumption of trade through the reversal of these controversial economic policies,’’ he said.

‘‘Balance of payments is eventually about encouraging foreign investment,’’ he added.

Paul Mangwana, the indigenisation and empowerment minister who is leading the way on the law, maintains that ‘‘indigenisation’’ is a political decision which will benefit all Zimbabweans.

However, industry and commerce federations have expressed concerns. The minister has been accused of positioning himself, along with other ruling party bigwigs, to take over a lucrative foreign-owned concern in terms of the new law.

‘‘This does not bode well for the country’s efforts to attract foreign investment,’’ Paul Lowani, an economics lecturer with a local university, told IPS.

‘‘This is the last thing the country needs at a time when the injection of foreign investment is most crucial.’’

Zimbabwean authorities cite the Zimbabwe Democracy and Economic Recovery Act passed by the U.S. Congress in 2001 as being part of an international effort to put the economy under foreign ownership.

Mugabe accused the U.S. of imposing economic sanctions on Zimbabwe by allegedly discouraging American firms from investing in Zimbabwe.

Former colonial power Britain is also accused of discouraging British firms from investing in Zimbabwe.

Opposition legislator Tendai Biti recently told international media that the country’s economic woes needed a political solution, something which the authorities were yet to commit themselves to.