Zim sinks deeper into economic abyss

REVELATIONS that Zimbabwe’s ability to attract investment has further declined, according to the latest World Economic Forum’s 2017-2018 Global Competitive Index (GCI), which ranked the southern African country 124th out of 137, is testament to government’s failure to put in place consistent policies that fuel economic growth and attract capital.

By Kudzai Kuwaza

Though Zimbabwe’s ranking is lower than the 126th of last year, economist Roberto Crotti of the Geneva-based WEF Competitiveness Research, said that should not be mistaken for progress, considering its score of 3,3 out of 7.

“Although the rank has gone up two places, the performance, if you look at the score, the country’s performance is likely worse than last year actually. The rank looks at the relative position and the score looks at the performance over time,” Crotti explained.

Crotti said Zimbabwe’s business environment has proved challenging to operate in for local, as well as foreign businesses, due to the country’s monetary and fiscal standing which have affected overall macro-economic performance.

“For example, the budget deficit is now at 10% and the government debt is 75%, which are affecting substantially the conditions for businesses to operate in Zimbabwe right now,” he said.

The GCI ranking is determined by the performance of 12 pillars or drivers of competitiveness, that collectively define a country’s rating. The 12 pillars are: institutions, infrastructure, macro-economic environment, health and primary education, higher education and training, goods market efficiency, labour market efficiency, financial market development, technological readiness, market size, business sophistication and innovation.

Crotti said in almost every pillar, Zimbabwe is not doing well.

Crotti’s remarks reflect the situation on the ground where toxic policies and policy inconsistency have choked the country’s ability to attract much-needed investment.

Last month Tanzania’s Bakhresa Group, which took over miller Blue Ribbons Foods, said it has frozen a proposed US$20 million injection of capital into the company to expand operations due to the opaqueness surrounding the indigenisation law.

The indigenisation policy, which mandates foreign-owned businesses to cede 51% shares to locals and was signed into law by President Robert Mugabe in 2008, has been enmeshed in confusion. This is evidenced by the fact that the law is mired in uncertainty, nine years after it was enacted.

In April last year, Mugabe was forced to clarify the indigenisation law after a conflict between Finance minister Patrick Chinamasa and Indigenisation minister Patrick Zhuwao over the implementation of the policy.

However, despite Mugabe’s clarification, the law is yet to be amended, more than a year later. Conflicts in government also resulted in Indian firm Essar’s US$750 million investment in Ziscosteel collapsing

Despite the opening of the steel plant amid much pomp and fanfare, the project soon crumbled as a combined result of squabbling in the then inclusive government.

Economist Prosper Chitambara said the global competitiveness report, which ranks Zimbabwe lowly, reflects the continuous lack of confidence in the country.

“Confidence speaks to different things and without it we will not be able to unlock investment whether domestic or foreign investment. Lack of confidence in Zimbabwe also proves that the cost of doing business is high and this makes it hard to compete internationally,” said Chitambara.

“Investors want to ensure that they get their return therefore they will invest where costs are low. The levels of informalisation in the country also contribute to the country being uncompetitive because most economic activities are taking place in the informal sector and this affects capacity to contribute to the revenue base.”

Chitambara’s observations on the low level of confidence are backed by the United Nations Conference on Trade and Development (Unctad) statistics on foreign direct investment levels in Zimbabwe.

According to Unctad, FDI inflows ebbed from US$545 million in 2014 to US$421 million in 2015 before further diminishing to just US$319 million last year. This is in stark contrast to the value of the projects approved by the Zimbabwe Investment Authority.

The authority’s approved potential investment projects more than doubled to nearly US$1 billion this year from US$451 million last year. The majority of the projects have however not taken off amid concerns that investors are fretting over the country’s hostile investment climate.

The damage inflicted by the lack of investment is reflected by the parlous state of the economy characterised by a debilitating liquidity crunch, an acute cash shortage that has resulted in long winding queues, company closures and massive hemorrhaging of jobs.

Chinamasa revealed in his 2015 budget statement that 4 610 companies shut down between 2011 and 2014 resulting in the loss of 55 543 jobs. Alarmed by the dearth of investment, government has embarked on Ease of Doing Business reforms in a bid to increase investment inflows to resuscitate the ailing economy. However, the benefits of the exercise are still to materialise.

Government is also in the process of setting up Special Economic Zones which will create investment hubs for various sectors of the economy. Efforts to breathe life into the comatose economy will not bear fruit unless there is policy consistency and an increase in production, according to economist Eddie Cross.

“Policy inconsistency remains a huge problem,” Cross said. “We also have to get our productivity levels up.”

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