Zimbabwe fails to attract FDI inflows

Zimbabwe fails to attract FDI inflows
Published: 21 March 2012 (3918 Views)
ZIMBABWE continues to wobble in attracting Foreign Direct Investment, drawing in a mere US$250 million against US$55 billion that went into African economies last year, according to a research report.

The report by Invictus Securities says that Zimbabwe performed worse than previously smaller economies such as Zambia and Mozambique.

"Zimbabwe received derisory US$250 million (0,46 percent), which was (however) above the US$105 million secured in 2010," said Invictus.

"In comparison, Zambia and Mozambique each received over US$1 billion in FDI inflows last year, reflecting investor confidence in the region."

The report attributed the dismal performance in terms of attracting foreign investment to indigenisation coupled with increased perceived country risk profile.

It said a clear, consistent and transparent policy taking into account the fragility of the economy was critical, as concerns on the policy warped the confidence brought by the inclusive Government in 2009.

However, the report pointed out that there has not been any expropriation of foreign assets as investors feared, under the guise of indigenisation.

Invictus said 2011 was characterised by policy uncertainty dominated by the Indigenisation and Economic Empower Act, which compels foreign-owned firms to sell, at fair value, at least 51 percent equity to locals.

"This, unsurprisingly inhibited investor confidence at a time the economy was, and continues to be, in dire need of foreign capital. It is worth noting that policymakers could not agree on the implementation (modalities) of the policy, causing jitters in the market," the report said. Indigenisation and economic empowerment is meant to bring previously marginalised blacks into mainstream economic activities of the country.

But despite investor scepticism of the economy, which suffered almost 50 percent decline in GDP in the decade to 2008, has grown for three consecutive years.

The economy grew by 4,5 percent in 2009, 8,1 percent in 2010, 9,3 percent in 2011 while Finance Minister Tendai Biti forecast 9,4 percent expansion this year.

Growth is seen anchored by increased output in agriculture (tobacco, cotton, sugar and soyabeans) mineral exports, mainly constituted by diamonds, gold and platinum, driven by high prices on global markets.

However, the International Monetary Fund sees lower growth this year and has put the economic growth rate at 3 percent saying FDI remains subdued.

The IMF cited significant structural impediments, the accelerated indigenisation in mining and uncertainties about ownership in the sector.

The multilateral lender also cited political disturbances, export price declines, higher than anticipated fuel prices, reversal of capital flows and bank instabilities. After a decade of instability, Zimbabwe possesses unlimited investment potential in various sectors including manufacturing mining, agriculture, tourism, mining, infrastructure, ICT and transport.

- zimpapers

Tags: FDI, Attract, Fail,
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