Thursday, 28 April 2016

CHINESE INVESTORS NOT KEEN ON ZIM

DESPITE being considered as Zimbabwe’s “all-weather friend”, investors from China continue to give Harare a wide berth, with the southern African country receiving only 2,6 percent of the US$19 billion invested by companies from the vast Asian country into sub-Saharan Africa in 2015.

 This translates to about US$500 million worth of investment commitments by the Chinese.
And yet following President Robert Mugabe’s visit to China last year, it was reported that deals worth over US$4 billion had been inked between Beijing and Harare.


 China has been a key ally of Zimbabwe during the past two decades when capital from western and European states declined over a diplomatic standoff, now in its 16th year.
But fresh data released last week by Old Mutual Securities (OMSEC), a unit of Old Mutual Limited, indicates that the political ties have not translated into dollars and cents at the rate Zimbabwe would have wanted.


 OMSEC’s 14 page-report dispatched to investors last week detailed several hurdles curtailing foreign direct investment (FDI) inflows into Zimbabwe, which authorities are aware of but have been reluctant to act on.

 “According to World Bank statistics, China, one of the largest sources of foreign direct investment in Africa in the last five years injected US$19,4 billion into sub-Saharan Africa in 2015 alone,” OMSEC said.

 “However, Zimbabwe only accounted for 2,6 percent of that inflow (US$0,5 billion). The country has had a bad reputation of constantly violating (property rights) and will need to seriously overturn this deficiency if it hopes to attract the sort of investment that its neighbours have been able to attract,” the report added.

 The same concerns were also raised in a report by the United Kingdom based FDI Intelligence in September last year.

It revealed a worrying trend where capital inflows into Africa were largely bypassing Zimbabwe due to reasons spanning the controversial Indigenisation and Economic Empowerment Act, threats to close firms and high costs of doing business.

The empowerment law has not only repelled FDI but has been a divisive factor within the country’s Executive. Two weeks ago, President Mugabe had to clarify several sticking points after Empowerment Minister, Patrick Zhuwao, and his finance counterpart, Patrick Chinamasa clashed over the application of the law in the banking sector.


 FDI into Africa grew by 64 percent to US$87 billion in 2014, according to the UK think tank.
But Zimbabwe attracted only US$545 million.
In comparison, Zambia, ranked the eighth largest destination of FDI into Africa during the period, received US$3 billion.


Angola, Africa’s second biggest oil producer, received over US$16 billion, while neighbouring Mozambique received US$8,8 billion.  South Africa attracted US$3,8 billion and Kenya received US$2,2 billion.

OMSEC said pronounced uncertainty arising from a lack of clarity on the exact application of indigenisation regulations and heightened political noise from the dismissal of ruling party official have all contributed towards a poor economic environment and similarly lethargic performance of companies listed on the Zimbabwe Stock Exchange.

 “FDI is particularly required in the manufacturing sector as this will allow the country to add value to its predominantly raw product exports. A number of excessive legislation governing business operations and red tape needs to be simplified,” OMSEC said.

 Hostile policies have been at the centre of the de-industrialisation crisis in Zimbabwe.
The indigenisation law, which came into force in 2008, compels foreign-owned firms to dispose of at least 51 percent shareholding to native Zimbabweans.


 Zhuwao recently said there has been “a high level of non compliance”, with the law which forced him to issue a March 31 deadline for foreign-owned firms to comply, or face closure.
He encountered market resistance, with Chinamasa and Reserve Bank of Zimbabwe governor John Mangudya resisting his bully-boy tactics.


  Analysts say if President Mugabe’s administration had dared pull the trigger, current hardships could have escalated due to an exodus of the few remaining foreign firms to safer investment destinations.

 In 2013, ZANU-PF said there were about 1 100 remaining foreign controlled firms in Zimbabwe.
Analysts have urged government to open dialogue with investors.
“We should pursue a dialogue approach, rather than the punitive action,” said Kipson Gundani, chief economist at Buy Zimbabwe Trust.


“We must try to understand why they are not complying. The threats send negative signals around the world. It is better to close companies than keep threatening them because it causes a lot of anxiety,” Gundani told the Financial Gazette.

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