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Analysis

Investment drive hampered by shambolic governance record

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THE tepid response by investors to the government’s call for them to list on the foreign currency-indexed Victoria Falls Stock Exchange (VFEX) is yet another indication of the herculean task that President  Emmerson Mnangagwa’s administration faces to lure investment.

PALESA MUWANI
Launched in October last year, the forex-indexed bourse was billed as a game changer in helping to transform the country’s economic fortunes. It was also expected to breathe life into the government’s quest to bring back investors who have given the southern African country a wide berth as a result of a prolonged economic and political crisis.

However, eight months since the colourful launch, only Seed Co has listed on the bourse. In a desperate attempt to lure investors, Finance minister Mthuli Ncube (pictured) recently added further incentives which include allowing companies that list on the VFEX to keep 100% of their incremental exports.

The move by Ncube could be woefully inadequate as a result of decisions the government has taken that have been a major deterrent for investment.

Last year’s abrupt suspension of the Zimbabwe Stock Exchange (ZSE) for more than a month on allegations of illicit activities, as well as halting the fungibility of three counters, namely Old Mutual, Seed Co and PPC, has done little to lure investors to the country.

This led to a substantial loss of more than ZW$40 billion as investors fled the ZSE shortly after the lifting of the suspension.

Concerns about the VFEX were raised by investors in a Zoom meeting with Ncube just before its launch.
During the meeting, the head of research for sub-Saharan Africa at the Russian-headquartered Renaissance Capital, Yvonne Mhango, voiced fears among investors of doing business in Zimbabwe.

“We are an investment bank targeting frontier and emerging markets and our current clients include institutional investors who have invested in these frontier markets, Zimbabwe being one of them. So, we have clients that have invested in Zimbabwe and the main concern has been the lack of ease in terms of repatriating capital and dividends as well as, of course, significant changes in foreign currency policy that has discouraged foreign investors,” Mhango said.

These sentiments by Mhango probably show why foreign direct investment (FDI) statistics since Mnangagwa won the disputed 2018 general elections make grim reading.

FDI has plummeted from US$717.1 million in that year to US$259 million in 2019. Figures from the Reserve Bank of Zimbabwe show investment further declined during the first half of 2020 to US$71.2 million compared to US$111.6 million in the same period in 2019.

This is despite the setting up of the Zimbabwe Investment and Development Agency (Zida) by the government following the signing into law of the Zida Act (2020). The Act deals with the promotion, entry, facilitation and protection of investment in Zimbabwe.

Zida has since then stepped up efforts to woo capital into Zimbabwe, partnering the International Finance Corporation (IFC) to conduct a major Investor Confidence Survey as part of efforts to better appreciate and address challenges prevailing in the country.

Ncube held a virtual United States investor roadshow last weekend with potential investors with similar engagements being conducted with South African investors as the drive to drum up investment intensifies.

However, failure to deal with the country’s legacy issues, aggravated by the advent of the Covid-19 pandemic, presents a formidable challenge for the government to woo the much-needed investors, according to economist Godfrey Kanyenze.

“Before Covid-19 we had our own legacy issues,” Kanyenze pointed out. 

“Issues such as the failed re-engagement which would have sent a huge signal to the outside world and the failure to implement Ease of Doing Business reforms. This has now been exacerbated by Covid-19 which has made it very difficult for investors as supply chains have been disrupted.”

He said the report by the International Monetary Fund (IMF) early last year, which conducted a Staff-Monitored Programme with the Zimbabwean government, indicating that the country is off-track in terms of meeting set targets, has sapped investor confidence.

“The report by the IMF in February Iast year said that the country is off track. If an international financial institution says this, investors will take a cue from it and adopt a wait-and-see attitude,” Kanyenze said. “Capital is a coward and takes flight at the slightest hint of adversity.”

Independent economist John Robertson said in addition to the unfavourable investment in the country, the idea of adding a second bourse at a time of current technological developments is “outdated”.

“The stock exchange worldwide has changed completely due to the internet. It is out of sync with the general trends. There is no need for a separate stock exchange. The two can work as a single unit,” Robertson said. 

“Reforms would have certainly helped. Our reforms are not satisfactory. We are not exciting investors.”

In its April 2021 Southern Africa Outlook Report, American financial services firm Fitch Solutions revealed that Zimbabwe still had the highest short-term and long-term risk in southern Africa due to a continued deterioration of the country’s political and economic situation.

That even strife-torn Mozambique had a better score than Zimbabwe shows how far the government has to go to attract significant and meaningful investment.

Policy inconsistency, which characterised the tenure of former president Robert Mugabe, has continued under Mnangagwa.

Nothing depicts this more than the protracted dispute between RioZim and the military, as well as a company owned by Pakistani nationals, Falcon Resources, over chrome-mining claims in Darwendale, Mashonaland West province.

RioZim won its protracted dispute with the military and Falcon Resources in a ruling by the Supreme Court.

The dispute started sometime in August 2018 when Defence and War Veterans Affairs minister Oppah Muchinguri-Kashiri declared RioZim’s mining claims a cantonment area and offered them to Falcon Resources, which was a violation of the law, particularly with regards property rights.

This is despite an undertaking by Mnangagwa’s administration to respect property rights and making it a key tenet of the new dispensation.

Red tape and corruption are the major obstacles to significant investment in the country.

Premier African Minerals has also expressed frustration over delays by the government to grant it an exclusive prospecting order (EPO) for its Zulu Lithium and Tantalum project.

In a statement accompanying the company’s annual report for the year ended 31 December 2019, chief executive officer George Roach said they were frustrated by the government’s delay in granting it an EPO.

“There remains no doubt in my mind that Premier African Minerals Limited must diversify its exploration portfolio and identify revenue-generating assets that are actually in production and profitable now,” Roach said.

“The initial part-acquisition of MN Holdings Otjozondu Mine in Namibia was a significant first step in the midst of the ongoing and very disappointing delays in Zimbabwe.”

He added that the dependence on exploration activities based exclusively in Zimbabwe where country risk and delay deny the opportunity to add value, is clearly “flawed yet exploration remains the best opportunity for substantial value generation and recovery in our company”.

Zimbabwe’s ministry of Mines and Mining Development  recently suspended two of its top directors on allegations they tried to solicit bribes from South African potential investor, Lephalele Mining, a further indication of why the country struggles to attract the much-needed investment and is a far cry of the government’s “Zimbabwe is open for business” mantra.

Despite Mnangagwa boasting of having made progress in the fight against corruption, the Transparency International Corruption Perception Index (CPI) ranked Zimbabwe 150 out of 187 highly corrupt countries after it scored 24% on corruption fighting. This illustrates how the scourge of corruption is a major threat to the government’s investment drive.

In 2014, then Australian ambassador to Zimbabwe Matthew Neuhaus likened investing in Zimbabwe to “swimming in the Zambezi between crocodiles and hippos.” 

Seven years on, potential investors are unlikely to disagree.

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