11 August 2013

Zimbabwe: Skewed Government Policies Restrain Capital Inflows

Photo: SADC
Hawkers in Harare

UNCERTAINTY over government policies will continue to deter capital inflows needed to revive the economy despite Zimbabwe offering an array of investment opportunities, international experts have said.

Despite the formation of the inclusive government in 2009, investor sentiment over the country's investment climate continued to be low, leading to limited foreign direct investment inflows.

President Robert Mugabe's victory at the polls held a fortnight ago has not changed the investment community's uncertainty over Zimbabwe.

Speaking at the Africa Business Leadership summit hosted in the capital last week, former chairman of Royal Dutch/Shell, Mark Moody Stuart said Harare should be seized with creating an enabling environment for investment in order to move forward.

"I think the issue about Zimbabwe is that investors are still uncertain. It's uncertainty which is causing people to hesitate," Staurt said.

"The opportunities are clearly there but exactly what the rules will be is what makes people nervous and they don't want to start and find that they don't like the rules or that the rules have changed."

He said Africa as a whole was now seen positively by the international investment community as many countries were growing quite significantly.

However, Harvard Business School Associate Professor, Eric Werker said the next thing government should do was to undertake policies that reduced uncertainty and also to embark on measures that increase the level of predictability.

"Considering the economic situation in Zimbabwe, the first task should be to provide macro-economic stability, that's not a hard thing to do. The budget should be manageable and balanced until government's fiscal position is strong enough to borrow but certainly initially working off a cash balance," he said.

Werker said that once this was in place, then the country had a predictable backdrop from which businesses could do their best to succeed and create growth.

"A number of measures one can undertake to increase the level of predictability include making rules well-known, reducing corruption from the government side and increasing the credibility of domestic institutions so that firms are able to trust one another with contracts," he said.

Werker added that government should not put excessive demands on the business community beyond its capacity to break even.

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