New Zimbabwe (London)

22 March 2014

Zimbabwe: Why Investors Don't Invest in Zimbabwe

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AT a seminar last week, a senior Chinese businessman said that in 1979 he had been in charge of the Chinese project to build the TanZam Railway from Dar es Salaam to Ndola in Zambia. He had finished the project that year and was moving back to his base in China. He described how he had packed his bags with sugar, milk powder and baby food; all basic needs that he knew were in short supply at home.

In 1980 the leadership of China changed and Deng Zhou Ping became the leader of the Chinese Communist Party and launched his campaign to bring China into the main stream of the world economy. He stated that "it does not matter that the cat is black or white, what matters is - does it catch mice". Today, 35 years later, China has the second largest economy in the world and has brought nearly a billion people out of abject poverty and into relative prosperity. The transformation is breath-taking and the talk of the rest of the world.

The businessman did not have to point out the stark contrast with the history of the past 35 years in Zimbabwe. In 1980 we were a middle income country with a higher GDP per capita than China, we had virtually no debt and a currency that was worth twice the value of the US dollar. We produced 90 per cent of what was sold in our supermarkets and our farmers employed 350,000 people, supplied 60 per cent of the inputs required for our industry, generated half of all exports and provided food at prices that were well below any other country in the region.

Today our GDP per capita is among the lowest in the world with half our population in abject poverty. Only 5 per cent of our population is working in the formal sector; we import 70 per cent of our food and pay higher prices for it than any of our neighbours. Only half of what we buy in our supermarkets is made in Zimbabwe - and even then, most local products are produced using imported raw materials. Nearly half our children under 5 years of age are malnourished and we have one of the lowest life expectancies in the world and child and maternal mortality rates that are well above those in all other southern African States. Our leadership in 1980 included 19 men and women with a PhD or more behind their names. I would have thought that they would have constituted the most highly qualified administration in Africa. Our Prime Minister, soon to be President had 6 degrees, spoke English as if it was his first language and was acknowledged as a very intelligent person. He was also tough and a clever, intuitive politician. Zimbabwe came to life with everything; a good climate, well educated elite, a balanced, mixed economy with abundant mineral resources and the full support of a global community that wanted us to succeed in every way. Advertisement

As he spoke to the seminar, which was attended by the Vice President, Ministers, Diplomats and nearly all Senators and Members of Parliament, total silence claimed the Conference Centre we were in. We all reflected on just what we had done wrong that our two countries - starting out with such hope and ambition in 1980 and yet ending up in such different places.

Two weeks ago I wrote a piece that stated that we did not have to do a great deal to get our country back on track into the future. I was criticized for that comment by people who thought that I was praising the Rhodesians for how they ran the country before Independence and minimizing the difficulties - some claimed it was all about "sanctions". But the truth is we have to answer for what we have done with what we inherited in 1980. We have to answer to our children if none other because it is their future that we have destroyed. At the same seminar we heard speaker after speaker, none from the UK or the USA, many from other developing States, all of whom said two things - we would love to invest in your future but sadly, your rules and behaviour deny us the opportunity. The Indian Ambassador was blunt, "how can you expect Indian business to invest in Zimbabwe when the Bilateral Investment Protection Agreement signed in 1999, ratified by the Parliament of India in 2000 has not been ratified by Zimbabwe in 14 years?"

The message they all gave was quite clear. We must respect and enforce the rule of law, we must enforce compliance with contracts, we must guarantee investment and protection of private property, must pay full compensation when those rights are violated for whatever reason. We must create an investor-friendly and conducive environment where business can expect to make a fair return on their capital and technology. We must guarantee all essential support services - education and health services for staff and management, transport and communications, access to regional and global markets at a reasonable cost. We must curb corruption and the activities of parasitic State agencies that must collect rents from our enterprise to survive.

They all said that our desire to control what goes on in our economy was similar to the position of all their governments. They did not think that indigenisation was a threat in any way - but we had to pay for our equity and respect the needs and requirements of our partners. They asked for strong government that was principled and for consistency and predictability with the ground rules being set out clearly and with guarantees that they will not change once the game is underway. They said that they always took a long term view of the situation into which they were investing time, technology and resources.

A quick review of what we have done to the mining industry (which grew at 35 per cent per annum in the period of the GNU) shows very clearly where we have gone wrong. Not only has the line Ministry been corrupt, demanding large payments for decisions and in the case of the Marange diamond fields, violating, without compensation, the rights of ACR who found the diamonds and had legal rights to a large part of the deposit and then simply taking over and exploiting the largest diamond find in a century. There was no transparency; no accountability and the wealth created found its way to a few politically connected people. Then, without consultation, we imposed massive fees on the industry and then in early 2014 new rates of royalties that are already closing down hundreds of small mines throughout the country.

When three world class mining companies invested billions in the platinum industry, employing thousands of Zimbabweans and virtually no expatriates, instead of being proud of what they had accomplished, we threatened them, made unreasonable demands on them, forced them to enter into share deals that were not in the interests of the companies or the communities they work amongst. Now we have imposed heavy royalties and threatened punitive taxes on "unprocessed" platinum being exported, even though the value addition is minimal. The present product being exported is highly processed and concentrated and there is little financial prejudice to the country and in any event we cannot provide the electrical energy needed for such development.

As for agriculture our track record is even worse. We have taken over by force, the assets of over 6,000 companies and individuals, we have destroyed the productive infrastructure that had been built up and paid for over the previous 100 years by enterprise and effort. We have not paid compensation or dealt with the human suffering that has resulted. We point to the partial recovery in tobacco production and the increased number of players without recognizing that the same effect could have been achieved without disruption. We have taken more than $10 billion in assets out of the economy and the great majority of these once productive enterprises are now derelict and abandoned.

Right now we cannot pay for even the most basic needs and priorities in Government. The economy is again contracting and State revenues declining. If we want to get out of the hole we are in we have no choice but to harness our business sector and get foreign direct investment in large quantities into our economy. There is no alternative, we have to change the way we are doing things, that is the stark reality facing Zimbabwe. Eddie Cross is MDC MP for Bulawayo South.

This article first appeared on his website www.eddiecross.africanherd.com

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