With less than six months to the harmonized elections scheduled before end of August 2023, Zimbabwe's policy environment remains very unpredictable, and reactionary as opposed to following long term economic targets. Over the past 4 years, the government has made very slow progress in improving the business environment due to bureaucracy and weak institutions that continue to frustrate domestic and foreign investment. The country ranks 140 out of 190 on the 2020 World Bank's Doing Business Report and 157 out of 175 on the Transparency International Corruption Perception Index. The Global Innovation Index ranks is also very low at 120 out of 131. Foreign investment into Zimbabwe is mainly directed towards the mining sector with Gold, Lithium, Diamond, Nickel and Platinum leading on targeted minerals. Private sector investment in infrastructure and manufacturing remains distressing while other key sectors such as agriculture, tourism, healthcare, financial services, and real estate receive significantly lower investment when compared to Zimbabwe's regional peers in Southern Africa. China remains the biggest investor in Zimbabwe while Russia, Iran and India are also important investors in the country. The European Union, United Kingdom and United States have shifted their investments to other markets in Southern Africa such as South Africa, Mozambique, Angola and Zambia.
Minor Reforms, Slow Progress
In the past 3 years, Zimbabwe has made progress on the amending the Indigenization and Empowerment regulations which used to restrict foreign ownership of local businesses to 49% and in the obtaining construction permits, bank loans and resolving insolvency. However, the waning investment figures point to pertinent policy blunders and investor concerns that have not been resolved in the past 3 years by the government.
The worrying business climate does not unnerve foreign investors only, it also hinders investment by local businesses and re-investment of profits earned by multinational companies operating in the country. This means that investors are always making frantic efforts to move their dividends and capital out of Zimbabwe to other markets in the region such as South Africa or Zambia which fare better.
Policy Consistency
Zimbabwe's policy flip flows on foreign exchange controls, legal tender, mining laws (EPOs & licensing), land tenure (title deeds), energy regulation and grain marketing regulations have dented investor sentiment. In 2020 alone, the country promulgated over 600 Statutory Instruments (SIs) with most of these delegated statutes impacting business operations and rarely being ratified by the legislature. Currently, players in the market are sweating over SI 127 of 2021 which compels businesses to quote and sell products using a government pegged foreign currency exchange rate. These inconsistences add on to various other controls and overregulation in sectors such as railway transportation, telecommunications, media, and broadcasting where the government remains the shareholder, law maker, regulator, policy maker and consumer at the same time. To guarantee investment, Zimbabwe needs to adopt 10-20-year domestic policies that do not change with change of personnel in government. Investment and trade policies should align with other Southern African countries who compete for the same investment inflows and are endowed with similar natural resources.
Dividends & Capital Repatriation
Foreign investor interest on the Zimbabwe Stock Exchange (ZSE) and local businesses has declined due to stringent foreign exchange controls especially restrictions on repatriating dividends and capital for foreign investors and lack of a competitive foreign exchange mechanism. The same applies to guaranteed exit when divesting from Zimbabwe. The country's foreign exchange regulations have been a pain to most investors who seek formal channels to repatriate dividends. In the end, potential investors hold onto their capital or invest elsewhere in the region where exchange rate losses are minimal and capital movement is not restricted. To improve the business climate and attract investment, the government needs to reform the current exchange controls and regulatory bottlenecks to ensure that investors use formal banking channels to repatriate their dividends and move capital out (subject to normal exchange control regulations and due diligence).
Property rights & Rule of law
For Zimbabwe to attract meaningful investment inflows, there has to be guarantees to property rights for any type of business or investor, and respect for rule of law. The unending cases of arbitrary acquisition of private land or farms and outright disregard of court orders by politically exposed persons (PEPs) scares away genuine investment. To this day, land is still being used as a political tool at the expense of agricultural production and not many investors have political influence to protect themselves from such land invasions or seizures.
To guarantee agricultural productivity, food import substitution and food security, there has to be guarantees to land tenure especially for A1 and A2 farmers with a track record. The current situation means that land is a dead asset, while political consideration carriers the day over food security, import substitution and poverty alleviation.
Private sector investment in Agriculture remains critically low
New investments in key sectors such as Mining and Agriculture are politicized to levels where an ordinary investor would naturally adopt a wait and see attitude or take the investment elsewhere in Africa. It is imperative to point that money has the same rules and investors look at markets where they can be able to repatriate their capital without overregulation or consistent policy discord from the government.
Punitive Tax Regime
The current taxation regime in Zimbabwe is burdensome with many tax heads, levies, permits, licenses, and statutory fees seriously eroding competitiveness for formal economic players. Multi layered taxes on electronic transactions (IMTT), excise duty on petroleum products and mining royalties need to be aligned with regional peers to manage production costs. Recently IMTT tax was reduced to 2% on all foreign currency payments. However, the 2% still discourages foreign currency deposits. There is now an urgent need to simplify tax procedures for tax compliant businesses or investors and payment of tax returns to applicants without subjecting the taxpayer to multiple audits. Currently businesses evade taxes and do not file for tax returns as filing triggers an investigation into their wider business operations.
Despite the interest from businesses to comply with ZIMRA regulations, there are unnecessary delays due to inefficiencies at ZIMRA that serve as costs of doing business. There is need for over 12 documents to import or exports commodities in Zimbabwe. Businesses struggle to get tax clearance certificates due to the slow process and some errors on the part of ZIMRA which takes so long to rectify.
Bureaucracy
The need for a one-stop shop is critical to the Zimbabwe Investment and Development Agency (ZIDA) mandate. However, businesses still face delays due to different institutions located at different geographical locations requiring physical visits to issue permits. For example, to import and export agriculture products, several export permits are required which are not centralized. The country's foreign exchange regulations and inconsistent monetary policies have been a pain to most investors who sought formal channels to repatriate dividends or invest on the ZSE. In the end, potential investors hold onto their capital or invest elsewhere in the region while existing ones look for illegal or unofficial channels to repatriate their dividends. The government must craft 10 years (or even more) investment policies that do not change with change of personnel in government departments. These policies must align with other Southern African countries that compete for the same investment inflows and are endowed with similar natural resources.
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The unpredictability of the government's economic policies and the unstable political and economic climate in recent years has undermined foreign investment. The country has a very rich natural potential (second largest reserve of platinum and chrome; diamonds, coal, gold, platinum, copper, nickel, tin) and an adequate infrastructure (except for recurrent power cuts), which represent genuine assets to foreign investors. Finally, the government would also need to do away with its obsession for control through temporary legislation and allow free market policies to shape private sector investment in the economy. This will also help fight the cancer of corruption that has torn apart Zimbabwe's economic fabric. The declining investment figures point to fundamental investment constraints that require attention from the government to back up the millions invested in international re-engagement efforts by the country's foreign missions.
Victor Bhoroma is an economic analyst. He holds an MBA from the University of Zimbabwe (UZ). Feedback: Email vbhoroma@gmail.com or Twitter @VictorBhoroma1.
