Zim landscape ready for investment
Zimbabwe’s investment landscape has had positive sentiment from investors as the country opens up for business, however, addressing underlying economic fundamentals should be a priority in order to de-risk the economy.
The country is actively seeking foreign direct investment (FDI), which is recognised as a catalyst for economic growth and development.
Over the past few decades, African countries, including Zimbabwe, have increasingly become attractive destinations for foreign investors seeking new opportunities and markets.
This trend has been driven by various factors, including the continent’s abundant natural resources, growing consumer markets and improving business environments.
Experts believe that a stable political and macroeconomic environment, as well as favourable regulations, quality economic infrastructure, qualified human resources and a transparent legal system, are key parameters for creating an enabling environment that is attractive to investors.
FDI flows to Zimbabwe are far below the country’s potential and according to UNCTAD’s World Investment Report 2023, FDI inflows amounted to US$342 million in 2022, up by 36,6 percent but still significantly below the pre-crisis level (US$745 million in 2018).
The Zimbabwe Investment and Development Agency (ZIDA), a government’s investment promotion agency responsible for promoting and facilitating domestic and foreign investment in the country, says its 2024 goal is to develop a US$15 billion investment pipeline.
Data from ZIDA shows that the country attracted US$8 billion in announced projects in 2023, the majority of which were directed to the mining, steel and energy sectors.
Through its investment promotion drive, ZIDA has been streamlining and facilitating investment, both domestic and foreign, as a single point of contact.
The country also offers incentives such as tax breaks for new investments by foreign and domestic companies, full tax deductibility for capital expenditures on new factories, machinery and improvements, as well as waiving import taxes and surtaxes on capital equipment.
“Although progress has been made in reducing regulatory costs, policy inconsistency and weak institutions continue to pose challenges for businesses.
“Corruption remains widespread and property rights, especially concerning agricultural land are inadequately protected,” according to UNCTAD’s World Investment Report 2023.
But according to Tafadzwa Chinamo, the ZIDA chief executive, in a bid to achieve the US$15 billion goal and attract the calibre of investors the country requires, the agency is conducting research for new source markets that have the potential to drive the desired investments into Zimbabwe.
“The past few months have been a testament to our commitment to driving economic growth, attracting valuable investments, promoting re-investments and fostering sustainable development,” he said in the ZIDA first quarter 2024 report.
He said during the first quarter of 2024, the agency made significant strides in partnerships that contributed to creating a vibrant national investment ecosystem and successfully signing collaboration agreements with ZB Financial Holdings, Ecobank Zimbabwe and a tripartite memorandum of understanding with ZIM TRADE and Zambia Development Agency.
“These partnerships will see the exchange of information and joint investment promotion activities aimed at showcasing Zimbabwe as an attractive investment destination,” he said.
Expert in trade and investment facilitation and former minister of Economic Planning and Investment Promotion during the Government of National Unity, Tapiwa Mashakada, said the most attractive thing for Zimbabwe are the opportunities that are bound, especially in the mining sector and some that are also coming on the stock market through portfolio investments.
“They are looking at performing counters in blue chip companies and also through the private placements on the Zimbabwe Stock Exchange, targeting the property market and manufacturing sector,” he told Business Weekly.
He said agriculture also is attracting investors from Asian countries through partnership agreements with local farmers.
Mashakada also highlighted that the ICT sector is another sector where there is opportunity for investment to increase internet penetration and artificial intelligence.
“That is an upcoming sector also when it comes to investment and the most incentivising aspect of investors is the use of the United States dollar.
“Investors are attracted because there is no exchange that laws were using the United States dollar and the relative economic stability also is also a center of attraction for investors,” he said.
Mashakada noted that investment is determined by the rate of return and the ease with which profits and dividends can be remitted out of the country.
“Investors can still invest in Iran or Afghanistan or in a country at war as long as the rate of return is okay and as long as there is protection of investment,” he said.
He added that they are looking at the numbers, the return on investment and the ease with which they can remit their profits or dividends and that is an issue for Zimbabwe.
Investment analyst, Batanai Matsika, told Business Weekly that projects such as the US$1,5 billion Manhize Steel Plant and other significant projects in platinum and lithium, show huge investor sentiment towards Zimbabwe.
He noted that the Zimbabwe sanctions programme by the United States has changed for most institutions, mostly banking institutions, and they will be able to engage international finance institutions.
“However, we need to look at how best Zimbabwe can be positioned to tap into these global funds.
“Macro-economic stability, liquidity, currency issues and policies should support a stable economic system and environment, which are key to attracting FDI,” he said.
Matsika noted that capital mobility should be promoted through stable policies on the currency front and issues like the general business environment are also key to positioning Zimbabwe as an attractive business-friendly country.
“Therefore, we need to push for ease of doing business so that we are competitive compared to other emerging economies in Africa and elsewhere. So the ease of doing business is critical,” he said.
Matsika highlighted that to facilitate or encourage investment, there is a need for supporting infrastructure; hence, the government should push its infrastructure agenda.
He challenged the government to invest in feasibility studies for projects that are mainly being marketed as greenfield projects.
“Most investors want to come to a ready stage where they can invest in operations, but most of our projects are greenfield, without work on documenting the projects.
“The government can set aside funds to develop projects, document them and do feasibility studies, and at that stage, the projects can become marketable,” he said.
According to the ZIDA Q1 2024 report, the total projected value of licensed new licenses for Q1 was US$622,18 million, with much of the FDI coming from China, Switzerland, the USA, Mauritius and Russia.
The number of new licenses issued in Q1 was 143, with much of the investment being in Harare, with a total of 89 new licenses amounting to US$313,73 million.
Much of the investment has been in the services sector, with a projected investment value of US$155,78 million.
The sector with the highest number of licenses issued was manufacturing, with 41 licenses issued and a value of $47,41 million.
Most of the investments into Zimbabwe in Q1 are from China (92 investors), India (14 investors), Pakistan (5 investors), South Africa (5 investors), and Zimbabwe (4 investors).
The country has many sectors that are ripe for investment, such as renewable energy, infrastructure development, agriculture and technology.
According to economist, Farai Mutambanengwe, despite various investment opportunities, the economic environment is not conducive to most of the FDI but attracts only that FDI that is prepared to face the very high risk that Zimbabwe is.
“When looking at foreign direct investment, the main thing that investors look at is obviously the opportunities that are present within the country, of which Zimbabwe has plenty.
“They also look at the ease of doing business and as Zimbabwe, we rank very poorly, so that becomes a negative.
“They look at issues like rule of law and rights in terms of the security of the investment; again, we have not done too well. They also look at the ability to be able to recoup both profits and the capital they need to and again, we are not good in that area,” he told Business Weekly.
He said Zimbabwe has to address fundamentals such as having a proper functional currency, a stable a stable macroeconomic environment, and a proper foreign market because investors are going to be able to move their money in and out without too many complications.
“We need to fix the cost of doing business. Right now, if you are trying to do a bank transfer, you pay 3 percent in taxes, which is unheard of anywhere else in the world. Issues like that would need to be addressed,” said Mutambanengwe.
Another economist, Victor Bhoroma, said there are various sectors within the economy that are ripe for investment.
These include food processing to substitute large amounts of processed food imported from South Africa, hemp production, lithium processing, and cigarette manufacturing for export purposes using our highly rated virginia tobacco.
Others are the manufacturing of jewellery from gold and diamond products to increase export value, fertiliser manufacturing, industrial chemicals, and agriculture equipment manufacturing.
In order to improve investments in the country and drive FDI inflows, Zimbabwe should invest in power generation to guarantee an uninterrupted power supply to producers.
“There is no sustainable economic stability or successful economic blueprint without energy self-sufficiency,” said Bhoroma.
He said the economy should also improve on the rule of law, guarantees to property rights, especially land and mining assets, and good economic governance to create international goodwill.
Investment analyst Enock Rukarwa said major downsides dettering favourable FDI into the country are embedded in political uncertainity, policy inconsistency and a complex operating environment diluted by inflationary pressures and exchange rate volatility.
“Improving the Zimbabwean investment climate is an intricate approach that cuts across economic, political and social spheres. Low hanging fruits are anchoring inflationary pressures and exchange rate volatility. An advanced layer can focus on political stability and policy consistency,” he said.
According to UNCTAD, global foreign direct investment (FDI) flows in 2023, at an estimated $1,37 trillion, showed a marginal increase (+3%) over 2022, defying expectations as recession fears early in the year receded and financial markets performed well.
However, economic uncertainty and higher interest rates did affect global investment.-ebusinesswekly
