Africa News’s Justice Zhou spoke to Alpha Pesanai, an investment analyst with a top Zimbabwean Investment Bank to unpack his thoughts on whether Zimbabwe had any chances of being once again a decoy to investors.
Justice Zhou: In its 2011 Africa attractiveness survey, accounting consultancy Ernst & Young's reported that FDI into the continent was forecast to reach $150 billion by 2015 from $84 billion in 2010, driven by strong growth in new projects, yet Zimbabwe realized just $125 million worth of inward foreign investment in 2011. Is Zimbabwe really unattractive?
Alpha Pesanai: According to my own assessment and other investment analysts our conclusions regarding the attractiveness to foreign investors converge in saying that Zimbabwe is attractive to foreign investors. However, this interest has not been translated into actual investments on the ground due to several reasons to be discussed later.
Zimbabwe is endowed with a lot of mineral resources like, Gold, Platinum, Diamonds, Emeralds and chrome just to name a few. Investors willing to come and invest in this sector are assured of reaping reasonable returns from their capital investments considering the high prices these minerals continue to fetch on the international commodities market.
There is a talk of indigenization in the mining sector which some people see as a deterrent to FDI in that sector to me real investors will not be scared by such a move.
Investors are not concerned about the level of equity they possess in an entity but the level of return they are going to generate from their investment. Take for instance an investor puts USD10 million as investment in a Gold Mine and gets 20% equity and has sets a risk adjusted rate of return 5%.
At the end of the day if he gets a return of 5% or more he is very satisfied as he has achieved his required rate of return. Botswana diamonds which is listed on the Irish Alternative Investment market (AIM) has just injected funds in a diamond exploration project in Masvingo what they are looking at is return not equity.
Zimbabwe has abundance of human resources capital base and the country boosts of well-educated and trained human labour force to offer their skills to newly opened business enterprises without the need to employ expatriate labour which may increase operating costs in general. This therefore this means that the investor is assured of normal employment costs and an enhanced return.
A lot of sectors are still operating below their required production levels with the latest figures from the CZI (Confederation of Zimbabwe Industries) showing that capacity levels are currently at 57 percent. I feel these figures are inflated as the survey mainly covered accessible areas such as Harare and Bulawayo if the survey would spread to other small towns the average will be weighed down significantly.
This means that there is more room for growth in the economy and investors will have their investments grow as the economy grows, unlike the growth of European countries which is now only optimum and nothing else.
Notably, Zimbabwe has the least and stable inflation figures in Sub Saharian Africa which closed at 4.9 percent year-on-year in 2011. This stable inflation outlook enables long-term planning by corporate.
In dollar terms Zimbabwe is offering the highest returns as compared to the region. However, the uncertainty as with the regards to the government position on the tenure of the multiple currency regimes to assess the time dollar returns will continue in the country may act to some extent as a deterrent to FDI.
My advice to investors would be to rush to Zimbabwe to invest on selected projects and reap the high returns associated with risk taking. It is important to note that in the past two years Zimbabwe has had the highest economic growth rates averaging 8 percent and this year the projections are that the economy will grow by 9.4 percent.
JZ: What could be the reason for Zimbabwe’s dismal performance in terms of attracting foreign portfolio investment?AP:The main reason why our country is attracting little FDI which is not enough to make the economy grow in a sustainable way is mainly because of bickering amongst policy makers in key areas by the GNU counterparts. The bickering continues to cast a big shadow on the future ability of firms to continuously generate good returns.
The Indigenisation thresholds in their current form which do not allow for negotiation even in some priority areas is also acting as a deterrent to some extent. My advice would be directed to the government to clearly explain the policy to remove misconceptions.
Investors also consider sovereign risk associated with particular countries. The fact that the country is being governed by a coalition government which may fail to have a common vision and direction in terms of economic policies and ideology is also acting as a deterrent to FDI.
Investors also want protection of their investments and assets in a country which they invest in through bilateral investment protection agreements and legal recourse channels to recover any assets grabbed unlawfully or through criminal procedures. A strong legal framework to address the above issues raised above should be set up and strengthened.
The time it takes for investment projects to be approved in Zimbabwe is frustrating interested investors as it is taking on average 50 days to approve an investment project proposal.
Considering the case of Mauritius where it only takes one day to approve an investment project such ease and efficient policies act as a catalyst to FDI inflows in a country. In 2010 efforts have been underway to make the Zimbabwe Investment Authority (ZIA) to become a one stop shop so that the days taken to approve investment projects are stream lined to five days.
Foreign investors on the stock market seem reluctant to take risk largely as a result of the uncertainty surrounding the pending harmonised elections, but other fundamentals seem to be pointing towards the recovery path.
A lot rights issues have been done in the country by several companies trying to raise capital and they have been heavily under subscribed pointing towards the liquidity crunch faced by the local capital market only foreign capital will bridge the gap. Every time they have been heightened political tensions within the GNU (government of national unity) the same has been mirrored on the ZSE (Zimbabwe Stock Exchange) poor performance and foreign capital flight.
JZ: Are these figures reflective of what Zimbabwe deserves?AP: The figures are not reflective of the massive needs of capital the country needs to address its economic challenges. Investments in power plants, infrastructure like roads and bridges, water treatment plants just to name a few needs urgent attention.
With internal capital resources the country seems to be facing difficulties to fund such capital projects. Industry is in need of capital to carry out its retooling exercise as its operating using outdated machinery which is now inefficient and increases unit production costs.
JZ: Zimbabwe has turned to some Asian countries for direct investment and trade, including the so called BRICS countries. Is this strategy going to work in the bid to put the country back to its feet?AP: The strategy has work to considering the strained relationships currently with European countries. Some modest gains have been registered through this strategy mainly the Chisumbanje ethanol plant which is a partnership between a Brazilian company and the government of Zimbabwe.
A Chinese company called Anjin has partnered the government in diamond exploration in Marange area. The Chinese government has also built any agricultural mechanization college to transfer skills to local Zimbabweans. A defence college is being built to the tune of USD100.00 a loan advanced by the Chinese government.
Chinese trade with Zimbabwe has offered stiff competition to local products and this is threatened to push some firms out of business such as those in clothing and shoes retailing sector.
South Africa trade with Zimbabwe has resulted in some success as the economic performance of South Africa and Zimbabwe are now highly interlinked. Our own base economy based on agriculture and mining should be one to bring back the country to its feet not entirely to depend on other countries, other countries will act as accessories to the countries success.
South Africa is supporting our as official statics from the Finance ministry reveal that exports to South Africa were 2011 were 53 percent However, soon South Africa will impose a law that compels all companies to source at least 75 percent of their raw materials locally and this will impact some of the companies in Zimbabwe who entirely depend on export their raw materials to South Africa.
This strategy on its own will not bring back the glory days of the economy. A balance should also be struck by also engaging the west to mend the broken relationships so that technical support can also be rendered to our country as these countries have well developed industries and well experienced industry leaders.
Re-engagements with the Breton woods institute is also vital to enable the country to get long term funding for critical projects and technical support
JZ: Can Zimbabwe match the productivity and pricing levels of these countries?AP: Presently our country cannot match the productivity and pricing levels of these countries before some economic fundamentals are re-engineered like the retooling exercises by industry mostly which will increase the efficacy levels of the industry and ultimately reduce the production unit costs which will make our products price competitive.
Alpha Pesanai is an investment analyst with a Zimbabwean Investment Bank. He was interviewed in his personal capacity and can be contacted on
alpha.pesanayi@gmail.com
Zimbabwe is slowly convalescing from ten years of political instability and economic decline. As part of efforts to raise the money required in reconstructing the once-robust southern African economic bastion, the unity government which was formed in 2009, has embarked on a publicity blitz to attract foreign investment especially from emerging world economies.
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