Notwithstanding some key policy changes, weak rule of law, policy inconsistencies, corruption, foreign currency shortages and human rights violations are scuttling foreign direct investment (FDI) into Zimbabwe. 

Many Zimbabweans were optimistic that their country, once a regional economic powerhouse, would regenerate after president Emmerson Mnangagwa ended Robert Mugabe’s ruinous 37 years in power via a coup in November 2017. 

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After subsequently winning a disputed election in July 2018, using the catchphrase “Zimbabwe is open for business”, Mr Mnangagwa promised to implement radical economic and political reforms that would, among other things, usher in fresh global and domestic capital. 

He seemed to get off to a good start in March 2019 when his regime overhauled the controversial 2008 Indigenisation Act to allow foreign investors to own majority shareholding in locally registered companies. This July, in another spectacle hailed by government publicists as commitment to constitutionalism and rule of law, his administration sanctioned a $3.5bn agreement to compensate white commercial farmers evicted when the country's land reform process started two decades ago.

False dawn

However, investors and socio-economic analysts note his desire to reform has relented and some of the new policies have backfired.  

Jetin Shah, the chief executive officer of the British Business Association (BBA), an informal grouping of mostly UK companies, says the reintroduction of the local currency in 2019 at par with the US dollar, culminating in the removal of the multiple currency system, left foreign and local businesses breathless and unable to capitalise. 

“In the last two years, FDI appetite for Zimbabwe has reduced drastically and the bottom line is due to lack of stability,” Mr Shah tells fDi. “Many investors like to have a return on their investment but Zimbabwe is not nurturing that presently.”    

Mr Shah says while factors discouraging investment varied with sectors of the economy, the outstanding issue of land tenure in agriculture, concerns over the recovery of loans in the financial sector and the foreign currency regime in the mining sector where miners are allowed to retain only 70% of their foreign earnings are notable impediments. 

“Zimbabwe is not free flowing for investors to take their funds back home. In some business circles, they say that Zimbabwe has a one-way valve. It likes money to come in but does not like money to go out. So until we can square that up, that’s also a hindrance. Rules are changing all the time,” he says. 

Such an environment has forced some international companies to close shop or to survive on bail outs from their parent companies with only exporters faring better. Among others, in November 2019 South African retailer Pepkor closed its local operations after 20 years, citing “adverse macroeconomic conditions” . 

Menzi Ndlovu, a political risk analyst with South African-based business intelligence firm Signal Risk, says Zimbabwe is a high-risk investment environment, characterised by acute uncertainty. 

“There are implicit barriers to entry, especially for those pursuing direct investment into strategic sectors where there is a preponderance of government interests. 

“The macro-economic climate within Zimbabwe is also hardly conducive to investment. Even with a competent figure at the helm of the economy in Mthuli Ncube, the government’s fiscal and monetary policy direction remains uncertain,” says Mr Ndlovu. 

“The country also suffers from an acute foreign exchange shortage – a consequence of policy shortcomings – that has bred a hyperinflationary environment. And arrears to the multilateral and bilateral lenders and the government’s policy inconsistency mean that intervention from the likes of the International Monetary Fund is far off,” he notes. 

Rejoice Ngwenya, founder of think-tank the Coalition for Market and Liberal Solutions, says the September eviction of the white farmer Martin Grobler from his farm, barely a month after the signing of a compensation deal, was a callous act of policy inconsistency and violation of property rights, which jeopardised the attraction of foreign investment.  

He adds that Mr Mnangagwa’s failure to deal with corruption and condonation of business cartels and cronyism, and the brokering of state capture type of business deals (with China and Russia among others), further tainted the investment climate. 

Government defence

But James Manzou, the foreign affairs and international trade permanent secretary, believes his government has, during the past two years, drastically reformed the investment climate, citing the repealing of the indigenisation policy as one major drawcard. 

“Investors can now invest in Zimbabwe in any sector or sub-sector with up to 100% foreign ownership. Government has adopted a policy of non-discrimination between foreign and domestic investors. The new National Investment Policy, adopted in August 2019, provides that all investors are treated equally in the establishment, expansion, operation, and protection of their investments,” he says. 

Mr Manzou further mentions the liberalisation of the foreign currency exchange market, including the recent use of foreign exchange auction system to stabilise prices and the easing of doing as significant processes initiated to eradicate barriers to investment and trading. 

Data on foreign investment suggests a deterioration of the investment climate though. 

After a few years of international goodwill, FDI has begun to fall, decreasing sharply to $280m in 2019 after more than doubling to $745m in 2018 from $349m in 2017. Figures from the Reserve Bank of Zimbabwe (RBZ) show a further decline during the first half of 2020 to $71.2m compared to $111.6m recorded in the same period in 2019. The RBZ anticipates FDI inflows for 2020 to end the year at $150.4m.

The regime blames the decline in FDI inflows to sanctions and the Covid-19 pandemic. And although coronavirus has contributed to a halt to pipeline investments and planned expansions, sentiment was already weak prior to the pandemic due to the prevailing high risk investment climate and broader structural shortcomings, says Mr Ndlovu. 

Mr Manzou says the re-aligning of existing laws to the constitution since 2017 to allow reforms has been unjustly criticised and mistaken for human rights violations. 

This article first appeared in the October - November print edition of fDi Intelligence. View a digital edition of the magazine here.