Call to look beyond FDI for capital inflows

Foreign Direct Investment inflows into the country.
This was said by the Minister of Economic Planning and Investment Promotion Tapiwa Mashakada yesterday at the launch of the United Nations Conference on Trade and Development (UNCTAD) World Investment Report 2011.

The theme of this year’s report is ‘Non-equity Modes of International Production and Development.’
“An analysis of our FDI over the years shows a sharp decline as compared to our regional peers. For example, FDI declined from a high of US$444 million in 1998 to US$60 million in 2009, while other countries in the region like Zambia, Mozambique and Namibia have been receiving significant inflows.

“It is against this background that I strongly believe that the new thrust of non-equity modes of investment should greatly assist our economy.
“The renewed focus on non-equity modes should enable international investors who do not want to have a high exposure to Zimbabwe to look at other means of doing business with us, at minimum risk,” he said.
Non-equity modes of international production and development include models such as contract manufacturing and farming, service outsourcing, franchising and licensing.
It is believed that these relatively new phenomena present opportunities for developing economies to deepen their integration into the rapidly growing economy by strengthening their home-grown productive capacities and improving their international competitiveness.

The World Economic Report 2011 shows that Zimbabwe’s recorded FDI of US$105 million, compared to neighbouring Angola’s US$9 billion for the same period.
These figures are in the context of a US$55 billion FDI inflow for the African continent, reflecting the poor performance of the country in attracting new investment.
During the same period Zimbabwe’s outward FDI flows amounted to US$15 million.

The issue of declining FDI inflows however has much broader orientations.
The World Investment Report indicates that inflows to Southern Africa decreased by 24 percent to US$15 billion.

The latest report also reveals that total FDI inflows into Africa last year amounted to 10 percent of total FDI inflows to developing countries, which was a downturn from the 12 percent recorded in 2009.
This is notwithstanding the fact that global FDI rose 5 percent last year, although remaining 37 percent below its 2007 peak. This growth was driven by recovery in the United States and significant upturn in the

Asian markets, were, for instance, FDI flows to South, East, and South-East Asia rose 24 percent to US$300 billion, nearly one fourth of the global total.
“Increasing competitiveness of the global FDI environment means we need to shift our strategy to also capture these non-equity modes of international production and development, which are critical in enhancing our capacities and in employment creation,” said Minister Mashakada.

The minister cited examples of the country’s partnerships with the Chinese in the areas such as contract cotton and tobacco farming as examples of non-equity modes that are currently underway, but added that Zimbabwe is yet to gather empirical data on its level of entrenchment in this respect.
Although non-equity modes can help boost production capacities within developing countries, by its nature it can come into conflict with local industrial development policies, which are commonly protectionist.

To this extent UNCTAD has called for policymakers in developing countries to strike a balance stronger domestic productive capacity on the one hand and avoiding trade protectionism on the other.
The Government has been working to improve the country’s investment climate through a number of measures including operationalisation of the One-Stop Shop investment centre, the promulgation of an investment promotion and protection Bill by year-end and conclusion of negotiated Bilateral Investment Promotion and Protection Agreements among others.