Can FDI and indigenisation policy co-exist?

As the economic revival efforts take off, Zimbabwe need to make a comprehensive stance towards its economic strategy in order for its population to equitably reap the fruits realized from the economic transformation across all its social strata.

With the Foreign Direct Investment (FDI) mantra widely considered the heartbeat to the transformation of the economy as it is expected to provide capital projects, technology transfer and skills across priority sectors, recent public reservations about FDI by the Minister of Youth, Indigenization and Economic Empowerment Patrick Zhuwao gives a new twist to the puzzle.

The Minister of Finance and Economic Planning Patrick Chinamasa is known to be vocal in advocating for FDI injection to stimulate economic activity as liquidity constraints continue to bite all channels conducive for business in the country.

This then brings the need for serious soul-searching for the country’s economic players on how they can bridge the two seemingly contrasting schools of thought for the benefit of this economy.

Minister Zhuwao’s criticism of FDI came at a time when the nation was in celebratory mood following the Chinese President Xi Jinping’s historic visit to the country which saw 12 mega deals being signed and a host of loans and grants being promised to be poured into the country’s construction, energy, manufacturing and agriculture sectors.

Last week Minister Zhuwao officially launched the first National Economic Empowerment Conference in the capital where he set straight the national youth , indigenization and economic empowerment strategy stressing the need to embrace indigenization much more firmer than anticipating FDI to benefit the ordinary person especially those in the rural areas.

His emphasis was on the imagery of exploring possibilities for a thousand laymen in a rural setup directly benefitting from the FDI rather than that of unemployed civil engineers hoping to be called for work when construction of the newly proposed Parliament building take place.

He called for the need to harness from the natural resources and huge opportunities that lie in the rural areas untapped which are low hanging together with taking advantage of community share owner schemes set up across the country’s rural areas.

For a country with 77% of its population under the age of 35, and over 60 percent of its population still residing in the rural areas facing high levels of unemployment, FDI on its own might not necessarily be the answer to Zimbabwe’s majority living under these circumstances.

This has been proven many a times across the vast expanse of the African continent with recent studies showing how dependence on FDI can culminate to even poorer living standards for the recipient country if proper measures are not put in place.

Firstly, according to Ernst and Young’s Africa Attractiveness Survey for 2015, it showed that strong inflows of FDI into Africa in 2014 were recorded in real estate, hospitality and construction with telecommunication, media and technology (TMT), financial services and consumer products and retails also receiving significant inflows of FDI.

Worryingly the agriculture sector was underexplored by FDI, when its actually most of Africa’s rural communities’ economic mainstay.

This then justifies why Africa’s GDP on average is the world’s second fastest growing after Asia and yet poverty levels continue to escalate. It comes at a time when capital investment into the continent in 2014 surged to US$128 billion an increase of 136 percent the previous year, with a current average investment increase to US$ 174.5 million per project from US$ 67.8 million in 2013.

“Personally, I see most impressively performing African economies as of high-tech nature when most of its population don’t have the requisite skills in those high-tech areas,” United Nations Development Program (UNDP) Advisor Mr Amarakoon Bandara noted.

“Most economies in Africa whose GDP are satisfactory are mainly anchored on extractive sectors such as in crude oil, mining and other activities of that nature which only a few locals can directly contribute or benefit from,” he added.

Apart from South Africa which has a more sophisticated economy although is also largely depend on mining, most of the continent’s economic giants with GDPs on three figure digits like Nigeria, Angola and Sudan have very little in terms of employment volumes for their populations in these high tech sectors.

This is further reinforced by the Ernst and Young’s Africa Attractiveness Survey in which it states that the continent’s FDI inflows for 2014 amounted to US$ 128 billion and only created 188 400 jobs.

These statistics highlight that for every US$ 679 405 injected into the continent as FDI, it only created one job.

It’s prudent to note how much community share ownership schemes can benefit given that US$ 679 405 which yield one job through FDI.

However these figures maybe disillusioning to some extent as one ought to understand and assess why an investor would want to pour such huge amounts of money to create little employment.

FDIs mainly target capital intensive projects mainly in these high-tech sectors because they are profitable in terms of volumes of dividend such that both the recipient and the provider of FDI receive valuable gains.

In as far as catering for employment opportunities for a country’s citizens much will depend on the government’s economic strategies to translate that GDP into uplifting livelihoods through employment.

Economic analyst Mr Pepukai Chivore says there is a need to synchronize the components of the indigenization policy with the idea of foreign direct investment as the two can co-exist.

“The country is currently plunged in liquidity constraints, obsolete equipment in most of its industries which need to be retooled and a general low productive environment which need to be stimulated by money from FDIs, so the issue is once the FDI has materialized we can go back to our indigenization laws and negotiate a win-win strategy with investors,” he said.

Interestingly, the indigenization laws provide some of the noblest initiatives that seek to protect and empower livelihoods for local people, initiatives which are not catered for when investors inject their capital and it’s up to the Ministry of Youth, Indigenization and Economic Empowerment to negotiate these deals on behalf of Zimbabweans.

According to the Indigenization and Economic Empowerment Act the reserved sectors of the economy are agriculture (primary production of food and cash crops), transportation, retail and wholesale, grain milling, bakeries, tobacco grading, processing and packaging, advertising agencies and milk processing among others.

Minister Zhuwao’s announcement that as of next year, his ministry would levy foreign nationals trading in reserved sectors provides huge opportunities for locals to venture into business in these sectors which are not capital intensive as compared to macro-economic sectors like energy, mining and manufacturing which needs foreigners to provide FDI.

These reserved sectors are inclusive to all citizens regardless of social strata and if locals make use of these initiatives they can both participate and benefit from any economic transformation that take place.