adminNyasha Patience Mandeya —
As the economy continues to occupy centre stage in matters of national importance, it is necessary that we take a closer look at the make-up of economic growth. Economic growth is the increase in the inflation-adjusted market value of the goods and services produced by an economy over time. It is commonly measured as the percentage rate of increase in real gross domestic product, or real GDP, usually in per capita terms.
Economists usually employ growth accounting to measure the contribution of different factors to economic growth and to indirectly compute the rate of technological progress, measured as a residual, in an economy. Growth accounting decomposes the growth rate of economies into that which is due to increases in the amount of factors used; usually the increase in the amount of labour and capital.
GDP is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period. A measure of growth can be decomposed into personal consumption expenditures, investment, net exports and government expenditure. Economic growth can be encouraged through the use of sound investments.
When companies construct or acquire a new piece of production equipment in order to raise the total output of goods within the facility, the increased production can cause the nation’s gross national product to rise. A bird’s eye-view on the contribution of investment to economic growth depicts investment as comprising domestic and foreign investment.
FDI can be made by individuals, but mostly often pursued by companies and corporations with substantial assets looking for cheaper production, labour and lower or fewer taxes, and to expand their reach as globalisation increases. FDI can be broken down into direct and indirect investment.
Foreign direct investments are the physical investments and purchases made by a company in a foreign country, typically by opening plants and buying buildings, machines, factories and other equipment in the foreign country.
Direct investment is a category of cross-border investment associated with residents in one economy having control or a significant degree of influence on the management of an enterprise that is resident in another economy. These types of investments find a far greater deal of favour as they are generally considered long-term investments and help bolster the country’s economy.
FDI is, therefore, a critical component at a time like this when Zimbabwe needs liquidity to oil the wheels of the economy. In the context of Zim-Asset, Zimbabwe’s premier economic blue-print, the criticality of investment is evidently highlighted in the 2016 National Mid-term Fiscal Policy Review Statement whose theme is “Building a conducive environment that attracts foreign direct investment necessary to transform Zimbabwe into an industrialised state, capable of affording its people better standards of living”.
In like manner, President Mugabe reiterated the importance of strengthening re-engagement with the international community and the current re-engagement efforts with both bilateral and multi-lateral partners, including the African Development Bank and the World Bank under various initiatives which should result in improved relations and opening up of new financing avenues for long overdue reforms and development co-operation.
Further highlighting the importance of investment in the growth equation, the dire need for FDI cannot be further emphasised given the little money flow into Zimbabwe with the eventual effect that we are exporting liquidity. Illicit financial flows have been the major capital leak. Under the IMF Staff-Monitored Programme, the Bretton Woods institution stresses the importance of stepping up structural reforms to raise potential growth and highlighted the need to improve the investment climate.
Government is seized with improving the ease of doing business environment and revising the cost of business to encourage investment into productive sectors of the economy. One key impediment to growth is the huge debt overhang estimated at over US$10 billion, which raises the cost of capital for investment.
Clearance of the debt would strengthen investor confidence and increase private financial flows into the economy as well as allow partners to fully support Zimbabwe’s socio-economic development. Zambia’s economy has transformed over the past two decades and has been able to attract FDI.
Between 1974 and 2004, Zimbabwe’s per capita GDP was better than Zambia’s, while GDP growth was almost double. Zambia’s GDP is now more than twice that of Zimbabwe.
In the last decade, Zambia has attracted over US$10 billion in FDI, and achieved a growth of over six percent in GDP per annum, while Zimbabwe has an average growth rate of 3,2 percent and has attracted only US$2,3 billion in FDI over the last decade.
What is more, in a dollarised economy such as Zimbabwe’s, which boasts of a rich endowment of over 40 different mineral occurrences — over 13 million tonnes of gold; 218 billion tonnes of nickel; 26 billion tonnes of coal; 30 billion tonnes of iron ore; 512 million tonnes of copper and the largest reserves of coal bed methane in Southern Africa — FDI is the missing link to unleashing this massive potential.
Manufacturing opportunities include cotton ginning, spinning, weaving, finishing textile and knitting products, processing meat products, canning agricultural produce, sugar milling, cigarette making, saw milling, furniture production, newsprint, board and manilla, pharmaceuticals, industrial chemicals, building, construction, steel-based furniture, motor industries, rail wagons and agriculture equipment and implements.
Under the Zim-Asset framework, investment in infrastructure as a key enabler for sustained recovery requires over US$14 billion, while an estimated US$27 billion is required to fully implement Zim-Asset. An efficient infrastructure network and service delivery is critical for Zimbabwe to achieve global competitiveness.
The vast resource endowment requires humongous amounts of capital investment to unlock the potential in these resources in the absence of domestic liquidity and against the prevailing huge financing gap, widening current account and huge fiscal deficits. Even the largest economic powerhouse needs FDI.
The largest FDI went to the United States in 2011 as compared to any other single country in the world. The US benefited from FDI in numerous ways that include manufacturing plants which buttressed resources and development.
It attracts so much FDI because it has one of the most open markets, a favourable investment climate, an unrivalled consumer market, world-class higher education system, skilled and productive workers, an entrepreneurial culture and innovation and risk taking, transparent regulatory environment, the largest venture capital and equity market in the world.
Likewise, Zimbabwe needs FDI as it generates positive externalities through providing financing and complementing domestic investment as well as enhancing competitiveness. The need for FDI in Zimbabwe has been heightened by the low gross national savings (percent of GDP), which, in 2015, stood at -4,3 percent.
It is commendable that Government is committed to creating a conducive investment climate. Recent notable improvements in doing business in Zimbabwe include the reduction in the number of days taken to start a business from 30 days to 15 days, while time taken to pay taxes has been reduced from 242 hours to 160 hours.
The cost to export and import has been reduced by 30 percent as revealed at the Ease of Doing Business Workshop hosted by the Office of the President and Cabinet and The Herald Business on June 16, 2016. Government, however, needs to be more resolute at a macro-economic level towards creating a conducive environment for investment.
Industry capacity utilisation has been hovering around 40 percent; a poor reflection of investment levels. Corruption needs to be dealt with, while labour practices and policies need attention. FDI in 2014 was US$545 million, the highest since the inception of the multi-currency system. It then went down by 23 percent in 2015.
Policy clarity and consistency on the indigenisation framework and the introduction of bond notes led investors to sit on the fence.
Squabbling in the ruling party has also heightened skepticism among investors.
Government must hasten to implement Special Economic Zones, an initiative which is part of the Zim-Asset economic blue-print whose main objectives include restoration of the economy’s productive capacity, creating economies of scale good enough for the locator of the proposed SEZs to be internationally-competitive to ensure inclusive growth nodes and diversified provincial offerings, maximisation of the economic benefits of a given geographical location and its stakeholders and attract more investment from the international world.
Furthermore, as the ruling party gears itself for the upcoming National People’s Conference, attention should be on creating a conducive environment for both domestic and foreign investment to bolster the country`s waning economic fortunes. Matters of the economy are expected to carry the day at this event as the nation remains optimistic of an economic turnaround.
Hopefully, the comprehensive theme “Moving with Zim-Asset in peace and unity” will signal a new dispersion towards embracing both foreign and domestic investment as catalytic to economic growth.
Cde Nyasha Patience Mandeya is the Zanu-PF Director of Economic Affairs. She wrote this article for The Sunday Mail
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