Limited FDI could hinder growth in 2012

They said the failure by the country to attract significant levels of new FDI in recent years could pose a threat to its economic growth projections in the outlook period.
The economy is projected to grow by 9,4 percent this year, but some observers believe that the projection is rather hopeful.
“The budget framework growth target of 9,4 percent is generously optimistic given all the current constraints and uncertainty,” said one observer.

Constrained investment inflow into the country has meant that its capital formation is not ideal.
“For a developing country such as Zimbabwe, gross capital formation of at least 30 percent of Gross Domestic Product (a key target of the Medium Term Plan) is required to facilitate high and sustainable growth rates,” said another economic observer.

Statistics from the 2012 National Budget show that between 2009 and 2010, Zimbabwe’s gross capital formation has remained below 30 percent, ranging between 15 to 22 percent of GDP and is expected to remain within that range in the outlook period due to low FDI inflows and low savings.
This is worsened by the fact that Zimbabwe’s access to foreign credit lines remains constrained due to its foreign debt. Enhanced access to international credit lines will give impetus for growth.

Government has undertaken various regional initiatives in this regard, but substantial resources can only be realised once Government has implemented the Zimbabwe Accelerated Debt Strategy (Zaads), which has potential to deal with the issue of debt and arrears, risk perception and premium.
International capital is flowing to emerging markets, except Zimbabwe and the Zaads represents an avenue for access to international financing, once the arrears are resolved.

However, the 2012 National Budget did not give clear guidance on where the country is in respect of timelines and benchmarks in regard to this critical process.
According to the United Nations Conference on Trade and Development World Investment Report 2011, FDI inflows to Southern Africa decreased by 24 percent to US$15 billion and Zimbabwe’s share is the lowest in the region for the period under review.

This is at a time when many countries across the globe are gaining fresh impetus, as a result of increased inward investment flows and growth in domestic savings.
Some of the regions that are increasingly attracting significant levels of investment include East Asia, Asia Pacific, the Middle East, Eastern Europe and Latin America. Evidence on the ground shows that regions of the world that have attracted substantial investment have also recorded very high growth rates and higher per capita incomes.

Economies grow out of investment and investment is a function of several interrelated variables – political and economic stability, secure tenure, predictable policies and improved doing business conditions.

Zimbabwe’s investment environment is, however, yet to reflect improvements on the basis of efforts that have the Government has made, notably the setting up of the Investment One-Stop Shop.
The country needs to expediently work on improving its investment environment in view of growing competition for investment in the region.

For instance, the Unctad report indicated that FDI inflows to Southern Africa decreased by 24 percent to US$15 billion in 2010.