Time to improve local investment market

Kudzanai Gerede
WHILE the promulgation of the setting up of Special Economic Zones takes centre stage as the country seeks to turn its economic fortunes around, economic analysts are adamant that the success of the envisaged strategy will lie solely on the country’s fiscal authorities’ ability to create an enabling environment for any would-be investor to deem the investment market competitive.

Despite several proposed incentives that are likely to be accorded to entities in the SEZs such as immunity to the indigenisation laws which entails foreign companies to cede shareholding stake to local and exemption to labour laws among other incentives, there are macro-economic fundamentals which the country needs to iron out first to attract investment.

The country still falls far below neighbouring nations on the means of doing business index which renders the investment destination less competitive.

Minister of Finance and Economic Development, Cde Patrick Chinamasa recently stressed that the country has been in the trenches for too long and it now needs to foreign direct investment to spur the economic agenda and much needed to be done to make the domestic environment attractive through formulation of sound legislative framework to improve ease of doing business in the country.

History, however, teaches us that investors tend to shy a market where locals are reluctant to invest themselves.

Zimbabwe already trails its neighbouring counterparts in terms of investment inflows, a precedence analysts attribute to the poor ranking of the country on the ease of doing business index. Zimbabwe is ranked 171 out of 189 countries and this has been the reason why investment has not been flowing.

According to the United Nations Conference on Trade and Development World Investment Report 2015, Zimbabwe Foreign Direct Investment marginally grew from $400 million in 2013 to $545 million in 2014 which still fell far below regional countries. Mozambique in 2014 received FDI worthS$4.9 billion, South Africa $5,7 and Zambia $2,4 billion.

While negative publicity has done the hatchet job in killing the country’s investment brand, there is need to restore investor confidence in the local economy through flexible economic reforms.

In his presentation at the launch of the World Bank country report early this year, Cde Chinamasa was upbeat of the economy’s resilience and stressed that the country’s key investment puller was its adopted currency, the USA dollar.

Although the continued use of a strengthening USA dollar currency juxtaposes contrasting fortunes for the country since on one hand it has brought contamination of the Dutch disease into the economy, thus the fuelling of high cost of production through the use of a strong currency, while on the other hand it makes the domestic market attractive to outsiders in pursuit of the prized currency.

Whereas the attractiveness of the USA dollar has seen the influx of foreign products flooding as the local industry is waning, the setting up of SEZ is therefore meant to redesign the current dispensation to the country’s favour, such that production is now done domestically.

With the global economy currently sluggish, with FDI staggering there is need to make the all facets of the economy competitive to lure the little investment currently available as most corporate are shutting down on foreign branches to cut costs .

On the domestic front, massive investment inflows into the economy considering the current economic context also face a daunting task due to a confluence of institutional and legislative bottlenecks.

In 2014, Government identified cost drivers in major sectors of the economy to identify and address factor which were contributing to the high cost of production in the country. Among the key cost drivers identified were high cost of energy, over regulation, multiplicity of taxes, wage cost, high cost of transport and trade logistics amongst others.

According to World Bank Ease of Doing Business Report (2014) it costs $3 765 to ship a 20-foot container from a warehouse outside Harare to Durban and this is 20-25 percent higher than landlocked countries like Botswana and Zambia. The study further showed that shipping the 20-foot container from Durban to Harare would cost $5 660 which is 36 percent higher when compared to Gaborone and Lusaka.

Investing in the country currently entails that an investor will have to make up with high wage costs. The country‘s wage structures are too high for its level of development at statistics highlight. Zimbabwe is ranked the highest compared to its regional counterparts in the low earning countries category only succumbing to South Africa who are in the low-medium earning category.

Recently the National Economic Consultative Forum (NECF) held a validation on the wage structure and labor costs were the country’s wage structure was factored out as a hindrance of investment as they wages were too high for a country’s level of development.

Zimbabwe is ranked among the low income countries as its productivity was way below its regional counterparts whilst its average wage structure emerged the highest.

“The country’s wages are very high compared to countries like Botswana, Zambia and Mozambique whom we compete with as low income countries. This was deterring investors from investing in the country as the costs render our investment destination very costly,” noted National Economic Competitiveness Forum economist, Mr Pepukai Chivore.

“ The Special Economic Zones are a good strategy, but, I however, cast my reservations on the country’s ability to resolve several bottlenecks surrounding issues like infrastructure development and multiplicity of regulators in time and this is not only to focus on companies in the SEZs, but any investor who wants to invest in the country,” he added.

Another economic analyst, Mr Christopher Mugaga, said reforming the wage structure in the current multi-currency regime where exchange rate dynamics were largely influenced by speculators was an uphill task.

Overregulation was also a contentious issue on the investment climate as there were numerous regulators a company should deal with.

Analysts have called for the formation of a primary regulator who will collect all fees on behalf of various Government agencies and the distribution of the funds collected is distributed internally to respective authorities. This serves to avoid time consuming procedures for business operators.

A recent survey by Business Post showed that one of the key costs in the tourism sector was the strict regulation by the country broadcaster on television licencing. Most tourism players are complaining that guest houses and hotels were required to pay television licences for each TV set in each of their rooms.

Most business players have called on government to revise its tax structure if meaning FDI was t be realised in the country.

A study by the NECF titled Zimbabwe national competitiveness report 2015, shows that on average a medium business cedes 35,3 percent of its commercial profits through tax. This was again too high compare to regional counterparts like Botswana whose tax rate is at around 25 percent, South Africa was at 30 percent and Zambia 15 percent.