The Nexus Betweem Zim’s FDI and GDP.
The growth of Foreign Direct Investment (FDI) inflow into Zimbabwe is one of the fundamental aspects required to turn around the economy. The positive connection between increase in FDI and Gross Domestic Product (GDP) is what motivates most bilateral engagements world over.
By Victor Bhoroma
The recent invitation of the Zimbabwean delegation to Davos, Switzerland can be a positive sign from the international investors on their future intentions and assessment of the country as an investment destination.
Harare has of late, received numerous business delegates, investment inquiries and partnership proposals from the international business community.
It clearly shows we still have what it takes to attract capital and compete with the best in the African region as a coveted investment destination.
FDI inflows in the world topped $1.52 trillion in 2016 (2017 statistics still to be released) and are projected to rise to $1.8 trillion in 2018 by UNCTAD.
India, China, United Kingdom and USA are the major recipients in the world. In Africa however, FDI inflows for 2016 remained unevenly distributed, with five countries (Angola, Egypt, Nigeria, Ghana and Ethiopia) accounting for 57% of the $59 billion total.
Multinational Corporations (MNCs) from developed economies remained the largest investors in Africa, although individual investors from developing economies (such as China, India, and South Africa) are increasingly becoming active.
|Country||SADC FDI Inflows (000 000)|
|UNCTAD FDI FACTSHEET-2017|
Zimbabwe recorded a declining figure of $319 million in 2016 (UNCTAD 2017), though the figure is projected to rise for 2018 on the backdrop of the recent leadership changes, current economic reforms and ongoing efforts to engage international partners. Zimbabwe’s FDI figures have been declining since 2014 as shown on the table.
The country is punching below its weight compared to regional counterparts considering the vast potential in the economy. Zambia, Namibia and Mozambique have been direct beneficiaries of our misfortune. Their economic growth rates have also been superior.
Some of the key reasons for low FDI into Zimbabwe have been the negative country perception which amplified the country risk, political uncertainty, inconsistency on indigenization laws, tight liquidity conditions, low capacity utilization, limited size of the local market, poor rankings on doing business report and high production costs.
FDI types include resource seeking, market seeking, efficiency seeking and strategic asset seeking. Zimbabwe does well on resource seeking because of the vast natural resources in the country, though there is need to strategically shift to value addition to improve earnings.
The benefits of FDI to Zimbabwe at this point will be immense considering the scarce shortage of foreign currency and low capacity utilization in the economy. Steady capital inflows will guarantee employment creation for millions of job seekers in the local market and an increased tax base for the fiscus.
Zimbabwe badly needs cutting edge technology and innovation in the manufacturing sector to compete with its regional peers on economic development.
Investors seek markets where they believe highest rates of return on their capital investments are attainable. As such various aspects such as policies on property rights, ease of doing business reforms, tax reviews, dividend remittances, admission into multinational economic forums, policy consistency and political stability will be key as we go forward.
Victor Bhoroma is business analyst with expertise in strategic marketing and business management aspects. He is a marketer by profession and holds an MBA from the University of Zimbabwe (UZ). For feedback, mail him on email@example.com