Zimbabwe and South Africa share a long history of trade, socio-economic, political and cultural ties that span for decades. The two countries are separated by a 225km border that runs along the Limpopo River and boast of almost similar geologies that are home to some of the world’s most valuable minerals in Gold, Diamond, Platinum, Coal, Iron, Chrome, Nickel and Copper. Official statistics between the two countries show a trade value of US$4 billion in 2019, with South Africa exported goods worth US$1.9 billion to its northern neighbor while Zimbabwe exported goods worth US$2.1 billion to its southern neighbor. Unofficial trade between the two countries is estimated to be over US$3 billion per year. There is substantial South African business presence and investment in Zimbabwe as well. Close to 25 Johannesburg Stock Exchange (JSE) listed companies have operations in the country and a number of them are also listed on the Zimbabwe Stock Exchange (ZSE) directly or indirectly through their subsidiaries. Notable South African companies invested in Zimbabwe include Nedbank, Standard Bank, Pretoria Portland Cement (PPC), Old Mutual, Anglo Platinum, Impala Platinum, Multichoice, Pic n Pay, Tongaat Hullett, Truworths and Nampak.
Despite the cordial economic history and closeness, South Africa and Zimbabwe rank on opposite ends in terms of economic output and stability. With GDP of US$359 billion in 2019, the South African economy is a model for the rest of Africa. The country is a significant player in global economics because of its manufacturing and financial superiority.
South Africa is the most diversified economy on the continent with very high rankings on investment and financial freedom. The country built its economy on mining from the turn of the 20th century but mining now contributes less than 6% to GDP, with agriculture contributing less than 2.8% to GDP, while manufacturing and services contribute a staggering 91%. South Africa is an upper-middle-income economy (one of only eight such countries in Africa) with a GDP per capita of US$6.130. Despite its documented challenges on wealth inequality, high crime rate and current decline of the economy, there is no doubt that Zimbabwe can look to South Africa in terms of economic management policy. The following notable lessons stand out for Zimbabwe:
Private Sector Consultations
Economic policies in South Africa are crafted after inclusive consultations with private players who hold a sway in terms of wealth distribution. Business representatives such as Minerals Council South Africa, Banking Association South Africa (BASA), South African Chamber of Commerce and Industry (SACCI) and others are widely involved and their input guides economic policy formulation. Current negotiations on the mining charter, land reform program, state owned enterprises reforms and economic stimulus heavily involve the private sector. This builds trust in the economy while providing checks and balances in policy formulation and its subsequent implementation. These are fundamental aspects that the ordinary tax payer and investor look to for as signals on government transparency, accountability and political will in fostering economic growth. Policies are not dictated by the government through Statutory Instruments (SIs), political party directives and are not altered overnight.
Strong and Independent Institutions
Property rights are well protected and contracts are generally secure in South Africa even though economic growth and food security are now threatened by pressures of land seizure from certain quarters in the economy. South Africa benefits from a robust legal framework and courts that process judicial cases reliably and competently. There is a robust anti-corruption framework and the public perceive the courts to be independent of political interference which is key for rule of law. Land tenure is secure and this has allowed financial institutions such as banks and insurance firms to play a part in funding agricultural production. Equally important is the role performed by the parliament of South Africa in holding public officers to account on allocation of public resources, and debating policies and legal statutes. Strong institutions provide the bedrock of economic stability in South Africa and world over. Without the rule of law and guarantees for property rights, attracting investment (local or foreign) will always be a tough task for low income countries such as Zimbabwe.
Trade and Investment Freedom
Trade openness, investment and financial freedom are amongst the most influential factors globally on the value of Foreign Direct Investment (FDI) inflows that a country receives. South African companies enjoy the diverse freedom offered by the government to invest and to import or export in the region and globally.
In comparison there are only 2 agencies involved in the customs and clearance process in South Africa as compared to Zimbabwe’s 10. Customs clearance, issuance of import and export permits is transparent in South Africa. Foreign investors on the JSE and beyond are able to repatriate their capital gains and dividends through an efficient interbank market. Foreign exchange regulations have been consistent for a number of years and administered via an independent South African Reserve Bank (SARB). As a result, South Africa has been rewarded with robust financial markets and FDI inflows average US$3.5 billion per year since 2016. In Zimbabwe, a number of punitive levies, permits and licenses complicate the business climate thereby costing the country millions of potential investment while feeding endemic corruption that is sinking the economy. To attract investment and increase trade competitiveness, Zimbabwe has to streamline various tariffs, permits and licenses for local businesses. Equally important is dealing with the bureaucratic, murky and politicized procedures evident in obtaining licenses and Exclusive Prospecting Orders (EPOs) in Zimbabwe’s lucrative mining sector.
Embracing Private Capital
One of the standout features of the South African economy is its world class public infrastructure that cuts across transport (roads, airports and railways), energy and power, real estate, telecoms, broadcasting, sports, health and water infrastructure. The world class infrastructure is made possible because the government embraces private sector capital without political considerations in implementing Public Private Partnerships (PPPs). South Africa has the greatest cumulative experience of PPPs in the whole of Africa, with over 50 such partnerships at the development or implementation stage from national to provincial level, and 300 projects at municipal level, since 1994. The South African Treasury (which approves PPP projects) has developed a PPP Manual and Standardized Provisions to guide all projects of this nature. Treasury’s PPP Unit was set up in 2000 to oversee all PPP projects at national and provincial level in accordance with the Public Finance Management Act of 1999. In Zimbabwe, PPPs have not been prominent due to institutional decay (lack of respect for property rights and sanctity of contracts), high country and credit risk, political interference for control and corruption, inadequate regulatory framework and policy inconsistency. To embrace private sector capital, the government of Zimbabwe has to wholeheartedly address these pertinent issues.
Bureaucratic red tape in the application of licenses, permits and investment proposals still reigns supreme in Zimbabwe. Instead of investment inquiries being handled by an independent government agency such as the Zimbabwe Investment and Development Agency (ZIDA), there has been murky investment deals between mysterious foreign investors and politicians to a point where genuine investors are crowded out and there is no parliamentary oversight on most of these investment deals.
The city of Johannesburg
Despite a relative large population size of 59 million (As compared to Zimbabwe’s 15 million) which attracts investment, South Africa has its own grey areas. Key challenges for South Africa remain on dealing with poverty and inequality that cuts across racial lines, crime rate, rising unemployment, reforming public enterprises and redistributing resources such as land without upsetting economic productivity. Weak global demand in light of Corona Virus, global trade tensions and commodity price volatility also pose risks to the South African economy. However the size of the economy, government integrity and strong public institutions remain a beacon for Zimbabwe and the rest of Africa. These provide assurances to potential investors. South Africa has enjoyed years of relative economic stability, partly because of the underlying factors above. As they say, those who grow also learn; South Africa has some key economic management lessons for Zimbabwe.
Victor Bhoroma is a freelance economic analyst. He holds an MBA from the University of Zimbabwe (UZ). For feedback, mail on [email protected] or follow him on Twitter @VictorBhoroma1.