Taking Stock Kudzanai Sharara
On Tuesday this week, President Mnangagwa appointed Douglas Munatsi as the first chief executive officer for the newly established Zimbabwe Investment and Development Agency (ZIDA).
ZIDA is seen by many as a huge step towards improving the country’s ease of doing business environment in order to attract foreign direct investment into the country.
Zimbabwe is currently ranked number 140 out of 190 countries in terms of the ease of doing business and it’s a ranking Munatsi is expected to work on improving.
Part of ZIDA’s key functions, according to the ZIDA Act (CHAPTER 14:37), is to promote, plan and implement investment promotion strategies for the purpose of encouraging investment by both domestic and foreign investors. ZIDA is also expected to facilitate entry and implementation of investment projects into the country.
A properly functioning ZIDA, which is modelled along successful stories in other countries like Rwanda and Botswana, is expected to unlock the much needed foreign direct investment into the country. Zimbabwe recorded a sharp decline in foreign direct investment (FDI) inflows from US$717 million in 2018 to US$259 million in 2019 highlighting the country’s persistent challenges in attracting long-term investment despite the abundance of opportunities in the local economy.
Why FDI is important
Of late, there has been emphasis and so much energy spent on increasing the country’s export proceeds with Zimbabwe already earning approximately US$6 billion from exports in 2019. This emphasis on exports, comes at a time the country is struggling to make foreign payments for imports, both for finished and raw materials. In a way that justifies the shift towards an export oriented economy.
This shift also comes at a time the country is looking at implementing measures that are meant to stabilise the local currency. With no reserves, no bail out, and a production gap, the Zimbabwe dollar has struggled to preserve value and within a year has depreciated from an exchange rate of 2,5 to the US dollar to more than 26 on the official market and 45 on the parallel market.
This currency volatility can be stabilised if foreign direct investment was to improve to levels above what we are currently seeing in neighbouring countries.
Mozambique attracted US$1,9 billion in 2019 and Zimbabwe, blessed with a much more diverse resource base, should be able to attract much more investment.
Unlike hot money that comes through export earnings and portfolio investments, FDI is for long term and is not easily deterred or agitated by short term headwinds. For example, capital brought in the country by Surface Wilmar or Varun Beverages, is not that timid to be scared by short term upheavals. This is the capital that Zimbabwe needs, capital that is looking to reinvest and not to repatriate profits. This is the kind of capital than can sustain the local currency.
Such capital is what Munatsi would obviously aim for, but unfortunately for him, his work is cut out.
As his name suggests, Munatsi, loosely translated as the fixer or perfector, is coming to mend something that has been broken for years. He is coming to fix something that has been malfunctioning and whose status, as an investment destination is there for the whole world to see. The country is currently attracting very little in terms of investment with FDI inflows at just US$259 million in 2019.
Zimbabwe is currently ranked 140 out of 190 countries in terms of the ease of doing business environment according to the World Bank’s Doing Business 2020 report. The country also scored 24 points out of 100 and ranked 158 out of 180 countries on the 2019 Corruption Perceptions Index reported by Transparency International. A country or territory’s score indicates the perceived level of public sector corruption on a scale of 0 (highly corrupt) to 100 (very clean). The country does not even feature on the Global Business Policy Council’s Foreign direct investment confidence index.
This is the state of affairs that Munatsi is expected to fix or improve on. While improving the ease of doing business will not give him headaches, it will, however, not guarantee investments flowing into the country. Munatsi’s surname will come to naught if he fails to negotiate the terrain that is fraught with political minefields.
While part of his job, and that of ZIDA is to facilitate, promote, develop and protect investment in the country, it is not Munatsi’s job “to put a clean shirt on a dirty body”.
In other words, it will take more than a well-functioning ZIDA for the country to attract investment. Munatsi must be reminded that no matter how good he is, he cannot dress up a dirty pig with new clothes and pass it on as smart. The world will not be fooled.
Like a stockbroker who can’t sale a poorly managed company, Munatsi, no matter what his name says, will not be able to sale the country as a good investment destination if its poorly managed and if its policies are not attractive enough.
In the investment world, companies that fund managers buy must have good corporate governance structures in place and Munatsi’s name will not make his job easier if the country has poor governance structures and practices.
Any good investor will consider how property rights are respected in the destination country and Munatsi’s name will not be a magic wand if that area is not fixed.
Free flow of capital is very key for FDI.
The ability to move money in and out of a country is a tick box for any potential investor. It will take more than ZIDA for investors to come if Mangudya and Mthuli still struggle to fix the country’s fiscal and monetary policies.
Munatsi will need to use his name and newly acquired position of influence and proximity to the President to make sure that the country puts in place policies that attract investors.
As a banker himself, Munatsi knows the conditions that are required if people are to invest in a company and in this case a country.
As someone who sold BancABC, Munatsi knows the boxes that the new owner Bob Diamond ticked before making that investment into the bank and country.
Munatsi will have to use his name and newly acquired position of influence and proximity to the president to make sure that Transport and Infrastructural Development Minister Joel Biggie Matiza puts in place policies that will attract investors to build our transport networks, itself a key attraction for investment.
Munatsi will have to use his name and newly acquired position of influence and proximity to the president to make sure that Energy Minister Fortune Chasi does right by the sector as without power, investors will not be too keen to come into the country.
Munatsi will have to use his name and newly acquired position of influence and proximity to the president to make sure that Finance and Economic Development Minister Mthuli Ncube puts in place attractive fiscal incentives for capital.
Munatsi will have to use his name and newly acquired position of influence and proximity to the president to make sure that Minister Mthuli Ncube pays the country’s debts with international lenders. A highlight indebted country, struggling with arrears will find it difficult to attract capital as the associated risks are too high.
Munatsi will have to use his name and newly acquired position of influence and proximity to the president to make sure that governor John Mangudya do right by the banking sector and put in place policies that will attract capital to stay in local banks.
Zimbabwe, which is largely an agro based economy, is currently facing food shortages and importing the bulk of it. Munatsi will have to use his name and newly acquired position of influence and proximity to the president to make sure that Lands and Lands, Agriculture and Rural Resettlement Minister Perrance Shiri craft land distribution and ownership policies that will attract investors.
Unfortunately for him, it’s not something squarely up to him. The ZIDA Act only allows him to facilitate, across all sectors of the economy, “dialogue and other consultations between the public and private sectors to improve the investment climate for domestic and foreign investment”.