Investors play the waiting game in post-Mugabe Zimbabwe

FDI prospects in Zimbabwe may have been enhanced by the exit of Robert Mugabe as leader of the country, but investors are still waiting for the right signals from the Bretton Woods institutions, which are asking the country's government to go ahead with a clear reform agenda to relaunch its economy and fix fiscal imbalances.

New president Emmerson Mnangagwa has pledged that Zimbabwe is now open for investment as he bids to build up the country from years of economic decline under Mr Mugabe. The former Zimbabwean leader was ousted from power in November 2017 after the military seized control of the country, culminating in Mr Mnangagwa, his former deputy, taking over in late 2017.

Falling out of favour

Zimbabwe’s FDI prospects have dimmed over the past few years as the country’s economy worsened and fresh projects were put on hold by investors, according to Johannes Kwangwari, a Zimbabwe-based economist. The country's FDI inflows for 2016 fell to $319m in 2016, down from $421m a year earlier, according to figures from Unctad. Meanwhile, its GDP shrank by 0.8% in 2016, from 1.07% growth a year earlier.

Mr Mugabe, who was rarely a champion of foreign investment, has left the country with a total stock of accumulated FDI standing at 32% of GDP, below major eastern African peers such as Mozambique (271% of GDP), Zambia (69% of GDP) and Tanzania (41% of GDP), but above Ethiopia (21%) and Kenya (16%), according to Unctad figures.

“Zimbabwe will be an attractive FDI destination once it has fixed [some of its economic policies],” says a World Bank spokesperson. The World Bank had earlier said in its June 2017 economic update on the country that “fiscal imbalances lie at the core of Zimbabwe’s ongoing financial crisis” with the government’s fiscal cash deficit standing at 10% of GDP in 2016, up from 2.3% the previous year.

The IMF also highlighted the need for fiscal, as well as macroeconomic, stability. “Macroeconomic stability is a key factor in attracting foreign investment, and this will require fiscal discipline. In addition, a strong programme of structural reform will be necessary to demonstrate that Zimbabwe is open for business, including providing policy clarity and stability, combating corruption and improving governance, and reducing the footprint of the public sector in the economy to allow the private sector to act as an engine of growth,” says the IMF’s chief of mission on Zimbabwe, Gene Leon.

A bright future?

Now that Mr Mugabe’s four-decade rule is over, local observers are looking ahead with renewed optimism. Esili Eigbe, the head of Africa equities at Exotix Capital, believes that although the FDI picture for the country has been bleak in preceding years, the change in government has brought about some renewed optimism that Zimbabwe will implement economic reforms to woo international investors.

"We believe that foreign investments should rise further on account of recent changes in the government and promised economic reforms in coming months. The government has announced the sale of some government assets, which should bolster that process in 2018 and show some commitment to reforms. This itself is usually a catalyst for FDI,” he adds.

State companies such as Air Zimbabwe, the National Railways of Zimbabwe, the Cold Storage Commission and TelOne would be considered for privatisation or sale, press reports quoted deputy finance minister Terrence Mukupe as saying in January.

In 2017, South Africa’s Transnet won a $400 million Zimbabwe tender to recapitalise the National Railways of Zimbabwe and it is expected that the process will now proceed following the installation of a new administration in Zimbabwe.

Opening up

As part of reforms within its 2018 budget, Zimbabwe says it is prepared to undertake fiscal deficit targeting to reduce the budget deficit for 2018 to below 4% of GDP, and subsequently capping budget deficits below 3%. The country has also sought to clarify and reform the indigenisation policy, which, according to analysts, has been a major deterrent to foreign investors in the past three years.

Under a new position announced in December 2017, only foreign-owned diamond and platinum mining companies will be required to cede 51% majority shares to black Zimbabwean groups, while the other sectors of the economy have now been opened up to investors “regardless of nationality”.

“The president has undertaken the government’s commitment to compensate all farmers from whom land was taken as part of the Land Reform Programme, in accordance with the country’s constitution,” says Zimbabwe's finance minister, Patrick Chinamasa.

Harare-based tech consultant Chris Musodza and Lehlohonolo Mokenela, who is digital transformation industry analyst at Frost & Sullivan, say that the services sector (particularly financial services), mobile money, ICT and digital banking are the most attractive areas for FDI inflows in the short term.

Zimbabwe’s biggest telecoms company, Econet Wireless, had to undertake a foreign rights issue in 2017 to raise $130m to settle maturing international debt obligations.

Econet, which runs the country's broadband, mobile money, pay television and micro insurance services, has committed to continuing to invest in Zimbabwe as it pursues its “commitment to the success of Zimbabwe” policy.

Other companies, such as Sibanye Stillwater, Impala Platinum and Anglo Platinum, are maintaining their presence in the country, with new investments into platinum smelters and upgrades of a refinery complex at the world's second largest platinum miner, Implats’ Zimbabwe operation, expected to progress.

Zimbabwe's mining companies – which also include Premier African Minerals, Caledonia Mining Corporation, Asa Resources and locally controlled Rio Zim – invested just $211m in operations in 2017.

Still a political risk?

“Perception of political risk, though still in the negative territory, improved in view of the new government to minus 10 for 2018, compared with minus 41 for 2017,” claimed a Chamber of Mines of Zimbabwe-commissioned study in December. The political risk index is interpreted from a scale ranging from minus 100, which depicts the 'much less confident levels', to plus 100, which denotes the 'much more confident' scale.

Some foreign manufacturers in Zimbabwe are still expecting to invest in upgrading and maintaining operations. Adcock Ingram, which runs pharmaceuticals company Datlabs, says it is moving to replace “critical items of machinery to improve our efficiencies, as the machines that we have are now outdated” for the required processes. It added that it has had support from banks for this move.

But any tangible prospects for Zimbabwe to start attracting FDI once again will boil down to the economic policy reform agenda and the country’s ability to clear its arrears, or to strike a deal for its debts to the international financiers to be written off, according to local economist Moses Moyo.

“We are off the mark in terms of getting the country off the ground after the removal of Mr Mugabe. Now is time for the new administration to show it is different from Mr Mugabe and to indicate that it is committed to reforms through action and to robust engagements with the international financiers. This is what international investors with the big capital will be waiting for,” says Mr Moyo.