The Sunday News
Dr Bongani Ngwenya
Preamble:
INVESTORS are turning their attention to developed economies, mainly in North America and Europe because of profound uncertainty in many emerging markets, such as the Sub-Saharan Africa. Zimbabwe is no exception. The negative sentiment toward emerging markets that appeared strongly in early 2015 is even more pronounced this year.
The immediate reaction to last year’s FDI confidence index results indicates that nearly three-fourths of all countries ranked in the top 25 were developed markets only. As 2015 wore on, there were reasons for the lack of investor confidence in emerging markets. From China’s seven percent growth to economic meltdown in Brazil, emerging markets teetered, spurred by a continued commodity prices slump, a very strong dollar that continued firming against other trading currencies such as the Chinese yuan and the South African rand for example, and volatile equity markets.
Zimbabwe’s equity market is among the emerging markets that are severely depressed and seriously affected by capital flight.
In this year’s Index alone, emerging markets once again account for a small percentage of the top 25, only one-fifth, and now the reasons economic focus for lack of investor confidence are more apparent.
However, may I emphasise that some emerging markets such as India lead a subset of Asian emerging markets that have defied this negative trend and phenomenon. All the investor eyes were on the new government of Prime Minister Narendra Modi, and they delivered a 7,5 percent GDP growth for the Indian economy in 2015. Accordingly, investor interest has grown and India rose two positions to claim the ninth place in the investor confidence index rankings. Not much to do countries like Taiwan are also back on the investor confidence index this year, alongside Thailand.
Some important comparative insight:
Newcomers to the FDI confidence index in 2016 are Taiwan, Thailand, and Ireland. Singapore makes the largest leap up the index, rising to an impressive five spots since last year. Taken together, these developments highlight growing investor interest in Asia. This is hardly surprising. In spite of the economic slowdown in China, the regional economic outlook for Asia is among the strongest in the world.
Taiwan, Thailand, and Singapore are also all very open and globally integrated economies.
On the other hand, the countries that have dropped the most in the index since 2015 are Brazil (–6) and Mexico (–9), the two largest economies in Latin America that have been hit hard by the sustained drop in global commodity prices. The countries that were in the index last year but do not appear this year are Finland, Poland, and Turkey.
Zimbabwe’s Business Climate and Environment:
The question is, where does Zimbabwe fit in this thick of things? According to the Global Competitiveness Report published by the World Economic Forum, Zimbabwe scored 3,45 points out of seven on the 2015-2016 competitiveness index. The country averaged 3,19 points from 2007 until early this year-2016, reaching an all-time high of 3,53 points in 2015 and a record low of 2,77 points in 2010.
These statistics depict a serious situation of profound investor confidence uncertainty. In terms of competitiveness rankings, Zimbabwe has fared as the 125 most competitive nation in the world out of 144 countries ranked in the 2015-2016 edition of the Global Competitiveness Report published by the World Economic Forum again. Competitiveness ranking in Zimbabwe averaged 128,60 from 2007 until early 2016, reaching an all-time high of 136 in 2011 and a record low of 112 in 2007, as the hyper inflationary era was reaching its climax.
Judging by the all-time high of 136 in 2011, the drop to 125 in 2015 to early this year, reflects a significant dip. Zimbabwe has scored 21 points out of 100 on the 2015 corruption perceptions index reported by Transparency International. Corruption Index in Zimbabwe averaged 25,28 points from 1998 until 2015, reaching an all-time high of 42 points in 1998 and a record low of 18 points in 2008.
The prevailing average of 20 percent corruption index is unsustainable for a small nation such as Zimbabwe. This phenomenon justifies for example, the institution of an audit of diamond operations in the country to try and establish what could have possibly happened to the missing $15 billion worthy of diamonds.
Ease of doing business in Zimbabwe deteriorated to 155 in 2015 from 153 in 2014. Ease of doing business in Zimbabwe averaged 163 from 2008 that is, at the pick of the hyperinflation and economic meltdown era until 2015, reaching an all-time high of 171 in 2011 and a record low of 153 in 2014. The ease of doing business index ranks countries against each other based on how the regulatory environment is conducive to business operation, and stronger protection of property rights. Economies with a high rank (1 to 20) have simple and friendly regulations for businesses.
Zimbabwe has suffered a significant deteriorating investor confidence since the beginning of the economic meltdown that culminated in hyperinflation. The above highlighted investor confidence fundamentals reflect a statistical significant correlation. The country has performed badly in attracting FDI since economic meltdown. It is very unfortunate that deteriorating investor confidence has also manifested itself, at domestic level. Our financial sector for example is still battling to build consumer confidence that was lost during the hyper-inflation era, evidenced by the level of financial exclusion, as the formal economy continues informalising unabated.
In his National Budget statement for 2016, Finance Minister Patrick Chinamasa had set 30 June 2016 as the deadline for clearance of debt arrears. The deadline has since been pushed forward to September. Zimbabwe owes US$10 billion i.e. US$8 billion (public-sector debt) to IMF, World Bank and African Development Bank and US$2 billion (private-sector debt).
“Right now we literally have nothing”, admitted Minister Chinamasa on 30 June in France.
From France, Minister Chinamasa went to London to meet with lenders at the Paris Club as well as business leaders in a bid to revive a struggling economy he had left back home.
So far there is speculation that the Afreximbank may lend Zimbabwe about $1,1 billion to help clear the debt arrears with the Multilateral Financial Institutions (MFIs), so that the country can once again be able to draw from these financial institutions like any other member country. The irony of the matter here is that we are intending to clear debt by borrowing again. Issues of investor confidence are very critical and important — they even determine the type of investment and quantities that potential investors may be prepared to engage in. My assertion to this is vindicated by the types and amount of investment deals that even our all-weather friends, Chinese have so far engaged with us.
In conclusion, clearing debt arrears alone will not unlock MFIs financial support and FDI inflows that Zimbabwe desperately need right now. We can continue in denial as much as we want but Zimbabwe needs to improve its investor confidence in order to unlock MFIs financial support and FDI inflows.
Dr Bongani Ngwenya is a Bulawayo-based economist and senior lecturer at Solusi University’s Post Graduate School of Business. mailto:[email protected]/[email protected]
