Zimbabwe – taking down the barriers to foreign investment?

by Oliver Dowson, CEO, International Corporate Creations Ltd

Most pundits seem to agree that Africa has been neglected by foreign investors and should now be actively considered.  ICC agrees – but Africa is a big continent with many different countries with huge variations in opportunity.  There are some countries almost everyone would steer clear of, and for most of this century, Zimbabwe has been one of them.  But is that true any longer?

I went to find out in December, and started by meeting Richard Mbaiwa, the CEO of the Zimbabwe Investment Authority, in Harare.  He is very sanguine about the damage done to investment by the indiginisation policy applied since 2007, which has required 51% of business assets to be held by nationals.   It seems that this policy is now under serious review and is now being reinterpreted, with a view to restarting essential foreign investment.   So, for businesses in appropriate sectors, now may well be the right time to look again.  One thing I saw clearly was the huge interest from China (although that’s true of almost the whole continent), and it could therefore be a case of getting in while the door is ajar and opportunities still exist.

Mr Mbaiwa told me that Infrastructure is the priority, specifically electric power for agriculture.  Whilst the distribution network is good and surprisingly complete (I went to places way off the beaten track that had mains power), there is a real shortage of generation, leading to frequent power cuts.  Currently generation depends entirely on coal and hydro from the Kariba dam.   As members of the Southern African Power Pool, they sometimes import from Mozambique, sometimes export to Namibia, but there are shortages every week.   Thinking of the results of the Paris Climate Change summit that happened just before my visit, and my work in the energy management industry, it was pretty obvious that solar energy – photovoltaics – is the way to go.   Mbaiwa told me that they are now open  to new generation by independent power producers (implying 100% ownership), or in partnership with Zimbabwe Power Authority.

Another high focus is on encouraging the local refining of Platinum and Chrome.  Whilst mining globally has had a huge downturn in the last few years, Zimbabwe has precious metals and it wouldn’t take much to move the sector here higher.  The Chinese are particularly interested, as one would expect.    There has been a 4-year export ban on Chrome ore, which was partly lifted in November 2015.  The intention of the ban was to encourage smelting and refining of the metal in Zimbabwe itself, but lack of industrial capacity to do that basically haemorrhaged mining too.   With an 85% unemployment rate, this heavy work is seen as a good way of exploiting labour availability and adding GDP value.

For the same reasons, there is emphasis on seeking investment in Manufacturing.  The major product is clothing, but Mbaiwa admits that the technology and equipment are outdated and told me that no factory is operating above 50% efficiency.

The tourism sector is ripe for investment too.   I did the tourist circuit too, and wDSCN0476as struck by how few visitors from outside Southern Africa there are.   It’s a wonderful destination though, and would be easy to promote if there was good enough infrastructure (one reason why there are not so many visitors).  The government is promoting Victoria Falls as a hub for tourism and conferences, and has already put millions into airport expansion.  As I witnessed, it’s a beautiful and huge new airport with very few flights.  One reason is nowhere to stay – no big conferences can be held as there is a hotel room shortage.

Clearly there are a lot of opportunities, but apart from the need to negotiate ownership with the government, investors will continue to have other concerns.  The Big Question has to be what will happen after Mugabe dies – he is nearly 92.  The stock answer I got from Mbaiwa was, unsurprisingly, that “the political situation is stable and elections are always free and fair, so there will be an orderly succession”.  But the truth is that nobody knows – except that everyone knows that there is a lot of infighting in the ranks of potential successors in Zanu-PF.  I witnessed a lot of pent-up frustration at the economic situation in almost everyone I met – and nobody expects a solution before Mugabe goes (and are far from certain there will be one afterwards).    The other key concern for investors has to be local labour costs.  On the face of it, they are low – but a visit to the supermarket illustrates that it’s not a cheap country by comparison with others in Africa, and I’d guess at significant wage inflation over the next few years.

Nevertheless, I came away certain that some smart and brave businesses are going to swallow hard, choose to overcome these issues and make very successful investments in Zimbabwe.  This is the moment.

 

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