ZIMBABWE’s net foreign direct investment (FDI) inflows declined by 36 percent to US$254,7 million in 2016 from US$399,2 million in 2015, as the economy continues on a downward trend.
Presenting the 2017 monetary policy statement, Reserve Bank of Zimbabwe (RBZ) Governor Dr John Mangudya said the country’s net portfolio investment registered a decline of 78 percent to US$26 million from a surplus of US$122,8 million in 2015.
The Ministry of Macro-Economic Planning and Investment Promotion had projected FDI inflows to Zimbabwe to surpass US$1 billion in 2016 on the back of deals signed with Chinese, Russian and Indian investors.
In a 2015 fourth quarter macro-economic bulletin, the Ministry said FDI would triple in 2016 on the back of improved investor perception.
The central bank said the low FDI had become one of the major factors contributing to the liquidity crunch in the country, coupled with a widening trade deficit which stood at US$3,3 billion last year.
The country has suffered from poor export performance over the years against rising imports, resulting in a widening trade deficit, which drains liquidity from the economy.
The current account deficit is estimated to have narrowed down by about 15,5 percent from a deficit of US$1,519 billion in 2015, to a deficit of US$1,283 billion in 2016, partly on account of the projected decline in the import bill.
“Over the period January to December 2016, merchandise exports decreased by 6,9 percent, from US$3,614 billion realised in 2015 to US$3,365 billion during the corresponding period in 2016,” said Mangudya.
Export performance was mainly driven by increases in the volume of gold exports attributable to the export incentive being paid to gold producers by the Reserve Bank and the positive effect of the Gold Monitoring Committee.
In 2014, FDI to Zimbabwe peaked at US$545 million, driven by interests in mining and energy.
FDI inflows into Zimbabwe have remained significantly subdued compared to its regional peers Mozambique and Zambia who, despite registering significant declines, received US$3,7 billion and US$1,6 billion in investment in 2015.
However, Government is working on a raft of ease-of-doing-business reforms to lure FDI.
This has resulted in the country moving 16 places up the ladder to 155 out of 189 economies on the World Bank 2016 Doing Business index.
The jump was attributed to reforms on improving the availability of credit information through the introduction of credit-scoring as a value-added service to banks and other financial institutions.
It was also attributed to the strengthening of minority investor protection by introducing provisions allowing legal practitioners to enter into contingency fee-agreements with clients.
The Ministry said the current 100 days rapid result initiative being championed by the Office of the President and Cabinet should see ‘Zimbabwe jumping many places up the ladder in the 2017 World Bank Doing Business Report’.
Last week the central bank introduced a number of measures that could bolster FDI.
Mangudya introduced measures to reduce the cost of doing business by reducing lending rates charged by banks from an upper limit of 15 percent to 12 percent per annum, and by reducing charges on the use of plastic money to as low as 10 US cents for small purchases of US$10 and below.
“Affordable credit is very important to enhance output and productivity,” said Dr Mangudya.
“Therefore, for the national economy to flourish, affordable credit must be provided to both large and small-scale businesses and individuals to enable them to invest in productive activities that increase jobs, exports and reduce poverty.
“However, cost, accessibility and entrepreneurship remain as the most critical barriers to expanding financial reach and depth in Zimbabwe.”
The central bank also introduced measures to promote efficiency and discipline in the utilisation of foreign currency by ensuring that banks comply with the foreign exchange priority guidelines.
Furthermore, the Reserve Bank has adopted various measures to curb externalisation and an enhanced compliance framework for market players which has seen import payments significantly reduced.
A combination of foreign currency management measures announced by the central bank in May 2016 and import management measures by the Ministry of Industry and Trade, as well as the effect of a stronger US dollar on the country’s terms of trade, in part, explain the declining import bill in 2016.
In 2016, food imports (maize and wheat), however, surged, owing to the El Nino-induced drought that destroyed crops in the southern African region, including Zimbabwe.
“Continued reliance on imports of finished goods is unsustainable as it undermines current efforts to resuscitate domestic industrial production, leading to significant trade and current account deficits,” said Mangudya.