Paddington Masamha: The paradox of ‘Zimbabwe is Open for Business’ (Part 1)

By Paddington Masamha

The Zimbabwean economic and political situation has moved to another level. From the pre-election period, twin catch phrases such as ‘New Dispensation’ and ‘Zimbabwe is Open for Business’ became the twin national buzzwords.

The post-election phase incubated a new fiscal exhortation dubbed, ‘Austerity for Prosperity.’ Undoubtedly, the tripartite verbal encouragements are a welcome development by virtue of being positive political and economic aspirations. However, this opinion piece endeavours to delineate between the economic realities on the ground vis-a-viz the promised economic direction.  

Viewed from a marketing standpoint, any economy intending to attract Foreign Direct Investment (FDI) inflows needs to have a marketing plan, brand management strategy, image building strategy and a clear country positioning strategy in order to win the hearts of foreign investors.

As such, the ‘open for business’ discourse is largely an imitation of the marketing approach to FDI attraction by host nations. This approach is premised on the view that investors are customers. Therefore, understanding potential investors’ fundamental needs and international investment strategies as well as investor retention stratagems should be a guiding principle for any investment plan.

A country positioning strategy is a key device for FDI attraction. Key selling points to foreign investors should largely focus on the need to attain political stability, a stable macroeconomy, ideal geographical location, young human resources with skills and knowledge, prospective market size with a large population and rising income; legal reforms with commitments to international integration, ongoing reduction of the cost of doing business, low corporate taxes and import tax exemption, permission of 100% foreign owned companies and the elimination of foreign exchange control.

Using the perspective of FDI marketing attraction benchmarks, one can simply notice a general viewpoint that the current leadership is not in any manner making even marketing progress. This author generally appreciates the effort that has been taken to at least re-brand the Zimbabwean name. However, in broader economic and financial sense, Zimbabwe is still not yet significantly open for business.

There is absolutely no doubt that our former leader turned the country from a bread basket to a begging basket. Basically every social, economic and financial facet of the Zimbabwean economy was left delapidated. As such institutions which ensure that the economy regains its balance and state of competitiveness need a complete overhaul. By and large, there are a myriad of country performance benchmarks that need a complete overhaul and or some resuscitation in order that the economy is back on track.

Ease of doing business reforms

When evaluating potential investment zones, foreign investors largely rely on the ease of doing business country ratings. The ease of doing business index has not only become a major instrument for investors but governments the world over now recognize the political and economic benefits of improving business regulation and ensuring accommodative business environments.

Fundamentally, improved ease of doing business ratings generally signal a more conducive platform for entrepreneurial growth and innovation. On the other hand, economies whose business regulations are cumbersome and ambiguous generally stifle entrepreneurial growth and hence reduce economic growth potential of the nation.

The World Bank’s Doing Business measures focuses on a country’s regulations and their potential implications from the initial stage of business formation as well its daily operations. Though the index does not comprehensively include all the nitty-gritties which affect business decisions, the main focus of the index is gauging the business policy regulations that are under the control or influence of policy makers in any country and its respective regulatory boards or institutions.

According to the Doing Business 2018 Report, “Doing Business focuses on key areas of interaction between the government and entrepreneurs, where policy makers and regulators can directly influence procedures to facilitate these interactions.”

Therefore, if one uses the benchmark of Doing Business, the main evaluation criteria is the interaction between government (policy makers and policy regulators) and the respective entrepreneurs (i.e. public and private sector entrepreneurs).

Whenever a robust relationship exists, the interaction is denoted by a favourable index rating. In the World Bank’s Doing Business 2018 index, Zimbabwe ranks 159 out of 190. The statistic signifies an unfavourable interaction between government and entrepreneurs.

Importantly, the Doing Business index measures eleven (11) areas of business regulation. Within the 11 key areas, Zimbabwe was ranked 180 out of 190 for starting a business, 175 out of 190 for dealing with construction permits, 161 out of 190 for getting electricity, 108 out of 190 for registering property, 105 out of 190 for getting credit, 143 out of 190 for paying taxes, 153 out of 190 for trading across borders, 166 out of 190 for enforcing contracts, 155 out of 190 for resolving insolvency, 89 out of 190 for protecting minority investors and labor market regulation.

By merely looking at these statistics, there is strong evidence to suggest that Zimbabwe is not yet open for business and significant reforms are still needed. A consideration of the cost of doing business shows that there is limited or miniature reforms being put in place. Basically, starting a business in Zimbabwe is a cumbersome process. Being open for business calls for the government to significantly reform the regulations pertaining to the procedures, time, cost and minimum capital requirements to start a limited liability company.

Fundamentally, governments need to seriously reform regulations relating to dealing with construction permits, getting electricity, paying taxes, trading across borders, enforcing contracts and resolving insolvency. The Zimbabwean policy makers have always made verbal commitments to reforms whilst having limited progress on the ground. For instance, because of the unfulfilled regulatory reform promises of 2016, instead of moving up Zimbabwe’s rankings moved down in 2017.

The open for business campaign should be coupled with serious commitment to regulatory reforms. There is an imperative need to put extra resources towards improving the quality of governance and reducing the operational bottlenecks faced with existing businesses.

For instance, the country started experiencing electrical shortages for over a decade and even at the present moment, no meaningful projects have been started in order to extinguish the potential production and business operational bottlenecks triggered by power cuts. Instead, persistent power cuts and load shedding is the norm.

Another source of regulatory inconsistencies has largely been observable with regards to international trade barriers and protectionist policies of the Zimbabwean government. The country’s trading across the borders has largely been dominated by constantly mutable protectionist policies. Particularly, the border control policy regulations (import duties, import quotas, embargoes etc.) have vacillated in response to the economic and political developments existing within the economy.

Generally, various strategic arms of government such as the Ministry of Finance, the Zimbabwe Investment Authority (ZIA) and Zimbabwe Revenue Authority (ZIMRA) should have their regulations congruent in order to improve the ease of doing business index.

The Zimbabwe is Open for Business mantra and the Zimbabwe Investment Authority (ZIA) desire for a one-stop-shop investment centre are mainly derailed by the misaligned regulatory and economic fundamentals within the nation’s business operating environment. Zimbabwean business regulations have largely been bureaucratic and inflexible.

For instance, once businesses get over the hurdles of company registrations and operating license compliance issues; an additional conundrum of various cumbersome operating license apprehensions emerge.

The well-known requirements for businesses to be granted business trading licenses include, but not limited to; city council operator’s license, health certificates, environmental agency certificates, registrations and subscriptions to sector specific business regulatory boards, radio and television licenses, among others.

Going forward, this writer does not deem some of the licensing requirements to be irrelevant, but instead of charging separate license fees; it is advisable for government to have an all-inclusive licensing fee (which is then spilt into various government departments).

This is meant to reduce the regulatory burden and delays associated with cumbersome trading licensing procedures. Besides the regulatory processes being burdensome, winding and bureaucratic; there is more pronounced harassments by regulatory enforcement agencies particularly for local investors or entrepreneurs.

A more conducive and investment friendly domestic market is an essential ingredient for attracting foreign investments. Before foreign investors can risk their capital, consideration is placed on how the domestic entrepreneurs are being handled by their own governments.

Appearing to be entrepreneur friendly to international business whilst maintaining a ‘cat and mouse’ relationships with domestic business is surely a counter-productive strategy. Therefore, Zimbabwe needs to put extra resources towards improving its ease of doing business rankings. 

Other Zimbabwean international ratings

Besides foreign investors interest in the ease of doing business ratings, investors are also interested in other country statistics such as corruption, international competitiveness, human rights record and economic freedom among others.

Economic freedom is deemed to be in existence in a country where individuals and corporates freely secure and protect their human resources, private property and access other civil liberties without the burden of government intervention. Economic freedom is thus one of the key fundamental alternatives for measuring a country’s openness to businesses.

Economic openness leads to economic growth. Zimbabwean economic freedom is currently repressive. Using the Heritage Foundation’s Index of Economic Freedom, Zimbabwe is ranked 174 (with a 44% overall rating) out of 180 countries as per the 2018 economic freedom rankings. This ranking is based on the assessment of economic freedom key factors such as rule of law, government size, regulatory efficiency and market openness.

For instance, given the poor record of respect of private property rights, the widely talked about judicial ineffectiveness and the poor government integrity; the Zimbabwean rule of law has been shambolic. Within the regulatory efficiency statistical measures, the country still has repressive business, labour and monetary freedoms. Moreover, investment and financial freedom proxies have made Zimbabwe to be statistically considered a repressive business regime due to the poor rankings in market openness. 

To further corroborate this statistical argument, Zimbabwe is ranked 127 out of 162 in the Cato Institute’s Economic Freedom of the World listing for the year 2018. The message from the Cato Institute is that economic freedom is the fuel of economic progress. Unfortunately, Zimbabwean current government policies and institutions are not supportive of the desire to attain economic freedom.

One of the major key cornerstones of economic freedom is the ‘security of the person and privately owned property.’ The governance epicentre of any government is hinged on the upholding of individual human and other civic rights.

Unfortunately, Zimbabwe has topped the charts in violating fundamental human rights. In the Cato Institute’s Human Freedom Index 2017, Zimbabwe ranks 146 out of 159. On a scale of 0 to 10, where 10 represents more freedom, Zimbabwe is ranked 143 out of 162 with a 5.17 and 6.06 personal and economic freedom score respectively.

In aggravation to the above, Zimbabwe ranks 128 (with a 42.6 score where 100 is the best notch) out of 140 in the World Economic Forum’s Global Competitiveness Report 2018. Our neighbor South Africa is the best performing African country ranked at number 67 with a 60.8 score.

This report provides the ‘much-needed compass for policy-makers and other stakeholders to help shape economic strategies and monitor progress.’ Through the various knowledge and expertise incorporated by African Development Bank, the World Bank Group and the World Economic Forum; the report is a repository of essential transformational economic strategies, country governance policy actions and investment strategies which can ensure that Africa attains sustainable growth.

Assuming Zimbabwe adopts the required microeconomic and macroeconomic foundations which define national competitiveness, the country’s productivity levels can be revamped.  

In as much as international competitiveness, economic freedom and human rights indexes are paramount, one undeniable concern of any potential investor is the country’s corruption international classifications. The Transparency International’s 2017 corruption perception index, ranked Zimbabwe as number 157 out of 180 countries. Using a scale of 0 to 100 (where 0 is highly corrupt and 100 is very clean), Zimbabwe has a 22 index score of the perceived levels of public sector corruption.

Basically, highly corrupt governments find it hard to attract meaningful, tangible and long term investors given how skeptic the owners of capital are to engage in long-term projects. Instead, fly-by-night predatory investors become the new economic order, simply because the much needed Multinational Corporations (MNCs) are repelled by corrupt governments.

Given the dismal performance within these internationally regarded statistical country ratings above, efforts towards improving such international benchmarks will surely be a positive signal of an economy which is slowly opening up its markets to international business best practices as well as international appropriate governance best practices.

Conclusion

The desire to reform is a welcome agenda. However, just mere sloganeering and misrepresenting that ‘Zimbabwe is Open for Business’ whilst fundamentals on the ground are signaling the opposite direction is a wrong international positioning strategy. Going forward, the government’s marketing campaign should not just be verbal lip service but action oriented. Reforms should start with the domestic markets then permeate to regional and international markets.

Basing on statistical proxies, this article ends with a well-founded conclusion that Zimbabwe is not yet open for business. However, the current leadership (if they so wish) should set as an objective the desire to open up Zimbabwean markets to both domestic and foreign investors. As such, a paradigm shift from the current economic commandments to economic liberalisation will achieve the aspirations of having a Zimbabwe which is open for Business. 

Paddington Masamha is an independent financial and economic analyst. You can reach him on email: [email protected]. and on Twitter  @PMasamha