Hardly anybody invests their own money, at least not for any capital intensive purposes. Most investment rhetoric and propositions are therefore directed towards intermediaries that act as custodians or managers of other people’s money. This is the case when engaging various entities such as political representatives, asset or fund managers, to corporate executives from foreign countries. The interphase is not about their money. It is about persuading these entities to allocate capital that belongs to various categories of financiers, who are largely regular citizens of the entities’ domicile or listing jurisdictions. This understanding should underline the interpretation of foreign investment portfolios and FDI into Zimbabwe. Such an understanding is more precise and honest than the intentionally abstract consideration postured by Mugabe during a prolonged era of pariah.
The global intermediaries interacting with the Government of Zimbabwe and local proprietors since re-engagement merely serve allocative discretion of money that belongs to regular citizens of wherever they are from. At an interphase between, the Minister of Industry and Siemens executives for instance, the prospective interest in Siemens operating or investing in Zimbabwe is fundamentally about whether or not there is adequate conviction for Siemens to integrate the incomes and savings of German citizens, amongst other investors, into this jurisdiction.
A significant nuance exists here from that of engaging the oligarch types friendly during the era of global exclusion. The latter are of less preferred investment into Zimbabwe. Oligarchs often retain discretion of their own money and negotiate in their own vested interests. The reasons why oligarch money is detached from that of other global citizens should be of similar guidance to Zimbabwe’s selectivity in the investment it seeks to attract moving forward. Oligarchs that befriend pariah governments typically would have crossed the bounds of regulation, ethics, and standards of capital recognition elsewhere. Hence, they find havens under compromised regimes without congruence in regulation, ethics, and standards of capital recognition. President Mnangagwa’s administration should re-affirm this significant distinction. He should override the abstract consideration of foreign investment that concealed Mugabe’s invitation to oligarch money. Mnangagwa must make it a point to exude his own near parity of regulation, ethics, and standards of capital recognition.
Zimbabwe should ideally strive towards assimilating capital in the form of incomes and savings of foreign citizens, transmitted through transparent and publicly accountable enterprises. That is when it will score acceptable investment attraction and open for business perception. The notion behind this preference is that foreign intermediaries are bound to invest incomes and savings into nations of congruence in governance, ethics, and standards of capital recognition. Assimilation of such capital would attest to Mnangagwa’s administration nearly meeting similar standard of capital reverence and protection with the global economy. Of course, there is broad interpretation and numerous metrics for Zimbabwe to score such confidence. But, focusing on two immediate concerns could be helpful at the moment to see why there is a long way to go or the embattled nation.
A poor track record of capital preservation
Firstly, the economic data of recent years does not build confidence of a safe, secure, and profitable jurisdiction to keep capital; for locals themselves, let alone foreign incomes and savings. There has been a continuous loss of value in citizens’ incomes and savings in three telling metrics; fixed assets, monetary assets, and currency valuation.
Zimbabwe’s gross fixed capital formation as a percentage of GDP has remained stagnant for a near decade. Fixed capital formation is the economy’s growth in capital stock, particularly productive assets that stimulate national incomes over time. Contrary to popular assumption, this is poor trend is not necessarily due to a lack of capital inflows or FDI. In order to add capital stock, a country needs to generate savings and investments from household savings or based on government policy.
There has been fiscal policy to capacitate enterprises to invest into capital equipment, even import with fiscal incentives under Chinamasa, but as it has been impotent. Perhaps this suggests stubborn cultural matters; for instance, poor allocation of funds by government and enterprises into non-productive but expensive luxury or consumptive assets that have stimulated no growth of income or savings. There is a cultural illiteracy and indiscipline to create value from productive allocation of funds.
Households are not saving too. In the last decade, citizens have not shown any confidence in savings as deposits have continued to drop. This is an indication of economy’s low ability to grow credit capacity from incomes and savings. Ideally, people bank with the intentions that over time their incomes and savings grow their creditworthiness and they can access loans. A worse of occurrence in Zimbabwe is that people are now seeking credit without depositing. This is corroborated by the growth of the microfinance industry. A growing microfinance sector shows scarcity of credit in an economy, and it is increasingly short term and high risk.
Evidence is the spread of interest rates between micro-finance loans and tradition banks. Micro-finance loans are short term with higher interest rates, averaging 3% per month, and traditional banks averaging 12% per year. The drain in the economy’s credit capacity is evident in Interest Income by banks contributing less than 10% of revenues. Recent inflation and currency fluctuations have made Interest paying liabilities held by banks be re-priced faster than interest earning assets, discouraging banks to hold onto more loans.
Up to this point, it is clear that incomes and savings have not yielded positive returns on physical and monetary assets, not only eroding the relationship between citizens and the banking sector, but shrinking credit capacity in the economy. Locals have lost value of their incomes and savings.
Capital markets do not tell a positive narrative as well. As correctly highlighted by Gary Kleiman’s article in the Financial Times this week, while Zimbabwe’s MSCI index was up more than 200% for the year, far beating other emerging and frontier stock markets, global investors are not persuaded. The ZSE does not reflect increased value of incomes and savings. Rather, such volatile trends signal the vulnerability and casino that incomes and savings have become subjected to in Zimbabwe. Kleiman, however, is incorrect in suggesting that a Government’s perception towards income and savings can be more persuasive with the collaboration of international investors. It is Government’s own response that will be telling, and so far it is indicative of a more cynical perception.
Sacrificing local capital to portray comfort for foreign capital
The second consideration is Minister Ncube’s current strategy to appease foreign investors. It unapologetically aims to further sacrifice domestic capital only to win an attraction for foreign capital. This may not be so prudent. Indeed the loss of value in local incomes and savings was on a downward trend that was yet to meet its bottom. However, perhaps it may have been beneficial to somewhat try to retain, or regain, that value as opposed to allowing bottoming out. In his signaling, more than policy making, the Finance Minister has not been hesitant to sacrifice the value of incomes and savings, with inflation soaring and speculation on currency shooting informal exchange rates. Since October, citizens earing in local currency have regressed behind prices by over 150%.
While his Transitional Stability Plan may not be contested in its path to fiscal balance, and could very well achieve enough resources to settle arrears on time, it is clearly further devaluing local citizen incomes and savings. He is deliberate in what are coined, “necessary but painful reforms”. It is uncertain how global observers, still with a sour taste of austerity as it was pursued on continental Europe and the UK, will perceive such a begrudging means towards fiscal balance in a jurisdiction notable for disregarding the value of citizen’s incomes and savings. But, the thing is, while Zimbabwe is still far away from global capital, maybe Minister Ncube has to consider that we have a lot to prove to ourselves first. Before attracting foeign incomes and savings, to what extent have we developed to valuing local citizens’ incomes and savings?