Top 10 African investment destinations

Allen Choruma

Zimbabwe is on an overdrive mission to woo both domestic and foreign investors through its mantra “Zimbabwe is open for business.”

It should be noted that investment inflows into the country cannot happen overnight- the investment climate in Zimbabwe has to be overhauled to ensure that Zimbabwe is competitive enough as a market to attract both domestic and foreign direct investment.

But how does Zimbabwe rank among other African countries in terms of its attractiveness as an investment destination and in terms of actual FDI inflows? Please note: all $ figures presented in this article are in USD (billion (bn) and million (m).

Professor Mthuli Ncube, head of Quantum Global Research Lab, the Zurich-based investment fund and asset manager with large African focus, has developed a unique tool to measure a country’s attractiveness to investment inflows. Quantum Global’s “Africa Investment Index 2018” provides a guide to the most “attractive investment markets” in Africa.

The Index ranks countries using a unique combination of data sets and criteria that take into account both financial and social factors.

The rankings do not only focus on foreign direct investment (FDI) but also includes growth factors (size of economy, domestic investment, economic growth), liquidity factors (real interest rate, excess money), risk factors (interest rate, exchange rate, current account ratio, import cover, external debt), business environment ranking  (trade openess, ease of doing business), demographic factors (population size) and social capital (social media penetration rate).

A country’s total rank score is the average score for all the indicators.

African Businesses magazine (April 2018 edition) published Quantum Global Research Lab: Africa Investment Index rankings 2018 as follows:

Quantum Global’s Africa Investment Index Ranking 2018

RANK COUNTRY
1 MOROCCO
2 EGYPT
3 ALGERIA
4 BOTSWANA
5 COTE D’VOIRE
6 SOUTH AFRICA
7 ETHIOPIA
8 ZAMBIA
9 KENYA
10 SENEGAL

 

Please note that the Quantum Global’s “Africa Investment Index” provides an annual guide to the most “attractive investment markets for investors” and is not an FDI inflow ranking index. 

According to Professor Ncube, the common denominator among the best performing countries is that they do well in managing the risk and ease of doing business factors.

“If you manage the risk and doing business factors, that will stimulate further investment domestically but also externally through FDI, drive growth and then the country moves up the rankings. So, clearly, those are the two critical factors,” says Prof Ncube.

Zimbabwe is ranked outside the Top Ten. Over the last two decades, the country ceased to be an attracrive investment destination owing to its weak macroeconomic policies, indigenisation laws, land reform policies, poor record in human rights, and a polarised political environment, among other factors.

Top 10 Foreign Direct Investment recipients
According to the “Africa Investment Report 2016”, compiled by UK-based Analyse Africa, the top ten African countries ranked in terms of FDI inflows by capital investment in 2015 are:

Top 10 African FDI Recipients by Capital Investment (2015)

RANK COUNTRY FDI USD BILLIONS
1 EGYPT $14.5
2 NIGERIA $8.6
3 MOZAMBIQUE $5.1
4 SOUTH AFRICA $4.7
5 MOROCCO $4.5
6 COTE D’VOIRE $3.5
7 ANGOLA $2.7
8 KENYA $2.4
9 SENEGAL $1.9
10 CAMEROON $1.8

 

In comparison, over the last two years total FDI inflows into Zimbabwe stood at $343m (2016), falling to $235m (2017).

On a positive note, the Zimbawean government is now saying the right things, and to some extent, doing the right things, to woo both domestic and foreign direct investments. There is however room to do more – to walk the talk.

According to recent media reports quoting President Emmerson Mnangagwa, FDI deals worth about $20bn have been clinched for Zimbabwe since he came into office in November 2017. That is a big feat for Zimbabwe considering where we are coming from, and it is certainly a walk in the right direction. But there is a caveat.

While some of these FDI deals are secured, the investments will flow into the country over a period of time and not as a one bullet payment.

Some investment deals are “promissory” and not realised, meaning the investment inflows into the country will happen at a future date upon fulfilment of certain conditions. A lot still has to be done before some of these investments actually start to flow into the country.

The Democratic Republic of Congo’s ambassador and dean of the diplomatic corps in Zimbabwe, Ambassador Mawampanga Mwana Nanga, speaking at the commemoration of Africa Anti Corruption Day in Harare on 19 July cautioned Zimbabwe to thoroughly vet the quality of foreign investors coming into the country under the “Zimbabwe is open for business” policy.

“We cannot do without investors,” the ambassador said, “but we have to be cautious as to whom we do business with” as some of the foreign investors are “dodgy, corrupt and dirty”.

Elections
Elections impact the investment climate especially in Africa where elections are closely contested and often surrounded by controversy and disputed outcomes.

Zimbabwe is on the investor watch list. Investors, both local and foreign, are closely watching the election process and outcome before firming up on their investment strategies in the country.

“Open for business” should not just be “rhetoric” or a “populist slogan”. It calls for dramatic change in the conduct of business to creating an environment conducive for attracting investment, supported by an unwavering political will to bring about socio-economic transformation in Zimbabwe.

The Reserve Bank Governor, Dr John Mangudya, in his 2018 First Quarter Monetary Policy Statement hit the nail on the head when he stated that:

“The narrative ‘open for business’ means that Zimbabwe is ready and willing to embrace a paradigm shift to attract investors, both local and foreign, for the total transformation of the economy in respect of increased production, jobs, exports, fiscal space, access to capital and foreign finance. Improvements in these economic variables will greatly benefit the monetary environment and in doing so enhance financial stability and confidence within the national economy.”

Macroeconomic reforms
The Zimbabwean economy does not require “tinkering”. It requires “fundamental and wholesale macroeconomic reforms”.

Based on 2017 figures, the government is spending 92% of revenue collection ($3.7bn: 65% of public spending) or 21.14% of GDP ($17.5bn) on civil servants salaries, which is unsustainable. The government’s appetite for spending doesn’t seem to be waning, with a massive budget deficit of $2.52bn for 2017 against a projected budget deficit of $1.7bn.

The spiraling government spending trend seems to continue unabated as shown by the July 2018 salary hikes: civil service 17.5%, military 22.5%, and police 20%. These unbudgeted expenses are inflationary and will widen the budget deficit crater.

If the government does not take heed of advice from the monetary authorities and economists, the “open for business” mantra will remain rhetorical – full of sound and fury but not signifying much in turning around the economy.

 

Allen Choruma can be contacted on email:moneytreezim@gmail.com

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