President Emmerson Mnangagwa’s administration should remove investment hurdles for the country to attract foreign direct investment, the Confederation of Zimbabwe Industries (CZI) has warned.
The consequences of a ‘toxic’ environment is that while Zimbabwe is experiencing a significant drop in foreign direct investment (FDI, inflows of international investment capital to neighbouring countries such as South Africa, Botswana and Zambia, is actually increasing.
In its latest report, CZI, which is the country’s largest lobby group, indicated that local companies have been struggling to attract meaningful investment due to high country risk and the problems with repatriation of dividends.
At the same time local companies are also confronted by liquidity constraints and over taxation, among many challenges.
The local industry, CZI said, requires at least US$2bn in working capital, to boost the country’s manufacturing sector production capacity, currently well below 50%.
CZI said the majority of local firms were also battling to deal with obsolete equipment, were scrambling to retool.
“Key constraints to investment include challenges for foreign investors to (repatriate) dividends through formal banking channels, liquidity constraints on the local market, exchange control regulations that pose exchange risks, negative country perception, heavy taxation burden and a complex business environment,” CZI said.
“To address these constraints, the government is implored to adopt and maintain investor friendly exchange control regulations that allow free movement of capital, crowding in of private finance in government projects and building of trust in the monetary policy.”
CZI said the government should also simplify the local taxation model , something which will go a long way in attracting investment into the local manufacturing sector.
Investors’ property rights across the economy, CZI said should be guaranteed for the country to attract FDI.
CZI said the government needed to also deal with the problems faced when local companies require tax clearance certificates.
The country’s tax collector, ZIMRA, is accused of taking too long to issue the tax certificates.
Exacerbating the situation, the embattled local companies, CZI said, were battling to access foreign currency allotted to them at the Reserve Bank of Zimbabwe (RBZ) controlled foreign currency auction system.
Apparently, the central bank was taking at least eight weeks or two months to release the hard cash, resulting in companies struggling to import critical raw materials.
The RBZ introduced the auction system last year as part of efforts to deal with unrelenting parallel market foreign currency exchange rate, which was skyrocketing.
The central bank said the introduction of the system was also aimed at dealing with the acute shortage of foreign currency in the country.
However, the local companies are still failing to access adequate foreign currency from the auction system, pushing them to force forex from the parallel market, where premiums are punitive.
The numerous challenges, CZI said, has resulted in the de-industrialised of the manufacturing sector in the past five years.
Consequently, the local industry, CZI said, requires about US$2 billion to retool.
“Investment remains low in the local industry and it needs more than US$2bn to retool and lack of working capital,” CZI said.