Labour conference/prospects for FDI

The prospects for Foreign Direct Investment:

Does Zimbabwe have what investors will be looking for?

Presentation by John Robertson

22 March 2018

We all have to hope that Zimbabwe does have what investors are looking for, but we must do much more than simply hope. About 200 other countries around the world are hoping for the same thing, and they are also hoping that their own investors will stay at home, rather than take their business ideas, their money and their ability to create jobs, to other countries.

The message here is that we are on a fiercely competitive playing field. And we are competing with top league players. The world’s most advanced countries also want to attract investors. They know exactly what investors want and are working hard to supply what they want.  

Zimbabwe has to take part in this contest because we are very short of capital to fund the investment needed to restore and increase our productive capacity. We have to recognise that the jobs we all want to see being created all depend upon investment. To the investor, employment creation is only a side-effect, simply because their main ambition is to make money.

They make money by bringing into existence goods and services that they can sell, but they know very well that they have to compete against others trying to make and sell the same goods and services. The workers they employ have to help them succeed. And the workers who are employed by the companies that produce their raw materials also have to help them succeed. If everybody in the chain is good at what they do, the products will sell and the investor will succeed.

Success is measured in money. Enough has to be made to cover all the costs, so the money invested to make that money has to be used efficiently. Investors looking for good investment prospects will be looking at the quality of not only the workers they will be able to employ, but also the quality of the working environment. So they will also look at the industrial areas, the roads, the water and electricity supplies, the transport services, the health services, the technical training facilities and even the schools for their employees’ children.

From this outline, everyone can see that a great many people are involved in meeting the physical challenges of competing for investors. Long lists of other requirements include services of a less physical nature, but all of these are equally important. Banking services, legal and accounting services, taxation and legislative authorities, municipal services, law enforcement authorities and pollution prevention specialists are some of these and all of them could affect an investment decision. Foreign investors, who can choose their investment destinations from 200 countries, have every right to be very demanding.

However, right here in Zimbabwe, we have many people who could be setting the pace. The obvious place to start is agriculture. That is the sector with the capacity as well as the skills to deliver much more than it is producing today and it would start to do so if unnecessary barriers to progress could be removed.

At present, many people are claiming that reviving agriculture is not necessary because Zimbabwe can import food for much the same price as it costs to grow it. But that is proof that our own costs have become the problem. Local costs are much higher than they should be and we have to use every means possible to bring them down. Many of these costs have been imposed by government in the form of permit and license fees, levies, high taxes on fuel and import duties. These are all barriers to progress and they can all be removed very easily.

Many multiplier effects would then build on the advantages of bringing down our costs and reducing our dependence on imports. Not only would food self-sufficiency save us the millions of dollars now being spent on imports, it would generate many more jobs and the manufactures’ benefits of sourcing inputs from local suppliers would generate even more jobs in the factories.

But, we do need to restore efficiency and the producers need to regain the economies of scale made possible by large-scale operations. In good seasons, small-scale farmers can feed themselves, but they cannot feed a nation. Our growing urbanised population needs dependable supplies, even in poor seasons, and that calls for good knowledge-intensive and capital-intensive farming.

Banks are keenly aware that loans made to farmers are high-risk loans, especially as farmers face so many uncertainties. Good farming practices have evolved to reduce these risks, but these practices are expensive. They require funding that goes well beyond the Command Agriculture model, which provides for only the basic inputs needed by small-scale farmers.

To justify the investment needed for the higher yields and improved certainties of good harvests, larger-scale operations are needed and these much bigger farms have to employ labour. But payments have to be made to employees month after month long before revenues from crop sales start flowing in. That calls for access to working capital. But, that is just the start.

Equipment costs money, energy costs money, training costs money, sustaining the road maintenance services costs money, housing for employees costs money, schools for the employees’ children cost money, even the decision to level a piece of land to play football costs money. Farmers cannot get the payments needed for these from Command Agriculture.

But, if they have collateral to offer the banks and can keep their loan repayment promises, the farmers can borrow all they need. Therefore, by meeting the farming investors’ requirement for working capital, the return of freehold title and security of tenure would remove another barrier. This move should be at the top of their list of imperatives.

Not only does the security offered by land ownership rights give the farmers access to money, it gives them the confidence and courage needed to make the required effort. That effort translates directly into investment. Farmers are massively empowered by land ownership rights, so our own agricultural investors could start the recovery we all need by being allowed to gain title to land.

The question, does Zimbabwe have what investors will be looking for? We are likely to start getting the answers we want to hear when the policy choices that systematically destroyed 400 000 jobs in Zimbabwe are no longer being held in place by easily amended legislation.

Most of those jobs were destroyed when the collateral value of billions of dollars-worth of land was cancelled by government’s decision to make all farmland in the country the Property of the State. This disconnected the banks from the farms. Today, the banks remain beyond the reach of farmers because the land is still the property of the State. It still has no market or collateral value because an agricultural land market is not allowed to function.

Because of the absence of a market, the banks have rejected government’s claims that new 99-year leases are bankable. But even if the leases could be easily bought and sold, lease arrangements are a very poor second-best idea when compared to freehold land ownership. With ownership rights come deeper levels of investment commitment, which invite banks to take loan applications more seriously.

This is not just because freehold property is a better quality of security. The behaviour of owners is more resourceful, more imaginative, more inventive and more ambitious, so investments on freehold land are more creative. The higher levels of commitment involved lead directly to greater employment creation. The growing spending power of these new employees then generates even more jobs throughout the economy.

Very importantly, banks that can attest to the high quality of the security on offer to them can borrow money from foreign banks for on-lending to local borrowers. Therefore, putting Zimbabwean land back onto the market would greatly improve our banks’ access to lines of credit from abroad. This would help Zimbabwe to overcome its liquidity problems.

From that start would come the generation of more employment, first by the farms and second by the factories that process the agricultural products. At present, the authorities are concentrating on getting the largest possible share of the values of the processed commodities being exported, and they have targeted mining as well.

To step up its revenue, government has introduced many new licensing, permit and registration fees on top of its existing profits taxes, Pay As You Earn income taxes, duties, royalties and Value Added Taxes.

This new concentration on further revenue extraction from licences and permits is severely misplaced. The licence and permit fees are adding so much to costs that they are responsible for a large part of the country’s inability to compete. Effectively, all unnecessary fees for permits and licences do no more than fund unnecessary government departments. They can best be described as Value Subtracted Taxes.

All of these add to selling prices and give retailers very good excuses to import everything that their customers need. In fact, the retailers are encouraged to do if they have to pay more to local suppliers for the same goods. Government should work to the principle that cost increases can be justified only if they increase efficiency, generate better products and increase the job security of the nation’s workforce.

A happier, more secure workforce will work more efficiently and make goods so much better that measures needed to make workers happier will help overcome or prevent labour disputes.

All imposed costs that don’t achieve these objectives should be treated as Value Subtracted Taxes. As these form part of the reason why Zimbabwean goods are no longer competitive on foreign markets and cannot even compete with imported goods that arrive on local markets, we should all see that Value Subtraction Taxes are a direct cause of the loss of jobs.

For the authorities, the subject of greatest importance should be the creation of jobs. So, a high priority should be given to the removal of every policy choice that adds to local production costs. Bear in mind that while they remain in place, these costs invite traders to switch to suppliers of imported goods and this causes the destruction of local job opportunities.

The theme of this conference is the future of labour disputes in Zimbabwe. We might automatically assume that all such disputes will be between either, employees and employers, or between employees on the shop floor and other employees who are in management.

Before any dispute can arise, whether it is about rates of pay, working conditions, gender equality, recognition for years of service, safety, discipline, accommodation, transport, shop stewards, dismissals, retrenchments, membership of trades unions, lunch breaks or tea breaks, the labour has to have employment before there can be anything to dispute.

But for more than 80% of Zimbabwe’s working-age population, having a job about which to have any dispute must seem to be an entirely academic fantasy. Zimbabwe’s business sector today employs no more people than it employed in 1970, since when the population has more than doubled. It would have almost trebled if more than three million Zimbabweans had not had to leave the country to look for work.

I’ve mentioned the causes of the fall in employment and I believe that these figures clearly illustrate the size of the problem. We have to find ways of absorbing the backlog of employment opportunities that were either lost or were never created in all the years since 1970. Talking about the causes of unemployment forces the debate into discussions on history. However, we cannot change the history, so we should be keeping our focus on the future.

Looking to the future demands that we concentrate on, not what caused unemployment, but on what will cause employment. Looking to the future, we have to recognise that the rest of the world is constantly changing, but even though many of our ideas were rendered obsolete by events beyond our control, nothing can stop us from learning about the new ways things can now be done.

We can leapfrog several decades of changes and go straight from the old, obsolete ideas to the very latest, hopefully without having to go through all the difficult changes in between.

But we will do that leapfrogging best if we make our entire country highly attractive to investors.

In the future to which Zimbabwe aspires, many manufacturers might well be making items that have yet to be developed for markets that do not yet exist. It is impossible to predict what their needs will be, but Zimbabwe can concentrate its efforts on ensuring that, whatever these needs turn out to be, all the necessary efforts will be made to provide for them.

This may include labour of the right quality, transport services that are fully adaptable, dependable utilities and other services, excellent working and living conditions and state-of-the-art communications. With these conditions, plus fair regulations and fair taxes, Zimbabwe would become an investment haven.

For existing as well as future investors, all the traditional food processing, clothing, household goods and building material industries have good prospects of revival when production efficiencies are restored. The companies that have survived in these sectors are mostly in need of equity capital injections to make possible the adoption of more modern techniques, so rights issues and new stock exchange flotations should become frequent events.

Attention has to be given to the infrastructure, but clear evidence of political stability and supportive economic policies are all we will need to raise long-term development loans on the international bond market. Success in those ventures will generate thousands of new job opportunities and generate more efficiency for all the productive and service sectors.

What is on the way in world technological developments will be well worth the effort to become deserving of investor support. New computer software will cause huge changes in professions such as law, medicine, architecture, banking and engineering, urban transport will be changed by self-drive cars that can be summoned with mobile phones, on-line shopping will revolutionise commerce and perhaps we will be able to make just about every component to build a house ourselves, using 3-D printers.

To be able to survive those changes in tomorrow’s world, we need to be able to hit the ground running today. We need to attract the types of investment that will allow us to catch up, and keep up with developments. And we must make the effort to become part of the process of change. Perhaps we could even set the pace.


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John Robertson is an economics consultant and past president of the Zimbabwe Economics Society.