Zimpapers Logo

Bernard Gwarada Correspondent
Foreign direct investment (FDI) has over the years been associated with the economic growth of most emerging markets such as China, Vietnam and Brazil. It is the objective of the Government of Zimbabwe to lure FDI to promote economic growth.

It is commendable that the Government has started putting in place measures to promote FDI.

For instance, the Government has revisited the indigenisation policy to make it more attractive to foreign investors and a restructured Zimbabwe Investment and Development Agency (ZIDA) has been established.

Authorities have also waived import taxes and surtaxes on capital equipment.

By April 2018, investment commitments to Zimbabwe were worth US$11 billion and by the end of 2018, the country had managed to attract US$745 million in FDI.

A lot of research has been done on the relationship between FDI and economic growth.

While some authors view FDI as a plausible route that leads to economic growth, others are sceptical and have questioned this line of thinking.

Textbooks point out a number of benefits that host countries derive from FDI such as facilitating the transfer of technology and knowledge, creation of decent and value-adding jobs, enhancing the skills base of host economies, boosting competitiveness of domestic firms, and operating in a socially and environmentally responsible manner.

Bringing this matter closer to home, are these benefits something that can be proven as a fact within the context of Zimbabwe?

A question arises as to whether at Government level there are mechanisms in place to ensure the expected benefits are realised.

This article interrogates the assumed benefits of FDI to Zimbabwe.

Facilitating the transfer of technology and knowledge
This refers to the process of transferring accumulated knowledge by a foreign company to its local employees for the purpose of benefiting employees.

It should be noted that this is not something that happens overnight because it is a process.

This being the case, a question, therefore, arises as to whether Government, through its relevant ministry or agents, has a formal and systematic way of ensuring that the transfer of knowledge is actually taking place.

Without such a formal mechanism in place, the potential benefits of such an arrangement may not be fully realised.

Furthermore, technology appropriateness has to be recognised by the Government through its policies to ensure the kind of technology that is being transferred supports employment maintenance and creation.

Creation of decent and value-adding jobs
Established Multinational Corporations (MNCs) have been known to promote decent and value adding jobs.

Some of the MNCs have human resource policies that apply the world over where they have a presence in a uniform way, including the country of origin.

Such MNCs have often been conveyor belts of human resources best practices that are actually over and above the minimum standards of the host country.

There are some MNCs whose operations leave a lot to be desired.

For example, there is no adherence to minimum labour requirements and remuneration may be abysmally low.

In general, the treatment of employees is despicable in that someone can actually be fired on the spot or even be physically assaulted.

Enhancing the skills base of host economies
While MNCs, an integral part of modern globalisation are generally known for developing local talent, again a question arises as to whether or not there are robust mechanisms in place from the relevant Government departments to ensure that in terms of succession planning local talent is clearly on the radar.

Also, employees that are already qualified for senior positions are given due recognition by the MNCs.

Cases have arisen in the past where highly qualified persons only managed to move into senior positions occupied by expatriates after lodging complaints with the immigration department.

This is not supposed to be the case if robust systems are in place to prevent such situations.

Boosting competitiveness of domestic firms
FDI has the potential to boost the competitiveness of domestic firms through the transfer of technology and skills.

However, for this to happen, there is need for a monitoring mechanism that prods foreign companies in the desired direction.

In any case, FDI has the potential to thwart the growth of SMEs which are acknowledged the world over as the engine of economic growth leveraging on their resources such as finance and technology.

Operating in a socially and environmentally responsible manner
It is claimed that MNCs operate in a socially and environmentally responsible manner.

While there is some truth in this, (and more so for some MNCs more than others) there is, however, evidence that points to the degradation of the environment by MNCs, particularly in the mining sector.

Questions have also been raised by local communities as to the actual benefits that they derive when MNCs operate in their areas of location.

Often, there is the feeling that MNCs can do much to plough back some of their profits to uplift the standard of living of the local population.

It should be noted that FDI has the potential to pull out from the host country as they wish.

These closures can be a major source of disruption for the host country’s economy and job markets. A case in point is in 2008 when some Western countries made calls for MNCs to consider pulling out of Zimbabwe.

Some scholars refer to MNCs as agents of capital flight in the sense that some hardly reinvest their profits in the host country.

In March 2018, the Zimbabwe Government published a list of companies that externalised forex and it included some foreign companies.

While the call for FDI is commendable, this needs to be done in tandem with aggressive policies that support the growth of SMEs, whose contribution to the growth of an economy is acknowledged the world over.

While a lot has been done by the Government with regards to SMEs, a lot more can still be done.

For instance, in the area of tenders, some financial requirements laid down are quite onerous and prohibitive to SMEs and this leads to SMEs being elbowed out as contenders in the tendering process.

The Government may consider waiving the performance bond which is normally 10 percent of the tender sum.

Moreover, it should be noted that as vehicles for economic development, SMEs are here to stay unlike FDI.

Therefore, they should be given all the necessary support that they require as part of the Government’s long-term economic policy.

Bernard Gwarada is a research candidate in International Business at University of Pretoria’s GIBS Business School. He writes in his own capacity. Feedback: [email protected]