Zhuwao and FDI Ides of March

Zhuwao and FDI Ides of March
Patrick Zhuwao

Patrick Zhuwao

Moyondizvo Dhewa

ONE morning, a few weeks before Christmas in the year of our Lord 2015, I sat down with my 17 year old son, who had just finished writing his Ordinary level exams, along with my daughter who is doing her form one, and asked them about their thoughts and career ambitions in post independent Zimbabwe.
They both concurred that given the slightest opportunity, they want to go and find career opportunities in countries outside Zimbabwe for the simple reason that prospects in their own country were bleak and offer no future for them as a young and new generation.
I am sure many young children out there share similar sentiments.
As a country, our children, and the generality of Zimbabweans, look up to government and more specifically the youthful Minister of Youth, Indigenisation and Economic Empowerment in the name of Patrick Zhuwao for strategic leadership in matters to do with policy direction.
The Minister’s anti-climax rhetoric and the manner he has handled the indigenisation project cannot go unchallenged by right-thinking Zimbabweans.
He has characteristically spat venom on the neo-liberal foreign direct investment nomenclature, popularly known simply as FDI, without the courtesy of underpinning his anti-climax drama with theoretical evidence or empirical data to support his far-fetched claims.
His recent tribute to ignorance was on the occasion of a “meat box” event in Epworth, in which one Ace Lumumba is the chief executive officer for this meat retailing operation, which supposedly is going to generate employment for 234 people.
Shamefully, the youthful minister is on record accusing FDI as a “looter” having no space in neo- liberal economics and market fundamentalism.
The Minister used this micro occasion to butcher the civilisation of markets, running in the opposite direction of globalisation of markets and industry.
A simple definition of FDI is when a foreign player mobilises investment into another country, usually controlling 10 percent stock in the investee entity.
FDI takes many forms; it can be directed as equity consideration, cash, through mergers and acquisitions and inter-company loans, all of which constitute different capital structure levels for business in terms of short and long term financing of the balance sheet.
In this article, I will draw the discussion to research inferences where I illustrate the trend for FDI globally and its genesis from an African perspective.
In 2014, greenfield FDI continued to show signs of recovery globally, with capital investment increasing by an estimated one percent from US$642 billion in 2013 to US$649 billion and job creation increasing by 17 percent to 1,84 million.
However, the number of FDI projects declined slightly in 2014, decreasing by one percent.
China was the highest ranked destination, with US$ 75 billion worth of FDI projects in 2014, while the United States was the highest ranked destination, with a total of 1 577 FDI projects in this period.
Asia Pacific remained the leading destination for FDI in 2014, with 4 153 FDI projects with estimated capital investment of US$250 billion.
The region attracted 38 percent of all capital investment globally in 2014.
Western Europe was the leading source region for FDI in 2014.
Despite a six percent decline in FDI projects, capital investment from the region increased one percent to US$226 billion.
Western Europe, Asia Pacific and North America accounted for 91 percent of all overseas capital investment in 2014.
Table 1 illustrates FDI from China by Capital Investment (US$bn).
The top destination for FDI from China in 2014 was the US, which attracted US$9 billion in capital investment.
Chinese FDI to the US has increased since 2011, recording 200 percent growth in 2014.
China is now the world’s third largest outward direct investor (ODI); has the most students studying overseas of any country and has the highest spending tourists on overseas trips.
Although the focus of this illustration is on FDI, all these trends can be seen in the context of the economic benefits of Chinese outbound investment and its increasing impact worldwide.
ODI from China was largely triggered by the announcement of the Going Abroad Policy in 2001/2.
Before that date, outward investors from China basically comprised state-owned conglomerates such as banking, insurance and import-export companies linked to sectors such as chemicals.
The dramatic changes that have since taken place have seen Chinese ODI increase dramatically and bear witness to a national strategy to encourage ODI in key sectors, to some extent to fill gaps left in the country’s technological base by a complete lack of such activity during the 1960s and 1970s.
ODI from China now reaches most countries after outbound investment restrictions were loosened.
State-owned enterprises (SOEs) from China have made overseas investment decisions guided by government policy and strategies, while private sector corporates often tended, early on, to aim for real or perceived market driven opportunities in an opportunistic manner, which led, in some cases, to major problems when insufficient due diligence and research was undertaken beforehand.
SOE management has tended to take a more cautious approach for fear of making mistakes or making decisions that could affect a decision maker’s career.
However, lessons have been learnt in the private sector, with personal considerations falling away, to an extent, and a more measured approach being taken.
Major drivers of FDI have been the search for resources and technology, with Chinese sovereign wealth funds also setting up in key global markets, and making and supporting strategic investments, particularly in the field of mergers and acquisitions, referred to earlier in the simplistic definition for FDI.
Growth in China’s economy has been slowing, but this tends to act as an incentive to invest overseas to counter domestic overcapacity or other factors, while foreign recessionary issues have meant that industrial and commercial bargains have been available in different parts of the globe.
This is the major reason and driver why the Chinese President, Xi Jinping, in December 2015 attended the China Africa summit in South Africa as part of the Chinese government’s global strategy to countermand overcapacity.
China has pledged US$10 billion for Africa in different infrastructure projects.
Sector Analysis: Key trends in 2014 include :
*real estate was the leading sector for FDI, with US$81 billion of FDI in 2014;
*real estate also saw a 48 percent increase in project numbers;
*coal, oil and gas was the second largest sector for FDI, recording US$79 billion of FDI, nine percent higher than in 2013;
*communications was the third leading sector with US$59 billion of FDI. However, capital investment declined in 2014 by 12 percent;
*FDI in automotive original equipment manufacturing grew strongly in 2014, to US$51 billion, with a 71 percent increase in capital investment and 26 percent increase in project numbers;
*renewable energy saw a decline in FDI of 18 percent, with US$45 billon of projects in 2014;
*in terms of project numbers, software and IT services, business services and financial services remain the top three sectors, accounting for 36 percent of FDI projects globally;
*FDI in the food and tobacco sector grew strongly, from 392 projects in 2013 to 451 in 2014;
*there were 425 real estate projects in 2014, a 48 percent increase on 2013’s figure; and
*transportation project numbers declined by 15 percent in 2014 to 608.
FDI into Africa increased by 64 percent to US$87 billion in 2014, while the number of FDI projects declined by six percent to 660 in the same year.
Coal and gas was the top sector in the region by capital investment, accounting for 38 percent of FDI, while manufacturing was the top driver in the region by capital investment at 33 percent of FDI.
FDI in Africa accounted for 13 percent of global FDI in 2014, with the number of projects accounting for five percent.
Between 2000 and 2014, FDI peaked in 2014 at US$87 billion following the announcement of a multitude of high value projects.
In total, 464 companies invested in the region in 2014.
Africa regional trends and data analysis
*Egypt recorded one of the greatest increases in FDI with US$17,9 billion of investments and a 42 percent increase in project numbers with 51 FDI projects recorded.
*FDI into Angola increased to over US$16 billion, with the country’s ranking rising from position 20 to second as a result.
*Within the top 10 countries, Morocco, Egypt, Mozambique and Ethiopia all recorded healthy increases in FDI project numbers rising 59 percent, 42 percent and 67 percent respectively.
*Ethiopia rose into top 10 destinations, recording 32 FDI projects in 2014.
* Uganda fell out of the top 10 ranking by project numbers following a 40 percent decline.
*Zambia entered the top 10 destinations in Africa by capital investment with US$3 billion in FDI recorded in 2014. This was aided by Zimbabwe based Green Fuel’s plans to establish a US$500 million ethanol project in Zambia.
* Belgium based Pylos, a commercial real estate developer, boosted FDI in Mozambique following plans to build 16 shopping malls in the country, never mind the investment in the Pemba region to develop and commercially exploit natural gas resources
FDI into Africa by project numbers in 2014
Country                                                             Projects
South Africa                                                           116
Morocco                                                                   65
Kenya                                                                        57
Egypt                                                                         51
Mozambique                                                          50
Nigeria                                                                      43
Ghana                                                                        33
Ethiopia                                                                   32
Tanzania                                                                  16
Zambia                                                                     15
Other                                                                       182
Total                                                                        660
FDI into Africa by capital investment 2014
Top investing countries in Africa by project numbers 2014
Country.        Projects  % change from 2013
USA                   97               49%
UK                      51                -51%
France               46                  21%
South Africa       45                -13%
Germany            35                  3%
UAE                    32                  10%
China                   28                  180%
Portugal               26                  160%
Spain                   22                  -19%
India                    17                  -60%
Other                   261                -7%
Total                    660                  -6%
Source countries
*France was the top FDI source country for investment into Africa at US$18,3 billion for 2014;
* Belgium saw the highest increase in capital investment into Africa in 2014 at US$5,2 billion;
*Intra-African investment out of Morocco saw the strongest growth in 2014, but ranked seventh overall;
* Turkish companies created the most jobs in Africa at 16 593 jobs;
*South Africa was the top job creator for intra-African investment at 6 964 jobs.
*Financial services sector was the top sector by project numbers in Africa for 2014 with 133 projects
* FDI projects in coal, oil and gas sector totalled 25 in 2014, with combined capital investments at US$33 billion.
*Real estate ranked second by capital investment in 2014, it’s best performance in the period since 2009, with project numbers at 23 and capital investments of US$12 billion.
* Automotive components enjoyed their best performance since 2000 and were up 133 percent. There were 15 projects in 2010 and 14 in 2014.
* Projects in ICT performed poorly across Africa.
* FDI projects in the chemicals sector totalled US$7 billion in 2014, representing an increase of almost 2 000 percent on a very low 2013 figure.
*Alternative and renewable energy was the second most capital intensive sector in 2014 with US$10 billion invested across the continent.
* DRC remains the fastest growing economy in Africa at a projected 9,2 percent followed by Ethiopia at 8,6 percent.
* Nigeria, Africa’s largest economy, has seen its estimated growth figures cut from more than seven percent to five percent due to its heavy reliance on oil exports.
* Two thirds of countries in Africa increased tertiary education enrolment rates between 2012 and 2013.
* Enrollment in tertiary education in Africa has grown on average 21 percent year on year since 2000.
Dubbed the new investment frontier, Minister Zhuwao, Africa’s attractiveness is becoming more visible to large corporations, institutions and investors.
Manufacturing, a crucial trigger for industrialization, was among the top business functions by capital investment in the region in 2014.
Capital investment in manufacturing accounted for 33 percent of FDI in 2013.
Moves towards diversification and increased value addition to the continent’s abundant natural resources must be prioritised.
Africa’s future will largely be determined by how well resource-rich countries harness natural wealth towards structural transformation Hon. Minister.
In light of Africa’s pursuit for structural transformation, it is imperative that FDI contributes to the regions’ integration and sustainable development agenda.
Africa’s growth so far has not been accompanied by sufficient increases in productivity or job creation, and has not significantly reduced poverty and inequality.
Getting a firm grip on the issue of industrialisation for inclusive growth will require answers to difficult questions: Who is benefitting? How will the capacity and empowerment of the local private sector be impacted? Is competitiveness enhanced?
Hon Zhuwao, with all due respect, analytic review and context is clear to the extent that FDI provides finance for development, despite your incessant criticism of it as a neo-liberal looter.
Your statement provokes dialectical sentiments, and smacks of what I would term “xenophobic economics” and denies our children the right to a prosperous future in post independent Zimbabwe.
Xenophobia incites hate, violence, a culture of impunity and toxic levels of moral decadence.
In spite of the vastness of our natural resources, Zimbabwe has clearly missed out on the FDI flowing into Africa over the last couple of years.
China, as illustrated, is perhaps the biggest economy in the world by value, based on the ODI architecture in the global context.
As a country, we have been reliant on concessionary funding from China over the years, which on its own is a form of foreign direct investment as much as long term loans constitute tier two capital in the capital structure of banks (Basle II Accord).
Hon Zhuwao, Zimbabwe has mooted plans to export its jobless citizens to other countries as export labour, which clearly is an FDI gesture by any means.
At the very simplest, during your absence from active duty in government, Hon Minister, you went to school in South Africa to further your studies, and before that you had a stint in London to do a programme in IT.
You clearly contributed to the body of knowledge and established your intellectual capital base.
It would be scandalous, Minister, to delink the relationship between FDI and tertiary education and the results thereof as illustrated in this discussion.
Two key issues feature throughout the discussion; industrialisation and job creation are specific and outcomes driven by FDI.
This is what we need in Zimbabwe right now, not rhetoric and irrational exuberance.
Just look and analyse the statistics I have provided in this analysis.
Those are the facts and figures.
As Zimbabwe, we don’t have to reinvent the wheel.
You have a responsibility to Zimbabweans to get your facts right on matters of national importance instead of making careless statements; political grandstanding!
Such verbatim at an event to mark the opening of just a butchery in Epworth and you tore global capital apart?
How do you even compare the two contradicts Hon Minister?
To make matters worse Hon Minister, you have ranted all along that you want to restructure the Indigenization Act in order to calm the markets and boost investor confidence.
Alongside your counterpart, the Minister of Finance, the devil is now in the detail.
Zimbabwe will not pay a dime for the 51 percent in the resource based sector simply because the state owns the natural resource and that’s its contribution.
However, Government is prepared to be diluted in the investment on condition that the investor injects new money into the business.
Here is the classic now.
Government reserves the right to earn-in and buy back the same shares for five years or more!
Where will government secure the funding within those five years when in the first instance they failed to follow rights to defend shareholding?
Typical ZIMRE rights issue saga where the Rudland brothers are being cannibalized for a commercial deal they successfully executed while Rome was sleeping.
In a progressive market, with proper economic fundamentals, companies increase in value, giving different valuations depending on specific balance sheet dates.
In those five years or so, the entity where government is a 51 percent shareholder will naturally increase in value by extension. Value creation will not wait.
An overground London red bus, travelling at 200 miles per hour, will not stop for a passenger signalling it to stop at an undesignated station. You have to be at the bus stop for service.
It’s all planned and coordinated.
The route being proposed by the Hon Minister and his finance counterpart serves the expectation for the bus to stop at the flack of a signal indiscriminately at any point, regardless of speed and no stop signs.
Is the formula to earn-in and buy the shares back contained in the new framework for compliance for foreign owned companies?
I am sure both ministers will assign favourable discount formulas to suit their egos and take Zimbabwe towards a ruinous path.
How do you prescribe a formula for discount when the future value of the asset or entity is unknown!
Perhaps they will apply the Minister of Mines rule in the diamond consolidation expedition.
Mines Minister Walter Chidhakwa, short of legal legroom to force consolidation of mines, he simply waited for the diamond licenses to expire, went on top of the mountain and shouted “now I have the licenses, come talk to me “.
Reminds me when we were young, playing football made of an empty bag of mealie meal, if I lose a score I simply take my ball and walk away! There are no rules. It’s as simple as that.
This is the context which the minsters are applying to matters of national policy.
Finance Minister Patrick Chinamasa and Zhuwao will simply dictate the enterprise value for the companies, dictate the discount price and dictate the earn-in price over the five years.
If the investor is not agreeable, then they will expire the mining licences, period!
That is not short of nationalization of resource entities via a pseudo commercial model.
There is no mention of where government will source the funding to follow rights, better still to buy back the same shares within the five year period.
In summary, the dearth and scandalous attack on FDI, its unmeritedness and the flawed indigenization and compliance covenants, epitomized in the aforementioned, all posit to a failed future which is more than likely going to deny Zimbabweans the growth, development and prosperity that we all need.
It is my hope that Cabinet reviews comprehensively such national policies at the behest of experts from both within and outside Zimbabwe (who are all Zimbabweans, simply separated by economic geography).
The future is for all of us to share and enjoy. FDI is not a looter Hon Minister Zhuwao. You have a duty to stand for facts and present them in the correct discourse for posterity.

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