Zimbabwe’s excessive dependence on foreign capital is deeply ironic given the government’s indigenization policy, a Zimbabwe economist said, according to a report in AllAfrica.
Zimbabwe’s domestic savings have been wiped out by hyperinflation and dollarization, leaving the country reliant on foreign capital – not an optimal growth path, said Tony Hawkins, a business professor at the University of Zimbabwe’s Graduate School of Management.
“Countries that reduce consumption as a percentage of gross domestic product and boost domestic savings, use their capital better to grow faster than those that rely on foreign borrowing, especially foreign aid,” Hawkins said at an Africa Economic Outlook conference in South Africa, the report said.
Foreigners will supply the capital “so long as economic and resource nationalism dominate the policy agenda and there is no debt-restructuring agreement,” Hawkins said.
Zimbabwe has attracted $6.7 billion in foreign capital since 2009, with 80 pecent borrowed offshore and the remainder in portfolio and foreign direct investment.
But Zimbabwe’s current hostile stance towards foreign direct investment limits such inflows. Indigenization laws scare away potential investors, analysts say.
Laws stipulates that at least 51 percent of shares in any businesses with a net asset value of $500 000-plus should be in the hands of locals.
By the end of 2013, foreign debt including arrears will have almost doubled in just five years, Hawkins said.
“Most of this steep increase in offshore borrowing is short-term funding by the private sector,” he said. “Long-term inflows, including FDI, have been disappointing,”
The trade gap, although narrowing to $2.7 billion in 2012 – down from $3.1 billion in 2011 – remains huge, Hawkins said. The country is a serial over-consumer (90 percent of GDP) so that demand spills over into imports.
Zimbabwe has become “a high-cost, low-productivity economy that attracts imports and undermines export competitiveness,” he said.
Since 2009, Zimbabwe has run up a cumulative balance-of-payments deficit of about $11.6 billion.
More than half has been covered by net capital inflows, a quarter in unrecorded inflows and the balance further built-up in arrears, now totalling about $7.5 billion, Hawkins said.
Seven primary products, dominated by precious and semi-precious metals, contributed two-thirds of exports, he said.
Tobacco, platinum, diamonds and gold account for close to 60 percent of exports.
“This highlights just how vulnerable the economy is to commodity price fluctuations, especially those for gold, platinum and diamonds, where Zimbabwe is a volume producer of low-quality gems,” Hawkins said in the AllAfrica report.
