Attitudes to foreign investment: South Africa vs. Zimbabwe

Jun 6, 2011

U.S. based retail giant Walmart has just won the South African regulatory authority's go-ahead to buy a major stake in one of that country's biggest chains. There are concerns about what effect such a big new global player in the retail industry will have on employment and the ability to stay in business of small players in the retail value chain. The regulatory body says it has taken these issues into account in the conditions it has laid down for the entry of Walmart into South Africa.

The very different approach to foreign investment of neighbours South Africa and Zimbabwe is striking. 

South Africa is an advanced, stable and diversified economy that has been on a steady growth path for many years. High unemployment and general inequality that dangerously coincides with race are dangers to the stability of South Africa, and the government has made it clear that it welcomes foreign investment, and sees it as an important part of the solution to the country's challenges. This stance has been backed up by decisions like the letting in of Walmart, despite the misgivings of some who have ideological or other reasons for opposition to the controversial global retailer.

Speaking of the conditions of Walmart's investment, South Africa's trade minister says the country does not want to scare off foreign investment by imposing conditions on Wal-Mart’s bid to buy into a South African company. The restrictions were meant to protect jobs. He welcomed a ruling last week that the deal could go ahead as long as Wal-Mart does not lay off any workers for two years, respects existing labor agreements for three years and invests in training South African suppliers.

There is official concern that any foreign investment be made in a manner that does not prejudice local economic actors, but it is made abundantly clear that in principle foreign investment into South Africa is welcome.

This is quite a contrast to the situation in Zimbabwe. A much smaller economy than South Africa's, it has  been contracting for 10 years or more because of controversial policies that have also affected the country's image as an investment destination.

Now struggling to reverse the decline, Zimbabwe arguably needs investment much more desperately than South Africa, and yet is in a much poorer place to attract it for all sorts of reasons. One would therefore expect Zimbabwe to be even more aggressively friendly to potential investors than South Africa.

Zimbabwe officially says it welcomes investment, but officials speak in terms that suggest a take-it-or-leave it attitude that is very different from South Africa's. Zimbabwe has promulgated local empowerment ('indigenisation') laws that many have said may be well-intentioned but are simply unrealistically demanding. The requirement that foreign investors have no more than 49% equity is an example.

Said President Mugabe: "If you have companies which would want to work in our mining sector, they are welcome to come and join us, but we must have our people as the major shareholders."

It is one thing to seek to balance protecting local interests with offering terms that are attractive to foreign investors. But the attitude suggested by the president's statement is one of almost hostility to the idea of foreign investment, quite in contrast to the South African position.

In response to companies who have expressed misgivings about being expected to give up majority shareholding and have offered counter-proposals, the minister in charge of the empowerment laws has said,

"Foreign-owned companies are very arrogant, especially mining firms. If they don't want to give us 51 percent shareholding under the black empowerment regulations, they should quit now and go back to their countries."

The picture that emerges is not of both countries welcoming foreign investment but differing in how best to protect local interests. It is instead a picture of one country saying and doing things that are consistent with welcoming foreign investment, and the other saying one thing in favour of investment, but then in other ways suggesting a deep antipathy to the very idea of foreign investment.

It is not at all surprising that investors are not flocking to Zimbabwe. What is not clear is why the government doesn't just outrightly ban foreign investment. It would be disastrous but much more consistent with what seem its true feelings than to pretend to want it and then do everything to chase it away.


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