WB boost forebodes FDI boom, new dawn

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Almot Maqolo

INTERNATIONAL risk models that track Sub-Saharan Africa are undergoing a sharp recalibration after the World Bank officially removed Zimbabwe from its list of fragile and conflict-affected economies.

The reclassification has been wide­ly received by economists as signalling a significant validation of the country’s macroeconomic turnaround, positioning Zimbabwe as one of the region’s most com­pelling destinations for institutional project finance and foreign direct investment (FDI).

Under the powerful international financial institution’s strict new data-driven grading system, Zimbabwe successfully bypassed both the Public Fragility, Conflict, and Vio­lence List, and the Institutional Fragility List.

Speaking to The Financial Gazette — the country’s number one business publication and prime voice for industry and com­merce — upbeat economists said this week that the World Bank’s decision effectively stripped away an “outdated high-risk stig­ma” that was attached to the local economy.

They added that the double-delisting could mark a “definitive turning point” that would compress sovereign risk premiums and unleash a new wave of private-sec­tor-led commercial underwriting.

Economist Titus Mukove was among those who said the development represent­ed a “reputational and financing reset” that would reduce the risk premium attached to Zimbabwe.

“The immediate impact will be on capi­tal, where we will likely see low cost capital.

“Indeed, we should see a move towards cheaper sovereign borrowing and better terms for commercial banks, insurers and other financial institutions,” he said.

Mukove added that the development could also widen Zimbabwe’s access to in­ternational funding instruments and techni­cal assistance.

“That’s critical for infrastructure and the productive sector which will drive our growth.

“This is also a foreign direct investment signalling in itself,” he also noted, saying further that the positive effect of the devel­opment could be particularly important for the mining, energy, agriculture and tourism sectors.

Another economist, Trust Chikohora, also viewed the World Bank’s decision as a positive development, saying it could re­duce Zimbabwe’s country risk profile and improve access to international capital.

“This is a step in the right direction. It will help to lower Zimbabwe’s country risk profile, which will assist in attracting in­vestment and funding from interna­tional financiers,” he added.

Chikohora also said international borrowing costs could improve over time, as perceptions of Zimbabwe changed.

“The major achievement is that of exchange rate and currency stability, which has led to single-digit inflation from hyperinflation.

“Greater stability has made it eas­ier for businesses and households to plan, and allows for investment, while also facilitating economic growth,” he said.

However, Chikohora also said the country still faced a major infrastruc­ture deficit that could limit future growth.

“There is still a huge infrastruc­ture gap that needs to be filled.

“There is also a lot of work that still needs to be done in our schools and hospitals. We also need viable social safety nets.

“Corruption is also endemic and needs to be uprooted if we are going to be able to achieve sustainable de­velopment and improvement in the quality of life for all and poverty re­duction,” Chikohora said.

He also called for broader pri­vate-sector participation, saying Zimbabwe’s economy remained too concentrated around the government and a small group of elites.

“We need to promote wider pri­vate-sector growth and develop a larger and more vibrant middle-class, with increased opportunities for all,” Chikohora said further.

South African economist, Daw­ie Roodt, said Zimbabwe had made progress towards economic stability after years of severe instability.

“Certainly, there have been some improvements in the economy in re­cent years.

“After a couple of years of real instability, I think there are signs of more stability and economic growth as well.

“That, of course, makes Zimba­bwe more attractive as an investment destination.

“We will probably see more com­panies getting interested in investing in Zimbabwe,” Roodt said.

However, he was unsure whether the country was attracting the type of investment that was required to transform the economy.

Roodt said much of the invest­ment interest appeared to be concen­trated in tourism, particularly hotels.

“What I’m quite concerned about is that the kind of investment coming is mostly tourism-related … hotels and things like that.

“What Zimbabwe really needs is to expand on its manufacturing part of the economy and, of course, agri­culture as well,” he argued.

Roodt added that manufacturing remained particularly important be­cause Zimbabwe produced relative­ly few processed goods.

“While the agricultural sector has recently started to stabilise, it’s not a corporatised agricultural sector.

“It’s like a fragmented, small farmers kind of set-up that is not very productive as a rule,” he also said.

Yet another economist, Steven­son Dhlamini, also described the World Bank’s decision as an encour­aging sign.

However, he warned against in­terpreting this as a breakthrough in financing.

“It improves Zimbabwe’s stand­ing, but it is not a financing break­through.

“The real value will be realised only if the country now deepens re­forms, especially around debt resolu­tion and policy consistency.

“Important steps have been tak­en, but the next phase must focus on credibility, institutional strength and implementation,” Dhlamini added.

He also said the entry of interna­tional hotel brands into the country represented a positive commercial signal, although Zimbabwe needed to attract investment beyond tourism.

“The interest from international hotel brands is a welcome commer­cial signal. It reflects confidence in specific market opportunities.

“Zimbabwe should treat this mo­ment not as a reason to relax, but as an opportunity to accelerate the reforms that turn reputation into in­vestment and investment into jobs,” Dhlamini also said.

On his part, economic analyst Shingirirai Mashura also said the World Bank’s decision should pri­marily be viewed as a reputational endorsement, rather than an immedi­ate source of new funding.

“This delisting is primarily a sig­nificant reputational endorsement rather than an immediate unlock of financial resources.

“It directly improves the coun­try’s risk profile and investment per­ception, which is critical for attract­ing foreign direct investment that had been sidelined due to sovereign risk concerns,” he said.

However, Mashura also noted that Zimbabwe remained in arrears to the World Bank, the IMF and the African Development Bank, and also continued to face a large exter­nal debt burden.

“Thus, the delisting alone will not automatically unlock large-scale multilateral financing.

“Its primary value lies in catalys­ing confidence, which could acceler­ate the ongoing arrears clearance and debt restructuring dialogue,” he said further.

Mashura pointed to fiscal and monetary discipline, public finan­cial management and institutional governance as the strongest areas of reform in the country.

He also called for stronger land tenure security, rule of law, anti-cor­ruption measures and infrastructure investment.

The Africa Economic Develop­ment Strategies (AEDS) think tank also welcomed the development as recognition of the economic prog­ress that was being achieved.

On his part, economist Vince Musewe argued that improvements in technical economic indicators did not necessarily translate into better living standards for Zimbabweans.

He described the use of “academ­ic indicators” to make major deci­sions as problematic if they failed to capture conditions facing citizens.

Earlier this week, The Financial Gazette’s sister paper, the Daily News, reported that despite the mea­surable economic and social prog­ress that the country had made in recent years, Zimbabwe continued to suffer from a distorted image abroad.

Experts also said then that this negative international image, partly because the government often failed to communicate clearly, was cost­ing the country a lot — including through blocked foreign investment and deterred tourism as a result of the exaggerated risk perception.

This came as several interna­tional financial institutions, regional leaders and foreign analysts were increasingly starting to acknowledge Zimbabwe’s economic and social gains.

For example, the International Monetary Fund (IMF) recently com­pleted a review under its Staff-Mon­itored Programme (SMP), citing strong economic growth and lower inflation.

On its part, Citigroup — the mas­sive American multinational finan­cial services corporation headquar­tered in New York — had also noted how Zimbabwe’s economic recov­ery had accelerated, with falling in­flation and stronger fiscal discipline.

Regional leaders, including South African officials, had also recently publicly welcomed the visible signs of a growing northern neighbour and expanding trade markets.

Many other recent accounts from international visitors to Zimbabwe had similarly spoken highly of the functional, safe, and sophisticated society that received them, which sharply contradicted prevailing inter­national media narratives about the country.

newsdesk@fingaz.co.zw