South Africa’s Business Day of October 19, 1998 provided an interesting scenario of how difficult it must be to sell Zimbabwe to investors.
On the front page was a story on the land issue in which President Robert Mugabe had ordered 841 farms to be seized immediately for redistribution to blacks in a bid to stave off rising popular dissatisfaction with his rule, manifested in a one day national strike the previous day.
“In a breach of all Mugabe’s past promises to aid donors and the private sector, owners are being told to quit before compensation is negotiated,” the story said. On page 6, were two similar adverts (could have been a mistake) on presentations on investment in Zimbabwe. The adverts said a series of breakfast presentations on investment and trade with Zimbabwe were going to be held in Johannesburg, Cape Town and Durban and were going to be presented by InvestorCare Services of Harare. The cost of the presentations, including full English breakfast, was R75 per person. Numbers were strictly limited.
On Page 14, there was a big advert sponsored by the Export Processing Zones Authority, the Zimbabwe Investment Centre and Zimtrade. It was on investment and trade seminars. “Are you aware of many business opportunities that are available in Zimbabwe?” the advert said. “Have you wondered how you could invest or trade with companies in Zimbabwe? Have you considered re-locating your business. Is safety, peace of mind and profitability your goals. If so or if in doubt please attend the one day Zimbabwe Investment and Trade Seminars – right here in South Africa . The seminars were scheduled for Johannesburg and Cape Town.”
Three pages on, was perhaps the most damning report from the newspaper’s correspondent in Washington. “A new report by the US international trade commission highlights the problems potential foreign traders can expect to face in all but a few African countries, from bloated bureaucracy, red tape, corruption and overblown promises of liberalisation. Only a handful of countries, notably SA, Botswana, Swaziland, Lesotho, Mauritius and Uganda, are spared from criticism in the country-by-country summary of the trade and investment climate in sub-Saharan Africa contained in the commission’s latest annual report on US-Africa trade flows,” the report said.
While the report is essentially on the United States’ views on sub-Saharan Africa, because of the crucial role the United States plays especially within the International Monetary Fund where it has four times more votes than the entire sub-Saharan countries, The Insider requested the report, released on October 16, from Washington. Here are the comments on each of the 14 countries in the Southern African Development Community so that you can judge for yourself.
Trade climate: Recently eliminated most price controls. The future of market reform is uncertain because principal elements in the government oppose liberalisation. Little progress made towards privatisation. Customs procedures are complex, and concerns over cheaper South African imports could lead to additional protectionist measures. Some textile and apparel imports are banned.
Foreign investment climate: The 1992 investment code liberalised foreign investment regulation substantially. In 1994, however, foreign participation was banned in several sectors, including much of agriculture, forestry and transportation. In 1997, the government announced it planned to expropriate all land owned by white foreigners and foreign companies for redistribution to black citizens. Prior government approval is required for all FDI. Wages and employment are heavily regulated. Government permission required to commence virtually any economic activity. Use of foreign nationals severely restricted. Bureaucracy lacks transparency and is highly arbitrary.
Trade climate: Highly protected market. Quotas; import licences required for all imports. Corruption in customs allegedly hampers imports. Trade is dominated by politically well-connected firms. The oil sector is the main engine of growth.
Foreign investment climate: Effectively closed to most FDI. Ongoing economic and political crises deters investment. All investment approved on a case-by-case basis. Commercial activities that increase exports, produce raw materials and train workers are encouraged. FDI prohibited in defence, public utilities, air and maritime transport. Repatriation of profits is guaranteed. Travel within the country is unsafe due to bandits, undisciplined police and troopers. The judicial system was largely destroyed during the civil war and in 1996 did not function in some parts of the country.
Trade climate: Few NTBs. Low tax burden due to recent cuts in taxes. State sector owns a sizable portion of domestic enterprise. Price controls have been eliminated but some agricultural prices are established through negotiated agreements with government. New development policy emphasises the need to diversify the economy away from its dependence on mining and agriculture. To help develop the manufacturing sector, government is taking steps to provide export credit and financing insurance and to set quality standards.
Foreign investment climate: According to Department of Commerce, copyright protection is virtually nonexistent. Some sectors including most utilities, small retail stores and some restaurants and bars are closed to FDI. Requirement that licences must be obtained for expatriate employees can be burdensome. 100 percent foreign ownership is permitted.
Trade climate: The 1997 change of government has reduced trade. Corruption is allegedly rampant in the customs sector. According to the US Department of State, as of June 1997, customs and immigration services have not been fully reestablished in Kinshasa. A new tax collection system is not yet in place, with result that government arbitrarily targets civilians and businesses to collect revenue.
Foreign investment climate: Foreign investment has slowed significantly since change in government. It is not clear whether former Zairian commercial code and foreign investment code will apply. Banking system has collapsed and though some small banks have tried to reopen for business, they are hampered by unreliable money supply. Little official control over prices and wages. Most economic transactions are conducted as barter arrangements, and traditional market pricing mechanisms have ceased to exist, although market prices apply for some goods in rural areas. Private property is not secure because of alleged corruption, and recent instances of government expropriation, including the largest railway. According to the US Department of State, the new government has yet to take full control of country. Chaos and violence continue. Almost all economic activity is conducted in the black market.
Trade climate: Completely surrounded by South Africa, Lesotho depends on it for access to trade and employment opportunities. Employment in South African mines, the main source of Lesotho’s very high level of income from abroad contributed 32 percent of GNP in 1994. Recently reduced trade barriers and some taxes. As a member of the Southern African Customs Union (SACU), Lesotho has reduced barriers to trade but is very dependent upon SACU tariff revenues.
Foreign investment climate: Some formal restrictions on FDI in areas competing with domestic local investment. Established investment code but it has few incentives. Establishing a business can be difficult if the business competes directly with a state- owned company or government sanctioned monopoly.
Trade climate: Market prices for goods are generally not controlled. NTBs include strict import licences on imports of fresh meats, gold, sugar, and military and hunting items. In 1997, trade licensing was reduced and now covers 13 import and 4 export commodities. Physical infrastructure is deteriorating.
Foreign investment climate: FDI encouraged in industries that produce goods for export. FDI not restricted in coffee, sugar or tea industries. Non-citizens must obtain labour licences to work and these are not granted if the government determines that Malawi citizens are available and able to do the work. New, large privatisation programme aims at selling largest parastatals. Despite plans to eliminate marketing boards, they still control the sale of agricultural products such as corn and fertiliser. Health and safety regulations are enforced erratically, confusing businesses.
Trade climate: Economy is among the strongest in Africa. Relatively streamlined trade regime, although certain problems remain, including two-tiered systems whereby certain countries are given preferential duties. Import permits required for numerous items and some products are banned from import. State enterprises control some commodities. Export licences required for some products. The current 8% sales tax will be replaced by a VAT of 10% effective September, 1998; goods exempted from VAT include basic foodstuffs, pharmaceuticals, medical services, educational and training services, books, and fertilisers. Unlike the sales tax, the VAT will also apply to water, electricity, telephone and other utilities.
Foreign investment climate: Government welcomes foreign investment, especially in export-oriented industries. Tax concessions and other incentives have been extended to services and to companies in the free trade zone and the offshore banking and business centre. All foreign investment must obtain approval from the Prime Minister’s office. Foreign participation may be limited to 50% for investments serving the domestic market. Foreign ownership of services limited to 30 percent. Government controls several key sectors. Protection of property guaranteed. Business regulations generally transparent. Infrastructure is adequate, but nearing capacity. A copyright Act was approved in July 1997 that specifically protects computer software and electronic databases, while extending protection of audio and video production. This new act has helped encourage FDI in IPR-sensitive areas.
Trade climate: Significant economic reforms have been implemented, including some trade liberalisation such as simplification of licensing procedures. Reforms in customs have been underway since 1996, but corruption remained a problem. A private company was contracted to manage customs operations in 1997. Banking sector has been reformed and as of 1997, all banks are now private. A new stock exchange (was) expected to debut in 1998.
Foreign investment climate: One-stop shop for approval of investments. Feasibility studies are requested and a burdensome bureaucracy can frustrate business, especially small investments. Infrastructure and a few other areas are off limits to private investment. Free trade zones established in 1993, but their terms are not comparatively attractive. Strong deterrents to FDI include political risk, corruption, bureaucratic red tape, dilapidated infrastructure, and the relatively small size of the market. Some price controls lifted in 1994, but remaining apply to wheat, flour, bread, rents, fuel, utilities, newspapers, transportation and a few other services. Land tenure and property rights regime is fairly chaotic. Technically, all land belongs to the state. Court system fails to protect property rights. Registering a company is a cumbersome and secretive process, with considerable red tape. Privatisation programme has been largely successful; the few remaining parastatals are functioning more autonomously and on a commercial basis.
Trade climate: Majority of imports from outside SACU are subject to high import tariffs. An additional sales tax of up to 15 percent is levied on all imports. Export controls are maintained on exotic and indigenous animals. Allegations of alleged favouritism and nepotism have been raised in awarding of contracts. Excellent transportation, telecommunications, and utilities infrastructure. Sophisticated financial services sector and sound legal system
Foreign investment climate: Government is committed to encouraging foreign investment. The 1970 Foreign Investment Act guarantees foreign and domestic investors equal treatment, fair compensation in the event of expropriation, remission of profits and access to foreign exchange. Investment incentives and special tax incentives are also available for the manufacturing sector. Although state influence with the private sector is minimal, parastatals continue to control key sectors of the economy.
Trade climate: A severe shortage of foreign exchange and a decline in foreign assistance have slowed economic growth in recent years. Import restrictions (approvals, permits), the foreign exchange shortage, and onerous regulations are the biggest constraints to doing business. Trade regulations are restrictive and many are at variance with WTO standards. In conjunction with its WTO application, the government has undertaken an intensive review of trade and investment policies that may lead to liberalisation. A number of privatisations of parastatals are under consideration.
Foreign investment climate: Several government organisations have been established to assist potential foreign investors. Investors who establish export-oriented operations in the trade zone are exempt from paying social security, business and utility taxes. Infrastructure is generally good with transportation and communications adequate for most purposes.
Trade climate: Government committed to economic liberalisation. The list of restricted goods requiring import permits has been reduced, but still includes such goods as foodstuffs, clothing, fabrics, wood and paper products, refined petroleum products and chemicals. Price controls, once pervasive, now exist only on coal, gasoline, and some utilities.
Foreign investment climate: Government approval is not required for investments. Foreign and domestic investors are treated equally and foreign investors are free to acquire land. Foreign-controlled firms are subject to domestic borrowing restrictions. Judiciary is effective and efficient. Squatters and crime are problems.
Trade climate: No significant NTBs. A new investment authority and anti-corruption unit are designed to help stimulate the private sector and a broad range of new enabling legislation is pending.
Foreign investment climate: Investment in the industrial sector has declined since the political transformation in South Africa. FDI is encouraged and nationalisation of foreign-owned property is prohibited by law. Foreign and domestic firms are treated equally. Few formal barriers. Government is developing a consistent and cohesive foreign investment code. Regulatory system has been streamlined. The social and economic reform agenda was launched in 1997 and sets goals to improve social services, enhance the quality of governance, and stimulate private sector investment as the engine of growth.
Trade climate: Market reforms introduced in the late 1980s and have made limited progress toward liberalising the economy and improved GDP growth. Still relies heavily on foreign aid, but relations with foreign donors are fragile because of inflation and corruption. Major NTB is inefficient customs system. Clearance delays and extralegal levies are common. Excessive regulation is hurting the private sector; many provisions are outdated and reflect conditions in the colonial era.
Foreign investment climate: New investment code has created more favourable climate. Single-stop FDI approval office has been established. Bureaucratic impediments include the necessity to acquire business licences, company registration and other documentation from a cumbersome bureaucracy. Foreign ownership of land is prohibited. Government has committed to privatisation of major public utilities (telecom, power, water, sewerage) as well as transport enterprises (railway, ports, airline).
Trade climate: Economic liberalisation agenda has suffered significant setbacks. Government has been tainted by corruption allegations.
Foreign investment climate: Few sectors are closed to FDI. Foreign and domestic investors are treated equally. Foreign investment is screened by an investment board, which operates quickly and efficiently. Price controls have been removed, and most subsidies eliminated. Acquiring a business licence is a growing problem and labour laws are both burdensome and expensive to comply with. Residence permits are difficult to acquire. Privatisation programme which began in 1992, has had some successes but has been sluggish in recent years.
* This report is the fourth in a five-year series requested by the US Trade Representative.