The removal of diamond mining companies in Chiadzwa last week by government sums up the investment climate in the country as unpredictable and therefore too risky.
President Mugabe subsequently betrayed his own involvement in the whole saga when he appeared on national television this week and announced that government would be taking over diamond mining despite government not having the capital or technical know-how to engage in deep cast mining.
The swiftness and fickleness with which the decision was made and implemented provoked criticism from economic and political observers. Although, diplomatic in their response the Chinese government through their ambassador said there were other amicable ways of solving the impasse at the diamond fields.
Two of the diamond companies Mbada Diamonds and Anjin have already taken the matter to court registering their displeasure and seeking a reversal of government’s decision. It was not lost on these companies that after government announced the decision workers and illegal diamond panners stormed the diamond fields and looted equipment and machinery.
This evoked memories of the chaotic land reforms were white farmers were dispossess not only of land, their crops but also farming equipment.
Government then embarked on a controversial indigenisation policy which has led to some big companies such as Rio Tinto exiting the country. The country has lost $5 billion investment in capital flight since 2012 as investors seek safer destinations.
The investment climate in Zimbabwe has been punctuated by uncertainty and intense government interference. Government has demonstrated on numerous occasions not to respect property rights resorting to ‘nationalisation’ of private enterprises on countless occasions.
Government through the ICT ministry has been mooting the imposition of sharing of telecoms infrastructure despite companies such as Econet having spent billions of their money to invest in infrastructure.
Political interference in the markets means information is asymmetric in the economy. Markets do not like to be shocked as the appointment of Des Van Rooyen by President Jacob Zuma as Minister of finance in South Africa demonstrated. Decisions such as that are far too frequent in Zimbabwe with government flip flopping on its own policies.
Respected Economist John Robertson pointed out that not many investors would not be forthcoming to invest in Zimbabwe because of the Indigenisation Act which robs investors of control of their businesses despite assuming risk by pouring in capital.
An official at the Australian Embassy said that every investor wants to make a profit on their investment and the conditions obtaining in Zimbabwe do not guarantee that investors will make a profit.
Zimbabwe also still needs to address issues of infrastructure that inhibit investment. Shortage and high cost of power means that it is cheaper to manufacture goods in other countries. A derelict railway system also means cost of transporting raw materials is high in the country. For example the cost of moving coal from Hwange without a reliable railway system is too high hence mining companies invest elsewhere.
Government has also failed to address issues of corruption with former South Africa President Thabo Mbeki complaining to President Mugabe at some point that Zimbabwean ministers were demanding bribes from investors. No action was taken by the government on this matter.
The investment climate in Zimbabwe is therefore risky and unpredictable meaning most investors take their capital elsewhere