http://www.theafricareport.com/Southern-Africa/zimbabwe-eyes-fdi-amid-indigenisation-policy.html
Zimbabwe Eyes FDI Despite Indigenisation Policy: The Africa Report
Zimbabwe Eyes FDI Despite Indigenisation Policy: The Africa Report
The Article Zimbabwe Eyes FDI Despite Indigenisation Policy by The Africa Report explores Zimbabwe's dependence on FDI, and desire to have FDI increase in the next five years. The article discusses the unlikelihood of this, as Zimbabwe's current economic instability added to policies that aren't exactly favourable to foreigners, makes Multinational Corporations wary of investing in Zimbabwe. Zimbabwe currently has policies that force foreign controlled companies that operate in Zimbabwe to sell important stakes to locals. With FDI so discouraged from investing in Zimbabwe, it is very unlikely Zimbabwe will be able to attract the desired 50% increase over the next five years.
Zimbabwe wants to attract foreign capital as a means of trying to boost the economy in the country. If Zimbabwe were able to lure the MNC’s to the country, they would set up large businesses in Zimbabwe to market a new product to the local consumers. This company would need employees to help manufacture the goods, and the company would hire local individuals as employees. This would decrease unemployment in the area, which is a highly desirable effect in Zimbabwe, whose unemployment has been skyrocketing over the past couple of years. Additionally, with such a large market of new consumers, demand for the product the company is selling would likely be high. As more workers are hired to meet the rising demand, their income increases, boosting the aggregate demand in the country.
Zimbabwe wants to attract foreign capital as a means of trying to boost the economy in the country. If Zimbabwe were able to lure the MNC’s to the country, they would set up large businesses in Zimbabwe to market a new product to the local consumers. This company would need employees to help manufacture the goods, and the company would hire local individuals as employees. This would decrease unemployment in the area, which is a highly desirable effect in Zimbabwe, whose unemployment has been skyrocketing over the past couple of years. Additionally, with such a large market of new consumers, demand for the product the company is selling would likely be high. As more workers are hired to meet the rising demand, their income increases, boosting the aggregate demand in the country.
As shown in the diagram above, an increase in aggregate demand, caused by increased consumer income and spending will cause a shift in aggregate demand to the right from AD1 to AD2, increasing real output from Q1 to Q2, and the price level from P1 to P2. This increased output will boost GDP, and lower unemployment in the country.
Unfortunately, this result is unlikely, as Zimbabwe is having so much trouble attracting FDI. Surrounding countries in Africa have been slowly been able to increase the amount of FDI they attract, but Zimbabwe has been lagging behind. The reasons behind this likely lie with Zimbabwe’s economic instability, and its indigenisation policy. The empowerment law forces foreign owned companies to surrender 51% percent of the company to black locals. This alone is enough to scare FDI from choosing Zimbabwe to invest in. By combining this with the recent economic problems Zimbabwe has been experiencing, it makes a pretty good argument against investing in Zimbabwe. As foreign direct investment is an essential aspect that Zimbabwe’s economy requires, the government in Zimbabwe should first eliminate all indigenisation policies. Their current effects are damaging to Zimbabwe’s economy and serves as a severe deterrent to any MNC’s who might be attracted to the numerous possible consumers in the developing country.
Although the role of MNC’s in a country’s economy can be debated, their overall beneficial possible impact in Zimbabwe is too grand to ignore. Many people argue that MNC’s that settle in foreign countries will have a very large sphere of influence and take advantage of the foreign country. It is possible that the MNC will set up industry in a country just to strip it of its resources and then leave. Zimbabwe is full of many natural resources, so this is something the country and the government would have to be wary of. Despite these possibilities, the economic benefits that the MNC’s have to offer are worth the risks. If Zimbabwe wishes to improve its economy, one of the steps it should take is ridding itself of indigenisation policies, and working to attract FDI.
Unfortunately, this result is unlikely, as Zimbabwe is having so much trouble attracting FDI. Surrounding countries in Africa have been slowly been able to increase the amount of FDI they attract, but Zimbabwe has been lagging behind. The reasons behind this likely lie with Zimbabwe’s economic instability, and its indigenisation policy. The empowerment law forces foreign owned companies to surrender 51% percent of the company to black locals. This alone is enough to scare FDI from choosing Zimbabwe to invest in. By combining this with the recent economic problems Zimbabwe has been experiencing, it makes a pretty good argument against investing in Zimbabwe. As foreign direct investment is an essential aspect that Zimbabwe’s economy requires, the government in Zimbabwe should first eliminate all indigenisation policies. Their current effects are damaging to Zimbabwe’s economy and serves as a severe deterrent to any MNC’s who might be attracted to the numerous possible consumers in the developing country.
Although the role of MNC’s in a country’s economy can be debated, their overall beneficial possible impact in Zimbabwe is too grand to ignore. Many people argue that MNC’s that settle in foreign countries will have a very large sphere of influence and take advantage of the foreign country. It is possible that the MNC will set up industry in a country just to strip it of its resources and then leave. Zimbabwe is full of many natural resources, so this is something the country and the government would have to be wary of. Despite these possibilities, the economic benefits that the MNC’s have to offer are worth the risks. If Zimbabwe wishes to improve its economy, one of the steps it should take is ridding itself of indigenisation policies, and working to attract FDI.