Zimbabwe
Democracy determines investment in Southern Africa

Misanet.com / IPS, 8 December - Foreign direct investment is key to lifting sub-Saharan Africa out of a cycle of poverty that has gripped the region since colonial days, and nations are scrambling to attract the notice of overseas businesses.

Sometimes the competition is bare-knuckled efforts where one nation profits at the expense of another; other times a spirit of cooperation exits, such as when 14 member states of the Southern Africa Development Countries pool their resources to set common standards that will entice regional growth.

- We all know that a rising tide lifts all ships, says Alec Erwin, South Africa's trade minister. "And a strong regional economy is essential for the success of any one nation."

Economic ministers meeting at a recent World Bank-sponsored summit in Harare agreed that individually most African nations have not developed economies to absorb the products of investment, such as the output of a car or appliance factory, and so new factories are built to export their goods regionally or outside the continent.

However, these factories can only be built at one location, and it is the desire to obtain these investments that has trade ministries setting up national industrial promotion boards, printing glossy brochures and producing flashy CD ROMS to hawk the advantages of their countries.

Bounties of natural resources, educated and trainable work forces, climatic conditions and infrastructures are all highlighted.

But a factor that is rarely mentioned seems to be influencing where foreign direction has ended up in the past 10 years is a nation's commitment to democratic institutions. "When democracy is imperiled, as is the case today in Zimbabwe, investment suffers. Where democracy does not exist, like Swaziland, new investment is hard to attract," says Dwayne Roberts, an investment banker in Johannesburg.

Roberts works at the city that is the financial capital of the African sub-continent, in a country, South Africa, that has seen a reversal of investment fortunes in the past ten years. Apartheid-era South Africa, like Rhodesia, was penalised for its racist government with economic sanctions imposed by the United Nations and individual countries.

One beneficiary was Swaziland, a small landlocked nation almost entirely surrounded by South Africa, where multinational firms disinvesting South Africa set up shop during the 1980s to enjoy proximity to the lucrative South African market.

Swaziland was not a democracy, and the ruler King Sobhuza had overturned the Independence constitution to ban political opposition, but there was no racism problem, nor threat of sanctions at a time when the country seemed stable, even after Sobhuza's death, relative to civil war in Mozambique, in Angola and elsewhere.

The good will generated by the birth of Zimbabwe, replacing racist Rhodesia, led to an investment boom still reflected in the skyline of Harare, where most of the highrise buildings date from the 1980s. Democratic Botswana and Namibia attracted investment.

The election of Nelson Mandela as the first president of a democratic South Africa ended economic sanctions, and while investment has not met government's expectations, according to trade minister Erwin, tourism returned to 1970s levels, and the multi-nationals came back.

Swaziland suffered by watching an egress of companies relocate after riding out sanctions in the kingdom. Suddenly, a nation that still enjoys relative political stability, where civil unrest is mild and there has been no in war involving neighbours in 130 years, appears a less certain proposition.

A security analyst in London who makes assessments for foreign investors interested in going to Africa, explains, "No one understands the rules of a monarchy in the 21st century. Swaziland is one of the safest places in Africa. The crime is low, and the people are friendly. But investors are worried that it can all change if there is turmoil in the royal family."

Prime Minister Sibusiso Dlamini, a former World Bank executive appointed by the palace to pursue a pro-business agenda aimed at foreign direct investment, admits, without mentioning politics, "The Southern Africa region is a very tough and competitive environment. Creating infrastructure such as new highways, factory shells, and assured electricity supplies is government's on-going priority."

New investment in neighbouring Mozambique was up 15 percent last year, at a time when the Central Bank of Swaziland reports investment was flat in the kingdom, with only two new factories opened. Mozambique has tremendous potential in natural resources, a large population and pristine Indian Ocean beaches to attract tourists, and investors in South Africa have that nation's own market to sell goods.

Swaziland depends on trade treaties with the United States and the European Union that allow goods manufactured in the kingdom to enter North American and European markets tax free, giving them a competitive advantage.

- These treaties are the best thing to happen to Swaziland since economic sanctions against South Africa drove companies here, says David Nsibandze, a Central Bank statistician. Several Taiwanese garment manufacturers set up shop in Swaziland to gain duty-free access to US and European markets.

But a royal decree deemed undemocratic by the US, and an earlier Industrial Relations law aimed at limiting the power of labour unions, which are aligned to the Swaziland Democratic Alliance, put the trade agreements in jeopardy.

Bheki Dlamini, chief executive officer for the Swaziland Investment Promotional Authority, which was established by parliament to facilitate foreign direct investment, says; "We have attracted 3600 new jobs to the kingdom in the past two years."

But what Dlamini omits is that the kingdom lost one company that the investment promotion authority had announced with much fanfare was coming to the country. Worried that Swaziland would lose its trade privileges with the US due to undemocratic laws, Nein Signh garments of Taiwan chose to open its Southern African factory in Lesotho, taking with it US$ 69 million in investment and 5000 jobs.

This week, two-thirds of the work force was retrenched at the Swaziland Industrial Development Corporation, which for 20 years has built industrial parks and infrastructure for companies. The cutbacks are seen by local economists as an indication that no substantial new manufacturing investment is coming to the country.

Swaziland's economy is suffering because of the anti-democratic policies of Zimbabwe's President Robert Mugabe, which have prompted the devaluation of the South African rand, to which the Swazi currency is linked.

But Zimbabwe's political institutions are democratic, and will be in place when the Mugabe regime is gone, to again lure back investors who want the assurance of rule by law. It is a lesson economists believe must be remembered by other democratic nations whose leaders might backslide into old autocratic ways.

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