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SADC is high risk for foreign investment

Posted On Friday, 01 February 2002 03:01 Published by eProp Commercial Property News
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Report says political environment and HIV/AIDS are the main problems 

Jenny Cargill









Business Map, the investment advisory service, has said that there has been a sharp 'overall deterioration' in the region's business environment, largely due to problems in Zimbabwe.

It said political factors are adversely affecting the investment climate 'nearly everywhere' in the region, and that the rates of return required by Foreign investors in southern Africa were rising significantly.

Jenny Cargill, a director of Business Map, said yesterday the uncertainties created by Anglo American's plan to pull out of its copper interests in Zambia and Avmin's write-down of its cobalt assets in the country could further raise investor perceptions of risk, and that this could make it more difficult for countries keen on attracting investment such as SA, Tanzania, and Mozambique.

On SA, the report said the country was paying a heavy price due to the slow pace of privatisation. It said 'the cautious pace of privatisation is thought to be costing it (SA) numerous opportunities to attract investment, and, possibly, the chance to facilitate additional investment into the rest of the region'.

While the final foreign direct investment figures Business Map compiled were not yet available for last year, the report said it appeared that last year had been more encouraging with R10,3bn recorded for the first half, only about 24% lower than the total foreign direct investment figures for the entire previous year.

Business Map's system of calculating foreign direct investment flows differs with that of the Reserve Bank as aims to invest are included.

The survey, which covered SA, Zimbabwe, Zambia, Tanzania, Uganda, and Mozambique, said that, because of the increased risk perceptions, rates of return above 25% were now required by some investors. The report did not say what sort of hurdle rate investors required before the onset of heightened risk with the turmoil in Zimbabwe and the spread of the HIV/AIDS epidemic, but a reasonable return in a relatively low risk area in the region could be in the range of 15%, depending on a company's cost of capital.

Business Map's overall rating of investor concerns showed the sharpest dip for Zimbabwe, of nearly 15 percentage points. SA's rating fell by 2,5 percentage points and Tanzania's rose by nearly 8 percentage points due to its economic reform measures.

The report said that the fall in foreign investment in real terms in Africa between 1999 and 2000 was 'possibly due to insufficient improvements in factors such as political and economic stability, access to global markets linked to imperfect infrastructure, the small scale of local and regional markets, and extortion, and bribery'.

It said that the optimism of the past few years that had been generated by political and economic liberalisation had, because of Zimbabwe, given way to a far more cautious view of the region among investors. The report pointed to a bleak outlook for the Zimbabwe economy and said that the challenge was now to keep key parts of the country's productive sector intact until the political situation settled.

It pointed out that Zimbabwe's falling Human Development Index ranking, which reflected a combination of per capita gross domestic product, average life span, and educational attainment, was now lower than it was at independence 22 years ago.

Another serious area of concern pointed to in the report was the steadily growing problem of corruption in the country.

While the report said that the HIV/AIDS epidemic was a 'frightening spectre across the Southern African Development Community region, foreshadowing dire consequences,' which sometimes deterred investment, 'a number of companies and governments have moved beyond the hand stage'.

Last modified on Thursday, 17 April 2014 16:03

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