Direct Foreign investment Trickles into SADC
15 February 2000
by Grace Buhera
Efforts to attract foreign direct investment to the
Southern African Development Community
(SADC) have not been easy since most countries
are rated in the high-risk category. The economic
outlook has not been encouraged by military
conflicts in Angola and the Democratic Republic
of Congo (DRC) which still drive away investors
due to instability.
Add to that, some countries register depressing
economic indicators while others have failed to
guarantee investors, security for their money.
The investment framework for selected countries
in the SADC region shows a wide variety.
In the DRC, there is concern over the security
situation and how the government will handle the
issue of contractual, as well as new, agreements.
The provision of 100 percent tax exemptions has
been suspended by government until a review of
the taxation system is conducted, creating
uncertainty about the investment climate. The
economic outlook in the vast central African country
is characterised by high external debt and escalating
levels of inflation.
Angola, where opportunities exist in diamond
mining, oil and gas exploration and large-scale
commercial fishing, fiscal incentives are offered to
companies who give preferential treatment to local
job seekers and provide them with professional skills.
For mining companies, a tax is levied on the basis
of the surface area under mining and a royalty of
three to 10 percent is paid by government on the
gross value of minerals produced.
However, these incentives count for nothing as the
two-decade-old civil war has devastated crucial
infrastructure and continues to scare away
investors, except in the oil-reach Cabinda enclave.
Despite many efforts, peace has remained elusive
in this country richly endowed with natural
Analysts say the situation in the DRC and Angola
has impacted negatively on neighbouring states.
Apart from the fear for direct military attacks, such
as occurred in parts of Namibia and Zambia
bordering with Angola, refugees fleeing into the
region are straining the infrastructure and resources
of host countries.
In Tanzania, private sector investment is the driving
force in economic development with priority areas
being petroleum and mining exploration, agriculture
and livestock development, construction and
manufacturing, high technology business, tourism
The Tanzania Investment Centre outlines priority
areas and gives investment incentives and extensive
guarantees while the private sector gives an ample
forum to discuss matters affecting the business
environment. There are special incentives for
mining and oil exploration, internal and external
trade has been liberalized and foreign exchange
controls have been eliminated.
However, the unstable political situation in the
neighbouring Great Lakes countries of DRC,
Uganda, Burundi and Rwanda has worked against
some of these efforts, resulting in reduced foreign
direct investment (FDI), as would have been
expected in a peaceful country.
According to press reports, Swaziland has failed
to attract FDI into the country, with investors
preferring South Africa, the kingdom’s neighbour.
The Swaziland Central Bank’s 1998/1999 annual
report said the slowdown in the inflow of FDI has
led to a decline in the country’s economic growth
from 3.7 percent in 1997 to 2.3 percent in 1998.
“Viewed against an estimated population growth
of 2.7 percent per annum, this implies further
worsening of the standard of living of the average
Swazi people,” the Central Bank said.
Vast potential exists in Mozambique for investment
in the development and rehabilitation of
infrastructure. Opportunities have also been
identified in agriculture, fishing, forestry, tourism,
mining and manufacturing. The law gives legal
protection to property used for investment and
allows for repatriation of capital invested upon
divestment. Foreign investors may operate both local
and foreign accounts.
Different tax rates are given to different sectors,
foreign investors are allowed to repatriate capital
and tax incentives are offered to new companies
and those facing closure. Mozambican products, like
those in other countries in southern Africa, are
eligible for duty free export to the European Union
(EU) and other industrialized countries under the
Lomé Convention and the General System of
Preferences (GSP) respectively. However, Lomé
expires soon and is currently being negotiated.
The Mozambique Investment Promotion Centre,
which processes business applications, helps source
for suitable partners.
In the 1998/99 fiscal year, Mozambique was the
only country in the region that registered a double-digit
economic growth rate (11.6 percent) while it
has also enjoyed declining inflation in the last few
years. Consequently, it has managed to attract
significant foreign direct investment since it emerged
from a two-decade civil war that ended in 1992.
Available figures show a marked recovery in
SADC’s mining sector in the 1990s with South
African companies venturing into the region as
some countries shed off less-performing state
enterprises, under wide-ranging economic reforms.
This investment wave is beginning to be felt in the
value-added sector of mineral-processing, although
falling world prices are dampening hopes in the
Despite falling prices, there is increased expenditure
in exploration and advanced feasibility work
translating into new project developments in
countries like Tanzania and Zimbabwe. Investor
activity is wide-ranging including Canadian
exploration specialists and South Africa’s
established mining companies.
Total FDI in the region’s financial sector alone for
the period 1992 - 1999 totaled US$173 million,
excluding South Africa. FDI for the mining sector
to Botswana, DRC, Mozambique, Namibia,
Tanzania, Zambia and Zimbabwe for the period 1995
-1999 amounted to US$1,577 million.
Countries like Mozambique have been able to make
use of other factors such as cheap surplus electricity
at Cahora Bassa and access to navigable waters to
entice private sector capital.
For foreign investment to have meaningful impact
in the region there is need for host countries to
create an enabling environment in terms of security
of projects and provision for supporting mechanisms
to ensure the viability and competitiveness of
In the last 20 years, many Less Developed
Countries (LDCs) have pursued conducive
environment for investment. Foreign investment
inflows amounted to 14 percent of official
development assistance in 1996. A significant
amount of that investment was in the oil and mining
sector. Some investment has also taken place in
agro-industries and tourism but on a smaller scale.
There is, however, growing evidence suggesting that
investment in the manufacturing sector has
remained weak and there has been considerable
divestments by multinationals as a result of structural
adjustment policies adopted by some member
countries. Not only has liberalization in import
substituting industries adversely affected foreign
firms but extensive devaluations have also
undermined foreign currency rates of return.
It is also apparent that some of the new investment
has gone towards trading and to the final value-added
end of the manufacturing process such as
re-packaging which contributes little to
Developing countries find it difficult to attract foreign
investment due to low levels of income, small market
size, poor international competitiveness and weak
physical infrastructure. A vibrant domestic private
sector is an important magnet for luring investors.
Many countries have lackluster indigenous private
sectors, the financial sector is underdeveloped and
private sector savings are low SADC is no
However, recent moves toward deeper market
integration under the SADC Trade Protocol should
emerge as a significant attraction for the much-needed
FDI. The protocol is expected to create a
bigger regional market with free movement of
capital and finished products.
But there is no doubt, significant increases in
investment in the region lie mainly in the continued
performance of macro-economic fundamentals,
sustained political stability and the implementation
of, and commitment to, financial sector reforms that
are aimed at integrating the region’s financial
The 1980s and 1990s demonstrate that while options
for development are abundant, SADC countries
must offer internationally competitive conditions for
them to get investment ahead of other regions. This
will involve governments leading the way by
investing in infrastructure development. The
development of infrastructure and facilities such as
transport and communication, electricity and water
as well as human resources need to be given more
With sound policies in place, it becomes easier for
governments to seek partnership with the private
sector including foreign investors, from which locals
can benefit in terms of skills and technology
transfers. But large corporations favour large
markets and SADC countries would stand a better
chance of attracting foreign direct investment if they
teamed up as a region. (SARDC)