Japan’s Ambassador to Zimbabwe, Satoshi Tanaka, said Japanese companies were hesitant to invest in the country due to the country’s volatile economic climate.
Currency erosion, high inflation and foreign currency shortages have been an albatross to Zimbabwe’s recovery, and many investors have remained inactive due to these factors.
“There are two areas where we (Zimbabwe and Japan) can collaborate,” Tanaka told businessdigest at the Confederation of Zimbabwe Industries (CZI) 2022 Annual Congress this week.
“The first is development aid. We support agriculture, infrastructure and hospitals. Japanese companies can contribute to such initiatives.
“Another area is that of business-to-business relations. It is very important these days. But Japanese companies still find it difficult to come to Zimbabwe because of these financial situations or the monetary situation.
“It is very important to have a more stable business environment. We are really looking forward to seeing if a more stable environment arrives,” he added.
The Zimbabwean dollar has lost around 79% of its value against the US dollar since the government adopted its currency auction system in 2020, according to the 2022 investment climate statement released recently by the US government.
Along with Japanese investors, companies in other markets were also cautious, citing heightened risks in Zimbabwe, where electricity was also a big downside, while business operating costs were higher than regional comparisons for many years. From 1980 to 2020, Japan provided around $346 million in loans to Zimbabwe, $627 million in grants and $177 million in technical assistance, according to official data.
Tanaka said Japanese companies are interested in investing in the country.
“From what I have discussed with Japanese counterparts, at the moment, for example, trading companies are very interested in products from Zimbabwe, especially agricultural products like cotton,” Tanaka said.
He said Japanese companies are also keen to invest in minerals like lithium.
During the congress, Industry and Trade Minister Sekai Nzenza said currency and US dollar issues were an ongoing topic of discussion with Finance and Economic Development Minister Mthuli Ncube and Reserve Bank of Zimbabwe Governor John Mangudya.
The gap between the currency auction system and the parallel market exchange rate persisted, with the US dollar more than twice as expensive in the parallel market.
The foreign exchange retention system pursued by the Reserve Bank of Zimbabwe has also been a major concern for investors.
Under this policy, part of an exporter’s foreign earnings are returned to them in Zimbabwean dollars.
“The authorities periodically change these (retention) levels without notice depending on the severity of the foreign exchange constraint. In addition, companies that sell in the domestic market in foreign currencies must remit 20% of receipts to the central bank in exchange for local currency at the auction rate,” the investment climate report states.
“Weak investment flows and weak export growth have led to a permanent shortage of foreign exchange. Therefore, investors cannot freely convert the funds associated with any form of foreign currency investment,” the report states.