Determinants of foreign direct investment (FDI) in Zimbabwe: What factors matter?

The role played by FDI as a source of capital which augments domestic savings is attracting close attention in all developing countries. Whilst FDI inflows to Sub-Saharan Africa have increased significantly, Zimbabwe has not benefited from this boom. The main motivation of the paper is to respond to the question: What factors matter most in attracting adequate FDI inflows to Zimbabwe? An understanding of these factors will assist Zimbabwean policy makers to construct and implement strategies for FDI attraction and solve current challenges of abject poverty, low industrial productivity, high unemployment and lethargic economic growth. Adequate FDI inflows generate employment opportunities, augments domestic foreign exchange reserves, upsurges positive technological externalities and human capital skills. To accomplish the goal the study relies on a mixed methodology involving cross-section study and also employs a multivariate regression equation using annual time series data over a 31 year period (1980 to 2011). Estimation and survey results suggest that gross fixed capital formation, inflation, trade openness, corruption, political instability, poor governance, weak export competitiveness and inconsistent government policies hinder FDI inflows to Zimbabwe. The study recommends that Zimbabwe overhaul its macroeconomic policies in order to create a stable and hospitable investment climate that fosters export competitiveness, trade openness and domestic capital formation. In addition the country should adopt sound economic policies that minimises country risk, political instability and corruption in order to attract adequate FDI inflows.