Dynamic Research Journals (DRJ)

Journal of Economics and Finance (DRJ-JEF)

Volume 2 ~ Issue 2 (February, 2017) pp: 01-08
www.dynamicresearchjournals.org

Nexus Between Doing Business Indicators and Foreign Direct

Investment for Zimbabwe: A Time Series Analysis
Kenneth Mahuni & Wellington G. Bonga
Received 05 February, 2017; Accepted 08 February, 2017; Published 28 February, 2017 The author(s) 2017. Published
with open access at www.dynamicresearchjournals.org

Abstract: For many developing nations, foreign direct investment inflows remain crucial for economic
development. The levels of FDI inflows in Zimbabwe, have remained relatively low as compared to other
developing nations. The study seeks to analyse the impact of various Ease of Doing Business Indicators on FDI
inflows in Zimbabwe. A trend analysis for ease of doing business indicators was done to check on how the
regulatory environment has been changing using 2004-2016 data. The study employed a Time Series Analyses
using data from 2009 to 2016, defining the multi-currency period for the Zimbabwean nation. An OLS regression
model was run using Stata Statistical Software, after proper data transformation and relevant statistical tests.
Four indicators were found to significantly affect FDI flows. The study found that Enforcing Contracts, Paying
Taxes, Getting Electricity and Dealing with Construction Permits are the significant indices to explain FDI flows
in the country. The study recommends that; for FDI inflows to improve significantly in future, there is greater
need to improve efficiency in the enforcement of contracts, fair distribution of electricity and energy, improving
taxes procedures and compliance enforcement and correctly dealing with construction permits.
Key Words: FDI, Ease of Doing Business, Development, Contracts, Permits, Insolvency, Trade, Zimbabwe.
Jel Codes: C32, E02, E22, F15, F18, F35, F43, F53, K23, L24, L51, L74, O18, O19.

I. INTRODUCTION
Zimbabwe is one of the countries in Southern Africa which is receiving arguably lowest Foreign Direct
Investment (FDI) inflows as compared to other neighbouring countries such as Zambia, South Africa, and
Mozambique among others. Statistics from UNCTAD, show that for the last 5 years Zimbabwe has been among
low recipients of FDI inflows along with Lesotho and Swaziland as shown in Table 1 below1. Zimbabwe over the
period received relatively low FDI inflows compared to other big economies in the region aforementioned.

Table 1: FDI inflows (in millions) for Southern Africa member states from 2010-2015
Country 2010 2011 2012 2013 2014 2015
Angola - 3 227.2 - 3 023.8 - 6 898.0 - 7 120.0 1 921.7 8 680.9
Botswana 218.4 1 371.1 487.2 398.5 515.2 393.6
Lesotho 51.0 149.0 138.0 123.0 162.0 169.0
Malawi 97.0 128.8 129.5 119.5 130.0 142.5
Mozambique 1 017.9 3 558.5 5 629.4 6 175.1 4 901.8 3 710.8
Namibia 793.0 1 119.8 1 133.4 800.5 431.8 1 077.8
South Africa 3 635.6 4 242.9 4 558.8 8 300.1 5 770.6 1 772.4
Swaziland 135.7 93.2 89.7 29.4 - 32.4 - 120.9
Zambia 633.9 1 110.0 2 433.4 1 809.8 3 194.8 1 653.0
Zimbabwe 165.9 387.0 399.5 400.0 544.8 421.0
Source: Compiled from UNCTAD
The above statistics reflect that FDI inflows for Zimbabwe when compared to other similar bigger
economies in the region, have been on the downside, with the exception of Angola until 2014 through 2015 where
positive inflows were realised.

Importance of Foreign Direct Investment and Doing Business Indicators for the economy of Zimbabwe
FDI is a critical imperative for the Zimbabwean economy given current slow growth mode of the
economy coupled with slowing of the global economy. FDI is important as a source of export growth. It will help
to narrow trade balance. It is also important in that it is a source for technology spill overs, (Anderson and

1
See UNCTAD statistics

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 Nexus Between Doing Business Indicators and Foreign Direct Investment for Zimbabwe: A Time Series Analysis

Gonzalez 2013; Bayraktar 2011). Furthermore, Bayraktar opines that FDI is a source of efficiency and growth for
an economy, thus it is desperately needed for Zimbabwe to breathe life in the economy.
Doing business indicators (DBI) is a broad index published by World Bank since 2005 covering 10
parameters including, starting a business, registering a property, getting credit, trading across borders among
others.2 According to World Bank there are two aggregate measures for doing business i.e. the ease of doing
business ranking and the distance to frontier scores. The ease of doing business ranking aims at assigning a rank
for a country from 1-190, on how it will have performed on indicators relative to other countries. The best rank
being 1 and the worst a country can be ranked relative to others being 190.On the other hand, for Distance to
frontier (DTF) measure, a score of 100, is the benchmark and ideal for an economy.
A study by Anderson and Gonzalez (2013) opines that higher DTF scores are associated with high FDI
inflows. The following table extracted from their study is derived from UNCTAD database.
Table 2: FDI inflows and stocks and DTF scores for 2011
Average distance to
Economies grouped by Average FDI inflows Average FDI stocks frontier (percentage
distance to frontier (US$ millions) (US$ millions) points)
Top 10 50,384 768,496 86.0
Middle 10 14,362 89,776 58.9
Lowest 10 1,257 8,179 34.2
Source: Anderson and Gonzalez (modified by authors)
From the table it can be seen that countries which are closer to the frontier, over the period received high
FDI in terms of inflows and stocks. FDI is critical for Zimbabwe, given the persistent challenges such as current
massive trade deficits. Figure 1 below shows the unfavorable trade balance of the country which has largely
persisted in the negative territory3.
Figure 1: Merchandise trade between January-June 2016

Source: ZIMSTAT
Apart from that, huge debt overhang and general poor economic performance are present challenges. All
this makes FDI as well as domestic investment fundamental so as to revive the waning fortunes of the economy.
What then stifles FDI inflows for Zimbabwe?
It is against this background, that the underpinning objective of this research is to explore how doing
business indicators explain FDI patterns in Zimbabwe. In the recent mid-term Monetary Policy on 30 September
2016, the central bank governor of Zimbabwe highlighted a number of aspects with respect to the unfavorable
business climate currently obtaining in the economy. He pointed factors such as inconclusive land tenure issue,
high input costs as making business difficult in Zimbabwe in getting investments.4
Currently, for instance Zimbabwe has no commercial court. This makes commercial disputes take longer
than necessary to be solved amicably. This is unlike in other regional countries like South Africa, Zambia, and
Mozambique where these courts now exist5. This increases cost of doing business in terms of time lost in dispute
settlement.

2 See World Bank for full details on doing business indicators

3 Extracted from ZIMSTAT
4 See RBZ .Available at http://www.rbz.co.zw/assets/monetary-policy-statement-september-2016-.pdf
5
The Financial Gazette. Available at http://www.financialgazette.co.zw/foreign-businesses-shun-zimbabwe-courts/

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 Nexus Between Doing Business Indicators and Foreign Direct Investment for Zimbabwe: A Time Series Analysis

Among the Ease of Doing Business indicatiors, the current study added the corruption index. There has
public outcry on the intensity of corruption in the economy. The research intends to examine how corruption
affects FDI inflows as well. Lately, Zimbabwe has been scoring poorly on corruption perception index. According
to 2015 Transparency International, the country was ranked 150 out of 175 countries6.Africa Report 2016 shows
that when compared with the rest of other countries in Southern Africa, Zimbabwe had high levels of corruption.7
Highlight number 9 of the Ten Point Plan of Zimbabwe has one of its key pillars as a pursuit of an Anti-Corruption
Thrust.8 This reflects that corruption is endemic in the Zimbabwean economy. It therefore becomes imperative
for this research to analyze how this influences FDI inflows.

II. LITERATURE REVIEW

Since the doing business indicators came in place, more than a decade ago, more research is coming up trying
to find a link between FDI and doing business indicators. There are over 2000 research papers to date in the
subject (Anderson and Gonzalez, 2013).In this section we analyse how various researchers have tried to unlock
this link in various countries and regions.
Using data from 2004-2009, Corcoran and Gillanders (2015) investigated how business regulation affects
FDI inflows to countries in different regions on the globe. The key findings of the research were not the same for
the different regions. Overally, ease of trading across borders was found out to be key. For example for middle
income countries, the researchers found out that the result was very strong, but was weak for OECD states and
Sub Saharan countries. The research also found out absence of any link between closeness of countries and FDI
inflows.
A study by Kasongo (2013) on 40 sub Saharan Africa has important results on link between doing business
and FDI inflows. Using seven panel data sets for the countries and FDI as the regressand, doing business indicators
were used as regressors. Factors such as starting a business, cost of registering a property were found to be
significant in determining FDI inflows in the region. The researcher also found that cost of starting a business,
time to register a property, time to export were not significant.
Piwonski (2010) studied how FDI is influenced by doing business indicators in countries. Using a multivariate
regression model, the study used the rankings of countries as a measure of doing business. The researcher found
out that there is a strong link between the variables and FDI. Precisely, the study discovered that for every increase
in the rank for a country, this could bring additional USD44 million to the economy.
Olival (2012) used panel data for 2004-2009 to find a link between various indicators of doing business and
FDI for 144 developing countries and 33 developed countries. The results obtained showed that in particular for
developing countries favourable doing business indicators were vital for attracting FDI. The study also reveals
that doing business aspects such as starting a business, registering a property and trading across the border were
significant for the period under study.
A study was carried out by Morris and Aziz (2011) for selected Sub Saharan and Asian countries to investigate
how FDI is influenced by doing business indicators for these countries using 2006 World Bank indicators for
panel data spanning 2000-2005. For the sample from these two regions the following indicators were found to be
significant, registering a property and starting a business. The study provides a practical solution for governments
of these regions to strive to fine tune doing business regulations to achieve high levels of FDI.
Shadan et al (2014) studied how FDI is influenced by DBI for six Asian countries namely; Afghanistan,
Bangladesh, India, Iran, Pakistan and Sri Lanka. Panel data was employed for the period 2004-2013.The major
justification of the selected sample by the researchers was that the countries are closer to each other and hence the
indicators are likely to have a strong influence on FDI inflows for the countries under study. The researchers found
that factors such as registering property, getting credit and trading across borders were all significant and
positively related to explaining FDI inflows for the countries.

III. METHODOLOGY
The research used secondary data sources obtained from World Bank, Transparent International and
UNCTAD statistics. Time series data sets from 2009 to 2016, were used. The period covered is justified in that
this was when the country embarked on a dollarization trajectory, officially in the month of February 2009 to
simplify the analysis.
Doing business measure used for the research is the Distance To Frontier (DTF) score. It has 10 subcategories.
Measure for corruption variable used is Corruption Perception Index as given by Transparency International. It
assigns scores ranging from 0-100. A score of 100 implies a clean country, whereas a low score e.g. 10 signifies
presence of high level of corruption. Most studies normally work with 10 DBI, this study includes corruption as

6
See Transparency International 2015 and Trading Economics
7
The Africa Report. Available at http://www.theafricareport.com/Southern-Africa/zimbabwe-most-corrupt-country-in-southern-africa-
botswana-africas-least-corrupt.html
8
See 2016 Mid- year Fiscal Policy Review Statement of Zimbabwe

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 Nexus Between Doing Business Indicators and Foreign Direct Investment for Zimbabwe: A Time Series Analysis

an extra variable. The inclusion of corruption as an extra variable in the analysis helps to capture as much
information as possible so as to reduce the omitted variable problem making the regression results reliable.
Wooldridge (2009).
The study expects a linear function between FDI and its explanatory variables. The study used the following
economic model where FDI is explained by various independent variables drawn from ease of doing business
indicators;
FDI = f ( SB , DCP , GE , GC , RP , PI , PT , TAB , EC , RI , CRPI ) (1)

The subsequent econometric model of the above functional form can be expressed as follows;

FDIt = 0 + 1SBt + 2 DCPt + 3GEt + 4GCt + 5 RPt + 6 PIt + 7 PTt + 8TABt + 9 ECt + 10RIt + 11CRPIt + t (2)
Where; FDI= foreign direct investment , =constant term, - =slope coefficients, SB= starting business,
DCP=dealing with construction permits, GE= getting electricity, RP=registering property, GC=getting credit,
PI=protecting investors, PT=paying taxes, TAB= trading across borders, EC= enforcing contracts, RI= resolving
insolvency, CRPI=corruption index and =disturbance term.

IV. EMPIRICAL FINDINGS AND DISCUSSIONS

Stata statistical package was used to analyse the study data. The data used in the study was for the period
2004-2016, however for the regression model data for the multicurrency regime (2009-2016) have been used, data
availability for variables being the main reason to mark the study period. A trend analysis of the ease of doing
business indicators has been done from 2004 2016, this is when the idea of the indicators came into play for
many economies, introduced by the World Bank.
Following empirical and theoretical analysis, the current study came up with 11 variables whose effects on
FDI have to be investigated. Among the important variables, 3 variables (CRPI, PI and GC) have been dropped,
because they have constant statistics for the period under study, hence failing to explain the variability in FDI
volumes. The study objective of investigating impact of corruption will then calls for other approachs to be
employed because the variable corruption will be dropped from further analysis.
The following graph shows the trend of explanatory variables deemed to have an impact of FDI flows in the
Zimbabwean economy for the period 2004-2016.
Figure 2 : Zimbabwe Doing Business Indicators 2004-2016
80
70
60
50
40
30
20
10
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

SB DCP GE RP PT TAB EC RI

Source: World Bank

Figure 2 above, shows the trend of various explanatory variables of FDI. There are significant
fluctuations that can be noticed for each variable. It can be concluded that there is no definite pattern over the
years for each variable. When compared across years the scores shows how the regulatory environment in an
economy has changed over time in absolute terms.
There is a volatile pattern over the years, indicating instability and this poses a challenge to policy makers
and relevant authority to strive to implement policies that help improve business environment including how
transactions are done. Lessons should be drawn from successful countries who have always ranked top among
other nations. The distance to frontier scores captures the gap between a countrys performance and a measure of
best practise.
Therefore, Zimbabwes indicators shows that improvement is necessary, not even a single indicators has
recorded a score greater than 70. However, a more quantitative analysis is done through regressions, uding the
exact business indicator statistics and a time series model adopted by the study.

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 Nexus Between Doing Business Indicators and Foreign Direct Investment for Zimbabwe: A Time Series Analysis

Data Handling and Transformation:

Data on FDI has been collected in millions US dollars and data on ease of doing business indicators are
indices of magnitudes between 0 an100.The study has used the log function to transform the data into uniform
magnitudes to enable a perfect analysis whilst maintaining crucial data properties. A good model requires working
with uniform data, thus variable magnitudes should be a concern and hence appropriate transformations may be
required.

Stationarity test:
Regression analysis requires operating with stationary data. Regression models for non-stationary
variables give spurious results (Nielsen, 2005). The study conducted a unit root test using the Augmented Dickey-
Fuller test statistic (ADF). Results of the unit root test are shown in the table below;

Table 3 : ADF test results

Level ADF Statistic Critical Values Interpretation
FDI -1.651 Not Stationary
SB -1.026 @1% = -3.750 Not Stationary
DCP -2.985* Stationary, I(0)
GE -1.061 Not Stationary
RP -16.790*** @5% = -3.000 Stationary, I(0)
PT -28.080*** Stationary, I(0)
TAB -0.740 Not Stationary
EC -1.744 @10% = -2.630 Not Stationary
RI -1.779 Not Stationary
Significant at: 1%***, 5%**, 10%*.
Three variables DCP, RP and PT were found to be stationary in their levels (hence they are integrated of
order zero (I(0)), while the other six (including FDI the dependent variable) were not stationary. The decision of
the ADF statistic is to accept a variable as stationary if the ADF statistic is more negative than the critical value.
As indicated by Ooms (2004), when a series is nonstationary; mean, variance, covariance, correlation and partial
correlation lose their meaning, important identification and estimation methods do not work and standard
asymptotic results for statistical inference do not apply.
The current study, hence has a motive to seek ways of dealing with nonstationarity before drawing policy
conclusions. To stationarise the non-stationary variables, the study employed the differencing method. Granger
and Newbold (1974) present strong evidence that regressions involving random walks are spurious when
performed on the levels, but not on the differences. Using theSchwert criterion, the maximum lag for a stationary
series is 6 for all variables. The differencing method has been used to stationarise the non-stationary first-level
data. Results are displayed in Table 4 below;
Table 4 : ADF Test results (after first differencing)
Level ADF Statistic Critical Values Interpretation
DFDI -3.138** @1% = -3.750 Stationary, I(1)
DEC -7.220*** @5% = -3.000 Stationary, I(1)
DSB -1.026; -2.015; . @10% = -2.630 Not Stationary
DGE -1.061; -2.188; -2.065 Not Stationary
DTAB -0.740; -0.409; -1.084 Not Stationary
DRI -0.7479; -0.932; -0.277 Not Stationary
Significant at: 1%***, 5%**, 10%*. D-shows the variable has been differenced.
Table 4 shows the results of the ADF test after differencing the non-stationary variables. Two variables
DFDI and DEC have become stationary after their first difference, hence they are said to be integrated of order 1
[I(1)]. Four variables SB, GE, TAB, RI failed to be stationary after first differencing, second differencing, third
differencing as shown by the statistics, hence the series are non-stationary. The study also has to avoid over-
differencing in an effort to stationarise the data. With continued differencing there is greater loss of degrees of
freedom and hence study results will not be strong for policy recommendations.
The study adopted the trend-stationary process (TSP) to generate stationary variables. The TSP method
eliminates the trend, and it is another detrending method just like the differencing approach, but with different
approach. Using TSP approach enables the variable to be stationary around the deterministic trend t and the
variable can be transformed to stationarity by regressing it on time. TSP equation is shown below;
X t = + t + ( L) t (3)
Where the coefficients of (L ) are absolute summable. According to the TSP approach, to attain
stationarity, the appropriate treatment is to subtract t from X t to produce a stationary representation.

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 Nexus Between Doing Business Indicators and Foreign Direct Investment for Zimbabwe: A Time Series Analysis

Using the TSP approach, the values are show in the table below;

Table 5: TSP Approach: Results of Crucial Parameters

Variable
SB 1.564058 .0186246
GE 1.55555 .0306008
TAB 1.122462 .0564919
RI -1.744374 .3917796

Table above shows the critical statistics according to the TSP method. The statistics were used to generate
a new series of variables that are stationary. The study, again used the ADF test statistics to check on the
stationarity levels on the new series and the results are shown below;
Table 6: Stationarity Test using ADF Statistics for TSP De-Trended Variables
Variable ADF Statistics Critical Value Conclusion
TSB -2.742* @1% = -3.750 Stationary
TGE -2.952* @5% = -3.000 Stationary
TTAB -3.407** @10% = -2.630 Stationary
TRI -4.786*** Stationary
Significant at: 1%***, 5%**, 10%*. T-shows that the variable has been detrended for stationarity.
Table 6 above shows the ADF test statistics for the new series of variables. The results indicate that all
the variables are stationary though at different levels of significance. The transformed variables are all integrated
of order 1, I(1). The results shows the strength of the TSP approach in eliminating the trend effect.
The study therefore used the stationary data in its analysis. Working with stationary series will improve
efficiency and reliability of regression results. The summary statistics for stationary variables are shown below;
. su m d fd i d c p rp pt d e c ts b t ge tt a b tr i

V ar ia b le Obs M ea n S td . D ev . Mi n Max

d f di 7 .1 28 2 69 8 . 17 18 7 69 -. 11 1 95 5 . 3 67 86 4 6
d cp 8 1. 51 3 41 1 . 11 61 7 33 1. 42 5 96 9 1 . 74 28 9 5
rp 8 1. 80 6 21 2 . 03 25 6 54 1 .7 3 00 4 1 . 82 60 1 8
pt 8 1. 75 4 20 9 . 05 75 9 19 1. 61 4 49 4 1 . 78 14 7 5
d ec 7 - .0 29 5 93 1 . 07 05 1 64 - .1 82 0 81 8 . 0 22 80 3 9

t sb 8 1. 56 4 05 8 . 01 93 0 08 1. 54 3 17 1 1 . 59 86 0 8
t ge 8 1 .5 5 55 5 . 02 64 3 88 1. 52 2 66 5 1 . 60 35 3 1
t t ab 8 1. 12 2 46 2 . 13 68 6 48 .8 92 3 09 9 1 . 37 30 1 4
t ri 8 - 1. 74 4 37 4 . 76 01 0 45 - 3. 20 3 71 7 -. 5 36 52 4 5

The variable TRI has greater variability as indicated by a standard deviation of 0.7601045, while TSB
has the smallest variability of 0.0193008. In summary, the variables including the dependent variable have
variability that is almost of the same margin. The range as defined by the gap between maximum values and
minimum values is very manageable, and it explains low variability among variables, hence the study has no
outliers. Such distribution of data, with no outliers, ensures strong and reliable study results.
The study checked on multicollinearity among the explanatory variables using the correlation matrix.
Including highly correlated variables in a single regression equation will yield biased results.
d cp rp pt dec t sb t ge t ta b tri

d cp 1 .0 0 00
rp -0 .0 3 76 1 .0 0 00
pt -0 .2 8 50 0 .9 3 67 1. 0 00 0
d ec -0 .3 3 85 - 0 .0 3 69 0. 2 79 5 1 . 00 0 0
t sb 0 .0 3 81 0 .4 5 96 0. 5 30 7 0 . 44 0 6 1 . 00 00
t ge -0 .0 6 02 0 .4 1 29 0. 5 04 1 0 . 45 1 6 0 . 98 37 1 .0 0 00
t t ab 0 .0 4 26 0 .1 1 79 0. 0 56 0 -0 . 27 2 9 -0 . 19 51 - 0 .2 7 88 1. 0 00 0
t ri 0 .5 2 88 0 .2 6 87 0. 1 96 5 0 . 09 4 7 -0 . 14 91 - 0 .1 9 27 - 0. 1 49 1 1. 00 0 0

The rule of thumb is to avoid variables with correlation of more than 0.8. The study has dropped highly
correlated variables. The study dropped 2 variables (TSB and RP), that have been found to be highly correlated
with other variables. The rest of the analysis, will be done using 6 explanatory variables (DCP, PT, DEC, TGE,
TTAB and TRI).
Using Stata Statistical package, an Ordinary Least Squares Regression Model was run for FDI against
the 6 explanatory variables. To improve efficiency of regression results (General to Specific model), the study
dropped the most insignificant variable TRI (p value 0.919) from the regression equation.

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 Nexus Between Doing Business Indicators and Foreign Direct Investment for Zimbabwe: A Time Series Analysis

The final OLS regression results are shown below;

. r eg re s s d fd i d cp pt de c t ge tt a b

S o ur c e SS df MS N u mb e r o f ob s = 7
F( 5, 1) = 13 7 4. 71
M od e l .1 7 72 2 41 53 5 . 03 5 44 4 83 1 P r ob > F = 0 . 02 05
R es i du a l .0 0 00 2 57 83 1 . 00 0 02 5 78 3 R - sq u ar e d = 0 . 99 99
A d j R -s q ua re d = 0 . 99 91
T ot a l .1 7 72 4 99 36 6 . 02 9 54 1 65 6 R o ot MS E = . 0 05 08

df d i C o ef . S t d. Er r. t P >| t | [ 9 5% Co nf . I n te r va l]

dcp . 3 43 3 97 6 . 0 10 5 22 4 3 2. 6 4 0 .0 2 0 . 2 09 6 98 3 . 47 7 09 69
pt -4 . 03 7 93 6 . 20 2 09 4 - 1 9. 9 8 0 .0 3 2 -6 . 60 5 78 5 - 1 .4 7 00 88
dec -1 . 27 4 60 8 . 0 34 5 76 5 - 3 6. 8 6 0 .0 1 7 -1 . 71 3 94 4 - . 83 5 27 18
tge -2 . 05 3 25 6 . 0 99 5 77 1 - 2 0. 6 2 0 .0 3 1 -3 . 31 8 50 3 - . 78 8 00 85
tt a b -. 1 03 1 69 1 . 0 26 2 07 6 - 3. 9 4 0 .1 5 8 -. 4 36 1 67 9 . 22 9 82 97
_ co n s 1 0 .0 0 35 3 . 3 16 9 89 5 3 1. 5 6 0 .0 2 0 5. 9 75 8 1 4. 0 31 27

The regression model has been confirmed being correctly specified by the significance of the F-statistic
(F=1374,0.0205). The adjusted R-squared is 0.999 implying that about 99.99% variation in FDI is explained by
the 5 explanatory variables (However, for small samples, the result cannot be relied upon. There are many studies
debating on the issue of sample size.).
The resulting fitted econometric model for the data is;
LogFDI = 10.0035 + 0.3433LogDCP 4.0379 LogPT 1.2746 LogEC 2.0533LogGE (3)
se (0.317) (0.011) (0.202) (0.035) (0.0996)
p value 0.020 * * 0.020 * * 0.032 * * 0.017 * * 0.031 * *

The final regression results show that four variables have been found to significantly impact on FDI flows in
Zimbabwe. The four variables are significant at 5% level; DCP has a positive impact, while PT,EC, and GE has
negative significant impact. The regression equation constant coefficient ( 0 ) has a positive value (10.0035) and
is also significant at 5% level, indicating that there is a minimum level of FDI inflows in the country that are not
affected by movement in other explanatory variables.

V. DISCUSSIONS AND CONCLUSION

The major underpinning goal of the research was to see how Zimbabwe performed on Doing Business
Indicators and the subsequent effects on FDI inflows over the period under study. This in turn gives pointers to
policymakers as how to fine tune the local conditions, institutions , business culture etc. This will allow for both
local and foreign investors to warm up to conditions resulting in huge investments in the economy. Time series
was a befitting approach in that it allows a time study to fully capture the dynamics of the performance of the
indicators through time.
DCP has a positive coefficient implying that policymakers should strive to improve dealing with construction
permits as this has a positive impact on FDI flows. For instance there is need for having active and fully functional
online platforms to allow ease of procedures for sectors such as construction. This enables construction permits
to be easier to handle. Fees also in the sector should be affordable and procedures standardised and fully revised
to remove possible challenges. Countries such as Rwanda, Vietnam have made strides in making fees affordable
to players in the sector.9
EC has a negative impact on FDI inflows.This has the strongest level of significance of 0.017. As alluded
earlier in preceeding discussions, there is need for speeding up of establishing a commercial court in Zimbabwe.
This enables enforcing of contracts to be done with ease. Commercial court procedures such as filing a case, trial
and enforcement can be done within reasonable time lines. Disputes involving properties, bank transactions can
be resolved amicably fast.
GE has a negative significant impact on FDI. Thus inorder to improve FDI, there has to be a strong need to
improve cost and availability of crucial utilities such as electricity. For smooth flow of business, investors requires
constant supply of energy required for production at an affordable cost. Zimbabwean for the past years have been
facing powercuts due to various political, social and economic challenges facing energy supplying institutions.
This might have caused a drop in the investment quest by foreign investors, thereby opting to withdraw
investments in Zimbabwe, and new potential investors opting for other neighbouring countries.

9
See Doing Business Report 2011

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 Nexus Between Doing Business Indicators and Foreign Direct Investment for Zimbabwe: A Time Series Analysis

The indicator PT has been found to have a significant negative impact on FDI inflows. Paying taxes in terms
of the procedures etc should as well be improved so as to increase FDI inflows. A good tax system should be in
place, where attributes like fairness across similar units is applied, and this ensures uniformity. Regional likeness
should be enforced so as to remain competitive and this applies to withholding tax systems in place apart from
other tax systems. Tax incentives and tax holidays do play crucial roles in the road to compliance. Efforts by
government such as the One Stop Shop are commendable in improving ease of doing business and should be
complimented as well by attending to areas reflected by the study.
For future study,we recommend also that analysis be narrowed for instance to capture dynamics in specific sectors
of the economy. Critical studies can as well be done on sectors such as mining,construction, agriculture,
manufacturing etc. to assess ease of doing business. These have a potential to transform the economy.Also further
studies can be done to using a longer data span( e.g including the pre dollarization period also) to see what effect
this will have on the significance of the results. A different set of measures such as Rankings of economies can
be used to assess too how the country has performed on doing business.
The research has shown that significant FDI variation is explained by DBI indicators. However these
measures only focus on variables which can be quantified ignoring those factors that are qualitative e.g stability,
competition etc.These nevertheless affect FDI inflows for the economy. On the other hand a factor such as
corruption is not captured by DBI yet it has become endemic to the economy of Zimbabwe, just like it is for most
developing economies.Conclusively, more could be done by Zimbabwe to improve FDI inflows using DBI as
instrument variables as reflected by the study.

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