THE IMPACT OF FOREIGN DIRECT INVESMENT ON AGRICULTURAL GROWTH

IN ZIMBABWE
CHAPTER ONE

1.0 INTRODUCTION
Foreign direct investment (FDI) remains a significant key aspect of global development.
According to World Bank (2017), FDI benefits developing countries in transferring production
technology, skills, enhancing productivity, creating business for local firms, generating better-
paying jobs, and accessing international marketing networks. FDI is a source of capital and
potential lifeline for many developing countries especially in Africa where there are high poverty
levels, low savings culture and relatively weak or non-existing capital markets. The United
Nations Conference on Trade and Development (UNCTAD) (2018) further stated that FDI is a
vital source of private external finance for developing countries. It adds to investible resources
and capital formation. Moreso, in improving the host country's economy and productivity, FDI
enhances the private sector-led growth, thereby effectively fighting poverty as stated by the
Organisation of Economic Cooperation and Development (OECD), (2019). Meanwhile, the
increase in the productivity and the growth of the agriculture sector is critical for reducing
poverty and enhancing sustainability prospects of countries in the developing world according to
Msuya (2007). Many researches have tried to explain the existence of FDI considering the
motives for engaging in FDI but no theory accepted to explain the existence of FDI (Vintila,
2010). The present dominant theories of FDI were developed by Coase, Dunning, Hymer and
Vernon who believed that FDI is an important element for economic development in many
developing nations. The researcher will examine the theoretical review of the main theories why
firms engage in FDI. The theories are internalization advantages theory, monopolistic advantages
theory, and eclectic theory or OLI framework. The second part outlines the theoretical
framework and empirical review of the relationship between FDI and agricultural growth.

2.0 BACKGROUND OF STUDY

According to Maiyaki (2010), it was found that agriculture used to be the mainstay of
Zimbabwean economy more especially in the 1980s. However, the trend is reversed in the
current years due to political instability in the country. This development leads to extreme
decline in the Zimbabwean agricultural output to the extent that the country can no longer feed
itself. Agricultural productivity is remaining very low which is related to low levels of capital
spending which reduces the uptake of productive farm technologies and efficiency. The low
levels of production output for the past ten years has made Zimbabwe the net food importer in
the region and most of its population relying on food aid and emergence relief Saruchera etal
(2010).

Rukuni (2006) noted that agricultural growth was affected by various factors like land reform
program, control of producer and food prices and lack of security of tenure and other
macroeconomic dispensations which adversely affected investment in the agricultural sector. The
National budget also highlighted that the negative growth of the agricultural sector is mainly due
to liquidity problems from poor government spending, fiscal revenue underperformance and
capacity utilization, GoZ (2013; 2014). The GoZ (2020) and MoFED ( 2020c) further stated that
Zimbabwe’s economy experienced consecutive recessions in 2019 and 2020, with GDP
declining by 6 percent and 4.1 percent respectively. The economic downfall resulted from
declining performances in agriculture, energy, manufacturing, mining, and tourism, which were
aggravated by climate change and COVID-19. The country’s economy contracted by an
estimated 6.5 percent in 2019, weighed down by exogenous shocks such as the El-Nino induced
drought and the destruction caused by Cyclone Idai (ZimVAC, 2020b). On 24 February 2020,
the International Monetary Fund (IMF) stated that, prior to a sharp contraction in 2019 and
another poor crop harvest expected in 2020, economic growth in 2020, which had initially been
projected to increase to 3 percent (MoFED, 2020b), was now forecast at near zero, with food
shortages continuing (IMF, 2020). Thus, the pandemic hit the country whilst it was fighting other
serious problems which were hindering agricultural growth. There is no doubt that all those
factors deepened existing economic hardships thereby creating new poor and vulnerable people
in an already impoverished economy. To worsen the situation, the agricultural sector’s present
state of technologies, infrastructure and a poor research and development technologies and
limited access to borrowed capital are also affecting the sector.

In spite of the fact that Zimbabwe has good agro-ecological regions for agricultural activities,
good agricultural climate, high levels of skilled labour and vast opportunities for foreign
investment in value addition in the tobacco, cotton processing and agricultural infrastructure, the
real agricultural growth rate is still remaining low during the past decade (African Development
Bank Report, AfDB, 2011). The state’s agricultural sector is still suffering from growth deficit.

3.0 PURPOSE OF THE STUDY

The study seeks to investigate the impact of foreign direct investment on agricultural growth in
Zimbabwe.

4.0 STATEMENT OF THE PROBLEM

Zimbabwe had experienced serious economic hardships which were worsened by the COVID-19
pandemic, Cyclone Idai, a protracted drought and macroeconomic instability as stated by COAR
(2021). According to GoZ (2014), high levels of political instability, liquidity crunch, sectoral
targeting policies and a risky business environment reduced the barometer of investment inflows
during this period. The country has a lot of arable land, good weather conditions for agricultural
activities and backward linkages with other industries among its strengths. A lot of opportunities
exist in the sector especially value addition business of crops like tobacco and cotton which are
exported in raw form.

Despite having these strengths and opportunities and given the importance of the agricultural
sector in Zimbabwe, growth in the agricultural sector and its productivity still remaining low
despite the stability of some of its macroeconomic variables. Recent studies in many developing
countries established that there is a complementary relationship between FDI and agricultural
growth therefore it remains important to examine whether inflows of FDI also stimulate
agricultural growth in Zimbabwe since most macroeconomic variables are now stable.

5.0 OBJECTIVES
The study will be guided by the following research objectives:
 To examine the contribution of FDI to the agricultural sector in Zimbabwe.

 To analyze other macroeconomic variables which affect agricultural growth.

6.0 HYPOTHESIS

H0: FDI does not significantly affect agricultural growth in Zimbabwe.

H1: FDI significantly affect agricultural growth in Zimbabwe.

7.0 SIGNIFICANCE OF THE STUDY

The study will be used to examine the impact of FDI on agricultural growth in Zimbabwe. The
predictions will help in pursuing development pathway that is both progressive and sustainable.
It is expected that the findings of the study could shed more light on other policy-making
techniques to be adopted by the GoZ towards agricultural growth. It will also be of great
significance for developing better policies identifying gaps in existing policies and it will also
open new gaps for other researches. The study will also feed into the other evaluations that have
been done before in Zimbabwe to buttress and address agricultural growth. The study will make
it possible for different institutions such as the GoZ in providing them with better knowledge on
the link between FDI and agricultural growth in Zimbabwe. The research findings may help the
institutions to value agricultural growth. The researcher herself also widens the knowledge on
how FDI works in developing countries like Zimbabwe. Thus, the research lays foundation for
further investigations and tries to fill the gaps left by other scholars and students and bring out
clear impact of FDI on agricultural growth.

8.0 ORGANIZATION OF THE STUDY.

The research is structured into five chapters. Chapter two constitutes both theoretical and
empirical literature review. The researcher starts with the discussion about the theoretical review
why firms engage into FDI and also presents the empirical review on the relationship between
FDI and agricultural growth with insights from the literature closing the chapter. Chapter Three
constitutes the methodology to be used in the study. In this chapter, the researcher will indicate
the adopted model from the literature and justification of variables. The relevant tests carried out
will also be outlined in this chapter. Chapter Four presents the data presentation and analysis.
Chapter Five will outline the recommendations and conclusions drawn.