Zimbabwean economist brings glory to UCT

Zimbabwean economist Dr Farayi Gwenhamo‚ who is currently working at the International Monetary Fund in the United States‚ has landed a gold-plated medal‚ bringing the fourth such honour to the School of Economics in the Faculty of Commerce at the University of Cape Town.

Editorial Secretary Ms Titia Antonites said: "The Council of the Economic Society of South Africa is pleased to award the 2011 JJI Middleton medal for the best first article published in the South African Journal of Economics to Dr Gwenhamo‚Farayi for her paper entitled Foreign Direct Investment in Zimbabwe: The Role of Institutional and Macroeconomic Factors."

The prize is aimed at encouraging promising young economists to publish by selecting the best first paper over a twelve-month period of the journal. Dr Gwenhamo's research found that property rights‚ political instability and macroeconomic variables jointly affected the levels of Foreign Direct Investment (FDI) shares in Zimbabwe.

She wrote: "The main policy implication of the study is that the political elite should ensure that the institutional structure protects the property rights of the broad cross-section of the society so as to promote FDI. Another policy suggestion is that neither institutional reforms nor macroeconomic adjustment alone can effectively induce FDI. Rather‚ policy should be aimed at achieving macroeconomic‚ institutional and political stability to improve the attractiveness of the country to foreign investors.

"The purpose of our research is to examine the impact of property rights on foreign direct investment (FDI) in Zimbabwe for the period 1964-2005. While the macroeconomic determinants of FDI have been analysed to a considerable extent in past empirical work‚ the role of institutional factors such as the protection of property rights and the efficiency of the legal system has been underexplored. Using a multivariate cointegration framework‚ we use a newly constructed de jure property rights index for Zimbabwe to determine the impact of property rights on FDI. The empirical evidence shows that property rights are consistently an important explanatory variable of FDI in Zimbabwe‚ even after controlling for periods when there are no significant new foreign capital inflows. Other significant explanatory variables of FDI in Zimbabwe are the real gross domestic product (GDP)‚ capital intensity‚ the external debt to GDP ratio‚ political instability as well as the educational levels

"Most African countries face a shortage of funds to meet their investment needs. This is attributed to the low levels of private savings that these countries face. The United Nations Conference on Trade and Development (2000) estimated that in order to reach a sustainable economic growth rate of 6% per annum‚ the domestic investment rate levels in the sub-Saharan Africa (SSA) region have to increase to about 25% from the levels reached during the 1990s of less than 20%. Foreign capital inflows are therefore considered important for plugging the domestic resource gap in these countries.

"It is then often advised that developing and emerging economies should direct their efforts towards attracting foreign direct investment (FDI)‚ which is seen as an important vehicle of technical progress. By introducing advanced technology‚ management practices and improved production techniques‚ it is argued that FDI can improve productivity (Borensztein et al.‚ 1998). Furthermore‚ FDI is viewed as relatively stable during financial crises when compared with short-term foreign capital inflows (Prasad et al.‚ 2003). The growth-enhancing effects of FDI‚ however‚ depend on the absorptive capacity of the recipient country‚ which in turn depends on educational levels and the development of the financial markets‚ among other factors.

"Zimbabwe presents an interesting case to test the role of property rights in the determination of FDI. Post-1990‚ the Zimbabwean government undertook several changes to the legislation governing access to land and land resources. From the international investors' point of view‚ these legislative changes posed a serious threat to the institution of private property. In contrast‚ during an earlier period (between 1980 and 1990)‚ the government adopted a market-based land reform programme. This entailed the government purchasing land for purposes of resettlement from white commercial farmers and transnational companies at the market prices and on a willing-buyer‚ willing-seller basis."

Dr Gwenhamo's accolade creates a quintet of wins for the School as the following list testifies:

    2005 : Keswell√¢‚Ǩ≈° M. Non-linear earnings dynamics in post-apartheid South Africa. SAJE 72:5.
    2003 : Wittenberg√¢‚Ǩ≈° M. Job Search in South Africa: A nonparametric analysis. SAJE. 70:8.
    2000 : Edwards√¢‚Ǩ≈° L. An econometric evaluation of academic development programmes in Economics.SAJE 68:3.

The Dean of Commerce‚ Professor Don Ross noted: "Dr Gwenhamo's achievement follows those of several colleagues in the School of Economics‚ reminding us why the School is universally acknowledged as Africa's top site for economic research‚ with no close competitors. For both basic economic science and contributions to policy debates‚ this is the centre of African economics."