Policy Considerations For Climate Action

August 2019

BACKGROUND

Situated in the southern region of Africa, Zimbabwe is a small landlocked country fortunate enough (for the most part) to enjoy wonderful weather. Spared from recurrent natural disasters of a catastrophic scale(the likes of typhoons and destructive volcanic activity), Zimbabwe has stable weather patterns, with occasional el-nino and flooding. According to some local beliefs, bad weather has been linked to the bad temperaments of ancestral deities.?

Recently, Cyclone Idai made landfall in Mozambique and Zimbabwe, claiming over 1000 lives, and in the process over US$1 billion dollars’ worth of infrastructure, while one million acres of arable land part of which was cultivated, were lost. ?Given this potential for destruction by natural disasters such as Cyclone Idai, it is reasonable for government to look into the nexus between climate action and foreign direct investment (FDI) for a country such as Zimbabwe.

?This article is a follow on to a previous article in which climate change was highlighted as one of the major factors that could be the major causes of general slow-down in FDI in the world. For Zimbabwe, the conversation has become more pertinent in the wake of the devastating aftermath of cyclone Idai. The important nexus between climate action and FDI, has never been more relevant, as the country grapples with rebuilding a region on the one hand and the need to attract good quality FDI to rebuild, on the other. ?As the general economic situation looks bleak, FDI appears to be the key solution, not only to rebuild Chimanimani region, but also in improving real-time GDP for Zimbabwe.

The Correlation

Studies have shown that higher income can lower disaster loss, in term of numbers of affected people. It is also true, however that higher income leads to higher the amount of damage from natural disaster. The World Investment Report, 2019 highlighted climate action as a key issue in relation to global FDI trends.? The past few decades have witnessed a global increase in both FDI and natural disasters. Various authors?[1] postulate that an increase in natural disasters negatively affects FDI,and that the dollar value of losses incurred is negatively related to net inflows of FDI to a country.

According to a recent World Bank study, Zimbabwe is likely to continue experiencing major climate action which will therefore inevitably affects the economy and FDI to the country. To a certain degree, the institutional arrangements of a country can mitigate the negative effects of disasters. A 2007 research [2], showed that countries with higher income, higher educational attainment, greater openness, more complete financial systems and smaller government experience fewer losses. Escaleras [3], also found that public sector corruption tends to increase deaths from natural disasters.

Openness to Trade

While seemingly un-related on the face of it, a country’s levels of protectionism directly impacts its ability to respond to natural disasters. Ranked 155 out of 190 in the world on the World Bank’s ease of doing business scale [4], Zimbabwe’s government has now adopted the “open for business” policy to try and attract business and garner favourable investment deals in order to boost FDI. There is work yet to be done as marked legislative reforms which actually exhibit an openness to trade are yet to be implemented. The traditionally protectionist mode that Zimbabwe has been operating in, with regards to trade is still however evident in controlled imports. Foreign currency shortages, are also a key contributor in the circumstance, causing the protectionist trade defence mechanism to remain relevant.

“Greater openness serves as a proxy for the degree of competition and transferal of technological knowledge from abroad that reduces risk.”?[2]. This statement suggests that an openness to trade, leads to a knowledge transfer, including for better financial systems thus making it less risk to invest in that location.

Developed (complete) Financial Systems

Developed financial systems include inter-related services that allow for capital formulation, investment and profit earnings. The more complete a country’s financial system is, the more likely that investments will be made in that jurisdiction. Looking at the status quo of the financial system, Zimbabwe’s likelihood of attracting FDI is relatively low.

There is a general lack of confidence in the financial system, as so aptly described in this article from the Zimbabwe Independent. The contribution of a weak financial system in Zimbabwe may would be a disadvantage with regards to attracting the FDI, which is needed to rebuild Chimanimani region.

That having been said, however, the import of financial systems in bringing together crowd funding in aid of people affected by Cyclone Idai has been brought to the limelight as the local mobile money transfer system Ecocash was instrumental in that regard. Ecocash has in many ways revolutionized Zimbabwe’s financial payment systems to a more advanced stage, while exposing the failures, and rigidities of the country’s traditional financial systems and hence providing some form of financial inclusion to private individuals.

In a nutshell, for Zimbabwe, when assessed against the five factors highlighted as most influential to economic losses from natural disasters, results present as in the table below.

The Corruption Nexus

Zimbabwe and has 22 out if a possible 100 points on the corruption scale, and currently ranks poorly at 160 out of 175 countries on fighting corruption systems. For Zimbabwe, corruption really is the elephant on the room, as a restoration of confidence in the system hinges to a greater extent, on the new administration’s ability to be seen to be fighting corruption. The link between corruption, natural disasters and FDI is a delicate one which is rooted in the negative effects of corruption on resilience building and responsiveness in times of natural disasters.? Studies have shown that public sector corruption significantly contributes to the number of deaths caused by natural disasters. One study finds that the state, through negligent and deviant practices can directly and indirectly be culpable for the exacerbation of natural disasters?[5]. ?

A case study of Japan shows that the low levels of corruption, means that the Japanese buildings are able to withstand corruption as checks and balances have been put in place to ensure that the building industry standards are kept at a superior level. While the link between natural disasters and corruption is difficult to trace, the various researches have shown that the higher corruption is in a country, the more likely that natural disasters will be exacerbated as existing infrastructure is also likely to be of a lower quality and thus less resilient.

The other side of the corruption coin is that disaster relief circumstances have become a breeding ground for corruption.? In general, various examples exist where there are negative perceptions amongst citizens regarding the disaster management and government authorities in relation to corrupt practices.

Disaster Risk Management Policy Considerations

The Zimbabwean government has rightfully taken steps to strengthen its disaster risk management (DRM) [6]. Although the national budget does not allocate funds directly to DRM, the Department of Civil Protection’s budget covers preparedness and loss. The Civil Protection Act (chapter 10:06) provides for the establishment of a risk management fund [7]. The DRM fund consists of a minimum of 1% of the national budget appropriated by the parliament for the purpose of addressing DRM and contributions from SADC countries, UN Agencies and international relief and humanitarian organisations. ?

Civil protection legislation

The Civil Protection Act calls for the research and development of risk management services, research and training of personnel in risk management, risk assessment and hazard mapping, education and awareness raising of risk reduction, mitigation, preparedness and prevention activities [8]. Mavhura?[7] is of the opinion that despite the Civil Protection Act being put into place, DRM in Zimbabwe still falls short because of inactive community participation, unavailability of adequate resources to implement DRM measures and centralisation of power and resources.

Fiscal Decentralisation

While the legislation needs to be revised in order for it to be aligned with international best practice, there appears to be a more important link. That is, between fiscal decentralisation and the ability to withstand natural disasters. Another research by Escelaras [9] finds evidence to support the premise that greater fiscal decentralization improves the provision of local public goods and services and that relatively more decentralized countries fare better when natural disasters strike in terms of its effects on the population.

To give local context to this research finding on fiscal decentralization, a recent study by Musamadya?[10] revealed that the legal, political and economic environment prevailing in Zimbabwe is currently not conducive for fiscal decentralisation to effectively take place. ?This research even asserts that the functioning of local authorities can be enhanced by making sure that expenditure mandates match financial resources, to avoid the problem of unfunded mandates. Where local authorities are empowered to fund their own plans and projects, it follows that they would therefore fare better when natural disasters occur. As devolution is under implementation in Zimbabwe, it becomes pertinent to ensure that fiscal decentralization takes place, to the extent that may contribute to the reduction of losses caused by natural disasters.

?Zimbabwe’s National Climate Policy incorporates some factors of the Sendai Framework for Disaster Risk Reduction 2015-2030. The Sendai framework aims to mitigate new and reduce existing disaster risks by implementing integrated and inclusive structural, legal, economic, political, institutional and technological measures that prevent and reduce hazard exposure and increase preparedness for response and recovery. In order to reduce losses from natural disasters, in its budgeting considerations government needs to ensure that fiscal decentralization has been enabled. Key considerations for climate change budgeting should therefore include the fiscal decentralization aspects.

Overall policy consistency

In order for Zimbabwe to increase FDI, there is need to correct policy inconsistencies and to show its efforts and achievements towards the sustainable development goals so as to become more attractive to foreign investors. Policy consistency regarding the general regulatory framework for investments is necessary to ensure that the perceived risk factor of investing in Zimbabwe is lowered.

Conclusion

In conclusion, it is recommend that the governments’ legal and civil institutions push for policies that affect disaster management in a manner that highlights the need for FDI inflow. As it stands, the destruction left in the aftermath of Cyclone Idai calls for vast FDI injection to rebuild towns, and growth points. This is an opportunity for players in the real estate and infrastructure sector to get involved. However, their involvement needs to be within a framework that mitigates future risks of flooding, landslides and related disasters by?? showing awareness and preparedness for disaster management.