Zimbabwe’s FDI conundrum: unpacking the role of sociopolitical factors and forecasting

Author

Manjoro Alex T.

Title

Zimbabwe’s FDI conundrum: unpacking the role of sociopolitical factors and forecasting

Abstract

Foreign Direct Investment stands as a pivotal force to propel growth in developing countries, therefore having a thorough understanding of its dynamics is of paramount importance. This study investigates the relationship that political stability and corruption has with FDI inflows in Zimbabwe and compares the predictive power of the ARIMA model and LSTM neural network. Utilizing a Vector Autoregressive (VAR) framework, the analysis incorporates different factors including inflation, GDP, Control of Corruption (COC), and the political stability index (PSI). The results reveal a short-run negative correlation between GDP and FDI, with GDP showing a positive influence on FDI in the long term. Political stability exhibits a positive influence on FDI in the long run, on the other hand control of corruption negatively impacts FDI inflows for both the short-term and long-term, supporting the "helping hand" hypothesis in a weak regulatory context. The study also finds that LSTM outperforms ARIMA in predicting FDI, accurately reflecting the volatile nature of FDI inflows. FDI inflows were forecasted using the LSTM from 2023 to 2026. These findings underscore the complex interplay between socio-political factors and FDI, providing critical insights for policymakers in Zimbabwe to enhance the investment climate. Constraints of the study included limited data availability and a short research duration. The study recommends a firmer grip on corruption by stakeholders, political tolerance and engagement of both ruling and opposition parties in the government to fostering a more conducive investment environment in Zimbabwe.

Date

June 2024

Publisher

BUSE

Keywords

FDI conundrum

Unpacking

Sociopolitical factors

Forecasting

Supervisor

Mr. B. Kusotera