Zambia : Foreign Direct Investment into Africa: Is Zambia competing?

Despite divided opinions, foreign direct investment (FDI) coming into the country is an important indicator of economic development. That is why this author is passionately fond of the role of Mopani mining, and indeed other companies making economic contribution to the country. There are two types of inward FDI that we table in this paper.

Inward FDI stock

The first is inward FDI stock. FDI stock measures the total level of direct investment at a given point in time, in this case it is annually. Just to give you an idea, world inward FDI stock totaled $ 2.2 trillion in 1990; the USA $539.6 billion; Asia $339.7 billion; Africa $60.7 billion. Among African countries,Zambia ranked number 7 in inward FDI stock. In 2016, World FDI stock increased to unprecedented level of $26.7 trillion; USA $6.4 trillion; Asia $6.3 trillion (catching up with USA); Africa only $836.5 billion or 3 per cent of the world. Zambia’s FDI stock in 2016 was only $14.9 billion or 2 per cent of
total for Africa. The main news is that (i) the absolute value is too low in comparison with other African countries that are ahead of Zambia and (ii) that Zambia has lost competitiveness in the region, surrendering leadership to many other countries, which has caused the ranking to drop to number 15 from 7 in 1990 (Table 1). Obviously, most of the countries that are ahead of Zambia are rentier states like the country itself, investing largely in oil and mineral resources. But, they have overtaken Zambia.

In Africa’s total inward FDI stock of $ 836.5 billion in 2016, Zambia’s share was a minor 2%.

Table 1: Zambia’s Inward Foreign Direct Investment Stock in Africa in $ Millions

1990
RankingAfrica60,678
1Egypt11,043
2South Africa9,210
3Nigeria8,539
4Tunisia7,615
5Morocco3,011
6Liberia2,732
7Zambia2,655
2016
RankingAfrica836,553
1South Africa136,837
2Egypt102,324
3Nigeria94,184
4Morocco54,784
5Angola49,545
6Mozambique31,830
7Ghana29,882
8Tunisia29,305
9Algeria27,778
10Congo25,882
11Sudan25,467
12DRC21,187
13Tanzania19,818
14Libya19,730
15Zambia14,936

Source: Unctadstat

The share of Foreign Direct Investment Stock in the Economy has declined sharply

In terms of share of inward FDI stock in the economy, Figure 1 shows that between 1998-2001, the share reached over 100%, meaning almost economic activity was based on FDI. Since then, there has been a major slump in share down to about 65% in 2016. What happened?

Inward FDI flows

The second type is inward FDI flows or what is coming into the country every year. The first point is that Zambia is not attracting sufficient inward FDI flows. In the economy, the proportion of flows was only about 2.2 per cent in 2016, having eroded from 9.6 per cent in 1993 and recently in 2007 of 9.4 per cent. Why is this unhappiness trend taking place at the time when the country needs to increase the share of FDI in the economy? In 1990, Zambia ranked number four in Africa’s attraction of FDI flows but in 2016 the ranking lamentably dropped to number 22 (Table 2). What happened? In 2016,world inward FDI flows reached $1.7 trillion, Asia $442.6 billion, USA 391.0 billion and Zambia attracted only $469 million. It is in this context that we can only welcome the Government assurance that appeared in the Lusaka Times of Tuesday 12 September 2017 “Minister of Commerce Margaret Mwanakatwe says government will continue to undertake various reforms aimed at making Zambia an attractive investment destination” because, at least in comparative terms, the situation is not very good.

One of the reasons for the decline in inward FDI flows is obviously divestment. Reasons for divestment vary. But the advice any reasonable person can give to Zambia is that as countries are many competing for FDI, there are times when we must spend more time looking in the mirror to see where the problem is coming from. Some countries listed here with higher FDI flows are not mineral or fuel countries. They are simply smarter than we are. Often, it is humility and the way we manage investors that matters. It is one thing to say, “We have put this and that in place.” Bu quite another to deal with the nitty-gritty that make things work. Most times, it is not the things that you have put in place that matter most to foreign investors. It is how you manage them. Zambians may be owning the mines for example, but they don’t have the technological means to turn raw resources into exportable products.

In 2016, Africa’s inward FDI flows totaled $59 billion out of which Zambia accounted for only 1%.

Table 2: Zambia’s Inward Foreign Direct Investment Flows in $ Millions

1990
RankingAfrica2,845
1Nigeria1,003
2Egypt734
3Liberia225
4Zambia203
2016
RankingAfrica59,373
1Angola14,364
2Egypt8,107
3Nigeria4,449
4Ghana3,485
5Ethiopia3,196
6Mozambique3,093
7Morocco2,322
8South Africa2,270
9Congo2,006
10Algeria1,546
11Tanzania1,365
12DRC1,205
13Sudan1,064
14Tunisia958
15Gabon703
16Chad560
17Uganda541
18Madagascar541
19Sierra Leone516
20Libya493
21Cote d’Ivoire481
22Zambia469

Source: Unctadstat
In concluding, Zambia’s inward FDI position is very shaky and too low to support structural transformation leading to upgrading of exports. FDI needs to expand significantly and go into productive not only resource sectors, namely copper. When leaders make public statements about FDI, it is helpful if they are detailed and explain where it is going, what size it is, where it is coming from and the constraints associated to attracting it. Often, we only hear about the good environment that is put in place but which, according to reality is not correlating positively to expanded flows. It is
also always important to consider regional competitiveness in FDI.

As a reminder, Zambia needs FDI in order to develop. Therefore, well balanced policies and
partnerships with FDI owners especially those investing more like Mopani Mines and the
Government is key. You can boast and say you have put “the so-called everything in place” but adherence to signed contracts or predictability, trust and good language to investors are perhaps even more important. We can show off for what we want but own nothing if the “so-called our copper” sits without knowledge to develop it. Investors need stronger partnership with the very top, not threats.

By Economic.Governance

Source
Economy – LusakaTimes.com

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