By Henry Kyambalesa
Of late, investments by Chinese corporations in Zambia seem to have become a topical issue among politicians and the general public. I have, therefore, found it necessary to make a contribution to the debate by citing some of the advantages and disadvantages of such investments to Zambia.
Foreign investment is generally regarded as an essential element in any given country’s quest for accelerated and protracted socio-economic development. It can bolster a country’s efforts to uplift a good segment of its poor people from squalor. Such investment may consist of “portfolio investments” (composed of investments in financial assets like bonds and stocks) and/or “foreign direct investments” in production facilities, real estate, inventories, and/or other non-financial assets.
Ordinarily, investments by Chinese companies take the form of foreign direct investment (FDI). Proponents of this form of investment usually cite the potential benefits of the multinational enterprise (MNE) to a host nation in discerning the necessity of such investment, since the MNE is generally regarded as the vector of FDI.
They claim that MNEs can:
(a) make it possible for a country to gain access to investment capital and advanced technology;
(b) contribute to the creation of employment opportunities;
(c) introduce a diversity of new products in a host country, thereby affording local consumers a greater assortment of products to choose from;
(d) make a contribution to the tax revenues of a host government;
(e) promote exports and, thereby, contribute to the generation of foreign exchange;
(f) boost competition in the host economy and, thus, prompt local businesses to seek greater efficiency in their operations;
(g) promote local businesses which supply inputs and/or render services needed by MNEs to support their operations;
(h) contribute to the development of technical and managerial talent in a host country.
For these and a host of other important reasons, the promotion of FDI has become one of the major components of the economic policy regimes of apparently all countries of the world today. In fact, even countries which already have strong economies (such as Sweden, Australia, and G-7 nations) and have historically relied mainly on local investment have generated ambitious policies designed to attract FDI. It is, therefore, important for us to be aware that our country is competing for FDI not only with developing countries but also with the more developed and affluent countries in the world.
The operations of MNEs are, of course, not without costs or disadvantages to a host country like Zambia; critics of such enterprises often claim that they can:
(a) contribute to the self-perpetuating dependence of a host country on foreign technology;
(b) cause dislocations in a host country’s balance of payments when they import raw materials, repatriate profits, and/or engage in transfer pricing;
(c) subject local businesses which do not have the necessary material and financial resources to compete effectively with them to unfair competition in industrial, consumer and labor markets;
(d) contribute to the degradation of the physical environment through air, water and solid-waste pollution;
(e) introduce foreign social values and/or consumption patterns that are likely to disrupt locally cherished moral and cultural practices.
For a country like Zambia, which has failed to break the bondage of the majority of its people to destitution, the potential benefits of Chinese and other foreign investments certainly outweigh the potential costs of such investments. In fact, the costs often associated with FDI and the MNE are normal effects of a live economy which Zambia could reduce to acceptable levels through regulatory and administrative mechanisms.
But Zambia should not expect such investments to flow into its economy like manna from heaven, because a great deal of effort is needed to lure foreign investors. It is, therefore, essential to create an enabling investment environment that provides for attractive tax incentives, adequate skilled labor, a network of business support services and institutions, well-developed infrastructure (including energy, water, telecommunications, and transport facilities), and protracted industrial harmony.
Besides, both local and foreign investors expect the Zambian government to provide for the following:
(a) adequate public services, including police and fire protection;
(b) adequate public facilities, including educational, vocational, recreational, sewage, and healthcare facilities;
(c) political and civic leaders who are fair and honest in their dealings with private businesses;
(d) stable economic policies, including a formal assurance against nationalization or expropriation of privately owned businesses;
(e) a well-developed stock market;
(f) less bureaucratic licensing, import, export, and other procedures;
(g) adequate information about investment and marketing problems and opportunities, such as that which is currently being provided by the Zambia Development Agency.
If they are adequately catered for, these services and facilities can boost investments by both local and foreign investors, as well as enable businesses to operate more efficiently and eventually deliver economic and social outputs to society at reasonable costs and prices.
The Zambian government should expect foreign investors to:
(a) cooperate with local institutions in improving community life, and participate in programs designed to benefit less-advantaged citizens;
(b) comply with stipulated laws and regulations;
(c) respect local people’s traditional and ethical values;
(d) refrain from engaging in unscrupulous business practices.