Chinese traditional dancers wait for their turn to entertain guests at the Luanshya Copper Mines during the production resumption ceremony. Copperbelt, Zambia

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.

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36 COMMENTS

  1. A quick glance tells me there are more pros than cons. Anyhow, the Zambian government should also direct foreign investors not to engage themselves in poltical debates as the Chinese Ambassador recently did: it is unheard of for a Zambian envoy in China to call the any politicians there “a strange and rare breed.”

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  2. Henry’s terminology today is off the hook…ati “Foreign investment can bolster a country’s efforts to uplift a good segment of its poor people from squalor.”

    …sounds like a philosopher’s thesis.

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  3. One major issue hampering FDI in Zambia is “no rule of law”. MMD political cadres are allowed to dis-respect the law with impunity, e.g., recently MMD cadres under the direction of William Banda have been allowed to invade land in Ibex Hill belonging to an Indian investor because “they are Zambians,” as William Banda told them. This kind of lawlessness will not attract any investment whether from China or eleswhere. Rupiah Banda should show strong leadership, control his cadres and among other things, reduce the number of “Bandas” in the party and government!

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  4. It’s folly for any academic to only present one side of the arguement, no matter what his personal views are, i can hope Kyambalesa’s article was edited by the LT- otherwise that’s poor on him.

    Having said that i support investment irregardless of its source the onus is on us (and not the investor) to ensure compliance- something apparently difficult to grasp by most Zambians.

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  5. It’s folly for any academic to only present one side of the arguement, no matter what his personal views are, i have strong feeling Kyambalesa’s article must have been edited by the LT- otherwise it reflects poorly on him.

    Having said that i support investment irregardless of its source the onus is on us (and not the investor) to ensure compliance- something apparently difficult to grasp by most Zambians.

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  6. I agree with no.2 – the article is too academic for any pratical use. Perhaps because the author is an academician. What Zambia needs to attract more FDI is: 1) rule of law; 2) new improved local government system with mayor elected ‘at large’; 3) robust tax system, which also targets the informal sector; 4) new electrol law with reduced number of MPs; 5) one-stop ZDA, with reduced number of “licencing” requirements; 6) more funding to DBZ for ordinary Zambians to get loans with clear re-payment mechanism but less demand for collateral; 7) tax/loan/institutional incentives for Zambians in diaspora to start businesses back home; 8) new land policy; 9) commercialised and self-financing higher education; and 10) respect for independent judiciary.

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  7. I would like to know what Chishimba Kambwili feels are the advantages of Chinese investment in Zambia.

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  8. The biggest problems I have with FDI is:

    1) It gives the government an excuse not to actually govern. They ‘let the market take care of it’, so there actually isn’t a national development plan, an economic development plan, etc. Other than the MDG’s from the UN, which are garbage (‘Vision 2030’ – let them have a Vision 2010 first).

    2) Corruption. Just as we are seeing with the mines, there is no benefit to the country, just to the foreign corporation and the politicians who take their bribes.

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  9. He didnt have to write that, even if i am not an economist or academic, i already know that.
    Grade 12 writing.

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    • God, please bless this beftaiuul child and help make her better. Please stay with the family and help them through this difficult time.Baby Ava, Our prayers are with you. There is not a day that you don’t cross my mind so stay strong baby girl we are all pulling for you.

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  10. so where are the ‘cons’. FDI has no disadvantages as rightly put by kyamablesa. he could have just tittled his cut-and-paste article as ‘Advantages of foreghn investment’

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  11. Compare the pro’s and con’s you had with the other investors or colonialists to put it correctly. Zambians just love to moan and complain regardless of who the investor is , If the chinese left and the west became the main investors the same complainers wouldn’t stop. In africa you don’t get the investor you deserve you get the investor you best negotiate with, if that investor outsmarts you in negotiations to put you in a bad position . Then you only have yourself to blame

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  12. As Zambians at times we complain way too much. Strengthen labour and civil laws, get of your toushies like your sits hot and work. Laziness is never addressed like if I had a company back home I would not have to deal with that. Hello!

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  13. typo: like your seats hot

    this smells like a conspiracy theory waiting to happen, 1984 would be suited for that. I know he probably has something on the crazy Nigerian that burnt himself.

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  14. #14 Mwanawakwitu
    Another cover-up. And the dumb downed public will buy it.
    The US government wasn’t only complicit, they planned and staged the whole charade.
    Happy New Year.

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  15. Happy new year indeed it all smells of wet paint. Coverup I would agree indeed. they more inroads China makes the more Africa is mentioned. 1984 I was tellng an Indian friend that the reason the west is building up the Indian hype is because of the awakening of the Fabled Chinese dragon. Africa As usual cannot see this thus our Kngdoms of old from Egypt, Timbuktu, Cushin ethiopia and Zimbazamabwe fell. Imagine this those were more advanced than Shaka but were only scratched in history class. We as people have God given power but we tread it in for riches. Happy newyear once more to all.

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  16. Here is a little math. Population:

    Zambia: 12 million
    China: 1,300 million

    What do you think is going to happen when their major rivers dry up, or they have a famine? Do you think they would have any compunction in sending 100 million of their population in the direction of Zambia? The reason there are still African people in Zambia and Zimbabwe is because the British never had the population numbers to replace the African people, the way they replaced the Native Americans and Aborigines. The Chinese do.

    And now they are starting to own larger and larger pieces of Zambia. In other words, they have an excuse to send the Chinese army to defend their ‘national interest’.

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  17. Henry,you are spot on when you say that Zambia is competing with wealth nations for FDI ,this is true of countries like Australia which publically acknowledges China’s demands for it’s resources as the driving force in their economy which is flourishing even with GMD.If a country like Australia can appreciate China like that ,who is Micheal Chilufya Sata to start insulting the Chinese investments in Zambia?LT send Henry’s article to Sata so that he can have some bit of insight on some of these issues before he goes on bubbling with lies.

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  18. The Lusakan Gigolo at #5 and Kamchose at #11 … the article has addressed both pros and cons. The “cons” are presented under “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: …. You just needed to read the article more carefully before making a comment. Happy New Year!

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  19. This article was poorly researched. The man just cut and paste from 1st year macro economics text books. The article was supposed to be localised to Chinese FDI in Zambia. The pros and cons are very generic. He could have talked about the lax safety considerations or poor pay for example

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  20. China today gives the United States of America $3 billionA DAY!!!! everythung in stores like Walmart(largest employer in the world) comes from China,then you punny Zambians are complaining about Chinese investment?!!! WTFU vima Zambians you complain and have no solutions,just go to our peasant little lives,simpletons and let the big boys show you how it is done..while we were talking about vinkubala and visashi the world went to the moon and came back..Zambia is pathetic….

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  21. KABOVA,

    Nobody ‘gives’ anything to anyone. Certainly not billions of dollars a day. Because of their policy of getting into debt to China, the USA is now almost completely dependent on China. China could destroy the US currency, the way the US destroyed the Zimbabwean currency through financial sanctions. Only with worldwide implications. If they chose to do it, they could make the US dollar worthless overnight.

    So no one is ‘giving’ anything to anyone. The whole ideology of ‘free trade’ is shortsighted and absurd. The idea was that they could create a global economy with massive transnational corporations calling the shots, and make nation states (and democracy) irrelevant. To an extent they succeeded, but they have destroyed the global economy in the process.

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  22. This is a one sided argument by Henry Kyambalesa and as such it is disappointing! Academic writing requires presentation of both sides.

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  23. We speeak very good things from the books and this chap would have been given good marks. Un doubtedly this Chap may have MBA. The case for Zambia is a sad one. The way the Investments are implemented matter most than the Investment its self. Imagine we have KCM exporting Copper Anodes to its sister Company in India to do refinery works. At what price are these anodes expoted? They can exported at the loss for years with our Books and good english were do we stand. were is Micro or macro terminologies.

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  24. The theoretical basis of the article is sound. The article would be better served by having actual statistics to weigh the arguments against, specifically for the Zambian experience from the Chiluba administration to the current one. In so doing, we could better assess the impact of FDI on the nation from all the angles alluded to in the article.

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  25. well written article.. although it is more of a general analysis on the effects of FDI than any specific treatise on Chinese investment in Zambia. Otherwise, it is a good read for someone interested in the economics of investment and trade.
    good job LT.

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  26. #21 Splaka … I just did a google on Henry and found that one of his published books is entitled International Business: Social Demands, Challenges and Imperatives (Fremont, California: Jain Publishing Company, 2004). He must have used material in his book to prepare the article above. The theory is okay, though, except the treatment relating to the Zambian context is weak.

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  27. Im so glad i found you guys. Its so great you started a chess club here in Greenpoint.Count me in!Please put me on the malinig list.I am there.See you tues. Looking frward .BestMike

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  30. Which ever way one looks at it, FDI is needed. What is reqiured are effective policies which will create a win-win situation bewteen zambia nad the owners of FDI.

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