Why Zambia’s Mall Mania poses serious problems for the country’s development

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Arcades Shopping Mall in the centre of Lusaka is just one of many shopping centres springing up in Zambia
Arcades Shopping Mall in the centre of Lusaka is just one of many shopping centres springing up in Zambia

Zambia is experiencing mall mania, with millions of dollars in foreign capital pouring into retail property developments. What might this hyperconsumerism mean for the country’s long term development trajectory? Muna Ngenda discusses how unfiltered inflows of foreign investment can underdevelop emerging economies.

Zambia is a relatively small developing country (population of 16 million and GDP of $21 billion) in constant search?- like many others?- of foreign direct investment to boost its economy. Zambia, like most African governments, relies on a steady stream of investment roadshows, enormous tax incentives and heavy presidential involvement in multinational business affairs to attract foreign investment. This has produced some success, if measured purely numerically, in terms of the size of total FDI inflows in a given year. However, evidence has shown that this simple numeric evaluation criteria is inadequate, and that developing countries must pay attention to what type of investment they are attracting in order to actively manage their development trajectories.

Zambia provides a pertinent case in point, given the current boom in commercial property development for international retail. Shopping malls have blossomed around the country in the last decade, with construction picking up pace in the last two years. The capital, Lusaka, now boasts no less than seven major retail locations?— four within three miles of each other, and another three occupying the same road intersection. At least four more major developments are in progress in the city – one generating controversy for converting secondary school grounds to retail?use – and the trend extends to the Copperbelt and smaller regional hubs. Hundreds of millions of dollars, mainly from South African property developers and international investment funds, are pouring into the country. Despite the anticipated hundreds of retail jobs this pattern could afford, Zambia’s mall mania poses two serious problems for the country’s development.

The first is the import-heavy nature of retail. Zambian malls are anchored by large South African retailers stocking mainly South African products, and disproportionately populated by international fast food chains and boutique importers of luxury and consumer goods. Indigenous store occupancy and local product shelf space do exist, but are rare phenomena. This creates a persistent drag on the country’s balance of payments, foreign reserves and local investment (rather than externalisation) of profits. One-off inflows to this sector therefore create perpetual outflows from the local economy.

The second problem arising from retail-heavy investment is the relative neglect of manufacturing investment. Expansion of productive capability and increasing complexity of exports is critical to long term growth and increasing incomes. Focusing finance on retail properties does not serve this purpose, and limits long-term development prospects by crowding out more transformative uses of scarce capital. The financial sector in Zambia is unsuited to industrial and corporate expansion given prevailing commercial interest rates far above 30 per cent, and local capital markets are extremely small and static ?- the Lusaka Stock exchange has daily trades of around US$2,000, and a market capitalisation of US$60 million (London’s is US$16 billion, New York’s is US$19 trillion). This leaves three major sources of credit for large scale local production: local development banks, national pension funds, and international finance.

National development banks are?in Zambia’s case underfunded (total replenishments of US$20–30 million), with high collateral requirements and small (primarily <US$1m) loan denominations, historically lending more to construction than manufacturing (31 per cent vs 17 per cent of DBZ portfolio as of 2014).

Local institutional investors such as pensions funds represent the largest aggregation investment funds, but also prefer lucrative property developments to transformational expansion of productive capability: NAPSA, the state pension authority does hold some minority shares in local cement and steel interests, but tends to invest in office parks, residential developments and retail properties. As shown above, international finance is currently too focused on retail prospects to pay sufficient attention to investment in local production of goods.

The reason both local and foreign capital is so focused on property development is that it offers a relatively stable and lucrative return to institutional investors and hedge funds alike. In the abstract there may be nothing wrong with that, simply capital responding rationally to market information. Economic development, however, is a concrete rather than abstract pursuit, a particularly crucial one with which citizens of low-income countries have entrusted their governments.

It is therefore necessary that the incumbents to take a more active role in managing the type and not simply the amount of capital inflows to their economies, delineating priority sectors and capping duplicative, myopic investments and externalisation of profits.

African governments cannot simply roll out a litany of (often inconsequential, sometimes economically harmful) incentives and hope for market mechanisms to do the rest.
Thanks to short-termism, speculative tendencies, and the desire for ever higher returns to international investment, what transnational capital markets want and what developing countries need are not always the same thing. Active management of capital flows can provide the developmental thrust from FDI that the current wholesale approach lacks, and prevent the perverse outcomes that pure market mechanisms are prone to perpetuate. In Zambia’s case, there is already a glut of local investment in property development; foreign direct investment must now be redirected to more productive uses.

Muna Ngenda (@mngenda) is an MSc candidate in African Development at LSE, a 2016-17 Chevening Scholar, and an alumnus of the LSE Programme for African Leadership. His primary interests are the political economy of development in Africa, and the role of regional integration and trade policy in industrialisation.

22 COMMENTS

  1. Zambia’s mall mania is all about foreign goods while local retail is about running tuntemba.We’re slaves of foreign goods & expertise.

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  2. Well if after more than 50 years of Independence all we have to show for is tuntemba then let the experts build modern convenient malls. I just wished we could do the same for roads, schools and hospitals. I guess Malls are privately owned…just goes to show where the problem lie.

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    • Thats where the problem lies. Stop wishing and start acting. The malls will soon show how bankrupt of ideas Zambians are as they will be expecting solutions to come from outside of the country

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    • If you can’t build it yourself, let the people who specialise in these things do it for you. Even in developed nations such as UK, most major infrastructure is foreign owned. Westfield group is Australian owned. Gatwick airport is owned by a Nigerian so what’s our problem?

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  3. Dependence on imports is not problem that has been created by the influx of malls, even without malls, imported goods will still flood this country simply bcoz our manufacturing sector is dead! For me its even better to have malls that can employ local people and pay taxes to government.

    Secondly, most Zambians are complaining that there are too many malls in the country, but when you visit these malls, you’ll find no parking space and shops are crowded, especially chain stores and fast food centers. What does that mean to you as a development analyst?

    Lastly, your argument doesn’t offer a solution. What do you propose?

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    • Malls are only for PF looters to spend the money stolen from the Eurobonds and all the other kaloba they have borrowed in our name.

      The common man cannot afford the things they sell.

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  4. The only indigenous mall that we have is SIMOSON MALL. Visit SIMOSON if arcades makes you uncomfortable.

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  5. Mushrooming Malls are a sign that Zambians are falling develop their economy are slowly turning into a South African province. On the other hand, if SA can completely take over our economy then it can be good for us, although not in a long term.

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  6. But the arguement is whether our indigenous Simoson Mall stocks indigenous products or imported ones ?

    On this topic one could say that most consumer products though made in Zambia are not manufactured by true indigenous black Zambians. Trade Kings and those, though Zambian owned, are not black owned. I say so with respect to non-black Zambians, not demeaning them in any way.

    Lets concentrate on making something ourselves. Even if malls were forced to stock local produce, we have nothing to offer.

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  7. Malls were created when municipalities failed to control open air vending or homeless squatters. When established owners of retail shops were not protected from occupying vendors who did not pay taxes like shop owners it was time for private malls. It was the only way to control who came on the premises. It is all about failure to control law breakers for fear of losing votes. If you arrest the first and second lawbreaker they do not develop into a voter block. If you wait until there are 100 it is too late because they tend to become a voting block. It has happened the same way everywhere in the world including Asian countries. Now that the malls have been built it is up to Zambians to produce goods with equal or better quality to gain shelf space. Quality will always beat patriotism…

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  8. Zambia is now one of the middle income countries in Africa. There is still poverty levels that are still high (60% or more- more job creation especially for the you will help bridge the gap). A larger proportion of the working class and business owners are able to afford goods sold in the shopping malls. They have a disposable income even though there are no credit facilities available to a consumers. Consumer spending is part of an indicator for economic growth.

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  9. #OZ the article proposes solutions just read it carefully. Redirect fdi to priority needs especially manufacturing capacity which increases wealth inflowss through exports and import substitutions than allowing fdi go to retail properties that in return require imported goods resulting in wealth outflows. Does this make sense to you?

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    • Retail is also a possible market for local goods. Malls attract quality. When quality improves, possibility of export are higher. You don’t start an industry that exports from nowhere. You typically start small, grow, satisfy local market then export.

      I also don’t agree with “FDI directed at export”. How would it even work? Imagine, would you, a Zambian, go to Tanzania to put up a factory to export to Malawi? Some expectations are not even practical!

      Malls are a sort of market for quality products. Local manufacturers have a chance to sell there to be export ready!

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    • Retail is also a possible market for local goods. Malls attract quality. When quality improves, possibility of export are higher. You don’t start an industry that exports from nowhere. You typically start small, grow, satisfy local market then export.

      I also don’t agree with “FDI directed at export”. How would it even work? Imagine, would you, a Zambian, go to Tanzania to put up a factory to export to Malawi? Some expectations are not even practical!

      Malls are a sort of market for quality products. Local manufacturers have a chance to sell there to be export ready!

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  10. Do you prefer government stops the building ofmalls? Malls won’t go anywhere, that’s good investment by FDI because the results remain here. The build8ngs are cleaner than tuntemba etc. When a mall opens, usually it has anchor shops to draw customers but they all look for tenants. They don’t refuse Zambian retailers from setting up shop. They definitely don’t stop any Zambian competing with the South Africans.

    The author himself has all it takes to start his own chain store and build a mall. And yet he chooses to waste all his faculties in finding negatives out of a positive situation.

    Define Development. You will find MALLS tucked in there. You will fine real estate, roads, etc inbuilt. I don’t really know what the author wants to come out of development! What is development…

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  11. People do not forget that the also talked about a very pertinent issue concerning profit externalization by the so called investors.What is your take on that one.

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  12. I think the writer has missed a point. He picks one point and wraps all his argument on that point. FDI this and GDP that. For your information some farmers in RSA are relocating their operations to Zambia in order to supply these same thirst new Malls. In fact their operations have evolved to incorporate manufacturing. You see conducting animal husbandry sand what comes out of the farm is Yoghurt, Cheese etc , ham etc . Others farm sunflower but what comes from them is vegetable oil or salad, eggs , chickens etc . why cant we for example can Solwezi beans ? of late I ve seen a lot of Zambian peanut butter being stocked in these malls. The world including Africa is changing very fast.

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