Foreign Direct Investment into Africa: Is Zambia competing?

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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
Ranking Africa 60,678
1 Egypt 11,043
2 South Africa 9,210
3 Nigeria 8,539
4 Tunisia 7,615
5 Morocco 3,011
6 Liberia 2,732
7 Zambia 2,655
2016
Ranking Africa 836,553
1 South Africa 136,837
2 Egypt 102,324
3 Nigeria 94,184
4 Morocco 54,784
5 Angola 49,545
6 Mozambique 31,830
7 Ghana 29,882
8 Tunisia 29,305
9 Algeria 27,778
10 Congo 25,882
11 Sudan 25,467
12 DRC 21,187
13 Tanzania 19,818
14 Libya 19,730
15 Zambia 14,936

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
Ranking Africa 2,845
1 Nigeria 1,003
2 Egypt 734
3 Liberia 225
4 Zambia 203
2016
Ranking Africa 59,373
1 Angola 14,364
2 Egypt 8,107
3 Nigeria 4,449
4 Ghana 3,485
5 Ethiopia 3,196
6 Mozambique 3,093
7 Morocco 2,322
8 South Africa 2,270
9 Congo 2,006
10 Algeria 1,546
11 Tanzania 1,365
12 DRC 1,205
13 Sudan 1,064
14 Tunisia 958
15 Gabon 703
16 Chad 560
17 Uganda 541
18 Madagascar 541
19 Sierra Leone 516
20 Libya 493
21 Cote d’Ivoire 481
22 Zambia 469

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

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7 COMMENTS

  1. With a divided nation , its hard to move together as one……it seems retaining power and absolute rule is more important in some quarters than the unity of the country.

    Without beating around the Bush.. .all the divisions in the country are Mr lungus fault.
    He claims he won the elections, what was hard at proving to the doughters that he won ? Instead he would rather be called a theif and rule over a divided Zambia.. ..

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    • This is where you go wrong – instead of intelligibly contributing to a thought-provoking analysis, you are busy exuding dullness.

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

      Do we really need to ask WHY? The answer is staring us in the face, and is completely obvious to anyone with even a small brain.

      1. Corruption, and no transparency in Government accounting, specially for BORROWED MONEY!
      2. Stolen Elections and a corrupt ECZ
      3. Failure to respect the RULE OF LAW. Not hearing the PETITION !!!!
      4. Closing down newspapers, no Freedom of Speech, PF monopoly on control of the media.
      5. Massive abuse of public money for non-productive international travel by ……
      6. Jailing the opposition on trumped up charges to settle political scores and suppress the truth
      7. Police bias and abuse of the POA, and the State of Emergency..

      Are you surprised no one…

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  2. Providing the list is a good thing. However, the analytical understanding of causes and solutions is lacking. National economies typically belong to categories, including industrialization (South Africa); oil (Nigeria; Angola); minerals (DRC); agro (Cote d’Ivoire); mixed (Morocco). It is clear that Zambia is an economy in transition from minerals to mixed. In the mixed economy, industrial output plays a critical role. However, industry performs better when diversification includes a mix of agriculture, minerals, oil, gold, diamonds. The investment policy remains competitive in the country. Tourism is likely to play a critical role in the transition to mixed economy thanks to focus on Zambia Airways; Airports; Railway lines; highway roads; and hospitality providers, such as hotels,…

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  3. Sad that Zambia’s FDI is into extractive industries unlike Morocco and Ethiopia whose portfolio is into healthier manufacturing industries.

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  4. Foreign investors are also humans, so they’re not allergic to being dump. They’ve have little knowledge about Zambia making it easier for to follow countries with a trial of bloodshed or great corruption.

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  5. We can target more FDI by creating an environment that allows local small businesses to thrive and grow so that these upcoming firms attract mergers and acquisitions from foreign firms or business partnerships so that we have Zambian firms bringing in the FDI with less risk of a sudden pull out as is the case with foreign firms.

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