Saturday, June 15, 2024

Part I: Attracting Foreign Investment into Africa may not come from the Sweet Stories we tell Foreigners

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By Edward Chisanga

I attended an Investment Forum in Utopia last week where Utopian countries had a rare opportunity to speak their minds out to foreigners who had attended in large numbers together with their Heads of State. The Master of ceremony began by introducing the private sector from rich countries present from France, UK, USA, Germany, Netherlands, and others from the EU membership before turning to the Utopian Heads of State and their groups.

What Foreign Investors Heard

Then he called upon one Utopian Head of State to speak on behalf of all the fifty-five African countries in attendance to list compelling factors that would captivate foreign investors from rich countries to go and invest in Africa.

The President began, “Africa is a huge piece of land, most of which is underutilized. All the countries that I represent here boast of huge land available for you investors. Come and invest in Africa, the continent of the future.” Then the President turned to one of the Presidents in his group and allowed him to speak about his country’s promotion of investment.

“Zambia has one of the most open trade environments in Africa and is a member of the Southern Africa Development Community (SADC) and the Common Markets for Eastern and Southern Africa (COMESA). Businesses in Zambia benefit from one of the lowest profit taxes in the region. Increasing regional cooperation through multilateral organisations, including SADC and the African Union should continue to reduce the likelihood of interstate conflict.” Then he highlighted ‘Some of the government incentives to FDI as:

  1. Dividends paid out on farming profits are exempt for the first five years of activity.
  2. Initial allowance of 10% on capital expenditure incurred on the construction or improvement of an industrial building is deductible.
  3. Foreign exchange losses of a capital nature incurred on borrowings used for the building and construction of an industrial or commercial building are tax deductible.
  4. Income earned by companies in the first year of listing on the Lusaka stock exchange qualifies for a 2% discount on the applicable company tax rate in the particular sector. However, companies with more than 1/3 of their shareholding in the hands of Zambians qualify for a 7% discount.
  5. Implements, machinery and plant used for farming, manufacturing or tourism qualify for wear and tear allowance of 50% of the cost per year in the first two years of activity.

He continued, “Investors who invest at least USD250,000 in any sector or product not provided for as a priority sector or product, is entitled to non-fiscal incentives such as investment guarantees and protection against state nationalization and protection against non-commercial risks (Zambia is a signatory of Multilateral Investment Guarantee Agency).”

Then the moderating African President turned to South Africa’s President and gave him the floor. President Cyril Ramaphosa was quick and went straight to the point by referring his audience to his weekly newsletter output, ‘From the Desk of the President,’ and repeated the points he recently made in the United Kingdom, “Government has a bold vision to be a destination of choice for foreign direct investment and this requires far-reaching reforms. These include reducing the cost of doing business for both large and small businesses, improving the quality of South Africa’s institutions, enhancing administrative efficiency and governance systems.”

When the turn of the Ethiopian Prime Minister came, he repeated what he had said at the 2019 Davos Meeting in Switzerland, “Investment in infrastructure has contributed a lot to the growth and attracted FDI, making Ethiopia one of the leading FDI destinations in Africa.”

Based on what the three African countries presented as their selling points to attract FDI, the President speaking on behalf of Africa retorted, “The three African countries that have just spoken present a strong representative basis for me to conclude that Africa is ripe and ready for FDI. “You have heard yourselves from the horses’ mouths,” He proudly said. “There’re similar incentives in Rwanda, Benin, Lesotho, Burkina Faso and all other countries. It’s time for you to come and invest in Africa.”

What Foreign Investors do not hear.

Despite the repeated sweet stories coming from African leaders, there’re equally important things that Foreign Investor don’t hear but that they are aware of.
About Zambia, an UNCTAD Investment Report reports, “Zambia’s infrastructure, whose poor quality is a barrier to investment, should be strengthened by investments in the road network, railways and the construction of power plants. In 2021, a USD 11 billion standard gauge railway project was announced in Zambia, involving US capital, which would expand essential transport links with the outside world. The regulatory environment does not favour entrepreneurial activity, the requirements for commercial licenses being long and costly, and the application of regulations not being uniform. In addition, the protection of property rights and the enforcement of contracts are still weak by international standards.”

As the author of this article is a Zambian living in Zambia, he is aware of the challenges coming the country’s energy sector. We have loadshedding in Zambia which Foreign Investors are aware of. They’re aware that the Mining sector, the country’s brain earner depends on use of energy, yet it is not exempted from malady of shortages. Equally, they know how much Zambia’s private sector suffers from energy shortage and its effect on business.

In South Africa, despite sweet stories, except only in 2021inward FDI flows have been declining significantly since 2010 as Figure 1 below shows. Even if this dwindling trend were to be attributed to other factors, the deteriorating energy situation in South Africa is playing a multiplier effect on FDI and the overall economy. Yet, South Africa like other African countries’ Heads of State turn a blind eye on the matter. As for many other things going unwell, they simply don’t tell the truth about the energy crisis.

In Ethiopia, Laments Omer Redi, “The crisis in the power supply has reached such a critical point that blackouts now occur every other day.” Fortune adds, “It is obvious that Ethiopia is now in such a serious power crisis that it has been forced to introduce load shedding.” There are other voices no longer silent. Said Kevin Daly of London based investment company, “Ethiopia is uninventable now. The political situation is very tenuous, and there is a lack of information and clarity on the economy, and on how things are going to be resolved.”

Concluding

Policy coherence is defined by the OECD as, “The systematic promotion of mutually reinforcing policy actions across government departments and agencies creating synergies towards achieving the agreed objectives.” The wonderful incentive packages must be complemented with other key inputs to build a whole.

For example, just as a motor vehicle cannot move smoothly if one key part falls off, you cannot attract adequate FDI with a list of incentives only when the energy sector, upon which industry depends is in crisis. Fix energy, infrastructure, human skills, corruption, rule of law, security, etc to arrive at a complete package of what attracts FDI. FDI goes to Asia because there’s no infrastructure, human capital, or energy crisis.

All these are well built. Asia also has bigger land than Africa. We cannot keep on using obsolete factors that are abandoned by others to attract FDI. It’s like always saying, “Come to Zambia and see the Victoria Falls.” Foreign Tourists now go to beautiful cities without dust, simply to visit, feel safe and talk to honest and humble citizens with Asians largely qualifying in almost all these. Our cities, including Livingstone, are not ripe for serious tourism that builds wealth.

Foreign Investors or tourists are not our uncles on whose shoulders we will simply cry and await their positive response. They will not come simply because we are democratic and shout that Zambia is ready for business. They are not cajoled by sympathy or simply because Zambia’s leadership change occurs smoothly. They have not come since change from Kaunda to Chiluba or Chiluba to Banda or Banda to Sata which were all peaceful and democratic. We must understand what their needs are. If we don’t provide, they’ll go to Asia.

4 COMMENTS

  1. Very well written article Mr Chisenga, honesty with one’s self and introspection are always the best way to solving a problem.

    Of the 3 key areas you mentioned, bureaucracy, power shortages and bad road infrastructure, truelly our roads are a national disaster, and yes this is due to rampant mismanagement from not only PF but the MMD govt before them. A strong appeal to the President if he is reading this…please divert all CDF projects and push those funds to road development works by competent contractors, we are in a state of desperation and things cannot continue like this. If we can improve the roads the rate of development in this nation will greatly speed up as it is we do not have roads in Zambia.

    4
    1
    • Ctn…
      Bureaucracy is still a challenge, despite govts efforts to reduce this and we must ask why? Such red tape scares off foreign and local investors. Just look at a farmer who is frustrated to get an export permit to sale his maize or soya beans to a neighboring country. The process is very frustrating and requires you to travel to Lusaka, which small scale farmer from Luena is going to manage to go to Lusaka inorder to sale his produce across the border? If we continue like this we will not go anywhere in development, small achievements will be washed away in a sea of failure and unrealized potential due to continued underachievement that is sadly now becoming a generational curse.

      Let us work my fellow Zambians, let us work!

    • And once upon a time, i believe it was reported that some places are not worthy of good roads. And the reason being “those places luck development”. I believe this was said by Engineer Milupi if my memory doesn’t betray me. And now the question is, “How do we take development to those areas if the road infrastructure is bad or non existent ?”. correct me if i’m wrong please but seems like chicken and egg scenario. They enjoy a symbiotic relationship..!!

  2. ROADS: All major road/bridge projects were cancealled, by mid 2022. Proposed feeder or rural roads facelifts received a blind ear, affecting farmers.
    POWER: Electricity upgrade under LTDRP, a Zesco brain child, apart from a few areas (like Woodlands and Kanyama substations) are halted. Zambia is energy hungry currently at 2800MW with deficit of about 1000MW. Most enterprises have underperformed or folded due to loadshading.
    Without power, transport network and reduced officialdom paperwork, FDI will elusively remain a fantasy.

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