• The fallacy that FDI is panacea to Zambia’s economic recovery and development
• How Multinationals bribe Host country Officials to maximize profits – Financial Times
• Job creation lies in focusing on local businesses – Economist Intelligence Unit (EIU)

By Mwansa Chalwe Snr
Foreign Direct Investment (FDI) is promoted by all countries in the world, as it is considered as an important contributor to development through job creation, foreign exchange earnings, tax revenue, technology and skills transfer, bringing in capital and the promotion of supply chain industries.
In Zambia’s experience for the last 32 years – that is since 1991 – however, the empirical evidence suggests that these benefits have not been realized. And the assertion that FDI may not benefit the host country, if it is not properly calibrated, is not lost on the International Monetary Fund (IMF).
“Both economic theory and recent empirical evidence suggest that FDI has a beneficial impact on developing host countries. But recent work also points to some potential risks: The potential risks do appear to make a case for taking a nuanced view of the likely effects of FDI. Policy recommendations for developing countries should focus on improving the investment climate for all kinds of capital, domestic as well as foreign”, The IMF’s Finance and Investment Magazine noted in one of its editions.

Zambia’s FDI is dominated by large mining investments from Canada, Australia, United Kingdom, Switzerland, USA and China. According to the World Bank, mining accounts for 12% of Zambia´s GDP and 70% of total export value, and it constitutes 62% of foreign direct investment. This analysis, therefore, takes the mines as representative of the other private foreign investors in terms of their impact on the economy. In 1990, Zambia had an estimated FDI of $2.655 billion. By 2017, the quantum of FDI had reached an estimated $16.973 billion which is an increase of 539 % or an average annual increase of 20% per year. Since then, the total FDI could be more than $25billion. But what is there to show for it? This article will focus on FDI contribution to job creation and tax revenue in Zambia.

EMPLOYMENT CREATION

One of the key expected benefits of FDI is job creation. In Zambia’s experience, FDI has not created sufficient jobs to make any impact on unemployment. This is due to the fact that mining technology has advanced in the 21st Century such that most of the tasks that were done by humans are now being done by machines. In addition, Mining houses have had no interest in supporting the development of backward and forward linkages through the mining supply chain. Mines have opted to import intermediate products from overseas, including associates, effectively exporting jobs. In its 2016 study, the World Bank found that 95% of goods and services used by the mining industry were imported.
In order to put FDI incapacity to create enough jobs in perceptive, there are recent examples that can be cited. Dangote invested $400 million in its Cement plant in 2013, it created 1,500 jobs. First Quantum Sentinel Mine investment of $250 million only created 700 jobs, Kansanshi Copper Mines investment of $1.2billion created 1,800 jobs. And when you consider that there are about 350,000 youths entering the job market every year, these numbers are a drop in the ocean. FDI cannot be used as a job creation strategy by any government. And the UK based Economic Intelligence Unit (EUI) supports this view.

“Although foreign direct investment inflows are booming, it is clear that they are no solution to the daunting challenge of productively employing Zambia’s rapidly growing labour force. Unless local businesses (which consist predominantly of small and medium-sized enterprises) grow rapidly, social pressures associated with unemployment are likely to rise in the coming years,” the paper observed in 2011.

LOW TAXATION REVENUE CONTRIBUTION

Zambia like many other countries that promote foreign direct investment want it to spur its economic development, which in reality entails increasing the country’s wealth and improving the standard of living of its citizens. This is expected from FDI’s expected contribution through taxation. The fact that Zambia has not, and is still not, collecting sufficient taxes from mining houses is so obvious. The current largest contributors to Zambian revenue is pay as you earn (PAYE) and value added tax.
In order to put mining industry’s contribution to the Zambian treasury in perspective, it is vital to compare Zambia with two neighbouring countries. In Namibia, mining revenue contribution to government revenue is about 25%, whereas Botswana mining contribution to government revenue is 45%. On the other hand, Zambia’s mining contribution to Government revenue is estimated at a paltry 4% of GDP. For instance, it is estimated that between 2000 and 2007 Zambia exported $12.24 billion in copper but the government only collected $246 million in tax. This lack of benefits from the mining industry in terms of taxes, is one even the World Bank concurs with and advised that, it be addressed.

“Zambia is rich in minerals but we haven’t fully managed to convert that wealth for the benefit of the people. We need to know where to improve and what changes to make so we can harness this wealth to benefit not only current, but also future generations of Zambians”, Zambia’s World Bank Country Manager, Ina Ruthenberg observed in 2016.

There are mining houses that have never paid any income tax for 20 years, as they declare tax losses all the time, but in the meantime, their shareholders abroad do receive dividends. The former Minister of finance, the late Mr. Alexander Chikwanda alluded to this in his 2015 Budget speech.
“Sir, despite Zambia being endowed with vast mineral resources, the country has not realised maximum benefits from the sector’s potential to support growth and enhanced socio economic development. The House may wish to note further that the contribution of the mining sector revenue as a percentage of GDP remains low at 4 percent. Similarly, the contribution of the mining sector to the national budget has remained minimal. Mr. Speaker, the tax structure was simply illusory as only two mining companies were paying Company Income Tax as most of them claimed that they were not in tax-paying positions,” he said

MULTINATIONALS CORRUPT PRACTICES: GLENCORE CASE STUDY

The Glencore corruption scandal unveiled everything about how African countries, including Zambia, were being ripped off by Mining houses and Multinational corporations. In May and June, 2022, Glencore, the former owners of Mopani Copper Mines (MCM), pleaded guilty in USA and UK Courts, of having been engaged in bribery and corruption in African countries. The US Department of Justice and the UK Serious Fraud Office, had brought charges of Bribery and Corruption against Glencore. The company was fined an estimated $1.5billion.
In the United States, Glencore was convicted under the Foreign Corrupt Practices Act (FCPA) and pleaded guilty to the charge. The company was fined $1.1 billion.

“Glencore International A.G and its subsidiaries bribed corrupt intermediaries and foreign officials in seven countries for over a decade. Glencore, acting through its employees and agents engaged in a scheme for over a decade to pay more than $100million to third party intermediaries, while intending that a significant portion of these payments would be used to pay bribes to officials in Nigeria, Cameroon, Ivory Coast, Equatorial Guinea, Brazil, Venezuela, and Democratic Republic of Congo (DRC)”, the US Department of Justice wrote in its statement announcing the fines.
In the United Kingdom, Glencore pleaded guilty to seven counts of bribery, after a Serious Fraud Office investigation (SFO) exposed that it had paid bribes to maximise its oil trading profits in five African countries, often disguising a bribe as an unspecified “service fee”, “signing bonus” or “success fee” in financial reports. It was fined £280,965,092.95 million (over 400 million USD).
“The SFO has today brought justice to bear and exposed what was a deliberate and endemic culture of bribery at Glencore. For years and across the globe, Glencore pursued profits to the detriment of national governments in some of the poorest countries in the world. The company’s ruthless greed and criminality have been rightfully exposed,” Said Lisa Osofsky, Director, Serious Fraud Office.

In an eye opening editorial, the London Financial Times of 31 May, 2022, exposed the fact that Glencore was not alone engaging in corruption and bribery. There are many Multinational Enterprises involved in this criminality. And unfortunately, the finance industry including banks, have cast a strategic blind eye to the scourge. They simply have not cared, until may be recently, perhaps.
One of the issues that the Glencore Scandal highlighted was the fact that countries like Zambia, have not benefited from their countries’ resources because they have had enablers in their midst. These include politicians, Civil Servants, local consultants, journalists, influencers, media etc, who are bribed by these mining houses and other MNEs, to do their bidding, in various ways. These enablers have put their personal interests above their countries’ interests, due to their unadulterated greed and short termism.
It is vitally important to point out that the lack of benefits should not be blamed MNEs or mining houses, but ourselves as Zambians. The lack of political will is the number one factor, and the second issue is absence of long term strategy to put a stop to this exploitation. Panama showed recently with its deal with FQM, that you can extract maximum benefits from your resources. And a few years ago, the late Tanzanian President Pombe Joseph Magufuli, also demonstrated with Barrick Gold of Canada and its subsidiary Acacia mining that Mining houses can cave in to demands to pay their fair of taxes if you stand your ground.

DOMESTIC PRIVATE SECTOR IS THE KEY TO ECONOMIC DEVELOPMENT

The various Zambian governments, including the current New Dawn administration, have paid too much attention to the promotion of foreign direct investment, and insufficient attention to the domestic private sector. This has resulted in the stunted growth of the Zambian local private sector. The weak Zambian domestic private sector has reduced the potential multiplier effects benefits from FDI. There seems to be no realization that a strong domestic private sector does attract foreign investors who need local partners to team up as doing that reduces the risk of foreign investors.
“Economic progress has been limited by the Government’s failure to pay sufficient attention to the capacity of the domestic private sector and the factors hindering its development. This has led to deindustrialization in some sectors of the economy, reducing the possibility of domestic companies to link up with foreign investors. In addition, the liberal investment policies do not require foreign companies to link up with local producers or suppliers, or even give them incentives to do so”, Lucy Muyoyeta wrote in her paper entitled: foreign direct investment and the fulfilment of key rights.“FDI has not had the desired multiplier effect on domestic players. Further, policies such as the tax incentives given to foreign investors make it difficult for domestic players to compete. A weak domestic private sector significantly reduces potential benefits from FDI through linkages and spill over effects. A strong domestic private sector would attract additional FDI by exhibiting an economic climate receptive to investment.”
The immediate short term solution – while permanent ones are being crafted – that will not upset the adored and treasured foreign investors, is simple. The government should simply make the playing field for the promotion of private sector development between foreign and domestic investors, level. There is no need for discrimination against Zambian local businesses, as they are investors too, who even pay tax. The Zambian government should ensure that the promotion of domestic investors is prioritized, and the barriers to its growth are removed, if the economy is to recover quickly and the country goes on an immediate development trajectory.

CONCLUSION

The current FDI promotion policy, which dates back to over 30 years, is now obviously obsolete. Zambia has offered an extremely liberal investment environment under Zambia Development Agency Act for a long time. Also, the one sided Development Agreements crafted decades ago, which the country still signs with mining houses, have passed their sale by date, and require to be revisited.

There is sufficient evidence that ordinary Zambians have not benefited from foreign direct investment for the past 30 years or so. This can be measured in terms lack of: raised standards of living, reduction in poverty levels, increased literacy rates, increased life expectancy and economic benefits. On the other hand, the owners of the foreign companies have become richer than ever before during the same time period. They have become billionaires. There is also no doubt that the current problem of Zambia’s high level of indebtedness can partially be attributed to the low level of tax revenue contribution by the Mines.
On the basis of past experience, and the various studies about the impact that foreign direct investment has had in Zambia, there is reason to be skeptical about any increase in FDI. And it is for this reason that President Hakainde Hichilema’s announcement in May,2023 at the Press Conference, that Zambia had attracted US8.3 billion FDI pledges, for the first quarter of 2023; as well as the promised ramping up of copper production to three million ( 3 ) million tonnes, does not excite enlightened citizens.

Zambia has been a mere conduit for making foreign investors rich. We are a transit country for wealth creation. The bulk of the wealth that is generated in Zambia by foreign investors goes out of the country and we remain with crumbs. The economic growth generated by FDI is illusory, as it is does not create wealth inside Zambia, and therefore it is not inclusive growth, that we badly need. At the moment, it is only the local the Private Sector that can generate inclusive growth.
It has been demonstrated from this article that our current FDI promotion model is flawed and has outlived its usefulness. It has excessive incentives for foreign investors, which has ended up starving the country of development resources. It has been shown that even our main benefactors – the World Bank and IMF- have reservations about our current FDI Promotion model. We need to rethink it. Zambia should emulate Botswana, Panama, China and South East Asian countries in how they have smartly used FDI to facilitate their development.

The appeal to Zambian leaders, therefore, is that they should craft evidence based economic policies, which are supported by practical benchmark countries. Zambia should avoid crafting economic policies based on unproven economic theories, as well as policies based on wishes. Pragmatism and action, are the key words, with less talk, meetings and endless workshops.

Mwansa Chalwe Snr is a Chartered accountant and Author. He is an independent financial commentator and analyst, as well as an Op-Ed Contributor to the Hong Kong based, South China Morning Post (SCMP). He is the author of: https://www.amazon.com/CHINA-WEST-BATTLEGROUND-AFRICA-Geo-Economic Competition/dp/9982913174 Contact:[email protected]

By Mwizenge S. Tembo, Ph. D.

Emeritus Professor of Sociology

There are different types of laughs. There is a laugh that is brief and may be through the nose or with a slight opening gasping sound through the mouth. There is laughter in which people make delightful guttural sounds. These laughs may last at the most 30 seconds. The belly laugh is different. The belly laugh starts from below the belly button and just above the waist. It moves slowly, rippling to the chest and finally to the open mouth. In the process the whole chest rocks up and down as loud barking sounds involuntarily escape from the open mouth. Sometimes the person bends over with their right-hand holding back their upper chest. The rocking chest and barking goes on for a while. You run out of breath, tears come out of the eyes, and sometimes snort that you cannot easily wipe away.

People may laugh every day. But belly laughs are so rare that one tends to distinctly remember what caused them. A few years ago, I was spending a week in my home village in the Lundazi district of the Eastern province of rural Zambia in Southern Africa. I was visiting my parents, brothers, sisters-in-law, uncles, aunts, numerous young nephews, nieces and other relatives. My mother was the funniest in our family of 9 siblings. She was in her 80s at the time.

My mother and I talked about different topics but often the topics were about food. What she had cooked or eaten that day, how she had enjoyed it, and food cravings. We talked about some of the delicious rare hard to get village foods in our household daily menus and cuisines.

One day, I went on some business riding the bicycle all day into town in Lundazi and came back at about 6 pm. I found my mother sitting on her usual spot outside her house looking very somber. I greeted and asked how her day was.

“Not so good,” she responded.

“What happened, mother?”

“We have been eating vegetables for our meals now for too many days. I have had this serious craving to eat delicious chicken. But I did not and could not eat chicken today.”

“Why not?” I asked.

“Your sisters-in-law had promised to cook chicken. But they forgot to ask the children to chase and catch the chicken. Your young nephews and nieces left to go to school early at 7:00am this morning. So, all day there was no one to catch the chicken in the whole village.”

I smiled and a muffled scoff escaped my mouth as my belly had the first rock.

“Couldn’t my sisters-in-law catch the chicken?”

“You should know this,” my mother looked at me in askance. “Do you remember as a boy chasing the village chicken? It sprints very fast, takes off briefly into the air during the chase, zig-zags, and runs in and out of bushes.” My belly laughs were uncontrollable.

“You sisters-in-laws tried chasing the chicken for a short while. The chicken ran and hid under the nkhokwe silo food storage structure. When it reemerged, the chicken was re-energized. The two women were soon winded and it is very awkward for two grown adults to chase the cunning small village chicken. For munthu mulala (adult person) you lose your dignity.” My belly laughs continued as I hollered sitting in my chair while rocking my chest up and down with my right palm on my chest.

“I thought of helping them chase the chicken,” my mother said with a straight face. “But I am an old woman mchekuru, who is eighty years old. What if I fall, break my bones and even die while chasing the chicken? Can you imagine the news that would spread like wildfire in all these surrounding villages? The old woman died chasing a chicken because of nkhuli (a special Tumbuka language term for craving for meat). I would embarrass the whole village and family”.

My ribs were hurting because I had been belly laughing for at least five minutes. I had to stop. I was afraid I was going to die. I wiped my tears.

My mother passed away at the age of 88 in 2018. People who induce belly laughter in others know how to instinctively press several buttons raising gears of laughter so that your belly laughs continue and get louder the more they describe the funny incident. If you have had a good life, you should remember a few of these very serious belly laughs of a lifetime.

Isolation, loneliness, suicide, depression, political conflict, mass shootings, anger, and terrible news comes from our being tethered to the cell phone and the internet. We could use therapeutic belly laughs.