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Sunday, 10 June 2007

Editorial lamentations! 2nd Edition

I was going to reflect on today's Post Newspaper editorial piece on Foreign investors but I found myself in too much laughter when I read the opening para!

"It is very important that our political leaders talk about things they are very clear about. It is not good for top political leaders to start making absolute statements about things they least understand. They should not try to explain that which is not perfectly clear to them"
The inference drawn that the Post Newspaper knows better! I simply posit that the article is relevant to the discussions we are having here.


  1. Speaking of FDI, I have come across this report from UN-Conference on Trade And Development, titled Economic Development In Africa: Rethinking the Role of Foreign Direct Investment (2005)

    Among the report's conclusions is a warning that, "not only is attracting FDI not the same thing as development, but it seems clear from the findings in this report that whether it contributes to development depends on macroeconomic and structural conditions in the host economy."

    It further concludes that, "The danger to be avoided in designing FDI policies is a tendency to confuse the means of global integration with the ends of economic and social development. A more development conscious framework must be mindful of all the possible channels whereby FDI can impact, both positively and negatively, on domestic economic performance, including through the balance of payments, local financial markets, and market structure; it must provide the means to manage the procyclical and herd-type tendencies of investors; and it must, above all, be situated in relation to the fundamental processes of capital accumulation, structural change and technological upgrading which are the ultimate drivers of catch-up growth."

  2. FDI was always ideologically driven. There is no evidence of a undeveloped economy that was developed by foreign corporations, not even in Singapore under Lee Kwan Yew.

    Certainly, the other Asian Tigers did not depend on foreign companies coming to their countries and setting up businesses.

    In fact Japan has huge barries to entry for foreing companies who want to go to Japan and set up a manufacturing company there. If you want to set up a business that exports Japanese made products, that is a completely different story. They are constantly thinking of creating new markets for what they make and export. But they would never allow a foreign company to compete with a Japanese company on the Japanese market.

    If the Zambian government was more like the Japanese government, they would have a lot fewer problems.

  3. Its an interesting report.

    I think the issue of FDI versus Aid is an interesting one.By an large it is more natural for Government to pursue FDI than AID.

    The attractiveness of FDI is that it "comes without conditions" atleast not conditions imposed by other States or international institutions. Although I accept that a weak or corrupt Government can have conditions imposed on it by a huge company say Shell or some other.

    Aid on the other hand almost certainly comes with conditions - mainly to avoid moral hazard issues and other problems of incomplete information.

    Is aid better than FDI? I think as the quote from the report indicate it depends on how both mechanism are implemented and the local conditions . One can certainly imagine areas where aid is extremely effective and where it is not. Also with FDI.

    But I would agree with LPM when he says "we don't want aid, we want money". The reason being that we have more control on ensuring FDI delivers what we want than we have over aid. But from the people on the ground (e.g. a woman suffering in Samfya), aid probably delivers more immediate result. So certainly the Post would have enough backers for their position.

    I think the challenge therefore is for Government to put processes in place to ensure that FDI correctly leverages funding in areas where it is needed. This is in fact what I propose in the new blog. Social investment could create a "win-win" situation, by making FDI more acceptable to the public.

  4. Here is a recent short piece written by the professor of law in Tanzania on "Foreign Aid damages democracy".

    I kind of see his argument, but they do miss one or two critical issues about "aid".

    On a separate point I should have added that there's a genuine question on the extent to which "aid" impacts on local producers e.g. is salaula actually good for the local Zambian clothes industry? The politicians could well be concerned about such effects.

  5. "Is aid better than FDI? I think as the quote from the report indicate it depends on how both mechanism are implemented and the local conditions . One can certainly imagine areas where aid is extremely effective and where it is not. Also with FDI." -Cho

    Here is a successful rural model of a strong local government leveraging aid and legal reparations into long term development and autonomy. The Warmsprings Tribal Community of Oregon (USA), with 4000 members in an isolated rural setting and dependency on export of local resources to finance development, has spent the last several decades wisely applying limited finance to maximize local growth without compromising local ownership.

    The WTC gained local government control in 1938, and sold raw timber starting in the 40's, meanwhile the 50-60s saw investment into hydroelectric installations and tourism, then sawmill and plywood facilities. Income from expanded tourism, wood products, a new fish hatchery, and sale of excess electrical capacity allowed for diversification in the late 80s and 90s. They now have investment in areas like software, composite materials, tile, and credit for local entrepreneurs.

    The Tribal Government maintains their own education, health, security, public utility, housing, legal, and family services. The Small Business Development Center (SBDC) provides information, education and training for small business owners. They also showcase and preserve traditional culture and artifacts with a state of the art museum facility, enhancing both tourism and education.

    Of course not all of this is going to translate directly to the Zambian situation, but it does indicate that formalizing of traditional/local governance over local resources, similar to land boards in Botswana, can have a positive effect on development. Additionally, collectively managed and owned local development corporations can be vehicles for long term investment in job security, competitiveness, and social services.

    Local planning and authority can direct income from raw material exports into developing the capacity to exploit the next stage of value addition in the manufacturing chain. Almost all Zambian raw material exports could be processed further by local industries before entering the global economy if local communities are mobilized to do it.

  6. Its a very interesting and successful example.

    I agree that there may be some challenges of translating it to the Zambian experience, but I think as you say there still transferable lessons there.

    The main one I think is that you need to have the right governance framework in place to ensure that any development opportunities are actively sought. This has to be at the local level pretty much, although one can imagine larger urban or rural “development corporations” in the Warm Springs mode – actively planning and seeking investment opportunities.

    A key underlying point is that foreign direct investment is only successful in the long term when the “local industry” can benefit from spillovers. Matching the local firms to the FDI therefore becomes critical and very much requires an active local or national industrial policy of some sort - and most certainly a local body in the Warm Springs mode or a generic development corporation.


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