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Wednesday, 27 May 2009

How does corporate America really view Africa?

A  new report released by Baird's Communications Management Consultants and ABI on The Conversation Behind the Boardroom: How Corporate America Really Views Africa. The report seeks to address the central question : Why has Africa not attracted more interest from the U.S. business community?  The short answer :

U.S. executives point out that Africa is only one of many possible destinations that American corporations consider for investment. Investment is highly competitive, and many countries are vying to become the destination of choice for capital. That said, U.S. companies in some sectors, particularly technology, now regard Africa as the last frontier for growth. These companies believe that Africa, with its market of about 1 billion people, can no longer be ignored. Even with this interest, Africa faces tough competition and huge hurdles to attract U.S. investment.

Globally, competition for American FDI is high. Countries from all regions showcase their advantages, align their offers to U.S. needs, clamor for attention, and invest in their own countries to attract additional investment. Consequently, U.S. corporations do not lack investment choices, and they rarely consider African nations.

Further, news about Africa is mostly about chaos and unrest. Africa is not active or aggressive enough about attracting investment; the voices of the few countries that are making an effort get lost in the surrounding negative noise. Some African countries are making special efforts to assist foreign companies that invest. For example, Nigeria’s president regularly engages with the local leaders of foreign companies to help cut through bureaucratic tape.

U.S. corporations need a strong and specific draw from Africa to make investment worthwhile. This can be the pull of a big market or a big source of critical raw materials or a belief that there is a competitive advantage to early entry into African markets. The survey data show that few of these pulls exist or are not sufficiently strong to be effective in the near term.

46 comments:

  1. Some solutions:

    http://thecitizen.co.tz/newe.php?id=12642

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  2. Good report, and good additional link Kafue. I think at this time I will only add that it is important for individual African nations to distinguish themselves from the rest of the continent in the eyes of potential US investors. I forget the actual numbers, but recent polls have revealed that a depressingly large number of Americans do not understand that Africa is a continent containing over 50 separate nations, and think of it as all one political unit. This enhances the impression that bad news from one country or region somehow reflects on the continent as a whole. While the spirit of African solidarity is admirable, in order to properly attract FDI with specific initiatives and competitive advantages, Zambia must become identified as Zambia, not just part of Africa.

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  3. Lawrence MIndela28 May 2009 at 02:05

    Yakima, American knowledge about Africa is deep rooted in cognitive dissonance. America has not fully figured out way to make head ways in the African markets. China realized Africas potential and decided to block americas influence by investing wherever they could. America will realize this err when it's too late and China will mock them for it.

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  4. interesting comments in that report. I am one of the latest fans to join the Dambisa anti-aid and anti-celebrity culture of aid. The comment about the effect of Africa's bad pulicity stands out. Bono et al have to all extents been Africa's PR managers and have done a bad job of it, including ofcourse all the NGOs and charities who in order to get funding rely on sending negative images of the diseased and suffering. For all the attention they are able to gather, why not advertise the investment opprtunities that Africa has? Our govt should also do its part by reducing the cost of doing business in the country.

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  5. Lawrence,

    I certainly agree that China is reaping the most gains from FDI on the continent in general, and Zambia in particular. This is perhaps most pointed during the current global recession in the case of applications to open new facilities in the nation's MFEZs, where the last report I recall indicated that all the current applications are from Chinese corporations. For Zambia's sake I hope that more competitors can be attracted to invest in various sectors (where domestic companies are not prepared to step up and provide gainful employment that is), as the terms negotiated are likely to be more favourable with more interested parties. Ironically, it would seem that the Chinese are willing to offer US (and G20 in general) companies more and/or better investment deals than Zambia, while China is willing to offer Zambia more and/or better investment deals than the US (and G20). I am no currency expert, however I suspect that this may be possible in part due to the frozen exchange rate between the USD and CNY (1:6.83) in spite of the disparity in growth and interest rates between the two national economies.

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  6. May be changing Zambia's tourism moto will help in making Americans understand that Africa is a continent. I have never understood the meaning of 'Zambia the Real Africa'. 'Zambia the home of the walking safari' makes more sense.

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  7. Frank,

    LOL!

    A serious point though!

    Mottos are important.

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  8. Why is anyone still looking for FDI?

    Why can't people just do what makes sense? Tax the heck out of the mines, forget about 'donor aid', invest in internal markets, build capacity through universal education and healthcare, build infrastructure to connect up with other regional powerhouses, specifically the DRC, Angola, Mozambique, Zimbabwe, Malawi, etc.

    Prof. Chirwa has another excellent addition in The Post, on his economic plan.

    Also, in a recent article on Lusaka Times, isn't it telling that one of the points made as to how Zambia could increase it's competitiveness in attracting FDI, was to present them with an educated labour force? So much for the IMF's demand that Zambia starts to charge fees for education. I guess what attracts FDI, is the same thing that would make it easier for the much neglected and derided local businesses to function, isn't it? I quote:

    U.S. Business Wish List

    INSIDER’S VIEW

    “Educate your people so that we can employ them.”

    To attract FDI, corporate America asks African nations to do several things:

    Invest in the health and education of the African people to create a large pool of skilled and productive human resources.


    Everything will change, when the Zambian leadership starts to respect their own people instead of foreigners, and starts to look at their own people for solutions to the country's problems.

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  9. Some selected poll data from Americans on issues related to Africa:

    [W]here 1 means no risk of loss and 10 means very high risk of loss, how would you rate the level of risk for investing in the following geographical areas?...Africa

    46% High risk (10-8)
    38 Medium risk (7-4)
    13 Low risk (3-1)
    3 Don't know/Refused

    Note: Mean = 6.8
    Organization: UBS
    Dates: August 1-August 14, 2005

    The level of aid to African countries has to be linked to the efforts these countries make to fight poverty and promote democratic government.

    40% Strongly agree
    38 Somewhat agree
    11 Somewhat disagree
    5 Strongly disagree
    3 Neither agree nor disagree (Vol.)
    4 Don't know/Refused

    Organization: German Marshall Fund of the US.
    Dates: September 16-October 3, 2005

    African countries should set the priorities for how foreign development assistance is spent in their own countries.

    21% Strongly agree
    42 Somewhat agree
    18 Somewhat disagree
    13 Strongly disagree
    3 Neither agree nor disagree (Vol.)
    3 Don't know/Refused

    Organization: German Marshall Fund of the US
    Dates: September 16-October 3, 2005

    I'm going to mention several nations around the world. For each one, please tell me whether you think that country or countries are currently a serious economic competitor of the United States, will be a serious economic competitor to the United States in the future, or will never really be a serious economic competitor to the United States?...African nations

    3% Currently an economic competitor
    20 Economic competitor in the future
    68 Will never be an economic competitor
    9 Not sure

    Subpopulation/Note: Asked of Form B half sample
    Organization: NBC News, Wall Street Journal.
    Dates: May 12-May 16, 2005
    .

    I am trying to find more poll data, preferably some that distinguishes between African nations or at least regions, but almost all I have found so far deal either with the continent as a unit or with specific conflicts or crises (e.g. Darfur genocide, Somali pirates).

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  10. Speaking of opinion polls, for data from 20 African nations (including Zambia) on a wide variety of issues, Afrobarometer has an online data analysis tool available from this site:

    http://www.jdsurvey.net/jds/afrobarometer.jsp

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  11. Some selected results from the 2006 National Geographic/Roper poll of 18-24 year-old Americans, http://www.nationalgeographic.com/roper2006/findings.html :

    77% placed Nigeria in Africa, 60% placed Rwanda in Africa, 58% placed the Sahara Desert in Africa, 46% placed Sudan in Africa, and 30% correctly located Egypt on a world map.

    It should be noted that young Americans are uninformed about geography in general, not just African geography. 50% were unable to properly identify New York State on a map of their own country, 57% were unable to locate Ohio State. Even for countries in regions often mentioned in news reports, such as the Middle East, only 37% correctly located Iraq and Saudi Arabia, 26% Iran, and 25% Israel on a map of the region. Only 12% could find Afghanistan on a map of Asia.

    29% of respondents thought that the US population was between 1-2 billion persons (31% got this multiple choice question correct, placing the population between 150-350 million (actual pop. 298 million at the time). 18% knew that there are more Mandarin Chinese primary language speakers than English primary language speakers in the world.

    I think that efforts to create a favourable impression of Zambia among Americans should include emphasis on the following (certainly not an exhaustive list, but existing knowledge and attention spans are limited in my experience):

    Tribal/Ethnic/Religious diversity.
    English Language widespread fluency.
    Low population density.
    Role in South African liberation.
    Legacy of peace and democracy.
    Efforts to preserve indigenous culture and wildlife.

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  12. MrK,

    In response to your questions, "Why is anyone still looking for FDI?" and "Why can't people just do what makes sense?"I would say that the simple, cynical answer is that providing access for their own FDI is a major component of many powerful countries' foreign policy, and that governments which try to lock it out or seize existing foreign owned assets on their territory provoke retaliatory responses. While it may be tempting to try and close out the rest of the world and simply concentrate on domestic and regional issues, the rest of the world is unlikely to simply sit by and fail to act in their own interests. The fate of isolated nations is not enviable, examples which come to mind include Burma, N. Korea, and Zimbabwe (which as a fellow landlocked country is especially vulnerable to isolation). Setting conditions on FDI can work to a nation's advantage in an environment of competition between foreign powers, but attempts to shut them all out completely do not have a record of high rates of success.

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  13. How does corporate America really view Africa?

    To quote from John Perkins followup to Confessions of an Economic Hitman, "The Secret History Of The American Empire", chapter Modern Conquistadors, page 41:

    "If you ever intend to have children, and want them to live prosperous lives, you damn well better make sure that we control the African continent."

    George Rich's admonition helped me live with myself and tolerate the other U.S. consultants I shared a mansion wiht in Alexandria in the summer of 1974.


    I would say the same holds true for any African leader. If they want to see their economies develop for the benefit of their own people, and not foreign corporations, they will have to own them, and not give them away for bribes because it is easy.

    Yakima,

    The fate of isolated nations is not enviable, examples which come to mind include Burma, N. Korea, and Zimbabwe (which as a fellow landlocked country is especially vulnerable to isolation).

    What ended Zimbabwe's isolation though? SADC. We need more regional cooperation and integration, to make these countries far less vulnerable to outside manipulation, as was visited on Zimbabwe. It should become impossible for any politician or conglomerate in the west to pick off a single African nation for personal or political gain.

    Most African countries were like the rest of the world, very slow to catch up to the media propaganda campaign against Zimbabwe.

    It was bizarre to make Zimbabwe an example of lack of democracy, when it had not missed an election since independence in 1980, had a parliamentary opposition, a vocal opposition press and a judiciary that frequently found against the government. Unlike some African countries, which are of course allies of the west in that they allow the plunder of their people's resources without objection, or even make the leader of the opposition disappear (Gabon).

    I was really disappointed in the BBC, which became a propaganda arm of Downing Street. What happened to seasoned reporters like Robin Denslow and Charles Wheeler, and why and who replaced them with South African hacks like Grant Ferret, or fleetstreet yobbos?

    However, it was SADC and Thabo Mbeki who rode to the rescue, not the US, not the UK. We need more regional integration, so these politicians cannot pick off an individual country as they please.

    Setting conditions on FDI can work to a nation's advantage in an environment of competition between foreign powers, but attempts to shut them all out completely do not have a record of high rates of success.I would disagree:

    China
    Japan
    South Korea
    Taiwan

    None of them developed through FDI. I could add India Russia to that list. Their model is very simple. Use your own raw materials to finance the rest of your economy - certainly in the case of China, Japan.

    South Korea did use foreign loans, which were then guaranteed by their government. But those were strictly loans to finance the productive capacity of Korean manufacturers, not to import wholesale American, British, Canadian manufacturers to 'somehow' benefit the Korean economy through their mere presence. And as a result, they did not give away all or any of the profits made in their industries.

    Also, in Zambia the government always calls foreign corporations 'investors', which is of course misleading, but pleases the IMF. When a mining company sets up in Zambia, they are not investors, they're miners.

    Naomi Klein in The Shock Doctrine has a very interest chapter on South Africa, and how the revolution was stolen by handicapping the political leadership through quickly entered into economic agreements, brainwashing them with Thatcherism and neoliberal economic ideology, and instilling a fear of investor flight and the markets to derail the promises of the Freedom Charter.

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  14. Actually China has developed through a huge amount of foreign investment:

    http://books.google.com/books?id=3QRae4xx28MC&pg=PA111&lpg=PA111&dq=foreign+investent+china+japan+south+korea+taiwan&source=bl&ots=rldenCmcj1&sig=1r-JtQD8gj_7askNWr43pJXRSuU&hl=en&ei=GmQhSo3eGNmntgeBvei5Bg&sa=X&oi=book_result&ct=result&resnum=1

    Japan has been developing for 150 years, Taiwan and South Korea took advantage of an opportunity to use their low cost labor to produce competitively priced products after the Second world war, it would be difficult to do the same now because a lot of countries produce cheap products and products are complex these days. Much easier for African countries to attract multinationals with manufacturing expertise to establish operations in their countries. What Africa should focus on are the fundamentals that business needs to thrive, good education, health, infrastructure, management. Also African countries should economically integrate by removing barriers to trade and movement of labor, it is something that business looks for. In other words it should be as easy for a Malawian to work in Zambia, as it is for a Floridian to work in California. Only by creating a massive economic entity, will Africa be able to compete with the likes of the United States, European Union, China or India.

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  15. I quote from the article:

    This greater relative importance of foreign investment in China is evidenced both in its magnitude and the role of foreign-invested firms in generating exports. The absolute magnitude of foreign investment in China, discussed in detail in chapter 3, eclipses that of Japan, Taiwan, and Korea, both now and at comparable stages of their economic development. Estimates of cumulative foreign direct investment (FDI) in Japan through 1972 are subject to some uncertainty but range from $1.0 billion to as much as $3.4 billion. In nominal terms, even the higher estimate was less than 6 percent of the $60 billion cumulative foreign investment in China through the end of 1993 (table 3.7). Even taking into account price differences, there is little doubt that FDI in China dwarfed that in Japan during a comparable period.

    The reason is straightforward: the Japanese law on foreign investment, which dates to 1950, was extremely restrictive. Foreign ownership was limited to a maximum of 49% of any joint venture, and foreign investment was explicitly restricted in a large number of industries. Not until 1973 did the Japanese allow wholly foreign-owned firms to operate. Even to this day, Japan is far more restrictive than China, with regard to investment in infrastructure and services. As a result, its total FDI stock is less than China's.

    Similarly, China's foreign investment regime is far more liberal than that of South Korea. Despite some modest liberalization measures in the 1960s, South Korea's foreign investment regime throughout the 1970s was quite restrictive. Foreign ownership was limited to a maximum of 50%, and large numbers of sectors essentially were closed to foreign investment. Significant liberalization measures began only in the early 1980s. As a result, cumulative foreign investment in South Korea through 1981 was only $2.3 billion. Indeed, the very recent liberalization of South Korea's foreign investment regime was stimulated partly by China. The South Korean government recognized that the decline in gross direct investment inflows in the early 1990s was due to the ability of China's increasingly liberal investment environment to attract foreign firms that otherwise would have invested in South Korea.

    Although Taiwan was the beneficiary of substantial inflows of official US bilateral economic aid through 1965, the role of FDI was even less significant than in South Korea.


    In other words, this confirms two things. There was very little FDI in Japan, Korea and Taiwan, the economic powerhouses of East Asia.

    Second, during their developmental stages, they did not receive ANY significant FDI, by implication, FDI is not a necessary condition of development.

    Lastly, the amount of FDI in China may be higher than the other countries, but it is still a very small part of their GDP. Also to remember, how much of this "Foreign investment" is from Chinese nationals in other countries? 5% of China's 1.3 billion people live abroad, with significant presences in the Chinatowns of the United States, as well as territories like Taiwan and Hong Kong.


    Japan: $4,340,133,000,000.00 (4.3 trillion)
    China: $2,668,071,000,000.00 (2.6 trillion)
    Korea, South: $888,024,200,000.00 (888 billion)
    Taiwan: $528,600,000,000.00 (528 billion)

    Source: Nationmaster.comNotice that nowhere does even China's cumulative $60 billion in FDI upto 1993 come close to any significant percentage of GDP - $2668 billion in 2006 alone.

    So again, the key to Zambia's development is not foreign ownership of the economy. It is the development of it's internal markets.

    Lastly, there is a big difference between getting foreign loans backed by the government as the South Koreans did, and allowing the mines and other key industries to be foreign owned as the Zambian government did.

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  16. Actually it does not matter who owns the means of production, much more important is the volume of production. This is why in the 1950's the European nations overcame their individual sense of nationalism to create the European Economic Community. They saw the benefits of mass markets and free movement of economic resources for their population, so rather than protecting their own industries, they gradually began removing economic barriers.

    Globally competitive industries are much more likely to survive and thrive than those that constantly have to ask for handouts from their governments. These days I believe it is much more difficult to follow the Japanese and South Korean paths to development due to the complexity of products and very high degree of competition from others. Attracting and retaining foreign investment is a much easier and faster path to development.

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  17. Lawrence Mindela31 May 2009 at 19:16

    I think in Zambia we should try common sense economics and ditch cook book theories prescribed by the IMF and World bank. There are few things we can do to set a foundation for real growth in years to come. Let's go back microeconomics, develop small bussinesses, strenghthen the eduaction system and health system. Focus on manufacturing because that's the only way we will have a sustainable economy.

    The so called investors(in real sense chinese miners) should be made asked to start processing copper within Zambia and export a finished product as opposed to processing in China and sending back more expensive finished products. They have all the insentives government can possibly provide and it can't be too much for them show their committment to real development.

    The other thing is developing technology and our technological capabilities. We have a lot of smart people working both at home and abroad who can do well if government set an environment conducive for them to operate. I think the current crop of leaders in Zambia still lives in the pre-google era and there is need for someone who understands the world as is today. So much as changed over the past fifty years and so our leaders shold change with time.

    If you look at the China, India, South Korea singapore, (the list goes on) there was a recognition that the fundamentals of real development starts with a strong education system, enterpreneurship and a health care system that works. Singapore's Lee Kwan Yew economic policies set the stage for Singapore as we see it today. Those are things we can do.

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  18. Lawrence Mindela,

    I think in Zambia we should try common sense economics and ditch cook book theories prescribed by the IMF and World bank.

    Right, and I hope everyone on the continent lets go of this latest reincarnation if laissez faire economics.

    There are few things we can do to set a foundation for real growth in years to come. Let's go back microeconomics, develop small bussinesses, strenghthen the eduaction system and health system. Focus on manufacturing because that's the only way we will have a sustainable economy.

    If we can upgrade even 10% of 1 million marketeers from micro business to small business status, that is 100,000 businesses nationwide. If 10% of small businesses become medium size businesses, that 10,000 medium size businesses nationwide.

    If we can get another 10% of subsistence farmers to upgrade to medium scale farms (100 hectares or 1 square kilometer about the average size of a farm in the EU), there will never be a foodshortage again. Plus, on 100 hectares, there is plenty of space to put in spinoff businesses, greenhouses, etc. which can create massive employment in the rural areas.

    If we link those rural farms to local processing plants, you can create local economies that will employ even more people and keep value addition occurring within the local economy - more jobs, more income and more wealth concentration at the local level.

    So all the ingredients for a developed economy are there. The question is who is going to put them together and how.

    One key to increasing commercial activity in the country, is to create demand by raising incomes. All the above will do that, but to kickstart the process, the government could create works projects and pay people $5 per day (I think the average income is below $1,- per day) to build infrastructure. The government could mobilize labour by creating large highways between the major economic centers, and have traditional authorities, the national service, the army and unemployed miners to create roads in their areas to link up to those highways, unlocking them for economic activity.

    The state could also create cheap credit for productive enterprises and local entrepreneurs only, sidestepping the usurious interest rates demanded by the so-called 'commercial banks'.

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  19. MrK,

    I don't doubt the desirability of economic freedom from interference by rich and powerful world states, rather the practicality of achieving it without provoking a response that imposes greater costs than the benefits. It cost states like the US and UK very little to effectively devastate the Zimbabwean sovereign credit standing. Without access to free flowing capital, either operations and investments that required borrowed capital had to be suspended or delayed, enabling the nation to live within its means, or everything had to be funded with currency inflation that imposed the costs of deficit spending and capital investments across the whole economy. The Zimbabwean government chose the latter, so we will not know if the results would have been better or worse had they chosen the former, however I would venture to say that the current situation of any of the SADC or COMESA states which over the same period have allowed FDI to operate with varying degrees of conditionality are better off than Zimbabwe is.

    They may have achieved a degree of relief from political isolation through the efforts of SADC leaders, however I would argue that the economic relief that is accompanying it is more ephemeral and still primarily subject to the opinions of capital-rich states and multinational banks. It is the enforced economic isolation of Zimbabwe, N. Korea, and Burma as prompted by their perceived political hostility toward multinational capital that I was referring to as devastating. I am not asserting that FDI is essential for development, I don't think that it is. However, I am asserting that a policy of overt hostility toward FDI is less desirable than one which seeks to impose conditional limits on the scope and nature of investment which is available to FDI. In other words, there is economic advantage to retaining at least the appearance of being a state which is open and attractive to FDI, even if the bulk of policy is geared toward development of the domestic economic base.

    Certainly the rate of economic expansion in China over the last 15 years is not solely based on the role of FDI, however the relaxation of political efforts at economic isolation that has accompanied their policy transition to greater acceptance and attractiveness to FDI has been a key component in enabling their success. This was also the case for Japan following WWII, where their acceptance of the hegemony of multinational capital states enabled them to access the key industrial raw materials they had been unable to capture by force in the war. It should not be discounted that the costs of defense against potentially aggressive neighboring states (esp. PRC, PRK and USSR) throughout the period were to a huge degree shifted onto the NATO alliance states (esp. USA). The dramatic reduction in wartime defense spending by Japan, S. Korea, and Taiwan helped them to leverage a greater proportion of their GNI into building their domestic economies. [to be cont...]

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  20. [...inued]

    As you point out in the case of Gabon, the actual character of leadership or democracy is not the primary driver of whether or not a particular state gets economically isolated by political means (or military ones). The nations you list are all considered currently non-threatening by multinational capital, though to varying degrees. All states can grow their economies with or without the cooperation of multinational capital, the question is really whether GNI and balance of trade are improved more by appeasing them or actively opposing them, and to what degree. Kafue makes a good point about the proportional distribution of ownership being linked to the size of the economy. It is better to own 25% of all new investment that includes 80% FDI (requiring the surrender of a 6.25% share of holdings created via FDI) which increases the total rate of investment fivefold, than it is to own 100% of new investment based solely on domestic capital (500/4 = 125%, vs. 100/1 = 100%). If the ownership share is doubled to 50%, FDI must still account for at least 60% of the total rate of investment to match the return from a 25% ownership share (250/2 = 125%), requiring a 20% surrender of holdings created via that FDI.

    The percentage share of GDP being contributed to gross capital formation (all additions to the fixed assets of the economy plus net changes in the level of inventories) was 24% for 2007, according to World Bank figures. Out of a reported GDP of US$11.36 billion, that is US$2.7264 billion worth of increased wealth in the nation. Ideally the rate of gross capital formation will continue to increase as the GDP does, with a rate of ownership that is balanced against the rate of new investment that provides the highest return on the domestic share possible. Different conditionalities placed on the access or return on investment for FDI will result in different amounts of available foreign capital, so the effectiveness of changes in the percentage of gross capital accumulated by domestic owners must be measured in comparison to effects on the overall amount of wealth being accumulated in the economy as a whole over time.

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  21. Something to keep in mind is that what worked in the past may not necessarily work in the future. For example, a country making an economic plan more than a hundred years ago, may allocate a certain amount for horses and ploughs for their agriculture sector. However due to advances in technology, tractors come into being and are vastly more productive and economic than horses. So continuing to purchase horses and ploughs would mean that productivity would not be optimized. Similarly internet learning now has the potential to vastly improve the educational level of the population as access to the internet increases. Economics thus is not a static science in my opinion. It is a combination of science, the arts, math, history and the ability to see future trends.

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  22. China's GDP in 1993 was $440 billion, so $60 billion in FDI upto 1993 is a significant percentage, especially considering that much of the GDP is generated by a huge population with then low incomes.

    http://www.nationmaster.com/graph/eco_gdp-economy-gdp&date=1993

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  23. Cumulative FDI, so that does not say how much per year.

    Secondly, this was used almost exclusively to bolster state owned enterprises, not to hand over entire sectors of the economy to foreign corporations, let alone hand over key sectors like mining to foreign ownership.

    Lastly, the fact that Japan, South Korea and Taiwan did not go this road, proves that FDI the way it is practiced in Zambia is not necessary for development.

    Again, the South Koreans used foreign loans, but only to increase production by their nationals, not the selling out of shares in South Korean companies.

    The Russians tried the same thing as the IMF demanded of Zambia, and they turned their back on it almost immediately, when it became clear that it made a few oligarchs extremely rich, but impoverished everyone else.

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  24. World Bank figures for annual FDI net inflows (millions of current US$) for China:

    1979 $0.08
    1980 $57
    1981 $265
    1982 $430
    1983 $636
    1984 $1,258
    1985 $1,659
    1986 $1,875
    1987 $2,314
    1988 $3,194
    1989 $3,393
    1990 $3,487
    1991 $4,366
    1992 $11,156
    1993 $27,515
    1994 $33,787
    1995 $35,849.2
    1996 $40,180
    1997 $44,237
    1998 $43,751
    1999 $38,753
    2000 $38,399.3
    2001 $44,241
    2002 $49,308
    2003 $47,077
    2004 $54,096.5
    2005 $79,126.7
    2006 $78,094.7
    2007 $138,413.2

    lots more WB stats are searchable via the Quick Query online form.

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  25. As FDI has flowed into China, per capita income has risen from $210 in 1979 to $2,370 in 2007 according to the World Bank statistics. No small achievement.

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  26. Kafue,

    China's per capita income growth is even more impressive when using the purchasing power parity measure (PPP) in composite international dollars that more closely measure standard of living based on local prices for equivalent goods in different countries. By that standard China went from $250 in 1980 to $5420 in 2007, a 2168% increase overall (468% in the first 14 years, and a further 463% on top of that in the second 14 years).

    By contrast the per capita income measured only in US currency shows a more dramatic difference between the first and second halves of the reporting period. Starting at 220, it moves to 410, an increase of 186% over the first 14 years, compounded by further increase of 578% over the second 14 years, resulting in a total growth of 1077%. The PPP measurement is probably more reliable, especially given the history of state driven enterprises and fixed prices throughout the domestic economy. Both measurements however show impressive gains over time, and purchasing power averages continue to grow in spite of growth driven price inflation following market liberalizations around 1993, and at an extremely high rate.

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  27. I should probably clarify, PPP measurement of GNI is probably more reliable when measuring changes in household welfare using per capita income figures. The Atlas method (in actual US$) is probably more reliable in other circumstances, like when measuring the trade balance with regard to imports and exports, where all countries presumably face equivalent commodity prices.

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  28. Yakima,

    If this is the effect if FDI, can you explain:

    1) Why the inflow of FDI into Zambia has not had the same effect on incomes,

    2) Why FDI has played no role in the growth of Japan, South Korea and Taiwan and

    3) The effect on the restriction of foreign ownership in China on the inflow of FDI

    Obviously, the foreign ownership of the mines in Zambia has not had the effect of raising incomes or lowering the poverty rate.

    (I think I know, but it would be interesting to have your take on it.)

    Is there a difference in the type of FDI (loans, or the takeover of entire industries without restrictions, for instance.) in China and Zambia.

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  29. Yakima,

    Without access to free flowing capital, either operations and investments that required borrowed capital had to be suspended or delayed, enabling the nation to live within its means,

    Actually sanctions went way beyond living within ones means. It was not just that access to credit and 'donor aid' was suspended for Zimbabwe, but that at the same time, they were required to keep paying off the existing debt - pushed on them by the IMF in the 1990s - more control over domestic policy through the IMF.

    Remember that the Zimbabwe Democracy and Economic Recovery Act of 2001 forbids not only the taking on of new credit, but also even the rescheduling of existing debt.

    In other words, the sanctions were intended to destroy the Zimbabwean economy, by both cutting off access to credit, while at the same time continuing to bleed the country of foreign currency to continuing payment of of debt.

    Sanctions are not benevolent acts, and are simply the last step before open warfare.

    (c) MULTILATERAL FINANCING RESTRICTION- ... the Secretary of the Treasury shall instruct the United States executive director to each international financial institution to oppose and vote against--

    (1) any extension by the respective institution of any loan, credit, or guarantee to the Government of Zimbabwe; or

    (2) any cancellation or reduction of indebtedness owed by the Government of Zimbabwe to the United States or any international financial institution.


    or everything had to be funded with currency inflation that imposed the costs of deficit spending and capital investments across the whole economy. The Zimbabwean government chose the latter, so we will not know if the results would have been better or worse had they chosen the former,

    The idea was to create massive job losses, food riots, etc. so that the lives of the Zimbabwean people would become so miserable, that they would do the British and US's job for them and overthrow their own government.

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  30. however I would venture to say that the current situation of any of the SADC or COMESA states which over the same period have allowed FDI to operate with varying degrees of conditionality are better off than Zimbabwe is.

    That is because they agree to cheat their own people of their natural resources, do not redistribute the land that was stolen from them, and do not come to the aid of a fellow African country that is being overthrown by the same UK/US forces (Laurent Kabila being overthrown by the US/UK backed forces of Laurent Nkunda in the Eastern DRC; Kabila was assassinated later on anyway, on the same day that Patrice Lumumba was murdered - who did that again: the CIA and the Belgian colonials).

    The only way any African country can move beyond more political independence, is to become economically independent. And that means throwing off the yoke of foreign economic occupation, and becoming economically selfsufficient.

    You have to have noticed the continued threat of manipulating the economy, by threatening 'investor flight', as even so-called socialist Claire Short did in her letter to minister Kumbirai Kangai in 1997. The threat of 'investor flight' and negative consequences in the markets is one way of strongarming African governments into domestic policies that their own people would never choose, directly undermining democracy.

    And this is not just a Zambian problem. In the UK, after almost 2 decades of Thatcherism, even the Labour Party adopted Thatcherist supply side economics, giving the people of Britain no choice of economic policy.

    The alternative is not to comply, but to band together under organisations like SADC.


    On FDI in China:

    In USD (billions)

    FDI in 2006 (WB): 78.094
    GDP in 2006 (NM): $2,668.071

    So China had an inflow of $78 billion in FDI, in the same year that their GDP was $2668 billion. (3% of GDP in 2006.)

    I would say that this would not likely explain the difference in results. It also does not justify any potential claims that it was FDI which developed China.

    Also, it is interesting to look at the GINI coefficient, which is a measure of inequality.

    Namibia: 74.33
    China: 46.9
    Japan: 24.85

    Japan has one of the lowest GINI rankings, meaning that universal healthcare and education have created a great level of equality in the second largest economy in the world. China ranks in the middle. By comparison, Namibia, with it's massive foreign (German) ownership of land, coming out of genocidal German rule, followed by British and then South African (apartheid) occupation, has the highest measure of inequality.

    This I would say demonstrates the dangers of foreign ownership of not only the economy, but of the land itself.

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  32. BREAKING NEWS!!!

    The nice thing about being right, is that eventually your opponents agree with you. In a complete turnaround from their campaing rhetoric, the MDC has admitted that the situation in Zimbabwe was not merely 'bad management' by President Mugabe, but the result of economic sanctions. They have admitted that they too cannot govern Zimbabwe, while sanctions are in place.

    This is a complete vindication. Now, they're going around the world trying convince western governments to lift sanctions.


    Biti slams West over sanctionsby Lebo Nkatazo
    02/06/2009

    ZIMBABWE’S Finance Minister Tendai Biti says he has “ring-fenced” central bank Governor Gideon Gono and western countries can no longer use him as an excuse for withholding critical aid.

    In a new attack on western sanctions on Zimbabwe, Biti said: “The West is being unscientific and ahistorical. ”

    Two banks targeted by the United States for sanctions are set to have them lifted, Biti said in an interview with a South African newspaper.

    “Senator Richard Luga (Indianapolis) wrote asking about sanctions on the two banks (Zimbank and Agri Bank), and I said lift them as a matter of urgency. "

    [That is Republican senator Richard Lugar of Indiana - he of the Lugar-Obama bill. - MrK]

    The two banks serve communal and small-scale farmers in particular, Biti said.

    Biti’s latest attack betrayed growing frustrations in the new unity government that the west would rather see the country descend into chaos than normalise relations as long as President Robert Mugabe is still in power.

    The minister said: "If this experiment fails, we have no cheaper alternative, no cheaper option. I speak as one who knows. The only thing the struggle has not done to me is kill me. I can write a guide book on Zimbabwe prisons.

    “If the West doesn't come in, the price of undoing the mess will be much higher, like Liberia, Sierra Leone. Look at the cost of Somalia… how will anyone ever reconstruct Somalia?"

    Biti met the sanctions instigators on a trip to the United States and Britain last month to urge them to lift the measures which have frozen Zimbabwe’s international credit lines and hindered free trade by key companies.

    In the United States, Biti urged government officials to lift the Zimbabwe Democracy and Economic Recovery Act (ZIDERA) which blocks US citizens sitting on the boards of international financial institutions from voting to extend any direct financial support to Zimbabwe.

    [ZDERA specifically blocks the US director to 9 multilateral finance institutions from extending credit and loans and rescheduling existing loans, draining the country of foreign currency. - MrK

    “I made it very clear that it would be very difficult for us to move when ZIDERA is there,” Biti said after the trip.

    Prime Minister Morgan Tsvangirai is expected to travel to Britain, France and the United States later this month seeking to rally financial support for the government which needs US$8 billion over the next three years to stabilise the economy and fix social services.

    Tsvangirai is also expected to call on the west to lift sanctions against the country, as well as lift travel warnings preventing their citizens from visiting Zimbabwe.

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  33. PS,

    This article appeared on NewZimbabwe.com, a largely pro-MDC website.

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  35. MrK,

    I do not think that you have quite understood me. I am not, and have not, asserted that FDI is some kind of magic development ingredient. As the experience of per capita income growth in China shows, the basic standard of living has been rising in China for some 3 decades with or without access to large amounts of multinational capital. What has primarily changed is the country's ability to trade outside its borders, and to competitively acquire access to raw materials in other countries. This is something that it was effectively prevented from doing during the Cold War, and the ending of this isolation not coincidentally coincides with policies that permit FDI, not rely on FDI. In return for a share of the profits from China's growth, multinational capital and the governments of nations it is concentrated within are no longer actively opposing its access to trade and materials.

    I fail to see how all of SADC taking the same confrontational position taken by Zimbabwe toward FDI is going to help much, considering even with the regional body taking a more sympathetic stance there simply isn't enough available capital to rescue Zimbabwe without the cooperation of multinational banks. I don't really understand what more has been proven other than big powerful nations are still big and powerful enough in the post-Cold War era to quite easily render futile efforts to oppose them by debtor nations with small, vulnerable domestic economies like Zimbabwe's. If there is any victory won in the propaganda fight between ZANU and MDC over whether or not sanctions or mismanagement has been the principle driver of decline, then it is a Pyrrhic one: ""If we are victorious in one more battle with the Romans, we shall be utterly ruined." [Plutarch, Life of Pyrrhus, 21:8]

    I will still try to answer the three questions as best I can:

    1) To the extent that FDI directly increases incomes, it has a greater impact in China due to the larger number of jobs being created in the sectors FDI sees as competitively advantageous to enter. Extractive industries like Mining require increasingly specialized and capital intensive equipment, with a high ratio between capital investment and job creation or labour costs. This would also be true of highly mechanized agriculture. Other sectors of investment that have been more recent attractions to FDI in Zambia, such as telecom, tourism, and manufacturing, are likely to have higher rates of job creation per FDI$, and thus more effect on household incomes.

    2) Short answer: Cold War. They were key US allies in East Asia. There was deemed strategic value in trade relationships that promoted growth in a former enemy turned to staunchest regional friend, the nation south of the most fortified international border in the world, and the island nation established by the retreating anti-communist forces of the most recent Chinese revolution. They were given preferential treatment, because that was seen as good for America, and incidentally didn't work out so bad for them. There has also been plenty of indirect investment by multinational capital in these countries, and stocks in their publicly traded corporations make up a portion of most US mutual funds.

    3) Restrictions of foreign ownership in the Chinese case are sufficiently weak as to avoid provoking hostility from multinational capital and to maintain a profit sharing ratio with FDI such that it acts as a multiplier on domestic capital investment. Other aspects of the Chinese economy such as restrictions on inter-provincial trade, have also combined to concentrate the application of FDI to coastal and export oriented markets. [to be cont...]

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  36. [...inued]
    4) I think that there are lots of differences between the role of FDI in China and Zambia, as well as differences in the restrictions on it. For one thing, while China is not to my knowledge a major destination for Zambian FDI, as we are all aware the reverse is increasingly the case. One could easily conclude from that alone that there are differences from the Chinese perspective as to the advantages of investing in their own market alongside FDI, or in Zambia. Essentially China has opened up its own market in order to access raw materials from the global marketplace so that they can support their massive population and industrial growth simultaneously. Zambia is by comparison presumably open to raw material extraction for the purpose of gaining access to indirect multinational investment (i.e. credit markets and aid) in overall economic growth and/or budget support.

    I think that the terms and conditions placed on FDI in Zambia have been too generous, I don't think that we disagree there at all. However, I do not think that setting terms which provoke the sort of response Zimbabwe got is terribly wise either. Botswana on the other hand seems to have found a healthier balance between openness and conditionality. Nationalizing existing mines wholesale strikes me as the sort of thing that provokes nasty responses, whereas the gem sector for example is already restricted, and yet is not being leveraged into sovereign wealth very effectively. If improvement can be made in those areas which are unlikely to provoke retaliation such that the balance of trade begins to work in the nation's favour, then the rate of gross capital formation in the domestic economy can really take off.

    This is equivalent to the difference in return between buying stock with savings or with a loan. If one must pay interest, then the stock has to go up at higher than that rate for the investment to make money, and the chances of losing money go up significantly. If one gambles and loses with their savings, then they are no better off, but if one gambles and loses with borrowed money, then they now have the added burden of principal debt and interest overhead. The only advantage to the loan is that one can lay larger bets, so that if they pay off, they pay off more handsomely, but that can be a slippery slope as the outstanding debts of previous failures increase the required outcome of the next bets, in order to pay off the debt and still have enough to lay the next set of bets. National economies or corporate stock markets are not as bad as casinos, not zero-sum games, such that on balance there are more winners than losers so to speak. With a total population and current economy as modest as Zambia's currently is, it should be possible to achieve quite high rates of positive trade balance without attracting unwanted attention. With a stronger domestic capital base, and a more resilient currency, it will be much easier to renegotiate the conditions on resource extraction from a position of greater strength.

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  37. Yakima,

    MrK, I do not think that you have quite understood me. I am not, and have not, asserted that FDI is some kind of magic development ingredient.

    This is part of a spillover of an exchange I had with Kafue001. Don't convince me, convince him. :)

    This is something that it was effectively prevented from doing during the Cold War, and the ending of this isolation not coincidentally coincides with policies that permit FDI, not rely on FDI.

    But that is exactly what happened in Zambia. No industrialisation policy, no economic policy, just attraction of FDI at all cost. And with no benefit to the economy, other than 'they will bring jobs' - typical trickle down garbage.

    In return for a share of the profits from China's growth, multinational capital and the governments of nations it is concentrated within are no longer actively opposing its access to trade and materials.

    And there are key industries where foreign investment is strictly forbidden.

    Again, unlike in Zambia, where the key industries were given away, like they were in Russia, until Vladimir Putin took them back.

    Which brings me to my point - free market capitalism the way it is pushed by the IMF and World Bank, and was applied in Zambia, Malawi, has failed.

    And it is more than time that the remaining free marketeers admitted to that reality.

    3) Restrictions of foreign ownership in the Chinese case are sufficiently weak as to avoid provoking hostility from multinational capital and to maintain a profit sharing ratio with FDI such that it acts as a multiplier on domestic capital investment.

    Here is a simpler explanation: China has nukes. Compare the US criticism of Zimbabwe, to the complete absence of criticism of China, even of China's activities in Africa. They accuse Zimbabwe of not being sufficiently democratic, but voice no such criticisms of China, which is still a communist state, with a truly horrific human rights record. By every metric, Zimbabwe scores better than China (treatment of prisoners, human rights violations such as the One Child Policy, occupation of neighboring territories [compare Zimbabwe's support for the government of the DRC to China's occupation and colonisation of Tibet], etc.).

    Lack of hostility from FDI has nothing to do with China's economic policies. They developed their own economy, they own their own corporations, they own their own land, and have a very large army. They're calling the shots.

    And, because they own their own corporations, the profits they make actually stay with them. The result: they own much of the US's foreign debt. This is the result of 'free trade' going one way only.

    I would say lack of restrictions on foreign ownership have nothing to do with lack of histility to China, it is that they call all the shots, and do not have significant sectors of their economy owned by their former colonial power.

    That is the key.


    Lawrence Mindela,

    If you look at the China, India, South Korea singapore, (the list goes on) there was a recognition that the fundamentals of real development starts with a strong education system, enterpreneurship and a health care system that works. Singapore's Lee Kwan Yew economic policies set the stage for Singapore as we see it today. Those are things we can do.

    All things that were the first to go, with the IMF/World Bank's structural adjustment programmes. Eliminate spending on healthcare and education as much as possible, with vague promises that 'the private sector' (the mines, perhaps) would step in - although forcing them to do so would be 'too restrictive'.

    This is where an insane economic philosophy met political corruption. The result is thousands of children pouring out onto the street. And MPs voting themselves payrises.

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  38. Kafue001,

    Actually it does not matter who owns the means of production, much more important is the volume of production. This is why in the 1950's the European nations overcame their individual sense of nationalism to create the European Economic Community. They saw the benefits of mass markets and free movement of economic resources for their population, so rather than protecting their own industries, they gradually began removing economic barriers.

    Actually it very much matters who owns the means of production.

    The EU has massive restrictions on capital, ownership, etc. There are myriads of regulations, which is why there is such a diveresified German beer industry.

    And you say it does not matter who owns the means of production - so who benefited from the boom in copper prices over the last few years?

    I guess that doesn't matter either, right?

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  39. Mr K,

    I was referring to the removal of internal trade barriers within member countries of the European Economic Community:

    http://www.historiasiglo20.org/europe/traroma.htm

    In Zambia's case, the mines had been run down after years of State ownership, hence incentives had to be given to attract investment for mine rehabilitation and expansion:

    http://www.nytimes.com/2000/11/10/business/hope-for-a-copper-mining-renaissance-in-zambia.html?sec=&spon=&pagewanted=1

    The boom in copper prices was not foreseen, as even Anglo American decided to exit Zambia just before the boom began thus losing out on a substantial amount of profit:

    http://news.bbc.co.uk/2/hi/business/1782684.stm

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  40. There is also free movement of capital in the European Union.
    "For companies it principally means being able to invest in and own other European companies and take an active part in their management."

    http://ec.europa.eu/internal_market/capital/index_en.htm

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  41. Kafue001,

    Actually it does not matter who owns the means of production, much more important is the volume of production. This is why in the 1950's the European nations overcame their individual sense of nationalism to create the European Economic Community. They saw the benefits of mass markets and free movement of economic resources for their population, so rather than protecting their own industries, they gradually began removing economic barriers.

    There is cooperation at the European level, but that does not mean that all barriers to trade, even within the EU have been lifted.

    In fact to this day, there are farm subsidies, and all kinds of regulations governing local production and brand names.

    To quote from Jared Diamond's website:

    It turns out that the German beer industry suffers from small-scale production. There are 1,000 little local beer companies in Germany, shielded from competition with each other because each German brewery has virtually a local monopoly, and shielded from competition with imports. The United States has 67 major beer breweries, producing 23 billion liters of beer per year. Germany has 1,000 major beer breweries, producing only half as much beer per year as the United States. That's to say that the average brewery in the U.S. produces 31 times more beer than the average brewery in Germany.

    These kinds of regulations also work to keep foreign competition out of Japanese manufacturing.

    And it is not a bad thing.

    There has to be a balance between corporate rights to produce as much at a high a volume as possible, and the maintenance of demand through keeping jobs local.

    This undermines the corporate quest for reducing costs, but saves the economy by maintaining a balance between supply and demand - income represents the demand side of the economy, and people without jobs, or with low paying jobs, provide less demand than people whose jobs are secured by unions and regulation like the above.

    We have to have an economic model that balances the power of corporations and the power of workers to maintain a high standard of living. Only then should be pursue growth, because everyone wins.

    I would say it would be intersting to look at a measure of Domestic GNP and the GINI index, instead of growth in GDP.

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  42. The need for African economic integration:

    http://news.bbc.co.uk/2/hi/africa/8361617.stm

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  43. I'm from South Africa. My view is that America views Africa as an underdeveloped market. That means that the business environment it seeks is still not visible enough: 1. low corporate taxes ( Zambia has high taxes ) 2. Modern infrastructure ( internet, road, railway, port, airfields ) etc. 3. Skilled employees ( with some corporate experience ) 4. Low crime 5. Cheap electricity and water. 6. Access to modern banking facilities. 7. A developed market - Europe is attractive because millions of wealthy citizens live close to each other. Targeting those markets with investment in high technology production is easy. I'm thinking of automotive manufacturing and aircraft production... so Africa attracts only the type of investment that isn't high tech: agriculture, mining, banking, tourism etc. Unless a country can compete with powerhouses China and India in terms of all business factors, especially labor costs things are difficult. Africa needs leadership that understands that it is all about competition and the best return on investment.

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  44. Hi Anonymous,

    Africa needs leadership that understands that it is all about competition and the best return on investment.

    It is time we let go at the collective delusion that was neoliberalism, also known as supply side economics.

    Doing well economically is not about competition, it is not about comparative advantage.

    It is all about building a national economy, one that is not dependent on the exportation of not only raw materials, but not finished goods either.

    What we need is an economy that is internally driven - people nationally and locally manufacturing all the goods that are needed. Companies should produce for the national market first, and only export surpluses, not depend on exports for the economy itself.

    That means locally growing and buying food, manufacturing consumer goods in Zambia, etc. There is no way that Zambia could or should even want to compete with Chinese slave labour.

    We need to protect and stimulate our own producers, to maximize incomes and to retain as much money in the economy as possible.

    The raw materials industries exist only to capitalize the diversification of the economy - agriculture, manufacturing and infrastructure.

    Most of all, we need policies that raise people's incomes. So let's start to develop the country.

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  45. Africa's 1 Billion Consumers Too Many for Wal-Mart to Ignore:

    http://www.bloomberg.com/news/2010-10-20/africa-s-1-billion-consumers-getting-richer-can-t-be-ignored-by-wal-mart.html

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  46. Wow! 3 hours of reading and research of the comments section alone. MrK and Yakima among others were awesome. You need thumbs up on this site.

    BTW I understood most comments and agreed with them. I think the arguments road on both sides of the same fence for the most part. But, whole heartedly I feel the same as MrK. It's really simple math. Pay yourself first. Don't let others strong arm you to make bad decisions.

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