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Saturday, 5 December 2009

Bigger than ZAMBEEF? (Update)

Reports last week that a UK firm intends to invest around $240m in Agriculture over next five years, in what has been touted as the largest single agriculture investment this year. In the long term it is argued this could surpass ZAMBEEF PLC :
A British company intends to invest an initial K235 bn ($51m) in Zambia's agriculture sector starting this year. Chayton Capital operating as CHOBE Agrivision Limited further plans to invest over K1.1 trillion in Zambia in the next five years.

Commerce Minister, Felix Mutati, and Chayton Capital Executive Director, Karim Ola signed an Investment Promotion and Protection Agreement in Lusaka on Thursday. Mr. Mutati described the venture as the largest single investment in the agriculture sector in 2009. He said CHOBE agrivision which will venture in Wheat, Soya beans and maize production will employee more than 1,600 Zambians. The company will develop 10,000 hectares and is expected to produce 60,000 tonnes of wheat, 45,000 tonnes of maize and 15,000 tonnes of soya beans per year.

And Ms. Ola said her firm will develop farms starting from Monze to Mkushi. She said Zambia is the first African country that is benefiting from Chayton Capital's business activities. She said the firm traditionally invests in emerging markets in Asia and Eastern Europe. CHOBE agrivision will become the largest agri-business in Zambia surpassing ZAMBEFF PLC.
Update (5 December 2009) :

More information on the Chayton Capital investment. The company representative, Neil Crowder revealed earlier this week what has attracted the company to invest :
He observed that among the incentives further attracting investment is the reduced duty by the Zambian government on imports relating to agricultural machinery and the farming dividends and profits tax-exempt for the first 5 years of operation. Others are the 100 per cent tax allowance for outlay on land development, conservation and wear and tear allowance of 50 per cent for the first two years on machinery employed for agriculture. Mr Crowder further said the 50 per cent depreciation rate, allowing machinery to be written off also contributed to the company's financial investment in the Zambian economy.

The "staged investment" must be seen in light of these incentives. It is quite possible that no more than $51m would be invested because with extent of the incentives would be sufficient for the company to recoup the profits and simply reinvest. In short to speak of additional $251m (or is it $241) is misleading because the $200 is presumably the excess profits they see making over the five year period, which they may reinvest.

9 comments:

  1. Yes of course Zambia's investment climate is good under the MMD administration. This should be a lesson to the socialist MrK that only market based solutions can achieve greater longer sustained economic growth and not govt funded socialist programs.

    Sure sometimes it is ok for govt to speed up the market like in terms of FSP but for the most part, market based solutions are the best solutions for attaining economic growth.

    The socialist MrK must stop jumping from blog to blog to spread his socialist mine dependent paranoia similar to Sata's 90 day economic miracle formula.

    ReplyDelete
  2. How do you know who this is good for? Under the present investment conditions, there will be no profit sharing or paying of taxes.

    There is no guarantee that any of this food will end up in Zambia.

    And if it does, it will wipe out small cale producers, making Zambians dependent on one big single foreign owned food producer.

    You have to ask yourself - what economic growth, on what conditions, and for whose benefit?

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  3. "How do you know who this is good for?"

    Well this is good for the people that will benefit from job creation and supply as well as distribution chain companies that will be connected to this big foreign owned agriculture scheme. We have been talking about revamping NCZ for a long time but we have all opted for a govt funded recapitalization, no one has thought of a market solution to a market problem. This foreign owned company cannot pass the opportunity of buying fertilizer from NCZ if it is cheaper than imported fertilizer. There is a market solution to a market problem.

    "There is no guarantee that any of this food will end up in Zambia."

    Well as long as this will add money into the govt coffers and bring about employment, who the hell cares. There is plenty of land in Zambia for us to exploit to grow food locally.

    "And if it does, it will wipe out small cale producers, making Zambians dependent on one big single foreign owned food producer."

    If the small scale farmers are worried, they can form a sort of union which will act like a company. This will market, sell, distribute their produce for them and transfer the profits to the farmers in the union. This same union could also look at market trends and provide the necessary information to the members. Each small scale farmer who joins the union gets to have one vote. This will provide some insurance that the small scale farmers don't go out of business.


    "You have to ask yourself - what economic growth, on what conditions, and for whose benefit?"

    All I can say is we tried socialism and ended up over $7 billion dollars in debt.

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  4. The terms under which Chobe is investing are superb. I have always wondered why such conditions hadly apply to local investers. Mrk has raised wonderful questions that need to be thought through critically.

    Its amazing how we feel good by the number of jobs the next foreign invester will create for our people. When are going to create jobs for ourselves let alone formulate policies that will favor ourselves. Capitalist or socialist or whatever term we can coin ourselves, we need to sit down and see what would work best for us.

    I felt like making my first contribution to this wonderful blog. Hope am wellcome.

    ReplyDelete
  5. " He said CHOBE agrivision which will venture in Wheat, Soya beans and maize production will employee more than 1,600 Zambians. The company will develop 10,000 hectares and is expected to produce 60,000 tonnes of wheat, 45,000 tonnes of maize and 15,000 tonnes of soya beans per year. "

    How can anyone in Zambia or the diaspora compete with that?

    Not only are they squeezing out Zambian producers, they are squeezing out anyone in the diaspora who would want to set up something similar, but locally owned. Why would anyone in Zambia, not only creating local jobs, but giving people a more than living wage with disposable income, compete with some corrupt multinational's deals with local politicians?

    Until the Zambian government is there to look after Zambian interest, and not try to cut corrupt deals for themselves, selling out the country, at the expense of everyone, no development is going to take place.

    This is not 'development'. This is just a foreign corporation setting up in a low wage country and buying cheap land.


    Mr Capitalist,

    " Well this is good for the people that will benefit from job creation and supply as well as distribution chain companies that will be connected to this big foreign owned agriculture scheme. "

    At what price do these 'jobs' come to Zambia?

    I have the data for the mining industry. In 2004, foreign corporations in Zambia exported $4 billion in copper, cobalt and other minerals. They made about $2.4 billion in profits. The total numbers of jobs in mining 58,000 (according to President Banda).

    Foreign corporate profits: $2,400,000,000
    Total jobs creaed in mining: 58,000
    Foreign mining company profit per job created: $41,379.-


    In other words, for every job created, Zambians pay a foreign investor $41000 per year from their own raw materials.

    This is what happens when you create jobs at all costs, and don't think about development, a multiplier effect of economic activity, or who profits.

    If the small scale farmers are worried, they can form a sort of union which will act like a company.

    You mean like the old cooperatives? I am all for that. In fact, I want the government to legislate in favour of indigenously owned and operated cooperatives, over the likes of CHOBE Agrivision Ltd.

    Let the government tax the mines and recapitalize the farm blocs, cooperaties and parastatals. No need to export jobs and capital by giving free reign to foreign corporations.

    ReplyDelete
  6. "You have to ask yourself - what economic growth, on what conditions, and for whose benefit?"

    All I can say is we tried socialism and ended up over $7 billion dollars in debt.

    Then we tried free for all capitalism (neoliberalism, market fundamentalism), and ended up without the mines. We have missed out on the biggest boom in copper prices in a generation, and mising out on over $10 billion in untaxed profits since the year 2004.

    As Cho has already pointed out, many of the jobs created were previously destroyed through joblosses from privatisation.

    Also, the term 'Socialist' is an umbrella term (as is 'Capitalist'). I am advocating a mixed economy of state owned infrastructure and social safetynets, and a thriving private sector. However, I am not in favour of just any private sector, but one that is dominated by hundreds of thousands of SMEs owned by local people, not one dominated by large foreign owned transnational corporations that owe no allegiance to the Zambian economy.


    Sangalalani,

    Hi, You're more than welcome. :)

    The terms under which Chobe is investing are superb. I have always wondered why such conditions hadly apply to local investers.

    People often talk about the government creating an enabling environment for investment. However, they always frame it in terms of foreign corporations, not local businesses - and that is the problem.

    There should be massive support for local businesses, not the likes of CHOBE Agrivision.

    Also, I have a strong antipathy to large corporations. I can bare with large parastatals, as long as they are basically part of the nation's business infrastructure. If they enable the SME sector with services and basic products. In other words, if they exist to provide a multiplier effect on local businesses.

    Its amazing how we feel good by the number of jobs the next foreign invester will create for our people. When are going to create jobs for ourselves let alone formulate policies that will favor ourselves. Capitalist or socialist or whatever term we can coin ourselves, we need to sit down and see what would work best for us.

    Right, and even though I am in favour of a mixed economy, the private part of the economy still should be Zambian owned, if there is going to be a maximum impact on wealth creation, job creation, skill transfer, etc. In other words, the greatest economic multiplier effect comes from local ownership of the economy. Foreign corporations doing business in Zambia and taking advantage of (violating) the local economy for low wages, low costs of land and then exporting goods for foreign markets and depositing profits immediately in foreign accounts has a minimal multiplier effect.

    ReplyDelete
  7. The recapitalization of Nitrogen Chemicals (NCZ) of Zambia has been an issue for quite some time but no one has ever looked at he market conditions surrounding NCZ. Zambia is mainly a country with small scale farmers who most likely cannot afford bags of fertilizer unless they form some sort of union where they can put their pennies together to buy fertilizer.

    With such investments from ZAMBEEF and the other company, the recapitalization of NCZ would be essential and economically viable as there would be a market for the fertilizer. With also the commissioning of the Chirundu one-stop border post which would reduce transport costs, NCZ can tap into the Zimbabwean market for the fertilizer.

    These are but some of the few benefits that can be attained from this investment.

    ReplyDelete
  8. MrK

    I might be wrong but I believe in any of my posts relating to this story, I never said anything concerning mining and so I have no idea why you are feeding me that data on a story where I talked about something else.

    I am not saying we should concentrate more on foreign direct investment, Infact I am more for SME's than foreign direct investment but we must not rule out the importance of foreign direct investment because the truth of the matter is, THEY HAVE THE MONEY and we must use their money to the good of our nation.

    There is a certain MP who was very vocal against Chinese investment, today his company is a supplier to a Chinese owned company. Am I mad at him? no because these are the kind of businesses we should have in relation to FDI. If a big foreign investor makes a big investment be it mining or agriculture or whatever, we can have small to medium sized Zambian owned companies benefiting by supplying or connecting their goods and services to that foreign owned investment.

    Personally I do not support a mixed economy of govt and private companies running the economy. Personally the only sectors I am for a mixed system is healthcare and education where those who can afford can use private services in healthcare and education and this can help govt as they would devote more resources to the poor and those in the rural areas which are unlikely to see private sector investment in education and healthcare in their areas. But that is just my personal belief. You also have yours and I respect that. I do not however respect a socialist system because it had failed us and it failed us badly.
    I am for a free market system where many sectors are spear-headed by the private sector and govt just helps in setting up the proper infrastructure, regulation (where needed) and the right policies. I believe govt should not put its had where it is not needed.

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  9. I am looking at this blog 6 years later and the debate I am seeing is still applicable today. FDI or empowering the locals??

    ReplyDelete

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