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Tuesday, 12 January 2010

On Chinese Investments (Guest Blog)

Of late, investments by Chinese corporations in Zambia seem to have become a topical issue among politicians and the general public. I have, therefore, found it necessary to make a contribution to the debate by citing some of the advantages and disadvantages of such investments to Zambia.

Foreign investment is generally regarded as an essential element in any given country’s quest for accelerated and protracted socio-economic development. It can bolster a country’s efforts to uplift a good segment of its poor people from squalor. Such investment may consist of “portfolio investments” (composed of investments in financial assets like bonds and stocks) and/or “foreign direct investments” in production facilities, real estate, inventories, and/or other non-financial assets.

Ordinarily, investments by Chinese companies take the form of foreign direct investment (FDI). Propo nents of this form of invest ment usually cite the po tential benefits of the multina tional enterprise (MNE) to a host nation in discerning the necessi ty of such investment, since the MNE is generally regarded as the vector of FDI.

They claim that MNEs can: (a) make it possible for a country to gain access to investment capital and advanced technolo gy; (b) cont ribute to the creation of employment opportu nities; (c) introduce a diversity of new products in a host country, thereby affording local consum ers a greater assortment of products to choose from; (d) make a contribution to the tax revenues of a host govern ment; (e) promote exports and, thereby, con­tribute to the generation of foreign exchange; (f) boost competi tion in the host economy and, thus, prompt local busi nesses to seek greater efficien cy in their operations; (g) promote local business es which supply inputs and/or render servic es needed by MNEs to support their opera­tions; and (h) contrib ute to the develop ment of technical and manage ri al talent in a host country.

For these and a host of other important reasons, the promotion of FDI has become one of the major components of the eco nomic policy regimes of appar ently all countries of the world today. In fact, even countries which already have strong economies (such as Sweden, Australia, and G-7 nations) and have histori cally relied mainly on local investment have gen erated ambitious policies de signed to attract FDI. It is, there fore, important for us to be aware that our country is competing for FDI not only with developing countries but also with the more developed and affluent countries in the world.

The operations of MNEs are, of course, not without costs or disadvantages to a host coun try like Zambia; critics of such enterprises often claim that they can: (a) contribute to the self-perpetu ating depen dence of a host country on foreign techno logy; (b) cause disloca tions in a host country’s balance of payments when they import raw materials, repatriate profits, and/or engage in transfer pric ing; (c) subject local business es which do not have the nec essary material and financial resources to compete effecti ve ly with them to unfair competition in industri al, consumer and labor mar kets; (d) contribute to the degradation of the physical environ ment through air, water and solid-waste pollution; and (e) introduc e foreign social values and/or consump tion patterns that are likely to dis rupt locally cherished moral and cultural practices.

For a country like Zambia, which has failed to break the bond age of the majority of its people to destitu tion, the potential bene fits of Chinese and other foreign investments certainly out weigh the poten tial costs of such investments. In fact, the costs often associ at ed with FDI and the MNE are normal effects of a live economy which Zambia could reduce to acceptable levels through regulatory and admin is tra tive mecha nisms.

But Zambia should not expect such investments to flow into its economy like manna from heaven, because a great deal of effort is needed to lure foreign investors. It is, therefore, essential to create an enabling invest ment environ ment that provides for attractive tax incen tives, adequate skilled labor, a network of business support services and institutions, well-developed infrastruc ture (includ ing energy, water, telecom­mu nica tions, and trans port facili ties), and protracted industri al harmony.

Besides, both local and foreign investors expect the Zambian gov ern ment to provide for the follow ing: (a) adequate public services, including police and fire protec tion; (b) adequate public facilities, including educa tion al, vocation al, recreational, sewage, and healthcare facili ties; (c) political and civic leaders who are fair and honest in their dealings with private businesses; (d) stable econom ic policies, inc luding a formal assurance against na tionaliza tion or expropria tion of private ly owned busi nesses; (e) a well-developed stock market; (f) less bureau cratic licensing, import, export, and other pro ce dures; and (g) adequate informa tion about invest ment and mar keting problems and oppor tu nities, such as that which is currently being provided by the Zambia Development Agency.

If they are adequately catered for, these servic es and facilities can boost investments by both local and foreign investors, as well as enable businesses to operate more efficient ly and eventually deliver economic and social outputs to society at reason able costs and prices.

The Zambian government should expect foreign investors to: (a) cooperate with local institutions in improving community life, and participate in programs designed to benefit less-advantaged citizens; (b) comply with stipulated laws and regulations; (c) respect local people’s traditional and ethical values; and (d) refrain from engaging in unscrupulous business practices.

Henry Kyambalesa
(Guest Blogger)

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