Introduction
Foreign Direct Investment (FDI) has been long considered as a major source of
capital in many developing countries in the world. Since many developing
countries do not have adequate domestic capital, they adopt measures to
attract capital from external sources. Although investment is considered as
one of the crucial factors for higher economic growth and development, there
is no unanimity among stakeholders about the role of FDI in achieving these
objectives. This is especially true in the context of the sub-Saharan African
countries, where FDI has not made considerable impact on the economic
situation.
The capacity of African countries to attract and channelise FDI to productive
sectors is principally determined by their natural resource base and the size of
their local markets. United Nations Conference on Trade and Development
(UNCTAD) World Investment Report (WIR) 2003 has identified the natural
resources sector as an important determining factor for FDI flows into Africa.
Although there have been several analytical and empirical studies on FDI
inflows, there is little consensus on which factors play an unambiguous role in
explaining the location decision of foreign investors. It is generally accepted
that market size and access to natural resources are crucial determinants in
their decision-making processes on investment. The various incentive schemes
of host countries normally play a secondary role in attracting investment. The
1990s, however, saw the growth of efficiency and strategic asset-seeking FDI.
Globally, trans-national corporations (TNCs) are the major source of FDI.
Globalisation, a worldwide trend towards integration of markets, has led to a
change in the FDI strategies of TNCs. Faced with increased international
competition, TNCs’ global strategies seek to maximise their competitiveness,
by locating facilities in multiple locations around the world. Thus, attracting
FDI is increasingly dependent on the ability of countries to provide a favourable
FDI regime and competitive factors of production.
Investment in natural resources-based production systems brings with it a
number of drawbacks. First, the prices of mineral, energy and similar primary
products are, historically, prone to wide fluctuations and, thereby, expose the countries to great vulnerability. Second, many natural resources are nonrenewable
and require strict management. Third, investment in natural
resources-based sectors can attract massive inflows of foreign currency, and
that can lead to a continuous appreciation of the local currency for some time,
but can lead to depreciation as soon as the boom period is over. Finally, many
of these sectors (e.g., mineral, oil, gas, etc.) are capital-intensive, with
standardised processes that require very little adaptation to local labour and
technologies, thus generating only modest, spontaneous positive spillovers
and backward linkages to the local economy.
A stable, efficient and professional environment that welcomes investors into
most economic activities, without discrimination, is a necessary prerequisite
for FDI inflows. Modern, legal and intellectual property rights, effective
competition policies, a strong judiciary and minimum bureaucratic procedures
are all important to attract foreign investors. However, the ultimate determinants
of FDI are the competitive factors of production which no longer mean just
cheap raw materials, labour and basic infrastructure but also require adaptable
labour skills, sophisticated supplier networks and flexible institutions. While
tax incentives can enhance a country’s attractiveness, if other factors are
unfavourable, these will be insufficient to significantly increase inflows of FDI.
The promotion of FDI in the natural resources sector in Zambia should,
therefore, be accompanied by enforceable policies aimed at industrial
diversification, the promotion of an R&D-base and backward linkages from
natural resource-based industries to local industrial companies. Policies should
aim to encourage a shift from the exploitation in this sector to the promotion of
more refined goods for export purposes. This is especially important with
regards to non-renewable resources, the use of which provides a one-time
boost to the industrialisation process.
The Investment for Development Project
In the light of the critical importance of FDI in the framework of developing
countries, the ‘Investment for Development’ project endeavours to study the
investment regimes of selected developing/transition economies and build
capacity on investment policies, trends and perceptions. The emphasis is on
co-operation between countries and regions sharing information and experience
and engendering joint initiatives.
This two-year project, launched in September 2001, is being supported by
the Department for International Development (DFID), UK, and implemented
by Consumer Unity & Trust Society (CUTS), India, in collaboration with
UNCTAD.
The project involves fact-finding and advocacy work on investment regimes in
seven developing and transition economies, namely, Bangladesh, Brazil,
Hungary, India, South Africa, Tanzania and Zambia. CUTS Africa Resource
Centre, Lusaka, is the partner organisation for the project in Zambia.
National Reference Group (NRG)
One of the key components of the IFD Project was to form a National Reference
Group (NRG) in each of the project countries. The role of the NRG was to:
-
monitor the quality and content of the research outputs generated;
-
create a sounding board which could be used for advocacy on foreign investment regimes in the project countries;
-
facilitate discussions on international investment issues and deliberate on
strategies which could be used by developing countries at international
fora; and
-
attract attention to the project at the national level, through NRG meetings
scheduled throughout the timeframe of the project.
The NRG in Zambia comprised of the following:
-
academia;
-
media;
-
civil society organisations that have a bearing on economic issues;
-
non-governmental organisations (NGOs);
-
government ministries, departments and statutory bodies that deal with investment issues, in one way or the other; and
-
Chambers of Commerce.
Highlights of the Report
This report is one of the seven such reports prepared by each partner organisation, as part of the project. This report contains:
-
the highlights of the discussions in the NRG meetings;
-
the background and analysis of key areas of the debate on FDI; and
-
prioritised policy recommendations emerging from the project research and the meetings.
It also contains action points on FDI for civil society, governments and intergovernmental
organisations. The report will be distributed widely in the country
among policy makers, civil society organisations and business groups.
Organisation of the Report
This report comprises seven sections, Introduction being the first one. Section
two deals with investment policy, performance and perceptions in Zambia;
section three discusses briefly stakeholders’ views on FDI in Zambia, while
sections four, five and six discuss the advocacy points for the government,
inter-governmental organisations and civil societies, respectively. Finally,
section seven contains a brief conclusion.
|
- 160Kb ~ 1 min (37 pages)