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Essay: Unpacking the Zambia – China investment relations

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Eagles do fly with Dragons – unpacking the Zambia- China investment relations

At first glance, Zambia appears to be in economic woes. A burgeoning public debt that has stalled bailout talks with the International Monetary Fund (IMF), national unemployment rate estimated at 41.2 per cent and increasing corruption perception. As this storm is hovering over Lusaka, there seems to be an all-weather friend – Beijing.

Chinese investment is growing at unprecedented levels making the country’s investments the single largest Foreign Direct Investment (FDI) contributor in Africa, according to Ernst & Young latest report on Africa Attractiveness. Britain and the US which have long been the biggest investors are facing domestic uncertainties over Brexit and policy changes under President Donald Trump, hence paving the way for China to pick up pace in Africa.

Since 2005, China has invested in over 290 projects with investments totalling $66 billion and creating well over 130,000 jobs in Africa.
Zambia has become China’s second largest investment destination on the continent according to former Chinese Ambassador to Zambia YANG YOUMING, who disclosed during a farewell meeting in April this year.

South Africa continues to dominate the top slot of intra-regional investment on the continent.

Chinese investment into various sectors of the Zambian economy currently stands at $4 billion.

“China imported US$2.1billion and exported US$490 billion to Zambia. The total Chinese investment in Zambia currently stands at around US$4 billion. China-Zambia trade volume reached US$1.7 billion, with a year-on-year increase of 19.8 percent in the last half of 2017,” Ambassador Youming said.

With the country’s foreign policy direction tilted towards economic diplomacy, Zambia has continued to appeal to foreign investors due to attractive investment packages and conducive environment. Investment advisors seem to have caught the call to action right; “first five years tax holiday for your investment!” is the message they carry.

The investments act provides for several incentives in form of waivers and concessions with the most prominent being tax waives across different investment bands. For instance, a company which is investing not less than $500 million in a Multi-Facility Economic Zone (MFEZ) gets a five-year tax holiday on declared dividends, profits and import duty of machinery and specialised vehicles. Additionally, investment policies are built around openness and none discrimination of both local and foreign investors

“Making investors not pay taxes in the first five years of their operations helps to maximise benefits for both the country and the investor. This kind of incentive only happens in Zambia and there is no better deal for investment than this,” Anthony Mukwita, Zambian Ambassador to German said in an interview

Additionally, the population is mostly youthful which means there is a ready market for consumer products and skilled labour. Zambia also boasts of huge tracks of land for agriculture with over 750, 000 square kilometres of which 32 per cent of that is agricultural land.

Chinese investment in Zambia is said to be mainly focused on resource seeking. There is however growing interest in construction, manufacturing and trade. China is at present the major source of foreign investment for Zambia mainly because of its global strategy to invest everywhere. There has been a surge in the trade balance between the two countries – in 2008 Chinese trade accounted for 19 per cent of Zambian foreign trade, making China the second biggest trade partner.

Zambian imports from China are dominated by machinery while 95 per cent of its copper is exported to China. China has equally undertaken several aid projects in Zambia.

According to the Central Statistical Office (CSO) Zambia,

With the economy under pressure in areas such as unemployment and poverty, Zambia is set to benefit from accelerated Chinese investment and business activity in the country.

Analysts are warning that despite this growth, the investment relationship between the two countries is that of unbalanced partners largely driven by a considerable private-sector investment, often by smaller private firms with limited experience operating internationally and absence of regulatory oversight leading to severe flouting of labour laws and corruption scandals.

This kind of penetration has left a lot of ill feeling among locals who feel the Chinese are pushing them out of business. Zambia can however not do without the Chinese whose companies are effective and efficient in executing projects especially in the construction industry.
In both countries growth has been quick, but as the 2017 McKenzie report on China-Africa partnership points out, “the tilted nature of the relationships mean that macroeconomic shifts such as commodity price fluctuations and elections could jeopardize the sustainability of the relationship.”

Zambia-China relations – how do eagles fly with dragons

Both countries have national symbols – the eagle and the dragon for Zambia and China respectively. These symbols are picked with meaning in relation to what each country stands for. So how do the eagles fly with dragons?

An eagle has a razor-sharp vision which makes it easy to identify and focus on an opportunity. Its ability to soar above other birds makes it inaccessible to predators. The eagle also embodies pride – it knows what it wants but if it were forced to walk on the ground, the pitfalls of encountering danger

The dragon on the other hand makes secretive movements. It will not expose its next attack strategy. According to Brett Daniel Shehadey “It is confident of its own superiority but does not show it, for fear of envy. The greatest danger for the dragon lies in overexposure: if it shows itself too much, its rivals will distrust it and try to attack it at various points simultaneously.”

The eagles have been flying with dragons since the early sixties with the first diplomatic relations established in October 1964 when Zambia gained independence from colonial rule. The two countries have enjoyed long standing political relations, trade, economic and technical corporation and culture, education and health exchanges. Of course, there have been pockets of diplomatic misunderstandings such as the shooting of a Zambian national at by a Chinese executive at one the mines.

Between 1964 and 1991 under Zambia’s first Republican President Kenneth Kaunda, China provided support to consolidate Zambia’s independence from British rule and western control of the affairs of the country. In fact, when big economies in Europe such as German and international organisations including the World Bank turned down the funding proposal for the construction of a railway line linking Zambia and Tanzania, China stepped in and funded the Tanzania-Zambia Railways Authority (TAZARA) at a cost $3 billion in today’s monetary value. This gesture is the monument of friendship between the two countries and indeed Africa as a whole. During his tenure of office, President Kaunda visited China twice. Political relations continued from the second republic to date with several leaders paying each other visits.

The Chinese leaders who have visited Zambia include Vice Premier Zhu Rongji (1995), Premier Li Peng (1997) and Vice Chairman of the Chinese People’s Political Consultative Conference (CPPCC) Chen Jinhua (1998).

China was the first country Zambia’s current President Edgar Lungu visited outside Africa since he took office in 2015. This visit had far reaching significance in the Sino-Zambia relations.

President Lungu together with his Ugandan counterpart Yoweri Museveni were the only African Presidents invited for the Boao Forum for Asia (BFA) Annual Conference in the resort city of Sanya.

During his two day visit, the Zambian President held high-level bilateral meetings with Xi Ziping, Premier Li Keqiang and chairman of the CPPCC Yu Zhengsheng. This also marked the celebration of Zambia’s 50th independence anniversary as well as 50 years of diplomat ties with China.

“President Lungu is an old friend of China. I strongly appreciate the President’s emphasis on the development of strong bilateral ties. The two countries will continue to support each other around issues involving core interests and major concerns” said Mr Ziping

The Chinese leader pledged continued and accelerated investments in Zambia while President Lungu described the Sino-Zambia relationship as “sincere”. The two leaders witnessed the signing of four cooperation agreements covering economic technology, infrastructure, construction and communication.

Zambia has been seeking more business opportunities from China. The country needs to trade its copper, investments to create more jobs and technological expertise to develop its infrastructure. China on the other hand promised to see a win-win kind of cooperation.

The liberalisation of the economy and privatisation programme across various sectors in the early 90s opened a can of worms for Zambia. Endowed with rich natural resources such as arable land and minerals, the country has been one of the top investment destinations on the continent of Africa and has seen an unprecedented influx of Chinese investors.

Chinese firms are currently dominating in the construction sector, with a sizeable market share owing to the agility and decisive nature of pursuing opportunities.

“Chinese people have an aggressive attitude when it comes to business and innovation. What you will often see is that there is no time for research and development. If an idea promises business gains, their attitude is ‘let’s do this now and fix the problems later’, that’s why you are seeing massive investments everywhere”, said Fudan University Economics Professor Yin Xiangshou

True to professor Xiangshou’s observation, China now the biggest bilateral financier of infrastructure has had a robust approach to infrastructure development.

Multi-Facility Economic Zones

One of the major projects undertaken is the creation of Multi-Facility Economic Zones (MFEZ). The $900 million Zambia-China Economic & Trade Cooperation Zones (ZCCZ) in Lusaka and Copperbelt provinces opened in 2007 . The Zones are the first Chinese overseas economic & trade cooperation established in Africa under the framework of the forum for China-Africa cooperation (FOCAC).

Priority sectors include international commerce, agriculture, pharmaceuticals, mining, construction materials and service sectors such as banking and hospitals. At the time of establishment, the project was earmarked to generate about 7,000 local employment opportunities and up to $300 million local procurement contracts and are open to both local and foreign businesses. The zones were stablished to boost competitiveness and industrialization through provision of an attractive business environment, promote exports, and enhance domestic trade.

To date, the zones have generated an accumulated investment of over $1 billion and about 8,400 jobs created.

Mining giant China Non-Ferrous Metal Mining Corporation Limited (CNMC) with the support of both the Chinese and Zambian governments is the developer behind the project.

Established in 1983, the ‘fortune 500’ mining company boasts of vast experience in non-ferrous metals mining in Zambia and the globe “especially in overseas investment and cooperation, CNMC has accumulated rich experience in terms of investment, development, mergers and acquisitions, and integral development” Zhang Keli, CNMC President.

The benefits of Chinese investment in Zambia however remain debatable especially now.

China’s contribution to decent employment is very modest as Zambians are generally employed in menial jobs with poor working conditions. Most of the people employed in Chinese companies are still in the high categories of poverty afflicted Zambians because of slave wages.
There is need for the Zambian Government to strengthen labour laws monitoring mechanisms if Chinese investment benefits are to be holistic.

“China’s contribution to decent employment and poverty alleviation is possible if Zambia can develop, implement effectively through consistent monitoring of appropriate labour laws aimed at protecting the investor, the worker and the economy in general,” Dr Oswald Mungule, economist, said in a telephone interview from Lusaka

This has been compounded by the inability by Zambia to choose or even set minimum standards for investors; the country simply takes on whoever comes. As a result, foreign investors find it easy to short-change the country in their investment activities.

Economist Linda Yueh said African governments’ have fundamentally failed to set appropriate terms and conditions of investment suitable for a win-win situation.

“This problem is not unique to Zambia, most African leaders fear that once they set such conditions, they will lose out to countries that are ready to relax investment requirements and this is where we see a huge gap leading to inequalities not just in the job market but also on technology transfer to African industries,” she said

The obdurate influx of small scale Chinese business is threatening the survival of the existence of local businesses. There has been unprecedented in Chinese operated retail shops that sale just about anything from sweets to toothpicks. However, former Zambia Development Agency (ZDA) executive director Patrick Chisanga in an interview with BBC said the Chinese deliver cheap products and on time and adjust easily to the environment.

“Their greatest competitive advantage is that they are very hands on, when they come here, they will go and visit the places where they want to invest, they will lead simple lives and accept any form of accommodation particularly in the rural areas…” he said

There are rising concerns by Zambian businesses and community at large that Chinese investments are killing local business and defeating the purpose of a home-grown industrialisation policy. Other controversies surround the rate at which government is leasing and selling land already housing strategic infrastructure such as schools. Land belonging to National Resources Development College (NRDC), Jacaranda Secondary School and recently Kalingalinga Police Post has been sold to the investors.

Business executive Sipho Phiri who has been supporting the police post through corporate social responsibility, took on government authority via Twitter where Minister of local government and housing Vincent Mwale confirmed the sale of the land in question much to the annoyance of most residents

Zambia’s case is the opposite:

Countries such as Angola that are tilted toward government engagement need to proactively court Chinese private-sector investors. A key channel is the many business associations in China, organized by sector and by region. Countries such as Zambia with the opposite tilt—essentially private-sector overheating—should strengthen regulatory capacity and oversight of Chinese firms already active in the country. A key partner could be the Chinese economic consul’s office in the country, some of which already work on such initiatives as translating local laws into Chinese and assisting first-time Chinese investors in understanding local regulations.

oversight fro regulatory authorities has led to regular labor and corruption scandals over the past ten years.

African business leaders and governments have rallied behind the $440 billion opportunity meant to be unlocked from investment and partnership potential between the continent and China.

Statistics show that China’s investment drive in Africa has surpassed that of the EU, UK and the USA for instance (provide data)

14.6.2018

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