Foreign Direct Investment (FDI) into new projects or what is known as greenfield projects, plummeted in developing economies in 2020 to levels last seen 15 years ago as reported by the World Investment Report 2021 dubbed “Investing in Sustainable Recovery”. FDI flows to Africa declined by 16% in 2020, rolling back progress made in bridging investments gaps towards the sustainable development goals (SDGs). Declined investment was owed mainly to the collapse in export demand due to the Covid-19 pandemic as well as a drop in commodity prices which weighed heavily on investment prospects to Africa.
Despite investment declines generally, Zambia in 2020, attracted a substantial amount of $11 billion investment towards infrastructure and renewable energy. The country is poised as a preferred investment destination owing to a stable political environment, a rich endowment of natural and mineral resources as well as a well-functioning democratic system and by this investment friendly criteria, Zambia did score big on investment in 2020. The investment deals are meant to help Zambia achieve SDGs.
The focus of global investment for the future is building back better, with economic resilience and sustainability shaping investment priorities for both policymakers and firms. Infrastructure sectors including physical, digital and green infrastructure continue to be at the core of investment recovery because of their alignment with the SDG agenda, the role the public sector plays and the high multiplier effect they have with other sectors. The investment report highlights that a broader perspective, nonetheless, will require industries such as manufacturing to be at the centre of investment in sustainable recovery as industries are key to growth in productive capacity. So while we celebrate the investment achieved in infrastructure, it is observed that inflow of FDI into the Zambian manufacturing sector remains low.
Zambia’s physical, digital and green infrastructure remains limited for the flourishing of industry, and it is important to grow it. For instance, the energy sector which is vital for production processes in not only the manufacturing sector but other industrial processes, is limited. Access to electricity in most parts of the country remains a big challenge. According to the Energy Regulation Board Energy Sector Report 2020, Zambia has 3,011.23 megawatts of installed electricity capacity of which 85% is hydro based and national access to electricity stands at only 38%. Electricity, an important input in the manufacturing production process is a key priority and a must have factor for investors, before committing to investing into the manufacturing sector because production processes are energy intensive.
Additionally, limited and low access to infrastructure such as roads, telephones and internet discourages prospective investors from setting up in Zambia, redirecting investments to other countries with easy access to electricity and infrastructure such as South Africa. For comparisons sake, in the period between 2011 to 2020 South Africa’s inflow of FDI stood at USD 43.1 billion while Zambia had a net inflow of USD 172 million.
Another concern for investors is the high cost of doing business in monetary terms as well as the time costs related to compliance procedures such as obtaining statutory licenses and permits to operate. According to study undertaken by ZAM, manufacturers are required to subscribe to over 46 licenses, which cost over K120,000 for small enterprises and over K2 million for large enterprises and the period can take as long as 6 months if processed within time but in actuality may take years to be processed, discouraging would be investors.
Indeed, efforts have been made by the Government to revamp investments and trade. Recently, the first ever EU-Zambia Economic Forum was hosted between the 18th to 19th May 2022 whose objective was to increase and strengthen investment as well as trade opportunities for Zambian firms with the European Union countries, and promote a conducive environment for dialogue between businesses, businesses and government and Government entities as well. Such initiatives are applauded but as we await for the results of the dialogue the authorities can ensure to work on the underlying challenges for investment.
Firstly, the Government must increase the nations access to electricity by continuing to promote investments in electricity generation so as to reduce the cost of electricity. Talks continue on the Open Access to Electricity Policy but will require to be hastened to ensure that electricity accessibility and affordability is a must. Increased access to will drive industrialization and lead to increased growth.
Additionally, the Government must hasten the process of harmonizing and streamlining licenses and permits to ensure that the cost to initiate business is minimized and allows for would be investors to obtain to reduce the monetary as well as time costs associated with doing business in Zambia.
Finally, the private sector has an important role to play in creating investment opportunities. In this regard, the Zambia Association of Manufacturers has recently been working on an Investment Opportunity Profiling Project in collaboration with the United Nations Industrial Development Organization (UNIDO). This project aims at increasing investment opportunities in the manufacturing sector through a platform called the Digital Investment Profiling System (DIPS) where different manufacturers across all sub-sectors are profiled and information is uploaded on the system. This system acts as a link between manufacturers and potential investors which includes both local and international investors.
This could be as a result of other important investment indicators not being in place. As highlighted by the industrial diagnostic study in Zambia 2020, main determining factors for FDI inflows include economic and political stability, a range of attractive investment opportunities, conducive legal and regulatory frameworks and adequate infrastructure
