Cheap Bank Loans by cpb17381

VIEWS: 24 PAGES: 10

More Info
									Knocking on a wide open door:
Chinese investments in Zambia
Peter Kragelund



DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES
  Main argument
 Aim: Qualify the current dichotomous discussion of
  ‘China in Africa’
   – Account for current trend in Chinese investments in
     Zambia
 Argument: Deliberate policies and very liberal
  investment policies have enabled Chinese companies
  to acquire a strong foothold
 Consequence: ’Traditional’ explanations do not
  sufficiently account for their presence
   – → need to take other (internal and external) factors
     into account
   – → change focus of the discussion: away from a simple
     critique → usage of policy space to maximise benefits

  DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES
  Outline of presentation

 Chinese investments in Zambia
 Chinese investment policies vis-à-vis Zambia
 Western donors and the shrinking policy
  space
 External actors and the Zambian economy
 Concluding remarks:
  – Both push and pull factors matter


  DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES
  Chinese investments in Zambia

 Poor data quality, but growing importance
  – FDI stock (2006): 3rd most important investor
    (after UK & RSA)
  – FDI flow (2006): most important investor
    followed by France and Cypres
 Chinese companies not only invest in
  resourse extraction activities
  – In fact, mining investments are dominated by
    companies originating elsewhere

  DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES
           Sectoral distribution of Chinese
           companies in Zambia, 2006
                 Number       ZDA           ACCZ     Non-ZDA         ZDA       Revised breakdown
                   of        certified     members    certified   investment
                companies   companies                  ACCZ         pledges    ($ mn)      (%)
                                                     members        ($ mn)

Agriculture       23            21            8          2            10         10         2
Construction      28            20           14          8           35.5       35.5        7
Manufacturing     76            74            9          2           299         79         15
Mining             8            7             3          1          22.2       392.2        74
Service           37            21           21         16           11.9       11.9        2
Timber             3            0             3          3            0           0         0
Total             175          143           58         32          378.8      528.6       100

 ZDA is not the only institution allowed to license FDI
     – Local governments and line ministries may also license investments
 Some (major) manufacturing investments are mining-related
     – E.g. Chambishi copper smelter, Sino-Metals Leaching Plant and BGRIMM Explosives
          • Subsidiaries of same company


           DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES
   Facilitation of Chinese investments
   in Zambia (at home)
 Central government plays a central role in directing FDI activities
    – Resources, new markets, circumvention of quotas, and transfer of
      capabilities
 Internationalisation of Chinese enterprises (1992)
 ’Go out’ policy (2001) → Chinese enterprises into international
  competitive players
    – Reduction of red tape, tax incentives, cheap loans and subsidies
 Year of Africa (2006)
    – Africa Policy (bilateral facilitation of investments…)
    – 3rd FOCAC
    – Beijing Action Plan (Development Fund, ETCZ)
 Low-interest loans (BOC, ExIm Bank, State Dev. Bank & Agri. Dev.
  Bank)
 BITs with 28 African countries



   DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES
   Facilitation of Chinese investments
   in Zambia (abroad)
 Chinese embassy (Economic Counsellor’s office)
   – Facilitates a positive attitude towards Chinese FDI
 Chinese Centre for Investment Promotion and Trade
   – Indentifies suitable investment projects and provides practical
     support
 Association of Chinese Companies in Zambia
   – Chinese Chamber of Commerce
 Bank Of China
   – Offers cheap loans and eases day-to-day operations
 Zambia-China Economic and Trade Cooperation Zone
   – Export hub for locally produced Chinese goods



   DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES
  Western donors and the shrinking
  policy space
 ERP
   – Aim: economic growth ↑ & correct imbalances
   – Means: trade liberalisation, exchange rate
     liberalisation, fiscal and monetary reforms, and
     liberalisation of investment codes
 WTO (especially TRIM) regulates FDI
   – Outlaws host governments’ use of discriminatory
     investment preconditions and performance
     requirements
 BIT: protection for investors
   – Often include bans similar to TRIM re local content,
     employment and technology transfer

  DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES
       External actors and the Zambian
       Economy
 Mulungushi Reforms:
    – Public to private ownership → nationalisation of the economy → ended the era
      of FDI in Zambia
 ERP – revise the role of foreign investors in Zambia
    – 1991 Investment Act
        • Allow foreign investors to retain 100% of foreign exchange earning, and exemption of
          company tax and custom duties
    – 1995 Mines and Minerals Act
        • Particular incentives to foreign investors to invest in mines & paved the way for
          Development Agreements
    – 1996 Investment Act (a condition for extension of a WB loan)
        • Established the ZIC
 Current regulation
    – ZDA Act (no requirement re local content, TT, equity, employment, or use
      of subcontractors
    – MFEZ (Duty-free imports of raw material and capital goods)
       DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES
      Concluding remarks
 Chinese companies not only extract raw materials
   – they are engaged in several different sectors, but
   – State support focuses practically only on strategic investments
 Chinese companies are not unique in Zambia
   – Other companies also benefit from rocketing copper prices and the
     receive state support
 Push factors may explain why large-scale Chinese TNCs invest
  in Zambia
   – but they cannot account for the numerous smaller privately owned
     Chinese enterprises in Zambia
   – They have been pushed out of China due to decreasing profit margins,
     but they did not choose Zambia per se
 Pull factors especially a very liberal investment climate has
  paved the way for vertically integrated Chinese companies
      DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES

								
To top