Contemporary insights into the dynamics of foreign direct investment in Zambia

Master Thesis


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University of Cape Town

Foreign direct investment ("FDI") has been acclaimed by authors and policy makers alike to be one of the pivotal interventions that African countries need in order to support the capital investment required to sustain economic growth, alleviate poverty, and achieve the Millennium Development Goals in the region. This research report aims to explain the evolution of the modern Zambian FDI environment and describe the dynamics at play in this thriving, yet poverty-stricken economy. Over the last 25 years, Zambia has made remarkable progress in transforming its investment climate in order to successfully attract of increased inflows of FDI over time. The primary interventions that brought about these changes in the country's investment climate involved privatization and liberalization policies of the 1990s, institutional reforms of the early 2000s, and the more recent establishment of the Zambian Development Agency for the facilitation of all local and foreign investment. As a result, the international community responded with growing interest in the Zambian economy. Despite having surpassed other African countries in attracting increasing levels of FDI, Zambia does not fully portray the perceived benefits of an economy experiencing an upswing in investment inflows i.e. – reduced unemployment, increased income, infrastructure upgrades, skills and knowledge transfer etc. The economy is still heavily dependent on one sector – copper mining, yet there remains a wealth of untapped natural resources which hold potential to improve Zambia's social and economic status – fresh water, arable land and gemstones. Key challenges in the country range across the spectrum from inadequate infrastructure to labour market challenges as well as the consequence of rising foreign firm entry – crowding out of local investment. The report suggests key policy interventions to be considered should be aimed at infrastructural service delivery improvement through privatization, leveling of the playing field for local and international firms to improve domestic market competitiveness and a focus on skills and knowledge transfer obligations of foreign firms.