DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES Knocking on a wide open door: Chinese investments in Africa 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 Cypress  Chinese companies not only invest in resource 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 of companies ZDA certified companies ACCZ members Non-ZDA certified ACCZ members ZDA investment pledges ($ mn) Revised breakdown ($ mn)(%) Agriculture Construction Manufacturing Mining Service Timber Total  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: –Private to public 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