Impact of Foreign Investment in Zambia

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Zambia is currently hosting a number of foreign investments concerns. Give a critical assessment of these firms as far as their contribution towards the socio-economic development of the Zambian society goes.

Foreign investment is important in any given country’s quest for accelerated and protracted socio-economic development. It is generally regarded as an essential element in that; it can bolster a country’s efforts to uplift a good segment of its poor people from squalor. This essay seeks to give a critical assessment of foreign investments firms as far as their contribution towards the socio-economic development of the Zambian society is concerned. But before the assessment, the essay will endeavour to define what foreign investment and further explain the forms of foreign investments. Foreign investment can be defined as the flows of capital or simply capital investment by firms of one nation into those of another in exchange for significant ownership stakes in domestic companies or other domestic assets. According to Potter (2008), foreign investment denotes that foreigners take a somewhat active role in management as a part of their investment. Foreign investment is in two forms; foreign portfolio investment and foreign direct investment. Foreign portfolio investment is a passive investment in the securities or financial assets like bonds, notes and stocks of another country. Foreign Direct Investment (FDI) on the other hand is direct investment by a company in production located in another country either by buying a company in the country or by expanding operations of an existing business in the country. Foreign direct investment involves production facilities, real estate, inventories and other non-financial assets. The subject or impact of foreign investment in Zambia and many other least developed countries is very controversial. However, this essay will try and have a critical assessment of the subject. To start with modernisation theorists argue that foreign investment can contribute to sustainable socio-economic development. It is generally regarded as an essential element in any given country’s quest for accelerated and protracted socio-economic development. For this or another reason, promotion of FDI has been one of the major components of the economic policy regimes of Zambia. For a long time, companies from the United Kingdom and South Africa have traditionally been the main foreign investors in Zambia. (United Nations Conference on Trade and Development, 2006) British investment is present in tourism, services, and manufacturing sectors while South African investors have displayed most interest in services, particularly in tourism, chain stores, hotels and banking. Zimbabwe has also been a source of recent investment, in agriculture and tourism. Lately, Chinese investors have dominated foreign investment in Africa and including Zambia. They have been playing a prominent role, primarily in the mining, manufacturing and construction sectors. Ordinarily, investments by Chinese companies take the form of foreign direct investment.

Proponents of foreign investment argue that it has the potential benefits to a host nation in discerning the necessity of such investment. They claim that foreign investment can make it possible for a country to gain access to investment capital. In other words, it is a means of increasing the capital available for investment and the economic growth needed to reduce poverty and raise living standards in a host country. Furthermore, these firms make a contribution to the tax revenues of a host government. A typical example is a number of foreign firms such as First Quantum, Barrick Gold and others that have invested in the mines. From an economic perspective, foreign investment has become the largest source of foreign funds flowing into Zambia. Foreign direct investment also involves much more than the simple transfer of capital, but these firms or multinational...
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