The Benefits of Fdi in Zambian Economy

Topics: Investment, Foreign direct investment, International economics Pages: 7 (2551 words) Published: August 31, 2012
The essay will discuss the extent in which the Zambian economy has benefited from foreign direct investment. Its will analyse the positives and negatives that has come with foreign Direct Investment in Zambia. Zambia has recorded a number of foreign investments coming in the country in various sectors. Zambia is one of the 33 countries in Africa which require Foreign Direct Investment (FDI) and integration into the global economy for their social and economic development. It is for this reason that assessment of FDI’s impact on the country’s economy becomes an essential element To understand the extent of the country’s socio-economic development. FDI is critical to the Low Development Countries (LDCs), because their income levels and domestic savings are so low that external capital is essential for investment in the extraction and beneficiation of their natural resources and other economic opportunities for value addition and enhanced economic growth. In the LDCs FDI promotes social and economic development through technology and skills transfer, higher employment opportunities, increased productivity and enhanced access to export markets with higher value product offerings.

During post independence the government embarked on a programme of industrialization based on a policy of import substitution. In promoting self-reliance, domestic industries were encouraged to produce manufactured goods. This support operated through putting tariffs on imports keeping closed government control over foreign exchange and restricted access to many multinational enterprises. The Kaunda government created a large number of state owned enterprises and parastatals. These organizations concentrated in the sector like agriculture, mining and manufacturing and output was controlled by the government. Government also decided the pricing of commodities which was in line with the self-reliance and reduction of poverty. As with many command economies the planning required largely beaucracies and these parastatals employed many people. (Economic Association in Zambia, 2009) However, down the line the economy began to fall down because it began to fail to balance as there were more imports of goods than exports. Late 70s the demand for oil in the country increased and the price of copper on the international market fail drastically. Which made the economy of the country to fail to balance hence there was need to look for external help. (Ibid)

In 1991 the newly elected government of president chiluba with the help of IMF and World Bank laid down the Structural Adjustment Programme (SAP) and stabilization policies adopted an alternative strategy for industrialization. The policies aimed to reduce the role of state owned enterprises and adopting a more outward oriented approach. The chiluba government liberalized the economy through market liberalization, deregulation of the policies of the Kaunda government and privatized companies in view to increase competition. After liberalization of the economy the open market emerged and many private owned companies came into seen. The Zambia government through the Zambia Development Authority (ZDA) the institution mandated to further economic development through promoting investment and export has been working hard to market the investment potential the country has. Zambia received little FDI between 1991 and 2000 which was mostly as a result of the acquisitions of state-owned enterprises mostly by the minority shareholders or firms and individuals that were familiar with the country. Most of the FDI that came into Zambia between 1991 and 2000 was, therefore, from the United Kingdom and South Africa, which have since the colonial times been the traditional sources of FDI for Zambia. Most of the investor firms were also either minority shareholders in the nationalized firms that were being privatized, or had previous knowledge of the firms. Some fresh FDI was, nevertheless, also recorded in the early 1990....
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