In this week’s Monday Opinion, we look at the role that trade and investment play in the Zambian economy. The government has come under attack from certain sectors of society because of the trips made by the head of state in the recent past, where President Hakainde Hichilema visited a number of countries in and around the world. outside of Africa, waving the flag as the country’s marketing manager.
Trading and investing are very different activities, despite the fact that the terms are often used interchangeably: while investing involves buying and holding securities for a longer period of time, trading focuses on buying and selling in the short term. other countries talks about our balance of payments as a country – all our transactions with the rest of the world. The goal of governments here should be to address questions such as “what are we buying from other countries versus what we are selling to them”.
Global trade allows countries and consumers to access goods and services that are not available in their own country. On the global market, you can buy almost anything: food, clothing, cement, minerals, vehicle parts, oil, medical instruments, cars, stocks, silver and electricity. For many of the smallest and poorest developing countries, where local demand is insufficient to support rapid increases in production, employment and incomes, expanding trade regionally and internationally is essential. . The main drivers of economic growth and poverty eradication are trade and investment.
Investments can be domestic or foreign. Domestic investment is where Zambians commit funds or capital to in-house projects or ventures and the reverse is true. Companies and individuals invest abroad for a variety of reasons, including sourcing components and raw materials, locating production in cost-effective areas or skilled labor, or expanding their clientele.
Foreign investment generally comes in two forms: foreign direct investment (FDI) occurs when an investor establishes or acquires a business (or the majority of a business) in another country, while foreign investment from (REITs) occur as part of a portfolio and include buying debt securities or shares of a foreign company without owning any ownership interest in it.
The economic development of a country is highly dependent on FDI. Zambia has been able to improve its infrastructure, increase productivity and increase employment due to the influx of foreign currency. FDI can be used to acquire advanced technologies and access foreign exchange reserves. However, Zambia’s net FDI inflows (% of GDP) fell by 140.57% from 2.4% in 2019 to -1.0% in 2020. Since the 35.35% rise in 2017, net FDI inflows (% of GDP) fell by 122.28% in 2020. The highest FDI/GDP ratio recorded over the last fifty years was 9.6%. It is legitimate for the government to reclaim the glory of these statistics and realize the full potential of the country.
So where are the opportunities for Zambia and how can the government leverage trade and investment for sustainable economic growth?
With the global food and energy crisis resulting from the Russian-Ukrainian conflict, Zambia has great opportunities to realign its agricultural sector to tap into Ukraine’s wheat and sunflower customer base. In addition, Zambia has an opportunity to reduce pressure on its energy sector by updating intra-African supply chain links with oil-producing countries like Angola. In addition, the government should foster more bilateral trade and investment relations that aggressively strengthen the country’s presence in strategic value chains such as mining (especially in the advent of transition). energy), manufacturing (agri-food and electric vehicles and batteries), information and communications technology, tourism, energy and climate resilience.
Second, COVID-19 and the resulting disruptions in the supply chain present an opportunity for Zambia to produce more and supply quality food products to countries like China with huge markets. There was an open offer from Chinese President Xi Jinping on this aspect during a recent meeting with President Hichilema.
Third, Zambia has been working hard to seize market opportunities in the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC). Without conscious structural realignments for local businesses, prospects in the African Continental Free Trade Area (AfCFTA) will be doomed and remain business as usual. Strengthen weaknesses and fill gaps in trade and investment opportunities in SADC and COMESA. The government should encourage local businesses and put them in the driver’s seat of trade and investment. This involves making intentional structural adjustments in business ownership in favor of the local private sector, including partnerships and joint ventures with foreigners.
Fourth, there is a need to strengthen overseas missions and define them as strategic agents of government to support Zambia’s trade and investment agenda. The New Dawn government should restore the honor of missions abroad and defy the odds by ensuring quality in the building of teams for foreign service functions, as this will be essential to achieving the trade and investment agenda of the country. Zambia needs to regain its diplomatic trust and open up markets that existed but did not work both in intra-African trade and beyond.
Fifth, government has a duty to encourage investment in areas that support human rights, high labor and environmental standards, and sustainable development; this includes promoting corporate social responsibility and ethical business conduct. These objectives can be achieved through a foreign direct investment screening framework.
Finally, the government should promote the creation of a more open, efficient and predictable business environment for investors through investment facilitation. For example, making beneficial ownership information available, investment policies, and reducing the time it takes to obtain permits and government approvals are some examples of how to do this.
That’s it for this week’s Monday opinion, be sure to join us here next week with another exciting topic.
About the Author
Mr. Boyd Muleya is Director of Research at the Center for Trade Policy and Development. He is an economist and banker by training. His research area includes monetary economics, financial markets, investment analysis and financial inclusion.
