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 ZDA ACCZ Non-ZDA ZDA Revised breakdown
companies certified members certified investment
companies ACCZ pledges ($ mn) (%)
members ($ mn)

Agriculture 23 21 8 2 10 10 2
Construction 28 20 14 8 35.5 35.5 7
Manufacturin 76 74 9 2 299 79 15
g
Mining 8 7 3 1 22.2 392.2 74
Service 37 21 21 16 11.9 11.9 2
Timber 3 0 3 3 0 0 0
 ZDA is not
Total the only
175 institution
143 allowed
58 to license
32 FDI 378.8 528.6 100
– 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
DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES