Knocking on a wide open door: Chinese investments in Africa

1. Knocking on a wide open door:Chinese investments in Africa Peter Kragelund DIIS ∙ DANISH INSTITUTE FOR INTERNATIONAL STUDIES

2. 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

3. 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

4. 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

5. Sectoral distribution of Chinese companies in Zambia, 2006 • 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

6. 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

7. 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

8. 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

9. 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

10. 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