Zambia Confirmed Preferred Investment Destination in 2020, Survey Show

Zambia FDI 2019

The 2020 Foreign Private Investment and Investor Perceptions Survey recently published by the Bank of Zambia (BoZ) has revealed that despite the current economic constraints, Zambia remains a preferred investment destination.

The survey is an initiative undertaken by the Balance of Payments Technical Committee comprising representatives from the Zambia Statistics Agency, ZDA, BoZ, and other collaborating agencies.

The report presents preliminary findings of the 13th Private Capital Flows and Investor Perceptions Survey for 2019 and the first half of 2020 in which 250 companies with foreign assets and liabilities were enumerated.

With regard to investor perceptions, the survey findings showed that market potential, peace and security, political stability, favorable tax regime, good infrastructure, and non-fiscal incentives were the major factors that influenced the decision-making process for respondents to reinvest in Zambia.

Despite the ranking in the Ease of Doing Business Report by the World Bank (85th in the world and 5th in Sub-Saharan Africa in 2018-2020), interventions in the foreign exchange market, as well as the reduction in the policy rate by BoZ, were seen as positive measures that supported business activity.

However, the increase in the rate of withholding tax and foreign and domestic borrowing by the Government were cited as having adverse effects on businesses.

Notably, the Covid-19 pandemic was perceived as a risk that was likely to constrain investment by limiting access to markets and raw materials.

Further, the majority of firms highlighted political stability, consistency in Government policies, stable exchange rate, stable and sustainable tax system, infrastructure development, increased effort in the fight against corruption, lower borrowing cost, as well as enhanced private sector consultation as key measures expected to be undertaken by Government to spur investment.

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Delivering his closing remarks at the 2020 virtual Foreign Private Investment and Investor Perceptions Survey Dissemination Workshop held on 22nd June 2021, the Director-General of the Zambia Development Agency (ZDA) Mukula Makasa explained that Zambia remained attractive due to its potential for increased market access including peace and security, among others.

Makasa further explained that notwithstanding its competitiveness in the global foreign direct investments market, investors indicated that exchange rate management, unpaid VAT refunds, and government arrears to suppliers remained significant impediments that affected their plans to re-invest in the country.

Makasa admitted that the Covid-19 Pandemic had exacerbated the country’s macroeconomic constraints by limiting business activity, freezing supply lines, and reducing the availability of investment finance, among others.

He added that government was fostering strategic interventions to restore the economic growth trajectory, as projected in the national economic recovery plan.

Makasa called on public institutions to continually engage and inform the private sector on the various strategic interventions being implemented.

“The Zambia Development Agency will effectively respond to the findings of the survey by implementing interventions that will enhance performance of our role as the interface between the private and public sectors,” he said.

FDI to Zambia

Speaking earlier at the workshop, the Governor of BoZ Christopher Mvunga said the private sector foreign flows into Zambia were USD 357.1 million in 2019 compared to USD 924.7 million in 2018.

Governor Mvunga attributed the decline largely to debt repayments by the mining and quarrying, manufacturing, deposit-taking corporations as well as information and communication sectors.

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He explained that foreign direct investment (FDI) liability flows grew by about 50% to around USD 800 million in 2019, mainly due to related party borrowings of almost USD 1.0 billion mostly in the mining and quarrying sector.

He said, as a result, borrowing from foreign affiliates increased to about USD 11.0 billion from USD 10.0 billion in 2018 which contributed to the increase in the stock of private sector external debt to USD 15.0 billion at the end of 2019 of which Switzerland continued to account for the largest share of the debt stock.

Governor Mvunga stated that in the sectoral performance, the mining and quarrying sector was the leading recipient of FDI inflows in 2019 amounting to about USD 400 million. However, the rise in inflows was moderated by losses recorded in the sector. 

“The manufacturing sector was the second-highest recipient of FDI with about USD 240 million, followed by deposit-taking corporations at USD 90.8 million and electricity sector at USD 54.7 million,” he concluded.