Investment Boom or Mirage?

From Zambian Economist Tue Feb 5 2013, 01:44:00

Zambia attracted US$10bn worth of investment pledges in 2012, the highest ever recorded pledges in a single year. The figure exceeds the $4bn investment pledges made in 2011. exceeding the targeted $4 billion. The mining sector had the largest share with 40% of the pledges. Manufacturing sector and energy also performed well in terms of attracting investment. Interestingly, the pledges only amounted to 31, 000 worth of employment pledges underlying the difficulty of foreign direct investment actually creating jobs.

Zambia Development Agency (ZDA) attributes the jump in investment pledges to " improved investment climate and stability in major macro-economic indicators". The ZDA explanation for the sudden jump is clearly poor. There's no difference in investment climate between 2011 and 2012. And what does "stability in major macro-economic indicators" have to do with a sudden jump? The most obvious explanation is that there were potential investors who may have kept the powder dry in 2011 waiting for the smooth transition in power after the elections before committing to go ahead. The reasons are therefore likely to political not economical.

This accords well with the literature on Foreign Direct Investment (FDI) which shows that the key drivers of FDI tends to be political stability, cheap and diverse labour and, most importantly, prevailing global economic forces. If we take the largest component mining, it is clearly booming in Zambia because the prices of commodities are high and will continue to be high for some time, aside from few fluctuations because of the long term global imbalance between demand and supply. Of equal importance is that the investors are confident of the political ambiance in the country. This is why all Zambians needs to encourage the government to abandon the old politics and encourage a new politics of tolerance. It is vital for foreign investment.

A final word of caution : the ZDA figures ...

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