Foreign Investment Policy in Zambia: Lessons from Chinese investment Prof. Kenneth K. Mwenda, PhD, LLD, DSc(Econ) Adjunct Professor of Law Washington College of Law (WCL) American University Washington DC USA November 4, 2014 “The views expressed herein should be attributed solely to the author” 5/25/20151

Introduction Given the time constraints (that is, I am allowed only ten (10) minutes to speak), I will proceed straight into the main issues, without much ado on the theoretical constructs of foreign direct investment (FDI). As part of its foreign investment policy, the Zambian Government has embraced Chinese FDI after winning the elections, notwithstanding its earlier cynicism of Chinese investment while campaigning as an opposition party. 5/25/20152

Unlike in the pre-election campaigns of the PF party, Taiwan is no longer heard of. What happened? Indeed, what happened to the notion of the then bad guy, China? Has he now become a good guy? Or has something transformational taken place to convert the critics into affirmed disciples? For the purposes of this conference, what are the main issues facing Chinese FDI in a country such as Zambia? 5/25/20153

The main issues with Chinese FDI In a paper titled, “The Myth and Reality of Chinese Investors: A Case Study of Chinese Investment in Zambia’s Copper Industry,” published by the South African Institute of International Affairs in May 2010 (Occasional Paper No. 62, China in Africa Project), Pengtao Li posits that: “In any attempt to analyse the implications of Chinese foreign direct investment (FDI) for African countries, Zambia is the example par excellence, its historical relationship with China and its ever-increasing economic ties with the emerging power being the main reasons for this.” 5/25/20154

“The activities of Chinese mining companies operating in the Zambian Copperbelt have roused much contention, particularly in the Western media, yet there is little understanding of the Chinese perspective on this issue.” (Pengtao Li) “…Chinese FDI has the potential to bring about both positive and negative results, depending on the structure and quality of the host economy, as well as the strategies and policies employed by the host government to manage the investment.” (Pengtao Li) 5/25/20155

“While Chinese companies often apply poor labour and environmental standards, this is also true of other foreign companies operating in the Copperbelt.” (Pengtao Li) Furthermore, evidence suggests that Chinese investors are learning from and adapting to the Zambian context, and are gradually embracing the corporate social responsibility agenda. As a result of this progressive transformation, Chinese companies active in Zambia are beginning to play a more positive role in the country’s overall development.” (Pengtao Li ) 5/25/20156

Why are Chinese investors interested in African countries like Zambia? Access to natural resources such as copper to maintain China’s economic growth. China is now the world’s largest consumer of copper. Investments Zambia’s mining sector now constitute over 88% of total Chinese investments in the country. Out of all the Chinese mining companies operating in Zambia, Chambishi Copper Mine, owned by the Non- Ferrous Company–Africa (NFCA), is the largest. 5/25/20157

In total, Chinese investments in Africa rose from US$681 million in 2000 to US$9.3 billion in Out of the US$9.3 billion invested in Africa by China in the year 2010, 42.3 percent went to the services sector. Then, 29.2 percent was committed to the mining sector of various African countries, with 22.0 percent committed to the manufacturing sector and 3.1 percent to the agricultural sector. 5/25/20158

By 2009, China had surpassed the United States as Africa’s largest trading partner. In Zambia’s case, Chinese investment in 2013 stood at US$2.6 billion, reportedly creating about 50,000 jobs in the country. By October 2014, Chinese investment in Zambia was said to be at US$3 billion. 5/25/20159

Why Zambia? Zambia is reported to have the highest inflow of FDI among the 16 Landlocked Developing Countries in Africa, according to the UN Conference on Trade and Development (UNCTAD). FDI flows to LLDCs fell by 11 per cent in 2013, and the Asian group of LLDCs experienced the largest fall in FDI flows of nearly 50 per cent. Notwithstanding the mixed picture for African LLDCs, eight of the 16 LLDCs economies increased their FDI inflows, with Zambia attracting the most at $1.8 billion 5/25/201510

So, where is the problem? Zambia boasts of being the highest copper producing country in Africa. Zambia is also the beneficiary of the continent’s third- highest level of Chinese investment. But, the high levels of unemployment and poverty have left many Zambians asking what has happened to the fruits of their government’s lucrative deals with the Chinese? Admittedly, some Chinese investors have even taken over such small businesses of the locals as selling chicken. 5/25/201511

Governance! 5/25/201512

Deplorable Labor standards! 5/25/201513

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The Legal Framework Zambia is a common law jurisdiction. English common law and legislation, in addition to treaties and customary international law, apply. Mining legislation: The Mines and Mineral Development Act 2008, revising the law relating to the prospecting for, mining and processing of minerals, as well as repealing and replacing the Mines and Minerals Act, /25/201516

Labor laws: CHAPTER 256: The National Pension Scheme Act CHAPTER 441: The Factories Act CHAPTER 276: The Minimum Wages and Conditions of Employment Act CHAPTER 270: The Employment (Special Provisions) Act CHAPTER 269: The Industrial and Labour Relations Act CHAPTER 268: The Employment Act Plus applicable international treaties on labor law 5/25/201517

Arbitration laws: (a) The Arbitration Act, 2000 (b) Applicable international treaties 5/25/201518

But is the enactment of laws enough to improve the situation? What about the issue of law enforcement? How effective and efficient is law enforcement in Zambia? What about the culture of compliance with domestic laws and regulations by the Chinese investors? What happened to the ‘once bad guy, China”? Is he now a ‘good guy’ for the Zambian Government? 5/25/201519

“Zambian miners shot by Chinese managers” - Telegraphwww.telegraph.co.uk A backlash against China's powerful presence in the Zambian economy has been triggered by an incident in which 11 miners were shot by Chinese managers. 5/25/201520