FDI into Zambia shrinks by 50%

Foreign Direct Investment (FDI) into Zambia plummeted by nearly 50 per cent in 2018, mainly on account of significant losses incurred by mining companies who were hit by severe operational challenges in the country, the latest Survey on Foreign Private Investment and Investor Perceptions has revealed.

Announcing the 2019 Survey on Foreign Private Investment and Investor Perceptions in Zambia in Lusaka, Wednesday, Bank of Zambia (BoZ) Governor Dr Denny Kalyalya disclosed that FDI inflows into the country had dwindled by nearly 50 per cent to around US $560 million last year.

“Private sector foreign inflows into Zambia declined on account of lower FDI. FDI flows fell by almost 50.0 per cent to about US $560 million in 2018. This significant decline was mainly due to losses of almost US $340 million, mostly in the mining sector where some companies encountered operational challenges. This was in contrast to retained earnings of about US $650 million recorded in 2017. As a result of declining profitability, borrowing from foreign affiliates increased to about US $640 million in 2018 from US $560 million in 2017. This contributed to the increase in the stock of private sector external debt to US $14.0 billion in 2018 from US $12.8 billion at the end of 2017. Switzerland continued to account for the largest share of the debt stock as a source country,” Dr Kalyalya told stakeholders at New Government Complex.

He revealed that on a sectoral performance basis, inflows into the manufacturing industry had also dropped by 21 per cent last year due to losses sustained in the sector.

“Turning to sectoral performance, in 2018, at around US $275 million, the manufacturing sector was the leading recipient of net FDI liability flows. However, the inflows declined by 21 per cent, largely due to losses of almost US $9 million recorded in the sector. Despite recording a marginal drop, deposit-taking institutions were the second highest recipient of FDI, registering about US $160 million in 2018. The third and fourth largest recipients of FDI were mining and information, communication and technology sectors, which recorded receipts of US $130 million and US $120 million, respectively,” he narrated.

He, however, added that net equity inflows steadily rose last year to US $265 million compared to a net outflow of around US $100 million in 2017.

“Net equity inflows in 2018 rose to around US $265 million compared to a net outflow of US $100 million in 2017. The net inflows were attributed to mergers and acquisitions in both mining and agriculture sectors. The developments in the agriculture sector bodes well for the country’s economic diversification agenda,” he said.

And results from the Survey during the first half of this year indicated that FDI inflows into Zambia had dropped to US $413 million compared to US $434 million in the corresponding period last year.

“In the first half of 2019, FDI flows were lower at US $413 million compared to US $434 million in the corresponding period in 2018. This outturn was explained by a decline in profitability resulting in losses of almost US $33 million, mostly in the mining sector compared to retained earnings of about US $210 million,” Dr Kalyalya revealed.

“With regard to investor perceptions, it is encouraging to note that peace and security, political stability, a relatively stable macroeconomic environment, and the ease of doing business continued to feature prominently as the main motivating factors for investing in Zambia. Market potential and good governance were also ranked positively as factors for investing in our economy.”

Meanwhile, Dr Kalyalya conveyed private sector players’ concerns as shared in the Survey in that there was a call on government to tackle high levels of corruption, among others.

“As I conclude, let me share with you some major concerns expressed by the respondents. The Survey revealed that key areas where policymakers need to pay more attention include: fostering growth and competitiveness of the private sector as well as encouraging investment and re-investment. Other areas highlighted include: addressing high lending rates; policy inconsistency; perceived high levels of corruption; inefficiency of the public service and instability in the tax regime. Further, respondents were of the view that government needs to take appropriate measures to ensure full utilization of Public Private Partnerships (PPPs) and joint ventures,” said Dr Kalyalya.

The 2019 Survey on Foreign Private Investment and Investor Perceptions in Zambia is the 12th Survey conducted so far, and captured the magnitude, types, sources, and direction of foreign private investment in 2018 and the first half of 2019.

It also included investor perceptions on the investment climate in Zambia.




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