This article is the sequel to last week’s which argued that amid Zambia’s high public debt levels, China is an important developmental partner for Zambia because of Chinese FDI and aid, but Zambia will need to leverage this relationship to bolster its own industrial development. In this sequel, I draw upon field visits made to Chinese enterprises in Lusaka province on 02 June and 03 June 2021; I chronicle how Chinese investment in the country can be leveraged to bolster Zambia’s industrialization despite high levels of public debt and limited fiscal space.
There are currently more than 600 Chinese companies of various sizes, spanning various sectors, from retail trading, construction, agriculture, to manufacturing and mining. Estimates place cumulative Chinese investment in Zambia at $3.8 billion, an enormous amount equivalent to almost a fifth of Zambia’s 2020 GDP and contributing to more than 50,000 local jobs. As indicated last week, Zambia is one of China’s favoured investment destinations, judging by the scale of Chinese investment in the country – having received $500 million in 2020 alone as investment from China; Zambia was China’s top investment destination on the African continent.
To learn more about Chinese enterprises in Zambia, alongside other Zambians, I visited four Chinese enterprises, large-scale by Zambian standards, including a visit to a construction site of the State-of-Art International Conference Centre in the heart of Lusaka City, Zambia’s Capital. Let me now delve into my experience on these particular visits and how my insights from these can inform policy and conversations around Chinese investment in Africa. The business models employed, and the operational arrangements are different across enterprises, and that is where opportunities lie for Zambian industrialization.
Wonderful Industries, with a Balance Sheet of $125 million and turnover of $17 million, was the first site visited. One of the factory’s main operations is the manufacturing of sacks which it then sells to a range of customers, from local cement manufacturers to animal feed and seed manufacturers and stockists. Boasting of 700 workers, the firm has trained local workers in cement bag making. However, at the shop floor, at the final output stage is run by a Pakistani engineer with vast experience in sack making. Opportunities are available at the technical level for more deliberate training and skills transfer to Zambians, particularly as the company expands its operations. Given the nature of the final product, inputs are imported from outside Zambia, from places like South Africa and Saudi Arabia. Nevertheless, this factory has strong forward linkages with local manufacturing firms in other sectors requiring its product. There are plans for expansion, to widen the product range by manufacturing one-tonne sacks, targeting the export market in DR Congo.
Marcopolo Tiles Company Limited, another large-scale sophisticated enterprise with investments over four years exceeding $200 million, with about 700 workers, operationally in partnership with Zambian interests, 49% shares owned by Industrial Development Corporation (IDC). On the day of our visit, Marcopolo Tiles had declared its first dividend of K72 million to IDC. The company boasts of using 95% of local content in its production of a range of tiles. It also manufactures its own boxes required for packaging tiles. Here lies a lesson for Zambian industries in which a company can limit its requirement of imports by locally manufacturing inputs for its own output. In addition to serving the local market, the firm also exports to neighbouring countries like DR Congo and Zimbabwe. At the opening of the factory, the company started with 180 expatriates, but with successful skills transfer, 90% of the production processes are now performed by Zambians.
Since 2007, Good Time Steel (GTS) has emerged as a local powerhouse, wiping out virtually all scrap metal in the country as it produces steel for the country and beyond. With annual turnover of $40-50 million, GTS’s expansion is both remarkable and admirable. In 2007, there were 75 Zambian and 20 Chinese workers, but, today, it employs 1,000 Zambian permanent staff and 60 Chinese workers. It has a union in place to protect the interests of its workers. As its major input, scrap metal, has now become scarce, GTS has plans to manufacture steel directly from Iron. As GTS has increased its product range over the years, it also trained more locals in technical skills like metallurgical sciences as well as craftsmanship in welding and bricklaying. Given the dearth of local skilled manpower, GTS has put in place some in-house technical training operations to avoid the high cost of expatriate staff. GTS serves both domestic and export markets and has plans to expand its operations from its current 70 metric tonnes per day.
Sinoma cement, a product of China National Building Materials Ltd., situated just outside central Lusaka, is produced in an industrial part which sits on 246 hectares of land. Other products from this site include pan bricks, concrete and aggregates. The installed capacity of cement manufacturing plant as part of the $250 million investment is one million tonnes, but currently running at half of this, with a turnover of around $60 million. It has strong forward and backward linkages with local enterprises.
That the cement, packed in sacks produced by Wonderful industries, and concrete, as products of Sinoma, feed into local (and international) construction, which use some GTS steel and tiles from Marco Polo, unmasks the sophisticated coordination of the labyrinth of Chinese investments. An integrated structure of production, a key feature of structural transformation, is unraveling, and this is an opportunity for Zambian enterprises. At the policy level, taking advantage of Chinese capital and expertise, Zambian authorities will do well to promote Zambian-owned enterprises that can feed into this maze of linkages, also as shareholders. Working in alliance with Chinese firms, established vocational training institutions should be created.
About the Author
Dr Gabriel Pollen is a Senior Researcher (Public Finance Management) at the Centre for Trade Policy and Development (CTPD) and a Lecturer with the University of Zambia, Department of Economics.