Country Report Zambia April 2010

Economic policy: Chinese investors are likely to play a growing role

The president's visit signals a continuation in the recent strengthening of ties between China and Zambia, and comes in the wake of a marked increase in China's presence in Zambia. China's share of total foreign direct investment (FDI) to Zambia has doubled from an average of 13% in the first half of the decade to 26% in the second half. China's presence in the mining sector has increased markedly as Chinese firms bought up stakes in distressed mining firms at the height of the recent global financial crisis (June 2009, Economic performance). Mr Banda's government has expressed much enthusiasm for Chinese investment, partly because it is seen as a crucial source of investment in infrastructure-the government recently approached a Chinese construction company, Gezhouba Group, to consider investing US$1.5bn in hydropower stations through the medium of public-private partnerships-and, perhaps more importantly, because it sees this as integral to creating jobs. Job creation, in turn, is seen as essential to winning back support among the electorate, particularly Zambia's youth. The most recent Integrated Labour Force Survey, conducted in 2005, estimated unemployment in Zambia at 16%. This has presumably been a major factor underlying the electorate's disenchantment with the government. Mr Banda seems keen to counter this by convincing people that he is com-mitted to creating new jobs. Attracting Chinese investment and emphasising China's role on this front appear to be the central planks of his strategy.

The government's enthusiasm for China has been matched, to some extent, by public opinion, with hostility towards Chinese investors falling. In the past, relations between Chinese investors and their Zambian employees have been fraught with tension, as workers have been disgruntled owing to low pay and poor working conditions. In March 2008 a Chinese manager at the Chambishi mine had to be taken to hospital after being attacked by workers during a protest over unsatisfactory working conditions (March 2008, The political scene). One possible reason for the recent decline in hostility is that, as employment became increasingly difficult to come by during the recession, the fact that the Chinese were providing jobs at all was seen as grounds for contentment. In addition, the opposition front-runner, Mr Sata-once a vocal critic of Chinese investors, whom, in 2006, he had sworn to expel from Zambia should he come to power-had tempered his position by 2008 in response to concerns among donors and investors over his nationalist rhetoric, promising to protect all existing investments and respect legally binding contracts signed by the MMD (September 2008, The political scene). On every front, therefore, China's presence in Zambia is looking increasingly secure.

Chinese foreign direct investment in Zambia
(US$m unless otherwise indicated)
 2000200120022003200420052006200720082009
Chinese FDI14.78.920.72.914.041.1210.6292.65,471.1116.5
Total FDI80.6107.982.0111.1119.9244.6673.41,694.69,839.61,036.1
Share (%)18.38.225.32.611.716.831.317.355.611.2
Source: Zambia Development Agency.

Download the numbers in Excel

© 2010 The Economist lntelligence Unit Ltd. All rights reserved
Whilst every effort has been taken to verify the accuracy of this information, The Economist lntelligence Unit Ltd. cannot accept any responsibility or liability for reliance by any person on this information
IMPRINT