Foreign Direct Investment, Competition and Perception in Zambia

Table of Contents

1. Introduction

2. Objectives

3. Statement of the Problem

4. Methodology

5. Data Sources
5.1 Survey Approach
5.2 Deductive Approach

6. Analysis

7. Findings

8. Conclusion

9. Recommendations

References

Abstract

This paper analyses the effects of Foreign Direct Investment (FDI) in Zambia. It focuses on two main areas of FDI: This first area looks at the competition effect of Foreign Direct Investment FDI to domestic businesses in the host country, Zambia. The second area looks at how people in general perceive Foreign Direct Investment FDI in Zambia. In order to understand the competition effect of FDI in Zambia, this research study conducted a survey on local business houses to get an understanding of how FDI with respect to foreign businesses has created competition to the detriment of local businesses.

In addition, this research study conducted interviews with various people in Zambia to get their perception of FDI with respect to foreign businesses established in Zambia. The research found that people’s perceptions over FDI were more negative than positive.

This research study found that Foreign Direct Investment FDI had both positives and negatives externalities in Zambia. On positive externalities, FDI was found to have helped create employment for local people, facilitated the transfer of technology and innovation as FDI spill-overs to the host country.

However, on negative externalities, the research found that FDI had brought more competition to local businesses in the host country, throwing many out of business. In addition, some local businesses found it difficult to compete due to unfairness created by foreign governments that intervened and supported businesses that came from their countries.

Keywords: foreign direct investment, perception, gross domestic product GDP, competition, spillovers, positive and externalities.

1. Introduction

Zambia has been one of the beneficiaries of Foreign Direct Investments FDI for over 30 years. Since its independence in 1964, the country has been attracting Foreign Direct Investment FDI from different developed countries. In 1990, Zambia’s FDI was estimated at US$ 2.655 billion and later in 2017, FDI grew to US$ 16.973 billion indicating an increase of FDI above 500 percent. According to Zambia Development Agency (2015) the country earned US $ 350 million in 2004, US$ 939 million in 2008, US$ 1.1 billion in 2011 and US$ 2.2 billion in 2014.

Much of FDI to Zambia has been from influential and industrialised nations which mainly include United States, United Kingdom, Canada, South Africa, Switzerland and China. ZDA (2015) notes that FDI inflows were dominated by United Kingdom at US $457.3 million followed by Switzerland at US $210.5 million, Nigeria at US $34.0 million, India at US $14.0 million, China at US $11.8 million and Netherlands at US $4.7 million.

In recent years, the country has attracted FDI in many sectors including mining, manufacturing, finance, tourism, agriculture, construction and many other sectors.

Today, FDI in Zambia has been centred more in sectors like mining, construction and business development. Dominant developed countries of FDI to Zambia in many sectors are the US and China. There are two main broad areas of FDI from these countries in Zambia: These are Chinese Government State Owned Enterprises and private Foreign Direct Investment from Western countries mainly the US.

Historically, FDI from Western countries came to Zambia early. Much of FDI was from privately owned corporations that mainly focused on profits. Contrary, Chinese FDI in Zambia has been marked with aid, which is mostly in infrastructure development. This kind of FDI has seen a number of projects in Zambia including the construction of stadia, rehabilitation of roads, and construction of Chinese companies that are supported by Chinese government. Chinese and US FDI have undoubtedly encouraged financial inflows in Zambia, improved capacity utilization, increased outputs and generated employment opportunities.

In addition, South Africa has invested hugely in Zambia and its investment includes property development and international investment funds resulting in the construction of foreign firms and business houses.

Must of FDI has seen the development of foreign businesses in Zambia such as the construction of modern shopping malls in Zambia. These businesses developed by foreign investors from South African are mainly filled with retail stock of South African products, fast food chains and boutiques stocked with various luxury goods.

All these different kinds of FDI’s have benefited Zambia. FDI has contributed to Zambia’s Gross Domestic Product GDP for a number of years. This confirms studies that have found FDI benefiting host nations. A study conducted by Sakyi, Commodore, and Opoku (2015) found that an increase in FDI inflows triggers positive GDP grow in the long-run, an empirical investigation from Ghana during the period 1997-2011.

Goran (2013) observed that FDI inflows are often associated with additional beneficial effects, such as increased employment, enhanced management skills, new technologies and higher wages. These effects are especially important in the context of economic development and represent a reason why countries, trying to promote economic growth and increase welfare, engage in competition for FDI.

However, some studies have typically tried to estimate how the inflow of FDI affects local businesses and they have found that FDI force local businesses to leave the markets. Therefore, this strand of literature tends to suggest that there is often a negative effect of FDI to host nations, which means that competition from foreign multinational corporations raises the likelihood of domestic business to leave an industry. Conversely, this pattern may be different since there is no direct competition effect when foreign investors are engaged in upstream or downstream sectors kokko and thang (2014).

2. Objectives

The main objectives of this study are;

To find out how Foreign Direct Investment FDI has affected Zambia. To understand the benefits of Foreign Direct Investment FDI to a host country, Zambia. To investigate how Foreign Direct Investment FDI creates competition.

3. Statement of the Problem.

Different research studies show conflicting results of Foreign Direct Investment FDI to a host nation. Some studies indicate that FDI brings employment, innovation and technology to a host nation; therefore, it is considered important with more benefits. Contrary, some other research studies argue that FDI creates competition to local businesses which later take them out of business much to their detriment. They conclude, it is not good to a host country. Therefore, this presents a contradiction and inconsistency. In Zambia, not much studies have been done to settle this argument. Thus, this study attempts to look at FDI, competition and its perception in Zambia.

4. Methodology

There are different research strategies to use for research and this research adopted qualitative method. This research strategy used a survey approach to ensure that the research answered the statement of the problem and met the research objectives. In addition, this research used a deductive approach, it looked at different literature from researchers about FDI and its effects, then compared findings with the Zambian situation to draw conclusions. The most important fact about deductive approach is that it has large explanatory power.

5. Data Sources

Primary data can be collected in a number of ways. However, the most common techniques are surveys, interviews, field observation and experiments. This research used a survey and interviews.

5.1 Survey Approach

This research had a sample size was 70 respondents divided into two categories. In the first category, there were 20 respondents and in the second category they were 50 respondents. The first categories of 20 respondents consisted of local business owners in Zambia and the other 50 respondents consisted residents in Zambia.

Local business owners consisting 20 respondents, were asked five different questions and their responses were analysed and discussed. Respondents consisting of 50 residents were asked three questions. Their responses were also analysed to draw conclusions.

Figure 1- Expectations from local business owners

Abbildung in dieser Leseprobe nicht enthalten

Source: Survey Data 2019

Under the first category, Figure 1 was a representation of what local business owners indicated in the interviews. This first part, was aimed at finding out the major source of competition local business owners faced. Their responses were divided into two, whether local businesses owners expected competition or did not expect competition from foreign business.

Figure 2 Expectations from local business owners

Abbildung in dieser Leseprobe nicht enthalten

Source: Survey Data 2019

Under the first category, Figure 2 was a representation of what local business owners indicated in the interviews. This was aimed at finding out the main sources of competition to business owners. The responses were given as indicated in the table.

Figure 3 Expectations from local business owners

Abbildung in dieser Leseprobe nicht enthalten

Source: Survey Data 2019

Under the first category, Figure 3 was a representation of local business owners on what they indicated in the interviews. It was aimed at finding out whether local business owners benefited from FDI and foreign business. Table 3, shows the responses from local business owners.

Figure 4 Expectations from local business owners

Abbildung in dieser Leseprobe nicht enthalten

Source: Survey Data 2019

Under the first category, Figure 4 was a representation of local business owners and what they indicated in the interviews. This was aimed at finding out if local business owners had employees. This was to get an understanding if local business owners helped to create more employment than foreign owned businesses.

Figure 5 Expectations from residents

Abbildung in dieser Leseprobe nicht enthalten

Source: Survey Data 2019

Under the second category, Figure 5 was a representation of what residents indicated in the interviews. The second part, was aimed at finding out whether residents preferred to buy goods from local businesses, foreign or any. The aim was to understand which one was the most preferred of the two businesses for residents to purchase goods.

Figure 6 Expectations from residents

Abbildung in dieser Leseprobe nicht enthalten

Source: Survey Data 2019

Under the second category, Figure 6 was a representation of whether residents preferred to have foreign businesses in residential places or not. The aim was at finding out people’s perception of foreign businesses that have continued to spread in most residential places in most parts of Zambia.

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