Have you ever wondered why there are only a few Zambians who have actually invested in the local market? Over the years, the policy framework on local investment appears to a stumbling block for local people. An overview of policies that facilitate trade in the Zambia suggest that policies are too strict on local investors as opposed to foreign investors.
Take this scenario as a hypothetical example:
A local investor a.k.a “local entity” is expected to pay 16% VAT on any goods purchased in the country while a foreign investor only pays for the price of those goods minus Value Added Tax (VAT). For instance, there is a hypothetical auction for raw copper ore at X mine, foreign entity successfully bids for copper at $42 Million. Foreign entity pays $42 Million, takes his/her copper and goes back to country of origin Y.
Now let’s look at the situation inversely. Local entity successfully bids for copper at $42 Million. Local entity pays $42 Million for his/her copper which will not be taken out of the country. Local entity has to pay an additional $6,720,000 in VAT at 16%. The VAT is on top of the $42 Million meaning that the local entity ends up spending $48,720,000 on the hypothetical copper bid. On the other hand, the foreign entity walks away with $42 Million, the copper and no VAT payment.
Recently government said it started a review on the entry fee for the Multi-Facility Economic Zones (MFEZ). The $500, 000 entry fee was too high for local Small and Medium Entrepreneurs in the country. Mind you, the MFEZ was apparently set-up to support local business yet the entry fee was pegged at $500,000 which is approximately K5,000,000 (5 Million Kwacha Rebased!).
Center for Trade Policy and Development Executive Director Isaac Mwaipopo highlighted that there has been more focus on attracting foreign investment than on promoting local SME growth.
During a phone interview, the Executive Director of CTPD stated that “our [Zambia] investment framework actually is more oriented at attracting Foreign Direct Investment than it is towards supporting local SMEs.”
Mr. Mwaipopo said the focus on attracting FDI is based on a misplaced belief that Foreign Direct Investment (FDI) has more funds and capacity to help support economic growth.
“As a country our mindset as a whole has been focused on attracting foreign direct investment. There is more energy and effort to attract foreign firms to invest in the country than there are efforts to enhancing production and growth of local companies,” he told us over the phone.
He shared how the ZDA Act, contains certain provisions that do not allow local investors to access certain things to assist them improve their production and export business.
“Zambia has a steel plant yet we import steel from China. Zambia also imports some agricultural products when they can be produced locally,” he bemoaned.
We certainly understand that there is need for government intervention in order to lower the cost of doing business in Zambia and we don’t blame the risk of business failure on the government nor do we attribute it to the entrepreneur.
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