Survey recommends addressing policy inconsistency, public service inefficiency

BANK of Zambia governor Denny Kalyalya says it is encouraging to note that peace and security, a relatively stable macroeconomic environment, and the ease of doing business continue to feature prominently as the main motivating factors for investing in Zambia.

During the 2019 dissemination workshop of the foreign private investment and investor perceptions survey results, Dr Kalyalya said market potential and good governance were also ranked positively as factors for investing in the economy.

Dr Kalyalya said this year’s survey response rate was 82 per cent, a reduction from 88 per cent recorded last year.

He said while the rate can be improved upon, it gave an indication of the strong cooperation with various enterprises and hoped the rapport would continue going forward.

Dr Kalyalya said the 2019 Survey captured the magnitude, types, sources, and direction of foreign private investment for the year 2018 and the first half of 2019.

He said it also included investor perceptions on the investment climate in Zambia.

He said private sector foreign inflows into Zambia declined on account of lower foreign direct investment (FDI).

FDI flows fell by almost 50.0 per cent to about US $560 million in 2018.

Dr Kalyalya said the significant decline was mainly due to losses of almost $340 million, mostly in the mining sector where some companies encountered operational challenges.

He said this was in contrast to retained earnings of about $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,” he said.

Dr Kalyalya said net equity inflows in 2018 rose to around $265 million compared to a net outflow of $100 million in 2017.

He said the net inflows were attributed to mergers and acquisitions in both mining and agriculture sectors.

Dr Kalyalya said the developments in the agriculture sector bode well for the country’s economic diversification agenda.

“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,” he said. “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.”

Dr Kalyalya said in the first half of 2019, FDI flows were lower at $413 million compared to $434 million in the corresponding period in 2018.

He said the outturn was explained by a decline in profitability resulting in losses of almost $33 million, mostly in the mining sector compared to retained earnings of about $210 million.

He further said private sector foreign asset flows decreased marginally in 2018 to $645 million from $667 million in 2017.

Dr Kalyalya said this was mainly on account of a reduction in currency and deposits by deposit-taking corporations and mining sectors.

“However, the stock of private sector foreign assets rose by 15 per cent to US$5.1 billion, on account of a 23 per cent increase in the other investment category to US$3.2 billion. Similarly, the stock of assets for FDI increased by two per cent to US$1.7 billion,” he said.

Dr Kalyalya said the survey revealed that key areas where policy makers needed to pay more attention included fostering growth and competitiveness of the private sector as well as encouraging investment and re-investment.

Dr Kalyalya said other areas 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 utilisation of public private partnerships and joint ventures,” said Dr Kalyalya.

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