China, Zambia must enhance industrial cooperation

By Song Wei Source:Global Times Published: 2017/9/10 19:53:39

Illustration: Luo Xuan/GT


China and Zambia have had a long history of exchanges and maintained a positive, stable bilateral relationship over the years. Under the commitment of the Forum on China-Africa Cooperation, China has constructed the Zambia-China Economic and Trade Cooperation Zone. However, based on the current investment situation, there are several major challenges to address.

Weak infrastructure is fatal to a landlocked country such as Zambia. Since Zambia has no coast, imports and exports mainly depend on rail or road shipments by way of Dar es Salaam, Tanzania or Durban, South Africa. This means longer times and higher costs. Due to poor management, lack of funds and aging equipment that is poorly maintained, Zambia's railway infrastructure is severely damaged and faces challenges from technology, capital and management. In addition, power facilities in Zambia are inadequate. Electricity outages often occur, which hugely increases the operating costs of foreign enterprises.

Workdays are still filled with misunderstandings and communication gaps, but things are steadily improving. The recruitment of the "right type" of Chinese personnel has especially been seen as a key to the steady improvement of "misunderstanding" issues.

Coordination among government institutions is hard. The Zambia Development Agency (ZDA) is the main authority that controls the development of free trade zones and it holds the mandate to align and streamline the task of different federal agencies to allow smooth operations.

But despite its full commitment, the ZDA is not powerful enough to challenge the entrenched interests of the different bureaucratic agencies that hugely affect the work of foreign companies. Although in recent years, the Zambian government has welcomed foreign investment for the development of the local economy, support policies change a lot.

As a former colony, the Zambian locals are very sensitive about foreign investors, and the government of Zambia is cautious and conservative in terms of immigrant labor and tax policies. So it can happen that the same policy document is interpreted in different ways by the central government and the local government.

Risks arise in the construction and operation of economic cooperation zones. The overseas economic and trade cooperation zones are different from those in China. The Chinese government can make full use of its functions and powers to integrate local resources and make decisions more efficiently, in order to attract foreign investment and to promote local economic development. Therefore, the challenges and risks faced by Chinese enterprises in overseas economic and trade cooperation zones are far greater than in domestic ones.

The real return directly obtained by enterprises is limited to land rentals and sales and revenue income from public facilities' use. It is difficult to recover the initial investment in zone construction, which is quite large. This has become the biggest challenge for the development and construction of overseas economic and trade cooperation zones.

Qualified labor is hard to find, for many reasons. Zambian technology education lags behind, so the skilled labor force is very small. Coupled with this is the Zambian people's attitude, which appreciates the pleasures of life rather than the sacrifices of work. Therefore, for efficiency reasons, many Chinese enterprises prefer to hire skilled Chinese workers who are industrious and hardworking.

Also, the Zambian government has put strict limits on visas for foreign staff and the visa procedures are very complicated, which makes it hard for Chinese companies to recruit qualified workers and managers.

In order to conquer these challenges and obstacles, all the stakeholders need to act to improve the effectiveness of Sino-Zambian industrial capacity cooperation.

On the part of the Chinese government, there needs to be more support for infrastructure construction related to industrial capacity cooperation. Due to the huge costs and high uncertainty involved in such projects, they can not only rely on Chinese enterprises as the main investors. The Chinese government can use foreign aid or aid mixed with commercial loans to construct infrastructure, including highways, railways, electricity generation plants and industrial cooperation parks.

Also, China should shift from sharing its experience to promoting policy implementation. Most current African leaders and civil servants have received a Western education as well as Chinese official training, and some modern management ideas have been introduced to Africa. For example, "one-stop" services have long been written into African policy documents, but they have never been implemented. In light of this, China should help African countries draft industrial development plans and implementation methods.

The Chinese government should make a clear cooperation plan with Zambia to avoid industry convergence. Sino-Zambian industrial capacity cooperation should extend the upstream and downstream industry chains, expand industrial production, create a division of labor and reduce production costs. That will create an agglomeration effect to help Chinese enterprises resist market risks.

For the Zambian government, more incentives should be created for the enterprises involved in Sino-Zambian industrial capacity cooperation. These incentives would be tax breaks, including income tax and import tariff exemptions in the first few years of the establishment, and an easier work visa process. These policies would be provided to joint ventures with local enterprises in Zambia to promote the transfer of technology and knowledge, as well as enterprises in sectors where there is a comparative advantage, to promote industrial chain aggregation.

Zambia should also maintain policy continuity. Efficient cooperation among government agencies is the key to successful industrial capacity cooperation between China and Zambia. The main determinants include the policies of land resources exploitation, foreign investment policies and market access policies in Zambia. Contradictions and disagreements when it comes to policy interpretation will inevitably lead to investment failure.

Chinese investors should actively communicate with the local workers' unions to find a more rational management model that is suitable for African development. Chinese enterprises should invest in health, education and other related fields, so that local people can personally feel the benefits from China's investment. They should also participate more in local business societies.

On top of that, Chinese enterprises should set up more joint ventures with local companies to help them survive and develop. A joint venture can provide stimulation to local industries by promoting technological know-how. It will also help Chinese enterprises adapt to the local regulation and restrictions and create a friendly development environment.

The author is an associate research fellow at the Chinese Academy of International Trade and Economic Cooperation.


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