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African countries need institutions that will direct investment to where it is needed most

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Lusaka, Zambia. Zambia underwent major structural reforms in recent years to attract investment.

International investment has helped Zambia, like many other countries in sub-Saharan Africa, become more integrated into the global economy over recent years. Inward investment flows have doubled since 2008 and Zambia has even started to generate some modest foreign direct investment outflows.

Although the country has undertaken major structural reforms over the past two decades to make it a more attractive location for investment, the Zambian government realised that this was not enough. Research has shown that foreign direct investment in mining remains dominant, although flows to manufacturing and services have also shown an upward trend. And while the investment in mining has brought with it new technologies, there has been little impact on job creation.

The government of Zambia created the Industrial Development Corporation (IDC) in January 2014 to help diversify investment away from mining. It aims to play a catalytic role in deepening and strengthening Zambia’s industrialisation capacity, supporting the creation of jobs and domestic wealth across all key economic sectors.

The IDC evaluates, assesses and lowers investment risk by serving as a co-investor alongside private sector investors, thereby facilitating long-term financing for projects. The IDC’s initial investments in Zambia’s growth sectors are helping to increase foreign direct investment and catalyse the introduction of new technology and industries. For example:

  • In collaboration with the International Finance Corporation, a member of the World Bank Group, the IDC is leading the initial project development work for solar photovoltaic power stations of 50 megawatts (MW) each, reaching a total 600 MW capacity. The cost is expected to be in the region of USD 1.2 billion in foreign direct investment. The IDC is carrying out the early project development work – such as securing permits and power purchase agreements – which normally delays and hinders private investment. Once the solar projects have become bankable they will be offered to international developers to finance, build and operate.

  • For the tourism sector, the IDC, in collaboration with the Ministry of Tourism and Arts, has set up a special purpose vehicle into which all government tourism-related assets will be grouped. These assets will be leveraged to raise funds and the company will serve as a co-investor with domestic and international tourism industry operators targeting investment in Zambia.

Zambia is fully aware of the challenges facing the global economy in general, and developing countries in particular. These challenges will very likely affect us.

In my view, we cannot let cyclical factors and trends distract us from pursuing our structural reform agenda to improve the business climate – not only in our own country but also across Africa. The IDC takes a long-term view in its investments, which helps projects and investors weather eventual storms.
 

This article is one in a series of opinion pieces written by prominent authors on issues covered in the OECD Development Co-operation Report 2016: The Sustainable Development Goals as Business Opportunities.

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