Zam­bia Slides to 58th on Frasers – Min­ing In­vest­ment Des­ti­na­tion – In­dex

Zambian Business Times - - FRONT PAGE -

ZAM­BIA’s po­si­tion in the lat­est Fraser In­dex has plum­meted. The coun­try’s plac­ing in the in­dex, which mea­sures how a coun­try is seen as a min­ing in­vest­ment des­ti­na­tion, has fallen from 30 to 58 – a very big drop.

You may be tempted to ask: “Does this mat­ter?” The an­swer is that it does. Although the in­dex is not based on hard data – but rather the per­cep­tions of min­ing com­pany ex­ec­u­tives – these per­cep­tions in­flu­ence in­vest­ment de­ci­sions.

If a coun­try is per­ceived as a risky in­vest­ment des­ti­na­tion, in­ter­na­tional com­pa­nies will not build mines, fac­to­ries, or open branches of their busi­nesses in that coun­try. One would be en­ti­tled to again ask: “Does this mat­ter?” The truth is – it does.

In­ter­na­tional in­vest­ment into any coun­try should be wel­comed. In­ter­na­tional in­vest­ment – es­pe­cially fixed in­vest­ment (where in­vest­ments lead to the con­struc­tion of fac­to­ries, or mines, or other fixed as­sets) – has many pos­i­tive out­comes.

In­creased in­vest­ment leads to more jobs, can boost the pro­duc­tiv­ity of the re­ceiv­ing coun­try, cre­ates ad­di­tional tax rev­enue for the gov­ern­ment, as well as see­ing the trans­fer of skills and tech­nol­ogy to peo­ple and busi­nesses in the host coun­try.

A study by the African De­vel­op­ment Bank found that in­ter­na­tional in­vest­ment in the pri­mary sec­tor (such as min­ing) also re­sults in pos­i­tive out­comes for hu­man de­vel­op­ment in­di­ca­tors such as health, ed­u­ca­tion and liv­ing stan­dards. Now, if a coun­try is not per­ceived as a place where in­vestors will want to put their money, this will have a dam­ag­ing ef­fect on jobs and eco­nomic growth, and will, over­all, be neg­a­tive for a coun­try. So be­ing an at­trac­tive in­vest­ment des­ti­na­tion is some­thing that should be strived for. “In­ter­na­tional in­vest­ment re­sults in pos­i­tive out­comes for health, ed­u­ca­tion and liv­ing stan­dards. The Fraser In­dex mea­sures the at­trac­tive­ness of a coun­try for in­ter­na­tional min­ing in­vestors. It is pub­lished an­nu­ally by the well-re­spected Cana­dian think-tank, the Fraser In­sti­tute. The lat­est in­dex was re­leased in Fe­bru­ary 2018 and shows that Zam­bia is no longer one of the world’s top 50 most at­trac­tive min­ing des­ti­na­tions.

Min­ing in­dus­try ex­ec­u­tives and man­agers are asked their opin­ion on fif­teen is­sues that con­trib­ute to in­vest­ment at­trac­tive­ness. These in­clude un­cer­tainty around ex­ist­ing reg­u­la­tions, un­cer­tainty around en­vi­ron­men­tal reg­u­la­tions, the le­gal sys­tem, the tax sys­tem, avail­abil­ity of skills and labour, labour reg­u­la­tions and po­lit­i­cal sta­bil­ity. The an­swers are then col­lated to de­ter­mine how at­trac­tive a par­tic­u­lar ju­ris­dic­tion will be for min­ing in­vestors.

As shown above, in the lat­est in­dex, Zam­bia was ranked 58th out of 91 ju­ris­dic­tions, nearly 30 po­si­tions down on the pre­vi­ous year’s sur­vey, when the coun­try was ranked 30th (out of 104 ju­ris­dic­tions). Zam­bia’s rank­ing in Africa has also de­clined – from 5th place in the pre­vi­ous sur­vey to 7th place.

Fin­land tops the global min­ing in­dex. Ghana (ranked 22nd over­all) and Mali (25th) are the top min­ing ju­ris­dic­tions for in­vest­ment in Africa, fol­lowed by the 43rd-ranked Botswana.

The high­est-ranked coun­try in Africa in the last sur­vey, Ivory Coast, saw a pre­cip­i­tous drop in the lat­est sur­vey. In 2016 it was ranked 17th over­all and first in Africa, but is now 78th in the world, and 11th in Africa. Rea­sons for this almighty de­cline were trade bar­ri­ers, reg­u­la­tory un­cer­tainty, po­lit­i­cal in­sta­bil­ity, and labour is­sues.

Ac­cord­ing to the in­dex, there were three main rea­sons for Zam­bia’s de­cline. These were its tax­a­tion regime, the poor state of its ge­o­log­i­cal database, and, rather wor­ry­ingly, po­lit­i­cal in­sta­bil­ity. Zam­bia has long been con­sid­ered a haven of peace among un­sta­ble neigh­bours that in­clude un­demo­cratic An­gola, the peren­ni­ally con­flict-rid­den Demo­cratic Repub­lic of Congo, and eco­nom­i­cally pre­car­i­ous Zim­babwe.

Over the past ten years Zam­bia’s rank­ing on the in­dex has been broadly down­ward. There were sig­nif­i­cant im­prove­ments in 2014 and 2016, but each time this was fol­lowed by a fairly large fall the fol­low­ing year. The sur­vey may also re­flect in­vestor sen­ti­ment re­gard­ing pol­icy de­ci­sions made by gov­ern­ments in a pre­vi­ous year.

What lessons can Zam­bia draw from this year’s Fraser In­sti­tute rank­ings?

The main one is that per­cep­tions mat­ter, and that seem­ingly iso­lated de­vel­op­ments in ar­eas like pol­icy, tax­a­tion and po­lit­i­cal sta­bil­ity can com­bine to pro­duce a dra­matic reap­praisal of a coun­try’s de­sir­abil­ity as a min­ing in­vest­ment des­ti­na­tion.

And when this hap­pens, in­vestors are re­luc­tant to build new mines or ex­pand ex­ist­ing ones, which in turn re­duces the eco­nomic and fis­cal con­tri­bu­tion the in­dus­try makes to the econ­omy. Iron­i­cally, this can­cels out the de­sired ef­fect that the harsh pol­icy, tax and po­lit­i­cal changes were in­tended to pro­duce in the first place.

The bot­tom line is that po­lit­i­cal and eco­nomic de­ci­sions taken by host gov­ern­ments do not ex­ist in a vac­uum; they have an ef­fect that is both real and im­me­di­ate on their min­ing in­dus­tries and on gen­eral in­vestor per­cep­tions. The an­nual Fraser In­dex is a timely re­minder of this.

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