Johannesburg Risk Management expert fears for Zambia’s investment under Sata

Johannesburg Risk Management expert fears for Zambia’s investment under Sata

CadresBY MITCHELL MACKAY, MARCH 15 2013, 05:40 (Businessday)

ZAMBIA’s doors are open for business. The country that has been teetering on the edge of success for so long could finally turn promise into profit. Zambia exudes potential as a viable investment destination amid a broader African economic renaissance. Yet an alarming undertone of political unrest has been brewing. Is Zambia set to sabotage its own upward economic trajectory by going into a political tailspin?

While the country has had its fair share of political volatility in the past, the latest unease comes after a gradual stabilisation of domestic affairs over the past decade. Michael Sata and his Patriotic Front (PF) were peacefully ushered into government in 2011 as the country seemed to turn away from the fumbling and quasi-autocratic regimes of the past. For outsiders, there was good reason to be optimistic about Sata’s rise to power. As a veteran opposition leader, the man nicknamed King Cobra was known to spit venomous rhetoric about the deficiencies of those in power and the pervasive corruption within the ruling Movement for Multiparty Democracy. Sata promised to introduce real reform.

Once victory was secured, Sata began to ring the changes in what appeared to be a process of ridding government structures of inept and corrupt officials. For foreign investors wanting greater regulatory and institutional stability, Sata’s sweeping changes were initially interpreted as a genuine commitment to his campaign promises.

On closer inspection, it is clear that Sata’s government is tightening its grip on power, often through less-than-democratic means. Once voted in, Sata appointed his uncle and cousin to the highest echelons of the finance ministry, while other relatives and members of his Bemba tribe have found their way into government positions. The Public Order Act is now being wielded by the government to stifle democratic processes. With increasing regularity, Sata has blocked opposition gatherings and instigated the harassment of opposition leader Hakainde Hichilema of the United Party for National Development (UPND).

It would be naive to summarily separate Zambia’s political stability from its economic potential. If the country’s political climate is inflamed further, Zambia’s investment proposition will become hard to sell. History tells us that when a government is willing to use unconstitutional means to defend its hold on power, a deep decay of state institutions and governance processes can easily follow and a culture of authoritative disorder can take hold. These are not the conditions foreign investors are looking for. At a time when more African countries are beginning to institutionalise better enforced regulatory frameworks for business investment, Zambia could potentially push itself out of the race by back-pedalling, rather than keeping up in an increasingly competitive investment region.

More than ever, foreign investors are closely monitoring political risk indicators to assess the long-term viability of their investments. With the world watching, Sata’s government urgently needs to address domestic political stability to make credible appeals for foreign economic participation. While short-term investment attractiveness could initially outweigh political uncertainty, any further signs of autocratic rule could deter substantial and sustainable long-term investment prospects for the country.

If the Sata government’s actions begin to translate into economic fallout, the backlash from the international community and opposition parties could force Sata’s back even further against the wall. It is under these circumstances that rash political manoeuvres can be made, either to appease one’s constituency or to further suppress the opposition.

For those with Zambian investments in place or investment plans on the table, a watchful eye should be kept on political developments. The recent flare-up of political violence between UPND and PF supporters in Livingstone is disconcerting and it may provide the Sata government with a pretext to ratchet up state interference.

Zambia’s leaders can ill afford to tarnish the country’s regional and global reputation, which was beginning to gather positive momentum amid a growing appetite for lucrative African markets. Zambia’s doors are still open for business but should the political malaise continue, genuine democracy and foreign investment may soon make a swift exit.

• Mackay is a senior analyst in the Johannesburg office of Pasco Risk Management.

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