International Finance Environment - Investing in Zambia - Case Study Example

International Finance Environment Name Instructor Institution Date International Finance Environment Investing in Zambia A healthy International Finance Environment has as an economy where the levels of investment and economic growth are relatively high. Any economy that provides a healthy international finance environment will provide job opportunities as well as infrastructure development that attract investors to inject capital into the economy. Apart from investors, the growth of investments is seen to attract international corporations. As a result of a healthy finance environment, foreign companies are likely to establish partnerships or identify sites that may favor their business growth overseas. It is important to note that an International Finance Environment is affected by either positive or negative impacts, depending on the host country’s economic situation (Stiglitz, 2007). Thereby any particular international investor must be able to assess the situation of a country before investing in it. The Republic of Zambia is a country situated in southern Africa. Originally inhabited by the Khoisan, the Bantu currently inhabits the country due to the 13th-century migration patterns. Being a British colony the Republic gained independence in the year 1964. Zambia is well known for its supply of copper. During the 70s the price of copper reduced around the globe, the country is described to have suffered an increased amount of national debt due to the challenges in transporting the products worldwide. Towards the late 1990’s despite the limited debt relief provided to the Republic, the country’s per capita debt remained to be significant around the world. In 2010, the country was titled one of the fastest economically reformed countries by the World Bank. Up to date, the country’s capital Lusaka has remained to be the headquarters of the Common Market for Eastern and Southern Africa (COMESA). Discussion In the book ‘International Accounting and Multinational Enterprises’, Radebaugh states that culture is as important as the first step towards investing in any country in the world (Choi 2008, 31). The authors describe that to understand the potential of any environment towards investment; it is important to learn about the culture of the environment. Learning about the culture of Zambia creates a platform where one can understand the available investment opportunities in the country. Apart from the available resources, evaluating the culture of the Republic will help analyze whether the state provides an environmentally friendly environment which will be suitable for any foreign investor and international corporations. Moreover, since the establishment of the Zambia Development Authority Act in 2006, the country has experienced a centralized and more rationalized management of investments and development. Apart from mining and the potential that the Republic holds for mining activities, the country is made up of 752000 square kilometers of land mass. Apparently only 58% of the land holds potential for farming activities. Statistics have stated that only 14 percent of the land is under cultivation. Zambia holds great potential in Agriculture and Agri-business activities. In the recent past, new farming blocks have been established, to facilitate for development within this sector. The country produces cotton, sugarcane, coffee, tobacco, pineapples, and cashew nuts, horticultural and floricultural crops. The country has been exporting floricultural products and earning annual revenue that develops this sector. Zambia exports 70% of its floricultural products to Netherlands and 30% in South Africa. Zambia offers joint ventures in the field of Agro-business, as well as Agricultural activities in the country. Joint ventures involve making partnerships with the government of the Republic. It is important to note that joint ventures provide security for the investor since 50% of the business will be government owned. Being a partner of the Republic of Zambia extends to the availability of a ready market for the investment. The field of Agriculture highly depends on the patterns of rainfall across the Republic. Due to global warming, climate change has become a major challenge to agriculture across the globe (Stiglitz, 2007). The government of Zambia has deployed irrigation schemes to support agriculture. Since the Republic has a great potential in regards to flooding in Agriculture, the nation offers farming potential that can serve as a strong investment both to the corporation and the government of Zambia. Zambia formerly named ‘Northern Rhodesia’ totals a population of approximately 12 million people. Geographically the country is defined to occupy 752000 square kilometers of the land mass in southern Africa. Despite the country being landlocked and being small in size, the country is bordered by eight other nations. The country hosts the COMESA and offered access points to the other countries. Thereby the country is believed to create a local market capacity of 170 million people for its products. The country’s demographic region creates an excellent platform where the other countries can supply and purchase goods smoothly. Thus, the market of the Republic can be described by the smooth fluid flow of goods and services. Transport is efficient since the countries are linked together by railway lines and accessible roads. This makes it easier to transport resources and cargo from one point to the other. The Republic of Zambia is a member of the COMESA and the South Africa Development Community (SADC). The country’s membership of the regional groups enables it to enjoy free tariffs in regards to goods export and import. SADC is well known for the infrastructural development it has dawned on Zambia and the whole region. Apart from free tariffs, Zambia also benefits from the infrastructure through investment development and growth of job opportunities that marks a rise in the economy (Mallaby, 2005). Research has identified new projects that are being developed towards the growth of Zambia. Among these projects is the North-South Corridor, which is expected to establish a direct link from the port of Dar Lee Salaam Tanzania, and the Cooper belt in Zambia, all through to the ports of South Africa. This link is expected automatically to improve the access of the Republic of Zambia to other countries. The link will also provide more market for the products from Zambia, thus improving the economy and the international finance environment of Zambia. The organization of a single Free Trade Area in the African region is expected to be established in the southern and central Africa. The Organization will have 26 member countries that will be able to interact and exchange goods and services without taxes or import/export charges. The establishment of this organization will automatically extend the market of Zambia goods to other 25 African Countries. Having the government as a partner in the venture is more likely to enable the corporation to trade freely, without taxes or charges. Zambia is also stated to enjoy preferential market access in large Agricultural markets. Being a least developed country, the Republic is provided special access to larger markets that provide high-income levels for the country. Due to organizations such as the Generalized System of Preference (GSP), the country not only enjoys tax-free exports but also a market opportunity towards other developed countries around the Globe. The government of Zambia has established policy priorities that aim at achieving a middle-income country by the year 2030. In focus to 2030, the government established the Fifth National Development Plan (FNDP), a policy that focuses on developing economic infrastructure and strategizing human resource as a strategy to achieve economic growth and stability. This policy has affected the country positively in regards to economic and infrastructural growth. It is important to understand that the sanction of these policies not only improves the productive levels but also creates a good and healthy environment for any investor to invest in. The government has also established policies that support agriculture and rural development. Thereby the field of Agriculture exhibits much potential to any potential investor. Over the recent past, Zambia has experienced structural reforms from the government. These structural changes support the development of infrastructure and create a good business environment. Government reforms have also positioned for good living standards and have provided the adequate socio-economic infrastructure that supports Agro-business in the country. The Republic of Zambia is evaluating the day to day business habits and improving them to facilitate growth in the economy. The country aims at reducing production costs within the country and maximizes profits through real market strategies and good public service delivery. Being a landlocked country, Zambia mainly relies on road transport and railway lines to move goods and resources. The government has enacted reforms that support, and infrastructural development which facilitates the growth of traffic in the country. Despite the state holding much potential for the Agriculture sector, the Republic is faced with many challenges. Zambia is seen to keep a labor force of 4.9 million people, where 70% of the working population is involved in the Agricultural sector. Zambia Agriculture reports have shown that low labor productivity, is one of the challenges that face the agricultural industry of Zambia. Low Labor patterns have been experienced during the last decade in the country; statistics have stated that the low levels of Labor are as a result of poor education, indecisive labor laws, and a short lifespan as a result of disease such as HIV/AIDS in the country. Availability of energy has become a challenge in the country, despite the reforms to revoke the outdated labor laws in the country. The country has experienced low levels of work, which poses a significant challenge especially to the Agricultural sector where labor is a major factor. The country experiences necessary infrastructure in areas such as road transport and power supply. In some regions of the country, there are no access routes. Being an undeveloped country, the Republic also faces the challenge of poor resources transportation which would increase the cost of production, as well as reduce the rates of production in the country. This poses a risk to any investing corporation that relies on the transport systems of the country. The Agriculture sector relies on transport for goods to reach the market, or processing facilities (Eiteman 2009, 38). Transport of agriculture products is costly and thus increases the cost of production of the sector. Despite the government’s attempts to reduce licensing procedure in the country, business owners have claimed that there exists some unnecessary licensing procedure in the state’s system. Business owners have the licensing process as lengthy and encouraging bribery. Since the beauracratic process is long and very demanding, individuals have resulted in bribing officials to get licenses with ease (Nobes 2010, 68). The presence of such lengthy process creates a risk for any investor towards the Republic; the presence of bribes in government offices goes a step further to explain the country as corrupt (Sachs, 2005). Thereby any investor willing to get into the Agriculture sector of the country will face challenges which may negatively affect the Corporation. With limited resources of production inputs, established corporations in the country have developed links of getting key contributions from abroad (De Soto, 2008). Many firms have stated that taxes involved in this transaction tend to be more that, of acquiring production inputs from other countries which are members of the regional organizations example COMESA or SADC (Eiteman 2009, 72). High tax levels have led to high cost of production to firms that get inputs from abroad; thereby international companies are at a risk of experiencing high tax rates when importing production data to the country. Since the country suffers from low levels of labor, high input import services may provide a challenge to any corporation that would get employment factors from outside the country. Fluctuation in the Zambian currency (Kwacha), in contrast to the United States dollar, has posed as a major challenge to the corporations that receive their payments in dollars. Due to the unstable Zambian economy, the country has experienced fluctuation in its currency from time to time. These variations may affect corporations in either a positive or negative way. Negative deviations of the currency of Zambia to the United States dollar may result in proper amounts of profit while current fluctuations may lead to negative or zero benefits to corporations. It is, therefore, important that the government of Zambia improves economic stability to address the issue of fluctuating currency to the different foreign investors towards the country adequately (Foreign Trade of India, 2006). Education is an important sector that the Republic of Zambia should address. Education will enable the people of Zambia to gain knowledge and skills which will allow them to be able to tackle job opportunities that are available in the country. Education will create a platform where the people of Zambia will be able to understand better living standards, and aim at improving the country’s state of underdevelopment. It is important to note that the social sector is affected by the lack of education, thereby the people of Zambia would benefit from Education both economically and socially (Shapiro 2010, 42). Health as a social institution would be improved, through knowledge while the republic’s health situation will be enhanced through the acquisition of knowledge and skills. On the other hand, the government should ensure that process behind license purchase, is well checked and made easier. The process should support transparency as well as facilitate secure investment development to the ordinary people and the foreign investors as well. It is also important that the government establish rigid reforms that support investment patterns in the country, and improve the socio-economic state of the republic. References Read More