IMF anxious about Chambishi economic zone?

The IMF yesterday released a press release reporting the conclusions of its recent staff mission lead by Mr. Francesco Caramazza. Given that the Government has closely followed the IMF’s ‘advice’ on contract renegotiations (see next entry), it is perhaps unsurprising that the statement notes, "The announced changes in the fiscal regime for the mining sector are welcome, as is the government's intention to remove fiscal terms from future development agreements. Zambia's tax system is very competitive in the region.”

At the same time the release includes an interesting warning against giving investors too many rights. “While targeted tax incentives for investment can be appropriate under special circumstances, inefficient use of tax incentives, in particular tax holidays, entail significant costs. Therefore, great care needs to be taken to ensure that such incentives associated with multi-facility economic zones do not erode the tax base over time."

This warning appears to reflect IMF concern about the blossoming Zambia-China relationship, and the investment conditions established for Chinese companies entering the recently announced ‘economic zone’ around Chambishi. The site is already a source of major conflict between workers and communities and the existing Chinese investors such as NFC-A, BGRIMM Explosives and Sinozam Hospital. The IMF's concerns may be quite genuine - after all it wants Zambian revenue streams to increase. At the same time, Western institutions have a number of reasons for fearing increasing Chinese investment and influence in Zambia, not least that it weakens their relative influence over the Government. As Dan Haglund noted in a recent entry, the terms of Chinese investment may also be fungible with other sorts of assistance to the Zambian state (and ruling party?)

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