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Paper short abstract:

Using a case study of the Chinese FDIs in Zambia, the author examines to what extent the Chinese investments in the local manufacturing sector contribute to the structural transformation. Finding suggests that the enclave character of Chinese FDIs have limited impact on structural transformation.

Paper long abstract:

For many years industrialisation polices and strategies have been high on the agenda for both the Zambian government and the international development institutions. This was mostly due to the fact, that scholars and politicians alike perceived development of the manufacturing sector as the key catalyst for structural transformation of Zambia. Yet, despite billions of dollars in capital inflows, the local manufacturing sector’s contribution to GDP remains stubbornly low and stagnant at circ. 9% in 2021 (the same level as in 1994). Most recently, due to increased activity of Chinese investors in the region (especially outside of the mining sector), hopes for structural shift have been rekindled. Using a mix of tax holidays, special industrial zones and other types of incentives, the Zambian government managed to attract over 600 Chinese businesses, which invested over $3 billion creating 50,000 local jobs.

This papers investigates the extent to which Chinese FDIs contribute to the structural transformation of the Zambian economy. Using a mix of qualitative (semi-structured in-depth interviews) and quantitative (surveys) methods the author the author examines the process of linkages formation and the absorptive capacity of local companies.

The findings suggest that, similarly to the mining sector, Chinese investments in the manufacturing sector, due to its enclave character, do not bring material spillover effects. Unfortunately, Chinese businesses investing in the Zambian manufacturing sector create limited linkages with their Zambian peers, therefore Chinese FDIs hardly contribute to the structural transformation of the sector and the local economy.