Established in 2014, Zambia’s Industrial Development Corporation (IDC) is the government’s investment arm and a major driving force behind the country’s expanding economy. As the manager of numerous state-owned enterprises, it has a mandate to make them work for the Zambian people by ensuring they turn a profit and create jobs. CEO Mateyo Kaluba explains how his organisation is fulfilling that task by forging win-win partnerships with agencies and private companies in strategic areas such as solar energy and tourism, and how UK investors can get involved
Since it began operations in 2014, the Industrial Development Corporation (IDC) has been hailed as the vehicle for Zambia’s economic growth. Why did the government need to create the IDC and how is the corporation living up to its mandate so far?
Zambia has had state-owned enterprises stretching back to the days before independence in 1964. Then, the government in 1991 embarked on a massive privatisation programme. But there were companies that remained under government ownership, either because they were deemed strategic or because privatisation processes were not completed. The supervision of these companies was vested in various ministries – for example, if it was a power utility, it came under the Ministry of Energy. However, these ministries were not structured to supervise companies as commercial entities, and this resulted in a non-performing portfolio of companies. So the government said: “Let’s have a structure that will effectively be the supervisor” and hence, the IDC was established. The other dimension that came into play was that there were a lot of private sector players who had an appetite for Zambia, but wanted a reliable local partner. At the same time, there were also areas where, for a country with such resource wealth, it didn’t make sense that nobody was willing to go into them. There was a realisation that you needed a catalytic player to open up these sectors: an investment arm of the government.
The IDC is involved in a wide range of sectors. What is the main driving force behind reshaping these enterprises?
The fact that a company is owned by the state should not be an excuse for poor performance. The people, as shareholders through their government, deserve a return on investment just like any other shareholder in the world. We’ve told companies in the IDC Group that the era of loss-making and lack of accountability to shareholders has to come to an end.
One of the IDC’s aims is to form strategic partnerships with the private sector, both nationally and internationally. What has been your experience of working with the international community so far and what is your strategy for attracting the best partnerships?
So far I have been very impressed with how we have been received. One of our biggest partners right now is the International Finance Corporation (IFC) and we’ve had an excellent working relationship with them. We’ve had a number of development institutions such as the African Development Bank and the World Bank eager to work with us on projects. With the IFC we’re working on the Scaling Solar project, where we are introducing solar energy to the national grid for the first time. We are about to start construction on the first 100 megawatts and we are already working on the next 300 megawatts. The World Bank is providing the guarantee, and the IFC is providing the expertise and technical support. We are also working with Enel, a major renewable energy company in South Africa and Italy, and with Neoen of France. We have been seen as an agent of change. Nobody was willing to go into solar energy before we took a step to open up that sector. Now the government is under pressure from other global players who are demanding to enter the solar energy space. We as the IDC have done our job in demonstrating that solar energy is viable in this country. And now we are working with various partners to demonstrate that wind energy is also viable in addition to other value addition activities in manufacturing, tourism and agriculture.
People in many different sectors say that the shift in terms of investor interest has been incredible. How do you see that change?
The change is reflected in how the government is seeking to position the country. If you look at the energy sector, the government is saying we want to be the energy hub of the region. In the aviation sector, it wants to be the aviation hub… Suddenly, we are not just a mining country. We are a country with promise in agriculture, tourism, manufacturing and more. The government has implemented business reforms. The cost of doing business is still significant, but as the infrastructure has rolled out, the appetite has grown because areas that were previously inaccessible are now accessible. This has really changed the dynamics for the private sector. The way the institutional framework has evolved has also changed the dynamics of the economy, the competence of the institutions – for example, the way the Bank of Zambia managed the pressures of inflation last year – all this gives players confidence that they are dealing with a competent government and institutions. The competence of the institutions presents a certain sense of predictability.
What are the main areas of intersection between Zambia and the UK?
We believe that the UK, more than any other European country, must have the confidence to invest because first, the systems we inherited are largely their systems. There is a lot of commonality there. In terms of sectors, agriculture is an exciting area for UK companies as Zambia has a lot of land and the best climate. Energy and tourism are the other key sectors. Zambia has received a lot of attention from UK companies in renewable energy. In 2014 the British Chamber of Commerce opened a branch here, which pointed to an increase in appetite from UK companies. And with Brexit, the UK needs new trade partners. We are looking for opportunities for local job creation.
What I would like to see more from UK investors is for them to ask questions such as: how do we increase trade between Zambia and the United Kingdom and how do we do it in a manner that is win-win? For us, if it’s creating jobs and wealth in the country, we’re happy. The UK, on the other hand, needs a market for its finished products, but it also needs to have a source for some of the value-added inputs into its manufacturing sector. The other area where the IDC has invested quite a bit is in the financial sector. The UK is essentially the world’s financial capital and UK institutions can benefit by positioning themselves as bigger and more active players in the Zambian market. We have a fairly advanced financial sector – probably second only to South Africa in the Sub-Saharan region. It’s about time that financial players in the UK begin to look beyond South Africa. They are at the stage where a one per cent GDP growth is something to celebrate. Here that would be a crisis. Zambia is a growth hub.
Can you describe how the IDC is going to help those investors and partners exactly? What services do you offer?
The IDC is an investment company. Therefore, we are looking for the same thing investors are looking for: a return on investment. The only difference is that we have a strategic role as we look for that return. We ask: “which of Zambia’s vast natural resources can we add value to and therefore create jobs for Zambians as well as local wealth?” In return, IDC gives investors a partner that understands the local market. We have more leverage with the public institutions that investors have to deal with. But we are not an investment facilitation agency. We only take on projects in which we are co-investors.
Recently there have been some headlines questioning the stability of the country. Do you think this portrayal of Zambia is accurate? Will this impact the appetite of investors?
If you don’t know the country, you can over-read everything. For example, in Europe, some countries have different security threat levels. When the president declared a threatened state of public emergency, it was misinterpreted. Yet the president was merely increasing the alert levels for the security services. I think we get caught up in this narrative that the western society sometimes has about Africa, but that’s not Zambia, fortunately. In the same period that there was a high security level we had six or seven foreign delegations coming here to look for business opportunities. This shows that those who know Zambia don’t get distracted. We are a country where our president is making some of the toughest decisions that a government can make. It’s not easy for the government to remove subsidies on fuel and energy and keep cutting costs and constraining expenditure. The only governments that make those decisions are those that want to deliver economic growth.
We have seen Standard & Poor’s raising the bond rating, the central bank pulling the reins in on inflation – we are seeing growth. How does the IDC fit into all of this?
The IDC fits in all of this because we are the government’s investment arm. Everything that creates a conducive environment for the private sector is also creating a conducive environment in which we can do business. When interest rates start dropping, it works for us because that means we can also borrow money more affordably and invest in long-term projects. We are benefiting from everything happening in the macroeconomic environment.
The IDC’s goal is to create one million jobs in five years. How do you envision that?
The role of the IDC is to make sure those jobs materialise. When we open up an area to tourism, if we can set up a project that has an anchor hotel, you will see lots of other hotels spring up. IDC’s investment will have resulted in more companies investing. We will account for the one million jobs by considering the direct and indirect jobs created as a result of our investment activity
Would you like to say anything else?
My appeal to people is: “don’t read about Africa, learn about Africa.” I’m asking people to learn about the Zambia we live in and that has all these opportunities for them – 752,000 square kilometres of land, 40 per cent of the water resources in the region, some of the world’s best tourism destinations and nature reserves, where young people make up 70 per cent of the population. That’s the Zambia they should be learning about.