Attracting Foreign Investment Through Privatization

ABSTRACT Privatization serves as a potential source of foreign direct investment in Africa. During the Chiluba era (1991–2001), Zambia conducted one of Africa's most sweeping privatization programs. Accordingly, direct investment swelled with the sale of state enterprises. This paper explores foreign and domestic ownership patterns following investor purchases of Zambian state-owned assets. Previous foreign owners of mining and manufacturing companies represent the principal sources of foreign capital received through privatization-the only real exceptions being expansions by South African firms. A difference of means test conducted on all known privatization cases reveals that foreign investors (outside South Africa) are more export-oriented than domestic investors and also buy higher-priced assets. South African investors, heavily concentrated in retail activities, are more likelyto have been involved in competitive acquisitions. Despite increased foreign investment during the 1990s, however, the economy has stagnated. Having sold most of its state assets Zambia, like other sub-Saharan Africa countries, must endeavor to attract investment through other channels.