Zambia`s reversal of the sale of telecoms company Zamtel to Lap Green Networks this year has not damaged the southern African country`s investment climate, says UK-based Economic Intelligence Unity (EIU).

Libya-based Lap Green Networks` purchase of a 75% stake in Zamtel in 2010, for $275 million, was controversially reversed by Zambia`s administration in January. The move followed a government-sanctioned inquiry, which found the sale was marred by what it called “irregularities”.

But a report by the EIU said there appears to be some grounds for Zambia`s U-turn on Zamtel.

The EIU said the sale of Zamtel lacked transparency and the organisation also alleges that there were irregularities in the awarding of a contract to Cayman Islands-based RP Capital to assess Zamtel`s value. The EIU said the valuation method used by RP Capital does not stand up to scrutiny.

“The Economic Intelligence Unit is of the view that the reversal does not herald a severe deterioration in Zambia`s investment climate,” the EIU stated in its report on the matter.

However, despite the EIU report, Private Sector Development Association (PSDA) chairperson Yusuf Dodia still believes the sale reversal is scaring away investors.

“The mechanism used in getting back the 75% shares in Zamtel is what has been the greatest challenge, because Lap Green Networks entered into a legally binding contract with the Zambian government, which cannot be dismissed easily,” Dodia said.

Zambia`s decision to reverse the sale of Zamtel has, among other reasons, resulted in the downgrading of the country`s economic outlook to negative from stable by Fitch Ratings, an international economic rating agency.

“The recent decision to reverse a privatisation deal without as yet compensating the investing parties could undermine property rights,” said Carmen Altenkirch, director in Fitch`s Sovereign rating group.

Last month, the Zambian government, through attorney-general Mumba Malila, said it was looking into the possibility of compensating Lap Green Networks for the grabbed shares and for any investment the company made in Zamtel`s network upgrade and expansion.

But Lap Green Networks decided to take the matter to court in a bid to force the Zambian government to reverse its decision to grab the company.