Zambia is a closed economy in which the best and the brightest work

Premises:
Zambia is a closed economy with few foreign companies.
Because of limited innovation by domestic companies, the economic growth in Zambia has been non-existent.
To spur innovation, the government has proposed allowing foreign companies to operate in Zambia.
While this move may increase the overall economic growth in Zambia, it will increase competition for local talent

Conclusion
This move will decrease the domestic companies’ overall ability to innovate.

A. Foreign competition will not spur the innovation engine at domestic companies, which has been stagnant because of lack of competition.

The argument talks about "ability to innovate". There will be fewer smart people so lower ability to innovate. Whether foreign competition will spur innovation in domestic companies (and hence domestic companies may actually innovate more than before) is irrelevant. The argument does not assume anything about the level of innovation after the foreign companies come in. It only talks about "higher economic growth" and "lower ABILITY to innovate".

B. Innovation by foreign companies is not likely to improve the rate of economic growth in Zambia.

Not true. The argument actually says that economic growth is expected to increase with this move.

C. Lack of domestic innovation today is primarily caused by the complacency of domestic companies which face little competition.

Not known. The argument doesn't say why innovation doesn't happen. Perhaps the domestic companies don't have the skill set, perhaps they don't have the required experience, we don't know. The argument doesn't say that the domestic companies will start innovating once the foreign companies come in. It just says that the ability to innovate will reduce.

D. Management practices brought and shared by the foreign companies in Zambia will not significantly enhance the ability of domestic companies to innovate with whatever workforce they are left with.

The argument says that the ability to innovate will reduce if foreign companies come in because they will take away some work force. It assumes that the foreign companies will not bring in any value which will significantly enhance the "ability" to innovate. Taking away some work force may reduce the ability but if some practices brought in by foreign companies significantly increase the ability, the move will not decrease the domestic companies’ overall ability to innovate.
Hence, this is something the argument assumes.

E. Many foreign companies that start operating in Zambia do not offer below average wages to the local talent.
Not an assumption. Even if they do offer below average wages, some talent will be taken away by them and the ability of domestic companies to innovate will reduce.

Answer (D)