23 January 2013

Zambia: New Industrial Strategies to Enhance Economic Growth

ZAMBIA is at a critical moment where it needs to boost industrial development if the current growth rate is to translate into sustainable development.

The manufacturing sector is considered to be one of the leading sectors for the revitalisation of the economy in the strategy for Zambia's socio-economic development and poverty reduction.

The long-term vision of the manufacturing sector in the next 25 years is: A competitive export-led manufacturing sector that contributes 20 per cent to the Gross Domestic Product (GDP) by 2015.'

The Trade and Industrial Policy in respect to the development of the manufacturing sector is: To review the investment and export processing incentives regime, to raise investments, to create employment and reduce poverty.

Despite having a vibrant strategy to develop the sector, the manufacturing industry is still faced with numerous challenges and this calls for new and proper strategies to be defined to achieve the Sixth National Development Plan (SNDP) goals.

A lot of work still needs to be done for the country's manufacturing sector to realise its full potential and it is crucial to ensure that this happens.

The major requirement is for Government to formulate and implement some policies that are broad-based that can be applied uniformly across the manufacturing sector.

To realise the potential of the manufacturing industry, Zambia should look at the costs of doing business with a view to facilitating investment in the manufacturing sector.

The manufacturing sector is currently squeezed by a noncompetitive local industry on both regional and international markets.

In addition, sectors of the industry such as food products, wood products, textiles and other nature-based industries with viable export potential should be encouraged.

The constraints faced by the manufacturing sector includes weak forward and backward linkages, underutilisation of available capacity and the narrow range of products.

The high cost of production; limited access to long-term financing; low skill levels and generally outdated technology take a lead on the table of challenges in the sector.

In this year's budget it was outlined that the strategic focus in manufacturing will be to promote products that can be competitively exported or successfully substituted for manufactured imports.

Finance Minister Alexander Chikwanda said another strategy will be to promote and facilitate value addition to locally available raw materials by putting in place appropriate industrial infrastructure for Small and Medium Enterprises (SMEs), particularly in rural areas as well as promoting Foreign Direct Investment in MFEZs.

Mr Chikwanda said Government will tailor the investment incentives to benefit entrepreneurs that invest in value-addition ventures and promoting employment will surely be a plus to the growth of the sector.

He said medium to long term financing will be provided for MSMEs through the banking sector.

Generally, the concerted and coordinated intervention in the sector, is approximately expected to create about 90,000 jobs to be generated over the next five years.

Some of the nature-based industries do not necessary need huge investment hence they could be utilised by local SMEs.

The SME sector in the manufacturing and in overall economic development is critical.

Although the challenge of lack of equipment seems insurmountable, especially to micro, small and medium enterprises, Government, organisations and individuals are making headway in achieving that.

The growing importance of SMEs in the manufacturing sector is due to their significant contribution to the key sector of the growing economy.

A lot has happened in wanting to grow the manufacturing sector using SMEs and this is evident through the Government's plans of creating industrial clusters across the country.

Developing of clusters is the best way to go and it will put SMEs in a position to have a strong footprint in the manufacturing sector and this is if the programme will at all be implemented.

Commerce, Trade and Industry Minister Robert Sichinga said the formation of clusters will increase productivity among SMEs and maximise the utilisation of available natural resources.

Mr Sichinga said SMEs in the clusters will have an opportunity to seek easy and timely credit on favourable terms, therefore, creating a much stronger manufacturing base.

To encourage the SMEs sector's contribution to the manufacturing sector and to maintain competitiveness on local and outside markets, there is need for a good packing industry.

A strong packaging industry will be a catalyst for future investments in the more primary manufacturing industries as it will increase competitiveness.

A proper packaging industry for SMEs will provide a stepping stone towards developing manufacturing in line with international best practices.

There is need for quality control and adherence to standards in the manufacturing sector especially in the SMEs sector.

Lack of quality control in the SMEs sector has led to loopholes and this has greatly contributed to the increase of cheap products entering the Zambian market.

Faced with challenges, the SMEs sector has increased its investment levels in different sectors of the economy.

According to Zambia Development Agency (ZDA) the sector recorded an upswing in investment with the total hitting about K10 billion as of September last year in different sectors, manufacturing inclusive.

Even with increased investment, Government has not done much in alleviating some challenges the sector is faced with.

The key to ensure that SMEs are able to grow in tandem with the economy is to work on issues affecting them.

Another aspect that should be embraced is that of marketing and that of technology transfer and packaging.

Therefore, there is need for technology transfer whose impact on many local manufacturers could be utilised in the sector. This will accord manufacturers an opportunity to emerge as major economy-drivers in the local economy.

Appropriate transfer of technology would drive Zambia's industrialisation through value-addition.

In the face of some of the limitations and challenges, the manufacturing sector in Zambia offers great opportunities for investment.

Zambia Association of Manufactures (ZAM) chief executive officer Roseta Mwape said the sector is still utilising only a quarter of its capacity, meaning that there are opportunities for more investments in most sub-sectors.

Since 2005, the manufacturing sector has seen substantial investments in various sectors such as Steel and metal fabrication, agro processing and a few hi-tech industries due to a conducive economic environment and political stability.

Ms Mwape said good macro indicators have also continued to give investors an assurance of stability and predictability.

The fact that Zambia offers a stable hub for long-term investments in the manufacturing sector, it also offers availability of market as most of the neighbouring countries have low production.

She said if Zambia could sort out infrastructural inadequacies then it will make a case for the best destination of long-term investments.

Zambia's tax framework for incentives is quite competitive compared to regional competitors. Until 2013 the tax holiday was tied to declaring profits.

However, due to so many companies evading tax this incentive has only been tied to a period of five years from establishment.

"It is our hope that in the near future manufacturing will be deliberately isolated and treated with special attention with regards to taxation.

"So far manufacturing has been treated generally whereas sectors such as mining and agriculture have special incentives especially on corporate tax," she said.

Furthermore, Zambia should learn from the region where manufacturing has lower taxation compared to general trading.

Ms Mwape said lower taxation would not only spur growth in the sector but also make it competitive in the region in most of the products.

Zambia eventually regained the power to accelerate its economic growth in 2005, largely backed by sustainable macroeconomic policies, strong copper markets and debt relief implementation.

She said in the middle of this growing economy, more new manufacturing companies have emerged in various sectors.

Many foreign investors have been coming to Zambia and finding it as the regional manufacturing base of their products.

Going forward the sector is expected to continue registering positive growth and this is line with the target of creating more jobs for local people and increase the levels of value addition on most products.

She noted that Zambia also continued to boast of its strategic positioning in the region.

Not only does Zambia sit on a crossroad of two major markets in the region but is surrounded by eight neighbours.

And ZAM president Chance Kabaghe said that in the last year the sector registered positive growth.

Mr Kabaghe said the factor that led to the growth was the influx of some American companies that invested in the sector.

"From the time we hosted African Growth and Opportunity Act (AGOA) we have seen a number of big American companies coming to set up here which is a good sign in the sector and the country at large. I can safely say that during this one year

period the sector has recorded positive growth," he said.

Mr Kabaghe said it was gratifying to note that the working relationship between Zambia and US through AGOA was growing.

Mr Kabaghe said the manufacturing sector had gained investor confidence, adding that this would result in the growth of both the sector and the national economy.

He said that the increase in the number of companies coming to invest in the country was a clear indication that Zambia's economy had grown.

"As an association we are proud of the growth and most importantly to note that key regional international brands have come to Zambia. The other thing is that these companies are coming to partner with our local key value addition companies," he said.

Value addition and long-term investment were the main factors that will facilitate for desirable growth in the sector.

"We want to make a request to manufacturers in Zambia to ensure that they produce good quality products with good standards as this will reduce the cost of doing business," Mr Kabaghe said.

Despite the infrastructure not being good in the manufacturing sector, investors have continued coming to invest as a result of good sector performance.

Even though Zambia recorded significant progress in growing the economy as reflected in some of the macro-economic indicators, the country was yet to reach its full potential in manufacturing.

The country has been principally a supplier of raw materials which have value added to them in developed countries.

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