23 January 2013

Zambia: Manufacturing Sector Critical to Economic Growth

Manufacturing is a critical tool to economic development as it provides focus for stimulating growth in related sectors of the economy and has great potential to contribute immensely to the country's Gross Domestic Product (GDP).

The sector if well supported and harnessed, is able to create thousands of employment opportunities and promote economic empowerment that is directly linked to a robust manufacturing industry.

A closer look at this sector reveals that, a number of factors still hinder its full potential and has over the past decade, only recorded minimal growth.

With all the macroeconomic indicators in place to support such growth, time is now to ensure certain measures are immediately put in place to spur growth and make the sector capable of supporting the country's economic development.

While it is clear that the Zambian manufacturing industry is still recovering from the privatisation process of the 1990s, calls to address challenges facing this sector have been loud enough to inspire the Government to consider some of the problems facing it.

Revelations by the Zambia Association of Manufacturers (ZAM) chief executive officer Roseta Mwape that the sector's contribution to GDP in the last five years, has dropped considerably from 11.5 per cent in 2008 down to 10.7 per cent in 2012, shows how desperate the situation is in this industry.

ZAM names among some of the challenges the industry is facing as, lack of incentives and stiff competition from imported cheap products which have been flooding the country for many years.

Other factors that have dogged the sector include high duty on imported raw materials and Value Added Tax (VAT) which the manufacturers want reduced to at least 14 per cent.

It is important for the manufacturing sector to receive more attention regarding taxation in comparison with mining and agriculture which have special incentives especially on corporate tax.

The current corporate tax for the manufacturing sector stands at 35 per cent compared to mining which is charged at 30 per cent while Agriculture and Non Traditional Exports (NTEs) are at ten per cent.

Zambia should learn from other countries in the region such as South Africa for example, where the manufacturing sector has lower taxation.

In addition, the sector also faces challenges such as high fuel prices as well as ever rising electricity tariffs which have pushed the cost of production even high, making locally produced goods more expensive.

Once the Government works towards addressing some of these challenges, the measures to be taken would not only spur rapid growth in the local manufacturing sector but also make it more competitive in the region.

The result would also help to facilitate more investments, promote value addition, create thousands of jobs and make the sector double up its contribution to the country's GDP.

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