MADE IN-HOUSE

Zambia 2017 | INDUSTRY | FOCUS: LOCAL PRODUCTION

To boost local production and wean Zambia off its dependency on imports, there needs to be greater focus on a change in mindset, a reform of the legislative environment, and cheaper access to capital for producers.

Many will say that Zambia is “land-linked," not “land-locked" and its geographical location, a nexus of eight countries, endows it with great opportunities; champions of industry attest it can become the export hub of the southern and eastern African regions. However, these extensive linkages are more than not often used to bring wares into the country than to send them out. In fact, the current share of domestic products and services consumed by the public and private sectors is exceptionally low, varying from 4-5% in the mining sector to 15-25% in others. Indeed, Roseta Chabala, President of the Zambia Association of Manufacturers (ZAM), highlighted that Zambia has a long history of choosing foreign goods over those produced locally, with the government notoriously quick to import everything from protective clothing to school desks. Chain stores, similarly, prefer to stock goods from South Africa, China, and India rather than Zambia.

Sourcing products from abroad instead of investing in the country's production adds to the forex drain and ultimately results in a long-term balance of payments deficit for the country. Moreover, other key macroeconomic advantages to stocking local products include increased innovation and competitiveness among local companies, lower production costs, more value chain linkages across different industries, and the generation of downstream support service industries. Buying locally reduces delivery time, cost, and paperwork, eliminates the need for bulk buying and tying up working capital, and facilitates procurement processing and access to after sales service.

Progress, however, is being made. According to the Zambia Development Agency (ZDA), the manufacturing sector in Zambia accounts for about 11% of the country's total GDP, which has grown at an average of 3% over the last five years and can be largely attributed to the agro-processing and textiles industries. There are also several areas of focus necessary to increase the consumption of domestic goods. The first of these is the need to change the mentality that all that is local is sub-standard. If Zambians want to buy “Made in Zambia" products, the market for such products could grow. The second relates to policy and regulation. Many have called for reviews to The Citizen's Economic Empowerment (CEE) Act of 2006 and the Public Procurement Act of 2008, which do not contribute to the economy in terms of employment, training, or procurement in the way they were intended to. The Minister of Commerce, Hon. Margaret Mwanakatwe, agrees that both the CEE and the procurement act need reform. “The CEE has, in the past, been an equity push, but we are changing now, to go toward value chain development," she said

The third area that will be key to the realization of this ambition is access to financing. Several strategies have been suggested, such as special financing windows for small businesses and a more concerted effort on the part of the banking system to pay more than just lip service to facilitating SME growth. Market penetration for SMEs in Zambia is generally low, partly due to market informality, but also in large part due to high costs of borrowing. As Leonard Haynes, CEO of First National Bank (FNB) Zambia, told TBY, “The Bank of Zambia's reports show that credit extension in kwacha has actually reduced over the last two years across banks… At the moment, deposit rates are high and the FNB is cautious about lending at high rates, which is irresponsible and not conducive to strong sustainable relationships with customers. Increased liquidity will be crucial to bring down these rates." Other banks have emphasized the importance of offering training in financial management, as well as loans, to SMEs.

Some vital initiatives, such as the Business Linkages Champions forum launched by PEPZ, are targeted at more coordinated efforts between SMEs and corporates. They provide a common space for reviewing outdated policy and ensuring that the voices of all actors are heard. There is a substantial need to build the local production base before the idea of being able to take advantage of Zambia's advantageous land-linked topography can become a reality.