Zambia’s Fifth National Development Plan (FNDP) puts Manufacturing as the 11th chapter amongst other development areas that include Agriculture, Mining and Tourism. This is consistent with the development goals of the Poverty Reduction Strategy Paper which was the development program preceding the FNDP.
The FNDP states that ‘The manufacturing sector is considered to be one of the leading sectors for the revitalization of the economy in the strategy for Zambia’s socio-economic development and poverty reduction.’ The FNDP further highlights that ‘the long term vision of the manufacturing sector in the next 25 years is: A competitive export-led manufacturing sector that contributes 20% to GDP by 2015.’ Some key points in the FNDP and the Commercial, Trade and Industrial Policy in respect to the development of the manufacturing sector are: To review the investment and export processing incentives regime, to raise investments, to create employment and reduce poverty, and to enhance labour and factory productivity by upgrading human resources and technical skills.
The challenge is therefore very clear before us and some strategies need to be defined to achieve the FNDP goals.
One strategy worth considering is to use the ‘Special and Differential Treatment opportunities captured in the World Trade Organization (WTO) rules affecting Least Developed Counties (LDC’s) and the ‘Safeguards’ provisions to support the development of local industries. In this regard the customs duty tariff regime for the import of pre packaged goods versus bulk imported goods can be moulded to provide financial incentives to processors based in Zambia. The tariff difference between pre packed and bulk packed products can offer the local processing or packaging company a 20% or 30% advantage thereby facilitating the development of a strong packaging industry that will be a catalyst for future investments in the more primary manufacturing industries. Zambia has not had as much manufacturing experience as Zimbabwe or South Africa and the packaging industry provides a stepping stone towards developing manufacturing in line with the goals of the FNDP. One simply needs to consider the cooking oil industry to appreciate the impact of this strategy. Within a few years many Zambian will have acquired skills and knowledge in the manufacturing sector and many small and medium scale industries will naturally emerge in our economy. If you simply walk down the isles of any supermarket you will see just how many products can be packaged in Zambia if a packaging program were to be supported. Consider the employment generation this program would facilitate. Consider the skills transfer that would take place. Consider the entrepreneurship opportunities that would be open to all Zambians. Consider the attraction of foreign investment to develop this initiative into integrated manufacturing activities.
The major requirement is for the private sector in partnership with government to formulate some implementation policies that are generic and can be applied uniformly across the manufacturing sector. This initiative will even have the side effect of ensuring that the customs revenues due to the government are meticulously collected at border posts because the private sector in the packaging industry would invest personnel and resources in ensuring that the importers of pre packaged goods pay the correct duties to safeguard their own industries.
In order to realize the potential of the manufacturing industry, Zambia must look at the costs of doing business with a view to facilitating investment in the manufacturing sector. The present powerful kwacha presents challenges for the nation to tackle. The clear advantages of a strong Kwacha are that the consumer has more buying power, imported goods and services become cheaper and the cost of transport and oil based fuels falls. The lower costs of transport and fuels are a plus for local manufacturing and the opportunities for importing new manufacturing equipment and raw material are made cheaper. But on the other hand, a strong Kwacha makes exports out of Zambia more expensive, and for export orientated businesses, the local costs become higher in Forex terms. One would expect that a strong Kwacha is based on improved export earnings, lower inflation rates, and more foreign currency in the market that is demanded by the public. This scenario suggests that borrowing for the manufacturing sector would become cheaper as bank interest rates are expected to fall in line with reduced inflation rates. Unfortunately this is not the case in the Zambian economy. Inflation rates run at 8.4% whilst bank lending rates to the business sector is still pegged at around 25%. The challenge for Zambia is to consider whether the banking industry is a development end in itself, or whether this industry is developed through investments in Manufacturing, Mining, Agriculture, Tourism and other wealth creating activities. It is evident that the banking sector cannot flourish if there is no other economic activity in the economy as banking is a service to the productive sectors of the economy. If this is so, then the challenge is to consider monitoring and regulation mechanisms by the central bank on this sector to focus the benefits of banking and the financial sector on production. The manufacturing sector is currently squeezed by non competitive local and export pricing due to the effects of the strong Kwacha on one side, and by the high cost of money offered by the banking sector which prevents manufacturers from expand their manufacturing capacities to take advantage of the economies of scale in an effort to reduce production costs produce competitive and increased exports. The time for discussions, studies, seminars and workshops is over. Zambia must now act, implement, manufacture and export. Opportunities offered by the African Growth Opportunity Act (AGOA), the Canadian Trade Initiative, the COMESA Free Trade Area (FTA), and the EU-Cottonou Everything But Arms (EBA) facility will remain a pipe dream without our own commitment and investment.
19/07/06 - ZIC Investor Magazine
The FNDP states that ‘The manufacturing sector is considered to be one of the leading sectors for the revitalization of the economy in the strategy for Zambia’s socio-economic development and poverty reduction.’ The FNDP further highlights that ‘the long term vision of the manufacturing sector in the next 25 years is: A competitive export-led manufacturing sector that contributes 20% to GDP by 2015.’ Some key points in the FNDP and the Commercial, Trade and Industrial Policy in respect to the development of the manufacturing sector are: To review the investment and export processing incentives regime, to raise investments, to create employment and reduce poverty, and to enhance labour and factory productivity by upgrading human resources and technical skills.
The challenge is therefore very clear before us and some strategies need to be defined to achieve the FNDP goals.
One strategy worth considering is to use the ‘Special and Differential Treatment opportunities captured in the World Trade Organization (WTO) rules affecting Least Developed Counties (LDC’s) and the ‘Safeguards’ provisions to support the development of local industries. In this regard the customs duty tariff regime for the import of pre packaged goods versus bulk imported goods can be moulded to provide financial incentives to processors based in Zambia. The tariff difference between pre packed and bulk packed products can offer the local processing or packaging company a 20% or 30% advantage thereby facilitating the development of a strong packaging industry that will be a catalyst for future investments in the more primary manufacturing industries. Zambia has not had as much manufacturing experience as Zimbabwe or South Africa and the packaging industry provides a stepping stone towards developing manufacturing in line with the goals of the FNDP. One simply needs to consider the cooking oil industry to appreciate the impact of this strategy. Within a few years many Zambian will have acquired skills and knowledge in the manufacturing sector and many small and medium scale industries will naturally emerge in our economy. If you simply walk down the isles of any supermarket you will see just how many products can be packaged in Zambia if a packaging program were to be supported. Consider the employment generation this program would facilitate. Consider the skills transfer that would take place. Consider the entrepreneurship opportunities that would be open to all Zambians. Consider the attraction of foreign investment to develop this initiative into integrated manufacturing activities.
The major requirement is for the private sector in partnership with government to formulate some implementation policies that are generic and can be applied uniformly across the manufacturing sector. This initiative will even have the side effect of ensuring that the customs revenues due to the government are meticulously collected at border posts because the private sector in the packaging industry would invest personnel and resources in ensuring that the importers of pre packaged goods pay the correct duties to safeguard their own industries.
In order to realize the potential of the manufacturing industry, Zambia must look at the costs of doing business with a view to facilitating investment in the manufacturing sector. The present powerful kwacha presents challenges for the nation to tackle. The clear advantages of a strong Kwacha are that the consumer has more buying power, imported goods and services become cheaper and the cost of transport and oil based fuels falls. The lower costs of transport and fuels are a plus for local manufacturing and the opportunities for importing new manufacturing equipment and raw material are made cheaper. But on the other hand, a strong Kwacha makes exports out of Zambia more expensive, and for export orientated businesses, the local costs become higher in Forex terms. One would expect that a strong Kwacha is based on improved export earnings, lower inflation rates, and more foreign currency in the market that is demanded by the public. This scenario suggests that borrowing for the manufacturing sector would become cheaper as bank interest rates are expected to fall in line with reduced inflation rates. Unfortunately this is not the case in the Zambian economy. Inflation rates run at 8.4% whilst bank lending rates to the business sector is still pegged at around 25%. The challenge for Zambia is to consider whether the banking industry is a development end in itself, or whether this industry is developed through investments in Manufacturing, Mining, Agriculture, Tourism and other wealth creating activities. It is evident that the banking sector cannot flourish if there is no other economic activity in the economy as banking is a service to the productive sectors of the economy. If this is so, then the challenge is to consider monitoring and regulation mechanisms by the central bank on this sector to focus the benefits of banking and the financial sector on production. The manufacturing sector is currently squeezed by non competitive local and export pricing due to the effects of the strong Kwacha on one side, and by the high cost of money offered by the banking sector which prevents manufacturers from expand their manufacturing capacities to take advantage of the economies of scale in an effort to reduce production costs produce competitive and increased exports. The time for discussions, studies, seminars and workshops is over. Zambia must now act, implement, manufacture and export. Opportunities offered by the African Growth Opportunity Act (AGOA), the Canadian Trade Initiative, the COMESA Free Trade Area (FTA), and the EU-Cottonou Everything But Arms (EBA) facility will remain a pipe dream without our own commitment and investment.
19/07/06 - ZIC Investor Magazine
