Credit Scheme

At last we are beginning to take our destiny into our own hands!

The recently launched National Credit Guarantee Scheme for Micro, Small and Medium Enterprises (MSME’s) marks a significant move in the right direction.

The initiative is however, just one link in the MSME development chain because access to money is not the only issue that is a barrier to development of the sector.

Although the Government has focussed on a program to remove barriers to doing business by undertaking an exercise to reduce the number of licences required to run a business, several other considerations are still a major concern towards improving private sector performance in the economy.

The issue of good business proposals is one key aspect of business success. This was alluded to by the Zambian Commerce Minister and flagged by the Development Bank of Zambia (DBZ) Chief Executive when he commented that the Credit Guarantee Scheme should not be misunderstood to be lowering the bar on good credit standards.

The realisation by the DBZ that most MSME’s do not maintain credible financial records should be a challenge to the institution to develop mechanisms that will motivate their customers to meet the basic benchmarks for accessing the Credit Guarantee services.

It is evident that both the MSME sector and the informal sector do not run their businesses at the same levels as the larger companies. This therefore suggests that launching the Credit Guarantee scheme without putting in place a program to mentor businesses to adopt good business practices and to develop bankable business plans, will undermine the success of the scheme.

Some easy to understand and implement programs must be designed to attract businesses to evolve from brief case enterprises to accountable institutions. Simple accounting should be advocated for, and systems for the sourcing of quality data for the business plans and strategic development plans should be offered, so that the MSME sector is usefully armed to not only access financing, but to successfully and sustainably build their businesses.

In an effort to develop the MSME sector, Government must sensitize the Central Statistics Office (CSO) and the banking industry to produce relevant data for better business decision making.

For example, an emerging MSME would want to know what size of market is available in a specific geographic area and the information should be available from the CSO surveys, Patents and Companies Registration Office business databases, and possibly Zambia Revenue Authority customs imports or exports reports.

Much of the failure of MSME’s is due to poor data quality for decision making.

This dilemma is not confined to the MSME sector, but is prevalent across the economy and affects both the private sector and the public sector.

The challenge of accessing quality information will be a major factor that will determine whether the Credit Guarantee Scheme will enhance economic development in Zambia.

The opportunity exists for partnerships to be established amongst the key players to collectively address the weaknesses that result in business failures.

Business associations have vast information on the peculiar needs of various economic sectors. This information will be useful to DBZ as they roll out the Credit Guarantee Scheme. The various Government statutory bodies and their parent Ministries have a very active role to play in facilitating better business practices through reducing the red tape and providing relevant information from Government statistics.

The Cooperating partners have the potential to align their programs in Zambia to capacity build the MSME sector as the ILO has done through their Mind Your Own Business program.

The banking industry is challenged to evolve their services to include account officers that will mentor the customer to run their businesses more professionally and meet the benchmarks of good business practices.

In a nutshell, the Credit Guarantee Scheme is a very good initiative but like every good idea, the success depends on what investment the promoter is willing to put into the program.

The indicators are clear. DBZ must immediately engage with various partners to address the key challenges of launching a guarantee scheme.

The investment that DBZ will put into ensuring the success of the guarantee scheme will determine the future of guarantee schemes in Zambia.

Addressing the risks of offering a guarantee scheme and putting in place mitigating factors, will decide whether this initiative will be sustainable, or whether we will throw the baby out with the bath water.

Published 25 August 2009

Milk Production

The Clover group dairy processing company of South Africa has now
decided to invest in Zambia to form a foundation for developing a
regional hub for milk processing and distribution in the sub region.

This new investment in the dairy industry will be welcome because
beyond introducing some healthy competition in the sector, the
consumer will benefit from the variety of new products and possibly, a
higher nutritional content of products on the market.

It is anticipated that the competition amongst three major dairy
product suppliers should bring product prices down although recent
experiences in the mobile telephone service sector suggests that at
least three or four competitors are required to generate enough
competition to see prices come down. Two players in the market
generally lead to cartelling rather than competition.

Zambia has grappled with the dairy industry for decades, and the
farmer has not been able to get a good enough price for milk such that
significantly higher milk production is supported and encouraged.

Clover group may just be the catalyst that creates more demand for
milk from the producers, thereby increasing the producer prices, and
driving the motivation for increased investment in dairy herds and new
entrants into the business.

Zambia is a country that occupies 752,000 square kilometers of land.
Zambia is about ten times the size of Lesotho and offers unimaginable
opportunities for food production to feed the entire sub region.

Investment in most food based industries should be welcomed because
not only does this generate wealth for the nation, but it also
contributes to food security for both the country and the neighbouring
states.
Milk will always be consumed as long as people are around to consume
it. Milk has over the last four decades become a luxury to many
Zambian homes and families simply because of cost, and in many
instances, non availability across the country.

Milk is probably the most nutritious single natural food product that
is available today. Milk nurtures infant children at birth, and milk
can nurture an entire nation if produced and consumed in an affordable
and strategic manner.

The exiting local milk processors must read the writing on the wall
and brace themselves for competition, as a new large investor in the
sector will change the way business is done.

Dairy farmers are challenged to be ready and available to satisfy the
demand for more milk by the processors. Producer prices will no doubt
increase, but the farmers need to be able to supply the demanded
quantities to avoid importation of powdered milk from Australia and
New Zealand as has been the practice.

Government needs to keep a keen eye on the dairy industry and
intervene when necessary to provide extension services and re-stocking
options in order to stimulate and facilitate the development of the
dairy herds across the country.

Many prospective investors will make impressive pledges during
investment discussions, but the acid test is experiencing the pledges
converted into equipment, bricks and mortar, and production.

Clover group may be coming into Zambia initially to package milk, but
they must be engaged to plan for processing in the very near future.
The Zambian dairy farmers need to consider forming cooperatives once
again. Zambia appears to have a capacity side surplus in terms of milk
processing, but there is a definite supply side deficit in respect to
milk production.

Cooperatives ensure that farmers stick to their core business which is
farming. The cooperatives fill in the gaps by setting up milk
collection centres, semi processing the milk if necessary, and
negotiating better producer prices for the benefit of the farmer.

The Netherlands developed the cooperative idea to a fine art, such
that many countries across the world have adopted the model in efforts
to stimulate and encourage milk production.

The competition in the sector may not be initially generated by the
processors, and therefore cooperatives are sometimes challenged to
upgrade their own facilities to include different levels of processing
such that their products have a longer shelf life and can be sold to
the open market if necessary. This competition from the producer level
will generally not be welcome to the large processors and cost
effective pricing and economies and efficiencies of processing scale
start to kick in.

The cooperatives can only go so far in milk processing after which
they have to become fully fledged businesses in themselves. This
business crossover barrier becomes the point at which targeted
processors have better skills, equipment, and know-how to outperform
the cooperatives.

At the end of the day business is business. Companies will try to make
money in the most useful way possible. No single investor will change
the dairy sector overnight. The nation as a whole must invest in
developing the sector starting with Government and the private sector.
The argument for importing milk will always be sound if Zambia does
not significantly produce more milk.

There are several institutions on the ground besides the Ministry of
Agriculture and Cooperatives that can impact on milk production in the
country.

The advent of new investment in the dairy sector may be just the
signal that the Ministry of Agriculture and Cooperatives needed to
lead the charge to promote the cooperative formation across the
country.

Published 18 August 2009

Dry Ports

The MOFED Tanzania wholly Zambian Government owned cargo clearing
company based at Dar-es-Salaam port, plan to open Dry Ports at the
Nakonde and Chirundu border posts to increase the handling of cargo.
This is a positive innovation that should have developed years ago by
both Government and the private sector.

Clearly Nakone and Chirundu are Zambia’s busiest border posts for both
imports and exports. However, as Zambia looks to set herself up as the
region’s natural trading hub, several other opportunities for dry
ports are available at Kasumbalesa, Kasangula, Katima Mulilo, and
Mchinji.

These border posts are already fairly active ad can be stimulated for
trading activity by the introduction of dry ports to facilitate cargo
handling and settling.

Evidence on the ground already informs us that the Democratic Republic
of Congo (DRC) is a lucrative market for Zambian food exports and for
South African finished products. Many trucks pass through our borders
every day with cargo destined for the DRC without leaving much income
to Zambian companies with the exception of fuel.

Dry ports aimed at servicing the DRC will house cargo sourced from the
south, and stimulate some value addition services such as re-packaging
and final processing where necessary, before being re-exported to the
DRC. The basic warehousing of cargo makes the products readily
available to the customers across the border such that delivery times
are kept to a minimum and reliability of access to goods is
established within Zambia.

These are the attributes of a good trading partner.

Since Mofed handles cargo at Walvis Bay in Namibia and Beira in
Mozambique, a compelling motivation exists for the development of dry
ports at Katima Mulilo and Chanida near Katete on the Mozambican
border with Zambia.

Private investment in dry ports is not new to Zambia as evidence is
seen at the former Lido Drive In Cinema dry port installation on the
Kafue road. The dry port ran for a few years and was later dismantled
for unknown reasons.

Opportunities exist for dry ports to be established at Kapiri Mposhi
where Tazara and Railway Systems of Zambia link up. This is also a mid
way point between Lusaka and the Copperbelt thereby providing access
to at least one third of the population.

Dry ports promote enhanced trade as goods can be kept in bond in close
proximity to the targeted markets. Money is therefore primarily
invested in stocks, while taxes are only paid once the goods are sold
and removed from bond.

The dry port concept will fast develop Zambia into a trading hub for
our neighbours namely; DRC, Angola, Namibia, Botswana, Zimbabwe,
Mozambique, Malawi, Tanzania and Burundi and Rwanda across Lake
Tanganyika.

This ten country market should be the focus for Zambia in respect to
easier regional trade.

Mofed may be the flagship for market penetration within the region
for Zambia, but the choice and character of the private sector
partners in this program will go a long way towards establishing a
competitive atmosphere in the sector such that other players from the
private sector can be encouraged to invest and rapidly build the
trade network across the country which will no doubt contribute to a
higher GDP for Zambia.

Options for dry ports at the four international airports are also
possible. Many high value but small products are usually marketed
through airfreight corridors. These products include ICT items,
jewelry, cosmetics, and electronics. In many countries of the world
airports are natural targets for dry port initiatives. Transportation
to different destinations across the country is made much easier from
one airport to another.

The threat however, is that efforts to monopolize this sector will be
made by pioneer investors with the goal of cornering the market and
making as much money as possible at the cost of trade expansion for
the greater majority.

Government and the relevant line Ministries will do well to keep an
eye on the development of this dry port program and put in place
measures to attract more players and open up the opportunities to as
many investors as possible to encourage competition for the benefit of
both the country and the consumers.

Increased trade is usually the basis for other economic activity to
take off. Trade is the activity that tests the business waters before
serious long term investments are considered. Trade is a confidence
builder in the economy which is then followed by industry and real
estate that are medium and long term investments.

Mofed may lead the way now, but the future economy must be based
private sector investment for sustainability, competitiveness, and
re-investment. We must not ignore this basic goal.

Published 11 August 2009

National Assets

amtel is in focus again and alongside it are Nitrogen Chemicals, the
railway systems, and Maamba Collieries in the Southern Province.

The political arena is packed with concerns, recommendations and new
ideas for some of Zambia’s few remaining national assets.

The decision to sell 75 percent of Zamtel while is welcome to attract
new investment into the company, should not be thought of as the
proverbial automatic magic bullet that will pull the company out of
its economic doldrums.

Zambia and several other developing countries have experienced
supposedly good investors taking up equity in state enterprises with
the promise to resurrect the institution and provide the goods or
services that the company was initially set up to do. The reality is
that many such expectations were never realized as companies folded
and the assets were sold off to other countries or sent to the scrap
heap to release the land and buildings for real estate purposes.

As others have commented, Zamtel needs more than just money. It needs
a focused development plan, it needs a committed management team, it
needs a total restructuring of its services to become efficient and
relevant to the economy.

There are no guarantees that an outside investor will turn Zamtel
around for the better without a strong partnership with the people of
Zambia who must have a say in the way forward.

Zamtel has been a good catalyst for consumer protection in the mobile
telephone industry as all private service providers have had to
compete with Cell-Z and bring their local call rates down from around
60US cents per minute to the current average of 25US cents per minute.

It will be prudent for Government to put together a team of sincere
and patriotic experts to consider the partnership options for Zamtel
to avoid repetitions of experiences of the Indeni Petroleum Product
sale, the Zambia Bottlers sale, the Mansa Batteries sale, the Zamcargo
Limited sale, and many other state enterprises that punctuate the
country as sore reminders of what once was, and now is no more.

In this cut throat global economy, multinational giants eat up small
countries by buying state enterprises and closing them down so that
the entire country descends into dependency on imported goods and
services. One need only consider the expansion of South African
supermarkets on the African continent to get a glimpse of the
multinational phenomenon. These companies do not take prisoners. All
non-performing or under performing investments are soon wiped out
irrespective of the impact on the welfare of the host nation and its
people. That is just how modern business runs today; the profit margin
line dictates everything.

What options are there for Zamtel? Yes, privatize and take the risk of
previous privatization efforts is one way to go. Split the company up
into individual entities and look for strategic equity partners both
in the local economy and outside is another option. ZSIC has done this
quite successfully so far. Look for a Government to Government
financing and management agreement with a committed country is yet
another option.

Which ever option we decide to take, one thing is obvious, Zamtel will
only really turn around if there is political will, investment, and
oversight within Government to ensure that the end result is for the
benefit of the country as a whole.

There is room for a timely warning about the ongoing discussions and
negotiations with the German investors considering Njanji Commuter
Services, African Explosives looking to invest in Nitrogen Chemicals,
and the prospective investors targeting Maamba Collieries. If the
Zambian team does their work diligently and professionally then the
country will have been well served. Anything short of this will be a
recipe for another privatization disaster.

Njanji Commuter Services has the potential alleviate traffic
congestion in Lusaka and offer low cost transport to and from the city
out of the various residential suburbs. We have all seen it happen
before. NCZ offers many options for manufacturing agriculture inputs
and mining processing chemicals as has been done in past decades.
Maamba Collieries has over 100 years of coal reserves to be used as
fuel for the furnaces in the mining industry and he new steel
processing investments cropping up. All these attributes can be
realized with careful planning and management of the investment
profiles going into the various entities.

Zambia needs to attract and negotiate with investors from both in the
domestic economy and abroad with the goal of breathing new life into
our national assets that have potential to serve the economic
development needs of the country.

Special emphasis must be made about the need to sustain and grow the
national assets so that both the investors and the Zambian people can
reap the benefits of privatization.

At the end of the day the buck stops with the person with the power to
sign on the dotted line on behalf of the nation. The quality and
impact of this signature will reverberate through Zambia’s history
books and either praise a peoples hero, or as is so common, tell our
grandchildren the story of yet another plunderer in the family.

Published 4 August 2009