ADB Steps In

This week the African Development Bank wraps up a mission visit to Zambia that paid special emphasis on enhancing the ADB’s support strategy for Zambia.

The private sector in Zambia put their cards on the table by highlighting the various barriers to doing business that were a consequence of the high cost of accessing funding, inconsistent domestic economic development policies, poor infrastructure, high energy costs, and insufficient skilled human resources.

The private sector bemoaned the wide gap between the inflation rate which is currently running at around 8 per cent, and the bank lending rates which hover between 25 percent and 30 percent. This leaves hefty margins for financial institutions but seriously hampers the growth of the private sector, because the cost of borrowing becomes too high for most investments beyond trading.

The private sector lamented the current scenario whereby Zambia produces excess maize, wheat, milk, and soya bean that ensures food security for the country, but there are difficulties in exporting excess food without government authority. This becomes a disincentive to grow more food as the glut brings down commodity prices and farmers face losses which forces them not to grow as much food in subsequent years. The private sector noted that a mechanism must be urgently put in place to address this challenge.

It was highlighted that even though Zambia was embarking on the Multi Facility Economic Zones program, not much emphasis was being made to attract domestic investors to participate in the program as is evidenced by the lack of marketing within the country.

The private sector noted that the ADB set a threshold of USD10 million for direct lending to the private sector, and any figures below this threshold would have to be accessed through local partner commercial banks which have been given a line of credit for this purpose.

The private sector were interested to see a progress report from partner commercial banks that would be able to provide data on how successful the initiative has been so far, taking into account historical lessons of similar programs that did not yield the desired results.

The ADB recognised that a country such as Zambia required the development of good infrastructure which includes wide spread railway systems, roads, water and sanitation, and telecommunications, in order for the country to enhance economic and productive activity.

The ADB alluded to the low levels of skilled human resources in the country which need to be addressed as part of the development agenda for Zambia. Private sector comments noted that investments in various businesses and industries will drive the demand for specific skilled human resources that would fill the required gap. To this end, public institutions which include the Technical Education, Vocational and Entrepreneurial Training Authority, and other private sector investors in education were encouraged to keep a close eye on industry needs and trends, to be able to respond to the evolving demands of a developing economy.

The ADB reported that Zambia was not taking much advantage of the opportunities that the ADB offers to developing economies, and urged the private sector to engage them through their Zambia office so that Zambian based companies could benefit from the various products that are available through the ADB.

It was jointly acknowledged that when the COMESA Customs Union and indeed any other regional economic endeavour is implemented, some new challenges will immediately emerge which include access to wider markets, quality assurances, business barriers, and access to various developmental resources, including inexpensive financing.

The ADB operating in its capacity as a regional development bank highlighted that they were not a commercial bank but recognised the need for the banking sector to be more proactive in supporting the private sector. To this end, the ADB was requested to consider its partnership arrangements with commercial banks in an effort to channel more money into local businesses at the SME levels, which with time, should grow into large businesses that can then engage with the ADB on a direct basis.

Some of the current challenges for the Zambian private sector in respect to ADB funding, include broadening the scope of business projects to cover regional demands and markets. This re-focussing suggests that larger projects become more meaningful to service the bigger regional markets, and therefore qualify for direct funding from the ADB.

Opportunities exist in the education sector, health sector, agro processing sector, manufacturing sector, tourism sector, mining sector, transport sector, and services sector to name but a few. The ADB can be the financier of fairly large business initiatives that will rapidly grow the economy, create more jobs, compete favourably in the regional markets, and offer options for export out of the African continent.

As it has been made clear that the Zambian private sector has been shy to take advantage of the ADB products. The ADB mission to Zambia should be considered as a wake-up call for local businesses to take advantage of ADB products for the purposes of building their businesses to the next level, that will no doubt stimulate and motivate the commercial banks to step up their game and offer similar or better services to the private sector.

The ADB may have an office in Zambia with the aim of supporting Zambia on its development agenda, but it cannot force the private sector to take advantage of its services. The ADB may have a web site at www.afdb.org but cannot make our private sector visit it for information and details.

The opportunities are there. The ADB is in Zambia. All that remains is for the private sector to access the bank and put individual cases on the discussion table for consideration.

There is an old saying that goes ‘you can find a tree full of ripe fruit, but you have to climb the tree to eat the fruit’. This is the scenario in respect to the ADB in Zambia.

Published 3 August 2010