ZONDWAYO DUMA and FLORENCE MULEYA
OVER the last fifty years, Zambia’s manufacturing sector has undergone various changes, from private owned between 1964 to 1972, to state led import substitution during the 70’s and 80’s and subsequent deindustrialization under the Structural Adjustment Programs (SAPs).
Over the period, the sector’s value addition to Gross Domestic Product (GDP) grew steadily from about 7% in 1965 to a peak of 37% of GDP in 1992.
Ironically, during manufacturing’s peak contribution to GDP, the sector’s annual growth rates dipped to negative and by this account it was claimed manufacturing was performing poorly and was liberalised.
But, after Zambia’s liberalisation of industry, manufacturing growth has been deteriorating and has averaged 8% in the five 5 years up to 2018.
To remedy the poor performance, Vision 2030 established in 2004 envisions Zambia to be a “prosperous middle-income country by the year 2030”.
At the heart of this economic development plan is the aspiration for a technology based and export focused manufacturing sector. By 2030, effective manufacturing entities that dynamically and competitively add value to the locally abundant natural resources should be in existence.
By then, the manufacturing sector should have developed and integrated its rural based, agro-based and light manufacturing. Moreover, the sector’s share of GDP should have been increased to 36.12% and manufacturing exports as a share of merchandise exports expanded to 71%.
Working towards the Vision, the Government implements five-year development plans to facilitate achievement of the vision 2030. So far, the Fifth and Sixth development plans have lapsed. Currently, the Seventh National Development Plan (7NDP) – running from 2017 until 2021 is being implemented. One of the pillars of the 7NDP is “Economic Diversification and Job Creation” aimed at improving production and productivity.
It is anticipated that a strong manufacturing and industrial base will be particularly important for building a strong export-oriented economy and create resilience to both external and domestic shocks.
In an effort to move away from dependence on the mining sector, diversification is to be undertaken along the entire product value chain from farms to agro-processing and manufacturing, at both sector and enterprise levels. Within the 7NDP period, finance and capital for production and exports is also to be improved and access to affordable finance for farmers, agri-business MSMEs and exporters of high value agricultural products enhanced.
Aside from enhancing agriculture value chains, other interventions such as promoting local and foreign participation in mining value chains and industrialization are also to be pursued.
Despite these notable aspirations, 10 years before 2030, the manufacturing sector continues to perform despairingly on account of several challenges. Faced by threats on both internal and external fronts, the sector has still got more than 20 percentage growth points to overcome.
Firstly, even with its abundant raw materials, the country lacks capital equipment and other inputs necessary for transforming and adding value to the raw materials. Secondly, the right mix between industrial, trade and tax policies are yet to be found, leaving uncertainty on the domestic economy, not excluding the manufacturing sector. A steady policy environment is relevant for the growth of the sector as it allows for effective planning.
On another front, production costs remain high. Since 2015, the country was hit by increased power outages of periods beyond 8 hours.
Electricity load management made production more expensive as manufacturers relied on expensive alternative power sources. Furthermore, the sector is affected by a steeply depreciated exchange rate.
Considering that most inputs are imported, the free-falling kwacha meant that inputs were procured at a higher price than planned.
Thus, locally manufactured goods were less competitive compared to goods imported from cheaper jurisdictions and/or with higher economies of scale.
Does this mean that manufacturing is doomed going forward? Certainly not. While, the sector may be challenged, these scales can be tipped.
Looking ahead, the sector needs a new strategy and a rethink of how to sail the current turbulent economic waters. Indeed, tough economic times and the Corona Virus Disease (COVID-19) pandemic call for different measures.
The first step is a mapping of different threats and opportunities. For instance, the COVID-19 outbreak provides an opportunity for manufacturing firms to tap into local and regional value chains.
Additionally, the tough times call for increased dialogue between manufacturers and different policy making bodies. To typify this, manufacturers need to raise their voices together to the Energy Regulations Board’s increased electricity and fuel prices, and illustrate the huge strain this adjustment will have on the already struggling manufacturing sector. Similarly, the call for budget proposals will require unison voices from the sector.
To turn the tide and increase manufacturing contribution to GDP, manufacturers should support each other by creating local forward and backward linkages and promote the “Proudly Zambian Campaign”. Additionally, the Government should ensure policy consistency and engage private sector on anticipated policy changes.