Effects of the Economic Crisis on the Zambian Young Age

INTRODUCTION

This paper seeks to give an analysis of the impact of the global economic crisis on the Zambian economy generally, and specifically on how it has affected the operations and stability of the financial markets in the country. In doing so, the paper has significantly relied on the studies and observations already undertaken by several stakeholders in the private sector, academic institutions and the donor community. In addition, Government’s policy framework as set by several planning instruments, such as the Fifth National Development Plan (FNDP) as well as its implementation tools as highlighted in the medium term expenditure frameworks and subsequently the approved budget for 2009, have created a strong basis upon which this analysis has been done.The paper acknowledges the undesirable impact of the global financial crisis on the Zambia economy. The crisis has undoubtedly produced macroeconomic imbalances. Inflation and interests rates have risen while stock prices have declined. The overall trade balance has been adversely affected, while the kwacha has significantly depreciated against major currencies. In reaction to the drastic decline in copper prices, the Zambian mining sector bore the blunt of the impact leading to some mines scaling down their investment and production levels while other mining houses closed down completely. These developments have caused an estimated loss of 8000 jobs in the mining sector alone and consequently have created a ripple effect that has negatively impacted on secondary industries supporting the sector in the tourism, energy, and transport and warehousing sectors. While acknowledging the negative impact of the world recession, It is the assertion of this paper that it would be unadvisable for government policy to become reactive by significantly departing from the fundamental policies that have contributed to the recent growth and macroeconomic stability experienced prior to the global credit crunch of September 2008. In order to buttress this argument, the paper will first outline the policy framework that has prevailed in the last few years and subsequently give an account of the macroeconomic achievements resulting from this regime. Once this basic context has been set, the impact of the crisis will then be analyzed. The paper will conclude by making recommendations that are in line with its general assertion of remaining resolute to its overall current policy framework; a policy framework that may take into consideration the various recommendations that have been made by several stakeholders.
2.0 CURRENT POLICY FRAMEWORK
For the first time since the early 1970s, Zambia has for the last nine consecutive years achieved a level of sustained economic growth and stable macroeconomic performance. The growth in Gross Domestic Product (GDP) over this period has been as a result of strong expansion in mineral, agriculture and services sectors. This economic expansion has been supported by the pursuance of a prudent macroeconomic policy framework which has been enshrined in two primary planning instruments. The Vision 2030 takes a long term planning focus while the Fifth National Development Plan (FNDP) takes a medium term focus spanning a five year period. In the long term, a number of developmental goals are identified. These include: (a) reaching middle income status; (b) significantly reducing hunger and poverty; and (c) fostering a competitive and outward oriented economy. The FNDP 2006 to 2010, building on the success of the Poverty Reduction Strategy Programme (PRSP) is an important step towards the realization of these objectives. The theme of the FNDP is therefore to ensure Broad Based Wealth and Job Creation through Citizenry Participation and Technological Advancement while its strategic focus is Economic Infrastructure and human resources development.Under the theme of broad based wealth creation, the plan acknowledges that the recent growth has been concentrated in mining, wholesale and retail as well as construction, which are mostly urban based and capital intensive. While these sectors will continue to be important, the plan focuses on pro- poor growth oriented sectors that create employment and have strong linkages with the rest of the economy such as agriculture and manufacturing. For this reason the promotion of large scale commercial farming and the fostering of increased small-holder participation is seen as a vital component of government policy. Hence the thrust in the plan IS towards economic diversification. Under the strategic focus, the plan recognizes that at the core of an enabling environment is the need to have a strong and sustained economic infrastructure, especially roads, bridges, dams and various means of communication. These developments are important in creating the connectivity between rural and urban areas for purposes of providing markets for agriculture products. The plan also recognizes that once the infrastructure has been created, economic growth should largely depend on the private sector. Consequently one of the key targets of the FNDP is to create the enabling environment supportive of private sector growth. The realization of the plan therefore requires that some of the following interventions are made:Macroeconomic policiesa) Inflation and interest rates reduction (preferably to single digits;b) Transparent debt contraction and management;c) Effective public expenditure and revenue management; d) Sound economic governance and transparency;e) A stable and competitive exchange rate; andf) Financial sector policies, including microfinance Rural Sector Policies a) Irrigation developmentb) Attainment of food securityc) Provision of microfinance d) Development and/or rehabilitation of infrastructure, especially feeder and all weather roads; ande) Livestock development

Structural Policies
a) Private sector Development, especially relating to improving the business and investment climate; and,b) Strengthening the financial sector.
Keeping in conformity with these and other objectives highlighted in the FNDP, government has been implementing various sector reforms intended to create a conducive environment for the private sector to thrive. In this regard, expenditure in the last three medium term expenditure frameworks has tended to gravitate towards infrastructure development and the allocation of greater amounts of resources to economic sectors such as agriculture. In order to create a firm foundation for economic growth, government has pursued prudent monitory and fiscal policy. Towards structural reform, Government has undertaken a number of initiatives that are aimed at improving the investment and business environment in Zambia.
Among the most prominent of these reforms are the Private Sector Development Programme (PSDP), Financial Sector Development Plan (FSDP) and the Strategic Action Initiative for Economic Development (SAIED), commonly referred to as the Triangle of Hope (ToH). In addition to these initiatives and in order to give impetus towards their implementation, The Zambia Development Agency and the Citizen Economic Empowerment Commission (CEEC) have been established. To a large extent, although by no means the only reason, these policy reforms have contributed to the positive economic developments that have taken place over the last several years. 3.0 RECENT ECONOMIC OVERVIEW Zambia has, in the more recent years, experienced positive economic growth. Real gross domestic product (GDP) has grown by almost 50 percent from K2, 499 billion in 2000 to K3, 737 billion in 2008. All available data indicate that the economy grew at an average rate of 4 percent per annum between 2000 and 2003. The average rate of growth between 2004 and 2008 increased to 5.6 percent. The result of this growth was an increase in GDP per capital which trebled from US$ 315 in 2000 to US$ 918 in 2007. Following the country’s qualification of HIPC completion point in the second quarter of 2005 and the unprecedented surge in copper prices, the local currency gained significant strength and appreciation against major international currencies. The annualized inflation rate reached its lowest level in thirty (30) years, recording a single digit figure of 9.4 percent in April 2006 and declined further to close at 8.2 percent in December 2006. The rate of inflation had reached as high as 30.1 percent at the end of 2000. The general positive trend in the macroeconomic indicators and the relative favorable performance of the real sector enhanced investor confidence in the domestic economy and led to increased foreign direct investment (FDI) inflows into the country. FDI inflows to Zambia reached a record U $ 938.5 million in 2008, up from US $126 million in 2000.

3.1 The Financial and Money Market
The rate of inflation, which averaged well above 15 percent before 2006, fell to a record single digit level and closed at 8.2 percent in 2006, rose by 0.7 percentage points to close at 8.9 percent in 2007 before rising again to close at an unsatisfactory 16.6 percent at end of 2008. This upward surge was as a direct consequence of the onset of the global financial meltdown. The bank lending interest rates, though relatively high, equally stabilized and averaged 26.4 percent over a three-year period. The average lending rates fell from 27.9 percent in 2006 to 24.4 percent in 2007 before rising to 26.9 percent at the close of 2008.Average Treasury Bills rates were recorded at 16.0 percent at the end of 2008 from 13.5 percent at the end of 2007. Composite yield rates on the 24-month Government Bond, which had been at 14.4 percent at the end of 2007, rose to 16.6 percent at the end of 2008. The local currency (Kwacha) exhibited a record strength and buoyancy against major international currencies, over the recent years. The Kwacha/U S Dollar exchange rate appreciated from K4, 520 per U S Dollar at end of 2005 to an impressive K 3,600 per U S Dollar in 2008, appreciating by a significant 20% over the period.The country’s attainment of the HIPC completion point in the second quarter of 2005, coupled with unprecedented high copper prices on the London Metal Exchange saw the local currency appreciate significantly and exhibited buoyancy against major international currencies for two consecutive years of 2006 and 2007. Following the onset of the global recession, coupled with the downward trend in copper prices, in the fourth quarter of 2008, however, the exchange rate rose to K 4,880 per U S Dollar at end of 2008, representing an unsatisfactory and disastrous 35.6% depreciation. This reversal literally erased the gains achieved in the previous two years. 3.2 The Capital Market
On the capital market both trades and turnover ( including foreign portfolio investment) exhibited a favorable and increasing trend over the recent years, prior to the onset of the global recession, with the number of companies listed on the Lusaka Stock exchange having stood at 19 at close of 2008 . During 2008, the Lusaka Stock Exchange recorded a total of 8,384 trades, up more than twice from their 2006 level of 3,662 trades. In value terms, the trading activity resulted in a turnover of $167.8 million, from $23.9 million recorded in 2006. Market capitalization equally increased from $3.1 billion in 2006 to $4.1 billion in 2008.With regard to foreign portfolio investment, total inflows rose from $11.7 million in 2006 to US $ 58.3 million in 2008, representing a significant 90.5 percent increase while total outflows were recorded at US$3.7 million in 2006 and US $ 64 million in 2008, resulting in an unsatisfactory net positions of a surplus of US $7.9 million and a deficit of U S$ 5.7 million in 2006 and 2008, respectively.3.3 Direct Investment In tandem with a favourable and increasing trend in global foreign direct investment (FDI), Zambia experienced an unprecedented level of FDI inflows during the recent years. FDI inflows increased from US$615.8 million in 2006 to record US$837.7 million in 2008. Led by the mining sector, the manufacturing, construction and service (including telecommunications) sectors also attracted significant level of FDI under the period in review. 3.4 The Real Sector
Led by the mining sector, the manufacturing, construction and service (including telecommunications) sectors also attracted significant levels of investment and subsequently increased productive capacity leading to the creation of employment. While the secondary (manufacturing) sector posted positive growth rates averaging 8.6 percent, the tertiary (service) and primary (agriculture, forestry and fishing, mining and quarrying) sectors recorded average growth rates of 7 percent and 2.7 percent, respectively over the period 2006 to 2008, Zambia’s total exports rose from U S $ 3.9 billion in 2006 to US $ 4.9 billion in 2008. Of the US $3.9 billion and US $ 4.9 billion value of exports, metal exports accounted for US $3.2 billion and US $ 4 billion in 2006 and 2008 respectively, while non traditional exports rose from $715.3 million to US $876.2 million over the same period, representing a satisfactory 22.5% increase in non-traditional exports.
4.0 THE GLOBAL FINANCIAL CRISIS IMPACT ON THE DOMESTIC ECONOMY
Ignited by the U S financial crisis and described as the biggest global economic shock since World War II (EIU, Dec.2008), the current global recession has had devastating impact on the economies of developing and emerging economies like Zambia. In the Zambian case the direct consequence was a reduction in copper revenue which greatly contributed to export earnings declining by 11 percent in 2009 from the previous year. Consequently, the balance of trade was reduced from US$610 million in 2007 to US$29 million in 2008. In totality, the biggest possible negative impact of the crisis is in threatening the prospect of Zambia’s continued growth. This is clearly indicated by the revision of the Medium Term Expenditure Framework 2009- 2011 in which government has had to adjust downwards the projected growth rates for the economy. The original growth targets were 7 percent for each year until 2011. However these have been adjusted to 5 percent in 2009, 5.5 percent in 2010 and 6 percent in the 2011. 4.1 Impact on Industry
The immediate negative impact of the global financial crisis, on the Zambian economy was the closure and suspension of operations by some mining companies with an estimated 10,000 jobs lost (ZBF, 2009). The closure of mining operations by some mining companies had a multiplier negative impact on other sectors of the economy which were principal suppliers to the mines.
More recent monitoring of companies recently issued with Investment Licences across sectors indicated that some companies have reduced production on account of reduced demand for their respective products (ZDA, PIMC report 2009).4.2 Impact on Investment The level of direct investment on the domestic economy continued to exhibit a favorable and increasing trend despite the world recession. Direct investments registered (pledged investments) with the ZDA stood at an unprecedented U S $6 billion in the last quarter of 2008, mainly on account of huge commitments in mining and mining exploration, as well as committed investment in the energy sector by ZESCO rehabilitation works and bio-fuel (jatropha ) planned investment. Registered investment for the first quarter of 2009 stood at US $ 198.8 million, which compared unfavourable with US $ 454.7 million recorded during the first quarter of 2008. However, this performance was far better than first quarter pledged investment in 2007. In terms of annual total, the pledged investment of an estimated 10.3 billion in 2008 was far above the 2007 amount of 1.7. Billion dollars. The real negative impact of the global financial crisis in terms of changing the direction of investment pledges from the current trends, therefore, may only be clearly seen and evaluated at the end of the 2009.4.3 Impact on ExportsWhile both the World Trade Organisation (WTO) and the Organisation for Economic Cooperation (OECD) forecasted overall reduction in the volume of trade by 9 and 13 percent (ZBF, 2009), respectively, the impact of the global crisis on Zambia’s exports has yet to be felt.Although the total value of exports marginally fell from K 3,665 billion in the fourth quarter of 2008 to K 3,567 billion during the first quarter of 2009, the export earnings for the first quarter of 2009 compared favorably (up 28 percent) with K 2,783 billion recorded in the first quarter of 2008. Similarly, with an overall trade deficit of K 367 billion in the first quarter of 2009, Zambia’s international trade reflected an improvement down from a trade deficit of K 1,830 billion in the fourth quarter of 2008. Clearly, both the WTO and OECD’s pessimistic outlook of the impact of the global financial crisis for 2009 has not yet been felt.4.4 The Depreciation of the Kwacha and the Economic DownturnThe negative impact of the global financial crisis severely impacted on the domestic foreign exchange market. Having traded at K4, 880 against the US Dollar at the end of 2008, the Kwacha significantly depreciated against the major international currencies, averaging K5, 260 against the US Dollar during the first quarter of 2009. This exchange rate compared unfavorably with the first quarter of 2008 when the kwacha traded at an average of K3, 700 to the US Dollar, representing an unsatisfactory and a significant 42 percent depreciation, on an annualized basis.The depreciation of the Kwacha is largely due to the global recession that has caused decline in both demand for and price of copper, Zambia’s principal foreign exchange earner. The situation created speculative currency withdraws leading to scarcity of foreign exchange on the market. The recession had also caused a significant decline in the purchases of kwacha financial assets such as government securities and domestic company equities by foreign portfolio investors, thus, further reducing the flow of foreign currency on the market.
4.5 The High Interest Rates and the Economic DownturnThe bank lending interest rates have, for a long time, been at relatively high levels, thereby stifling private sector borrowing for investment. The average lending rates for commercial banks though stabilised at an average of 26.9 percent for both fourth and first quarters of 2008 and 2009, respectively. This rate compared unfavorably with the average rate recorded in the first quarter of 2008, which was recorded at 24.3 percent.Interest rates on Treasury Bills, as lead indicators of commercial bank lending rates, were recorded at an average of 14.8 percent during the first quarter of 2009, down from 16 percent recorded in the fourth quarter of 2008. On an annualized basis, however, the rate compared unfavourable, having increased from the 12.6 percent recorded in the first quarter of 2008. Composite yield rates on the 24-month Government Bond increased by 3 percentage points to 17.1 percent in the first quarter of 2009 from 16.6 percent in the fourth quarter of 2008. It is evident from the analysis that the negative impact on bank lending interest rates has yet to be felt.
5.0 RECOMMENDATIONS
5.1 ZDA’s Perspective The Global economic crisis has had an impact on the Zambian economy primarily because of it high dependency on single mineral resources for it exports. Additionally the fact that the copper mining sub-sector has previously formed the basis, upon which the overall economy has depended, has created an undesirable position in which the country is highly vulnerable to external shocks. While the economy may not have the financial capacity to completely mitigate against the immediate impact of the crisis, it is clear that if a similar situation is to be avoided in the future, a vigorous policy of diversification must be pursued. As has been indicted in the main body of this paper, the Fifth National Development Plan has already made this recognition. A number of initiatives are being implemented in order to diversify the economy and ensure that the private sector is provided with a conducive environment in which it can operate. To drastically change the trajectory of economy policy in order to accommodate the current crisis may dislocate the long term strategic focus of the country's economic development agenda.The government must ensure that they remain resolute to what has worked in the past few years and only make adjustments towards mitigation in those areas that will not entail a reversal of the current macroeconomic framework. This point is being emphasized in light of some of the suggestions that have come from the private sector encouraging government to impose capital control measures, and reintroduce some form of managed exchange rate control. In addition it has been suggested that government expand expenditures for social protection while at the same time reduce the tax burden on the manufacturing sector so as to make them more competitive in the region. While this change may bring immediate relief to certain sectors, it may only be short lived and will eventually result in a negative impact on government revenues and therefore budget execution towards infrastructural development.In its 2009 budget, government has already pursued some form of an expansionary policy that is intended to stimulate the economy. Government intends to spend 25.4 percent of GDP as compared to 24.8 percent in 2007. The 2009 budget will be financed 70 per cent from domestic revenues, 18 per cent from donors and 12 per cent from domestic borrowing. In order to support this expansionary budget and meet the shortfall from domestic revenues, government will increase domestic borrowing from 1.3 per cent to 1.8 per cent of GDP. This is a significantly higher rate than the targeted domestic borrowing of 1.0 percent for 2009 as indicted in the 2008-2010 Medium Term Expenditure Framework. If not carefully handled this could create additional pressure on interest rates and subsequently have a ripple effect on other macroeconomic indicators. Perhaps one strategy that government can pursue is to negotiate for enhanced financing from lending agencies such as the International Monetary Fund (IFM) and the African Development Bank for financial resources that will help stabilized the exchange rate and inject some liquidity in to the financial sector to enable continued movement of economic activity. Given the already existing policy context of government, however, what may be at issue and of great concern is the manner, quality and pace of implementation of the various reform programmes that are being undertaken. Therefore, in order to address the concern of implementation capacity, an effective monitoring and evaluation system, designed to track the effectiveness of programme execution should be put in place both by the executive and the legislature. A rigorous system of punitive sanctions should be put in place for those agencies and government ministries which are not in compliance with the quality and time table that implementation demands.5.2 Private sector Perspective The Private sector, through the Zambia Business Forum (ZBF) has also made some recommendations that they believe may mitigate the impact of the crisis. While ZDA may not be in total agreement with all the recommendations, the agency does agree to some aspects of their suggestion. In this regard the following recommendations by the private sector would have some measure of support from the analysis undertaken by the agency;5.2.1 Business Licencing and Regulatory ReformsUnder the Private sector Development Reform Programme and business licensing framework, the paper acknowledges the availability of the Eva Jhala Study Team report which proposes the streamlining of all business licences in the country. ZDA is in support that Cabinet office should approve its recommendations and agree on a roadmap for implementation. In addition, all the various recommendations that have been made under the PSDP and the Strategic action Initiatives for Economic Development should be rekindled in order to give greater impetus towards execution. 5.2.2 Macro-economic stability In regard to macroeconomic management a number of measures have been proposed. Those that ZDA agrees with include the following;a) Introduce option for hedging against exchange rates b) Introduce enforcement measures against dollarizationc) Establishment of a treasury department in the bank of Zambia to ensure, among other things, that there is a positive correlation between inflation and bank lending rates, andd) Support non-traditional export as a source foreign exchange
5.2.2 Manufacturing
Government in collaboration with the private sector to undertake baseline studies of the manufacturing sector and draw up a list of products than can be manufactured in Zambia efficiently. Investment funds for these projects can be organized through organization such as the Zambia Development Agency and the Citizen Economic Empowerment Commission. Towards this general thrust, there is need to support existing and new Small and Medium scale enterprises (SME) to start small scale manufacturing. In this regard the draft policy presented to government in 2008 should be adopted as soon as it is practical, while every effort should be made to strengthen the capacity of the MSME division at ZDA.5.2.3 Increased Infrastructure InvestmentAs a land-locked country, bordering eight neighboring countries, Zambia is best suited as an ideal infrastructure hub for the Southern and Eastern African Sub-Region. Given the country’s high cost of doing business, huge investment should be made in both economic and social infrastructure, notably roads and railways, telecommunications, civil aviation, energy, education and health. The private sector however feels that this task should not only be left to government but should be a shared responsibility with them. In this regard the private sector is prepared to participate if some of the following measures are undertaken.a) Enactment of the Public Private Partnership (PPP) legislationb) Establishment of a PPP Unit within the Ministry of Finance and National Planningc) Unbundling of the rail network systemd) Muti-Facility Economic Zone incentives regime is applied to PPP investment-led project e) Duty on building material should be lowered and council should open up serviced land for housing and business centre construction, andf) Enactment of new ICT legislation that will facilitate for a converged licencing regime6.0 CONCLUSION
The analysis undertaken acknowledges the undesirable impact of the global financial crisis on the Zambia economy, particularly has it has affected the mining sector and consequently the significant numbers of jobs lost. Clearly, the overall trade balance has been adversely affected, while the kwacha has significantly depreciated against major currencies. That the imbalance created in the macroeconomic fundamentals has created a situation in which Zambia’s continued growth is threatened. The recommendations resulting from the analysis take cognizant of the fact that some remedial measures must be put in place in order to stimulate the economy by pursuing prudent expansionary policies and negotiating for additional cooperating partner resources in order to inject liquidity into the market. That all effort should be made to ensure that implementation of the various recommendations originating from all stakeholders be expeditiously implemented and ensuring that a monitoring and evaluation framework is put in place. However, the paper holds the firm view that the government should not become reactive by significantly departing from the fundamental policy framework that has contributed to the recent growth and macroeconomic stability experienced prior to the global credit crunch.

Empretec, Triangle of Hope and Joint Ventures...Any Economic Value for Youth?

Empretec for Entrepreneurship Growth
By Clive Siachiyako
For decades, development structures of developing economies largely ignored the role of entrepreneurship in economic development and wealth creation. Zambia’s economic development structure for instance steepened towards attracting foreign investment mainly in mining and manufacturing sectors and support industries. But economic dynamics show that the ticket to faster and broader income growth is through entrepreneurial innovation. New economic systems put a premium on “adaptive efficiency,” which refers to the ability of institutions to innovate, continuously learn, and productively change.
As markets fragment, technology accelerates and competition comes from unexpected places, learning, creativity, and adaptation have become the principal sources of competitive advantage in many industries. Enabling constant innovation needs to become the goal of all organisations committed to prospering. These efforts need to be proactive and designed for the long term. Government and business leaders need to challenge all economic sectors and institutions to become cultures of innovation. The consequences for any sector that does not respond to this challenge are low productivity, stagnant living standards, and reduced opportunity for its citizens, Empretec Zambia has noted.

Background of Empretec

Entrepreneur and Technology (Empretec) is a new programme in the Zambia. The programme is an integrated capacity-building programme of the United Nations Conference on Trade and Development (UNCTAD) and is coordinated by the Zambia Development Agency. The programme promotes the creation of sustainable support structures that help promising entrepreneurs build innovative and internationally competitive small and medium sized enterprises (SMEs). It encourages the formation of mutually beneficial business linkages among SMEs and Trans-national Corporations (TNCs). As a result, it contributes to the creation of a dynamic private sector and an open entrepreneurial culture. It is therefore a vital complement to effective macroeconomic policies and enabling legal and regulatory framework.
The term Empretec is a Spanish acronym for emprendedores (entrepreneurs) and tecnologìa (technology). It was first introduced in Argentina in 1988, with the core objective of holding entrepreneurship training workshops. These entrepreneurship training workshops encourage individual entrepreneurs to focus on their role as entrepreneurs and challenge them to critically examine their personal strengths and weaknesses and learn how to sustain their businesses. Since inception, the Empretec programme has been initiated in twenty-seven countries, assisting more than 80 000 entrepreneurs through local market-driven business support centres.

Programme Methodology

The Empretec programme strives to identify and reinforce entrepreneurial competencies that are associated with successful traits, through self-assessment and individual transformation and business stimulation activities during entrepreneurship training workshops. These ‘motivation achievement’ workshops encourage individuals to focus on their role as entrepreneurs and challenge them to critically examine their personal strengthens and weaknesses. This is meant to provide an opportunity for participants to become more familiar with personality competencies of successful entrepreneurs, strengthen and enhance those personalities in themselves, and eventually be able to apply the personalities in their own businesses.
The training method is highly interactive. It involves structured exercises, group dynamics, diagnostic tools, business events and other activities, which are designed to challenge the participants to focus on such issues as their ability and willingness to seek and attain continuous improvements in quality, efficiency, growth, and profitability. This is achieved through learning by doing. The training enables participants to become aware of the need for continuous improvement as a competitive strategy in every aspect of their business.
Successful graduates of the programme obtain a clear vision of what they want to do with their businesses in the short and long term. In the words of many participants, Empretec is a "culture of entrepreneurship" common to entrepreneurs who are open minded, forward thinking, look for win-win situations, want to improve and "speak the same language". Therefore, they trust each other and are more likely to do business among themselves.
Generally, Empretec is a programme that focuses on improving the core entrepreneurial behaviours of business owners that influence their conduct, and above all, the results of their business.

Target Beneficiaries

Empretec does not define its target group by assets, turnover, or number of employees. The beneficiaries are identified on the basis of both their personal entrepreneurial competencies and their innovative approach to business. The direct beneficiaries of the Empretec programme include existing SMEs that have a track record of good business performance, potential entrepreneurs with promising business ideas, and start-up companies with good bankable project proposals. It is expected that the individual development of the entrepreneurs that takes place during an entrepreneur training workshop will lead to SME growth, linkages with larger enterprises including transnational corporations (TNCs), job creation, increased investment, and regional economic development.

To effect the programme activities in Zambia, UNCTAD recently trained eleven local empretecos (trainer of trainers) to spearhead the activities of the programme in the country. The eleven were drawn from the Zambia Development Agency, International Labour Organisation, Zambia Chamber of Small and Medium Business Associations, Young Women Christian Association, Future Search, and the Technical Educational, Vocational and Entrepreneurship Training Authority. The training was meant to help the Empretec Zambia Programme to get organised and established before it could start running on its own. Zambia Development Agency will coordinate all the programme activities in the country.

Economic Hope through the Triangle of Hope

Currently, the real challenge of investment promotion agencies is being close to investors. They are struggling to be major partners of investors, taking care of their business needs and sustaining their future development plans.
Being close to investors means being able to provide a conducive environment that match investors’ activities. This requires a strong political support. It requires legal, regulatory and institutional reforms necessary in the creation of a conducive investor environment and a myriad of other essentials.

Keeping in conformity with these demands, Zambia has been implementing various sector reforms intended to create a conducive environment for the private sector to thrive. In this regard, recent expenditure frameworks are gravitated towards infrastructure development. These initiatives are meant to create a firm foundation for economic growth for the country by having an improved investment and business environment in Zambia. Among the most prominent of these reforms are the Private Sector Development Programme, Financial Sector Development Plan and the Strategic Action Initiative for Economic Development, commonly referred to as the Triangle of Hope (ToH).
The genesis of the Triangle of Hope dates back to January 2005 when the Zambian government asked the Japan International Cooperation Agency (JICA) for help in investment promotion. In agreement, JICA engaged a Malaysian consultant to come up with terms of promoting investment for Zambia under the Action for Africa programme. This gave birth to the Strategic Action Initiatives for Economic Development or simply the Triangle of Hope.
The core of ToH is to assist in the creation of an environment in which the private sector creates more jobs and generate greater wealth in Zambia. The initiative takes after the Malaysian and Far Eastern Experience with economic development. It illustrates how Malaysia, a multi racial nation and basically raw material exporter in the early 1960s was convulsed in racial violence in 1967 and threatened to become another basket case Developing Nation. It brings lessons on how by stint of national unity, political will, civil service efficiency and private sector dynamism the nation within 10 years, Malaysia became the worlds largest exporter of electronic semiconductors and the 3rd largest country in the world exporting room air conditioners. To bring to effect the Malaysian Miracles, the initiative encourages the creation of a conducive investment and business environment by government for the private sector to increase its levels of investment. The Zambian government committed itself to the parametres of the initiative in trying to increase private sector investment flows. The government thus pledged to provide the required environment for the attainment of the Triangle of Hope targets.
These requirements include the provision of efficient, effective public services and facilities and performance-based and time-bound incentives. This involved private sector reforms like the streamlining of government approval and licencing procedures, and transparent incentives to all prospective investors.
The Triangle of Hope investment promotion initiative employs the Quadrant Strategy to attain the ultimate objective of job and wealth creation. The entry point into the four stages is about putting in place the best investment and business environment through improved policies, streamlined government machinery, rules, regulations, laws and incentives that conform to international best practices. These reforms embrace all government functionaries in order to have well-coordinated investment promotion information packages on the services, facilities and incentives government offers. The strategy is meant to help Zambia offer the competitive advantage that drive down the cost of doing business in the country.
The second stage looks at how government and private sector entities interested in accessing capital through joint ventures or technology and equipment should prepare Project or Business Profiles. Further, government is mandated to develop and implement an investment promotion strategy where the information on available business opportunities in the country will be distributed to investors at home and abroad. And lastly, the Quadrant Strategy mandates government agencies to use knowledge gained on the best practices to facilitate the quick implementation of approved projects through the entire government system from national level to the grassroots level so that jobs and wealth can be created at all levels. This would in turn give businesses in Zambia attain profits in being in a globally competitive environment and thereby contribute to the expansion of the Zambian economy.
The implementation process of the ToH involved the formation of task forces composed of members of the civil service and the private sector. The task forces were mandated to prepare recommendations for cabinet consideration on the creation of favourable business environment. The ToH steering committees that were formed included those for the agriculture, banking and finance, education, health, mining, multi-facility economic zones, micro and small enterprises, among others. The aim for inclusiveness was to generate the sense of belonging by all stakeholders.
The Triangle of Hope has since increased the spirit of collaboration among government agencies and cooperating partners in dealing with programmes that are aimed at improving the environment for doing business in Zambia. Such efforts are expected to stimulate further collaborations in pursuing strategies that make Zambia an all weather investment destination. The private sector development programme has since already dedicated resources for the identification of land banks that will be used for various business purposes. The ToH itself has also been given another lease for three years by JICA having came to an end last year. The net effect of the programme is the creation of business-oriented environment in the country.

Joint Ventures: A Tool for Zambian Businesses’ Growth

“You can resist an invading army, but you cannot resist an idea whose time has come,” think-tanks remark. Today, the concept of joint ventures is such an idea.
The triumph of joint ventures is driven by profound market economic changes. A trio of the market economic demands (efficiency, innovativeness and creativity) is dictating joint ventures at a cracking pace. Even micro and small enterprises register highly on the profit score card when they join forces, and they reach markets that were once the privilege of giant businesses.
Joint ventures provide abundant business reasons, such as complementary capabilities and resources. The initiative offers affluent platforms for business growth and it has become an important strategic option for many businesses. Due to the increase in receptive business strategies to the market economy, businesses are now operating in a world without borders even amid cultural and language barriers. And these changes require firm business muscles to remain afloat.
It is against this backdrop that the Zambia Development Agency (ZDA) finds a niche in promoting Greenfield investments through joint ventures between local and foreign investors. The Agency considers forging such strategic partnerships with Zambian companies is one of the ways in which foreign companies can set up their operations in Zambia. The nature of these joint ventures is co-ownership of a business, where there is joint decision making. The partnership is formed on the basis of each bringing assets into the business, in the form of capital, expertise or technology.
A joint venture refers to a contractual arrangement, subject to joint control, whereby two or more companies pool their resources together and collaborate in carrying out a business activity without necessarily creating a separate entity. The parties may also agree to share the risks involved but the degree to which they do so will vary depending on the particular structure of the venture they have chosen. Such companies can agree to share capital, technology, human resources, risks and rewards under shared control.
The form of a joint venture can be determined by a number of factors including the nature and size of enterprise, the anticipated length of the venture, the identity and location of the parties and the commercial and financial objectives of the participants. Regardless of the determinants of the partnership, ZDA assists interested investors in identifying joint venture partners and offering matchmaking services for investors seeking cooperation in the areas of capital, technology, management and marketing. The Agency also advises and participates in the negotiation of joint ventures.
Businesses form joint ventures for many reasons which include business expansion, development of new products or moving into new markets. Other benefits to the host economy include the introduction of new technology, the establishment distribution set ups and available financial resource. Contacts are also established within the host economy, a trend which can help to smoothen the process of setting up operations. The joint ventures are also meant for growth, stability and survival of the businesses from economic uncertainties. When businesses join forces, they attain strong potential for growth and can have innovative ideas and products. This entails that businesses gain more resources, greater capacity, increased technical expertise and access to established markets as well as distribution channels.
Although the setting-up of a joint venture depends on what is to be achieved by the parties involved, there are three basic structures that can be used. These are being a limited liability company (a corporate vehicle); a partnership or limited partnership (an unincorporated vehicle); or a purely contractual co-operation agreement. This entails that businesses of any size can use joint ventures to strengthen long-term relationships or to collaborate on short-term projects.
The formation of a joint venture can be complex. However, successful joint ventures offer affluent business break through opportunities such as access to new markets, distribution networks, and increased business capacity; as risks are shared with a partner. Thus the intensity of business risks is reduced. Partners also have greater access to resources, including specialised staff and technology. The joint ventures offer partners channels by which they can reduce costs, increase productivity, enhance reputation and licence to operate. The partners also access local knowledge/ or and integrate into foreign markets – while at the same time helping to create economic opportunity in underdeveloped regions.
Expanding and accelerating business partnership activities should therefore be a shared priority to increase the growth platform for the domestic economy that could have otherwise remained stagnant. In this view, ZDA creates awareness among Zambian businesses to enable them participate in joint ventures. The objectives of the Agency are to enable Zambian businesses understand the concept of joint ventures, acquire skills to manage the selection and negotiation of such initiatives and identify capacity challenges in forming those joint ventures. ZDA often conduct workshops to educate businesses on the selection of a joint venture, negotiating for it, preparing documents and on the registration process of such joint ventures with the Agency’s mandated division.
Such joint venture workshops provide valuable and enriching experience for Zambian businesses to learn more about the joint venture concept. Thus, anyone interested in a joint venture can visit the ZDA so that they can fill in a standard application form and submit their business profile and business plan as per requirement. ZDA will then present such information to interested foreign or local investors through various media such as its website and in its publications that are sent to various missions abroad.

Impact of the Global Economic Crisis on Africa...Youths.

Global Economic Crisis Impact on Africa

By Clive M. Siachiyako

All over the world today, countries are grappling with the current economic crisis and how to deal with it. Recently, the G-20 leaders met in London to share ideas on how to respond to the impact of a potential contraction in the global economy of 1.7 percent and a 6 percent drop in the volume of global trade. While it is true that the crisis didn’t originate in Africa, it is certain that African leaders should play a part in planning how to deal with it. In September 2008, the world economy officially entered a major economic down turn . The down turn was caused by a severe shock in financial markets of developed countries particularly the United State of America and Europe. The down turn in economic productivity that began in January 2008 persisted and was later declared a crisis towards the end of 2008. The economic crisis has ever since culminated into an ongoing slowdown in production indicators in major sectors of industrialised economies such as UK, USA, Japan, Germany, Australia and other Asian countries. This has led to a sudden reduction in demand for consumption and industrial commodities at both national and international markets. Decreases in demand for goods and services affected supply. Logically, the ripple effects of this constriction have permeated almost all economies of the world with varied intensity depending on the level of integration of domestic sectors in the international system.

According to the World Bank economic growth projections, developed countries in 2009 will grow by only 0.3 percent from 2.7 percent in 2007, while developing countries’ growth is expected to tumble to 4.5 percent in 2009 from 7.9 percent in 2007. Unlike in the previous economic recessions when low income countries (LICs) were not integrated in the world economy, they are now to a great extent more integrated through trade, foreign direct investment and remittances. With heavy dependency on one or two commodity exports, LICs are destined to face harder times as the economic depression continues.

Causes of the down turn

There are a lot of views to what actually precipitated the current crisis. Depending on the presumed cause of the crisis, the economic situation has emerged with different terms that are sometimes confusing especially to the lay person. In order to enhance an evaluation of the causes of the crisis, it is important to analyse in detail how possible subprime lending could have led to the crisis.

Subprime lending – International thoughts have come to hold that among others, the roots of the crisis can be traced directly to subprime lending by Fannie Mae and Freddie Mac, which are government sponsored entities to expand mortgage loans to low and mid level income borrowers. This was done to help boost a stagnated home ownership proportion that had hovered around 65 percent for many years.

The result was a push by the administration for greater investment by financial institutions into riskier loans. The inability of homeowners to make their mortgage payments due to primarily to adjusted rate mortgage resetting, borrowers overextending, speculation and overbuilding during the boom period eventually triggered the crisis. In addition, a 2000 US Department of the Treasury study of lending trends for 305 cities from 1993 to 1998 showed that US$467 billion of mortgage credit was poured out to low and mid level income borrowers. Two important catalysts of the subprime crisis were the influx of monies from the private sector and banks entering into the mortgage bond market and the predatory lending practices of mortgage brokers, especially the adjusted rate mortgage. Ultimately, the hazard lay at the core of many of the causes.
Deregulation – This again is pointing to weak financial systems in the USA. In 1992, Congress weakened regulation of Fannie Mae and Freddie Mac, the nation’s biggest underwriter of home mortgages, with the goal of making available more money for the issuance of home loans. The pair was allowed to keep a much smaller share of their funds on hand than other financial institutions in order to buy mortgage loans. Where banks that held US$100 could spend US$90 buying mortgage loans, Fannie Mae and Freddie Mac could spend US$97.50. Finally, Congress ordered that the companies be required to keep more capital as a cushion against losses if they invested in riskier securities. But the rule was never set and was only put in place mine years later. That was the housing bubble in the making.

Credit Creation – As a result of the following initiatives, the central bank of the United States artificially kept interest rates very low for a long period of time. This fiscal measure resulted in ill-investment and overconsumption of investors and consumers which prompted the development of the now famous “housing bubble” that ultimately burst, precipitating the financial crisis. This crisis together with much needed financial control and cutbacks by consumer spending, businesses and banks led to the recession.
Over Leveraging – Another factor that unquestionably amplified the magnitude of the economic downturn was widespread miscalculation by industrialised countries’ banks and investors of the level of risk inherent in the unregulated collateralised debt obligation.
Impact of the downturn on LICs

The impact of the global economic crisis is being transmitted to low-income countries (LICs) through at least four different channels: rapid decline in commodity prices; reduced investment; decline in remittances – exacerbated by reverse migration and unemployment; and the specter of a decline in aid. While developed countries have experienced and are still experiencing acute contractions, households in low-income countries have become much more vulnerable and at higher risk of experiencing serious consequences of the economic downturn in the short and medium term. The crisis in low-income countries has signaled the end of the 8-year commodity boom that began around the year 2000. The past few months in 2009 have clearly revealed that LICs are far from being immune to the effects of the global economic crisis. Cases below give a synopsis on how low-income countries have been impacted.
Bangladesh – The crisis has threatened the country’s biggest export sector, the textile industry which produces ready-made garments greatly dependent on western markets. This industry which employs over 2.5 million people, mainly women earned Bangladesh US$10.7 billion equivalent to two-thirds of the country’s annual export income in the fiscal year 2007-2008. In September 2008, before the crisis deepened, buying orders from Europe and the USA had dropped by a stunning 7 percent. Worse still, over 700 chain stores of major US apparel brands that outsourced to Bangladesh have either wound up or plan to do so if the crisis prolongs.
Ethiopia – Two Israeli-owned flower farms have been put up for auction for failing to service bank loans due to reduced export sales at the end of 2008. Thus, income from flower exports reached only 60 percent of a targeted US$298 million. The widespread crisis poses a threat on the Horn of Africa achieving its targets to earn US$207 million from flower exports in 2009 as consumers in Europe and the USA cut back on luxury purchases.
Uganda – A country which depends on foreign assistance (approximately) 60 percent of direct budget support) now faces a significant drop in funding. It is also expected that due to reduced demand on Ugandan exports from the USA and Europe, Uganda’s major export markets, the economy is anticipated to grow by between 5 percent and 6 percent instead of the expected 8 percent in 2009.
Congo DR – The country has suffered major job losses rising over 300,000 mainly due to closures of copper mines since September 2008, (JCTR 2009). Investors have pulled out and the ripple effects continue to deepen in severity.
Latin America – Migrant workers from Latin America were recorded to have sent less money home in 2008 after strong growth in remittance flows for several decades. Remittance flows slowed totaling US$69.2 billion in 2008 only slightly more than in 2007. Flows will definitely be affected by the length and severity of the crisis in 2009. It is not yet predictable by how much remittance flows would fall, though the first quarter of 2009 has already shown massive reductions. In Latin America and Caribbean, remittance flows reflect a strong commitment to family and community, and are a vital source of income. Seven countries in this region receive 12 percent or more of their Gross Domestic Product from workers abroad.
The impact of the global economic downturn on low-income countries has been substantial and significantly varied from one country to the other within the low-income group. Scores of these economies have been faced with massive job cuts, declining remittances, possible reductions in foreign direct budget support and steep falling exports and subsequently major decline in national incomes. In essence, the above situation exemplifies that countries are different from one another and as such solutions to mitigate the impact of the economic downturn must be country specific to achieve success.

Impact of the downturn on Zambia

Zambia is one country that has been hit quite severely with reduced international commodity prices. The global recession has reduced job opportunities from abroad and remittances from repatriates working in rich countries who are under pressure in the job market. These negative effects confirm that Zambia has not been spared of the consequential effects of reduced productivity in industrialised countries. The 5 percent growth forecasted in the 2009 national budget will certainly be challenging to achieve in the current economic environment.
Positive economic performance recorded in the first half of 2008 was on account of high copper prices and increased copper production especially with increased capacity utilization by Kansanshi mine in Solwezi. Copper prices reached a record high of US$8, 985 per tone in July 2008 before falling to US$2, 902 per tone at the close of the year as a result of the global economic slowdown that reduced demand for copper and the articles thereof. As such, the year 2009 kicked off with a severe trade deficit of K237.8 billion at the end of January, meaning that the country’s exports were outweighed by imports causing a trade imbalance. Statistics further reflect a deeper cumulative trade deficit of K401.1 billion for January and February 2009 compared to a trade surplus of K126.1 billion at the same period in 2008.
Therefore, the situation in Zambia as regards the impact of the crisis on the economy has been a daunting experience as most mining companies have completely suspended operations and laid-off thousands of workers. Towards the end of the 2008 fourth quarter, as metal prices on the London Metal Exchange market experienced their all time lows since 2001, massive job cuts in mines were announced. Luanshya Copper Mine withdrew from the sector by putting the companies on care and maintenance. This action declared over 2000 mine jobs redundant.
Given that Zambia is largely dependent on copper exports for its national revenue, copper mining industry is one of the largest employing sectors in the country absorbing nearly 50, 000 people. The decline in macroeconomic activity has had a direct impact on several sectors but chief among them, the tourism and mining sectors. An outline below gives a sense of what has transpired.

Mining Industry

The Zambian flagship industry and a major income earner for the economy have withered with the economic downturn. The industry has until recently accounted for about 90 percent of Zambian’s exports. Using the scope of the Jesuit Center for Theological Reflection Basic Needs Basket for estimating, it can be assumed that each of the 50, 000 workers is a bread winner for a family of six. It would right therefore to infer that the sector provides a source of livelihood to about 300, 000 Zambians. But as per Zambian culture and tradition, nuclear families always have to provide financial support to members of the extended family. In this case, a single family would probably be offering direct support to more than two members of the extended family, so 3000 is a bare minimum population directly dependent on the sector.

According to Ministry of Labour officials, at the beginning of March 2009, close to 19, 000 of the approximately 50, 000 mine workers had lost jobs. From the Basic Needs Basket point of the JCTR’s view, about 120,000 people of the 300,000 people typically dependent on mining jobs for their livelihood have been affected. In a ministerial statement, the Minister of Mines and Mineral Development highlighted that Bwana Mkubwa Processing Plant closed down in the fourth quarter of 2008 and laid off over 345 workers, Luanshya Copper Mine and Chambishi Metals suspended mining metallurgical operations respectively in January 2008 and laid off 1, 716 and 1, 011 respectively. In addition, other job cuts from Kansanshi, Mazabuka Nickel and Chililabombwe mines have undoubtedly pushed these figures to staggering levels.

On a macro level, in spite of the crisis, copper still accounts for the major export product in Zambia. This depicts how grossly dependent the economy is on the commodity. In a period of nine months from May 2008 to February 2009, the country experienced a sharp decrease of 40 percent in copper export earnings. Whereas K1, 109, 924 million was earned from exports of copper and articles thereof May 2008, nearly half of these earnings were recorded in February 2009 export earnings. This substantial loss in export earnings has caused a strain on the economy’s stable fiscal position which has manifested in high inflation and consequently deep currency depreciation. The further deepening of the financial crisis in the developed world has increased volatility in the local currency against other major currencies giving rise to higher lending rates. At the end of 2008, the local currency depreciated by 27.3 percent against the US dollar to an average of K, 882.3 per US dollar from K3, 835.7 per US dollar in December 2007. The situation has worsened as the currency was trading t an average of K5, 680.5 at the end of March 2009.

Tourism Industry

The sector is among the worst hit sectors in the country and there are probably two major reasons that could be attributed to the rapid growth the sector experienced over the past five-year period of economic boom prior to the 2008 downturn. Firstly, the success in the mining sector and the general stable economic outlook stimulated much interest in foreign nationals to visit the country with United State, the United Kingdom and recently Asia accounting for the greater part of Zambia’s tourist market. Secondly, Zambia seems to have “unfortunately” benefited significantly from Zimbabwe’s political and economic turmoil. Meaning that whereas in the past Zimbabwe received more tourists than Zambia, the situation changed after the year 2000 when President Mugabe and his government institutionalised the land policy that repossessed massive land owned by white farmers. This situation spelt the beginning of better days for the Zambian tourism sector.

Several lodges and hotels had sprung up predominately in Livingstone and Lusaka and recently in Solwezi to accommodate an influx of tourist most of whom would have previously preferred to visit Zimbabwe. Solwezi and other mining areas registered positive growth in the sector owing to the hype in the mining activity. In terms of accommodation in lodges, the areas almost always had 100 percent occupancy which perceptibly meant more jobs and more foreign exchange.
The favourable environment in the sector had created jobs, businesses and incomes and improved people’s livelihoods. Now with the credit crunch in the developed countries, the sector has already recorded massive job losses. It is estimated that whereas lodges and tourist centres had before the crisis recorded nearly 100 percent accommodation occupancy, the percentage sharply dropped to about 20 percent. This entails that there are no messed beds to make, no bath and bed sheets to launder, no dirty rooms to clean, no customers to eat the food and hire vehicles for sightseeing. Hence, there are no jobs for housekeepers, for cleaners, for cooks and no business for food suppliers and lodge and hotel owners. The above is indicative of the social severity of the crisis on individual households as poignant life stories being told by affected families have revealed.

Effects of the downturn on the macroeconomic front – Public Debt

The past four years have seen debt indicators, specifically external debt indicators, in Zambia improve significantly. Debt relief through highly indebted poor countries (HIPC) and multi-lateral debt relief (MDR) initiatives of 2005 and 2006 respectively, had significantly reduced the large external debts and the debt service burden by about 86 percent. Whereas nearly US$200 million was used to service public debts annually, the amount was noticeably reduced to about US$50 million annual debt service. The improved debt sustainably has helped create investor and donor confidence as can be evidenced by sizeable FDI and to some extent aid flows in the recent past. A lower debt servicing burden has also freed up resources for development programmes. With the deepening of the international financial crunch, LICs will be advised by IFIs like in the past to borrow externally which is likely to pose serious risks on debt sustainability. For instance, in February 2009, the government received a US$200 million loan from the IMF to boost national reserves that fell so drastically. If this borrowing desire continues, public debt will soon rise way beyond the 1.8 percent of GDP expected in the 2009 budget. This situation will possibly lead to accumulation of once again unsustainable debts and the resulting adverse repercussions. At the close of 2008, inflation for Zambia hit 16.6 percent from 12.2 percent in June 2008. The deepening currency depreciation and its direct effect on exchange rates indicate that debt servicing specifically on external debt with short maturities has become more costly.

Conclusion

A country is considered to be more exposed to the global economic downturn if before the crisis, poverty was a big problem. While in the short term, developed countries may seem to be the most hit, past experience from past economic crises suggest that the adverse impacts are likely to spread in the medium-term to poor countries infiltrating vulnerable households. For all intents-and-purposes, this means that millions of households in LICs face hard times ahead with the economic downturn. The poor have no assets, limited risk coping strategies, and less access to capital markets. Realizing the heterogeneity of poverty dynamics in LICs; innovation, commitment and dialogue within countries is the way to achieve success in formulating country-specific offsetting mechanisms against debilitating effects of the downturn. LICs, specifically Zambia need to realise that the current crisis also presents itself as an opportunity in disguise for governments and states to carry out an introspection of development goals and get rid of archaic and clichéd initiatives. In Zambia for example, global crisis or not, the country has been in a reprehensive state for a long time which in itself is a crisis. Huge sums of public funds misappropriated year in year out, increased litigations of senior government officials abusing authority for self gain, high levels of corruption are all signs of deterrents to growth in the system that need to be fixed.

References

Jesuit Centre for Theological Reflection 2009, The Global Economic Downturn: Impact on Low Income Countries – the case of ZambiaWorld Bank November 2008, Weathering the storm: Economic Policy Responses to the Financial CrisisIMF March 2009, The Implications of the Global Financial Crisis for Low Income Countries.The Community Reinvestment Act After Financial Modernisation (April 2000)MoFNP February 2009: Economic Report 2008 CSO December 2008 and January to March 2009 Monthly Bulletins MoFNP February 2009: Economic Report 2008
Clive M. SiachiyakoZDA Fellow

Development Strategies in the New Millenniumhttp://elastus.blogspot.com

By Clive Siachiyako

Zambia Development Agency’s role to Zambia’s economy

The free market economy model has radically changed the approach to development today. The competitiveness of foreign direct investment (FDI) and the pursuit of favourable business climates by investors have further steepened the approach. These trends make the pursuance and attainment of development sustainably more challenging. This entails that each country requires a strategic overseer of the development vision. To Zambia, the creation of Zambia Development Agency (ZDA) fits well in this position of shaping the country’s development outline.Through ZDA government has committed itself to creating a business environment that benchmarks Zambia as the best among dynamic developing economies. ZDA is tasked to promote growth and investment in Zambia. It is an institution that is client focused and creates confidence in the public sector’s support for business. The Agency facilitates overall private sector growth. The ZDA promotes development by providing effective and comprehensive facilitation and aftercare services. It also promotes business development services and market information in order to attract investment and promote Zambian exports efficiently and in a competitive manner. The Agency supports Greenfield investments through joint ventures and partnerships between local and foreign investors, as well as ensuring speedy approval of all licenses by all government agencies. It also assists in obtaining land for economic projects and assists in obtaining work permits for expatriate staff.The Agency mainly promotes growth of the Micro and Small Enterprises (MSEs) sector, which cuts across all sectors of Zambia’s economy and provides one of the most prolific sources of employment. The MSE sector serves as a fibre of wealth creation for most Zambians and a breeding ground for industries. The emphasis on SMEs by the ZDA has been to shift Zambia's economic development direction, which has been geared towards the promotion of medium and large-scale enterprises mainly in the mining and manufacturing sectors. However, current wisdom shows that SME involvement in the economy has become essential. Thus, ZDA creates market linkages for SME players with trans-national corporations to enable them realise meaningful profit from their economic activities.Export earnings are another stimulant ZDA sees crucial in propelling Zambia’s economic development. The Agency thus markets Zambia’s exports abroad to increase earnings from the sector. It promotes export and competitive international trade from Zambia and assists Zambian businesses and entrepreneurs in accessing new markets and expanding existing ones for their products within the region and beyond. The Agency also assists entrepreneurs to source inputs at competitive rates.The promotion of exports involves research. The Agency thus research what different markets offer Zambian exporters. Based on market access offers, ZDA advises the Minister of Commerce, Trade and Industry on matters relating to International Trade and Development through export of goods and services. The Agency largely utilises market access offers received from trading partners under COMESA, SADC, the European Union and other Regional Trading Blocks as well as National Initiatives and from the World Trade Organisation. This is to ensure that Zambian businesses take advantage of the opportunities generated by those offers.To bolster the growth of domestic industries to enhance export earnings, ZDA promotes investments into the county. Indeed, Zambia has formulated an industrial policy vision that is meant to improve the country’s earnings from exports. The industrial policy embraces the promotion of investments into zoned areas for industrial parks. Accordingly, ZDA promotes both local (domestic direct investment –DDI) and foreign investments in different sectors of the economy. Specifically, the Agency establishes Multi-Facility Economic Zones (MFEZ) to bolster FDI and DDI. The MFEZ programme serves as a catalyst to Zambia’s industrial and economic development through facilitation of investment in Multi-Facility Economic Zones. The objective of the programme is to catalyse industrial and economic development in the manufacturing sector for the purpose of enhancing both domestic and export oriented business. The zones provide an environment that is competitive enough for a manufacturer to process within the borders of Zambia with relative ease. They are designed to make Zambia have a robust and viable manufacturing sector in the region through increased activity. The MFEZ initiative is crucial to Zambia, as it increases the country’s realisation of foreign exchange earnings. These earnings easily flow in when exports are value-rich; especially that Zambia is a member of various regional and international organisations such as World Trade Organisation, COMESA, SADC and various market access agreements. These provide ready markets for the export of value–added manufactured products. The MFEZ programme has several incentives that are meant to attract investors in the zones, such as exemption from tax on dividends for five years from first of declaration; corporate tax is at zero percent for the first five years from the first year profits are made, among many others.The ZDA mainly builds and enhances the country’s investment profile for increased investment inflow to be realised and promotes the country’s exports. It also promotes the growth of the MSE sector by providing incentives that can propel the growth of the sector sustainably. The Agency is simply the pioneer of Zambia’s development agenda.

Zambia’s Success Story on MSE-TNC Market LinkagesThe Prince of Wales once said “no business can survive for long as an island of wealth, in a sea of poverty.” According to the Prince of Wales, this phrase stresses the importance of business linkages for any enterprise to survive the business tornados. It is about the strength gained by businesses when they forge stronger ties into the domestic economy. It is about how much business linkages can contribute to the growth of the domestic economy and induce additional Domestic Direct Investment, which is a vital component of national development. The micro and small enterprise sector’s significance to poverty reduction and wealth and job creation is current gaining momentum cross-cuttingly. As the champion of the sector’s growth, Zambia Development Agency with cooperating partners is brokering business linkages for micro and small enterprises (MSEs) with trans-national corporations (TNCs) to enhance MSEs’ contribution to the economy. The United Nations Conference for Trade and Development (UNCTAD) and the International Labour Organisation (ILO) play a crucial role in the formulation of such business linkages. This initiative in one way of increasing market access for MSEs via forward and backward linkages – being suppliers and buyers of services and products induced by the linkages from TNCs.

And recognising the central role of a dynamic SME sector in local economic development, many companies are taking SME development and linkage programmes beyond their own value chains in the country. TATA, Zambia Sugar, Zambia Breweries and Zain are some of the companies that are joining forces with government to present supplier opportunities to MSEs. The business linkages initiative may seem unattainable to some MSEs. But Zam-Vizwear (Z) Limited recently attested to its viability when it clinched a multi-dollar project with Lumwana and Marli Investments (Z) Limited to undertake Jatropha Curcas Linn seedling farming and supply the Linn-seedlings to Lumwana Mines. In the agreement, Zam-Vizwear (Z) Limited is undertaking the project under the out grower scheme initiative with Marli Investment Zambia. This has broadened the Zam-Vizwear’s market base. Primarily, Zam-Vizwear’s core business has been the supply of industrial safety requirements, protective clothing and reflective materials to the mines on the Copperbelt and North Western provinces. The new deal with Lumwana Mines and Marli Investments thus means new business avenues for the Zam-Vizwear.

Apparently, Zam-Vizwear has been experiencing poor cash flow due to poor performance of the mining sector amid global economic uncertainties. To that effect, the company opted to venture into agro-related project such as Jatropha seedling farming and selling. The project is located in Kapiri Mposhi in central province. In that vain, Zam-Vizwear acquired a 10 hectares land for the project at an estimated total investment of US$38,000. The US$38,000 covered expenses for land acquisition and preparation, creation of a water reservoiur, designing and laying-out the irrigation system, purchase of Jatropha seeds, water pumps and two horse power engines for irrigation.
To kick-start the project, Zam-Vizwear purchased 10×25kg bags of Jatropha Curcas Linn seeds from Marli Investments (Z) Limited with each bag containing 40,000 seeds at a total cost of US$5,454. Further, the company acquired some more 10×25 bags of seed, bringing the total seeds to 800, 000 which require 800 hectares of land for planting after the nursery period. And upon satisfactory production of the seedlings in accordance with the terms of reference and specifications, Marli Investment (Z) Limited bought the entire Jatropha seedlings off the nursery on behalf of Lumwana Mines at US$290,909.09.

However, the market value for the seedling is projected to change by up to 20 percent as most farmers are closely following up the bio-fuels in the agro-sector. This follows the country’s projected land use of 2,000,000 hectares. This requires a substantial number of farmers for the country to meet its bio-fuel targets. Therefore, as a contingency plan, Zam-Vizwear is currently doing a comprehensive documentary on the nursery to ensure the wider farming community is not only well informed but also strategically market themselves to the potential prospective clients in the area of out grower schemes. The Jatropha project is Zam-Vizwear’s diversification strategy from its initial business of supplying industrial safety requirements, protective clothing and reflective materials to the Zambian business community and the surrounding Sub-Saharan African countries. With such a business boost, Zam-Vizwear aims to establish a reliable bio-fuel business that will provide a wide range of bio-fuel services to the Zambian community and to the sub-region. Taking advantage of supportive agro-schemes and services industry in the country, the company’s strategic business plan will strengthen its financial base. The company considers both Zambian and regional agro-schemes and services industries’ support for bio-fuel was on the exponential increase. And since the new business initiative with Lumwana Mines and Marli Investment will be implemented with great ties and re-financing, the potential market reputation for the regional area is expected to definitely undergo exponential growth.

This entails reinforced business resilience and more wealth and job opportunities for Zambians. Procurement, distribution, and sales benefits also accrue. These linkages thus allow MSEs and TNCs to reduce input costs while increasing specialisation and flexibility. They also increase domestic business integration and stimulate positive social and economic impacts in the wider community. Diversification becomes more viable with such linkages in effect, let alone economic gains. Joint Ventures“You can resist an invading army, but you cannot resist an idea whose time has come,” once remarked the Economist Magazine. Today, the concept of joint ventures is such an idea. The triumph of joint ventures is driven by profound market economic changes. A trio of the market economy demands (efficiency, innovativeness and creativity) is dictating joint ventures at a cracking pace. Even micro and small enterprises (MSE) register highly on the profit score card when they join forces, and they reach markets that were once the privilege of giant businesses.

Joint ventures provide abundant business reasons, such as complementary capabilities and resources by players in the partnerships. The initiative offers affluent platforms for business growth and it has become an important strategic option for many businesses. Due to increased globalisation, the proliferation of modern technology as the means of conducting business, and increased international travel, businesses are now operating in a world without borders even amid cultural and language barriers. Theses changes require stronger business muscles to remain afloat.
The Zambia Development Agency (ZDA) finds a niche in such an initiative. Accordingly, the Agency promotes Greenfield investments through joint ventures and partnerships between local and foreign investors. ZDA considers forging strategic partnerships with Zambian companies is one of the ways in which foreign companies can set up their operations in Zambia. The nature of these joint venture partnerships is co- ownership of a business, where there is joint decision making. The partnership is formed on the basis of each bringing assets into the business, in the form of capital, expertise or technology.
A Joint Venture is a contractual arrangement, subject to joint control, whereby two or more companies pool their resources together and collaborate in carrying out a business activity without necessarily creating a separate entity. The parties may also agree to share the risks involved but the degree to which they do so will vary depending on the particular structure of the venture they have chosen. Such companies can agree to share capital, technology, human resources, risks and rewards under shared control. The form of a joint venture can be determined by a number of factors including the nature and size of enterprise, the anticipated length of the venture, the identity and location of the parties and the commercial and financial objectives of the participants. Regardless of the determinants of the partnership, ZDA assists interested investors in identifying joint venture partners and offering matchmaking services for investors seeking cooperation in the areas of capital, technology, management and marketing. The Agency also advises and participates in the negotiation of joint ventures.

The reasons behind forming a joint venture include business expansion, development of new products or moving into new markets particularly overseas. Other benefits to the host economy include the provision or introduction of new technology, the Zambian partners gain established distribution/ marketing set ups and there is available financial resource of such local partners. Contacts are also established within the host economy, a trend which can help to smoothen the process of setting up of operations. The key motives behind joint ventures are growth, stability and survival of economic uncertainties. The business attains strong potential for growth and can have innovative ideas and products. This entails that businesses gain more resources, greater capacity, increased technical expertise and access to established markets as well as distribution channels are realised. The setting-up of a joint venture depends on what is to be achieved by the parties involved. However, notable are three basic legal structures that can be used for joint ventures. These are being: a limited liability company (a corporate vehicle); a partnership or limited partnership (an unincorporated vehicle); or a purely contractual co-operation agreement.