–Economics Association of Zambia recently head a Press Brief following the National Economic Summit.
The following are some key learnings and recommendations from the National Economic Summit NES 2019.
1. High interest rates and liquidity challenges continue to weigh SME financing: The Zambian financial markets continue to be faced by high interest rates and liquidity challenges that have hampered SME growth. Liquidity challenges and high interest rates have forced commercial banks to seek long term credit lines at lower cost with multilaterals such as the International Finance Corporation – IFC but at the expense of the domestic markets. There is need for more meaningful access to finance for SMEs through addressing and waiving stringent requirements that banks request for from SMEs such as audited financials and collateral. There is need for meaningful and sustainable funding to SMEs to allow them blossom into big corporation’s overtime. High interest rates have overcrowded the domestic money markets making commercial banks prefer locking liquidity in government securities as opposed to extending credit to SMEs. We acknowledge that banks like ZANACO bank have played a key role in the SME and digital space while others like Stanbic and Barclays have tailored products to suit SMEs. There is need for more banks in the 18 bank industry to provide more funding to SMEs.
2. The need for local businesses support for value addition purposes: Local businesses involved in value addition need to be assisted with a conducive environment to achieve the requisite growth. Entities like Zambia Metal Fabricators PLC and Neelkanth Cables Ltd have immense potential to grow in the manufacture of copper cables if the right conditions are designed such purchasing copper at negotiated local prices as opposed to London Metal Exchange pricing which balloons their operating costs. Local entities involved in value addition need to be provided with stimulus to encourage growth. Another key issue around supporting local entities concerns dismantling of debtor arrears which is tying liquidity for businesses such as ZAMEFA and ultimately hampering growth prospects. There is need for the right stimulus and policies for local entities to stimulate growth.
3. The need for de-risking and energy diversification to cushion against power deficits: It is about a dry point of construction that overdependence of hydro for energy generation has caused Zambia and Southern Africa energy deficits that have impacted manufacturing and mining adversely. This has necessitated the need for energy diversification into other renewable sources such as geothermal, solar and wind energy. Zambia has key projects in the pipe line such as the Kafue Lower for 750MW due end of next year, Lusiwasi lower and upper in addition to other key solar projects in the pipeline that will hedge the copper producer from future bottlenecks. However, it is evident that Zambia is well positioned to be Southern Africa’s net energy exporter with the Batoka 2,400MW earmarked for completion in 2024. Proposed solutions to some of the energy challenges include de-risking of energy risks with models that transfer risks to fiscal balance sheets. Entities like GreeCo Ltd are key in providing renewable energy avenues such as solar projects. We appreciate efforts being made in the nuclear space, specifically ZAMATOM with capacity building programs involving sending students to Russia for training in nuclear energy. Nuclear energy is the way to go and once implemented add to Zambia’s hydro generation capacity that will widen production to make our nation one of Africa’s top energy producers. The series of interconnectors that ZESCO has in the pipeline such as the Zimbabwe-Zambia-Botswana- Namibia 330KV (ZIZABONA), Solwezi- Kolwezi 440KV into the Democratic Republic of Congo to Katanga, Zambia-Kenya-Tanzania 440KV and Zambia – Mozambique 440KV interconnectors will allow for transmission of power through Zambia connecting Zambia to South Central and East Africa.
4. The need for Vision 2030 for Zambia and Africa 2063 to align with the electric car era and technology age: The next 10 years will be characterized by significant changes in the technology landscape and the motor vehicle industry which Zambia’s vision 2030 may need to realistically align to. With car producers such as Ford, BMW, Mercedes etc. moving onto electric cars that will be powered by lithium batteries, there is need for Zambia to position itself strategically because of its copper, cobalt and manganese reserves as they form part of key components into the car battery manufacture. One of the proposed recommendations is to use economic diplomacy through ambassadors in countries that produce cars such as Germany to facilitate discussions and agreements between Zambia and these entities for direct purchase of these minerals. Other key changes in the technology landscape include the artificial intelligence era and cloud computing which will require for regulatory authorities such as the central bank, ZICTA and the Communication ministry to arm themselves with the requisite regulation such as bills that concern cybercrime and data protection etc.
5. The need for human capital development and sustainable partnerships: The need for human capital development cannot be over emphasized after team from Israel shared a case study of the research and development capacity that they have built over the years. Investment in human capital development is very key in the journey towards research and development. The World Bank Country representative revealed that the average Zambian spends an average of 5.2 years in continuous education compared to the Israelis that average 12.9 years. The widened gap can only be narrowed through higher investment in the education sector with the right curriculum. It was established that sustainable human capital development can only be achieved through long lasting partnerships as opposed to corporate social responsibility. It was established during a session on alternative sources of education finance that tertiary institutions need to rum sustainable funding models to reduce dependency on the government for funding.
6. The need for aviation costs to ease, competitiveness and sustainability of National Airline. How the airline industry can be used to revamp dead industries such as horticulture? Aviation costs remain elevated and one of the highest in Africa making it very uncompetitive to run airlines locally. Flying local routes in Zambia is almost the same cost as flying regional routes as such the Ministry of transport will require to relook the aviation cost structure. With a national airline soon to be launched, the question of sustainability of operations is of key concern given that the last National Airline was commercially not viable. However, with a well-crafted viable business model, the airline industry could be strategically used to revamp dead industries such as the fresh cut flower (horticulture) industry to life. The likes of Agriflora collapsed due to lack of access to markets given high transport costs into Europe. However, with a local airline and access to commercially viable routes, the fresh cut industry could potentially come to life to compete with the East African market. The need for partnership between white farms and locals: Zambia’s political stability makes the agriculture environment predictable. It was established during the summit that Zambia is one of the few countries that have a well-defined title deed system, with its arable landscape, makes it a very attractive destination for farming investments. An opportunity that exists for Zambian farming landscape is for partnerships with white farmers that are facing land expropriation policy changes this will ensure technology transfer and increased productivity for Zambian agro sector. This was established during a session on agriculture with World Farmers Organization President Theo De Jager.
8. The needs to boost manufacturing capability to position Zambia for intra Africa trade: An opportunity in intra Africa trade exists for Zambia because Africa consumes what it doesn’t produce and produces what it doesn’t consume. Africa has a combined population of about 1.25 billion inhabitants with a combined GDP of $2.5 trillion. Africa has an immense opportunity to trade with itself. However, this will require that African nations start to produce competitive products on the international markets. The Africa Free Trade Area is one initiative that African nations, Zambia inclusive, have taken up to actualize intra Africa trade. Other initiatives include MANSA digital platform that will enhance the visibility of African businesses to allow for trade with each other. Intra Africa trade will address some of the trade imbalances the continent faces today.
9. The need for infrastructure funding under private public partnerships (PPPs): The Association supports infrastructure development in light of the gap that Zambia has. The Association also acknowledges that infrastructure has pay off economic benefits in the future which open up the economy to investment flows. There is need for Public Private Partnerships (PPPs) funding of infrastructure projects such as the dual carriage project. Funding infrastructure projects in this fashion helps ease the costs of finance and will allow for non-traditional source of cheaper finance.
10. The need for talks with the IMF to be rekindled: The Minister of Finance re-echoed the need for talks with the International Monetary Fund – IMF to be reopened. This will then assist with investor confidence boosting and access to cheaper credit lines. The IMF deal will also assist with dollar debt (Eurobond) pricing should Zambia wish to make an appearance in the international capital markets to refinance its falling due debt. The IMF will also open up potential guarantees to debt issuances by state owned entities that would be looking to capitalize for operational efficiency purposes. It must be understood that an IMF deal is in this regard not for the balance of payment support of $1.3 billion but for the investor flows it will open up Zambia to.