Expectations from the new government
The private sector plays a very important role in the economic development process of any nation. The private sector, in aggregate, are the chief source of employment and job creation in the economy. In addition, proponents of free-market economic principles argue that privately owned and run enterprises tend to be more disciplined and efficient compared to public owned and run companies. By running efficiently, private enterprises tend to bring about welfare gains in the economy.
In Zambia, the private sector has employed more people than the public sector. According to the International Labour Organisation (ILO), the private sector in Zambia contributed about 69.05%, 86.98% and 88.05% to total employment in 2017, 2018 and 2019, respectively. The data shows that, if unemployment is to reduce significantly in Zambia, creating a favourable business environment for private enterprises to flourish is key. In fact, supporting private sector-led employment creation is necessary to ease the wage pressure on the public purse.
While the term ‘private sector’ encompasses all economic activity in non-public hands, the different sectors involved have different characteristics and needs and also differ in the ability to create jobs and support growth of other sectors. The manufacturing sector is unique. A British economist, Nicholas Kaldor, argued that the growth of the economy is positively related to the growth of the manufacturing sector. Kaldor’s laws and arguments on the superiority of the manufacturing sector continued to be proven right by different scholars. The manufacturing supports growth and development of other sectors of the economy through backward and forward linkages and also by supplying technology (manufacturing modern equipment) used in other sectors.
Given the special features of the manufacturing sector, it is extremely vital that the new administration creates a supportive business environment for the sector enterprises to flourish. In Zambia, manufacturing sector contribution to GDP has declined from around 35% in 1991 to less than 10% in 2019. This pattern shows Zambia has experienced deindustrialisation in the past 30 years. Economic growth performance has too declined from 9.8% in 2010 to 1.4% in 2019 and -2.8% in 2020. Industrialisation (development of the manufacturing sector) is cardinal if Zambia is to retain on a high-growth path, let alone be on a sustainable growth path. Below, I highlight some issues the manufacturing community in Zambia expect the new administration to address to support growth and development of local manufacturing enterprises.
Tax Policy. The input industry in Zambia remains underdeveloped. Most companies rely on imported inputs to produce their goods. However, some of the critical inputs continue to attract import duty. The duty imposed tends to increase the cost of production and make the price of the final product uncompetitive. This affects the growth of local companies who have to compete with products of other producers within the region in the domestic as well as foreign markets. Therefore, there is need to revise the tax policy and make it more conducive to the local producers. S.I No 110 provides an avenue to support the sector.
Regulatory requirements, fees and penalties. Micro, Small and Medium Scale Enterprises (MSMEs) play a vital role in job creation and economic growth. However, their growth continues to be hampered by too many regulations and in some cases penalties on regulations they may not be aware of. When it comes to regulatory fees, a number of them do not discriminate between SMEs and large enterprise, despite the difference in the ability to pay. Therefore, Government needs to create a supporting regulatory environment.
Preferential Procurement. Public procurement is an important industrial policy tool that countries have used to support their industrialisation. Government departments spend a good portion of public funds on imported products rather than locally produced goods. Increasing the portion of local goods in public procurement can contribute greatly to the growth of the local industry. The new administration will need to be aggressive and intentional about using public procurement to support the local industry.
Skills development. Despite having plenty of graduates, skills continue to be a challenge in the industrial sector in Zambia. Companies, on average, invest 3 years in training a fresh graduate. There is need to revise the curriculum and capacity training institutions with modern equipment to ensure that a balance is struck between theory and practice.
When all is said and done, the local industry has great potential to contribute immensely to employment creation, structural change and economic development. However, the growth and development of the industrial sector continue to be hampered by unfavorable tax policy, unfriendly regulatory environment, unsupportive public procurement policy and skills mismatch. The new administration will, therefore, need to address these obstacles if the country is to see industrial growth.
By Lewis Chimfwembe