Sovereign rating is not enough
“Revision of Zambia’s sovereign rating is an affirmation of the soundness of Government policies,” was the conclusion of Mr. Felix Mutati, Minister of Finance. What happens when this is reversed? Will the minister make a public statement? What will be the contents of the statement?
We ask these pertinent questions in light of the warning coming from the same people who gave positive marks to Zambia’s sovereign rating that seems to have been ignored totally by the minister in his uneven remarks.
In case he did not see it, they warned, “We could also lower the ratings if previously destabilizing factors re-emerge, for example, if copper prices were to materially fall, or if rainfalls disappointed, or if improvements in the liquidity of the domestic banking system reversed,” they said, adding that “these factors have a substantial bearing on macroeconomic stability, growth, and the government’s financing position.”
They know very well the fluid economic situation of our country. Yet, we Zambians should know better and that is why leaders should learn to work quietly and wait for results. Sovereign rating is important but it is not the end,just as macro-economic stability is essential but is not the end in itself.
Zambians will not use these indicators alone to judge the performance of the economy because there are other perhaps more important things to take into account.
Industrial development is perhaps the best indicator
There are other essential factors. But certainly industrial development is perhaps of greater significance. Yet, we hardly talk about it. Discussions of economic growth are incomplete when we don’t link macro-economic stability or sovereign rating to important economic fundamentals such as industry.
I pick on industry because this is the sector that can make a difference and has a multiplier effect if developed. Even mere dialogue with the public over an important subject like this could generate some good ideas. The good news is that after almost five decades of timid growth, industry value added in the economy showed very robust rise in absolute values in the last ten years from $4.4 billion in 2007 to about $9.1 billion in 2013 (Figure 1).
In the period 2012 and 2014 industry in the economy has seen its highest rise ever and this can largely be explained by investment in the copper industry, hats off to the leadership and investors like Mopani mines and others. As a share in the GDP, of course industry, accounting for 34% in 2015 has had a large role although there has been erosion like in manufacturing from 48% in 1990 for example.
But there are two important points here. First, $9 billion worth of industry in the economy is simply too low to facilitate structural transformation, job creation and improved living standards. To do this, industry will have to expand to high levels. Tanzania’s industry in the economy is about $11 billion. Vietnam’s industry is $ 64 billion. In 2015 Zambia’s industry dropped from $9 billion in 2013 to about $7 billion. (National statistics office may have latest figures, my data is up to 2015 only).
In terms of growth in absolute values, the period between 2001 and 2011 saw the highest growth of industry save the deep drop between 2009 and 2010 as well as the current trend from 2012 (Figure 2). Compared to the last three to four decades, the country has experienced flourishing industry although again, growth based on small dollar values is a major challenge. The highest growth was about only $2 billion in 2007 and 2011 while the past period between 1970 and 2000 was one of anaemic growth averaging $400 million per month.
In conclusion, congratulations to the leadership and investors in the mines. At least there is a noticeable picture showing that in comparison with the last four decades, industry showed steep rise in dollar values in the last one decade. If the level of 2013 can be maintained by reversing the current downward trend, that would be excellent.
But there is another painful point. Industrial growth based on the mining sector alone will only remind us of the last article: Imagine Zambia without copper. Instead, we must focus on sub manufacturing sectors like food and beverages and textiles and clothing, especially the latter which is the first step for industrialization in most successful countries like Vietnam.
Finally, Vietnam people rarely talk in public places. They never speak in many public meetings like we Zambians do. I am sure their leaders too hardly preach about their economic achievements. Unlike most of us, they look very humble and, although it is difficult to correlate this humility with performance, it is highly likely that it has substantially contributed to their economic success.
I think they are leaders who dedicate their lives to hard work and leave praises to the public. So, perhaps simply work and let the public judge for you. These public photos and statements that we like portraying so much will not help the country to develop. We need not mask the real economic problems with smiling pictures and public statements appearing to show achievements.
By Economic Governance