Part 1 (a): Economic and financial challenges of Zambia’s value addition

By Edward Chisanga

Last week ended rather miserably worrisome for Zambians. It was when the World Bank made a public announcement that Zambia has been reclassified to low-income status from lower-middle-income. That is not good news for Zambians, especially those that use deceit to paint a picture to citizens that the economy is ok. In Africa, there’s a growing tendency to ostracize citizens that speak negatively about the economy no matter how objective. Research and statistics used by local Zambians and foreign experts to explain the Zambian economy is the same. Yet, the local readership often pour cold water on information coming from the former while extolling and believing one from the latter. So, the World Bank today confirms what we have been saying as Zambians.

When last week I began a colloquy about value addition which our leaders are trying to achieve, two responses from readers similarly said that value addition should begin from within Zambia. I had shared the status of Zambia’s manufacturing as a starting point for the colloquy. They perhaps have a point. But that does not mean that I should not share my views about export value addition because I have heard our leaders talk about the need to export value-added products. So, each Zambian has the right to bring to the table any related topic on value addition: Local or international. As an expert on international trade, I prefer export value addition topic. So, in my second contribution, I focus on explaining value addition and economic and financial aspects related to it.

Explaining value addition

I begin by stating that value addition is simply the stage of reaching a processed product. For example, it is a value-added product when raw copper is converted into cups for drinking water, plates for eating, spoons, folks, knives, bracelets, metal trays, copper tumblers, allied copper strip, air conditioning copper tubes, copper clad steel wire, and there are many industrial products made from copper which are found largely in developed or emerging countries. Zambia’s leadership wants the business sector to export to DRC processed products from raw maize, fruits, vegetables, groundnuts, pumpkins, etc instead of exporting them in raw form.

Challenges of value addition

Unfortunately, value addition is founded on a strong not feeble national economy. The foundation of manufacturing is a relatively large, robust and flourishing economy. In turn, a good economy facilitates a country’s integration in the global economy of value chains and networks. Dani Rodrik once wrote, “The marginalization of Africa in world trade is entirely due to the slow growth of African economies.” It is the same for value addition. Entrapped in a small economy, not growth-spurting, neglected for many years and with a falling economic status, attempting to implement value addition is like chasing a black cat in a dark room and blind-folded.

The World Bank may have used several economic indicators to consign our economy into its unpleasant position amid stunning peeve and dismay of citizens. But it was unnecessary for the verdict to come from outside. We, Zambians saw it coming many years. Statistics show that the writing on the wall said that the economy was heading towards an abyss. Figure 1 below shows a period of 2000-2020 in which GDP annual average growth rates had strong variations. First, an encouragingly good period of growth from 2000-2010 and second, a stunning reversal depicting a continuous downturn all the way to 2020 when growth gushed into minus.

And, as I said in my introduction of a colloquy on Zambia’s value addition, a dwindling manufacturing value added in the economy, from 36% in 1992 to 8% in 2020, and in absolute values of less than $ 2 billion is not only a bridge too far but on a thorny road for the bare feet of the majority of citizens. The fragile and drifting away economy is not helped by the self-approbation yet unfriendly financial system.

Commercial Banks in Zambia have no strong record of supporting value addition. Often, the flamboyance portrayed by their CEOs of what they’re doing to support the private sector does not match with reality on the ground. Despite public pronouncements of goodwill by banks, the private sector perceives commercial banks as unhelpful. They’re not alone. UNCTAD has written a lot about them. In 2013 Trade and Development Report, it states, “The financial system in most developed and developing countries fails to adequately channel credit towards productive investment in the real sector. Reform at the national and global levels is needed, not only to improve financial and economic stability but also to ensure that sufficient investment finance goes into productive activities and helps developing countries address the new development challenges that have emerged in the post-crisis environment.”

Value addition takes long and needs a strong foundation

President Kaunda’s nationalization-led manufacturing may have taken a short time to realize. But market-led manufacturing may take long. That’s why we must own up and bask in the truth and realities of life. Writes Fergus Hashimoto, “The industrialization of Europe was a process that took centuries. It was preceded and accompanied by many scientific discoveries and by changes in society that included a growth in knowledge and everyone learning how to read, write and do arithmetic.” Mr. Hashimoto’s list of characteristics or factors that make industrialization work are often ignored in Africa and replaced by big things like physical infrastructure, investment, technology, etc. Notwithstanding their importance and necessity, they matter. Or rather, a combination of both does. On the policy side, “duty free importation of manufacturing machinery, tax holidays and favorable local prices for products to be processed” are often cited as essential needs by Zambia’s private sector.

We urgently and unsparingly must build a foundation first of a robust, large and growing economy, juxtaposed with other elements already mentioned. With this foundation, it is much easier to catalyse structural transformation among countries, incentivize them to shift from resource and low technology-based economies to more diversified, high-technology content, high product sophistication, and knowledge-based economies.