MANUFACTUIRNG DEVELOPMENT IN ZAMBIA IN 2017

Contents
Abbreviations and Acronyms........................................................................................................2
Executive Summary...................................................................................................................... 3
1.0 Introduction............................................................................................................................ 1
2.0 Government activities to boost the sector.................................................................................2
3.0 Electricity shortages................................................................................................................6
4.0 Conclusion.............................................................................................................................. 7
5.0 Recommendations................................................................................................................... 8
Abbreviations and Acronyms

DV Dependent Variable
GLOCAL Global and Local
GDP Gross Domestic Product
GMP Good manufacturing practice
MFEZs Multi-Facility Economic Zones
NTEs Non-traditional exports
ISO International Organization for Standardisation
QMS Quality Management System
SME Small and Medium scale Enterprise
ZCCZ Zambia-China Cooperation Zone

Executive Summary
This report document desk review of Manufacturing Sector performance in 2017. The report and
its findings outline the state of the manufacturing sector in Zambia as at 2017 and progress of
implementation of the Manufacturing sector policy strategies outlined in the Sixth National
Development Plan (FNDP). Particular emphasis is paid on how the implementation of the
manufacturing-focused policy mix and strategies and how these impacted on the economic and
business performance of manufacturing sector industries. In 2002, MCTI conducted a
Manufacturing Sector Survey (MSS) with a view to get baseline primary data on the
manufacturing sector. The survey was the first of its kind and was intended to provide a basis on
which policies were to be formulated as well as act as a performance measure of the
Manufacturing sector. The 2002 MSS established that there was a high concentration of
manufacturing activity in Lusaka and Copperbelt provinces to the exclusion of the rest of the
country. The two provinces constituted 67 percent of manufacturing establishments and this
concentration was driven by the proximity to the consumer and industrial market as well as the
better infrastructure development. It also established that 98.5 percent of the manufacturing
sector contribution to the GDP was by the large scale firms that constituted 44 percent of the
sector population while the MSMEs contributed only 1.5 percent. There was also a concentration
of new firms in the Food, Beverages and Tobacco; Textiles, Clothing and Leather, Wood and
Wood Products and these subsectors also provided most of the jobs. These findings impacted on
the design of Government policy for the manufacturing sector focusing on private sector led
growth in the manufacturing sector and other key sectors of the economy. Despite the desire of
Government to have a private sector driven economy, it was evident that the private sector was
unable to undertake some of the market-related functions. This called for Government
intervention. To ensure Government intervention was well planned and coordinated, the FNDP
was developed to cover the period 2006 – 2010. The FNDP focused on agricultural development
as the engine of income expansion in the economy. Government was convinced that agriculture
offered the best opportunities for improving livelihoods. To this end, the sector received a
marginally higher allocation of the resources. Among other economic sectors that were identified
to complement this focus, either directly or through inter-linkages were infrastructure, tourism,
manufacturing, mining and energy. The FNDP period of 2006 – 2010 is also the period under
review and thus a direct link between the objectives and strategies of the FNDP and the review
of the Manufacturing sector undertaken in the survey. It therefore provided the policy backdrop
to the performance of the manufacturing sector in the period under review.
1.0 Introduction
To understand manufacturing performance in Zambia in 2017, a brief background of the sector
needs to be given. Zambia recorded high GDP growth rates during the past decade, 7.76% on
average between 2004 and 2013, well above the 5% Sub-Saharan Africa average (World
DataBank, accessed February 2015). GDP is expected to grow by approx. 6.5% in 2015-2016
(World Bank, 2014b). Zambia’s good economic performance has been largely driven by the
copper mining sector, which in turn has spurred faster urbanisation rates and rising income
levels, and the growth of associated industries such as construction, ICT and retail. Between
2008 and 2013, non-traditional exports (NTEs) increased threefold. A small but growing share of
these NTEs represents increasing capabilities and competitiveness of Zambia’s manufacturing
sector.\
Despite positive GDP growth rates, Zambia’s ambitions in terms of economic diversification and
poverty reduction have not seen as much progress as expected by government, and as envisaged
in various policy documents. For this reason, the Zambian government has placed high priority
on industrial development and has recently approved an Industrialization and job creation
strategy paper.
Although agriculture remains Zambia's dominant industry, industrial production accounted for
just under 30% of Zambia's GDP in 2016, according to the CIA World Factbook. However, this
overstates the significance of the nation's industrial sector. Mining remains the largest share of
industry, and construction accounts for half of all non-mining industry GDP. Electricity and gas,
which produces a further 10% of all non-mining industry output, contracted slightly due to
power issues, but manufacturing remained more or less stable. After posting average quarterly
growth rates of 6.7% in 2014 and 5.5% in 2015, Zambia's manufacturing industry saw growth
stagnate in 2016, growing just 1.1% in the first quarter of the year. As of 2016, manufacturing
itself accounted for roughly 11% of Zambia's GDP, with agro processing, textile, and leather the
nation's primary outputs. Despite its problems, Zambia's economy is one of the more stable and
promising in Sub-Saharan Africa, and its industrial sector is no different. Robust privatization
programs have created significant opportunities, and foreign investors have taken notice: foreign
direct investment in the manufacturing sector was more than USD1.2 billion in 2009.

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2.0 Government activities to boost the sector
In the past decade, the Zambian government made an essential move towards privatized and
open market economy. This reduced Zambia’s heavy dependence on copper, leading to a
growing trend towards non-traditional exports including agro-processing, primary products and
textiles. This trend has transformed the Zambian economy that has seen strong growth in recent
years with GDP growth more than 6% in the time period of 2005 to 2013. The GDP composition
by sector of origin of Zambia includes agriculture industry that accounts for 19.8% of the GDP,
industry for 33.8% and services for 46.5%. Major industries of Zambia include copper mining
and processing, construction, emerald mining, beverages, food, textiles, chemicals, fertilizer and
horticulture.
The main contributors to overall growth of Zambian industry include manufacturing industry,
agriculture industry, transport and communication, construction and wholesale and trade. These
industries collectively accounted for more than 70% of gross domestic product. Balance of trade
in Zambia averaged ZMW 156.72 million during the time period of 2003 to 2014 reaching an
all-time high of 1484 million in 2011 January. In December of 2014, the trade deficit of Zambia
was recorded ZMW 81.90 million Zambian Kwacha. The trade surplus of Zambia is a result of
cooper exports. The country also exports tobacco, sugar, gemstones and cotton.

Figure 1: Zambia’s manufacturing, value added (constant 2005 US$ million)

Zambia is an importer of machinery and fuel. The main trading partner of Zambia is China
followed by Congo-Kinshasa and South Africa. Some other trading partners of Zambia include
Canada, Germany, France, Italy, Indonesia, japan, Mexico, Russia, Spain, Turkey, United
Kingdom and India. The Zambian industry hasn’t been affected by the European debt crisis but
the economy is vulnerable to slowdown which could ultimately have an impact on exports of

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Zambia. The agriculture sector in Zambia has been robust in past few years by producing bumper
harvest since 2009, with maize and staples leading the produce.

Figure 2: Zambia’s GDP, selected sectors and economic activities (ZMK million

Although agriculture is the main contributor of Zambian growth but it remains affected by
inefficient rural infrastructure and droughts. In order to increase the efficiency of infrastructure,
the government increased budget allocation for agriculture in 2012 by 6.1% with major part of
the funding going to the Farmer Input Support Programme. Other important areas of
development in agriculture include livestock, irrigation infrastructure, aquaculture development
and fisheries. In the mining industry of Zambia, the output fell in 2011 to 0.7% as there was an
uncertainty due to presidential elections due to which major investment projects were deferred.
With the 2011 elections gone smoothly, the mining investment picked up the pace with a growth
of 10.6% and 10.3% in 2012 and 2013. In the recent years, the construction industry has been
pivotal in economic growth of Zambia with the construction sector has contributed some 21.1%
of the economy in 2011.

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The rebound witnessed in mining activity along with increased expenditure on infrastructure
development are expected to further boost the construction sector and lead to a growth rate of
17% in 2015. As Zambia is moved towards diversified economy, the manufacturing sector is
becoming much more important to long-term growth and employment strategy of Zambia. In
2011, the manufacturing industry of Zambia witnessed growth of 5% but the sector overall
accounted for 9.1% compared to 1102% in 2006. Growth in this sector is mainly driven by
increase in investment especially in agro-processing in response to business reforms and prudent
economic management. For growth to be sustainable in manufacturing and other industries there
is a need for improved access to finance and continued implementation of reforms to increase
participation of private sector. However high interest rates in Zambia remain challenge to
accessing credit as far as small businesses are concerned.
To reduce lending rates, the Zambian government reduced the corporate tax rate from 40% to
35% in the banking sector. In addition, the central bank of Zambia also cut the statutory reserve
ratio to 5% from 8% to free resources of commercial banks for private sector lending. The
government also increased minimum capital base to ZMW 104 billion for local banks and ZMK
520 billion for foreign bank. Considering the small domestic market of Zambia, the government
is promoting trade diversification through participation in regional, multilateral and bilateral
trade. In the WTO Doha Development Agenda negotiations, Zambia coordinated with group of
50 LDCs. Zambia is also a member of the Common Market for Eastern and Southern Africa and
the Southern Africa Development Community but these trading agreements haven’t produced the
desired impacts. The trade policy of Zambia has remained predominantly unchanged since the
country introduced comprehensive reform programme in 1990s including removing exchange
controls, eliminating export import license, reducing import duties, abolishing export bans and
introducing export incentives, decontrolling prices and removing subsidies. Although trade
policy has remained unchanged but the large gap between the bound rate (105%) and average
applied MFN tariff rate (13%) along with absence of bindings for over 83% tariff lines have
create degree of uncertainty for traders. Trade is playing a very significant role in economic
development of Zambia. The country has moved from import substitution to export promotion in
order to increase emphasis on external and internal markets. Zambia’s vision 2030 is based on
the trade policies that anchors the overall framework of long term vision for Zambia along with
setting social and economic targets to be achieved by 2030.

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Zambia's standing as one of the more promising destinations for foreign investment in Sub-
Saharan Africa comes thanks to its stable political situation and a bevy of government programs
implemented to boost the manufacturing sector. In 2017, the Zambian government established
Multi-Facility Economic Zones (MFEZs), special industrial zones for export and domestic
facilities that feature well-designed infrastructure and economic incentives to attract investors.
With a minimum investment of USD500,000, firms receive exemptions from taxes on dividends
for five years, as well as 0% corporate tax for five years (increasing over time to 75% of profits
by the 10th year) and no import duties on the import of raw materials. In return, firms are
responsible for building facilities and coordinating telecommunications and other infrastructure
improvements. Viewed as combining the trade benefits of free trade zones and the structural
economies of scale that come with industrial parks, the Zambian government sees MFEZs as one
of the keys to increasing the nation's competitiveness in the manufacturing sector. The first
legislation establishing MFEZs was passed in 2006, and gave the Zambian Development
Agency the power to control and administer these zones. Since then, six sites have been
designated as MFEZs: Chambishi, Lusaka East, Lusaka South, Lumwana, Ndola, and Roma,
with the latter two officially industrial parks.
The development of the Chambishi MFEZ is a good example of how Zambia anticipated these
sites becoming hubs for foreign collaboration and eventually generating spillover effects for the
surrounding community. After China expressed a desire to establish five trade economic zones
on the African continent, Zambia was chosen as the first of these sites thanks to its political
stability and willingness to develop MFEZs in collaboration with foreign investors. The Zambia-
China Cooperation Zone (ZCCZ) was inaugurated by Presidents Hu Jintao and Levy
Mwanawasa in February 2007, with the goal of further developing the relationship between the
two countries that have seen bilateral trade grow from USD108 million in 2000 to USD2.85
billion in 2010. Work on the Chambishi MFEZ began in 2009 and was conducted by China Non
Ferrous Metal Mining Company Limited (CNMC). The project ran into early delays, with
numerous construction difficulties leading to the project not being fully operational for more
than five years after breaking ground. As of 2016, more than 48 firms had operations worth
USD1.3 billion in the Chambishi MFEZ, creating over 8,200 jobs. Most of this came from
mining, leading to lingering concerns that the project is too focused on mineral extraction at the
cost of neglecting value-added processing, but the Zambian government is confident that

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additional infrastructure improvements will lead to the development of the site's manufacturing
sector. One key issue that remains to be resolved in transportation; although the site is accessible
by both road and train, both need to be modernized and improved in order to handle the loads
needed for significant industry.
Other sites have shown similar potential. The Lumwana MFEZ is a 1,300sqkm site with long-
term plans of USD1.2 billion in investment and 13,000 jobs created. The Lumwana Property
Development Company expects manufacturing of explosives and agroprocessing to be two of
this site's key industries. The Lusaka East and South MFEzs have the benefit of being located
near Lusaka International Airport and are currently in the midst of a five-phase construction plan
that is expected to eventually produce high-tech industry, R&D, and light manufacturing. Lusaka
South MFEZ had attained USD785 million of investment as of mid-2016, with additional interest
from more than 150 investors being reviewed. 14 companies had already agreed to lease spaces
at the site, with these signings worth more than USD330 million.
Other development in the manufacturing section in 2017 was the development of Mulungushi
Textile. The government pronounced to invest USD15m in re-establishing the Mulungushi
textile factory, located in Kabwe, Central Zambia. Once fully operational, the factory is expected
to create over 20,000 jobs in the next 5 years, boost the cotton industry in Zambia and increase
its exports. According to Industrial Development Corporation (IDC) a technical team concluded
the operation assessment in readiness for a full-fledged production. The plant will be
manufacturing various garments including military and police uniforms. The Government
concluded the takeover of the Mulungushi factory in 2017, 10 years after it closed in 2007 due to
operational and financial difficulties. In 2017 government identified textile as one of the priority
sectors for the country’s industrialization and economic development. The Zambian textile
industry is considered to be labor intensive with potential to greatly contribute to employment
and wealth creation at all stages of its value chain. Currently (2016), the sector employs over 670
people across Zambia, while the Government is putting up deliberate measures to further support
the growth of the sector.

3.0 Electricity shortages

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supply. Zambia has long been plagued by power shortages that have thrown its economy into
turmoil, and 2016 was no different. Electricity production dropped to 75% of the previous year's
level in the first six months of 2016 as a result of insufficient hydroelectric generation at the
country's largest reservoirs. These hydro-reservoirs, which produce over 90% of Zambia's
electricity, had already seen issues after low rainfall levels in 2014 and 2015, but increased water
usage in 2015 further stressed the system and led to inadequate water levels. Zambia's
government launched a policy of eight-hour rolling power blackouts in July 2015 to lessen
demand, but the problem has persisted.
It goes without saying that Zambia's continued issues in this regard are crippling its economy as
a whole and its industrial sector in particular. Expensive emergency electricity imports have been
one of the major forces behind the government's fiscal pressures, as a USD100 million subsidy
was needed to keep the price of electricity constant in the face of the shortages. As a result,
Zambia's arrears have surged to ZMK10 billion, equal to about 20% of spending, and the nation's
credit rating has taken a hit, reducing investor confidence and the economic growth opportunities
that come with foreign investment. The outlook for electricity supply is more positive in 2017 as
the government plans to reduce its debt, remove some of the inefficiencies that have plagued the
sector, and put the state energy company through a thorough review.
Even amidst these challenges, there is a sense of growing optimism around the sector. Atlas
Copoco Zambia Country Manager Patrick Chanda expressed the general feeling when he told
TBY that, “we are encouraged by the way things are going: In the last 10 or 15 years there have
been vast improvements in terms of skill developments, which… has brought in some well-
needed balance." Perhaps more than anything else, it is this optimism that will be essential as
Zambia's industrial sector tries to make the leap to being an established high-value part of the
nation's economy.

4.0 Conclusion
According to the 7th National Development plan, the manufacturing sector accounted for about
7.8 percent of the country’s GDP and an average annual growth rate of 3 percent from 2006 to
2015. The 2005 and 2014 Labour Force Surveys showed that there were 166,143 persons
employed in the manufacturing sector in 2005, which increased to 223,681 in 2014. The
manufacturing sector was pivotal in economic development as it played a key role in the

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backward and forward linkages to economic growth. However, in the latter years of the SNDP,
there was slow growth in the manufacturing sector due to some of the constraints to growth such
as the energy deficit and high production costs which contributed to a drop of output of between
60 and 70 percent.

5.0 Recommendations
Unexploited potential for increased industrialization and a wider exportbase. According to the
Zambia Institute for Policy Analysis and Research (ZIPAR)’s latest report dubbed  ‘The
expansion of regional supermarket chains: Implications for local suppliers in Zambia’, the spread
of supermarket chain stores, growing demand for processed foods and household products in the
region presents a market opportunity for finished high-value goods. The country’s favourable
climate and arable land gives Zambia a comparative advantage in the production of agricultural
commodities that serve as inputs for processed foods. However, the country’s liking for imports,
while offering more choice to consumers, denies Zambia the opportunity for increased
industrialization and associated knock-on effects for employment creation and economic
growth,” there portreads in part. ZIPAR says the rising domestic and regional demand for fast-
moving consumer goods also provides an opportunity to stimulate agro-processing and light
manufacturing which can contribute towards industrialization. However, Zambia needs to
acquire a competitive advantage in agro-processing and the manufacturing of household products
for the domestic and regional markets,” the report states.