In Conversation … with Kayula Siame, PS Ministry of Commerce, Trade and Industry

I recently met with Mrs Kayula Siame, Permanent Secretary in the Ministry of Commerce, Trade and Industry, to discuss industrial policy, promising sectors of the Zambian economy, and entrepreneurship. This is an abridged version of our conversation:

When you were appointed, you said that your policy priorities would be ‘industrialisation’ and ‘job creation’. How have you been implementing this vision since then?
There are several ways we as a ministry have been achieving this vision. We have a framework which provides the overall policy direction, and the sectors we’re looking at. One of the things we have done, and are still doing, is completing an industrial policy that we want to ensure can support the overall industrialisation strategy. What we had previously was one policy which covered three areas – Commercial, Trade, and Industry. We have since separated it into three areas which will stand alone. We believe this will give us more impetus as we move forward. We’ve also looked at other aspects of industrialisation that we need to zero into, in terms of sectors. One of the sectors we are looking at is the engineering sector, so through the Citizens’ Economic Empowerment Commission (CEEC), we have received some funds through the African Development Bank, so we are setting up what we’re calling industrial yards in the provinces of Zambia, and this will help the light engineering sector, for people to have a place where they can work tools, and also shared facilities for them to be able to undertake other related activities.

Is the Industrial Development Corporation (IDC) right at the centre of this industrialisation policy?
Industrial policy is driven by the Ministry of Commerce. We’re doing the industrial policy. The IDC is a government body that’s supposed to mainly look at the parastatals, and ensure that they can contribute to industrialisation by becoming more efficient, and more commercially viable. The IDC derives its policy from the industrial policy and from the Ministry of Commerce.

You mentioned the light engineering sector – what other sectors of the economy provide the greatest promise, in your view?
Well, I think there are about three. First, agro-processing. If you look at value-addition to the food we grow, the different crops, vegetables, fruits, and so on, we believe that agro-processing is very critical. If you look at the value chain, it provides quite a number of jobs from the farmers who are producing, and then the processors, and then the distributors, and of course, overall, into the market. Second, we have also identified the tourism sector, and third the pharmaceutical sector. These three sectors are mirroring what we’re doing at the SADC [Southern African Development Community] level where we also have a region-wide industrialisation strategy. And then, of course, there’s talk of mineral beneficiation. When we talk of diversifying the minerals sector, we often focus on copper. But there are other minerals that we can add value to, so those are the ones that we’re also concentrating on.

All this talk of diversification – why do you think we haven’t done all this up to now?
Well, that’s a good question we’ve been asking ourselves because we’ve talked of diversification since 1964 – more than 50 years! Well, I guess there are a number of factors. One could be that because we’re still very dependent on copper, moving away from that has been a slow process. It’s one that requires a lot of effort from the different arms of government, the different ministries, and the different sectors – they all need to think alike. I think our 7th National Development Plan, which takes a more integrated approach to development, will facilitate that because most of the time you have ministries doing their own thing and not really having a platform from which to work together.

What are some of the challenges you’ve experienced in trying to drive this change, and what are some of the challenges you anticipate?
Well, some of the challenges of course are on the policy and legal level, but those are easy to change. And then there are others which are a bit more difficult – for example, the ones dealing with skills development mainly because they are long term. And then you need to have the financing, which is the biggest challenge because to industrialise, you need to invest financially in the change, you need to pour money into new sectors, new industries, and so on and so forth. How to finance the industrialisation drive has been the biggest challenge because government doesn’t have sufficient resources to do that, so it’s meant that we’ve had to seek private sector buy-in. We’ve said ‘Look! As an economy, we’ve said it is the private sector who will drive it, so government is only creating the environment and the policies, but the actual implementation has to be done by the private sector.’ It is the private sector who will create the jobs, not government. So getting that full understanding with the private sector, so that they see that they have a very prominent role to play, has been a bit of a challenge because everyone just says, ‘No, what is government doing, what is government doing?’, but it has to be done in partnership.

Can you give me one or two examples where you’re trying to encourage the private sector to see that they have a part to play in this industrialisation process?
Well, if you look at the sub-sectors within the overall industrialisation strategy, government developed a strategy for the leather sector and said to the private sector, ‘Look, this is what we feel should be put in place, and this is how we should move forward together.’ So, government did its part now it’s up to the businesses in the leather industry to look and see how, within the overall strategy, they can move on from leather products and rawhide into creating shoes and other finished products. At times, some business people have said, ‘We want to increase shoe production, but we don’t have the funds to do it, so where do we get the money?’ And we have said ‘Right, where are the available funds? We have the Citizens’ Economic Empowerment Commission, but what we have there is not enough.’ Then they might say, ‘what about other finance institutions that can provide financing?’ Then some will say, ‘I have the shoes but I don’t know where to sell them; I don’t have a market,’ then we’ll say, ‘Fine, what we need to do is ensure that we have a market within COMESA [the Common Market for Eastern and Southern Africa]’, and now we’re talking about the East and Southern African Tripartite Free Trade Area – about 26 countries – where we will have a market, so we’re looking at that side of things so that once the shoes are done, if the production capacity is more than what’s required in Zambia, then they can export. And then at the same time, there are others who will say, ‘I have the shoes, but the quality is not to a very high standard,’ then that’s when we bring our other institutions like the Zambia Bureau of Standards that looks at quality, and so on, to help them move forward. Also, we bring in other institutions like the Leather Institute based in Ethiopia for technical assistance and technical support so they can look at the product design right through to the time it’s ready to sell.

We talk about SMEs as the drivers of future economic growth. But we can’t ignore the informal sector. What ideas do you have about how we formalise the informal sector?
Yes, we’ve had a discussion with UNDP [the United Nations Development Program] and set about examining who the people in the informal sector actually are, because very often we talk about them without knowing who they are. We agreed that we would set up a simplified registration system – as a pilot – to register them. We’ll be doing this in Livingstone and Lusaka to get to know them, to have a database, and then through that database, be able to say why are they in the informal sector, what they sell, why they sell what they sell, and then try and seek how to move towards being formalised. With PACRA [the Patents and Companies Registration Agency] we have also tried to simplify the registration process so that those who can do it on their own will automatically go there and register their businesses.

In your view, what three things do Zambians need to do to harness the commercial opportunities that exist in the country?
I think first of all we need to understand and agree that the opportunities are there in Zambia, and not concentrate on the foreigners who come and see those opportunities. So instead of spending our energy saying, ‘why are these people coming, they shouldn’t come’, the question should be, ‘where are the opportunities and how can we utilise them?’ For us as a Ministry of Commerce, when you talk of entrepreneurship and so on, we are the starting point for all that, so we believe that potential entrepreneurs and investors should come to us and find out where some of the opportunities are. We have the Zambia Development Agency (ZDA) that looks at various opportunities and is able to identify where those opportunities are. The ZDA also has a registration process with Small and Medium Enterprises for registration purposes, so to assist and provide some of the support that is required. So, I believe if we could do that, I think it would help. I think secondly also, we need to be more positive. I think we need a change of attitude. For me I think, it’s the biggest thing. We need to change our mindsets and our attitudes in terms of the way we approach things and start to believe in ourselves, so that we can start businesses and we ourselves can also make the money, and be our own producers and employers, because I think most of the time a lot of people don’t really believe in these things, so some of it is an attitude mindset that needs to be looked at. Also, people need to have the patience because most want to get into business today, make 100% profit the very next day, but it doesn’t happen because it takes time to grow your business.

Author:
Chipo Muwowo is a freelance journalist writing about economics and business investment in Southern Africa, focusing specifically on Zambia. 

 

Advertisements

13 Things I Learned About Small & Medium Enterprises in Zambia

By Chipo Muwowo

I spent last week in Zambia’s capital, Lusaka, carrying out research for a magazine piece I’m writing on the state of SME (Small and Medium Enterprises) funding in the country – the challenges, opportunities, and subtleties. I conducted a series of interviews, and enjoyed numerous off-the-cuff conversations. Here are 13 things I learned:

1. The opportunity for strong returns on investment in Zambia is huge. As one interviewee said: “Where aren’t there opportunities?”

2. The potential to have a strong social impact is also massive. Whatever industry you choose to enter, you’ll quickly spot ways in which business can uplift people’s lives.

3. If one is building a business for growth/scale, the opportunity to establish and/or drive a whole industry forward is significant.

4. The emerging tech industry needs to solve local problems and not get sucked into Silicon Valley’s “an app for everything” culture, which often tries to solve problems people aren’t really facing.

5. For venture capital (VC) and private equity (PE) investors, it’s not actually that easy to identify solid local businesses to invest in. 

6. Type of SME funding is just as important as the funding itself. No one-size-fits-all.

7. Mindsets need to change. Zambians need to start creating businesses that look beyond survival. The country needs homegrown businesses that last and have scale.

8. Upcoming businessmen and women are in desperate need of mentors. On the other hand, a lot of mentors need to be guided on how to mentor.

9. The country needs people of goodwill (Zambians and non-Zambians, but especially Zambians) to return with their global training and expertise.

10. If a company is seeking VC/PE investment, Zambia probably won’t be a big enough market. Such investors seek aggressive growth so these businesses will need to look out to regional markets like SADC and COMESA. However, such growth will take time. (see point 7)

11. Government policymaking needs to look beyond the election cycle and the country’s current over-reliance on multinationals. Neither are sustainable in the long-run. One interviewee told me that currently, 240 multinationals generate 80% of the country’s GDP. That’s staggering. Zambians don’t own their economy. 

12. SMEs (especially in the manufacturing sector) are not being given the space to breathe. They need similar benefits to multinationals (e.g. tax holidays, etc) to begin to grow.

13. The informal sector problem (“How do we formalise the informal sector and generate tax revenues from it?”) is unlikely to be resolved anytime soon because it’s primarily a political issue. Those in the informal sector are many and they are voters.

I had formal interviews with:
– Mafipe Chunga, Senior Manager, Deal Advisory, KPMG Zambia
– Lukonga Lindunda and Simunza Muyangana, Co-Directors, Bongo Hive (tech hub)
– Kayula Siame, Permanent Secretary, Ministry of Commerce Trade and Industry
– Tembwe Mutungu, Partner, Oakfield Holdings (majority shareholder in Yalelo Fisheries)
– Noel Nkoma, CEO and Founder, Betternow Finance Company 
– Monica Musonda, CEO and Founder, Java Foods

Author:
Chipo Muwowo is a freelance journalist writing about economics and business investment in Southern Africa, focusing specifically on Zambia.  

LUNGU-NOMICS: Zambia’s Post-Election Economy (by Hjoe Moono)

By Hjoe Moono, Secretary of the Economics Association of Zambia

History has been made once again in Zambia. Since Frederick Chiluba, President Elect H.E. Edgar Chagwa Lungu is the only president to be elected by a vote of over 50%. Marginal as 50.3% might seem, it speaks volumes, and indeed, congratulations are in order to the Head of State and his party, the ruling Patriotic Front. Continue reading “LUNGU-NOMICS: Zambia’s Post-Election Economy (by Hjoe Moono)”

Modernising Africa and its inequality blindspot

Photo source: Dinesh Krishnan
Photo source: Dinesh Krishnan

When spoken about in Western media particularly, Africa has often been presented as a continent ravaged by wars and blessed with vast natural resources yet barely able to feed its people and compete with the rest of the world economically. To present the African continent in this way is not entirely untrue though in the words of the celebrated Nigerian writer, Chimamanda Adichie, it presents only one side of the story – “a single story.” The Africa of today is still plagued by many of these problems yet a great deal of change is taking place; the so-called ‘African middle class’ is well and truly on the move.

By ‘middle class’, I refer to individuals and households that are seeing their incomes rise at a rate that provides them with sufficient disposable income to consume on what in economics we call ‘a higher indifference curve.’ They are able to spend their ‘income excess’ on more, higher value non-food items such as foreign holidays, land, property, company shares, other financial securities, and more. These households and individuals are generally well-educated, to university degree level at least. Several have been educated abroad at some point in their lives and the majority of them can be considered to be in professional employment, as accountants, lawyers, engineers, doctors, IT consultants, educationists, or business people.

According to McKinsey, the global management consulting firm

“many Africans are joining the ranks of the world’s consumers. In 2000, roughly 59 million households on the continent had $5,000 or more in income — above which they start spending roughly half of it on nonfood items. By 2014, the number of such households could reach 106 million.” – McKinsey Quarterly, June 2010 Report: What’s Driving Africa’s Growth?

And naturally there will be many other households and individuals earning way above this level. When we look at the education of their children, many are opting for private education over state education systems which in countries such as Zambia, are just about coping due to numerous solvable challenges.

In the minds of virtually all respected commentators, the economic progress being experienced by the continent’s middle class is all good news for the continent’s populace. They often cite the benefits of strong local demand for local products, a widening tax revenue base and job creation undertaken by entrepreneurs. It’s worth pointing out, however, that rising living standards and increased consumption often lead to the middle classes in many countries (not just developing ones) to consume more imported products over local ones.

Just over two decades ago, many African countries, including my own, did away with the socialist economic model that was synonymous with the one-party state. Many of our Independence leaders had held on to that model unswervingly since Independence in the 60s and 70s. By the late 80s and early 90s, it became clear that the model was just not working. Strikes and protests became the order of the day. But with a new generation of African leaders came widespread change and the arrival of democracy and economic liberalisation. Some of Zambia’s state-owned enterprises, most famously its mining giant ZCCM (Zambia Consolidated Copper Mines), moved from public to private hands. The mines were now going to be run not directly in the interests of the people of Zambia but primarily for profit for their new private shareholders.

As the 20th century drew to a close, it became more obvious to people that they were living in a new economic era. I speak about Zambia particularly here but about the continent more generally. Government policies encouraged investment, primarily foreign but increasingly domestic too. It became an era where you did not have to wait to be employed, but you could start your own business and be an employer. An era where you did not have to rent a house all your life, but you could actually buy or build one and pass it on to your children as part of their inheritance. It was now an era where you did not have to feel bad about becoming financially successful, you just went ahead and did it. The American Dream, or something akin to it, was well and truly alive…in Africa!

And this is what all those protests in the 1980s and 90s were about right? These are the sort of societies we have been desiring to build all along, right? When we speak of lifting people out of poverty, this is the point we want them to get to, surely?

Amidst talk of economic progress, there however exists a thin line in my mind between immense optimism for the continent and grave concern.

As an African, I have become fed up of seeing images of poverty-stricken Africans become the defining feature of my continent abroad. We Africans detest that and so anything that reflects our continent in a more positive light is welcome. News of consistent economic growth is often presented as one of those positives. But I raise the question: are we at grave risk of becoming increasingly-divided societies in the process? I am entirely in favour of economic progress, private sector-led economic progress that is, but economic progress that supports the few over the masses is nothing to write home about.

The progress being achieved at present is not as widespread as it should be. Consider urban township dwellers exposed to poor sanitation and at risk (year in and year out!) of waterborne diseases such as cholera? Or the children unable to learn at their rural government school because of teachers striking in protest of better working conditions? Or the father grossly underpaid by his employers on one of the country’s several mines because Labour Ministry officials fail to enforce minimum wage laws? If GDP (Gross Domestic Product) figures are impressive, do these other issues become unimportant?

When governments fail to honour their obligations to the masses, those with a stronger voice must speak out for those unable to speak for themselves. Governments need to be reminded of their responsibilities and must be held accountable. And if the middle class become too comfortable and too preoccupied with the things that occupy middle class people, then they will soon be rendered passive and ineffective; a community side-stepping economic injustices that exist right on their doorsteps. I believe that educated and professional Africans (the ‘middle class’) have a responsibility to hold their governments accountable on behalf of those with a weaker voice.

Seeing the suffering in your brother’s or sister’s eyes should lead you not to shut the windows of your Lexus as you drive passed, but it should instead push you to fight for their well-being too. And I don’t just mean charity (“Hey, here’s a T-shirt!”) though that certainly will be part of it. I mean fighting for the authorities to take seriously their responsibilities of creating fair opportunities for all. To take seriously their responsibilities towards not only those already on the ladder of economic progress, but especially towards those that are barely able to get a grip of the first rung.

Without this and more, we risk blindly entering an era plagued by gross inequalities and materialistic obsession, if we have not already. Economic aspirations must be met but economic injustices must also be fought.

This piece was originally written in 2010 under a different heading.

BRICS Development Bank: More about political posturing than anything?

Photo Source: Photo/Agencies
Photo Source: Photo/Agencies

“The BRICS development bank will take shape at the fifth BRICS summit to be held in the eastern port city of Durban, South Africa, next month. The governments of Brazil, Russia, India, China and South Africa will each make an initial capital injection of $10 billion to fund the bank, which will not only symbolize the unity of the world’s five most dynamic economies and showcase the rise of emerging nations; it will also become a global tool for “mobilizing resources for infrastructure and sustainable development projects in the BRICS and other emerging economies and developing countries”. – China Daily

Calling the BRICS economies “the world’s five most dynamic” is likely to be an overstatement of fact. Whatever “dynamic” means in this context. Nevertheless, the direction of travel around the creation of this development bank will be interesting to follow. It is intended that the bank will act as an alternative to Western lending institutions such as the World Bank. I wonder where its lending criteria will be positioned – somewhere in between the generous EXIM Bank of China and the conditionality-obsessed World Bank?

Some points to ponder:

(1) How much of this is simply about political posturing? Should citizens of the five countries (particularly South Africa) be sceptical? The implications of being involved in the project (and the grouping itself) are costly (initial capital injection of $10 billion) and therefore how these countries will benefit needs to be made more obvious to citizens.

I suppose putting your money where your mouth is is an essential part to being a member of the big boys’ club.

That said, is there really a case for a global emerging markets/developing world development bank? It’s well-known that these plans are borne out of frustration at the lack of reform in the Bretton Woods institutions but how different will the BRICS bank be to the World Bank in its actual lending?

(2) How sustainable is the whole project? An initial capital injection of $10 billion as already mentioned is no small amount. And that’s just the beginning. Given the notion that it will be different to the World Bank, will it find itself trying to be all things to all people (i.e. serving the interests of its founders while also acting as flag bearer for “sustainable development projects in the BRICS and other emerging economies and developing countries”)? Surely its founders will, in the longer term, succumb to self-interested policies leading to accusations of it acting just like the World Bank?

It all remains to be seen.

Look out for the BRICS Conference from 26-27th March 2013 in Durban, South Africa.

See our December 2012 event report, ‘The BRICS: A view from South Africa.’

The BRICS: A view from South Africa

hi-brics-leaders-02412206-8col
(Saurabh Das/Associated Press)

Last month the offices of a London law firm played host to a Royal African Society event entitled ‘The BRICS: A view from South Africa’. Dr Martyn Davies, CEO of Frontier Advisory, a South African research, strategy and investment advisory firm was invited to speak. His talk was wide-ranging and included an analysis of South Africa’s current position within the BRICS grouping, the challenges and the opportunities.

Davies stated early on that as demonstrated by South Africa’s joining in 2010, membership to the club had been largely down to geopolitics and not economics. The increasingly-influential BRICS grouping is made up of five of the world’s leading emerging economies – Brazil, Russia, India, China and South Africa. Even though BRICS members were united around a common vision of re-configuring the global economic landscape away from the erstwhile G8, what divided the BRICS nations was actually more powerful than what united them according to Davies. The intense economic competition that exists between them demonstrated this.

BRICS unity will come under greater scrutiny in coming months as the group seeks to strengthen co-operation on projects such as the BRICS Development Bank.

Compared to its BRICS partners, South Africa’s economy is the tiniest by some distance. Its domestic output stood at US$408.2bn according to 2011 World Bank figures. That is roughly a fifth of Russia’s and India’s economies, the next biggest, which stood at US$1.9tn. As expected, China’s economy led the pack at US$7.3tn while Brazil’s occupied second position at US$2.5tn. Despite its comparatively small economy, South Africa is an important member of the grouping as it is Africa’s largest economy and as some of its policymakers would like to believe, the cultural, trade and investment gateway to the continent – a view contested by observers such as Eliot Pence in his African Arguments article. And even if South Africa were to position itself as the “Gateway to Africa”, Davies argued that successive South African governments had not made deliberate efforts to making this more of a reality.

Of the five BRICS nations, South Africa is the one with “first-mover” advantage in Sub-Saharan Africa but it had been slow to actively formulate policies that encouraged and enabled greater penetration of African markets by its corporations, compared to China and Brazil. Davies stated that in 10 years no South African government minister had visited Angola, a mere 2-3 hour flight away from Pretoria and now one of the continent’s fastest growing economies. Contrast that with the number of high-ranking Chinese officials that have visited the country during that same period. He questioned how serious policymakers were about deepening their country’s engagement with the continent’s growth markets. An audience member raised the Nigeria question: what was the likelihood of Nigeria joining the group as Africa’s second-largest economy? Davies noted that because of the geopolitical dictates surrounding club membership, it was unlikely that Nigeria would be invited to join in the foreseeable future. South Africa, he said, would be more enthusiastic about an Indonesia or a Turkey joining, as is expected from next year forming the BRICSIT. Maybe this would allow South Africa to get its house in order first. As the group expands, it is likely to adopt a more pronounceable name: the E5 (Emerging 5) or E7.

Davies then went on to discuss China. Its economic achievements via state-led capitalism have led to a growing appetite for a similar model in some African countries and South Africa has not been excluded from this. State-led capitalism, he said, doesn’t necessarily involve the state through state-owned enterprises venturing into the market. It can mean the state being proactive at engaging business to create a good commercial environment as well as stepping in to provide the necessary backing where markets fail or just can’t deliver. Davies cautioned against unhelpful intervention by the state and instead called for greater commitment to a more investment-friendly environment.

While it remains to be seen what aspects of Chinese-style capitalism South Africa and other African countries adopt, Davies mentioned that wage levels continued to rise in China’s light manufacturing sector. Citing the Lewis Turning Point (where the costs of production begin to outstrip any gains in production), he mentioned that it was estimated that between 80-85 million jobs in light manufacturing will be lost in China over the next decade. This presented significant opportunities to the economies of Sub-Saharan Africa. South African trade unions, he said, needed to focus on being less ideological and more practical as the relatively high wage levels in South Africa (when compared to regional competitors) risked putting the country out of competition for outsourced jobs from China. Davies ended his talk with: “South Africa is world class, if only the government allows us to thrive.”

-End

Grow now, clean up later?

uncatd
African countries must avoid a ‘grow now, clean up later’ approach to development. Check out this conversation between Janvier Nkurunziza, Economist at the United Nations Conference on Trade and Development‘s Division on Africa,  and David Williams of ABN Digital as they discuss the importance of environmentally sustainable development.