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.
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.
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)”→
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 is worth pointing out however that rising living standards and increased consumption often lead to the middle classes in many countries (not just developing countries) consuming more imported products and not local products necessarily.
Many African countries, including my own, did away with the socialist economic model that was synonymous with the one-party state 20-25 years ago. Many of our Independence leaders had held on to that model unswervingly since Independence in the 1960s and 70s. By the late 1980s and early 1990s, 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, 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 know 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 door steps. 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 do not mean just charity (“Hey, here’s a T-shirt!”) though that certainly will be a 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.
“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.’
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.”
Akaliza has proven herself to be an inspiring young woman and a leader of now. In 2010, she launched her multimedia business, Shaking Sun, which is based in Kigali Rwanda. It offers a wide variety of services including website development, graphic design, video editing and animation.
A Multimedia Technology & Design graduate from the University of Kent in Canterbury England, she is one of countless other young Africans stepping out and taking the initiative to use their gifts and talents as entrepreneurs. With admirable creative flair, Akaliza personifies her company’s “Thinking Outside The Box” slogan.
Here, we find out more about her, the journey so far and her hopes for the future.
The early years
Born in Uganda in 1986 to Rwandese parents, Akaliza had quite an unusual childhood in that her and her family moved to a new country regularly because of her father’s jobs. The varied cross-cultural experiences she has had as a result have undoubtedly come to shape her exceptionally creative and unconventional mind. She has lived in 9 countries spanning 5 continents.
From quite early on, Akaliza showed a passion for art and technology. She loved painting, sketching and computers even before she was taught about computers at school. She would play around on the one her parents owned trying out new and different things. She describes this fascination:
“Back when you started it up you got a black screen and you had to type in very specific commands to access any program. I loved it – I used to try out different commands to see what would happen.”
Fast-forward some years and this fascination with the creative arts and technology led her to study Multimedia Technology and Design at university. But at what point did this love for art and technology transform into a desire to start her own business? She tells me,
“Like most graduates, I wanted to get hired into an established company. My dream was to get a position as a computer animator at Pixar. When I didn’t get a positive response from them, I decided that one day I would start my own successful animation company. I had done the research and saw that the equipment and software I would need was quite expensive, so I made it a long-term goal. During a holiday in Uganda, a few months after my graduation, I started to hear about all the opportunities in Rwanda and how there was a lot of support for youth, women and IT professionals.”
Shaking Sun was officially born after Akaliza had spent 3 years working in a multimedia consultancy role for various government institutions. The first of these short contracts was offered to her after a week-long trip to Kigali advertising her services to various businesses and organisations.
The demand for web and general technological work is testament to the growing desire of businesses and IT entrepreneurs across the continent, not just in Rwanda, to be efficiently connected with a global audience and to express their talents more widely. Akaliza says the market for IT products and services in Rwanda is very much young and hungry. Through the Private Sector Federation, she has been able to meet like-minded entrepreneurs. She has been able to share and listen to ideas which she has found inspiring and encouraging. Akaliza also praises the government’s commitment to encouraging upcoming entrepreneurs, particularly within her sector, as well as its zero-tolerance stance to corruption.
Under the leadership of President Paul Kagame, the country has been heralded as one of Africa’s gems, a trend-setter on the continent in the areas of economic management and support for entrepreneurs. According to Professor Mthuli Ncube, Chief Economist and Vice President at the African Development Bank (AfDB),
“Rwanda is among the top performers growth-wise (expected to hit 7.7% this year) because it’s a well-run economy and with very focused macroeconomic policies. [It] is doing all the right things that I think will sustain growth this year and going forward.”
Similar to many other entrepreneurs, Akaliza chose to save her own money to fund and establish her business for its first year. But what differentiates Shaking Sun in the market? Akaliza points to her unique approach to prices:
“Most of my competitors give quotes after meeting the client. I have a clear price list which I send to all my potential clients. I don’t want anyone to feel like they got a higher quote based on what I assume they can afford. Some people say that this means my competitors can undercut me. However, the majority of our clients choose us because we have been recommended to them by a previous client or because they have seen our work, not because of our prices.”
Through the contacts she has made over the last few years, she has grown her client base to include government institutions and a range of businesses, particularly start-ups.
But what about the challenges? Akaliza says one of her biggest challenges so far has been understanding the tax system. She says,
“Recently, I found out that I had miscalculated some of my taxes and paid more than was necessary this year. I will get refunded but that won’t be until 2013. However, I would advise anyone starting up a business to educate themselves about taxes. Mistakes like this can be very expensive!”
Akaliza values the opportunities she was given to work whilst at university. This can be seen by her desire to give other young people the chance to use and develop their skills and gain experience. When putting her team together, she organised a 2 week internship for 9 students of varying backgrounds. In the end, she employed the top 3 interns as Web Developers. Two of them have since graduated from university but one is still studying. The fifth member of her team was an accounting student when she was hired but has since graduated and now works as the Office Manager.
Speaking about the social impact of IT on the lives of ordinary Rwandese, Akaliza tells of her continual amazement at the big impact small businesses can have on communities:
“I met a university student who started a business recently with her fellow students – one of the first projects they worked on was an app to allow anyone with a mobile phone (not just smart phones) to make a booking at the local hospital. She hasn’t even finished school and already she’s doing something that could impact the entire city. Stories like that are not uncommon here. I can’t help but be excited about our nation and our continent’s future if it is producing entrepreneurs like this.”
Akaliza is hopeful that Shaking Sun will go global one day. She also still holds to the dream of being part of an African animation industry, producing films and cartoons specifically targeting children across the continent.
Akaliza ends with some advice for budding entrepreneurs,
“Expect to mess things up – big time and on a regular basis – that is perfectly normal so don’t beat yourself up. See it as a learning opportunity. I don’t know how many times I’ve said, “Wow – I won’t do that again!” So don’t worry if you screw up – most of the time, we’ve all been there, and we survived.”
It’s been fantastic and inspiring to hear about Akaliza and her work. We wish her and the team at Shaking Sun the very best.