At independence, the Zambian economy was mainly driven by the copper mining industry, which accounted for 95% of Zambia’s exports, half of the Governments revenue and 60% contribution to the total Gross Domestic Product (GDP), far larger than any other sector in the economy up to 1970. Soon after independence, the Zambian Government identified the need to implement radical changes to the structures inherited by the country, for purposes of development of other industries which led to most companies in the economy being nationalized by the Government.
With a mind to reduce the dependence on the copper mining industry, the Government embarked on an industrialization agenda of both import substitution and capacity building in the new industries for export. Import substitution was intended to promote self-sufficiency in local industrial inputs and raw materials for business use and final commodities for consumer satisfaction. Expectations were that industrial development would lead to increased Zambian exports into the region as long as local goods remained competitive in pricing and quality. Over the period of implementation, the manufacturing sector’s contribution to GDP rose from 10% in 1971 to a peak of 30% in 1992.
However, the sector’s contribution began to decline after the shift towards a privatized market economy. Inspired by the structural adjustment programmes, the Government liberalized trade and privatized its economy, with the intention of making the private sector the main engine to drive, restore and sustain economic growth, after a sustained decline from the late 1980s. The Government was to remain as a mere facilitator of a conducive business environment. Nevertheless, the manufacturing sector declined after 1992, declining from a contribution of over 30% to 10% in 1996, following the withdrawal of subsidies to parastatal companies by the Government in 1991.
Subsequently, after 1996, the manufacturing sector’s contribution to GDP continued to decline at a steady rate, averaging 7.4% from 2000 to 2016 according to UNCTAD. Owing to this downturn, the Zambian Government has been putting in place policy measures aimed at reviving the manufacturing sector to support its diversification and job creation agenda. Central to the agenda is “Vision 2030”, developed in 2006 to guide the country’s economic development by the year 2030.
As a priority sector, manufacturing according to the vision is envisaged to be “technologically based and export focused, dynamic and competitive with effective entities that add value to the local abundant natural resources by 2030”. The sector targets span a fully integrated rural agro-processing based and light manufacturing industry; increased share of general manufacturing contribution from the then 7.6% of GDP in 2006 to 36.12%; and increased share of manufactured merchandise exports to 71%. Targets are all to be achieved before or by the year 2030.
Despite aspirations of the manufacturing sector returning to its former glory of contributing over 30% to GDP by 2030, the sector only contributed 8.1% to GDP in 2019 improving from the 7.6% recorded in 2006, albeit at a slow rate. With only 10 years left before 2030, meeting the growth contribution set targets is under threat, especially with the outbreak of the coronavirus disease (COVID-19). Supply chains in the manufacturing sector have been affected due to closure of borders and changing consumption patterns, leading to most manufacturing sub-sectors recording negative growth in the first and second quarters of 2020. Moreover, growth in the sector has contracted to -2.2% in 2020.
Other than the COVID-19 outbreak, growth in the manufacturing sector has been constrained by other factors such as low capital outlays, high cost business environment, restrictive export policy, high taxes and supply side constraints. Notably, several measures have been implemented to address these challenges. For instance, on the policy front, the Ministry of Commerce, Trade and Industry (MCTI) launched a local content strategy in 2018 to promote industrial development through developing linkages in sectors of the economy and compelling Transnational Corporations to acquire 35% of their inputs from the domestic market.
To effectively position the manufacturing sector to meeting 2030 aspirations, there is need for improved interactions between the policy space – export, tax and macro policy, financiers and investment and local capacity. An important aspect of promoting these interactions to grow the manufacturing sector is a need to define the goals of transformation and drive the implementation of the transformation agenda and strategy through improved economic governance.
To secure the future of manufacturing, there is need for improved availability of cheap finances by enhancing the role of the Development Bank of Zambia (DBZ) in driving development, by providing cheaper finances to companies in the economy. In addition, to reduce the high cost of doing business, Government should among other taxes reduce Corporate Income Tax (CIT) from the current 35% to atleast 25%, as the current CIT is very high and threatens the growth of the manufacturing sector. Further, with the countries aspirations of being export oriented, it would be encouraged that the period of providing proof of export be increased from 3 months to 4 months under Value Added Tax (VAT) Rule 18, as it takes about 3 months for companies to acquire the documentations. Finally, skills are important, hence, there is need to for increased interactions between academia and industry to address the challenges associated with skills mismatch.
