The world economy plunged into a crisis in 2020, mainly attributed to the Corona Virus Disease (COVID-19) pandemic that began towards the end of 2019. The Zambian economy was not spared. According to ZamStats, Zambia’s economic growth rate declined from 1.4% in 2019 to -2.8% in 2020 (taking the average of the first three quarters).
In an attempt to contain the spread of COVID-19, most countries around the world enforced measures which included the closure of borders, shutting down of factories temporarily and social distancing. These measures affected both import and export trade. For Zambia, in particular, this meant companies could not import the desired quantities of raw materials and intermediate goods used in the production of final goods and services.
The disruption in international trade due to COVID-19 resulted in a decline in the manufacturing sector’s growth performance, from 4.6% in the second quarter of 2019 to -4.6% in the same period of 2020. Therefore, the coronavirus effects not only exposed just how import dependent Zambia is but also revealed the need to industrialise the economy.
While industrialising a country can be complex and entail a mix of measures geared towards supporting value addition, promoting local content could be a key starting point. What is local content? Though there is no standard definition for local content, many scholars use ‘local content’ to mean the utilisation of domestic resources in economic activities. This includes the use of local labour, domestic raw materials and intermediate goods and services in the production of goods and services. Local content also entails, broadly, the consumption of locally produced goods and services.
Local content policies and measures have a long history dating back to the 1400s during the reign of King Henry VII of England. Henry VII succeeded in creating a vibrant textiles industry in England and industrialised the country using a combination of local content measures.
Later, the USA’s Secretary of the Treasury, Alexander Hamilton, the man on the US$10 bill, presented the ‘Report on the Subject of Manufactures’ to the US Congress on December 5, 1791. In this report, Alexander advocated for measures similar to those implemented by Henry VII to support the growth of the US manufacturing sector. The fact that America is industrialised is a subject that begs no debate.
More recently, Norway managed to transform its economy through local content polices in its Oil and Gas industries. Today, Norway enjoys a GDP per capita of USD 70, 000 and has set up a Wealth Fund to a tune of USD 1 trillion. Other countries that have used local content policies to industrialise include South Korea, Japan and China.
Given the outstanding performance of local content policies to spur manufacturing in the now developed countries, there is renewed debate on the relevance of local content policies in Africa’s quest for industrialisation. Zambia has not been left behind in this quest for industrialisation.
In 2018, the Ministry of Commerce, Trade and Industry (MCTI) launched the Local Content Strategy for Zambia. In the same year, Zambia put in a place a deliberate campaign to promote the utilisation of locally produced goods and services officially called the Proudly Zambian Campaign. Both the Strategy and Campaign have the same objective of promoting local content utilisation in Zambia.
For the purposes of the Strategy and the Campaign, local content entails consumption of at least 35% of raw materials, local resources (including labour) in the provision of goods and services. This is meant to strengthen domestic linkages in the economy and ultimately reduce import dependence.
Buying finished local products has a job creation effect via increasing demand for domestic produce. As a response to increased demand for domestic produce, industries will seek to produce more and, in the process, employ more people.
Further, increased domestic sales by local producers will enable them to generate more revenue which could be channeled towards Research and Development (R&D) activities to stir innovation. This assertion is supported by a 2010 research paper by Alex Coad and Rekha Rao on US manufacturing firms which showed that growth in product sales positively influenced expenditure on R&D.
Innovation is cardinal for export growth. Bruno Cassiman and Ester Martínez-Ros researched on Spanish firms and found that the probability of a non-exporting manufacturing firm becoming an exporter after product innovation increased by 22%. High export growth, via local content measures geared towards supporting manufacturing sectors, is vital for export-led industrialisation.
Additionally, the above effects of buying locally produced goods and services will translate into increased government revenue through increased corporate tax revenues. This assertion is in tandem with the argument by the 2013 World Bank publication led by Silvana Tordo, that increased industry output due to local content increases government revenue via taxes which can be spent on pursuing development objects.
Overall, local content policies have a long history of delivering structural transformation and development outcomes. Zambia can use a combination of local content measures ranging from legal to more voluntary ones such as ‘buy local’ campaigns to achieve industrialisation. The illustrations provided in this article clearly demonstrate that local content measures can be instrumental in fostering structural transformation in Zambia. Thus, individuals and or institutions in Zambia should vitally begin to think local first.
The author is the Proudly Zambian Campaign Manager at ZAM.
