On 29th October 2021, the Minister of Finance and National Planning, Dr. Situmbeko Musokotwane presented to the National Assembly a 2022 National Budget under the theme “Growth, Jobs and taking development closer to the people”. According to the Minister, the budget was aimed at providing incentives to support higher output and production of a wider range of products. He further declared, particularly for the manufacturing sector, that the Government would promote the growth of the manufacturing sector by facilitating trade and investment as well as enhancing the competitiveness of local products. Two questions then arise; will increasing output and production in the manufacturing sector drive the economy towards realising higher growth? And how can competitiveness of local products be enhanced?
It is true that increasing productivity and output of a wider range of locally made products will lead to an increase in growth of the sector. But sector growth is not only driven by an increase in the number of products and is certainly not enough to turn around the economic outlook. With poor performance of most of the macroeconomic indicators such as GDP, inflation, and the unemployment rate, the Government should pay special attention into other areas that will accelerate growth of the sector and thus the economy.
While in quarter one of 2021, the economy recovered from a recession brought about by combined effects of power disruptions and the COVID-19 pandemic, to record a positive high of 8.1% of GDP in quarter 2 of 2021. The annual inflation rate on the other hand continued to manoeuver above 20%, far above the target of attaining a single digit set by the Minister of Finance in the 2022 National budget. Additionally, the Zamstats 2020 Labour force report, showed that the youth unemployment rate stood at 19.9%. With the economic narratives depicting a huge burden that the Government has to overturn and turning around the economic woes cannot only be done by focusing on productivity and output growth.
If the Government is to achieve its aspirations of creating jobs especially among the youths and take development closer to the people, there is need to identify means and ways that will lead to faster growth. One way of achieving exponential growth is through increasing local value addition. Value addition can be defined as the extra value created over and above the original value of a product, service, companies, management, and other areas of business. Adding value to home grown products has the potential to increase the competitiveness of local products locally and help penetrate the export market, which will in turn lead to higher foreign exchange earnings through increased trade with other countries.
In the last two years, the value-added contribution of the manufacturing sector to GDP growth has been heavily affected by electricity disruptions that the country experienced, as well as the emergence of the deadly corona virus popularly known as COVID-19. Electricity disruptions and COVID-19 both led to a reduction in productivity thereby reducing the contribution of the sector to growth. The manufacturing sectors’ contribution to GDP in quarter 2 of 2020 stood at -0.1%. In 2021, the contributions of the sector to GDP rose to 6.3% after improved electricity provision and navigating the pandemic. However, the contribution to GDP remains far below the target of 30% set in vision 2030 for Zambia. Cardinal, therefore, is the identification of channels that will ensure contribution of the sector is enhanced.
Increasing investments in developing skills centered on value addition among local producers under the manufacturing sub-sectors will enable local manufacturers to produce high quality products that meet standards set by both local and international qualification agencies. Increased quality of local products will lead to increased chances of local products penetrating local chain stores and export markets. Further, increased market will trigger manufacturers to increase production which will in-turn lead to the need to hire more labour to meet the increased demand hence reducing unemployment in the country.
Similarly, increasing access to capital for manufacturers will enable them to invest in improving the quality of their products by adding value to them. Currently, high interest rates charged by commercial banks to access loans, discourage manufacturers to borrow for investment. In the past five years, commercial bank lending rates average stands at 26.27%. Therefore, creating opportunities that will allow manufacturers to access credit at a lower interest rate will lead to increased investment in the sector and an increase in output and quality of products. Likewise, this will increase revenue for the manufacturers and enhance their contribution to the growth of the sector and further to the growth of the economy.
Government should therefore, through the Ministry of Commerce Trade and Industry and the Ministry of Small and Medium Enterprises invest in research to understand the skills demanded for value addition and develop the of skills of local employees to help manufacturers improve the quality of products to meet the required international standards. The Ministry of Small and Medium Enterprises should also ensure to come up with strategies that will enhance the support to SMEs in the manufacturing sector by providing credit at lower interest rate.
