KELLY NJOMBO, NANCY MWAPE, Lusaka
FOSTERING a strong and competitive manufacturing industry is key to the promotion of value addition and industrialisation.
Government has identified the manufacturing industry as one of the critical sectors with the potential to drive a resilient stable economy through job creation and industrialisation.
Although the manufacturing industry has in the recent past witnessed slightly improvement, the rate at which the sector is growing is not sufficient enough to contribute to economic development.
According to the Central Statistical Office, in February this year, Zambia recorded an increase in the non-traditional exports (NTEs) by K116 million attributed to a rise in the exports of non-agricultural products.
NTEs increased by 8.1 percent from about K1.4 billion in January to almost K1.6 billion in February.
Major exports commodities were sulphuric acid, which accounted for 12.6 percent, bullion, semi manufactured forms at 6.5 percent and other mineral substances at 5.4 percent.
While the country has achieved marginal economic diversification over the years, the growth of high-end manufacturing sector remains subdued.
To this, Zambia Association of Manufacturers (ZAM) highlights that the industry had an average growth rate of three percent, and contributed about eight percent to the gross domestic product (GDP) over the last 10 years.
This is a far cry from the projected 20 percent contribution by the year 2030 as espoused in the country’s national vision.
But what could be the hindrance to achieving the Vision 2030?
ZAM president Rosetta Chabala feels the industry is faced with competitiveness challenges affecting the growth of manufacturing such as high interest rates in spite of low inflation and monetary policy rate.
Mrs Chabala said the high-level of public debt is crowding out the private sectors access to affordable financing.
As at the end of August 2017, public debt that includes both domestic and external debt stood at US$12.45 billion representing 47 percent of GDP.
Loans are expensive especially for small and medium-scale enterprises (SMEs) averaging between 22 percent and 23 percent.
“Access to affordable capital and finance is one of the most elaborated business impediments globally.
“It is without contradiction that businesses without the much needed capital to grow cannot be competitive within national and regional markets,” Ms Chabala said.
Similarly, the Bank of Zambia argues that lending rates are too high to support productive sectors of the economy, which is constraining credit growth and contributing to the current high non-performing loans.
Average nominal lending rates for commercial banks declined to 24.6 percent in December 2017 from 29.2 percent in December the previous year.
Manufacturers also note the delays in value added tax (VAT) refunds are affecting accessing to working capital for reinvestment or plant expansion.
Exporters also have issues with the duty drawback scheme that is necessary and vital to the process of diversifying the economy away from its dependence on copper exports.
VAT Rule 18 enables exporters to receive reimbursements of VAT paid on certain purchases while the duty drawback scheme is a refund of duty paid on imports that go into production of exports products.
These duties include customers and exercise duties on imports, as well as local exercise duty.
ZAM trustee Sajeev Nair says delays in payments of refunds of VAT have a negative impact on productivity, competitiveness and growth accruing over number of years.
Despite the initial submission from industry that saw the VAT Rule 18 amended in 2015 to reduce the severe impact it had on working capital, ZAM notes that there still exist cumbersome administrative procedures that delay manufacturers access to timely refunds.
The development has had negative implications on prospects for employment creation, increased industrial intensity and growth of business.
In reference to the duty drawback scheme, Mr Nair stresses the importance of the incentive for exporters as being necessary and vital to the process of diversifying the economy away from its dependence on copper exports, particularly the increased export of NTEs and value added products.
“The removal or suspension of incentive without adequate consultation and the joint development of appropriate mechanisms to support export growth is catastrophic to export oriented firms,” he said.
To support industrial competitiveness and create a more conducive business environment for operation, Government re-emphasised its commitment to enhance regulatory framework.
Minister of Finance Margaret Mwanakatwe points out improved access to finance, appropriate tax reforms and enhanced trade integration as all being necessary pre-requisites for industry competitiveness and are essential for the nation to attain the transformative private sector led growth.
Indeed, this is what Government is aspiring for and efforts are beginning to bear fruit as evidenced by the country’s improved ease of business ranking and economic stability which has continued to attract foreign direct investment.
To support business regulatory environment and increase growth of NTEs, Government in 2015, amended and realigned the VAT Rule 18 following wide consultations with exporters.
The amendment came about when non-payment of withheld refunds on exported goods and services was having adverse impact on the operations of exporting companies.
Besides the duty drawback, there are many export promotions facilities that Zambia has put in place that includes multi-facility economic zones and manufacturing under bond to boost manufacturing sector.
Currently, the country does not have many manufacturers under bond.
Government, through the Ministry of Commerce, Trade and Industry, is building a strong manufacturing and industrial base.
This is key to strong export-oriented economy and export promotion tools essential in ensuring efficient and timely administration of VAT refunds and duty drawback scheme is important for the growth of the manufacturing sector that has remained subdued as observed by Minister of Commerce, Trade and Industry Christopher Yaluma.
Likewise, Government through the Zambia Development Agency is fostering economic growth and development by promoting among other things trade and investment as well as business competitiveness through an efficient, effective and well-coordinated private sector led development strategy.
Other measures that Government has taken is to stimulate consumption of local products and contribute to sustained broad-based economic growth is to partner with the ZAM to operationalise the Proudly Zambian Campaign (PZC) programme.
The campaign will also help address entrenched industry, trade barriers that have hindered the growth and development of the domestic economy.
Mr Yaluma said it is important that Zambians appreciate locally-produced products to create wealth, employment and ultimately reduce poverty.
The campaign aims at addressing the negative consumer perceptions towards locally-produced goods and services. It is also meant to promote economic diversification through inclusive growth strategies to achieve Zambia’s industrialisation agenda and wealth creation.
It is hoped that efforts by Government to foster a strong and competitive manufacturing industry will promote value addition and industrialisation and address challenges faced by the manufacturing industry.
Efforts to expand industrial base and increased value addition through the design of appropriate tax policy reform measures, and other developmental frameworks will create a more favourable investment climate and foster industry competiveness.