Zambia targets even higher growth

Any country looking to attract foreign direct investment (FDI) has to ensure it can offer investors an environment conducive to doing business.

This means offering infrastructure that will allow companies to move goods quickly and cost-effectively across the country. It also requires a legislative environment that doesn’t thwart companies with overly complicated licences and protects their rights and intellectual property.

The World Bank produces a comprehensive survey every year looking at countries’ regulatory environments and assesses factors aimed at assisting companies to make investment decisions. The report also looks at other areas affecting businesses, such as crime, corruption, access to finance, skills and infrastructure.

In all, the World Bank assesses the stability of a country and helps quantify risk. In the 2010 World Bank “Ease of Doing Business Report” Zambia moved from 100 to 90 out of the 183 countries surveyed. The improvement now ranks Zambia at number six in Africa, behind surprise performer Rwanda, Namibia, Botswana, South Africa and top performer Mauritius.

The Zambian government responded quickly to the 2010 report, saying it would be aiming for the number 50 spot in the 2011 report. Buleti Nsemukila, the permanent secretary of commerce, trade and industry, said that improvements were the result of the government’s policy to improve the business environment to create wealth and employment.

He also referenced the private sector development reform programme implemented by his ministry. Unfortunately Zambia’s crossborder trade was not as high as its overall ranking and it is listed at only number 30 out of 46 African countries. It is something that will require urgent attention if it is to attract foreign investment.

The Brenthurst Foundation released a discussion paper, “Mobilising Zambia ” Strategy Report on Accelerated Economic Growth”, earlier this year. The report, written by analysts after a tour of the country, called for two key improvements if the country wanted to grow its economy — policy consistency and infrastructural development. On the first, the authors of the report suggested that Zambia has yet to fully embrace free-market thinking at all policy-making levels and by the voting public.

“Mobilisation of the nation around a liberal development model is critical if the economy is to be placed on a new trajectory. Until the majority of Zambians are firmly convinced that such a model is a matter of self-interest, policy will continue to flip-flop, investment potential will remain unfulfilled and the danger of regression will remain real,” the analysts said. The report is by no means only negative and the writers are clear that Zambia has made strides in the past decade.

The country now has a single-digit inflation rate and, between 2000 and 2008, has increased FDI tenfold and grown total exports fourfold. The country has also registered positive growth, averaging a healthy 5.5% from 2003 to 2008. In fact, Zambia has weathered the economic downturn better than many of its neighbours with an expected growth rate of 7% for 2010.

Despite these positive indicators, the report points to some serious challenges. There appears to be a disjunction between macro- and microeconomic policies, with the latter still showing signs of “centralist thinking”. Infrastructure remains a key challenge for the landlocked country, making it less attractive than its neighbours for companies looking to set up shop.

“As it stands, Zambia’s infrastructure is inferior and much of its natural domestic and international potential remains theoretical. Sustained commitment to major infrastructural projects, driven by imaginative collaborations with private and regional partners, will be essential if this stasis is to be broken,” the researchers said. Research done by the World Bank showed that a 10% increase in broadband penetration accounted for a 1.38% increase in per capita GDP growth in developing economies. This argument for countries, and especially developing countries, to focus urgently on their telecommunication infrastructure is compelling. But it does require complex policy amendments to achieve it.

According to the International Telecommunication Union, Zambia had 700 000 internet users as at June 2009, connecting just 5.9% of the population to the world wide web. Its broadband internet subscribers numbered just 5 700. Mobile technology remains a logical solution for a country that suffers a low fixed-line penetration such as Zambia, which is something that has not escaped the notice of international mobile network operators.

The country’s telecommunications market is dominated by Zain, which has a market share of more than 70%. Zain was acquired by Indian juggernaut Bharti Airtel in June, adding significant clout to the company. The fastest subscriber growth, however, is being seen by the runner-up, South Africa’s MTN. Telecoms companies, and mobile network operators in particular, often form the vanguard of foreign investments.

Companies in South Africa, for example, monitor which regions the mobile operators enter, wait a few years, and then follow suit. MTN has been particularly aggressive in its African expansion and can offer valuable lessons to companies looking to invest in the continent. Zambia’s lack of stable infrastructure has been felt even by the mobile
companies, and MTN is finding the lack of rural connection particularly challenging.

Johnny Aucamp, general manager of strategic relations and business development Africa at MTN Business, said infrastructure is a key challenge with limited or no connection with the more remote areas of the country. Most of the backbone fibreoptic infrastructure is concentrated in the main commercial areas that lie along the railway line running from Livingstone in the south of Zambia, through Lusaka in the central region to the Copperbelt.

Aucamp says this leaves large areas in the north, east and western parts of the country dependent primarily on a microwave network for connectivity. But the costs of this are prohibitive, which means that the internet can only be delivered economically to these areas by other means, such as satellite. Looking at the broader information and communications technology (ICT) environment, Aucamp believes legislative issues are stalling real connection to the average user and therefore hindering economic growth.

“There are some key challenges, particularly when discussing the ICT sector, which, in our opinion, hinder the ability to drive the reality of the connected world to Zambians. For example, if we consider that taxation rates on ICT equipment are high, then this increases the overall cost of computer equipment to levels that are out of reach to the average consumer,” he says.

Customs duty for computer equipment such as PCs and servers is 5%, and the duty payable for networking equipment such as routers is 15% whereas satellite equipment is 25%. The government has addressed a number of regulatory issues that were seen to be hindering development. This, coupled with the government’s strong focus on the provision of internet access through the ministry of education to some of the more remote areas, has allowed MTN to deliver services to schools in parts of the Eastern Province.

“The Zambian market provides many opportunities for local and foreign investment with a vibrant business arena ready for extended growth. “With the renewed drive of copper mining and solid market prices for the commodity, there is an overall optimistic view of the continued growth of the economy in the mid to long term,” Aucamp says.

Despite the obvious challenges ahead for Zambia, if it continues on its path of decentralisation and market liberalisation, its ambition of moving ever upwards in the World Bank’s lists may become a reality.

[Mail & Guardian Online]