ZAMBIA’S MANUFACTURING SECTOR AND THE AFRICAN CONTINENTAL FREE TRADE AREA
THE manufacturing sector has been pivotal in the realization of Zambia’s economic growth and development and it continues to play a significant role in the country’s industrialization agenda. The manufacturing sector’s value added as a percentage of Gross Domestic Product (GDP) has steadily grown from about 7.6% in 2010 to 8.1% of the GDP in 2018 and has remained stable over the period 2015-2019 with an average growth of about 7.9%.
However, the sector’s performance continues to be hampered by the high cost of doing business and an unstable macroeconomic environment. These challenges have been exacerbated by the COVID-19 pandemic, which resulted in the shrinking of the manufacturing sector by 4.6% in the second quarter of 2020. Recognising the important role that the sector plays in the Zambian economy, Government has therefore included specific measures in the Economic Recovery Plan (ERP) to revive growth in the sector and promote stability. One such measure in the ERP is export promotion.
Under export promotion in the ERP, one key action will be to “aggressively pursue export market opportunities through investment promotion missions” in the African Continental Free Trade Area (AfCFTA), which Zambia ratified on 5th February 2020. The AfCFTA is a flagship project of the African Union’s Agenda 2063, which is a blueprint for attaining inclusive and sustainable development across the continent over the next 50 years. The Agreement has been signed by member states of the African Union, bringing together 1.2 billion people with a combined GDP of more than US$3 trillion. This large market offers an opportunity for the country to develop and expand its manufacturing sector, which will result in increased job creation, foreign exchange, industrialization and economic growth.
While Zambia’s manufacturing sector is still in its developmental stage, it is important that necessary pre-conditions are put in place that will ensure the country reaps benefits from the AfCFTA market. Firstly, the Government is urged to focus its efforts on raising awareness about how the Agreement can benefit Zambian manufacturers as well as what risks come with it. The manufacturing sector needs to be prepared for the increase in competition that will arise once tariffs are removed and trade under the AfCFTA begins. This kind of support would ensure that Zambian manufacturers are not crowded out by firms from countries with larger economies such as South Africa and Nigeria. Support must especially be provided for small scale producers in order to avoid crowding out in a market run by the private sector. This support can take the form of enhanced technical, managerial and financial skills to meet industry standards. The Government may assist in investment of these attributes.
Secondly, Zambia should focus on building its manufacturing sector. Presently, the primary industry remains the most important one, with agriculture and mining making the most significant contributions to GDP. The implication of a small manufacturing sector for the AfCFTA is that there will be low trade in finished goods which will limit the scope for intra-regional trade. Given the size of Zambia’s agricultural sector, a focus on value addition such as agro-processing could kick start the emergence of a vibrant manufacturing sector. The planned establishment of various fruit processing plants (such as Kalene Hills Fruit Company Limited in North-Western Province and the Eastern Tropical Fruits Company in Eastern Province) will be vital in this regard as they will assist in promoting linkages between agriculture and manufacturing, and consequently promote agricultural exports.