2023 National Budget and the Manufacturing Sector
Zambia, just like any other country around the world, stands amidst high hopes following the impacts of the economic uncertainty created by the Russia-Ukraine war, the partial lockdowns in China related to COVID-19, and tighter financial conditions in advanced economies.
Further, Zambia’s Gross Domestic Product (GDP) is expected to contract to 3% in 2022 from 4.6% in 2021 as a result of lower agriculture output due to late onset on rain, droughts and flash floods in some parts of the country. Interestingly, the 2023 National Budget was presented soon after the Government secured a US$1.3 billion Extended Credit Facility from the International Monetary Fund (IMF).
The budget sets out measures to guide the policy environment to cement existing economic policy which, if successful is likely to put the ailing economy back on the right path of development.
Notably, the budget pronouncements mainly skewed towards increased social spending and stimulating private sector development in the country. Coupled with high political will and various policy necessary for improved productivity such as the reduction in the cost of licenses from K9,000 to K4,500, waivers on duty, introduction of a 2% local content allowance on mangos, pineapple and cassava among others, have been critical for the growth of the sector.
The 2023 National Budget indicates the tabling of the Zambia Development Agency (ZDA) and the Investment, Trade and Business Development (ITBD) bills to parliament, a measure that is critical to shaping the future of manufacturing in Zambia.
Likewise, the Budget seeks to further enhance an enabling environment for the private sector to grow and reduce the cost of doing business by revising the basis on which Envi
ronmental Impact Assessment fees are charged from the value of investment to a graduated pollution based classification charge.
In addition, the Budget places a double allocation toK743.6 million towards rural electrification in the year 2023. The measures are critical for motivating investment in rural areas, which is critical for the transformation of livelihoods in rural areas.
However, the 30-day fuel pricing cycle remains a major challenge affecting planning and investment by many manufacturing companies especially
the Small-Medium Enterprises (SMEs). Henceforth, to effectively improve the business environment, Government should at least implement quarterly fuel price reviews.
Further, the Zambian Government intends to promote cheaper exports by investing in road infrastructure, operationalization of Border Management and Trade Facilitation Act (BMTF), upgrading of border infrastructure, promotion of the full utilization of the electronic single window, introduction of electronic cargo tracking and is currently having discussions to revamp the rail sector. Remarkably, the proposed increase in investment in road infrastructure will focus on rehabilitating economic roads such as Lusaka-Ndola, Chingola-Solwezi and Chingola-Kasumbalesa roads in addition to the on-going discussion to enhance rail infrastructure. This is critical for enhancing the efficient transportation of goods and services in the economy and abroad. Notably, Zambia’s strategic geographical position provides an opportunity to take advantage of the region for exports. In addition, the emergence of the Africa Continental Free Trade Area provides an opportunity to actualize the measure. On the other hand, Government has increased surtax from 5% to 20% on wall tiles, as well as an introduction of a 5% surtax on PVC pipes. Additionally, Government extended a 2% local content allowance to tomato for income tax purposes to encourage value addition to tomato. Notably, the local content allowance will motivate the development of domestic linkages and in the long run, will support the development of local productive industries.
Furthermore, Government has taken a deliberate policy to develop capacity for the production of raw materials.
Government proposes to restructure the Farmer Input Support Programme (FISP) into a Comprehensive Agriculture Support Programme aimed at developing well facilitated farm blocks by providing of extension services, improved market access, financing to farmers and enhancing irrigation systems.
Similarly, Government intends to formalize Small Scale and Artisanal mining which is critical to supplying important mineral resources such as manganese, cobalt and others that are in many cases traded illicitly.
In summation, the 2023 National Budget provides a number of measures that are critical for the growth of the manufacturing sector.
However, the budget does not include some important subsectors such as textiles, leather and other important subsectors.
Hence, it is recommended the 2% local content allowance be extended to other important sectors such as leather. Further, beyond the various measures put in place, it is recommended that Government supports the local content initiative by providing a budgetary allocation towards initiatives such as the Proudly Zambian Campaign which seeks to promote the consumption of locally produced goods in the economy.