ROBUST INDUSTRIAL, MONETARY POLICY NEEDED TO SPUR GROWTH AND JOBS
By NKURUMA CHAMA-KALALUKA
IN the 2018 budget whose expenditure is aligned to the Seventh National Development Plan (7NDP), government has clearly signaled its intentions to diversify the economy and create jobs.
However, transforming budget intentions into envisaged results requires a robust industrial policy underpinned by a monetary policy that stimulates economic growth.
To realise the vision of being a middle income nation, it is suggested that further liberalisation was required both in Zambia’s domestic economy and its external economic relations such as increasing foreign direct investment.
While acknowledging that Zambia’s economy was relatively stable, attributable to prudent policies and favorable external conditions. However, sustainable growth requires preponderance of domestic and external policy measures.
The idea of such a radical move would shift certain factors undermining the nation’s competiveness and growth.
For illustration, Zambia’s trade surplus rose by 700% between January and June 2017. Non-Traditional Exports (NTEs) earnings declined by 2.8%. Currency appreciation owing to copper price hikes might explain the poor NTEs performance.
Dominant export products can constrain NTEs growth since currency appreciation undermines export competitiveness unless countered by productivity gains.
Zambia’s high import dependence makes a strong Kwacha attractive. The Bank of Zambia (BOZ) has been assigned a 6-8% inflation target.
A singular inflation focus can undermine economic diversification by raising interest rates and appreciating the domestic currency.
This makes a case for Bank of Zambia (BOZ) to have a dual mandate - maintenance of price stability and growth. The growth mandate would give the central bank expand monetary policy to stimulate the economy.
Looking at the fact that commercial rates remained high at 26.6% despite the policy rate declining by 29%, with a statutory reserve ration reducing to 47%, fortifies the case for expanding BOZ’s mandate.
To reinforce, economic growth must generate jobs. This would only be possible when businesses could access affordable credit. Further monetary policy loosening might be required to reduce interest rates. Equity financing of businesses must be stimulated. The state can also invest in privately managed equity funds or establish them. It is after such structural transformation of the monetary policy loosening that the process of development would led to emergence of industries that would also enhance agricultural productivity. The critical steps needed to move forward is to look at practical ways in which the budget expenditure could be converted into industrial benefits. At the grass root, the development of farm blocks into enclaves of inclusive growth could mitigate high unemployment rates, especially in rural areas.
In his budget, Mutati said there are a number of initiatives, including the development of three farm block models in Muchinga, Copperbelt and Northern provinces, the facilitation of a US$100 million agricultural assembly plant and a US$50 million aquaculture enterprise development.
Bringing these developments to fruition would make a positive impact in mitigating against rural poverty.
In addition, unlocking the value of State-Owned Enterprises (SOEs) could play in facilitating growth and employment.
The establishment of the Industrial Development Corporation (IDC) is a positive step. Its portfolio must be rationalized to focus on strategic segments. It must not be restricted to passive equity stakes in strategic sectors. SOEs can play a significant role in penetrating certain economic segments that local investors are constrained to venture in because of prohibitive capital and skills investment.
The state entities are also well positioned to go into segments foreign companies were deterred because of unattractive short term financial returns.
Norway, China, United Arab Emirates, Russia, and Singapore exemplify how Zambia could use SOEs to drive growth and create jobs. Other examples are Japan that had the Ministry of International Trade and Industry and South Korea had the Economic Planning Board. Zambia also needs a well-endowed institution with clearly defined relations with other actors.
Articulating an industrial policy and configuring an appropriate implementing structure.
On broadening the tax base, there is need for a mine industry supply chain localisation strategy as this would spur non-mine economic activities, a huge step in diversification from copper dependence.
The attendant benefits for the strategy are growth in import substitution, skills development and market linkages.
Further, capitalising on Zambia’s land-linked status had potential to create more jobs and growth by positioning the nation as a regional transport hub.
Roads and airports construction were necessary, and could be enhanced by inter modal infrastructure alignment.
In unison with a robust industrial policy and strong macroeconomic fundamentals, Zambia could well exceed the projected economic growth.
Industrial success would led to demand of more raw material, skilled labour, electricity, water and developed infrastructure such as roads and airports.