By E. D. Wala Chabala, PhD
I quite liked the theme, unlocking economic potential, of the Budget Speech delivered by the Minister of Finance and National Planning, Hon Dr Situmbeko Musokotwane, to the National Assembly of Zambia on 29th September, 2023. It nicely set the framework for what to expect in following the delivery of the address. And, it also made a very good framework for analysing the contents of the budget speech.
Indeed, there is no doubting that Zambia has tremendous economic potential which needs to be unlocked. In terms of arable land, by some accounts, Zambia has 42 million hectares, of which only 1.5 million hectares (less than 4%) are cultivated every year. There are sources which claim that Zambia holds 40% of fresh water of the SADC region, but most of farming done in the country continues to depend on rains with the potential adverse impact of climate change. Zambia possesses one of the world’s highest-grade deposits of copper and is Africa’s second largest producer of the metal, and the world’s seventh. There are projections to almost quadruple production volumes to 3 million tons in the next 6 years. Zambia’s potential in manufacturing continues to hold tremendous opportunities, especially for adding value to most of the products that are traded in raw form. Zambia is also home to rich natural and biological diversity to provide a strong base for tourism, in addition to being blessed with the mighty Mosi-o-Tunya.
Zambia is known to possess a demographic dividend, which if harnessed could drive its transformation into an industrialised economy. With digital devices in the hands of the youth and them being adept at use of applications, Zambia’s demographic dividend could easily be harnessed to propel it into the 4th industrial revolution. Zambia also has significantly more hydro-power generation potential than it currently utilises.
Let us consider how economic potential in each of the above opportunities is proposed to be unlocked in the 2024 budget. Stating with farming, unlocking potential would have been addressing the issue of how to double, then quadruple the production of say maize in the country. The farmer input support programme (FISP) is nothing but a kind of social cash transfer in its current form. Testament to this would be in the fact that despite the erratic and delayed distribution of inputs at the beginning of the 2022/23 season, yet 3.2 million metric tonnes of maize are projected to be harvested. This budget missed an opportunity to put policy measures in place to get better utilisation of the more than $400 million being pushed into FISP, as has always been the case. The sort of detail and focus that has been put in the animal sub-sector is what was needed in the crop sub-sector as well.
Farm blocks are an old Zambian story, whose potential has remained untapped, primarily due to bureaucratic bottlenecks and inability to attract anchor tenants. Not sure whether the measures being proposed will address these challenges. While with regard to irrigation, the many dams which will be constructed may not see much utilisation without matching measures of incentives in irrigation equipment.
What is curious with mining is how not much attention is given to its impact, both adverse and favourable, on the economy. Take for instance the fact that the economy is projected to grow in 2023 (2.7%) at almost half the rate of growth in 2022 (5.2%), with the slow down attributed to just one sector. This demonstrates the vulnerability of the Zambian economy to the mining sector. And given that there is the desire to increase copper production to 3 million tons by 2030, a nominal increase of more than 360,000 per annum from the current production levels, this vulnerability is only bound to get worse. Yet nothing in the budget speech gave one the impression that measures are being put in place to mitigate this, let alone that the economy was bracing itself for consequences of the quantum increase in copper production.
It certainly did not sound like any compelling policy framework was being proposed for ensuring more value-addition is done in-country. And the complete lack of mention of investment or rehabilitation of the railway system was enough to underscore the lack of seriousness in the unlocking economic potential due to the increased copper production. The envisaged additional production of copper if all exported on the roads will put incredible strain on this infrastructure. It is indeed yet a more curious measure that import duty has been removed on rolling stock, but no attention given to the track on which the wagons or locomotives will need to move. So much for an export-led economy.
For manufacturing to be effective in unlocking economic potential, it should be tied to value-chains, whether locally or at the global level. The multiplicity of value-adding activities in the country would generate significant economic activities to absorb many youths into gainful employment. It is difficult to pick out such policy measures that would catapult manufacturing to higher levels. Multi-facility economic zones, while providing incentives for location of business activities, also introduce playing fields which are not level in the economy. A new company producing a drink in the MFEZ with the applicable incentives is able to land it on the market at a much lower cost than the already established players in old industrial zones. Policy measure need to be put in place to address such imbalances.
But, for manufacturing to be effective and have a significant impact on the economy, it should be linked to sources of raw materials, whether these are in form of mining products or agricultural produce. Cluster configurations would be far more effective than MFEZs so that incentives can be provided in ring-fenced catchment areas of production of raw materials and value-addition activities extending to warehousing, logistics and transportation. It is debatable whether the local content allowance is enough an incentive to drive the desired outcome. Also, not sure what the experience on the ground is with regard to tax concessions for businesses established in rural areas. However, curious why the measures applied to cotton could not have been applied to more value chains. The rural electrification authority’s activities can then be linked to such productive centres that are removed from the line of rail.
Many a young entrepreneur would like to venture into some value-adding enterprise, but are constrained by resources, such as access to affordable finance. It is hard to believe that Citizens’ Economic Empowerment Commission (CEEC), and other empowerment funds, are the solution to this. Not only are the funds inadequate to make meaningful impact, but their administration and management leave a lot to be desired. The expectation here was that the Minister and his team would have come up with better solutions than these that have been proven not to be effective over many years.
The unlocking of tourism potential would have to be seen beyond the K770 million allocated to the sector, but in tandem with the upgrading and rehabilitation of airport infrastructure around the country, including access roads. The question is whether there is a link between this infrastructure development and desired tourism growth. The key for increased tourism activity in the country would lie in effective marketing of the tourism potential. Not sure how much of the less than $40 million earmarked for the sector would be set aside for marketing, and if that will even be anywhere near enough to have the desired impact.
The other sector where the unlocking of economic potential does not seem to come though is in education. Commendable that so much resources are being applied for universal primary education coverage and hundreds of secondary schools are being proposed to be built. But then there is only a paltry sum going into TEVET institutions. So, what is meant to happen to all the learners post-secondary school? We keep missing the tremendous opportunity in the youth dividend of the country.
The TEVET institutions should be re-tooled for the digital economy, and for clean and green energy technologies. So, K70m for TEVET equipment really cannot even start to address what is needed to unlock the potential in the youth. Granted there are empowerment funds, including for the youth, but there is enough experience around to show that those are never effectively and impactfully applied.
On the social front, while the Honourable Minister proudly presented how the 2023 budget performance was coming in below target for the fiscal deficit, one cannot help but think that that is a lost opportunity here in terms of cushioning the high cost of living in the country. It is what most economies, including developed ones, would do for their people. While on paper the lower number for budget deficit is to be congratulated, this has only been achieved at the expense of cushioning the high prices of fuel and maize meal to consumers. The government would have been wiser to meet the fiscal deficit target, and at the same time provide some needed relief to the citizens.
In conclusion, while the Minister set out to demonstrate policy frameworks, resources, and incentives for unlocking economic potential for the country, it is being argued here that the demonstrated provision of the resources and incentives may not be aligned to what is required for unlocking the economic potential, and indeed that in some cases the same may be wholly inadequate.
Finally, even without going into the detail of what constitutes unlocking economic potential as done above, one cannot help but feel like one has heard this sort of budget before. Indeed, economies are notoriously path-dependant, incrementally only adding on to where they have been before. Therefore, this budget speech sounded very much like one of those that Hon Felix Mutati would have presented in the previous regime, with all the premises of a home-grown economic rescue package, condoms, and all.
The author is an Independent Economic Policy and Strategy Consultant and MBA Lecturer. He is a former Management Consultant at McKinsey and Company and a former Business Executive in a FTSE-100 Financial Services Company. He has also formerly been Chief Executive Officer of the Securuties and Exchange Commission of Zambia.
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