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Zambia economic success: What lessons can we draw?

For more than three decades Zimbabwe boasted a higher per capita GDP than Zambia and attracted significantly more investment.

Ritesh Anand Column

Between 1970-2004, Zimbabwe’s per capita GDP was higher than Zambia and GDP growth was almost double.

Over the last two decades Zambia has been able to transform its economy by attracting foreign direct investment (FDI) and today its per capita GDP is more than twice that of Zimbabwe.

I have talked about the importance of FDI on numerous occasions. Many of you must wonder why it is so important in the growth and development of a country, especially Zimbabwe. There is no doubt that Zimbabwe is blessed with tremendous natural resources and has the potential to become one of the most successful countries in Africa. However, this potential cannot be unlocked without capital.
In the absence of domestic liquidity attracting FDI becomes critical.

In a dollarised economy, government does not have the ability to print money in order to create excess liquidity for investment. A few weeks ago, Finance minister Patrick Chinamasa announced the mid-term policy statement in which he highlighted the need to attract investment and reduce spending. So how does Zimbabwe attract investment? What needs to be done to create a conducive environment? How can Zimbabwe improve it’s rankings on the World Bank Easy of Doing Business Index and various other business indices? What have other successful African countries done to transform their economies and what lessons can be learnt?

Over the next few weeks, we will look at specific examples of countries that have transformed their economies and successfully attracted FDI. Countries like Zambia, Mozambique, Kenya and Tanzania. We start with our neighbour Zambia which, over the last decade, has attracted over US$10 billion in FDI and achieved over 6% GDP growth per annum.

Zambia has been a tremendous economic success story over the last decade and there are a number of lessons we can learn from its transformation.

It is interesting to note that in 1960, Zimbabwe’s per capita GDP (US$281) was marginally higher than Zambia (US$227). For more than three decades (1970s, 1980s and 1990s) Zimbabwe’s per capita GDP was higher than that of Zambia. This was reversed in 2004 when Zambia’s per capita GDP grew to US$557 while Zimbabwe’s declined to US$457. Since then Zambia’s per capita GDP has more than trebled to over US$1 800 while Zimbabwe’s per capita GDP has grown to just US$936.

Since 1965, GDP growth in Zimbabwe has averaged 2,7% per annum while Zambia has grown at 3,5% per annum. Between 2001 and 2010 Zimbabwe’s economy contracted by 4,3% per annum while Zambia’s grew at an annualised rate of 7,5%.

Zambia’s reform path and the programmes it has instituted in the last decade have all been oriented at fostering private sector development and improving its overall economic and business environment to attract FDI into the country.

In fact, the World Bank’s Second Investment Climate Assessment for Zambia (2009) confirms that Zambia’s business environment has improved dramatically since the first assessment done in 2004 with more positive business survey results. Previously, identified problems such as macro-economic instability, high taxes and corruption, among others, are being tackled and did not figure among the major or severe obstacles in the 2008 survey.

The enactment of the Zambia Development Authority Act in 2006, which stipulated the creation of the Zambia Development Authority, paved the way for a centralised and more rationalised management of investment facilitation and promotion functions. It also provided for a generous incentive scheme for investors, both general and sectoral and endorsed the development of multi-facility economic zones (MFEZ) where investments could flourish. The first MFEZ, Chambishi, located in the Copperbelt region was established by China Non-ferrous Metal Company.

With the continuation of the Private Sector Reform Development Programme, further streamlining of business licensing procedures as well as improvements in various other administrative processes related to business establishment are ongoing. Among its regional comparators, Zambia is already one of the countries that has the least number of procedures and days required for starting a business. It takes three days to set up a company in Zambia while it takes approximately 90 days in Zimbabwe.

Other supporting reforms currently being carried out or in the planning stages are in the areas of automated registration, permits and visa processing, registration of land and customs clearance. The Chirundu one-stop border post, the busiest border post shared by Zambia with Zimbabwe, has been completed. The labour laws are also currently under review. Clearly, investors are welcome and awaited to become a part of this promising economy in Southern Africa.

Govt policy priorities
Zambia’s National Vision 2030 articulates Zambia’s aspiration to become a prosperous middle-income country by the year 2030, with an economy which is competitive and outward-oriented and where hunger and poverty significantly reduced.

The Sixth National Development Plan (FNDP) 2011-2015, which aims to contribute to the realisation of this vision, identified economic infrastructure and human resources development as its strategic focus.

The importance of good governance, including transparency and accountability, were likewise highlighted in the fulfilment of the goals and objectives of the FNDP. As to critical areas for public spending to realise a broad-based growth, the government has identified spending related to (a) strengthening the relevant economic and social infrastructure, (b) enhancing agriculture and rural development, and (c) implementation of specific structural reforms across various sectors to improve the business and investment climate.

Guided by the above overall direction, the 2010–2012 Medium-Term Expenditure Framework 4 outlines the country’s development goals and priorities over the next three years (2010-2012) — improved living standards, enhanced public service delivery and provision of essential socio-economic infrastructure, which the government hopes to attain by repositioning the Zambian economy to take full advantage of the present rebound in the global economy and benefit from its strategic position as a land-linked transit hub. The repositioning will be achieved through:

Scaling up of efforts to promote economic diversification, with emphasis on the agriculture, tourism and manufacturing sectors;
Speedy implementation of measures to reduce the cost of doing business; and

Further promotion of a growth-enabling environment while simultaneously addressing the constraints to broad-based economic growth.

The Zambian government realises that such repositioning will entail raising productivity in smallholder agriculture, engaging in further processing of output from mines and farms to promote the manufacturing sector and promoting Zambia as a world-class tourism destination. All these efforts, it hopes, will lead to high-level growth rates of 6% per annum.

Next week we will look at the successful privatisation process in Zambia and compare FDI flows between the two countries, as well as look at some of the challenges Zambia faces today.

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