Introduction
We were all very excited to hear that Zambia had attained significant socio-economic progress and achieved a middle-income status in 2011. That was a promising headline and still is, with a promising future. But with the current state of affairs, that statement is slowly losing grip in people’s hearts as they question what the future holds.
Economic hurricane: story of the day
Nowadays, it’s almost impossible to walk down the streets of any part of the country and not hear people complain about the economic hurricane, or economic hardships. I call it economic hurricane because it has destroyed a lot of hopes, dreams, and jobs of many Zambians, when they least expected. Of course, the economy was already declining, but with the invasion of Covid-19, things have gone quite bad as the economy has worsened.
The only question that remains on people’s lips is, what is the future for Zambia? With the political environment steering up with so much uncertainty, a lot of people are worried. But can we hope for a better Zambia, one with an improved economy and improved lives of its citizens? I will confidently say yes, the future is possible.
Zambia’s economic performance
According to the World Bank, Zambia’s economic performance in the recent past had stalled greatly. In the years 2000 to 2014, the annual real Gross Domestic Product (GDP) growth rate averaged 6.8%. The Gross Domestic Product (GDP) growth rate then slowed to 3.1% per annum between the years 2015 and 2019. These fluctuations were attributed mainly to the falling prices and declines in agricultural output and hydroelectric power generation due to insufficient rains and insufficient policy adjustment to these exogenous shocks.
Zambia’s economic performance
The intrusion of Covid-19 worsened many economies than the world could have ever anticipated, and Zambia was not an exception. The pandemic pushed the already weakening economy into contraction. According to the World Bank, economic activity through the third quarter of 2020 contracted by 1.7%as declines in industry and services outweighed growth in agriculture. Mining and services suffered from lower global demand and social distancing measures respectively, earlier in the year.
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However, relaxation of the lockdown measures in the second half and a global pick-up of copper prices helped activity to recover. Overall, the economy is estimated to have contracted by 1.2% in 2020, the first recession for Zambia since 1998. Inflation had remained in double digits throughout 2020, averaging 15.7% and reached a high of 22.2% in February 2021.
A glimpse into the future
Not all hope is lost. It is reported that a gradual recovery is expected, with GDP growth projected at 1.8% in 2021 and will average 2.8% over 2021 – 2023. Higher copper prices, the commissioning of a new hydropower station, and a return to normal rainfall patterns are expected to support growth in agriculture and electricity production, key contributors to Zambia’s industry and service sectors.
However, the World Bank Report still postulates that the impact of Covid-19 will continue to dampen activity, especially in tourism and retail and wholesale trade. The risks to this outlook are balanced. Timely achievement of macroeconomic stability will largely depend on progress on debt restructuring, fiscal consolidation efforts, and the availability of the Covid-19 vaccines. A prolonged fallout from Covid-19 could amplify fiscal and domestic liquidity challenges and lengthen the time for Zambia to embark on key macroeconomic and structural reforms. Rainfall variability remains a key structural risk to Zambia’s sustainable growth, affecting key sectors like agriculture and electricity, and highlights the need to incorporate climate-smart solutions in Zambia’s long-term growth strategy.
Zambia’s Trade situation
In terms of trade, Zambia hasn’t been doing very good. According to World Integrated Trade Solutions, Zambia had a total export of 9,052,164.77 in thousands of United States Dollars and total imports of 9,461,739.09 in thousands of US$ leading to a negative trade balance of -409,574.31 in thousands of US$. It is with the hope that with the African Free Trade Area, Zambia will have a positive trade balance. Zambia has a great potential to export a lot of commodities across Africa. It has an opportunity to grow the agricultural sector on a larger scale and sell to African countries, especially with this agreement in place.
African Free Trade Agreement
With the coming of the African Free Trade Agreement, it is projected that it will open many business opportunities for African member countries. Africa will be a giant market for Africans. This agreement will eliminate tariffs on intra-Africa trade, making it easier for businesses across Africa to trade within Africa and benefit from their own growing market. It will introduce regulatory measures such as sanitary standards and eliminate non-tariff barriers to trade.
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Furthermore, such opportunities will be of significance to Zambia. The International Growth Center Report asserted that there are about 1.02 million informal micro and small enterprises (MSMEs) in Zambia, along with about 30,000 formal MSMEs. The African Free Trade Agreement brings to these micro and small enterprises a great opportunity to expand and grow, especially those in agriculture, retail and wholesale trade. According to the World Bank Report, the trade agreement will lift about 30 million Africans out of extreme poverty and boost the incomes of nearly 68 million others who live on less than $5.50 a day; boost Africa’s income by $450 billion by 2035, a gain of 7%, while adding $76 billion to the income of the rest of the world; increase Africa’s exports by $560 billion, mostly in manufacturing; spur larger wage gains for women (10.5%) than for men (9.9%); and boost wages for both skilled and unskilled workers, 10.3% for unskilled workers, and 9.8% for skilled workers.
The role of MSMEs in Economic Development
It is good to understand that Micro Small and Medium Enterprises (MSMEs) play a very crucial and vital role in the economic development of Zambia, and Africa at large. MSMEs, as stated by Ibrahim Zeidy, the Director at COMESA Monetary Institute, are a vital engine in the African economy, since they drive growth, create employment especially among youth, and spearhead innovation. MSMEs provide a customer base to larger companies across the supply chain and supply vital goods and services to companies and households, helping to keep the wheels of the economy in motion, take for instance Zambia breweries which is a big company. They do not distribute their products on their own throughout the country, they rely on MSMEs to order from them then distribute to the wider market. Many of Zambia’s MSMEs have the potential to become tomorrow’s large corporations, this also goes to other African countries that the continent needs to continue on its path to growth and prosperity. Many studies reveal that MSMEs’ growth in Africa are constrained by lack of financial support, poor management, corruption, lack of training and experience, poor infrastructure, and insufficient profits, among others, and now are highly exposed to the negative impact of the Coronavirus disease (COVID-19).
Develop critical regional value chains and supply chains
Despite all these difficulties, Zambian, African MSMEs will benefit from greater access to new markets and the possible economic transformation that competition in these markets could promote. For the surveyed companies by COMESA Monetary Institute, the majority companies rely on international suppliers for raw materials essential for production, it appears that micro and small companies are not really exploiting the African market to get their supplies. Therefore, there is a clear opportunity with the ongoing establishment of the African Continental Free Trade Area (AfCFTA) to develop critical regional value chains and supply chains so that businesses, particularly MSMEs, can better take advantage of the African market to source their inputs.
Will MSMEs benefit from new markets?
The agreement, as postulated by World Bank, offers a number of benefits to African SMEs. SMEs are vital due to their importance to the continent’s economy, accounting for up to 80% of businesses and contributing up to 40% of national income. And benefits that might accrue to African, Zambian SMEs are: fostering specialization and boosting industrialization; increasing employment and investment opportunities, as well as technological development; allowing African-owned enterprises to enter new markets, expand their customer base and create new products and services, making investing in innovation viable; reducing the manufacturing gap and creating more avenues for SMEs to create more well-paid jobs, especially for young people; increasing investments that drive capital to domestic businesses; and easing the process of importing raw materials from other African countries and enabling SMEs to set up assembly firms in other African countries, creating cheaper means of production.
Conclusion
African economies may be lower than desired, but the African Free Trade Area brings immerse opportunities to create jobs and reduce poverty among African communities. This is also a great opportunity for Africa to come together, form a great alliance, and drive to their potential economies.
