The Seventh National Development Plan (7NDP) which comes to an end in 2021 has been the primary guiding document underpinning Zambia’s development agenda since 2017. Since we are inching towards the end of the plan, it is important that a critique is conducted using the evidence that is currently obtaining on the ground. The pillar of particular interest in the plan that is worth dissecting is “Economic Diversification and Job Creation”. It is clear that the framers of this national plan had good intentions but one wonders why there is a mismatch between what is obtaining on the ground and the intentions and/or policies espoused in the national development plan. Is “economic diversification and job creation” a farfetched dream or has the economy degenerated to the extent that it is incapable of creating, let’s say, a million decent jobs?
World-over, private sector institutions play a crucial role in steering the country towards economic prosperity, and it is for this reason that countries with strong democratic systems of governance have not only created conducive business environments but have also embraced the private sector as a key partner in development.
Why is there a mismatch between Government policy pronouncements and actions in Zambia? On the one hand, the government wants increased private sector participation while on the other hand, private institutions are being squeezed to the extent that they shut down or exit the market. Government consultations with the private sector prior to the development of the 7NDP highlighted the key issues constraining the development of the private sector. For example, the private sector proposed that there is “need to increase the liquidity of businesses through timely liquidation of government debt to local suppliers to enable them have operating capital”, and this suggestion was also “extended to the delayed value added tax (VAT) refunds which were hampering business operations”. However, this challenge has continued to be a thorn for the private sector, with the delays adversely affecting timely investment expansion efforts that have the potential to create employment opportunities.
Coherent and consistent policies are the main ingredients of increased private sector participation because they provide certainty for businesses and act as an incentive for increased investment. Regrettably, Zambia’s private sector is hounded by policy inconsistencies and threats of either closure or business mutilation. This menace heightens uncertainty in the private sector and makes Zambia unattractive to capital in addition to depriving the economy the lustre of being an attractive destination for private investment.
A strong viable private sector dominated by local private companies is what will guarantee a sustainable and diversified economy. There seems to be a consistent pattern of awarding government tenders to foreign private companies. For instance, most people are wondering why most tenders in the construction sector are awarded to Chinese contractors. It is an unquestionable fact that Zambia needs the much needed foreign direct investment but this should not come at the expense of local private companies. Awarding the majority of government tenders to foreign companies is detrimental to the stability of the financial sector as it makes it harder for the Bank of Zambia to stabilize the exchange rate owing to the fact that these foreign entities externalize their profits to their home countries in foreign denominated currencies.
To achieve meaningful economic development and economic diversification, the Government needs to come up with policies that support and prioritize local private companies. Local private companies cannot change colors overnight or relocate to other countries in the event of unforeseen business turmoil. Thus, policies that nurture local enterprise and anchor the development agenda around local private companies will in the long term yield economic diversification and create decent jobs. This will be the only sure way of sustaining a large revenue base.
However, policy pronouncements that seem to encourage the participation of local businesses in the economy are at variance with the evidence on the ground. There is ample evidence showing the purposive targeting and mutilation of private businesses that are allegedly perceived to be anti-government or owned by opposition political party members. Security wings have been unleashed on these companies, and government departments and institutions have been instructed to cut all business ties with certain private sector firms which eventually shut down. Such moves are counterproductive and undesirable since they instill fear and constrain the growth of the private sector and consequently detract government efforts aimed at promoting economic growth and job creation. A prime example is the closure of The Post Newspaper and Prime TV which directly increased the unemployment levels in the media fraternity. The lack of a deliberate policy to solve the current impasse involving the Copperbelt Energy Corporation has the potential to further shrink the number of local companies in the private sector and increase unemployment levels on the Copperbelt.
A diversified private sector-driven competitive economy generates new investment and employment opportunities at a fast rate. The government should never be the foremost employer in an economy as the case seems to be in Zambia. This role should be relegated to the private sector as one way of freeing up government resources that would otherwise have been spent on salaries and wages. Such a scenario would grant the government adequate fiscal space and allow the freed resources to be channeled towards capital projects with the potential to create employment. Take China, for example, a communist country that has allowed the private sector to thrive and bring about meaningful contribution towards economic development. It is reported that the private sector in China accounts for over 60% of GDP growth as well as over half of China’s fiscal revenue. Moreover, the private sector in China provides at least 80% of the jobs, with more that 90% of new jobs created by the private sector. It is evident from the foregoing that a thriving private sector is the solution to Zambia’s chronic fiscal deficits. The main reason underpinning increased poverty levels in Zambia is the low rate of employment creation in the private sector.
Zambia has one of the highest interest rates in the SADC region, and the cost of doing business in Zambia was also one of the key highlights that emerged from government consultations with the private sector. However, the government has done little to nothing during the course of the implementation of the 7NDP to reduce the cost of doing business and ease of access to finance. For Small and Medium Enterprises (SMEs), high interest rates act as a deterrent to their expansion efforts and perpetuate their small level status. Interest rates have hovered above 20% from the time the 7NDP was launched. If the government was serious and in a hurry for meaningful economic development and diversification, it would have implemented policies that reduce the cost of credit and doing business for the private sector.
The government needs to prioritize and support local firms that compete with foreign businesses. You don’t have to look far to find a local firm that is struggling financially or in a deplorable state. Take NATSAVE, an institution designed to promote local credit and savings, as a case in point. It shouldn’t be where it is currently. This institution had (and still has) the potential to reach remote rural areas to provide access to cheap credit. Unfortunately, the current “sorry” state of NATSAVE is a manifestation of years of government neglect and poor management. Reviving NATSAVE would be one avenue to actualize the pillars of the Seventh National Development Plan.
Zambia does not have a stable buoyant and flourishing private sector with the capacity to generate at the very least 50% of new job opportunities in order to significantly reduce poverty levels. As long as the country lacks a stable private sector dominated by local private firms, and as long as preference and government tenders continue to be awarded to foreign business entities (or political cadres) at the expense of local competent private companies, “economic diversification and job creation” will remain a farfetched dream. They say dreams come true but will the theme of the 7NDP of “accelerating development efforts towards the vision 2030 without leaving anyone behind” be realized? With the current state of affairs, your guess is as good as mine…
Maka Tounkara is a lecturer in Economics at the University of Zambia. Educated at Oxford, he researches climate change, fiscal and monetary policy, and structural transformation in low carbon settings.