THE importance of the manufacturing sector in realising economic growth in any country cannot be overemphasised.
The manufacturing sector is said to facilitate economic growth rate as well as determine the economic strength of any given country.
According to the 2024 National Budget, Zambia’s manufacturing sector has continued to record steady progress, as evidenced by the 4.7 per cent economic growth rate recorded in 2022.
The Government wants the Multi-Facility Economic Zones (MFEZ) to drive the manufacturing sector growth.
However, Finance and National Planning Minister Situmbeko Musokotwane says although the current tax incentives in the Multi- Facility Economic Zones (MFEZ) are acceptable, the zones still suffer from other various inadequacies which reduce their attractiveness.
Therefore, to address these challenges the Government has proposed in the 2024 National Budget various tax and non-tax incentives that will take effect by the end of first quarter of 2024 with the aim of making the manufacturing sector more attractive.
These incentives include harmonising and reducing the land rates levied by the local authorities on the companies operating on industrial yards as well as MFEZ.
“There has been the mistaken belief that councils can earn a lot of money by overcharging on rates. In reality, they have failed to earn the rates because investors look for cheaper alternative locations,” Dr Musokotwane says.
Furthermore, it is proposed in the 2024 budget that the Employment Code Act, 2019 be revised because it imposes onerous financial obligations and conditions on employers.
Dr Musokotwane says these provisions will be reviewed generally especially inside the MFEZs as the aim is to drastically reduce the burden they impose on employers.
He further says that a pay policy to workers based on agreed principles of more pay for higher productivity will be allowed.
The Government also proposes that in the MFEZs, an enterprise can automatically be granted a quota for expatriate employees.
Dr Musokotwane says the immigration and work permit requirements have over the years been onerous.
He says local entrepreneurs are responding to the incentives that the Government are providing in the MFEZs.
He says out of 30 companies in the construction phase, 23 are local. Similarly, out of 22 companies in the operational phase, seven are local.
For instance, the Lusaka South MFEZ has a total of 52 investors with a total investment commitment of US $864.5 million.
He says of these, 22 companies are currently operating with a total investment of US $541.4 million and 12,558 jobs have been created.
Further, 30 companies are in the construction phase with a total investment, so far, of US $323.1 million and are expected to generate an additional 7,274 jobs.
The incentives the Government offers in the manufacturing sector are expected to curtail the inadequacies companies in the MFEZs suffer and make them more attractive for investment while growing the sector and the country’s economic growth.
The industry experts are optimistic that the proposed incentives for the industrial yards and MFEZs are adequate enough to attract more investments which would in turn grow the sector and contribute to economic growth.
Zambia Association of Manufacturers (ZAM) president Ashu Sagar says the association is pleased with the Government’s continued promotion of MFEZs in the country as a means for industrialisation.
Mr Sagar says notable among the incentives proposed for the economic zones is securing work permits for expatriates which have been a challenge in some cases.
He says, therefore, the introduction of an expatriate to local job creation ratio to harmonise the issuance of work permits and address administrative challenges faced by businesses in the economic zones is welcome.
Mr Sagar says companies shun investing in rural areas due to higher operational costs and limited market access as a result of poor transport infrastructure and limited incomes relevant for the company’s sales.
He says this has led most manufacturing companies in the country to be situated along the line of rail, denying people in the rural areas the much needed jobs and development.
Mr Sagar says the rural income tax relief mitigates these costs and allows rural area investors to participate favourably in production and trade.
The ZAM president says this measure will enhance the policy of taking employment to the people in rural areas.
He says ZAM commends the Government for the continued commitment to support the development of the Zambian domestic economy.
Mr Sagar says the association has acknowledged the Government’s efforts to unlock Zambia’s economic potential by addressing the constraints of economic growth in manufacturing among other key economic sectors.
The ZAM president says the Government through the Ministry of Finance has taken cognizance of the importance of the manufacturing sector to the development of the Zambian economy.
He says while the manufacturing sector grew at 4.7 per cent in 2022 and only contributed 9 per cent to Gross Domestic Product (GDP), it fell short of the 36.1 per cent target contribution to GDP by the year 2030.
He has since welcomed the Government’s desire to enhance growth of the sector by exploring measures aimed at positioning the sector’s competitiveness in the region.
Mr Sagar has further applauded the Government for extending the income tax relief rate, at 15 per cent to all manufacturing firms to spur further investments in manufacturing and position the sector for growth both domestically and regionally.
Zambia Chamber of Commerce and Industry (ZACCI) president Anthony Kabaghe says the promotion of value addition on food and beverages, wood and wood products, leather and leather products proposed in the budget is commendable.
Mr Kabaghe says the move on metallic and nonmetallic minerals, textiles and pharmaceutical products was great.
However, Mr Kabaghe has encouraged the government to fully implement the Proudly Zambian Campaign in order to stimulate demand and offer a ready market for local value added products.
The Zambia Jiangxi Economic Cooperation Zone developers of the Chibombo MFEZ have also welcomed the positive proposals in 2024 National Budget which they say are aimed at promoting investment in the country.
Manager business department Bob Fu says the management at the MFEZ is pleased with the proposals particularly on land rates, the employment code as well as the immigration and work permits.
He says the proposal to harmonise and reduce land rates that are levied by the local authority was a step in the right direction in attracting more investment in the country.
“The move is commendable because the high rates levied by the council have turned away many potential investors,” he says.
Zambia Development Agency (ZDA) director general Albert Halwampa calls on the domestic investors to take advantage of these incentives and actively participate in the country’s economic activities.
Mr Halwampa says the incentives the Government has put in place will make the manufacturing sector attractive to investments which will in turn improve the country’s export portfolio and improve foreign exchange earnings.
He further assures that the agency will help facilitate joint ventures and forge partnerships between local investors and foreign investors to improve the access to finance challenge faced by most Zambians.
“It is our mandate to promote money value chains from foreign markets as well as establishing access to capital for domestic investors,” says Mr Halwampa.