By JOSEPH SIMUMBA –
SINCE 2013, the Kwacha has lost more than 40 per cent of its value on the back of falling metal prices and other factors.
As it is well known, Zambia’s exports strongly depend on metals: copper and cobalt.
About three quarters of foreign earnings still accrue to metals, a feature that has ampli?ed the exposure of the country to global ?uctuations.
Zambia can achieve remarkable economic growth that can reduce poverty and create decent employment by industrialising.
Recent renewed interests towards industrialisation by the Government and SADC are laudable.
But accelerating industrialisation depends on competitive production and exporting of quality manufactured and agro processed products.
The World Bank estimates that the cost of production and trading are much higher in most SADC countries.
Costs are especially high in landlocked Zambia: for instance the cost of exporting a standard 20-foot container is twice that in South Africa, Malawi, Namibia and Kenya and a third higher than in Congo DR and Zimbabwe.
The global shifts in the relative costs of manufacturing pose further challenges given Zambia’s weak domestic production, rising energy shortages, high cost of credit, adverse currency fluctuation, skills mismatch, unstable taxes and low innovation.
A large number of potential producers and exporters fail to participate in high value supply chains and more than half of all exporters suffer ‘infant’ mortality as they fail to export beyond their first year.
This begs the question: what must Zambia and SADC do to boost industrialisation and improve their share of export trade?
There are several answers but four stand out. The ?rst re?ects the work of Nobel laureate Paul Krugman and others á la monopolistic competition.
The main idea is increasing returns to scale or competitive advantage. This relates to specialised expansion of industrial production for new product varieties, new systems and organisation structures and enlarged markets.
The practical wisdom offered by this work is that new products and enlarged markets naturally capture monopolistic ‘pro?ts’ that accrue to differentiated products and gains due to intellectual property
protection for new discoveries.
These gains accrue beyond those from traditional comparative advantage. History confers that the ‘great’ industrial revolutions in Europe, Russia, United States, and Japan in the nineteenth century were
reinforced by new manufacturing processes and the invention of ef?cient energy sources that enhanced product variety.
This reinforced a rapid rise in employment, output, capital and average incomes. Zambia and SADC require serious concerted efforts of Government(s), the private sector and cooperating partners to stimulate innovation and enlarge product markets.
However, markets in Zambia and SADC suffer ‘market failure’. Market prices often diverge sharply from private marginal costs due to three reasons at least:
(1)     There is uncertainty about new products that can be produced pro?tably and ways to produce them
(2)     Public inputs notably infrastructure, legislation, transport and accreditation tend to be inadequate, if not missing
(3)      There is a failure to sequence and coordinate private and public investments in a manner that supports product development and market enlargement. Earlier attempts to correct market failure relied on prohibitive tariffs and excessive subsidies.
These measures are, however, now forbidden under international treaties governing fair production and trading.
An alternative approach is to invest in Research and Development (R&D).
Admittedly, only very large ?rms can fund R&D activities under suitable legislative assurance and ?scal incentives. R&D amounts to investing under uncertainty.
Huge sums of money need to be invested in laboratories and personnel without any sure guarantee of future pro?ts.
Globally, R&D is a heavily subsidised industry and as it is predominated by universities and specialised research laboratories
that dominate patent ownership.
They earn large royalties paid by businesses that acquire rights to use their discoveries.
Most countries in SADC lack equivalent public-?nanced innovation foundations that can anchor original scienti?c discoveries and propagate value addition which has now become knowledge intense.
South Africa’s has invested in a public National Research Foundation currently valued at over US$200 million.
The US National Science Research Foundation received $7.3 billion in 2015 US Appropriations Act while the Science and Innovation Network in the UK received £5.8 billion from the national treasury in 2015 and it has already developed 8,500 new food and drink products under the “the
Newton Plan for Science and Innovation”.
There is still good scope for Zambia and much SADC to adequately invest in R&D.
First, Zambia and SADC need to af?rm funding targets. It is not unusual to ?nd three per cent of Gross Domestic Product committed towards funding R&D.
A competitive funding mechanism is required to accompany R&D disbursements.
Zambia can bene?t better R&D investments within the agriculture, food and beverages and wood and paper products sectors, for a start.
Infrastructure is the second issue for Zambia and SADC.
A better balance between ‘soft’ and ‘hard’ infrastructure is required.
The gains from trade facilitation continue to be limited by weak trade promotion.
The abolishment of administrative and border delays have occurred without accompanying support to abolish barriers that constrain ?rms to initiate exporting in the ?rst place.
Thirdly, ?nancial lending is concentrated in shorter term high interest yield products that are inappropriate for ?nancing the expansion of productive capacity.
Public initiatives that offer affordable long-term ?nance like the Development Bank of Zambia (DBZ) and the Citizens Economic Empowerment Commission (CEEC) are inundated by politics.
Zambia needs a competitive long-term capital market that is transparent, predictable and independent.
One niche is to strengthen and align the Industrial Development Corporation (IDC), DBZ and CEEC so that IDC fosters industrial capabilities towards new product and process development while DBZ and CEEC can deal with large corporate and SME ?nancing, respectively.
This can balance and coordinate investments at the downstream, upstream and horizontal levels. Lastly, Zambia and SADC require vertical specialization strategies.
High value production has evolved since the eighties and now involves a complex sequence where production occurs across several countries.
The iPhone and Samsung Galaxy that have evolved in testimony of the supremacy of new product development for industrial growth serve as classic examples.
Therefore, SADC countries require developing robust regional value chains that induce economies of scale and tangible bene?ts.
(This is an abridged version of an article which is carried in the latest Zambia Institute for Policy Analysis and Research (ZIPAR) Quarterly publication)