WORLD BANK URGES ZAMBIA AND OTHER RESOURCE-RICH COUNTRIES TO STEP UP VALUE ADDITION- WE HAVE ALREADY TAKEN IMPORTANT STEPS
By Alexander Nkosi
According to Zambia Daily Mail, World Bank Africa chief economist Albert Zeufack has urged Zambia and other natural resource-rich countries to seize opportunities arising from the Russia-Ukraine conflict by increasing value addition to raw materials before exporting so as to create jobs and increase incomes. He said Russia’s invasion of Ukraine has led to an increase international prices of commodities, particularly food staples, fertiliser, oil and gas.
How can Zambia increase value addition? By creating a conducive environment for the private sector to invest in value addition. We need to attract locals to invest in this as well as foreign firms to partner with locals in joint ventures. What major challenges is the private sector facing? Some of the major challenges include high interest rates and high cost of production.
1) High interest rates: How do we lower interest rates? Through reducing government domestic borrowing. How do we reduce government domestic borrowing? Through debt restructuring to release funds from debt service, thereby reducing pressure for borrowing.
2) High cost of production: One of the key factors driving the cost of production up is weak kwacha against the dollar. The cost of importing machinery and other inputs required to step up value addition is very high. Debt restructuring will reduce the amount we spend on servicing foreign debt (we pay in dollars).
This coupled with attracting capital inflow will strengthen kwacha and reduce the cost of machinery and other key inputs required to step up value addition.
In conclusion creating an enabling economic environment is key to promoting value addition. So far government has made progress towards securing the IMF deal key for destructuring with Western creditors, particularly the eurobonds which is complex due to the large numbers of investers involved. This coupled with restructuring of Chinese debt is key to creating an enabling environment that will promote value addition. It is also key to attracting joint ventures which will help boost capital and branding needed to penetrate international markets.
Is Zambia on track? Yes, however success in value addition will depend on how we utilise the breathing space we get from debts restructuring. Apart from addressing macroeconomic fundamentals, the President is also actively engaging the private sector as seen from the meetings held at state house. This dialogue is important.