Presentation on Zambia's 2014 economic performance and selected indicators

PRESENTATION ON 2014 ECONOMIC PERFORMANCE AND SELECTED INDICATORS AFFECTING THE BUSINESS

ENVIRONMENT

Hon. Robert K. K. Sichinga

Minister of Commerce, Trade and Industry

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Content of Presentation

• Government’s Overall economic Thrust

• Summary of Achievements

• Performance of Selected Macro-Economic Indicators

• Sector Performance

• Ease of Doing Business

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GOVERNMENT’S OVERALL ECONOMIC THRUSTAs contained in the PF Manifesto:

1. Create a conducive legal and regulatory framework for economic activity2. Create increase employment through:

• Increased investment• Lower taxes• Increased participation of Zambian citizens in economic activity

through CEEC

4. Industrialisation and Job Creation5. Infra-structure Development as a prelude to industrial development6. Enhance education and health related facilities to build technical and specialist capacity to support national development7. Provision of energy to support the additional districts and all industrial clusters, particularly rural which will undertake production based on resource endowments

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Infra-structure Development: A Necessity and Absolute Pre-requisite to Economic Development

• Good quality paved road infra-structure to enable developers reach resourcelocations is critical as it facilitated increased economic activity as transportation‘to and from’ is facilitated, movement speeded up and costs lowered.

• Industrial infra-structure including industrial clusters, warehousing facilities,MFEZs, industrial parks or tax free zones aimed at improving/increasingproduction, are great facilitators fir investment for economic growth.

• Reliable power supply is critical to any serious production. Processing can onlybe carried out where there is reliable power and appropriate water supply.

• New storage dams, construction of power stations is an extremely high priorityto avoid blackouts, load shedding and other disruptions.

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Energy Infrastructure

• Kariba North Bank hydro power has been completed and brought on stream 360 megawatts of power

• Another 120 megawatts at the Itezhi-Tezhi Hydro Power Plant and 300 megawatts of thermal power are being developed in Sinazongwe by the private sector will come on stream this year.

• The 750 megawatts Kafue Gorge Lower Project, including the two 330kv transmission lines, on course and execution of this project is expected to accelerate in 2015.

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ICT INFRA-STRUCTURE (communications, broadcasting etc.)

• In today’s economies, being able to have access to instanttelephone, Wi-Fi, broadband internet, radio, television,computer technologies etc. are all critical to running asuccessful business for purposes of procurement,correspondence, communication and marketing.

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Education • Given the population profile of 68% below the age of 25 who constitute an estimated 9 million of the Zambian population, their major

requirement is education and capacity building.

• Target is to have 9,600 bed spaces at UNZA(4,600), CBU (3,000), Mulungushi University (1,000) and Evelyn Hone (1,000)

• The PF Government has responded to this challenge by significantly increasing budgetary allocations for building additional educationalinfra-structure at K2,555 million towards general education and K1,120 for higher education as shown in the table below.

• Further, Government has invested in constructing 35 new secondary schools and upgrading 81 basic schools into secondary schools to bringthe total to 116 new secondary schools.

• PF Government is also constructing 10 new Universities.

Table: Allocation to Construction of Educational Facilities

It will be evident from the above table that there has been a substantial increase in allocation which clearly demonstrates government’scommitment to respond to the need for education and to meet the demand for higher quality labour force

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YEAR 2012 2013 2014 2015 TOTAL

Allocation for construction of schools (K ’millions)

465.4 389.1 500.4 1 200 2 554.9

Allocation for Higher Learning Institutions (K ’millions)

134.5 72.0 263.0 650.0 1 119.5


Health

Further the PF Government is undertaking massive construction of 31 District Hospitals and 650 health posts.

Decentralisation

The increase in the number of provinces from 9 to 10 and districts from 73 to 103 is intended to bring government services closer to the people and will also provide the opportunity to build the requisite infra-structure i.e. offices, housing, water reticulation systems, power.

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Infra-structure Development:A Necessity and Absolute Pre-requisite to Economic Development

COST

• However, infra-structure development is extremely costly.

• To illustrate the point, the road infrastructure being constructedunder the Link Zambia-8000 will have an estimated total project costof US$31.42 billion.

• Similarly the urban and feeder roads, also need urgent attention. Forexample Lusaka’s L-400 project requires an investment of US$348million to construct 408KM of paved roads, of which 87KM has beencompleted

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Infra-structure Development:A Necessity and Absolute Pre-requisite to Economic Development

FUNDING

• It is not possible for massive capital expenditure the PF Government is undertaking to be sourced from annual budgets. Therefore, in order to expedite the work and partly fund this development, it became necessary for the Government to supplement funding by :

(a) borrowing e.g. two sovereign bonds, the first one for US$750 million and the second one fro US$1 billion;

(b) borrowing specific to the project e.g. Indian Import & Export Bank financed the 650 Health Posts;

(c) borrowing from multilateral lending institutions e.g. World Bank, IMF, FAO, IFAD; and

(d) donor-sponsored funding, usually through General Budget Support or Project Financing.

• Because it is not possible to raise all that money or even construct all roads at once, they have to be phased. Against Link Zambia-8000, so far, K10.7billion has been expended or committed.

• The Japanese Government is also separately funding the construction of ring roads in Lusaka.

• The USA Government is funding, through Millennium Challenge Corporation (MCC), a massive water supply and sanitation project in Lusaka worth US $345million.

• With such massive capital demands, this has resulted in unprecedented capital projects construction.

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• The PF Government is very mindful of the critical importance of infra-structure as a stimulant for economic growth which realised nationaldevelopment.

• As a consequence of the roads development projects, it is estimatedthat nearly twenty thousand ( 19,510) direct jobs have been created.

• Businesses need infra-structure and the incomes from procurementof various goods, services and labour, all benefit business

• Hence our Ministry fully supports the Government’s policy thrust forinfra-structure development. It is good for overall development andparticularly business.

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SUMMARY OF ACHIEVEMENTSKey Undertakings and Achievements

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INCREASE EMPLOYMENT THROUGH: ACHIEVEMENTS SO FAR

1.1 Increased Investment (a) Pledged Investment increased to a projected US$ 4.8 billion by the end of 2014

(b) Enhancing attracting and investor confidence through various initiatives such as:- Undertaking of investment missions to the United States, UK,

Singapore and other foreign countries- Successful hosting of ZIIF (2012-13), UNWTO (2013) and

Investment Conference Co-hosted Pangea (2014)

1.2 Lower Taxes Tax free threshold increased to K36,000 per annum or K3,000 per month

1.3 Citizens Economic Empowerment (a) Reorganized CEEC through change in leadership and board and management levels

(b) Increased budgetary allocations to the empowerment fund(c) Undertook national resource mapping for appropriate business

ventures throughout the country

SUMMARY OF ACHIEVEMENTSKey Undertakings and Achievements (2)

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INDUSTRIALISATION AND JOB CREATION ACHIEVEMENTS AND PROGRESS

Formulation and adoption of Industrialisation and Job Creation Strategy to create 1 million jobs.

(a) Increased funding to CEEC and DBZ(b) Promoting and development of MSMEs through CEEC(c) Since 2011, over 456, 539 new formal jobs have been

created.

INFRASTRUCTURE DEVELOPMENT

Development and upgrading of transportation infrastructure

(a) Increased local participation through the Link Zambia 8000, pave Zambia 2000 and the L400

(b) So far works are underway on works to cover 2,260km of roads valued at K10.7billion under Link Zambia Projects

(c) Completed roads include Kasama-Luwingu in Northern Province, Sesheke-Senenga in Western province and Mutanda-Chavuma in North-western province.

(d) 22 out of the 26 bridges on the Mongu-Kalabo stretch are under construction with seven bridges already completed.

(e) Upgrading of border infrastructure at Nakonde and Katima mulilo

PERFORMANCE OF SELECTED MACRO-ECONOMIC INDICATORS(a) GDP Annual Growth Rate

Average GDP Growth rate was 2.8% from 2011 to 2013.

Graph shows a rise to 7.6% at end of 2011, a slight drop to 6.6% in 2012 but an improved rate in 2013 at 7.3% with projected rated above 7% at end of 2014. This is indicative of good performance by any standard.

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6.3

7.6

6.6

7.37.1

0

1

2

3

4

5

6

7

8

2010 2011 2012 2013 2014

Per

cen

tage

GDP Annual Growth Rate

Performance of Selected Macro-Economic Indicators (2)

(b) Real Interest Rate

Real interest rate has steadily been declining since 2009 but rose to 9.3 percent in 2013 from 8.8 percent in December 2012. Reduced average lending rate is a positive macro-economic indicator in any growing economy.

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0

5

10

15

20

25

2009 2010 2011 2012 2013

Pe

rce

nta

ge

Average Lending Rate

PERFORMANCE OF SELECTED MACRO-ECONOMIC INDICATORS (3)

(c) Inflation Rate

Averaged 9.39 % from 2005 until 2014, reaching the highest at 19.20 % in April of 2005 and recording the lowest rate of 6 % in December of 2011. Inflation rate has since 2011 been maintained at single digit level ranging between 7.1% and 8.1%.

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0

1

2

3

4

5

6

7

8

9

2010 2011 2012 2013 2014

Inflation Rate (%)

SECTOR PERFORMANCE(a) Trade

Both Total Exports and Non Traditional Exports (NTEs) have been increasing in absolute terms since 2010. The estimated value of NTEs for the year 2014 is US$8,170.1.

Due to commodity price drops, metal exports growth rate was in 2012 was -6%.

Further, NTEs are increasing in importance in Zambia’s trade portfolio and now account for 33% of Zambia’s exports.

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2010 2011 2012 2013

Total NTEs (US$'M) 1,381.81 1,832.53 2,712.2 3,550.28

NTE Growth % 41.17 32.61 48.0 30.90%

Total Metal Exports US$' m 6,071.70 6,916.22 6,504.87 7,069.46

Metal Export Growth % 81.62 13.91 -5.95 8.68%

Total Exports Growth 72.46 17.38 7.25 13.18%

NTEs as % of Total Exports 18.54 20.95 30.67 33.43%

Total Exports US$' m 7,453.51 8,748.74 9,382.85 10,619.74

SECTOR PERFORMANCE (2)

(b) Manufacturing

• Positive manufacturing sector growth rate, has been recorded based on the index of industrial production.

• However the strategy is to increase both the production volumes and total value through value addition (Industrialisation Strategy)

• Growth largely driven by leather; paper products; chemicals; rubbers; non-metal mineral products, basic metal industries and the food, beverages and tobacco subsectors

• Growth is expected to improve as new industries are brought on board through the Industrialisation and Job Creation Strategy, by increased local value addition.

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SECTOR PERFORMANCE (5)(d) Empowerment FundFocus of fund realigned to support the creation of value chain clusters in products such as cotton, fish, dairy, rice, cassava.

The CEEC has seen an increase in the rate of recovery on disbursed loans from 33% that was recorded year ended 2011 to 43% recorded as at 31st December 2013 on the 2008 - 2011 portfolio. However, repayments on loans disbursed starting from 2013 stands at 81%.

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YEAR 2011 2012 2013 2014

Disbursements to projects (K)

48 599 934 7 055 382 4 206 484 49 348 787

Recoveries on pre 2011 portfolio

16 096 254 16 008 424 19 826 637 9 030 380

Recovery Rates on pre-2011 portfolio (as % of amount due)

33% 36% 39% 43%

Recovery Rate on loans disbursed from 2013

75% 81%

SECTOR PERFORMANCE (6)Empowerment Fund cont’d

• Total cumulative investment portfolio as at 31st December 2014 stood at K260, 904,037.

• Whereas a combined total of 1,445 projects were funded from 2008 to 2012, the Commission funded a total of 1,157 in 2013 and 2014.

• Ninety (90) percent of the funds disbursed in 2013 and 2014 went to rural areas to promote Rural Industrialization in line with MCTI’s Industrialization Strategy.

• The Commission strategically supported industrial sectors in 2013 and 2014 that are high drivers of economic transformation and growth.

• Access to Empowerment Funds by women, increased from 18% in 2011 to 36% in 2014.

• Access to Empowerment Funds by Youths, also increased from 6% in 2011 to 35% in 2014.

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SECTOR PERFORMANCE(e) Companies Registration

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Number of companies being registered is increasing due to various initiatives such as online name search, one stop shop and alsosince PACRA is now situated in every provincial headquarters.

14,867

17,754

16934

9,67810,143 10200

43 44 490

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2012 2013 2014

Business Registration 2012-2014

Business Names Local Companies Foreign Companies

SECTOR PERFORMANCE(f) Competition and Consumer Protection

• Cartels: Since 2011 the CCPC has carried out four dawn raids in the garages, banking,architectural and fertiliser sectors. In the fertiliser sector the intervention of theCommission has resulted in reduced fertiliser prices with savings of US$30 million.

• Mergers and Acquisitions: seen as a new way for foreign direct investment and thecommission facilitated the transactions in the Mining, ICT and Agriculture sectors. Zambiahas continued to receive FDI through mergers and acquisitions.

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Year Number of Mergers

approved

Notification fee Minimum Value of

transactions brought in

Zambia.

2011 19 K3,100,000 $ 95,000,000

2012 19 K2,500,000 $153,000,000

2013 24 K2,358,072 $ 511,000,000

2014 23 K4,120,999 $ 112,496,981

SECTOR PERFORMANCE(f) Legal Metrology

• From 2012 to 2014, ZWMA has procured measuring equipment and motor vehicles to facilitate inspections and verifications valued at K5 million.

• Since 2012, the Agency has been increasing its geographical coverage for verification services especially in rural areas. e.g. it is now able to verify all Food Reserve Agency (FRA) scales and all filling stations in all districts across the country.

• ZWMA now has offices in 5 Provinces

• Number of instruments verified per year has increased from 12,631 in the year 2011 to 24, 482 in 2014, an almost 100% increase.

• At a cost of K1.04million, the Agency is in the process of constructing modern laboratories to enhance its capacity for verification.

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EASE OF DOING BUSINESS

Zambia ranked number 83 in 2013, 11 places up from 94th position in 2012.

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70

75

80

85

90

95

100

2009 2010 2011 2012 2013

Doing business Ranking

EASE OF DOING BUSINESS (2)

Zambia ranked 4th in COMESA after Mauritius, Rwanda and Seychelles.

Ranked 5th In SADC after Mauritius, South Africa, Botswana and Seychelles.

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0

50

100

150

200

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2013 Ease of Doing Business Ranking, COMESA and SADC

COMESA

SADC

SUMMARY OF OTHER ACHIEVEMENTSKey Undertakings and Achievements

LEGAL AND REGULATORY FRAMEWORK ACHIEVEMENTS AND STATUS

1.1 Repeal and replacement of the Companies Act of 1994- To address weaknesses in the current law and align the law with modern

trends in corporate law- To facilitate the harmonisation of company law with other relevant legislation

governing investment and economic empowerment of citizens

Revised Companies Bill drafted and awaiting final review before cabinet circulation and approval processes

1.2 Revision of the Zambia Development Agency Act of 2006- to redefine the mandate and functions of the ZDA as well as address matters of harmonisation with other relevant legislation such as the Citizens Economic Empowerment Act and the Immigration Act

Review of legislation underway

1.3 Revision of the Citizens Economic Empowerment Act of 2006- to harmonise it with other existing legislation such as the Zambia Public

Procurement Act

Review of legislation underway

1.4 Enactment of the Business Regulatory Act- to create and efficient and effective business licensing system

Enacted as the Business Regulatory Act No. 3 of 2014 and awaiting full operationalisation

1.5 Review and formulation of Industrial and Trade Policy Zero Draft Industrial policy prepared and awaiting further consultation.Trade policy formulation earmarked for 2015.

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THANK YOU

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Presentation on Zambia's 2014 economic performance and selected indicators

Economy & Finance

Transcript of Presentation on Zambia's 2014 economic performance and selected indicators