Zda Spotlight - June 2009

Zda Spotlight Issue 4

Zambia Development Agency

June 30 2009

Inside this issue:

Zambia’s Business Ranking Improves

300 Local Exhibitors to Attend Trade Fair

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Biodiesel Plant in the Offing

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Germany Business Delegation Seeks Investment

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Global Financial Crisis Affects Local Economy

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Finland Supports EPA Negotiations

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ZDA Approves K5.4 Bn SME Investment

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Global Slump is Set to Continue

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Points of Interest • “A number of initiatives are being implemented in order to diversify the economy and ensure that the private sector is provided with a conducive environment in which it can operate.” • “It is gratifying and encouraging having such committed companies even when economies are on their knees. It shows that people have realised the need to meet their clients and advertise their merchandise regardless of the prevailing economic conditions.” • Protecting intellectual rights assures creators of patented products that their investments will be protected, and are encouraged to invest more.

Quote “Education is the investment our generation makes in the future.” Mitt Romney

eign direct investment, borrowing from nonaffiliates (loans and trade credits) and portfolio investment. The survey also showed that the major factors that determined investors’ initial decision to invest in Zambia were among other things, the environment and natural resources endowment factors, which ranked highest followed by the domestic political scenario.

ZDA DG and Hon. Mutati during the signing of MoU with MAN Ferrostaal for Biodiesel Plant opening in Zambia (story page 2) Zambia has been ranked 3rd in COMESA out of 18 countries surveyed, 5th in the SADC region and 7 out of 46 Sub-Saharan countries showing that the country’s Doing Business Ranking has been improving under the period of study.

Capital Flows and Investor Perceptions (PCF-IP) Report, dubbed Zambia’s Doing Business Ranking,, which was launched on June 4 2009 for Zambia. And the survey indicated that foreign private capital flows to Zambia in 2007 rose to US$1,932.8 million from the US$176.3 million recorded in 2001. The 2007 inflows were largely in form of for-

This is according to the Bank of Zambia, Central Statistical Office and Zambia Development Agency Phase II Private

Speaking at the launch of the of survey at Southern Sun Hotel, Bank of Zambia Governor, Caleb Fundanga said history had taught Zambia that high volatility in private capital flows if not properly monitored and managed could induce financial and macroeconomic instability in the domestic economy. “Evidence from South and East Asia indicates that capital flows engendered a financial crisis in that region in 1997 and 1998,” Dr. Fundanga said. “In light (continued on page 2)

ZDA Approves US$171.7m Investment Twenty-one applications for investment licence were approved last month with planned investment of more than US$ 171.7 million. This planned investment is expected to create 751 job new job opportunities in various sectors of the economy.

the manufacturing, tourism, service, education, mining, real estates, and construction, health as well as transport sectors. The energy sector attracted the largest planned investment of about US$ 82.1 million while the mining sector attracted US$50.0 million of the approved investment licenses.

The planned investment is in

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Other sectors are manufacturing, education, construction, service and transport, with a total value of US$39.6 million of intended investment. This indicates that Zambia has remained an attractive investment destination despite the global financial crisis, due to government’s sound investment

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300 Local Exhibitors to Attend the Trade Fair The number of confirmed local exhibitors at this year’s Zambia International Trade Fair (ZITF) has reached 250 with fourteen countries from within Africa and abroad. Zambia International Trade Fair General manager, James Mwenya said more than 300 local exhibitors were expected to participate at the trade fair and about 90 foreign companies from 14 countries that included Japan, Indonesia and Ghana who were all making their first attendance. Other participating countries include South Africa, the Democratic Republic of Congo, India, Egypt, Pakistan, Kenya, Iran, Zimbabwe, Nigeria, Tanzania and The Peoples Republic of China. And Mr. Mwenya said the expected 300 local exhibitors and 14 countries that confirmed participation in this year’s trade show presented a significant increase as compared to last year’s 255 local exhibitors and 30 foreign companies from 12 countries that took part in the event. He said he was happy with the commitment that participating countries had shown amid the global financial crisis that has slowed most economies. “It is gratifying and encouraging having such committed companies even when economies are on their knees. It shows that people have realised the need to meet their clients and advertise their merchandise regardless of the prevailing economic conditions,” Mr. Mwenya said. This year’s trade fair will be held under the theme “Investment in Infrastructure for Competitiveness,” which Mr. Mwenya says responds well to Zambia’s Multi-Facility Economic Zone (MFEZ) strategy meant to increase the country’s competitiveness in the region and beyond as an investment destination. “Infrastructure is a pre-requisite for any country’s development and such a theme shows Zambia’s preparedness in creating a favourable environment for investors. Investors appreciate destinations that provide them with ready infrastructure like telecommunication, roads among others and then just bring machinery, as that increases chances of profitability,” he added. This year’s trade show will be held on 1st to 7th July.

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Zambia’s Business Improves

Biodiesel Plant in the Offing

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ZDA and MAN Ferrostaal AG of Germany have signed an integrated Biofuel Industry Memorandum of Understanding (MoU) aimed at establishing a Jatropha Curcas Feedstock in Zambia. The MoU was signed on 11 June 2009 by ZDA Director General, Mr. Andrew Chipwende and MAN Ferrostaal Representatives.

of this evidence, the results of the foreign private investment and investor perception survey are intended to assist government to effectively monitor private capital flows and design policies that will attract more investment into the Zambian economy.” And speaking at the same launch, Zambia Development Agency Director General, Mr. Andrew Chipwende, said given the variance between the official underestimated levels of private capital flows and the actual quantitative survey findings, it was imperative that those surveys were carried out annually to enable policy makers have time series data to monitor the private capital flows. Mr. Chipwende said, the availability of such data and information would enable policy makers to obtain early warning signals of financial crises such as those that occurred in East Asia (1997) and Latin America (2002) and the current global financial crisis. Meanwhile, other factors that subsequently affected investors’ investment decisions were domestic macroeconomic conditions and market size. The survey findings showed that fiscal policy and financial stability had a positive impact on investors’ investment decision, while interest rates were considered to have negatively impacted on such investment decisions. With regard to political and governance factors, the survey findings showed that the domestic political scenario had a positive effect on investors’ decisions, while corruption and bureaucracy impacted them negatively. In terms of infrastructure and services, most enterprises indicated that the cost and supply of electricity had negative effect on their investments. Similarly, the cost of banking services was considered to have had a negative effect on their investment. And among the environmental and health factors, only HIV/ AIDS and malaria had significant negative effects on investment decisions. These negative factors to the PCF-IP shows that though Zambia ranked better than most Southern Africa Development Community member states in the overall Doing Business Index, however challenges still remained particularly in trading across borders, dealing with construction permits and employing workers in order to sustain the country’s momentum to foster private sector led growth.

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The contemplated integrated Biodiesel Industry will comprise of a biodiesel refinery, oilseed crushing plants and Jatropha Curcas plantations with nursery. The MoU will facilitate the securing of finances and Jatropha seed feedstock for the biodiesel refinery and the acquiring of 150,000 hectares of land for the project by the two parties. About 120,000 hectares of this land will be used for the plantation and construction of the crushing plants and bio diesel refinery. MAN Ferrostaal will be the general contractor for the building of the Bio diesel Industry, while ZDA will ensure that all necessary permits, approvals and documents are issued on time to permit an accelerated implementation of the Project. The MoU is in response to ZDA’s strategic position of facilitating growth and investment in the country.

Germany Business Delegation Explores Investment in Zambia A German Business Delegation from Drake and Goham Ltd was recently in the country to explore investment opportunities in the energy, telecommunications, construction and tourism sectors. The delegation was in the country from 10 to 13 June 2009, and held meetings with officials from the Ministry of Commerce, Trade and Industry, Zambia Development Agency, Ministry of Energy and Water Resources and Zambia Electricity Supply Company. The delegation also had meetings with officials from the World Bank, Zambia Chamber of Commerce and Industry, Enfin Solutions, Road Development Agency, National Construction council and Ministry of Tourism and Natural resources. The Zambia Development Agency facilitated the meetings of the delegation with relevant officials in the areas of intended investment.

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Global Financial Crisis Affects Local Economy The current global economic crisis has had an adverse impact on the Zambian economy primarily because of its high dependency on copper for exports. In a submission to the Parliamentary Committee on Economic Affairs and Labour, ZDA Director General, Mr. Andrew Chipwende said that the fact that the overall economy had previously depended on the copper mining subsector, an undesirable position had been created making the country highly vulnerable to external shocks. He said while the economy might not have the financial capacity to completely lessen the immediate impact of the crisis a vigorous policy of diversification must be pursued. “A number of initiatives are being implemented in order to diversify the economy and ensure that the private sector is provided with a conducive environment in which it can operate,” he said. He added that drastic changes to the economic policy in order to accommodate the current crisis may derail the long term strategic focus of the country's economic development agenda, unless in critical areas that needed those adjustments, but would not necessitate a turnaround of the existing macroeconomic agenda. “This point is being emphasised in light of some of the suggestions that have come from the private sector encouraging government to impose capital control measures, and reintroduce some form of managed exchange rate control,” said Mr. Chipwende. He said other suggestions that government should expand expenditure for social protection and reduce the tax burden on the manufacturing sector so as to make them more competitive in the region, would only bring immediate relief to certain sectors, and would eventually result in a negative impact on government revenues and budget execution towards infrastructural development. In its 2009 budget, government has pursued an expansionary policy that was intended to stimulate the economy and government intends to spend 25.4 percent of GDP as compared to 24.8 percent in 2007. The 2009 budget will be financed 70 per cent from domestic revenues, 18 per cent from donors and 12 per cent from domestic borrowing.

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In order to support this expansionary budget and meet the shortfall from domestic revenues, government will increase domestic borrowing from 1.3 per cent to 1.8 per cent of GDP. However, if not carefully handled this could create additional pressure on interest rates and subsequently have a ripple effect on other macroeconomic indicators. To this effect, Mr. Chipwende suggested to the Committee that government needed to negotiate for enhanced financing from lending agencies such as the International Monetary Fund (IFM) and the African Development Bank for financial resources that would help stabilise the exchange rate and inject some liquidity in to the financial sector to enable continued movement of economic activity. “Given the already existing policy context of government, however, what may be an issue and of great concern is the manner, quality and pace of implementation of the various reform programmes that are being undertaken,” Mr. Chipwende said. He advised government to address these concerns by putting in place an effective monitoring and evaluation system to track the effectiveness of programme execution by the executive and the legislature with punitive sanctions in place for those agencies and government ministries that do not comply with implementation demands.

Finland Supports EPA Negotiations Government has launched a technical assistance programme to support Zambia’s preparation for the Economic Partnership Agreement (EPA) negotiations with the European Union and to strengthen institutional capacity of the Ministry of Commerce, Trade and Industry and its statutory bodies in protecting intellectual property rights and enhance the attraction of investment in the country. The programme is financed by the Government of Finland and will be implemented by the Ministry of Commerce, Trade and Industry and the International Development Law Organisation (IDLO). Speaking at the launch of the programme, Ministry of Commerce, Trade and Industry Permanent Secretary, Dr. James Mulungushi, said high level of property rights protection was a key aspect of socio-economic development of any country as it enabled the country’s productive sectors to flourish.

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Dr. Mulungushi urged institutions responsible for the protection of intellectual property rights to safeguard achievements of individual creativity and ingenuity, thus rewarding investment in research and development and create a favourable environment for attracting foreign direct investment (FDI). “Protecting intellectual rights helps to create a favourable environment for attracting FDI by assuring the creators of patented products and copyrighted artistic works and producers who use trade marks to distinguish their products from competing products, that their investments will be protected,” says Dr. Mulungushi. Dr. Mulungushi said government endeavored to establish an institutional framework that would create a secure intellectual property rights regime for both producers and consumers of those protected products and comply with the rules of the World Trade Organisation Agreement on Trade-Related Intellectual Property Rights (TRIPS Agreement). He however said Zambia had been lacking in a number of areas and needed support to upgrade the legislative framework and build enforcement capacity in institutions dealing with matters relating to intellectual property rights, hence the technical assistance programme funded by the Finish government was highly appreciated. “FDI can inject additional capital, new technologies and knowledge about new products and new markets, and these potentials can only accrue to Zambia if designated institutions are able to target and attract development friendly investment,” says Dr. Mulungushi. “It is therefore essential to improve skills in investment promotion and in negotiation of investment agreements, and this technical assistance programme addresses this issue.” Zambia has been active in the EPA negotiations both regionally and internally (as chair of the Eastern and Southern Africa Council of Ministers and internally in terms of stakeholders’ consultations), but the negotiations have moved beyond trade in goods into areas such as intellectual property rights and trade and environment, hence the need to build specialised skills of the negotiating team and broaden its negotiating scope through the technical assistance programme launched in the country. The National Working Group on Continou played a key role in preparing for the negotiations.

Zambia Development Agency P.O Box 30819

Events

Nasser Road

International Trade Exhibition-South Africa 19-23 July 2009

Lusaka, Zambia Tel: 260-211-220177

Big Five-Republic of South Africa July-August 2009

Fax: 260-211-225270 E-mail: [email protected]

Zambia Agriculture and Commercial Show July 30 - August 3, 2009

Website: www.zda.org.zm

Trade Exhibition-Mozambique 1-7 September 2009 Trade Mission-Democratic Republic of Congo October 2009

Promoting and Facilitating Economic Growth and Development

Trade Mission/Trade Exhibition-Dubai Oct-Nov 2009 Producer Association Meetings & Company Visits April-Dec 2009

Zambia Development Agency ZDA Approves K5.4bn SME Investment Ten Small and Medium Enterprise applications for MSE certificates were approved last month by the ZDA from enterprises located in different parts of the country with a total investment of K5.4 billion. The applications were from enterprises located in Eastern, Copperbelt, Western and Lusaka provinces. A total investment of K539, 260,400 was declared as having been invested by the firms, while the business activities were in trading, information, communications and telecommunication, engineering, meat processing and milling. This is an indication that SMEs are now venturing in manufacturing and engineering, a development resulting from enabling policies put in place by Government to stimulate the growth of commerce, trade and industry. The ten enterprises are currently employing 53 workers.

Global Slump Set to Continue The world economy is set to contract this year by more than previously estimated, and poor countries will continue to be hit hard by multiple waves of economic stress, says World Bank Group President Robert Zoë lick. Even with the stabilisation of financial markets in many developed economies, unemployment and under-utilisation of capacity continue to rise, putting downward pressure on the global economy. According to the latest Bank estimates, the global economy will decline this year by close to 3%, a significant revision from a previous estimate of 1.75%. Most developing country economies will contract this year and face increasingly bleak prospects unless the slump in their exports, remittances, and foreign direct investment is reversed by the end of 2010.“Although growth is expected to revive during the course of 2010, the pace of the recovery is uncertain and the poor in many developing countries

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will continue to be buffeted by the aftershocks,” Zoë lick said ahead of the G8 Finance Ministers meeting in Italy. “Waves of economic pain continue to hurt the developing world’s poor, who have less cushion to protect themselves. There is much more we need to do in the coming months to mobilise resources to ensure that the poor do not pay for a crisis that is not of their making.”

Zambia ranks 112 on GCI. The World Economic Forum’s annual Global Competitiveness Report has ranked Zambia 112 out of the 134 countries on the Global Competitiveness Index (GCI) in its 2008-2009 ranking. index. The GCI is an annual Global Competitiveness Report that examines factors that enable national economies to achieve sustained economic growth and long-term prosperity. The Index is meant to provide benchmarking tools for business leaders and policymakers to identify obstacles to improved competitiveness and stimulating discussion on strategies to overcome them.