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Zambia: Diversification vital for sustainable growthThursday, August 25, 2016 > 08:06:29
(Zambia Daily Mail)
Investment Forum with MARGARET CHIMANSE
THE International Growth Centre recently commissioned a study on the potential of non-traditional exports in Zambia and the impact on growth, employment and distribution of wealth and income.
The study was undertaken to inform policy-makers on alternative agricultural sectors that could contribute significantly to the sustainable economic growth of the country.
Zambia’s future development will depend, most importantly, on diversification of the economy, developing new areas of production and export. The best prospects for diversification are within the agriculture sector.
Historically, Zambia’s agriculture sector has been dominated by maize growing. However, there is considerable potential for expansion in respect of a number of agricultural produce.
The study provides an in-depth analysis of key current and prospective natural, economic and policy issues challenging and enabling the long-term growth of sub-sectors and consequently the attainment of sustainable economic growth of the country.
Both secondary and primary data was used, gathered through desk research and key informant interviews. Secondary data was collected through a review of published and unpublished material including past value chain studies.
The report established that there was considerable potential for growth and employment creation in all the three sub-sectors, namely sugar, coffee and cotton through the expansion of agricultural production, as the country is well endowed with natural resources that are suited for the competitive production of the three crops.
Investigations into the exports markets for sugar, coffee and cotton show that there is a growing global demand for these commodities and that current preferential trade arrangements governing these markets are important for ensuring market access for Zambian products and, subsequently, increased income potential for producers in these sub-sectors.
The study reveals that the prospects for equitable wealth and income distribution are most available in the sugar and cotton sub-sectors, which already have a significant number of small-scale producers in the value chain. A number of policy and economic constraints confront these sub-sectors, limiting their contribution to effective growth, employment creation, and equitable wealth and income distribution.
Lack of financing and high transactions costs have emerged as a key cross-cutting constraint for all sub-sectors. Efforts to promote export diversification in these sectors, therefore, needs to focus on programmes that ease financial access, particularly for small farmers, as well as promote investment in infrastructure that will reduce transaction costs of doing business in Zambia.
Some of the key findings in the sugar sub-sector show that it is one of Zambia’s most important economic sub-sector and one of the most successful non-traditional exports sectors. The sector accounts for 3-4 percent gross domestic product (GDP) and six percent to the total national exports. The sugar industry provides employment for around 11,000 workers, with total number of dependents exceeding 75,000. The sugar industry generates over US$45 million in gross exports annually, which has almost doubled from the mid-1990s when export earnings stood at around US$25 million (World Bank, 2007b).
Growth in the sugar sub-sector holds great prospects for Zambia to diversify the economy, which has previously been copper -dependent, offering great opportunity for agricultural growth, diversification and employment creation.
Findings from the coffee sub-sector indicated that Zambia produces Arabica coffee, which is one of the most competitive coffee varieties on the market. Arabica coffee generally commands a premium over Robusta coffee, therefore Zambia has access to a higher value market with Arabica coffee that it produces.
However, the production cycle of coffee is lengthy, taking an average four years before the crop matures and farmers get a return on their investment.
This is the most constraining factor for small-scale farmer participation in the sub-sector. This is further exacerbated by the high cost of capital.
To capture the potential growth of the coffee sector Government needs to work with the private sector to come up with innovative ways of availing financing for coffee production at rates that are affordable to ensure profitability.
The report suggests that the key factor which will support the growth of this sector is the development of programmes to ease access to finance for coffee growing.
The study further states that the cotton sector is an important sector for the country’s economy as it directly and indirectly supports an estimated 21 percent of the Zambian population while also accounting for 19 percent of the national GDP and 32 percent of the value chain of the main agricultural exports. The crop also generates significant commercial activity throughout the entire economy and value chain.
Despite the potential of all three crops, each sub-sector faces its own challenges and opportunities.
Of all the sectors, the report concludes that the sugar sub-sector seems to hold the greatest potential for growth and exports, while the cotton sector holds the greatest potential for small holder involvement and hence income equality. The coffee sector on the other hand emerged as the least attractive among the three sectors because of the capital intensive nature of the sector.
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