Promoting SME Competitiveness In Zambia
Promoting SME competitivenessin ZambiaIn partnership with:Republic of ZambiaMinistry of Commerce, Trade and Industry
Tatsiana Hendzel / Shutterstock.comSmall firms are the key to inclusive growth‘Zambia has an opportunity to acceleratediversification in production and export of nontraditional commodities in agriculture, mining,manufacturing and tourism. This can be achievedthrough product and market diversification, valueaddition, enhanced productivity at firm level andenhanced contribution of non-traditional exports.’Seventh National Development Plan (2017–2021),ZambiaDespite its landlocked situation, Zambia is strategicallylocated at the intersection of the Common Market forEastern and Southern Africa and the Southern AfricanDevelopment Community.The African Continental Free Trade Agreement furtherbroadens the opportunities for investors by liftingrestrictions on foreign investment.Strong growth indicators, supported by expandingyouth, urban and middle-class populations,have made Zambia one of the best-performingeconomies in sub-Saharan Africa. The country’sabundant natural resources are also important for itseconomic health. Zambia is among the top producersof cobalt and emeralds in the world, and is the secondlargest copper producer in Africa.Aware of the risks linked to overreliance on copper,the Government of Zambia has made consistent effortsto diversify the economy and attract investment intothe agriculture, manufacturing and tourism sectors.Indeed, Zambia offers appealing opportunities in cropproduction, fisheries and livestock, agroprocessing,light manufacturing, tourism and enhanced servicedelivery.The Government has also worked to improve thebusiness environment. This effort has paid off. In 2019,Forbes magazine ranked Zambia 10 th among subSaharan African countries in terms of the businessenvironment.Zambian small and medium-sized enterprises represent70%Gross domesticproduct88%Employment97%Business
Small businesses:Backbone of the economyfocus on agricultural inputs and produce, industrialand consumable products, and printing. Only a fewSMEs operate in small-scale mining and quarrying.4Small and medium-sized enterprises (SMEs)in Zambia play an important role in production,employment and income. They represent 97% of allbusinesses in the country,1 70% of gross domesticproduct (GDP) and 88% of employment.2Strengthening the competitiveness of these firms wouldgive them more opportunities to add value and toparticipate in regional and global production networks.SMEs also fill a key role in society, as they tend toemploy a large share of the most vulnerable segmentsof the workforce.3 Raising the competitiveness ofthese enterprises would help reduce the youthunemployment rate and increase the number ofwomen in employment. This would also contributeto progress towards achieving the United NationsSustainable Development Goals of reducing socialexclusion and enhancing productive capacities.Furthermore, SMEs can contribute to the preservationand sustainable management of natural resources.By adopting sustainable production processes, theseenterprises can directly help achieve the SustainableDevelopment Goals on biodiversity and protection ofwildlife, forestry and water that affect climate change.A wellspring for economicdiversificationSpread across all economic sectors, SMEs have thepotential to help the Zambian economy diversify.‘If Zambia has to treble or to even quadruplein its gross domestic product within the next10 years, small businesses should have acentral role in growing the economy.’Chibamba Kanyama, Zambian EconomistSmall firms in the manufacturing sector are involved invarious activities, from wood and textile production tolight engineering and metal fabrication. Service sectorSMEs operate mainly in building and construction,restaurants, cleaning and personal care services,transport, telecommunications, financial services andbusiness centres. Businesses in the trading sectorAcknowledging the positive link between SME growthand job creation, the Government of Zambia hasimplemented several policy and regulatory measuresto promote the growth and development of smallercompanies.Under its Seventh National DevelopmentPlan 2017–2021, the Governmentemphasizes the creation of a creditguarantee scheme for issuance of lowinterest, long-term loans to ZambianSMEs, as well as initiatives to accelerateinformal sector formalization, foster skilldevelopment, create urban industrialclusters, strengthen value-chain linkagesand provide business developmentservices to SMEs.5Complementing government efforts, the ZambiaDevelopment Agency has developed strategies tomake it easier for SMEs to obtain finance, supplyto chain stores, access government contracts andexport.6Better data for policymakingPolicy reform, development of the businessecosystem and capacity building at the enterpriselevel can all help boost the competitiveness of smallfirms. However, relevant data can help policymakersunderstand the obstacles that prevent them fromscaling up and entering international markets.In this country profile, ITC uses data from its SMECompetitiveness Surveys to assess the internationalcompetitiveness of Zambian enterprises.FSD Zambia, Access to Finance: SME perceptions of Financial ServiceProviders, December 2017.12Zambia Invest, Zambia to Set Entrepreneurial Fund for SMEs, February 2017.International Trade Centre (ITC), 2015, SME Competitiveness Outlook;www.intracen.org/SMEOutlook3Nuwagaba, A. (2015). Enterprises (SMEs) in Zambia. International Journal ofEconomics, Finance and Management, 4(4); Zambia Development Agency,SME Activities. Accessed on 7 February 2019.45Seventh National Development Plan, 2017–2021, Republic of Zambia.Zambia Development Agency, SMEs are the Cornerstone of Development.Accessed on 7 February 2019.6
The surveyUnder the aegis of the Ministry of Commerce Trade andIndustry, the International Trade Centre, the ZambiaDevelopment Agency and the Zambian Central StatisticalOffice conducted 242 in-depth, face-to-face enterprisesurveys in 2018 using the ITC SME CompetitivenessSurvey methodology. The survey, designed to evaluatethe strengths and weaknesses of companies and theirbusiness ecosystem, sheds light on the major factorsconstraining the competitiveness of SMEs.Compete, connect and changefor inclusive growthCompetitiveness encompasses various factors, someof which are within the control of enterprises. To simplifythe concept, ITC developed the SME competitivenessframework, which views competitiveness throughthree pillars: Capacity to compete is the static dimension ofcompetitiveness. It assesses whether firms can meettime, cost, quantity and quality requirements at anygiven moment. Capacity to connect is the connectivity dimension ofcompetitiveness. Enterprises must link to customers,businesses and institutions to be competitive, andbe literate in information and communicationstechnology. Capacity to change is the dynamic dimension ofcompetitiveness. It gauges whether enterprises havethe capacity to make human, financial and innovationdriven investments to adapt to fast-changing markets.Each pillar has three themes, resulting in nine themesof competitiveness. Together, the pillars and themespaint a comprehensive picture of the strengths andweaknesses of a country’s competitiveness.In-depth, the face-to-face surveys involved companiesof all sizes in three provinces: Lusaka, Copperbeltand Central Zambia. The geographic distribution ofrespondents across provinces reflects differences inthe density of population.SMEs – defined as businesses employing fewer than100 workers – represent the majority of surveyedfirms in the three main economic sectors: 90% in theprimary sector, 78% in manufacturing and 98% in theservices sector.Approximately 7% of respondent firms were exporterswhile 43% were importers. More than half of the surveyedenterprises were also part of a value chain, producinggoods and services as per their buyers’ requirements.Most of the surveyed businesses were young,with 69% in operation for fewer than 10 years.On average, 21% of employees were less than 25 yearsold and 32% were women.This report focuses on firms in three sectors: agri-food,manufacturing and business support services – allconsidered as priority sectors in Zambia’s Vision 2030,and key in building a strong export base. These sectorscan help diversify the economy away from its reliance oncopper for revenue, as well as expand job opportunities.Manufacturing enterprises dominated the survey, with30.6% of the sample engaging in the sector. About23% and 15% were active in the agri-food and businesssupport service sectors, respectively.This analysis provides, along with firm characteristicsand business activities, detailed information on howSMEs in the three sectors perform across differentareas of competitiveness. It also looks at how well theirbusiness ecosystem supports them.Measuring environmentalperformance‘Government is aware that climate variabilityand change has become a major threat tosustainable development in our country. [ ]Further, we have mainstreamed climate changeinto our development agenda.’President Edgar Chagwa Lungu7The questionnaire used in Zambia also included amodule to solicit companies’ perceived challenges andreactions to environmental changes. Although Zambiais a member of many environmental conventions, its richdiversity of environmental assets, including vast hectaresof forests, wetlands and wildlife estates, face intensethreats to their survival. This module serves to identifyopportunities to improve the environmental performanceof Zambian SMEs.Address by President Edgar Chagwa Lungu on the Progress Made in theApplication of National Values and Principles, delivered to the 2nd meeting ofthe 2nd session of the 12 th National Assembly, 16 March 2018.7
Geographic distribution of surveyed firmsCopperbeltCentral ZambiaLusakaFirm characteristics and business urce: ITC SME Competitiveness Survey.45%57%
Shutterstock.comThe agri-food sectorAgriculture contributes about 6.7% toZambian GDP and employs more thanhalf of the population.8 As the backboneof the rural economy, the sector hasbeen highlighted in Zambia’s NationalAgriculture Investment Plan 2014–2018 for its greatpotential to reduce poverty.9Good infrastructure must be matched with functioninglogistics services for firms to be able to deliver theirproducts on time. In the group of respondents,57% rated the logistics companies they used asgood or excellent (even if costly). This explains whyrespondents reported that, on average, 74% of thegoods dispatched to clients arrived on time.Zambia has a total land area of 75 million hectares,of which 58% is classified as medium to high potentialfor agricultural production. Abundant rainfall andpropitious climatic conditions make the land suitablefor the production of a diverse range of crops, fish andlivestock.Most agri-food companies hadinternationally recognizedcertificatesZambia maintains a liberal export regime andsimplified export procedures. However, for some foodproducts exporters must obtain permits as well asquality certificates from the authorities.12 Aware of this,most of the surveyed agri-food firms (55%) reportedholding an internationally recognized certificate. Thisis a larger share than in other sectors of the economy.Furthermore, 65% of these enterprises considered thequality of services offered by certification authorities asgood or excellent (even if costly).‘Agriculture is a priority sector in Zambia asoutlined in the Seventh National DevelopmentPlan, which looks at diversification of theeconomy from copper dependency, of whichagriculture is key.’Perry Mapani, Director General of the ZambianDevelopment Agency10The sample of respondents to the SME CompetitivenessSurvey included 55 companies operating in agricultureand the food industry. Most of these were SMEs sellingin the domestic market. Although the survey resultsare not intended to represent the sector as a whole,they can help inform policymakers about the types ofbottlenecks enterprises face.Firms sought opportunities tointernationalizeAlthough surveyed firms seemed to be able to getcertified, only 31% exported their goods directly (16%) orindirectly (15%), and mostly to neighbouring countries.However, there is appetite for internationalization:64% of the companies expressed interest in startingto export.Good logistics allow agri-food firmsto deliver on timeFast, reliable delivery is a fundamental requirementfor suppliers in the agriculture sector. Aware of this,the Government has launched several ambitiousprogrammes to improve the infrastructure network.Together, Link Zambia 8,000, Pave Zambia 2,000 andthe Lusaka 400 road project entail construction of morethan 10,000 kilometers of roadway.118World Bank, World Development Indicators Database.Government of the Republic of Zambia, Zambia National AgricultureInvestment Plan 2014–2018.910Zibani Zambia (Feb 21, 2018). Agric Sector has Great Incentives – ZDA11World Bank, Zambia – Infrastructure Development, 2017.Zambia Development Agency (2017). Exporter's Handbook:A Manual for Zambian Exporters.12
Key statistics for the agri-food sectorFirm n-importersCompetitiveness grid for the agri-food sectorMicro and small firmsMedium-sized firmsLarge tiesBusinessecosystemMeeting quantityand cost requirements778281Time Requirements71707755Quality Requirements46386959Connecting to buyers19503556Connecting to suppliers265251475066Connecting to institutions374833485171Financial requirements336358634981Skills requirements525556558467Intellectual property andinnovation Businessecosystem77485475Highlighted statistics for the agri-food sector74% of the goods dispatched to clients arrived on time55% of firms held an internationally recognized certificate64% of firms were interested in exportingNote: Micro and small firms are those with 1–19 employees. Medium-sized firms are those with 20–99 employees. ‘Firm capabilities’ assesseswhether enterprises are managed according to best practices, need resources and are competent to manage those resources. The ‘businessecosystem’ evaluates whether the local business ecosystem, made up of business support institutions, supplies enterprises with the resources orcompetencies they need to be competitive.Source: ITC SME Competitiveness Survey. Shutterstock.com
Shutterstock.comThe manufacturing sectorThe manufacturing sector accounts for about 7.5% ofZambian GDP and 83% of total exports.13 Diversifyingand upgrading the sector are necessary to achieve theVision 2030 objectives, with the Government aiming toincrease its contribution to GDP to 18%.14‘Zambia’s economic growth and the future ofmillions of Zambian communities are closelytied to accelerated industrialization, and theexploitation of value chains provided a potentroute to prosperity.’Kayula Siame, Permanent Secretary inthe Ministry of Commerce, Trade and Industry15Increased national demand, led by an emerging middleclass, and greater regional demand, through Zambia’smembership in the Common Market for Eastern andSouthern Africa and the Southern African DevelopmentCommunity, have buoyed the domestic manufacturingsector. The textile, metal, chemical and fertilizer sectors,along with leather subsectors, have largely driven thisgrowth.16The SME Competitiveness Survey in Zambia interviewed74 firms operating in the manufacturing industry.Although the survey does not represent the sectoras a whole, its results inform policymakers about thebottlenecks enterprises are facing.Manufacturing firms were content withthe skill set of their workforceIn recent decades, Zambia has worked to develop itshuman capital. The increase of the Zambian HumanDevelopment Index value to 0.59 out of 1 in 2017 put thecountry in the medium human development category.17The results from the survey reflects this, where 64%of respondents reported a high match between theskill set of employees and the needs of the company.Furthermore, 51% of manufacturing firms were satisfiedwith the quality of bodies teaching relevant skills for thesector.Manufacturing firms were innovatingAbout 48% of surveyed manufacturing firms said theyoften or very often introduce a new or improved productor process. This was particularly true of the textile andgarments industry (72%), followed by the paper andwood industry (47%). This can be partly attributed toforeign investments as well as government supportthese sectors receive, especially policies aimed atstimulating industrial activities through value addition.18Finally, 58% of the enterprises reported the quality ofthe services offered by patent institutions as good orexcellent and only 10% rated them poorly.Participation in a value chain helpedfirms diversify their source of inputsJust over half of the enterprises that were surveyedparticipated in a value chain. Interestingly, being ina value chain helped firms reduce their dependenceon one individual supplier: 31% of the companies thatwere part of a value chain had ‘low’ reliance on theirbiggest supplier, while the percentage was 16% forthose outside value chains.13World Bank, World Development Indicators, 2017.14Republic of Zambia, Vision 2030.15United Nations Economic Commission for Africa, Transforming Zambia:Policies to Foster Industrialization and Development.16ITC Trade Map, 2010–2017.17Human Development Data, 2017.Zambia Development Agency, Multi-facility Economic Zones Initiative toBoost Development-ZDA.18
Key statistics for the manufacturing industryFirm n-importersCompetitiveness grid for the manufacturing sectorMicro and small firmsMedium-sized firmsLarge tiesMeeting quantityand cost requirements757396Time Requirements7265Quality Requirements514846597358Connecting to buyers275557667762Connecting to suppliers315353554256Connecting to institutions465241535758Financial requirements304042735782Skills requirements56557175Intellectual property andinnovation ted statistics for the manufacturing sector51% of firms participated in a value chain64% of firms met their skill requirements48% of firms often or very often introduced new or improved product or processNote: Micro and small firms are those with 1–19 employees. Medium-sized firms are those with 20–99 employees. ‘Firm capabilities’ assesseswhether enterprises are managed according to best practices, need resources and are competent to manage those resources. The ‘businessecosystem’ evaluates whether the local business ecosystem, made up of business support institutions, supplies enterprises with the resources orcompetencies they need to be competitive.Source: ITC SME Competitiveness Survey. Shutterstock.com
africa924 / Shutterstock.comThe business support service sectorHistorically the largest contributor to GDP (52.2% in2017),19 Zambia’s services sector has been growingrapidly. 20 The sector is vital to job creation for theexpanding urban population; it has absorbed 21% ofthe employed population since 2000.Zambia has been actively addressing its services tradedeficit, with services exports reaching 864 million in2017, compared with 758 in 2013.21 Services exportsare led by transport (46%) and travel services (39%).22Tourism and financial services have also gainedmomentum over the last decade. Increasing exportsof higher value-a
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