Zambia's trade axis spins

Zambia, trade, axis, spins, agriculture, economy, LME, London metal exchange, CPI, aouth africaZambia’s economy is expected to grow 6.5 per cent this year and 6.6 per cent next year on the back of a rally in copper prices and improvements in agriculture, according to a Reuters poll

Zambia’s economy is expected to grow 6.5 per cent this year and 6.6 per cent next year on the back of a rally in copper prices and improvements in agriculture, according to a Reuters poll

The Central Statistical Office (CSO) estimated that the southern African state grew by 7.1 per cent in 2010, topping Finance minister Situmbelo Musokotwane’s forecast of 6.6 per cent.

“We expect copper prices to remain elevated due to sustained global demand, particularly from China,” said Gregan Anderson, analyst at the London-based Business Monitor International.

Copper prices have rebounded since the lows of 2008, gaining more than 200 per cent on the London Metal Exchange (LME) since the end of 2008, boosted particularly by demand from China and other emerging economies.

The development of the agriculture and manufacturing sectors is boosting the economy, with infrastructure spending expected to greatly increase, which could lead to more stable environment.

“An improving business environment has generated significant interest in non-mining sectors as well, with major projects in agriculture and manufacturing announced in early 2011,” said Anderson.

Consumer Inflation

Consumer inflation is seen breaking above the Central Bank’s target of 8 per cent by year-end, as analysts expect headline CPI to average at 8.6 per cent this year before slowing too an average of 8.3 per cent next year.

“This being an election year, we could experience inflationary pressure as a result of an increase in public spending,” said Gerald Ndlovu, chief dealer at First National Bank (FNB) Zambia.

These are positive indicators for Zambian trade. It is not far-fetched to assert that Zambia offers enormous trade opportunities backed by strong macroeconomic fundamentals, including an average growth rate of 6.2 per cent in the last three years.

The liberalization of trade has been a key factor in supporting private sector growth and export competitiveness, with Zambia actively participating in regional and international trade fora. Despite the decline in global trade volumes during 2009, resulting in the value of Zambia’s imports and exports falling by 26 and 19 per cent respectively during the first half of that year, the rebound in commodity prices, international trade and global growth in the latter part of 2009 and 2010 should assist Zambia in her walk to sustainable growth and trade.

Main export destinations

Zambia’s main export destinations include the United Kingdom (UK), Switzerland, Tanzania, Tanzania, Zimbabwe, DRC and South Africa, among others. The country’s major exports are metals and minerals (particularly copper and cobalt), a situation which is expected to continue for a long period of time due favourable international commodity prices. The non-traditional exports (NTEs) sector has also grown substantially with cotton, tobacco, vegetables, floriculture, cement and textiles making inroads into the international market.

Zambia’s NTEs between December 2010 and January this year grew by 8 per cent to K452 bn with the northern neighbours, DRC, proving a major destination for export goods. The K452 bn recorded in January was K35.6 bn more than what was exported in December in three major continental destinations (Asia, Europe and Southern Africa).

The country’s key import commodities include petroleum products, electricity, fertilizer, machines and transportation equipment. Zambia’s main import partners are the UK, United Arab Emirates and South Africa, among others.

Zambia is centrally located in southern and central Africa, surrounded by eight (8) countries and in close proximity to South Africa, the region’s trading kingpin. It also enjoys preferential market access through active participation in the SADC trade protocol and the COMESA free trade area (FTA).

Ports most frequently used include Durban in South Africa, Dar es Salaam in Tanzania and Walvis Bay (Namibia), which is currently the shortest route to the sea), with the route to the port of Beira (Mozambique) being another option. Currently, under development is the joint COMESA-SADC-EAC initiative set to upgrade 8 000 km of road and rehabilitate 600 km of rail track to replace the time and costs of surface transport and open up new business opportunities in Tanzania, DRC, Zambia, Malawi, Botswana, Zimbabwe, Mozambique and South Africa.

Trade initiatives

One of the major trade initiatives to which Zambia is a beneficiary is the African Growth Opportunity Act (AGOA) introduced by the USA in 2000 for African countries to access the vast and lucrative American market. However, since its launch, there has been little trade between the USA and the 38 AGOA eligible African countries.

AGOA is a legislation that provides eligible sub-Saharan countries with duty free access to the US market for any country which the US does not have a free trade agreement with.

According to the US Trade Policy Review Report for 2010, AGOA and related imported were valued at $33.7bn in 2009, down 49 per cent from 2008, largely due to the downturn in the global economy.

AGOA beneficiary countries have struggled to effectively penetrate the US market due to the long distance, with its inherent high transaction costs, existence of sub-Saharan Africa inland poor transport infrastructure and generally high costs of doing business.

The Zambia Development Agency (ZDA) has worked out various initiatives to assist local entrepreneurs break into big export markets such as the USA. Apart from helping to fast track some products like, ZDA has an Exports Fund to loan money to firms with problems of raising their quality of packaging and health risks.

USA

USA’s FDI investment flows into Zambia in the last 10 years have topped $3.1bn. This spreads across mining, agriculture and services with over 4 000 jobs generated for the locals.

Speaking at the AGOA stakeholders’ preparatory meeting in Lusaka recently recently, ZDA export and marketing promotion director Glyne Michelo said Zambia’s exports to the USA under AGOA amounted to $116mn since its inception in 2000.

Exports to the US have grown from $7.9mn in 2001 to over $25 mn in 2008 before declining to $5.3mn due to the world economic slump. Imports from the US during the period under review amounted to $386 mn.

Zambia’s main exports to the US include base metals, coffee, tea, wood and wood articles, lives fish and raw hides and animals skins/leather. Other products include precious stones, paprika and spices, seeds, handicrafts, apparel and textiles, burley tobacco, particle boards, fruits and vegetables.

Although all products are eligible to enter the US market under AGOA, Africa’s major exports under this facility have mainly been textiles and garments, agricultural products, oil and handicrafts.

Another major trade partner, UK, is launching an African Free Trade initiative to help break through trade barriers like bureaucracy and prohibitive tariffs. The UK is supporting Africa by making trade on the continent faster and easier and encourage African entrepreneurs to grow their businesses by opening up access to new markets. Further, she is urging all G20 countries to provide 100 per cent duty free quota free access to their markets for least developed countries.

That Zambia has been ranked among the top ten business reformers in the world is a bright light on the country’s trade horizon. Apart from high freight costs and inadequate transport infrastructure, the drawbacks of limited access to capital and unreliable and high cost of energy should be resolved to smoothen the export ‘route’.

By Nawa Mutumweno

Alain Charles Publishing, University House, 11-13 Lower Grosvenor Place, London, SW1W 0EX, UK
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