Zambian Manufacturing: At the Cusp of a Boom

By Michelo Maunga

Introduction

Happenings in the global economy are conspiring to provide Zambian manufacturing the opportunity to actualize its long held aspirations. This has the potential to set aside decades of below par performance and stagnation. Over the years, several similar opportunities have come and gone, with little sustained benefit to the local economy. Cases in point are the two copper booms, the first coming in the 60s and most recently prior to the 2009 Global financial crisis. In spite of these commodity surges Zambia remains a low income country. This potential is centered around three phenomena, namely; the Africa Continental Free Trade Area (Afcfta), the Green Energy Transition and The Russia-Ukraine War. I will begin with the Free Trade Area.

AFCFTA

This trade area represents what would be the largest common market for goods and services on the continent, linking a total of 1.3 billion people in an economy worth $3.4 billion. Brokered in Kigali, Rwanda in 2018; the arrangement intends to create a single market for goods and services in Africa, facilitate the free movement of people across borders and otherwise increase economic growth. Afcfta was birthed out of a desire to remedy the low levels of Intra-Africa trade. Compared to other continents, Africa ranks least in terms of the amount of trade it does within itself. According to the Trade Law Centre, Intra-Africa trade was reported at 15% of Africa’s total trade (2019). This pales in comparison to intra-regional trade of 60%, 40% and 30% for Europe, North America and the ASEAN region, respectively (AU, 2011)

This has its associated disadvantages. For instance, a largely externally focused trade agenda exposes the continent to foreign currency risks. Earnings will fluctuate with movements in the major convertibles. Significant exchange rate pressure is also exerted when African countries have to make imports.

The Free Trade Area is projected to raise the African continent’s GDP to roughly $29 trillion by 2050 and increase intra-Africa trade by over 50%. According to the World Bank this could lift 30 million Africans out of extreme poverty. Manufacturing stands to benefit through a more integrated Africa and larger target market. Costs will significantly decline for the entry of goods into other African countries. This will allow Zambian manufacturers to capitalize on their comparative advantages in the region and beyond.

The Green Energy Transition

In recent years, global leaders have recognized the need to transition to a low carbon future. This is in part due to global accords such as the United Nations Framework Convention on Climate Change (UNFCCC) and rising volatility in global oil markets. The former has seen several countries make time bound commitments to reach net zero. As such the developed world has incentivized their renewable energy sectors which is creating seismic demand for metals which are plentiful in Africa, particularly, Zambia and the DRC. These metals include cobalt, copper, nickel and lithium. These metals are integral to the electrical components of not just Electric Vehicles (EVs) but also wind turbines and solar panels.

In recognition of this Zambia and the DRC signed an MOU to partner in the development of the EV batteries value chain. The establishing of battery plants will see these two countries competencies grow in the manufacturing of these components, provide numerous jobs and growth to both economies.

Russia-Ukraine War

Russia and Ukraine have long been the center of world food production. This concentration was laid bare in the second quarter of 2022, when the conflict sent shock waves through global food markets. Global inflation skyrocketed as prices of surged for everything from wheat to edible oils. This brought to attention the fragility of global food value chains. As such there is a deliberate policy direction to diversify this market. Africa is the most suitable destination for this. Zambia, in particular stands to benefit, due to its favorable climatic conditions, arable land and plentiful water resources. Zambia has the potential to expand its agricultural production base in commodities heavily dominated by Eastern Europe. This would feed into agro-processing and other sectors of the economy. 

Conclusion

As I conclude, it is important to note that the three phenomena I have described will feed into each other. The Afcfta will facilitate greater trade in the EV value chain amongst African metal producers. It will also catalyze greater trade in agro produce across the continent. This will create a virtuous cycle, resulting in ever increasing national incomes. Thus, the promise of the present times is clear for all to see, as can be seen by frequent visits by high level officials to the continent. In spite of the failures of the past, I am confident in the ability of the African continent to maximize on these current opportunities and in the ability of the people to demand governance from their leaders that will see to this.