Report on the Second Visit to Zambia
December 2, 2007
Kenichi Ohno (GRIPS)
Following our first visit (Sep. 3-7, 2007), I visited Zambia by JICAfs invitation from Nov. 26 to 30, 2007. The itinerary included factory visits in Copper Belt, participation in the JICA-sponsored side event of the NEPAD/OECD conference, meeting Dr. Mutati the Minister of Commerce, Trade and Industry, and exchange of views with the Japanese Embassy and JICA (see attachment). The main purpose was participation in the above-mentioned side event. Additionally, as with the previous occasion, I wished to review the current status and future possibility of JICAfs South-South cooperation on investment facilitation (gTriangle of Hopeh) and consider the question of how to position Zambia in the context of Japanfs assistance to Africa.
The findings of our previous visit are contained in our back-to-office report. Their highlights were as follows:
--With strong economic growth, Zambia now faces a historical opportunity to realize industrial diversification and sustained development.
--However, this recognition has not been turned into concrete and realistic economic development strategy.
--The TOH Project is producing significant results in a relatively short time and can be the first step toward a broader economic development strategy. However, the Multi Function Economic Zone (MFEZ), TOHfs key component, must be successfully completed.
--Zambia needs to initiate intensive policy dialogue leading to the formulation of an economic development strategy.
--It is not yet decided whether Japan should select Zambia as a target country for its new African assistance policy. This issue should be discussed and decided between Tokyo and the Japanese mission in Lusaka.
1. The Side Event
The JICA-sponsored side event gSharing Zambiafs Recent Approach to Investment Facilitationh was held at the Mulungushi International Conference Center on Nov. 29. The keynote speaker was HE Felix Mutati (Minister of Commerce, Trade and Industry). Four panelists, including myself, also spoke. My points were as follows.
--TOH is producing laudable results in investment climate and FDI attraction. However, Zambia lacks an industrial vision, which should be placed above FDI policy in the entire policy structure. An industrialization strategy with clear orientation should be compiled as the next step.
--TOH follows the Malaysian model. However, in Malaysia, there is a well-structured policy system from Vision 2020 to IMP, OPP, Five Year Plan, and annual budget. Zambia does not have the equivalent of IMP (industrial master plan). Brief explanations of Malaysiafs IMP1, IMP2 and IMP3 were given.
--Zambia has the legacy of planning and also lacks close contact with global MNCs. Zambia must begin by acknowledging its lack of experience and knowledge, then ask where it stands now and where it can stand in the future in the world economy.
--The government must provide liberalization and competition (the gstickh) and conditional and temporary support for industries (the gcarroth) in proper balance. Only the stick or the carrot will not work. The winners will ultimately be decided by markets and efforts of individual companies. But there are many things that the government can do in between.
--For a landlocked country like Zambia, there is no single effective policy for growth. Good performance can be secured only by executing many small policies properly, one by one. They should cover, for instance, the distance (transportation) problem, human resources, power and water supply, Southern African regional cooperation, agriculture and rural development, SME promotion, tourism, and investment policy. What works should not be prejudged. All possibilities should be considered, including export and import-substitution, FDI and local investors, and high-tech and low-tech.
--Zambia should shift from improvement of investment climate (which has already been achieved to some extent) to a more ambitious goal of actively inviting targeted investors. TOH should be expanded to become a comprehensive industrialization strategy. Japan has engaged in intensive policy dialogue with Vietnam, Indonesia, Laos, etc. Zambia should also ask Japan for such dialogue. At present, a study group at the JICA headquarters in Tokyo is drafting proposals for transferring East Asian experience to Africa, where targeted assistance for country-specific industrialization strategy formulation is featured.
2. Meeting with HE Felix Mutati, the Minister of Commerce, Trade and Industry
After the side event, Minister Mutati invited Ambassador Mitamura and myself to his office for further discussion. Minister Mutati asked the same question as in the side event, which was: gWhat is the concrete next step for Zambia to develop TOH into a more comprehensive industrialization strategy? And what cooperation can Japan offer for this purpose?h
Ambassador Mitamura explained the experience of the Maekawa Report on Japanfs administrative reform in the 1980s. This report was produced by 17 committee members representing government, industry, academia and labor under the strong leadership of Prime Minister Nakasone. The prime minister sat in every meeting although he did not always speak.
Minister Mutati agreed that strong leadership from the top (President) was essential in carrying out his official duties. He also noted that the Zambian government recently created a committee headed by the President and comprised of eight economic ministers with additional participation of the private sector.
Minister Mutati asked me to draft a short concept paper, with the maximum length of five pages, regarding what procedure was necessary to produce an industrialization strategy (the methodology, not the content). I promised to draft it by Christmas through consultation with the Japanese Embassy and JICA in Zambia. I felt less confident in proposing something to Zambia after only two visits, in comparison with Vietnam which I had studied for 12 years. But I would oblige because someone had to take the risk in initiating this task. Zambia wanted an industrial vision and Japan wanted Zambia to have it too. If both were too shy, a golden opportunity for cooperation would be lost. Minister Mutati hoped that informal agreement would be made between Zambia and Japan on the general direction of post-TOH activities (although project formulation and official agreement would take more time).
Separately, Ambassador Mitamura informed the Minister that Zambian coffee was being marketed in Japan as high quality beans. He also inquired about the status of customs clearance facilitation at the border with Zimbabwe. Minister Mutati replied that the new border procedure would be completed by Dec. 14, the date two presidents would attend the opening ceremony of this initiative.
3. Discussion with the Japanese Embassy and JICA
At the Japanese Embassy in Lusaka, Ambassador Mitamura, Minister Suzuki, Ms. Shiotsu, Mr. Katayama, Mr. Mochizuki, Ms. Ishiguro (Embassy); JICA Representative Nabeya, Mr. Fukuda (JICA), and myself exchanged views on TOH and its future development. The briefing of President Mwanawasa by economic ministers on the progress of TOH, scheduled on Nov.30, was postponed. As a matter of fact, little progress was made in TOH after Sep. 2007. Progress differed significantly across topics and ministries in charge. Unattained goals in TOH appeared to be areas that were difficult to implement quickly or requiring a new law. The deadline for investment climate improvement was end 2007. But monitoring would likely to continue until March 2009, the end date of the TOH Project. The Japanese side had not classified unachieved targets into truly difficult ones and ones that should be implemented immediately.
How Japan should respond to Minister Mutatifs request (see 2 above) was also discussed.
--Strong commitment and leadership of the President on industrialization strategy formulation was crucial, both for Zambian economic ministers and the Japanese side. To sort out any issues among different ministries or among different donors, and to make substantial progress, involvement of the President was essential. This must be one of the preconditions for bilateral cooperation for industrialization strategy making.
--We should request MCTI to form a new team to work exclusively on industrialization strategy formulation. The team should consist of excellent and dedicated Zambians. The team should directly report to the Minister of CTI. Members could include people from other ministries and even the private sector. Dr. Musokotwane should also be involved, but he need not be a key person as his TOH duty was already very heavy.
--On the Japanese side, the economic team at the Embassy and relevant JICA officials should be responsible. We should also look for a long-term Japanese expert who could constantly interact with the Zambian working team. If we can, we should also mobilize short-term experts to do surveys, lectures and discussions in their chosen fields. Retired MITI officials and experienced general directors of manufacturing firms were particularly welcome. JICA could also mobilize existing expert schemes for this purpose, including MFEZ experts, additional JICA experts, and senior volunteers.
--If both Zambia and Japan become ready, as stated above, the remaining period of TOH (up to March 2009) should be used for preparatory works for the proposed Japanese support for industrialization strategy formulation. This can include inviting above-mentioned experts and conducting necessary surveys. However, details of preparatory works should be more carefully decided later. The initial output will not be the industrialization strategy itself, but a document that analyzes current status and possibilities of certain sectors. The MoFA Report gThe Basic Problems of Japanese Economic Reconstructionh (1947) is instructive as a model format.
--The short concept paper on methodology requested by Minister Mutati will be drafted by Ohno. It will take todayfs internal discussion at the Embassy into account. It may also suggest issues that may be covered by an industrialization strategy. The draft will be reviewed by the Embassy and JICA people and finalized in the name of Ohno.
4. Visiting factories and industrial zones
With JICAfs arrangement, Mr. Kapambalala Alivd (Principal Factory Inspector of Northern Region stationed in Ndola) kindly accompanied me to four factories in Copper Belt. They were:
Epsilon Industries Ltd.—a Zambian contract manufacturer of Colgate Palmolive products (detergent, kitchen soap, scouring powder) in Ndola Industrial Zone; established by Colgate 18 years ago; transferred to local management as Colgate pulled out; headed by Mr. Kedman Maumba; market leader in scouring powder but not in other products.
Norgroup Plastic Ltd.—a Zambian company specializing in plastic injection (beer crates, containers, buckets, bottles) in Ndola Industrial Zone; established in 1968; privatized in 1997; headed by Mr. C.D. Sharma; currently in low operation.
Sunfeng Minerals—a company owned by two Chinese brothers; possesses a small copper mine in Chingola and smelters low grade copper ore (10%) into copper ingot (93-94%) and exports it to China and Europe; established three years ago, headed by Mr. Steven Zhao.
Sakiza Spinning Ltd.—a Kenyan Indian-owned company producing acrylic yarns from dyed materials imported from Turkey and Portugal; the owners purchased this factory which was failing five years ago and improved it by kaizen method; now investing in new equipment for further expansion.
On the previous occasion I also visited Trade Kings Group in Lusaka Industrial Zone, a vibrant Zambian company producing household goods such as soap, detergent, scouring powder, candy, maize drink, candles, and pesticide. I also observed the situations of industrial zones in Lusaka, Ndola and Kitwe. Although it is difficult to generalize from small samples, below are my preliminary impressions (for a serious input to the proposed industrialization strategy, a survey of at least dozens of manufacturing firms is necessary).
Apart from Sunfeng which smelters copper, manufacturing companies unrelated to mining exhibit the following features:
--They are mainly import-substitution producers of household products (except Trade Kings and Sakiza which also export to neighboring countries).
--Production processes are relatively simple in that only one or a few machines perform production from raw materials to finished products. Such stand-alone type production operates outside global supply chains, supporting industries, the international division of labor and the like (except Sakiza which has a serious line of East German equipment in textile spinning).
--All key materials, and even sub-inputs such as packaging materials, are mostly imported. Transporting cost in terms of money and time is a burden on local producers. Some factories have to stop operation because they cannot secure trucks to bring in materials during the busy pre-Christmas season.
--Under liberalization and globalization, some manufacturers are losing markets to imports while others, headed by dynamic entrepreneurs, are prospering. This is not surprising since natural selection is normal in any market economy.
--It was amazing that we could just walk into any factory without prior arrangement and meet the general director immediately, who would gladly escort us through the factory floor. Such casual visits are unthinkable in Japan or Vietnam. This is partly a reflection of Zambian hospitality and perhaps partly a reflection of less work to do by top management in comparison with busier countries in East Asia.
Although there are many gfactoriesh in the industrial zones of Lusaka, Ndola and Kitwe, some are not real factories but sales agents of imported parts and products, warehouses, distribution depots, customer service centers, and so on. Even among real factories, production processes are relatively simple as noted above. Some factories which have been closed or pulled out still stand empty or are rented out for other purposes, with old company names still visible on the wall. Unlike in East Asia, these industrial zones do not house large-scale FDI exporters or famous brand-name manufacturers. Some say that Trade Kings Group is the most active 100% Zambian manufacturing firm.
These industrial zones are somewhat similar to the old industrial zones in the southwest of Hanoi. The difference between Zambia and Vietnam is that the wave of opening and liberalization in the early 1990s caused de-industrialization in Zambia, from which the country has not recover completely; while in Vietnam the impact of globalization through trade, investment and ODA has transformed its economy dynamically, with some companies closing but others rising strongly to capture domestic and export markets, FDI pouring in and new private businesses and mini-zaibatsu groups emerging. Vietnam also has dilapidated factories whose hardships are similar to those of stagnant Zambian producers. But they are not the main players of industrialization. Vietnamfs high growth is generated by new players in new industrial areas, not producers in old industrial zones.
Finally, let us hear what Mr. Zhao, the Chinese entrepreneur of Sunfeng, has to say about Zambia. According to him, Zambia is a very good country for doing business. He feels particularly strongly about this since he relocated from D.R. Congo where he had horrible experience as copper businessman. He says, gThe Zambian government welcomes investors. Its laws are international standard. It protects investors and residents. Moreover, I have many local friends, not necessarily Chinese, who help each other. Zambia is really a good country.h However, he also points out problems: unstable power supply, water shortage during the dry season, unreliable telecom networks, and the high price of diesel (i.e., transportation cost).
I visited the Zambia Association of Manufacturers (ZAM) to exchange opinions on FDI policy and East Asian experience. Participants included the general directors of ZAM member firms who were deeply interested in economic policy. The list of ZAM members, containing 120 firms, was given. Dr. Dev Babber, ZAM Chairman, said that the membership now totaled about 200 and would soon increase by another 100. However, the received list did not seem to list all of them.
I also received the list of manufacturing companies in the Northern Region (four provinces) from Mr. Kapambalala in Ndola. It has the names and brief locations of 164 companies. Its coverage seems broader than the ZAM list.
I had an informal dinner meeting with GRIPS alumni and their friends in Zambia (Denny Dumviwizi, Kapaso Mumvi, Prudence Kaoma, Mubita Luwabelwa, Raphael Kasonde, Freda Phiri, Trevor Sichombo, Andrew Simpasa). Mr. Fukuda (JICA) also attended.
The Zambia Development Agency (ZDA) is a new investment promotion body under MCTI. I was supposed to give a seminar at ZDA, but few showed up at the seminar room. The person in charge was out of town. Therefore the seminar had to be cancelled. In any government, cancellations are sometimes inevitable. But it is not very polite not to give any prior notice to the presenter.
Mission Schedule (Nov. 2007)
Nov. 26 (MON)
--Arrive in Lusaka. Move to Copper Belt by car.
Nov. 27 (TUE) Ndola
--Labor Office in Ndola (Mr, Kapambalala, principal factory inspector)
--Epsilon Industries, Ltd. (soaps, etc)
--Norgroup Plastic Ltd. (plastic injection)
--Sunfeng Minerals (copper smeltering)
Nov. 28 (WED) Kitwe
--Viewing a copper mine and smelter from outside
--Sakiza Spinning Ltd. (acrylic yarns)
--Return to Lusaka by car
Nov. 29 (THU) Lusaka
--Participating in JICA Side Event
--Luncheon at the official residence of Ambassador Mitamura
--Meeting at the Zambia Association of Manufacturers
--Meeting with HE Felix Mutati, Minister of Commerce, Trade and Industry
Nov. 30 (FRI) Lusaka
--Seminar at Zambia Development Agency (cancelled)
--Meeting with Japanese Embassy and JICA people
--Dinner with GRIPS alumni in Zambia
Dec. 1 (SAT)
--Leave Lusaka, return to Japan via Vietnam