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SI No 110 – a game changer for manufacturing industry

BUUMBA CHIMBULU writes

@SunZambian

GOVERNMENT has targeted to increase the manufacturing sector’s contribution to Gross Domestic Product (GDP) to 36.12 percent by 2030, says Ministry of Commerce, Trade and Industry Permanent Secretary, Mushuma Mulenga.

Mr Mulenga said Government would also increase manufactures exports as a share of merchandise exports to 71 percent by 2030.

He said Government in consultation with the private sector, continued to put in place policies and measures which are aimed at spurring growth in the manufacturing sector.

He said this recently during the webinar organised by the Zambia Association of Manufactures (ZAM) on the Statutory Instrument (SI) No. 110 of 2020 which allows r suspension of customs duty on imported manufacturing inputs which cannot be sourced locally.

“I am, therefore, happy to see that the Zambia Association of Manufacturers has taken keen interest in encouraging its members to utilise this incentive to spur growth of the manufacturing sector in Zambia and support economic recovery,” Mr Mulenga said.

He said information from the Zambia Statistical Agency reporting that the manufacturing sector recorded a growth of 0.2 percent in the third quarter of 2020 was impressive.

Mr Mulenga said the sector recorded positive growth after being affected by the negative effects of the Covid-19 pandemic.

“According to Zambia Statistical Agency, Zambia imported an average of ZMW 21.6 billion per year worth of manufacturing inputs and intermediate goods in the period 2009 to 2018.

“This huge figure demonstrates that a number of manufacturing inputs cannot be sourced locally,” he said.

Mr Mulenga therefore said the amendment to the suspension on manufacturing input Regulation was to recognise special preferential tariff Agreements.

“Government in consultation with the private sector, continued to put in place policies and measures which are aimed at spurring growth in the manufacturing sector. One such measure is the Customs and Excise Suspension Manufacturing Input Regulation which has been in place as far back as 1994.

“Today, Government has taken great strides to amend this policy so that it remains responsive to business needs in the wake of Regional Free trade areas and the need to support the consumption of locally produced goods,” he said.

Policy Analyst Zondwayo Duma in a Zambian Association of Manufacturers column published in the Daily Nation writes that the global economy has been hit by the second wave of the coronavirus disease (Covid-19) pandemic threatening a possible halt to business in 2021. Unlike 2020 when the pandemic first hit the global scene, Zambia has learnt several lessons from the first wave. Among them that there can be continuity in business activity, well at least for the manufacturing sector, since very few firms reported to have closed down. The resilience these manufacturing companies showed puts them as front runners of economic recovery in Zambia.

While the focus of the effects of the COVID-19 has mainly been on health and general economic impacts, very little work has been undertaken on firm level implications of the pandemic and what would account for suitable Government interventions to assist firms. This article highlights how the Government has aided the manufacturing sector through Government policy.

Over the months, several measures have been put in place to facilitate economic recovery. They include Governments pronouncement to support procurement of locally manufactured goods and the introduction of a local content allowance to support processing of locally grown fruits and vegetables such as mangoes, pineapples and cassava. Progressive measures as these, position the manufacturing sector on the path of economic recovery.

What was realised from the first wave of the coronavirus pandemic in 2020 was that many raw materials used in manufacturing in Zambia are not produced locally. Hence, with strategic partner countries such as South Africa and China closing down their borders to avert the virus, several inputs could not easily be sourced from abroad and were not available on the Zambian markets. In cases where the goods were available locally, they tended to be more expensive than imports due to the high cost of production in the period.

While the Ministry of Commerce Trade and Industry worked well with ZAM to ensure that manufacturers were aided to obtain their inputs during the hard times, there is now renewed hope for obtaining manufacturing inputs. In recognition of the difficulty to obtain inputs and increased costs caused by the depreciating Kwacha, the Government has gone a step further to ensure that manufacturers will obtain their inputs at lower costs. Statutory Instrument Number 110 of 2020 (S.I No. 110 of 2020), suspends customs duty on manufacturing raw materials not produced in the country and brings hope for continued production in the second wave of the pandemic.

The SI states that manufacturing inputs are taken to mean imported goods specific to the manufacturing requirement, intended for use as a component in the manufacturing of other goods in Zambia. This entails that only those transforming raw materials or semi-finished products into finished goods on a commercial scale can be eligible.

ZAM can play a role to attest to companies that are bona fide manufacturers in the country and reduce the risk of fraud to the Government. Additionally, safeguards to Government revenue are embedded in the S.I as it states that the goods shall not be sold, or otherwise disposed of, to any person not entitled to import them free of duty.

Notably, in the absence of a well development input sector in the country, clearly need arises for support for the manufacturing sector to obtain inputs to be allowed to continue producing effectively. To build on the foundation set by the Economic Recovery Programme (ERP), in which the Government will pursue investment into input industries to encourage growth in the manufacturing sector, S.I No.110 especially in the short term, will be the key to ensuring that the manufacturing sector recovers and continues to thrive. And to ensure the development of the input industry as highlighted in the ERP, the Government can continue to provide the necessary requirements such as infrastructure and the relevant business environment essential for industrial development.

Further, the Government can expedite the development of the local input markets by quickly turning the Local Content Policy into law. Despite being an important document for promoting local industry, in its current state, the Policy cannot compel companies to be compliant to the initiative. Moreover, once the Government undertakes the process of repealing and replacing the Public Procurement Act of 2008, as proposed in the 2021 National Budget, Zambia will be on its way to promote local procurement and the utilization of local content.

Overall, this progressive SI shows that the Government is committed to supporting the manufacturing sector and ensuring that it grows as a major contributor to economic recovery and growth in Zambia. SI No.110 of 2020 comes at a time when Zambia is building back through the ERP and the manufacturing sector can play its role. Thus, the importance of SI No. 110 of 2020 to the sector cannot be overemphasized.

ZAM, in recognition of the erroneous commencement date of 1st January 2020, as stated in the SI, urges the Government to accelerate the correction of the date to reflect commencement date as 1st January 2021.

The worthiness of the implementation of the SI is that it will be used to spur growth in the manufacturing sector, increase jobs, reduce prices of locally manufactured goods and increase exports. Furthermore, the growth in the manufacturing sector will also spill over to the overall economic recovery as outlined in the ERP.

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