Private Sector Development

The GRZ has made reforms for Private Sector Development (Word doc) a priority in the FNDP, 2006-2010. The Government is convinced that the rules for business should be more investment friendly if it would like to achieve the central theme of the FDNP: i.e. broad-based wealth and job creation. The priority areas for PSD reforms include: business licensing reforms, labour flexibility reforms, border management and access for small enterprises to finance, technical assistance and electricity.

The GRZ also aims at a higher ranking on the international Doing Business list. For 2009, Zambia ranks place 100 out of 181 countries; an improvement of 16 places from 2008! This is a relative good ranking as compared to other countries in sub-Saharan Africa (best scoring Least Developing Country in Africa). The first reforms are now internationally acknowledged. Zambia might score even better in future as it works on some of the worst-scoring parameters for Zambia: i.e. business licensing, trading across borders and firing costs/redundancy payments for workers. See the major constraints for business development.

The support to PSD from the Cooperating Partners (CPs) has been coordinated and harmonized way through two complementary funding modalities: aligned basket support and bilateral project support. CPs working on PSD have agreed to a division of labour, whereby the Embassy is one of the co-leads, next to World Bank.

The Embassy promotes strongly Zambian ownership in the reform process and in the establishment of country promotion services to smaller business, thereby ensuring the outreach to rural areas and the equitable involvement of women entrepreneurs. Being a co-lead donor in PSD, the Embassy encourages the different donor agencies to support the Zambia initiatives in a harmonized way. The donor agencies are discouraged from setting up temporary projects that run parallel to country-driven initiatives. The Netherlands support is divided into three groups:

1 Better rules for business

Empower the GRZ to simplify the rules for doing business in Zambia, and
Support the business community to lobby effectively GRZ

2 Better access to services by small business

SMS-based market information
Zambian system for Business development services
Credit Guarantee Scheme for MSMEs
National Housing Bond Scheme
Land banks at district level
Renewable rural electrification

3 Promoting innovative investments

Restructuring Zanaco/Rabo into country-wide peoples’ bank
Additional FMO-support to banks, nergy and housing schemes
PSOM – joint ventures in proteas, natural stones, potato chips and health insurance

3.1. Major constraints for business development

Zambia’s macro-economy is not a major stumbling block for PSD anymore: foreign debt has been cancelled, the inflation is under control and interest rates have come down. The only macroeconomic constraint is the relative strength of the local currency (Kwacha) caused by the large influx of foreign exchange (e.g. mining revenues), thereby eroding some of the effects of the economic (export) diversification.

Zambia ranks 116 out of 178 on the 2008 Doing Business indicators. As such it is one of the better performing countries in sub-Saharan Africa. Zambia is scoring relatively well on ‘paying taxes’, ‘protecting investors’, starting a business and ‘enforcing contracts’. The weakest indicators in Zambia are ‘dealing with licences’, ’trading across borders’ and ‘registering property’. The competitiveness of business is further negatively influenced by the access to electricity, high fuel costs and high costs of finance.

3.2 Donor coordination in Private Sector Development

The GRZ, private sector and 8 Cooperating Partners signed in 2006 the MoU on the coordination of the implementation and support of the PSD-Reform Programme. The Netherlands and the World Bank represent the CPs in the dialogue with GRZ, whereby USAID functions as substitute. The funding is provided through two complementary funding modalities:

The Embassy with the UK, Sweden and Finland provide basket support which enables the GRZ to implement the reforms themselves and build experiences.
USAID is an example of the other funding modality that of bilateral technical project support: implementing for the GRZ the computer systems for business registration, tax administration, etc. World Bank does not finance major PSD projects, but it active in the dialogue for reforms.

The PSD CPs have agreed to a PSD-division of labour by sub-area (Excel xls). The Embassy coordinates the basket support and is contact donor for labour issues, Zambia Development Agency (one-stop-shop for business, www.zda.org.zm), PPP-policy and strengthening of "private sector organisations". World Bank concentrates on tourism and telecom. USAID is the donor contact for administrative barriers, immigration and land administration. Sweden is the contact for energy reforms. Finland is the contact for trade expansion and pays particular attention with the Embassy to SME-development. UNDP is following the "citizens empowerment" and the European Commission is the contact for mining.

3.3 Better rules for business

GRZ drives the PSD Reform Program which aims at improving the rules for doing business in Zambia and at promoting investments, large and small; indigenous and foreign. The Cabinet office steers the program, while the Ministry of Commerce, Trade & Industry coordinates the implementation across the ministries. The focus is on business licensing, border management, labour flexibility, land registration, access to finance and business development support. Micro, Small and Medium Enterprises (MSMEs) are treated as a cross-cutting target group.

GRZ maintains a regular dialogue with the private sector and their views are taken into account for the reforms. The private sector negotiates with GRZ through the Zambia Business Forum (www.zbf.org.zm) which has 8 sectoral member associations, such as for farming (www.znfu.org.zm), banks, manufacturing, mining, tourism and MSMEs. The challenges for the reform program and Zambia Business Forum are the linkages with the business up-country, in the districts and provinces.

Since 2002, the President and Ministers annually debate for two days with international business advisors and private sector as part of the Zambia International Business Advisory Council (ZIBAC). These events have created a mutual understanding and triggered some actions. A national Sector Advisory Group (SAG) for Private Sector Development will be established to review periodically the progress with PSD programs. The SAG PSD will be a tripartite partnership of government, donors and businesses from the districts.

GRZ has also started a PSD communication program. The popular newspaper, The Post, publishes occasionally a PSD-supplement (www.postzambia.com). This complements the radio programs on certain aspects of the PSD, such as the streamlining of the procedures to register a new company name, which has been implemented with the help of the US-funded Millennium Challenge Account-threshold program.

3.4 Better access to services by small business

Since September 2006, the ZNFU launched the SMS and web-based market information service on 14 major agricultural commodities from over 150 buyers who operate in Zambia. The user can get prices and a name of the buyer that corresponds to the quotation. The service is cost-effective, accessible and reliable (see also www.farmprice.co.zm).

The Zambia Development Agency (www.zda.org.zm) has sub-contracted, through competitive bidding, Madison Investments as the Fund Manager for the establishment of a voucher system for business development services (BDS) to MSMEs. The fund manager will make the vouchers available to MSMEs (of which at least 45% women entrepreneurs) that are associated with the district associations for MSMEs and for farmers. The MSMEs can call in any kind of business development service (legal, technical, marketing, etc) from eligible service providers. The BDS-voucher scheme is piloted in 4 districts in Zambia: Petauke, Mumbwa, Livingstone and Kasama. The programme document for the BDS voucher scheme can be downloaded here (Word doc).

GRZ is developing a credit guarantee scheme for MSMEs, that would allow banks to lay off part of the credit risks to an independent fund that would have to be privately managed. The scheme will have to be set up before the end of 2008 and be capitalized jointly by GRZ and CPs. Legal and Dutch technical expertise will work together in the establishment phase.

The first Housing Bond on the Lusaka Stock Exchange (www.luse.co.zm) is under development with a view to make cheaper capital available from pension funds to construction companies. The National Housing Bond Trust has been set up facilitate the process: obtain land from City Councils (initially Lusaka, Kitwe, Chipata and Livingstone), plan housing estates and mobilize capital to constructors through the capital market (pension funds). The demand for houses in Zambia far exceeds the availability.

The Embassy supports, through a delegation cooperation partnership with Sweden, the expansion of rural electrification to rural growth centres. The support will be an investment subsidy for three different forms: expansion of the grid, stand alone mini-hydro systems and solar power systems in more remote areas (without waterfalls).

3.5 Promoting innovative investments

The Embassy supports the restructuring of the Zanaco (www.zanaco.co.zm). Since April 2007, Rabobank of the Netherlands is managing Zanaco and has 49% of the share capital. Zanaco has a country-wide network and is in particular improving customer relation management and developing new products. It has launched a payment system through cell phones/internet and it is enhancing outreach to farmers and small business. In the second half of 2008, the Government will offer half of the remaining 51% on the Lusaka Stock Exchange to the Zambian public.

The FMO is active in Zambia and has financed operations in the banking sector (Zanaco and Cavmont). It is also active in the energy sector with equity in an electricity distribution company (Copperbelt Energy Corporation). Third, FMO has financed some collective infrastructure in two housing schemes (Lilayi Housing and Lumwana mining) (www.fmo.nl).

PSOM (www.evd.nl/PSOM) is an instrument that reimburses 50% of innovative investments of business ventures that consist of a Zambian company and a foreign partner, registered in the Netherland or a developing country from the DAC list. However, the procedures for applying to PSOM will change: please consult the PSOM website for the latest information.
Four joint ventures in Zambia do benefit from PSOM:

production and exports of Protea flowers (involvement of Dutch and Zimbabwean company; activity completed)
Upgrading the manufacturing of natural stones to the export market (Dutch company)
Establishment of a potato chips factory for the local fast-food market (Dutch company)
Health insurance facility by using modern Indian ICT technology (south-south cooperation with company from Uganda).

Zambian businesses can also call in assistance from retired Dutch managers/experts. The names of the representatives in Lusaka, Copperbelt and Livingstone of this PUM programme can be found on the website: www.pum.nl.

For more information about international business development instruments, see www.evd.nl/dyb.