Preliminary Analysisand

Potential Suggestions

August, 2015JICA Senior Volunteer(assigned to ZCSMBA)

Mikiya Takeuchi1

GDP Growth Trend

2Source; http://ecodb.net/country/ZM/

Unit in BillionZambian Kwacha

Unit in Zambian Kwacha(per capita)

During this 20 years, economic level has increased dramatically and its growth rate is 6.6% in 2013

In 2013, the nominal GDP is $24 billion and its per capita is $1,700 (vs. $36,332 in Japan)

GDP Portfolio Management (2008-2013)

Bubble size; Nominal GDP in 2013 (unit in billion ZMW)X (horizontal line); Relative share of GDP in 2013Y (Vertical line); Growth % of GDP (2008-2013 CAGR)

Very unique figure in GDPPM in terms of there is neither “Cash Cow” nor “Dog”

Most of sectors have strongly grown for the recent 5 years

Construction is a leading sector but there are several sectors to be prioritized in investment of which will become the next “Star(s)”

An issue is that, in spite of the utility service (electricity, gas and water) must be necessary for further growth for other sectors, its relative share is very small

Source; African Economic Outlook by AfDB, OECD, UNDP 2014Miki’s original analysis and view 3

Star Problem Child

Cash Cow Dog

To invest aggressively to nurture industry toward “Star”

May still need investment but shift to “Cash Cow” in the future

No need to invest and withdraw from industry

Matured industry in stable GDP generation and no need to invest

Sectorial Investment

4Source; Zambia Development Agency Annual Report 2014

(Unit in million USD)

Based on the GDPPM analysis, it is wondered whether we really needed to increase drastically the investment for a construction sector in 2014? – already achieved big contribution in 2013

Why the investment for a energy sector be decreased year by year in spite of all industrial activities require it to raise productivity and for job creation?

Note that the investment amount by ZDA for MSMEs in 2014 was only $1.5M for 94 projects

Govt. Cash Management

5Source; http://ecodb.net/country/ZM/

Fiscal deficit has been increasing year by year and public debt as % of GDP is 31.2% External debt is $5 billion and a credit rating is low – Moody’s B1 and S&P’s B+ mean high

interest

Unit in BillionZambian Kwacha

Need deeper investigation　・ Lack of taxation?　・ Lack of strict cost control?

Increase debt to cover the fiscal deficit?Or for advanced investment?

Industrial Income/Outgo

6Source; UNCTAD

Current balance in 2013 is almost break-even -> Seems to be stable Reasons for drastic improvement from 2009 to 2012 is tbc

Current Balance （経常収支） ＝＋ Balance of Trade （貿易収支）＋ Balance on Goods and Services （サービス収支）＋ Balance on Income （所得収支）＋ Current Transfers Account （経常移転収支）

US $266M

Unit in BillionZambian Kwacha

Phillips Curve

7

Unemployment Rate (%)

Inflation Rate (%)

1991

RecentYears

In theory

Phillips curve has NOT figured as it is generally said in the economic model It seems that the government made an effort to control the inflation rate but both its and the

unemployment rate are still high

Source; ILO, http://ecodb.net/country/ZM/

Correlation between Investment and Job Creation

8Source; Zambia Development Agency Annual Report 2014, Miki’s original analysis and view

Based on the regression analysis, it is indicated that we need the investment of 8,150 million USD to dissolve the current unemployment of 2 million people, which is calculated by;

14,540 thousand (population) x 13.3% (unemployment rate)= 8,150 million USD (investment) x 3.4504 + 922.66

Job Creation

Investment (million USD)

Abnormal

AbnormalAbnormal

Investment (million USD)

Job Creation

Sample data; Investment and job creation in each year from 2012 to 2014 in major sectors such as Agriculture, Construction, Health, Education, Energy, ICT, Manufacturing, Mining, Real Estate, Service, Tourism, Transport

Non-Traditional Export (NTEs)

9

(Unit in million USD)

Most of products that MSMEs are currently dealing with are commodity ones, thus facing with difficulty to differentiate from competitors

Therefore, to expand the exportation, value-added products be needed, such as refine, processing and semi-manufacturing, as well as robust marketing strategies

Source; Central Statistics Office, Bank of Zambia

Breakdown of NTEs in 2014

Circumstances surrounding MSMEs

10Source; The Micro, Small and Medium Enterprise Development Policy

MSMEs in Zambia consist of;manufacturers (41%),supply chain vendors (49%), and,service providers (10%)

52% of MSMEs are conducting business in rural areas and # of employees in each is less than 10

97% of enterprises in all over Zambia is MEMEs, which is creating 18% of employment

In India, 70% of GDP is occupied by MSMEs

To generate 20% of GDP

To create 30% of employment annually

To add value on 10% of products (e.g. refine, processing, semi-manufacturing for raw materials)

To increase 10% of productivity annually

To increase 10% of transactions annually collaborating with big enterprises

Survey in 1996 Goal in 2018

Reasonable Cost of Capital for MSMEs

11

Based on information regarding the cost for financing, actually interest rate, it is very high and we are not sure the logic how it was decided logically

If MSMEs are able to get financing as capitalization from others directly, like strategic partners, business angels and venture capitalists, it is similar to invite FDI and resulting its cost of capital can be logically calculated instead of commercial banks’ “asking price”

Source; Lusaka Stock Exchange, New York University

CAPM model; rE = β x (Rm – Rf) + Rf

β; if totally works together with the stock market, it is 1. MSMEs’ may be much higher. Rf (Risk Free Rate); 13.5% based on 5 years governmental bond issued in Dec. 2012 -> To be updated Rp (Risk Premium); Rm (Market Risk) – Rf = 12.5%, provided by the NY University -> To be confirmed

rE (Return on Equity) = 1 x 12.5% + 13.5% = 26.0% (tentative)

Coveney and Moore (1998)

Key Success Factors for MSMEs

12

Stable infrastructure

for utility service

Increaseoperating rate

Attract & invite potential sponsors

to invest

Financial support,technology &

knowledgetransfer

Improve internal operation

Value-addedproduction

Decrease COGS(scale merit)

Job creation

Re-launch product

withhigh quality,

low cost,new concept,

high profitability

Local consumptionvs. RSA products

Export as NTEs to gain foreign

currency

Promotional activities

Business matching incl. partnering, JV, M&A, consortium

Strategic planning and training for

marketing

Negotiation for supply chain and

trade

Building overall business plan

ZCSMBA to support

Lobbying and advocacy