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  • Writer's pictureSven Haefner

Where to From Here?

April is the cruelest month, breeding lilacs out of the dead land, mixing memory and desire, stirring dull roots with spring rain.

T.S. Eliot

I certainly did not see this one coming. At the end of January, I wrote a positive and upbeat blog. Coming back from Davos and the UK-Africa conference in London, I saw many positives and opportunities. Like many, I did underestimate the global spread of Covid-19 and with it the reaction by governments all over the world that followed.

Economists finally woke up and tried to get numbers together, started looking at the impact of the virus and make sense of it. I read many notes, forecasts and projections. The general thought is that a severe global downturn in GDP this year will be followed by a quick and hearty recovery in 2021 and then everything will be good again. I’m not a pessimist at all but those forecasts seem too optimistic and I think that the current numbers trickling in confirm this. Q1 GDP down 4.8% in the USA, 5.8% in France, 3.7% in Euroland etc. The French decline was the worst since 1949, that’s over 70 years ago.

We have a clear picture for the effects of COVID-19 in the world, but I was looking for good sources that give an idea where the Zambian economy is heading. What is the impact, short-term and long-term on the country? What is the way out of the crisis and who can or will benefit from this? Somehow, it’s easier to find the ones who will be left behind and will be the net losers from the situation. As I write this, the number of Covid-19 cases in Zambia has just surpassed 100, a small number in international comparison, but that does not minimise the impact on the country.

Compared to Europe, Asia or South Africa, the measures taken by government are moderate and, daily life still seems to continue rather normally. Shops are opened, markets bustling, people are still going to work and mines are producing and exporting. Activities are certainly slower than usual, with schools closed and more people working from home, traffic has reduced and restaurants and many hotels have closed. But it’s far away from the pictures of capitals around the world we see on news channels.

The World Bank predicts an economic decline of 2.6% for the full year, following last year’s expansion of 1.7% and then it should grow again in 2021 by 2.3%. The World Bank writes in its April 2020 MPO Macro Poverty Outlook: “Medium-term growth prospects are weighed down by the limited policy space to respond to the COVID-19 impact. Mining output will be affected by lower global demand and price for metals, while supply chain breakdowns from major trading partners like China and South Africa could negatively affect domestic production and consumption.” The most telling part of MPO’s statement is Zambia’s dependency on the international supply chains and the economic performance of its main trading partners. This is nothing new but given that the country is already struggling with debt repayments, increased inflation, slump in the currency, power supply issues and generally low manufacturing base, further stress from the supply chain will weigh negatively on the country’s economic performance.

To understand the full impact on the economy we would need to understand which sector is affected to what level, for how long and how it would recover. Most sectors in Zambia have an informal sector that exists side by side. This is an important aspect to understand as 90% of the employment is actually in the informal sector (International Growth Centre).

Without doubt, one of the most severely affected sectors is tourism. The borders are still open, but there are hardly any flights coming and if, then anyone entering has to quarantine for 14 days. Tourism contributes around 7% to the GDP (World Data Atlas), with over 1m arrivals in 2017. From mid to end of March tourism rates dropped rapidly and shortly after, large hotels started closing and now there is not much activity going on. Not a single conference, no tourists. How long will this last? We don’t know, but realistically it is unlikely that any single international conference will be taking place this year.

According to our figures, tourism alone will drag the country’s GDP downwards by a massive 4% this year, with a slow recovery in 2021.

Using this metric for other industries: retail, finance, construction, mining, agriculture we can grasp how big the impact on the economy will be. The -2.6% forecast by the World Bank frankly shouldn’t worry us too much. And there is a spill-over to the people in the informal sector that employs 90% of the workforce. Elsie Kanza, head of Africa for the World Economic Forum, stated two weeks back that up to a third of the people in the informal workforce in Africa may lose their jobs.

We see the obvious industries that are struggling under the current situation, but where are the opportunities and what can be done to seek them out and proactively support them?

Many of the big tech companies seem to be holding up well. Apple has pivoted to streaming services instead of iPhones, Amazon is delivering its wares at record levels and their cloud services are soaring, Twitter or Zoom are breaking records. But these are US tech giants, not African inventions. There are a few local companies that are operating in similar spaces, providing e-commerce, payment- or e-government services within the local ecosystem. I’ve seen plenty of ideas and concepts, some of them with commercial potential. What is lacking is local development capacity, the strategic management support and funding. Zambia is not a tech hub, but this should not stop us from supporting those local solution providers. Can we use the current crisis as a turning point to move away from cash and physical interactions to a more tech-driven society?

The supply chains are more fragile than before. Earlier this week I quickly popped into one of the smaller supermarket chains that imports everything from South Africa. The shelves were bare. Why didn’t they think of diversifying to local suppliers earlier? There must be an opportunity in the agri space and in food processing. Exporting may be more challenging and costly at the moment, that’s a good time to look at the internal markets and possibly at strengthening the cross-border trade with the eight neighbours. Now would be the moment to strengthen and professionalise the agri-related sector and professionalise it further as it contributes 1/3 towards Zambia’s GDP. The weakened international supply chains should be the trigger for that.

Supply chain pressures are also affecting the mining sector. Not everything can be home made and there are experts manufacturing niche products that cannot be replaced locally. Restarting the local production of mining inputs would be one of the biggest net added value drivers for the country. There were successful companies in this field in the past that have shrunk or disappeared altogether. A concerted effort to revive local mining suppliers and expand manufacturing would be needed, it’s not a short-term exercise however the long-term benefits would be immense.

Education sees massive changes, with all children home-schooled or not schooled at all during the social distancing period. There are more solutions needed to enhance e-learning and provide local content for this. The format of how Education is imparted has not changed globally in 200 years. Are there any solutions for the state schools? How can the universities continue teaching? There must be more opportunities in that sector for providers of innovative solutions.

Many of the solutions will need technology input to move them forward, others need more coordination between different market players; Mines and mining supplier or retail, logistic chains and farmer. We should not let this good opportunity go to waste by falling back into old ways of our comfort zones.

Source: WHO, Zambia statistics for May 5, 2020. 40 of the confirmed cases were recorded from May 1 - May 5

Since I started writing, sadly the number of cases has increased to 137 in Zambia, but that’s still a very low number in the bigger context. Zambia is a country that relies more than many others on trade and sadly neglected locally produced and goods and services. To build-up that necessary resilience to stand against external shocks, the only way forward to negate these external shocks is by beefing up the internal markets in parallel with a concerted effort in supporting and expanding local industries.

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