Industrial Diagnostic Study Zambia 2020
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Programme for Country Partnership Industrial Diagnostic Study Zambia 2020 i Contents .................................................................................................................................................... ii Acknowledgements .................................................................................................................................. iv List of acronyms and abbreviations .......................................................................................................... v Executive Summary ................................................................................................................................. vii Introduction and Diagnostic Framework .............................................................................................1 BLOCK 1: INDUSTRIAL PERFORMANCE AND POLICY CONTEXT OF ZAMBIA ...........................................3 I. Economic Performance ................................................................................................................. 3 Value Addition ............................................................................................................................... 3 Export competitiveness ................................................................................................................. 9 Sophistication and innovation ..................................................................................................... 14 Participation in global value chains ............................................................................................. 16 Regional markets for exports ...................................................................................................... 17 Investment ................................................................................................................................... 18 II. Social Performance ...................................................................................................................... 19 Employment and inclusiveness ................................................................................................... 19 Skills ............................................................................................................................................. 23 III. Environmental Performance ....................................................................................................... 25 Clean production processes ........................................................................................................ 26 Energy .......................................................................................................................................... 28 IV. Policy Context.............................................................................................................................. 31 Governance and policymaking in Zambia .................................................................................... 31 The industrial policymaking process ........................................................................................... 37 SUMMARY OF BLOCK 1 AND IMPLICATIONS FOR PCP PROJECT DESIGN ........................................... 39 BLOCK 2: ANALYSIS OF MANUFACTURING PRIORITY SECTORS ........................................................... 43 I. Processed foods ........................................................................................................................... 48 II. Textiles, garments and leather products ..................................................................................... 49 III. Wood and wood products ........................................................................................................... 51 IV. Mineral processing and products ................................................................................................ 52 V. Medium and high-tech sectors excluding fabricated metals and chemical products ................. 54 VI. Pharmaceutical sector ................................................................................................................. 54 SUMMARY OF BLOCK 2 AND IMPLICATIONS FOR PCP PROJECT DESIGN ................................................. 56 BLOCK 3: IDENTIFICATION OF KEY BOTTLENECKS .............................................................................. 57 I. Main obstacles for manufacturing firms ..................................................................................... 57 ii Electricity ..................................................................................................................................... 59 Water ........................................................................................................................................... 61 Access to finance ......................................................................................................................... 61 Practices of the informal sector .................................................................................................. 64 Access to land .............................................................................................................................. 65 II. Skills-related bottlenecks for the manufacturing sector ............................................................. 66 Skills and job composition ........................................................................................................... 66 Skills-related problems ................................................................................................................ 67 Skills development for staff ......................................................................................................... 68 Hiring ........................................................................................................................................... 69 III. A zoom on other relevant bottlenecks ........................................................................................ 71 Tax rates and administration ....................................................................................................... 71 Customs and trade ...................................................................................................................... 72 Innovation, Digitalization and R&D ............................................................................................. 72 Corruption ................................................................................................................................... 74 SUMMARY OF BLOCK 3 AND IMPLICATIONS FOR PCP PROJECT DESIGN ........................................... 74 BLOCK 4: FINAL SUGGESTIONS FOR PCP DESIGN ............................................................................... 76 iii Acknowledgements This study benefitted significantly from the valuable information provided by key institutions in Zambia. Consultations were held with the Ministry of Commerce, Trade and Industry (MCTI), the Zambia Statistics Agency (ZamStats), the Zambia Micro and Small Traders Foundation (ZAMAST), the Zambia Chamber of Commerce and Industry (ZACCI), the Zambia Association of Manufacturers (ZAM), the Zambia Institute for Policy Analysis and Research (ZIPAR), the Zambia Development Agency, the Ministry of National Development Planning and the UNECA South Africa regional office. We express our sincere gratitude for the availability, time and valuable inputs that helped shape the report. iv List of acronyms and abbreviations AfCFTA African Continental Free Trade Agreement CAGR Compound Annual Growth Rate CO2 Carbon dioxide COMESA Common Market for Eastern and Southern Africa EQuIP Enhancing the Quality of Industrial Policy (UNIDO/GIZ) FDI Foreign Direct Investments FTA Free Trade Agreement GDP Gross Domestic Product GTCI Global Talent Competitiveness Index ICT Information and Communications Technology IEA International Energy Agency IIP Index of Industrial Production INDC Intended Nationally Determined Contribution (Agreement on Climate Change) ISIC International Standard Industrial Classification of All Economic Activities IT Information Technology LCA Latent Comparative Advantage LMI Lower middle-income countries MNF Manufacturing MSME Micro, small and medium enterprises MVA Manufacturing Value Added NDP (Zambia) National Development Plan NIP National Industrial Policy (Zambia) NORTEC Northern Technical College OECD Organisation for Economic Co-operation and Development PCP Programme for Country Partnership PPP Purchase Power Parity RCA Revealed Comparative Advantage v SADC Southern African Development Community SDG Sustainable Development Goal SHP Small Hydropower SITC Standard International Trade Classification SME Small and medium-sized enterprises TVET Technical and Vocational Education and Training UNIDO United Nations Industrial Development Organization UNCOMTRADE United Nations COMTRADE database UNECA United Nations Commission for Africa UNFCCC United Nations Framework Convention on Climate Change USD United States Dollar UNZA University of Zambia VPoA Vienna Programme of Action WB The World Bank Group ZAMITA Zambian Industrial Training Academy ZEMA Zambia Environmental Management Agency vi Executive Summary Zambia’s ambition is to transition from being a lower middle-income (LMI) country to an industrialized middle-income nation by 2030. UNIDO and the Government of Zambia are collaborating to design a PCP program in which projects aiming at boosting inclusive and