This material was created by Mikiya Takeuchi, Senior Business Management Advisor assigned to Zambia Chamber of Small and Medium Business Assoiations by JICA and shared with District Business Associations in Zambia.

1. Preliminary Analysis
and
Potential Suggestions
August, 2015
JICA Senior Volunteer
(assigned to ZCSMBA)
Mikiya Takeuchi
1

2. GDP Growth Trend
2Source; http://ecodb.net/country/ZM/
Unit in Billion
Zambian 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)

3. GDP Portfolio Management (2008-2013)
Bubble size; Nominal GDP in 2013 (unit in billion ZMW)
X (horizontal line); Relative share of GDP in 2013
Y (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 2014
Miki’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

4. 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

5. 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 Billion
Zambian Kwacha
Need deeper investigation
・Lack of taxation?
・Lack of strict cost control?
Increase debt to cover the fiscal deficit?
Or for advanced investment?

6. 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 Billion
Zambian Kwacha

7. Phillips Curve
7
Unemployment Rate (%)
Inflation Rate (%)
1991
Recent
Years
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/

8. 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

9. 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

10. 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

11. 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)

12. Key Success Factors for MSMEs
12
Stable
infrastructure
for utility service
Increase
operating rate
Attract & invite
potential sponsors
to invest
Financial support,
technology &
knowledge
transfer
Improve internal
operation
Value-added
production
Decrease COGS
(scale merit)
Job creation
Re-launch
product
with
high quality,
low cost,
new concept,
high profitability
Local consumption
vs. 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