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Publication | 2024

Zambia Country Economic Memorandum 2024 - Unlocking Productivity and Economic Transformation for Better Jobs

Highlights:

Zambia needs to increase productivity and accelerate economic transformation to achieve sustained and inclusive growth.

  • Zambia’s debt resolution and ongoing reforms are expected to support macroeconomic stability and reignite private-sector investment.
  • But while the economy is recovering, structural issues persist; growth is neither sustained nor inclusive, failing to significantly reduce poverty or create enough good jobs.
  • This Country Economic Memorandum (CEM) discusses two pathways that can support Zambia’s productivity-enhancing economic transformation, generate better jobs, and deliver sustained and inclusive growth. Raising the productivity of agriculture is the first pathway for tackling Zambia’s development challenges (Chapter 2). It has enormous potential to drive poverty reduction, but expensive and distortive support programs, coupled with increasing climate hazards, constrain productivity growth and dampen opportunities to diversify beyond maize. The second pathway involves Zambia making critical economy-wide reforms to unlock broad-based private sector  productivity growth and increase its role in driving jobs and economic transformation (Chapter 3).

Zambian agriculture: high potential to drive poverty reduction and create better jobs

  • A poverty-reducing growth path for Zambia involves raising productivity in agriculture, which employs most Zambians but is severely exposed to climate change. Zambia has the natural capital for its agricultural sector to become an engine of economic growth and poverty alleviation. Yet the country’s agricultural productivity is well below potential and on a downward trend. Most farmers in Zambia are smallholders, depend on maize and rainfall, and are seeing crop yields decline. Labor productivity in the sector has fallen by almost 50 percent over the last 20 years. Around 80 percent of the poor live in rural areas and rely primarily on farming, livestock, and other agricultural work; close to 60 percent of working Zambians are employed in agriculture. As most of the population depends on agriculture as a primary source of income, low productivity in the sector will inadvertently result in low aggregate incomes, limiting people’s ability to break free from poverty. Inefficient and distortive public policies for the sector, increasing climate hazards and resource degradation, and limited diversification are hampering the sector’s growth. Moreover, the evolution in food supply is not keeping up with the nutrition needs of the country’s expanding population and changing consumption patterns.
  • Reform the Farmer Input Subsidy Program (FISP) and Food Reserve Agency (FRA) to free up fiscal space for productive investments and to support diversification efforts. Analysis for this report confirms that supporting maize production through the FISP and FRA is the least socially efficient option for Zambia. The average smallholder who solely produces maize earns below the poverty threshold of US$2.15/day, even when supported by the FISP and FRA. Redirecting public spending on FISP and FRA to instead support productive investments in infrastructure, capacity building, innovation, and climate change adaptation is vital to reduce poverty and generate inclusive sectoral growth.
  • Invest in climate change adaptation and halt the degradation of environmental resources, starting with the soil. Agronomic solutions already identified by the GRZ need to be implemented rapidly and at scale. These include crop diversification, improved soil fertility management, liming, and agroforestry. Investing in resource-efficient irrigation is also paramount for adapting to climate change. Large commercial farms make about eight times higher profits during peak season when they irrigate their fields than farms which rely on rainfed production. Public-private partnerships could be used to cooperate with farming communities to invest in irrigation and to establish well-defined water user rights and fees. In addition, there is a need to continue to promote water-conserving tillage practices such as minimum tillage, cover crops, and residue retention to reduce water stress during dry periods.
  • Remove trade barriers and facilitate trade to increase the potential for agribusiness and commercial agriculture to grow. Zambia still suffers from multiple trade barriers including restrictions on the size of trucks that can transport maize, and export permits that expire after 30 days. Unexpected transport or administrative delays significantly increase business costs and decrease the competitiveness of Zambia’s agricultural exports. In addition, building resilient, diversified, and productive farm production systems requires farm mechanization, transport infrastructure, and storage and processing facilities to access domestic and regional markets. Road and rail infrastructure is critical to connect high-potential farm regions to markets and to allow people and goods to circulate cost-effectively. Such investments would benefit traders,  processors, and consumers as well as farmers.
  • Ensure a supportive business environment, including extension services, and build human capital to harness the potential of private sector-led agricultural growth, particularly for higher value-added crops, livestock, and aquaculture. The formal agricultural sector in Zambia has been seeing increasing productivity growth (Chapter 3). Supporting an enabling environment that catalyzes further private sector investment will be critical, particularly when production from high value-added crops, livestock, and aquaculture is growing. This will require enhancing education and training in modern technologies and practices for profitable and sustainable operations, access to finance and insurance, plant health protection and veterinary services, and early warning system – all of which are innovation-intensive. Building human capital, including knowledge and skills in modern and adaptive production practices, agri-entrepreneurship, and the capacity to innovate, will all help boost productivity in the sector.
  • Zambia needs to create over 10 million new jobs by 2050 to keep its labor force participation and employment rates from declining.
  • Increase firms’ access to finance. The financial sector needs to develop innovative and tailored financial products that meet firms’ needs and offer them alternative funding sources.
  • Boost firms’ technology adoption, capabilities, and skills. GRZ should continue connecting local firms to value chains by linking them to lead firms, local affiliates of multinational enterprises, and special economic zones.
  • Improve the access to and quality of the electricity supply. GRZ should continue electricity reforms to crowd in private sector investment.
  • Streamline the regulatory and business environment.
  • Support firms to become resilient to climate change.
  • Build institutional capacity.