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ZAMBIA - Long haul ahead for Zambian businesses.

Summary: Zambia's cross-border transport infrastructure is a key factor in an economy that currently needs every bit of commerce available.

Dusty container-laden trucks coming into Celtic Freight's compound in an industrial park in Lusaka bear the hallmarks of a long journey from South Africa and are far from being shiny chrome-lined haulers. And they're not meant to be, because robustness rather than a shiny exterior is what a company needs in Zambia, especially with its present economic woes.

Before 2013, Zambia had one of Africa's fastest-growing economies -- hitting a very respectable 6.5% GDP growth in 2011 -- spurred on by mining of its huge copper and cobalt reserves. Then global prices for minerals dropped at the same time as rains failed in this hydroelectric-dependent country, resulting in daily eight-hour power cuts, mines reducing production and manufacturing businesses laying off staff.

Celtic Freight finds itself relatively unscathed by this double whammy for now, its trucks running on petrol and the business dealing mainly with Zambia's less-affected agricultural sector, along with a few other items.

"We haul everything from cornflakes to condoms,"says Celtic founder Adrian Friend inside the offices of the 40,000-square-metre compound in an industrial park in the Zambian capital, "as it all has to come from outside the country."

Of which the vast majority originates in South Africa, with membership of the Southern African Development Community (SADC), meaning no duty paid on Zambia-South Africa trade. Hence the continuous stream of Celtic trucks setting out for, or returning from, Johannesburg and Durban's port on South Africa's east coast. And if they look a little rough around the edges, that's fine with Friend.

"Sure they're old but they are looked after," he says. "We don't spend money on fancy offices or trucks, what's the point -- when it's stuck at the border you're not getting anything from an expensive truck. Instead we're constantly buying infrastructure that our competitors don't have."

Such fiscal probity has enabled the business to grow without ever needing credit.

"We started 19 years ago with 8,000 South African rand [about $600] in the bank, a cellphone, a Land Cruiser Hilux and a fax machine and copier," Friend says of the company that has offices in both Lusaka and Durban. Its fleet now numbers 130 trucks and a stock of 600 containers -- the biggest in Lusaka -- a level deemed optimal by Friend.

"We've been at that for the past five years, over that it gets unmanageable," Friend says.

Size versus value

Inside Celtic's Lusaka offices is a map of the world dotted with pins marking where the company's containers ship to.

"There's a big transient community here working for embassies and NGOs," Friend explains. "When they leave, their stuff goes in one of our containers -- that's why we get to all sorts of interesting destinations."

Celtic trucks travel to and from South Africa via Botswana, which entails taking an old pontoon ferry at the shared border -- probably the world's shortest international boundary at 750m across the Zambezi River at Kazungula -- rather than a solid bridge at the Zimbabwe crossing. But it's worth it to avoid "running the gauntlet of Zimbabwe which can be a nightmare," Friend says.

The contents of containers on the backs of Celtic trucks reflect Zambia's import-export dynamic. Leaving Zambia all trucks are chock-full, Friend says, with the likes of maize, maize by-products, cotton lint, cotton by-products, coffee, manganese and amethyst. Coming back often they aren't so heavily loaded, mostly bringing lighter hi-tech goods, many of them shipped from Asia.

"The disparity in size between bulky farm products going out and lighter hi-tech coming in is also a disparity in value," Friend says.

Another disparity in value for Zambia currently comes from its currency, the kwacha, continuing to slip against the dollar, with inevitable consequences for employees' spending powers and businesses' revenues.

"Zambia sums up why business in Africa is a different ball game," says Niels Bojsen, a partner with Kukula Capital, a Lusaka-based investment company.

"You will find very few economies that are in the world's top 10 fastest growing and then suddenly are one of the countries with the highest currency devaluation. That change appears very fast from the outside, but seen from the inside, I remember when Europe was hit by its economic crisis in a similar time frame."

The main difference between the two, acknowledges Bojsen, who is from Denmark, is that when problems hit in Europe they appear more controllable. In Zambia, on the other hand, you are faced with severe power shortages and no one knowing when full capacity will return.

"Before, it did not feel as if you were in a developing economy, as the country was moving so briskly along," Bojsen says. "But with what has happened you are reminded you're very much still in a developing country."

Good timing then misfortune

Zambia offers a good case study about the intermarriage of political ideology and economics. In the mid-1990s the countrybegan shedding its post-independence socialist ideology, moving toward a more liberal economy.

"As the country opened up, demand for imports just snowballed," Friend says. "We were lucky to be here at the right time as Zambia developed, which also coincided with apartheid and sanctions ending in South Africa, enabling it to trade with the rest of Africa."

Along with dismal copper prices and seasonal rains contributing to Zambia's present change of economic fortunes, those within Lusaka's business community seem to concur on there being another third trigger: incompetence and mismanagement at governmental levels.

Zambia has prior experience of the capricious nature of both commodity prices on the world stage and Mother Nature, observers note. It shouldn't have taken much brainstorming to plan ahead and put in place contingency plans. At the same time, it's noted that Zambia hasn't had a capitalist economy for long since those more socialist-driven days, with such lack of experience contributing to growing pains as the economy gradually matures.

"The growth of Zambia's economy has to be more inclusive," says Bayo Akindeinde, manager of PEPZ, the Lusakabased Private Enterprise Programme Zambia funded by the UK's Department for International Development.

"Perceptions here of entrepreneurship are mixed, hence we're trying to change attitudes, encourage people to come up with concepts after which we provide advice to turn them into plans under our highly successful Nyamuka Zambia Business Plan Competition."

The programme also focuses on problems that aren't limited to Zambia.

"If you go to any African economy and ask what's the main problem it's access to affordable funds. Money actually tends to be available -- but can businesses afford it? In Zambia interest rates range from 16 to 24%."

One solution is what Akindeinde refers to as patient capital: providing long-term capital that is not focused solely on quick profits but anticipates substantial returns further down the road. Another important factor for Zambia's economy, he notes, is recognising additional opportunities.

One example is the emerging copper belt around Solwezi in Zambia's northwest adjacent to the Democratic Republic of Congo, which will generate tens of thousands of employees whom, Akindeinde notes, will need services ranging from accommodation to poultry production.

At the same time, Zambia needs to diversify beyond copper dependency because currently "when China sneezesZambia doesn't get a cold but flu," Akindeinde says. The DRC, whose southern province alone has a population of 10m, combined with Zambia's creates a potential market of 25m people for such diversification.

Manufacturing panacea?

"The challenge now is that Zambia is about 2,000km from the sea," says Mark Pearson, an independent regional integration consultant who previously worked for the Common Market for Eastern and Southern Africa (COMESA), the largest regional economic organisation in Africa with 19 member states.

"Modern manufacturing is about assembly -- you import components to make finished products or add value which you then export. And the problem is major markets for finished manufactured goods are outside Africa.

"So who in their right mind is going to import from China, assemble in Zambia, and then export to Europe if the costs of transport and logistics remain as high as they are?"

This problem is compounded by an inefficient Zambian transportation system in which road transport was developed to the detriment of railways. This clearly hasn't hurt truck companies like Celtic Freight. But transporting by truck can make some goods uncompetitive once transport costs are added, costs that would be much lower -- which in turn would make goods more competitive -- were they moved by an efficient rail system, Pearson says.

And while the Tazara railway to Dar es Salaam in Tanzania gives Zambia access to the coast, it operates well below its design capacity. Another major issue for the country, Pearson says, is lack of value addition, ranging from the agricultural sector where primarily bulk low-value crops are produced, to the copper industry where copper cathodes and anodes are exported and then used to manufacture finished products in which value is added. And it's a lesson that all Africa needs pay attention to.

"As markets in Africa develop and there's huge population growth you have to give people employment or you could see something that makes the Arab Spring look like a Christmas party," Pearson says. "You can only manage that through industrialisation; through manufacturing with competitive advantage."

While Zambia appears to have lost its competitive advantage for now, don't write if off too quickly.

"There's no doubt the next two to four years will be rough," Bojsen says. "But it will recover. It's still rich in natural resources and has great potential for a number of industries, and having gone through this it should emerge with lessons learned and infrastructure in place to make it more resilient."

And in the more short term, those such as Bosjen and Akindeinde highlight similar perks to doing business in Zambia compared to various countries in the region: peace and security, rule of law, political stability, a lack of racial tension, a friendly population and a good climate.

Nevertheless, concerns remain -- even at Celtic Freight.

"For now we're battening down the hatches and waiting," Friend says of current economic turbulence. "The biggest hope is the state stays strong, doesn't interfere more with the currency and leaves business to do business. If it gets nervous and dabbles that could break it."

Zambia sums up why business in Africa is a different ball game.

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Publication:African Business (Al Bawaba (Middle East) Ltd.)
Geographic Code:6SOUT
Date:Nov 11, 2015
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