Feature: Diversification key to Zambia's economic renaissance

Like many emerging countries that depend on commodities for their economic growth, Zambia has not been spared by the declining prices of commodity prices on the international market.

Zambia, whose economy depends on copper which accounts for about 70 percent of its foreign exchange earnings, has borne the brunt of the falling copper prices, resulting in reduced foreign exchange earnings.

The reduction in foreign exchange earnings has seen the local currency, the kwacha depreciating significantly, fueling a rise in prices of essential commodities.

The depreciation of the local currency pushed up prices of essential commodities, resulting in the annual inflation rate hitting a double-digit figure and it currently stands at 21.8 percent.

On the other hand, adverse weather conditions caused by the effects of El Nino has affected production in the agriculture sector while power rationing caused by low water levels in its reservoirs has affected production in key industries.

One of the most affected industries is the mining industry as some mining firms started to downsize on their workforce as a cost-cutting measure. Over 9, 000 people lost jobs in the mines by December last year, according to industry figures.

The Zambian economy, which has been registering above five percent growth in recent years dipped to 3.6 percent last year compared to 4.9 percent in 2014, according to the country's central bank.

The government had projected a 5.0 percent economic growth for 2016 in its budget but this has been downgraded to 3.7 percent, according to deputy Minister of Finance Christopher Mvunga while the World Bank has also projected a growth of below 4 percent due to a combination of domestic and international pressures.

The current economic malaise has forced analysts to urge the government to take serious steps towards diversifying the country's economy from dependence on copper.

"The current economic challenges being faced in the country presents an opportunity for Zambia to diversify into other key areas such as agriculture," Akinwumi Adesina, the president of the African Development of Zambia (AfDB) who was recently in the country told reporters.

While acknowledging the efforts the government is making in diversifying the economy, the AfDB official said the country needs to intensify efforts to diversify its economy in key areas such as the agriculture sector which could grow the economy further.

"Agriculture can help create job opportunities, increase poor people's incomes and contribute to lowering the inflation rate," he added.

With plenty of arable land and abundant water resources, Zambia can become an agriculture giant in the region especially if it started growing drought-resistant crops, he added.

Denny Kalyalya, the head of Zambia's central bank agrees with the views expressed by the AfDB chief, saying diversification is key if Zambia is to wean itself from the economic malaise that commodity-dependent countries suffer each time commodity prices on the international market tumble.

The central bank chief said there is need for the country to consider investing in other sectors of the economy and reduce over-dependence on copper which is a diminishing natural resource.

According to him, the trends in the global economy affected the Zambian economy last year as copper prices remained weak and dampened export earnings.

"As a result of these global developments, Zambia's current account deteriorated further, as export earnings declined largely due to depressed copper prices," the central bank chief said in his address to the media.

According to central bank projections, Zambia's Gross Domestic Product (GDP) for 2015 was recorded at 3.6 percent compared to 4.9 percent in 2014 and the decrease is mainly attributed to adverse weather conditions which led to a decline in output in the agriculture sector and power rationing, which affected production in key sectors.

The central bank has however said the adverse weather conditions and the continuing rationing of power are expected to continue to constrain economic growth in 2016 while the effects of the global economy will remain a challenge to the country's economic growth.

However, a civil society grouping tracking poverty reduction programs in Zambia said the country requires an effective economic diversification drive.

The Civil Society for Poverty Reduction (CSPR) said the current economic challenges Zambia is facing have been exacerbated by the lack of implementation of an effective economic diversification drive which looks at increasing productivity in sectors such as agriculture which could trigger growth in manufacturing through processing and packaging.

"It is sad to note that despite the economic diversification program being discussed by successive governments, Zambia has failed to implement economic diversification due to lack of political will," Maxson Nkhoma, the organization's advocacy and communication programs officer said.

The organization has since appealed to cooperating partners to help government in financing economic diversification as it comes with a great cost.

However, the government is aware of the need to speed up the diversification drive with Finance Minister Alexander Chikwanda saying recently that it is only diversification that will help insulate Zambia from external shocks.

The government, he said, has since come up with a number of programs aimed at speeding up the diversification program.

Among the programs include the establishment of Multi-Facility Economic Zones, industrial clusters and a Job Creation and Industrialization Strategy. Endit