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Zambia: The Possibilities Are Infinite |
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Written by Brian M. Mutale
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It is difficult to come up in the space of one article what business opportunities are of interest in Zambia. There are innumerable, endless in terms of possibility as the title of this article implies.
I have a passion for business in the Republic. The arrival of market oriented policy in 1991 was a welcome change. Arguably, the fruits of that policy have changed the lives of 20% of the Zambian population at best. However, there is no other known remedy for eradicating poverty beside economic growth. This I believe is the way forward for Zambia and so I want to dabble into what some of the possibilities are.
I have an unfailing interest in 3 areas of business, one of which I have a passion for. They are:
- Communications
- The Financial industry
- Real estate, transportation and related infrastructure
All 3 areas are key to any healthy economy. Take the example of any country that is perceived as well industrialised. All the areas outlined are well developed and worth any investor's money. There's a strong case to be made for other vital functions like agriculture and healthcare, pharmaceuticals to be particular. A fact of life is people will always need food and for as long as there is life, people get sick and need medication to get cured.
I will stick with the areas of business that I have some expertise in.
Communication
This aspect spans more than phone lines and cell phones to say the least. Communication also applies to entertainment, Internet and email among other services that can be made readily available for use by the Zambian consumer.
The phone line market remains one that is closed to prospective investors for the time being. It is a monopoly of the state run parastatal. So far the government even after a change of President remains inclined towards protecting this "sacred cow". This is a trend through out the region as the government in South Africa has also chosen to maintain a significant degree of ownership in it's now publicly traded Telecom. At present, Zambia has approximately 130,000 lines including wireless local loops.
The mobile phone market has been true to the African success story in this regard. The argument presented before the industrial courts by players in the market is that the market has been penetrated to the point of saturation. My argument against this is simple. New entrants simply need to come into the market and offer cellular services at lower prices. A low cost structure is possible. Licensing fees are a one-time expense, incurred at auctioning of broadband§. There is room for growth in the Zambian market. 60% of the population was below the age of 16 in 1996. This age group is approximately 20 plus now, looking to enter into the work force and so on. It is a Technologically savvy generation with a taste for "gadgets". Vodacom of South Africa have recognized this and moved into the Zambian market. There is also a strong argument for cellular usage being cheaper than the use of regular landlines.
The technical advantage for Zambia in this area is very much like most of the developing world. New technologies are easily transferable without the significant cost that it would undertake in the past. All the providers of wireless service are on a common standard which opens the door for any of the players in the market to steal customers if so required. GSM is the industry wide standard right now.
Internet usage is has become commonplace in Zambia. I left Zambia 6 years ago. Communication with my friends meant writing letters and waiting weeks to receive a reply. That has changed to a situation where just about all my communication with friends is email for the most part. This is a story replicated by most people living far away from home. Internet cafes have also sprung up all over the country, particularly in urban centres. Continue to drive down the cost of PCs; the probability of individuals that are frequent users of the Internet owning a computer improves. This coupled with the ever-increasing use of computers in the work place means that there will come larger volumes of network traffic. The infrastructure needed to support this volume of data will have to come from somewhere! In the Tech World, the saying goes " He that has the bank bone is King". Running a fibre optic cum wireless platform on which the entire nation's Internet traffic runs is a license to print money. Internet traffic is not restricted to website surfers or email alone. This includes data transmission between corporate and financial entities. There are considerations like nationwide and regional networking between law enforcement organizations, government departments and so on. No one has even bothered to investigate the potential to use Internet telephony as an alternative to conventional telecommunication technologies. Users are estimated at 25,000 nationwide.
Radio and television are also potential areas of growth. At least 1.2 million radio sets are actively used in the country. There are also approximately 300,000 Television sets used in the nation. In layman's terms, Zambians watch TV and listen to the radio a lot. The channels for a vibrant advertising industry are in place. There is also the potential for multiple television channels with production facilities that produce shows tailored for the Zambian consumer.
The number of television users in the country cannot justify the establishment of a cable network like is common in Western countries. Satellite and other forms of wireless transmission have proved profitable over the years.
The Financial Industry
My personal favourite!
The hardest part is dividing up the Zambian financial industry into different sections. The industry would typically consist of Chartered Banks, Insurance companies and non-bank financial institutions. Financial intermediaries are typically units of the chartered banks.
There are 15-chartered banks in the republic of Zambia as at nowW. The central Bank of Zambia has categorized non-bank financial institutions that it supervises as follows: Leasing companies, building societies, micro finance institutions and bureau de changeså. Two institutions are not listed in these categories. They are the National Savings and Credit bank and the Development Bank of Zambia. These are state owned institutions that are maintained for the purpose of providing funding to areas of the economy that regular financial institutions shy away from because of their risk tolerance and profit objective. Many projects across the country have thin margins and so do not seem attractive to the foreign bank looking globally for high return ventures.
Zambia has also established a stock market of its own. It is called the Lusaka Stock Exchange. It is a fledgling stock exchange dealing almost exclusively in local stock. Publicly traded multinationals with considerable investments in the country have some portion of their equity floated on the Lusaka Stock Exchange. By western standards, it is a largely inactive market as trades are considered few and far between. It is a growing market all the same with more companies having enough confidence to go public. Recently, a large meat processing company went to market to sell equities that were valued at about $5,000,000 USJ. This company already trades on the stock exchange and its shared are some of the more actively traded. It has been the claim of sceptics that there are insufficient funds within the country to support a vibrant stock market. There are resources to be tapped into if the investors on the local scene are given confidence in a company's capacity to perform. The typical Zambian businessperson is risk averse. Trends are starting to indicate that this approach to business is beginning to fade with growing confidence in the market at large.
The Zambian stock index is up 100 points to approximately 390 this year already. Someone tell me how the New York stock exchange has faired in the same period! The index opened at 100 in 1997. These are the early days but they have not disappointed so far.
The Zambian insurance industry is well developed. It is now expanding to give policyholders the opportunity to take advantage of the returns offered by investments in the equity and debt markets.
The government has continued to be the biggest player in the debt markets so far. Most companies opt for privately placed bond or loan arrangements with the large financial institutions. As more companies turn public, there will be a need for bond and equity underwriters.
Real Estate, transportation and related infrastructure
As more urban communities are formed, the need for well-developed transportation systems and reasonable housing grows. Zambia is rapidly urbanising. There will be a day when illegal housing arrangements like the shantytowns become a thing of the past. Structured neighbourhoods also mean there will be a need for additional road networks. Road networks and new housing areas mean that drainage systems among other forms of infrastructure have to be constructed. This also ties into the areas of finance and communication. People need money to build houses; they may need to borrow by way of mortgages and so on. Housing means telephone lines and in the long run desktop PCs, which will add to the prospect of Internet users from home.
Housing projects have been primarily geared to "middle and upper " income brackets by most builders. Hosing projects of the kind that were commonplace in the 80s have not been frequent. It is safe to argue that this is a neglected aspect of the market. Most of the population cannot be expected to have the means to purchase or rent a 5-bedroom house in one of many sprawling suburbs in any of Zambia's cities. With the urbanisation taking place as at now, the need for housing projects (low cost) can be achieved. Government backing for such projects can be achieved. Housing has proved decisive in a previous election; there is no reason for any businessperson interested in a housing project not to approach government with the idea.
I hope this short paper gives a rough idea of what is available in Zambia. Like I have already stated, the possibilities are infinite.
Brian is a Zambian citizen resident in Canada. He is pursuing a Commerce degree in Finance and a minor in accounting at Saint Mary's University in Halifax Nova Scotia.
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