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Friday, 30 November, 2001, 10:01 GMT
Zambia's manufacturing malaise
Amanita cooking oil factory in Lusaka
Amanita cooking oil factory in Lusaka
By the BBC's Richard Lee at the Zambian and Zimbabwean border

Zambia's manufacturers are facing a bleak future thanks to the political and economic turmoil in neighbouring Zimbabwe.

A year after the two countries joined a new regional Free Trade Area, Zambian companies are battling with an endless supply of cheap goods pouring across the border from Zimbabwe - ferried in on everything from trucks to overloaded bicycles.

In the southern Zambian border town of Livingstone, it is now difficult to find any local products on the shelves. Everything from beer to blankets comes from Zimbabwe.

"We cannot sell a single litre of our long life milk here in Livingstone," said Ronny Parbou, managing director of Finta Danish Dairies, which is based in the town.

"Tonnes of milk and other goods come across the border every day and they are half the price of our own products. It is a horrific scenario."

Mismatch

The low prices are largely the result of Zimbabwe's chronic shortage of foreign currency and the huge gap between its official exchange rate, which is pegged at 55 to the US dollar, and the black market rate, which has soared as high as 300.

Amanita's huge cooking oil factory in the capital, Lusaka
Production has fallen by 45%

The disparity means Zimbabwean companies exporting through normal channels are hit with a huge mismatch between what they earn and what they must pay out for raw materials.

Add in a 40% tax on foreign currency accounts, and exporting - even at knock-down rates - across the porous border into Zambia looks like an increasingly attractive option.

And Zambian traders can ship in goods from Zimbabwe so cheaply that they price local products out of the market.

Closing down

Unable to compete with the artificially low prices, companies across Zambia are struggling.

In the northern town of Ndola, Lever Brothers has closed its soap-making plant and is preparing to move to Zimbabwe - and other plants may follow suit.

Elsewhere the situation is no better.

Zambia economy - Source: CIA World Factbook
GDP per capita - purchasing power parity - $880
Budget revenues - $900m
Budget expenditure - $1bn
Industrial production growth rate 6.1% (2000)
Exports - $928m
Imports - $6.5m
Import partners - Zimbabwe, Saudi Arabia, South Africa 48%

Wandering around Amanita's huge cooking oil factory in the capital, Lusaka, the company's managing director, Diego Casilli, explains that production has fallen by 45%. The workforce has been halved to around 500. Further cuts will be needed if it is to survive.

"We have been making losses for the past 12 months," Casilli said. "If nothing is done, we might be forced to exit manufacturing completely and simply become traders."

But nothing is being done. The Zambian government and officials from the regional trade organisation COMESA (Common Market for East and Southern Africa) claim that they cannot intervene because the imports to do not constitute illegal dumping.

Action needed

Many businessmen see their point, but they argue that as Zimbabwe refuses to import any goods from Zambia urgent measures are necessary.

"This is a clear case of Zimbabwe flouting trade rules but trying to prove it could take a year during which more Zambian jobs will disappear," said Nelson Chisenga, trade economist at the Zambian Chambers of Commerce and Industry.

"The government must act now. Zambia should flout the rules as well in order to save its remaining industries."

Zambian politicians and civil servants are currently obsessed with presidential and parliamentary elections scheduled for 27 December.

Meanwhile, the Zimbabwean authorities show no signs of tackling the parallel exchange rates.

Many Zimbabwean businessmen suspect that there is no incentive to do so. After all, the government pays Z$55 for every US dollar, but the currency is fed back into the economy at Z$300.

"Someone is profiting from the difference, and it's certainly not us," said one Zimbabwean agricultural equipment distributor.

Too little, too late?

The best hope for Zambian companies is probably for the economic and political turmoil in Zimbabwe to worsen. This would lead to a further reduction in manufacturing output and in exports.

But that might still come too late for many Zambian companies and their employees.

"There are very few manufacturers left in Livingstone and some, like the remaining blanket factories, are on the verge of closing down," said Finta's Ronny Parbou.

See also:

26 Nov 01 | Africa
Zambia moves to shore up currency
22 Nov 01 | Africa
Post-Christmas poll for Zambia
01 Nov 01 | Business
Zimbabwe's economy slumps
26 Oct 01 | Business
Food shortages in Zimbabwe shops
19 Oct 01 | Africa
Zambian president's salary stolen
26 Sep 01 | Business
Price and exports falls hit Africa
07 Sep 01 | Business
Zimbabwe's economic crisis
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