American Chamber of Commerce in Zambia
Policy Review April - June 2022 | Issue 6
IN THIS ISSUE: 1.
Trading under the AGOA
2.
CDF Guidelines, Pros and Cons.
3.
Financial Literacy and Empowerment Programmes
4.
Inflation Zambia
WWW.AMCHAMZAMBIA.COM
reduction
in
Foreword
Dear Members,
At the Chamber, the second quarter of 2022 was marked with exciting achievements and occasions. The Chamber hosted its Annual General Meeting which saw the ushering in of new Board Directors. We hosted a training on Cyber Security and Data Privacy, This was in conjunction with KPMG and Musa Dudhia. The Chamber also had an opportunity to work in collaboration with AGCO Future Farm in organizing the Future Farm Experience. During this quarter, the Chamber was presented an invitation by the Ministry of Commerce, Trade and Industry to make submissions on various economic and legislative issues which gave them an opportunity to submit a white paper on the Trademarks Bill. The start of this year was met with a number of policy reforms by the Government which have continued to directly impact the conduct of business operations in the country. While few may have the capacity to impact businesses negatively, most of these policy reforms present vast opportunities. The Chamber would therefore wish to encourage the membership to leverage positive prospects from these policy reforms to strengthen partnerships with the public sector in the quest to grow the economy. We sincerely hope this policy review will be of importance to you, our members. Thank you once again for your continued support, we hope to achieve great success with you this year. Chansa Mwila Chief Executive Officer American Chamber of Commerce
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AmCham Policy Review| Issue 6
TRADING UNDER THE AGOA
WHAT IT IS The African Growth Opportunity Act (AGOA) is the duty-free/quota-free access to the U.S. market for most goods, including textiles and apparel. This Act was enacted in 2000 and was originally expected to run until the 30th of September 2008. This was extended to the 30th of September 2015 and has been further extended to run until the 30th of September 2025. Like many other Sub Saharan (SSA) countries, Zambia is part of the beneficiary countries under AGOA. Before the introduction of AGOA, African countries accessed the U.S. market through the Generalized System of Preference (GSP). Specifically, AGOA expands the GSP by removing tariffs on certain textile and apparel articles, watches, electronic articles, steel articles, footwear, handbags, luggage, flat goods, work gloves, leather wearing apparel, semimanufactured and manufactured glass products. Duty-free access to the US market under the combined
AGOA/GSP
program
stands
at
approximately 6,500 product tariff lines, which represents around 65% of all products that could be imported by the US. This gives African countries an advantage on the US market as zero tariffs means lower pricing thereby making them more competitive. PRODUCTS According
to
the
US
Trade
Representative
(USTR),the most common products imported by the U.S. through AGOA include Crude Oil, Textiles,
Apparel, Agricultural Products, Minerals, Metals, Transportation Equipment, Chemicals and Related Products. Product requirements to qualify for AGOA dutyfree treatment 1.Product/article must be deemed eligible under AGOA list of products. They must also have been grown, produced or manufactured by a beneficiary country through more than a simple combining or packaging operation, and must be exported directly to the U.S. 2.The article must be imported into the United States directly from the AGOA beneficiary country or pass through another country in a sealed container and addressed to a location in the United States; 3. The product must meet the specific rule of origin requirements and must be accompanied by import documentation that claims AGOA benefits on the relevant shipping documents. 4.There are also additional requirements for specific types of products. In the case of apparel products, beneficiary countries must adopt a U.S.-Government approved visa system and domestic laws and enforcement measures to prevent illegal transhipment of the apparel and use of counterfeit documents. In the case of agricultural products, they must comply with regulations established by the U.S. Agriculture Department to protect the health of the American public. 5.For export of agricultural products, the beneficiary countries are required to provide the
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AmCham Policy Review| Issue 6 U.S. Food and Drug Administration with advance
one AGOA beneficiary. In addition to the general
notice of each shipment entering the U.S to
rules, specific rules apply to footwear and non-
permit the agency to target inspections more
textile travel goods. An effective Visa System with
effectively and help ensure the safety of those
relevant
products. This calls for the requirement of the
transshipment and the use of AGOA provides a
Sanitary and phytosanitary (SPS) certificates. An
special
SPS certificate is a legal document issued by an
beneficiary countries with an annual Gross
exporting country to certify that a shipment
National Product of under $1,500, referred to as
meets U.S. plant and animal health standards, for
"lesser developed beneficiary countries" to use
instance to confirm that the shipment was
fabric inputs from any country until 30th
inspected prior to export and found free of pests
September, 2025. This is also known as the third-
and diseases. In Zambia, this can be obtained
country fabric provision. counterfeit documents is
from the Quarantine and Phytosanitary Service
also required for Apparel and Textile exports
within the Zambia Agriculture Research Institute
under AGOA.
procedures provision
in
to the
prevent cap
that
illegal allows
(ZARI) at Mount Makulu, Chilanga. AGOA provides a special provision in the cap that allows
For Zambians wanting to export under AGOA, a
beneficiary countries with an annual Gross
certificate of origin is issued by the Zambia
National Product of under $1,500, referred to as
Revenue Authority (ZRA) and can be obtained
"lesser developed beneficiary countries" to use
from either the Customs International and Policy
fabric inputs from any country until 30th
Office in Lusaka or the Assistant Commissioner,
September, 2025. This is also known as the third-
Customs Services in Ndola. Other relevant forms
country fabric provision.
that would need to be filled out in order to
6.For meat and livestock exports, the Veterinary
accompany the shipment include a Customs CE
Department under the Ministry of Agriculture
Form 20 from ZRA, relevant permits (depending
(here in Zambia) is responsible for the issuance of
on the product), a packing list, consignment note,
quality certificates. The exporter may also wish to
cargo manifest, commercial invoice, airway bill
refer to the U.S Department of Animal Plant
and bill of lading.
Health Inspection Service (APHIS) factsheet, which gives simple guidelines on this process.
AT THE AMERICAN BORDER
7.For gemstones, a permit would be required
Once the shipment arrives in the U.S, the
from
importer
the
Ministry
of
Mines
and
Mineral
of
record or
(owner,
licensed
purchaser
customs
or
Development.
consignee)
broker
8.The US importer must request duty-free
designated by the owner, purchaser
treatment under AGOA on the relevant customs
or consignee, will file entry documents for the
entry form (Form 7501) by placing a “D” in column
goods with the port director at the goods' port of
27 in front of the US tariff number that identifies
entry. Imported goods are not legally entered
the imported article.
until after the shipment has arrived within the port of entry and delivery of the merchandise has
RULES OF ORIGIN
been authorized by U.S Customs and Border
The AGOA General Rules of Origin (RoO) require
Protection (CBP). It is the importer's responsibility
that a product must be wholly obtained or
to arrange for examination and release of the
substantially transformed in a beneficiary country
goods.
with a minimum local content (local materials plus direct processing cost) of 35 percent. This allows for accumulation of origin from more than
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AmCham Policy Review| Issue 6
CDF GUIDELINES, PROS, CONS AND RECOMMENDATIONS
The coming of the new dawn Government has today brought about unprecedented changes with regards to the disbursement of constituency development funds. Since 1995, Zambia has given funds directly to district local officials for purposes such as local infrastructure and services such as roads, schools, clinics, courts, bridges and community boreholes. What this entails is that in the recent past, authority was given to local authorities on how money was spent. However, there has been critics from the public claiming that funds were being misused in many districts across the country leading to changes under the new dawn Government. The significant expansion of Zambia's constituency development fund in the 2022 budget provides an important opportunity to make service delivery more responsive to public needs, strengthen decentralised local institutions, and promote economic development. The Government has now allocated 25.7 million kwacha from 1.6 million kwacha for each of Zambia’s constituencies. This increase in the allocation of funds comes with the removal of subsidies from the energy sector namely fuel and electricity.There has been various views from the public both positive and negative with regards to the guidelines of the constituency development fund. GUIDELINES The CDF has three (3) components namely; Community Projects, Youth, Women and
Community Empowerment, Secondary Boarding School and Skills Development Bursaries. The objective of the guidelines is to provide guidance on the management, disbursement, utilisation and accountability of the CDF. The guidelines also provide clarity on the roles and responsibilities of various stakeholders in relation to implementation, procurement monitoring and evaluation under the CDF. Some of the guidelines include, the total allocation of the CDF per Constituency which will be distributed among three major components out of which 5% shall be administrative cost as provided by the CDF Act. The remaining 95% shall be allocated as ; Community projects 20%, youth and Women empowerment 60% and Secondary school (Boarding & skills development) 20%. Despite having many challenges, the CDF guidelines come with it some positive components some of which include: the recognition of the role of ward development committees whose powers have been well articulated in the Acts of Parliament, the CDF Act and Local Government Act. Secondly, the guidelines have given a proper definition of the empowerment and bursary schemes stating clearly the rules of eligibility and management. Furthermore, the CDF Acts allows project applicants to have a second opportunity to bring out improved versions of their proposals. Lastly, the Guidelines requires that all bidders for the CDF project are legally registered entities and
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AmCham Policy Review| Issue 6 applicants to have a second opportunity to bring out improved versions of their proposals. Lastly, the Guidelines requires that all bidders for the CDF project are legally registered entities and adhere to the provisions of the Public Procurement Act, 2020. Violation of this part will attract legal sanctions under the Public Procurement Act. This will ensure that only registered, competent and eligible contractors are hired to work on CDF projects. The section also forbids assigning of contracts to third parties (sub-contracting) and requires that any variations to project budgets must be approved by the Treasury and Attorney General. Some of the challenges of the CDF guidelines include: difficulties in accessing the CDF which has been noted as one of the major setbacks as the authoritarians have been seen to frustrate delivery. The guidelines have been seen to be clogging the effective and efficient usage of the CDF and the way in which they have been outlined are a drawback to the well-intended increase in the CDF allocation. The CDF Act also states that the CDF is to be used for community-based projects. However, there has been an addition of two new categories for community-based projects. However, there has been an addition of two new categories namely, Youth, Women and Community Empowerment and Secondary Boarding School and Skills Development Bursaries which do not reflect what is stated in the Act. Further, the guidelines have imposed an obligation on every constituency to procure a brand new 4×4 motor vehicle for exclusive use in CDF projects which has been seen to violate the Local Government Act. This establishes the ward development committees and gives them the power to be the establishment responsible for identifying and prioritizing the needs at the community level in the CDF process. The guidelines also assume without assessing the type of vehicle a particular constituency needs.
RECOMMENDATIONS Beyond the short and medium term, the Government needs to consider more structural reforms to the CDF programmes that could improve its effectiveness. These may focus on: Considering alternative ways to distribute CDF across constituencies. The current system of equal allocation presents clear advantages, such as it being easy to administer, but also likely ends up favoring smaller or wealthier constituencies that have less need over poorer, more populous ones. Given these trade-offs, the Government can consider three allocation options, these being: equal, needs tested and hybrid. The first option (Equal) entails that all constituencies receive equal transfers. The second option (Needs Tested) entails that each constituency is to receive transfers based on predetermined needs, such as poverty level or population. Lastly, the third option (Hybrid) entails that all constituencies receive a minimum transfer plus a conditional transfer based on needs-tested criteria. There is also a need for proper implementation of the Monitoring and Evaluation system that has been put in place, this component has the potential to identify weaknesses, gaps and potential areas of growth and improvement for t CDF. The sum effect of a well-executed Monitoring and Evaluation framework is that the management and citizen benefits of the Fund can continuously improve due to consistent learning. Which also includes the need to develop a strong impact measurement strategy. Lastly, there is need for strengthening community participation and ownership in the CDF as well as strengthening local councils in all sectors as they have been heavily tasked.
AmCham Policy Review| Issue 6
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THE IMPORTANCE OF FINANCIAL LITERACY IN THE ON-GOING EMPOWERMENT PROGRAMMES IN ZAMBIA By Alice Pearce - Senior Researcher, PMRC In a bid to address the high unemployment levels in Zambia the Government has been implementing a number of empowerment programmes, particularly those under the Ministry of Youth, Sport and Arts, Ministry of Community Development and Social Welfare, the Department of Gender, Citizens Economic Empowerment Commission and more recently, the Ministry of Local Government and Rural Development, among others, targeted at supporting the economic empowerment drive of the women and youth. These programmes are aimed at fostering job creation and economic growth through entrepreneurship as a vehicle. These programmes also provide citizens opportunities to participate in the growth of the economy by accessing capital to invest in viable business ventures. Although the empowerment programme initiative is commendable as it supports innovation and entrepreneurship which are the critical pillars for economic growth and social and economic inclusion, notable challenges have been observed in the effective management and accountability of empowerment funds to derive real economic benefit to the beneficiaries as well as the government at large. Therefore, financial literacy has emerged as an essential pre-requisite for effective and efficient management of the funds accessed by beneficiaries venturing into businesses under the current empowerment programmes. Not only will enhancing the financial literacy of beneficiaries increase the sense of ownership within beneficiaries of the funds, it will equally enable them to fully take control of the opportunities available to them and guarantee their businesses to be self-sufficient. However, findings from the 2020 Fin Scope survey indicate that a significant amount of the population experience low financial capabilities with financial inclusion recorded at 71.2% for men and 67.9% for women. This has been attributed to low levels of financial literacy which is largely skewed towards the urban population at 31.9%
and 16.2% among rural households. Hence, limited financial literacy remains a major barrier for the successful implementation of economic empowerment programmes in order to transform the economic outcomes of ordinary citizens It is crucial to note that empowerment should not only be about access to seed capital, it should rather focus on providing a comprehensive programme that is sustainable by giving more power to beneficiaries through education, information, coaching and counselling, as well as amplify the possibilities to get or create a job or business, access micro-credits and ICT networks in order to inculcate business values in the beneficiaries, particularly for those who are not typically familiar with running a profitable business. Further, enhancing relevant trade skills has the potential to make beneficiaries competitive in their respective fields in order to maximise profit margins. Hence, government should consider integrating these aspects into the current empowerment programmes. Furthermore, there is need to create guidelines that clearly identify eligible candidates through a robust mechanism that seeks to provide tailored mentorship and training programmes of candidates to actualise their business proposals. At the onset of the empowerment programme, eligible beneficiaries should be taught financial literacy courses before fully embarking on their investments as this will form the basic foundation for the success of the programme. Similarly, building the capacity of candidates in requisite financial, negotiation, market principles into the current empowerment programmes will enable candidates to understand the basics of business management and develop their competencies to generate and sustain their income while
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AmCham Policy Review| Issue 6 improving the sustainability of the empowerment programmes, particularly in the case of revolving ng and product development skills is necessary to effectively achieve the goals of empowerment programmes. Moreover, enhanced financial literacy skills will enable beneficiaries to effectively track their expenditure
and
balance
their
income
with
expenditure which is critical for assessing the profitability of the venture. By embedding basic business management practices and funds were beneficiaries need to pay back loans. Equally, for funds accessed as grants, beneficiaries need to account for the funds in order to achieve the goal of the programme that has a multiplier effect which should trickle down to improved quality of life of the beneficiaries and direct economic benefits within the community as well as the local economy. In addition, when beneficiaries of empowerment programmes are financially literate, it can be expected that there will be a general motivation to access formal financial services in order to expand their businesses as they will be able to have balanced
and
well
documented
business
transactions. Therefore, there is need to facilitate linkages between financial lending institutions and beneficiaries of empowerment programmes in order to improve financial inclusion through technical assistance that relevant financial service providers are able to give to the beneficiaries. This will also nurture the skill of saving and growing the savings of the business which is critical for the evolution
of
the
business
from
one
empowerment to that of self-sustainability.
of
AmCham Policy Review| Issue 6
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THE IMPACT OF THE CURRENT INFLATION RATE ON BUSINESSES By PRS 365 Zambia’s inflation rate has been declining for much of the year. Whereas everyone understands that an extreme increase in inflation is bad for business, there is typically confusion about what to expect from declining inflation. A good place to start in establishing clarity about the implications of declining inflation on businesses is to first understand what inflation means. Inflation is the rate of increase of prices of goods and services measured periodically. It corresponds to the reduction in purchasing power of money. When inflation is positive, this means that the prices of goods and services are rising by the measured percentage rate. Usually, inflation is
measured as the percentage change in prices of a basket of goods and services over time, which are a representative collection of consumed items. The commonly used measure is the ‘consumer price index’ (CPI) which is a representative collection of prices of goods and services that consumers purchase every month. According to ZamStats, annual inflation for May, 2022 decreased to 10.2 percent from 11.5 percent recorded in April, 2022, with the reduction mainly attributed to price movements in both food and non-food items. This implies that on average, prices of goods and services increased by 10.2 percent between May 2021 and May 2022.
Several factors contribute to the inflation in an economy. The drivers of inflation in Zambia between 2021 and 2022 have included the adverse impact of the COVID-19 pandemic, depreciation of the Kwacha, increase in the price of goods and services and the high costs of energy exacerbated by the Russia-Ukraine war as stated in the BOZ Quarterly Survey of Business Opinions and Expectations First Quarter 2022. This led to an overall downturn in economic performance.
which has over the recent months been mitigated by the improved investor confidence mainly attributed to the policies introduced by the new Government and the potential for an IMF economic programme for Zambia. A slowdown in inflation presents many benefits for the business sector. It inches the economy closer to price stability and predictability, which helps businesses to better plan for investment, spending and savings. Specifically, the reduction
AmCham Policy Review| Issue 6 A slowdown in inflation presents many benefits for the business sector. It inches the economy closer to price stability and predictability, which helps businesses to better plan for investment, spending and savings. Specifically, the reduction in inflation will result in an increase in productivity. During periods of high inflation, prices of goods and services increase at a fast rate. This means businesses face rising costs for raw materials, workers, utilities etc. High inflation also contributes to high interest rates which raises the cost of capital. These factors lead to the stifling of investments and hinders business expansion. Conversely, the current decreased inflation rate, and if the inflation continues to fall, presents businesses with an opportunity to recover and even expand following the downturn in economic activities. It allows businesses to avoid input cost inefficiencies and access to capital at stable interest rates. Furthermore, Foreign Direct Investments (FDI) is likely to increase and drive further investor confidence. In response to this, businesses should position themselves to take advantage of this positive trend to source both foreign and local investor funding. It should be noted however that not all businesses are equally affected by inflation, and therefore, not all businesses will benefit equally from declining inflation. For instance, businesses that provide non-essential goods and services such as vacations will likely see more improvements than businesses that provide essential goods and services such as fuel. This is because businesses that provide non-essential goods and services face a higher demand elasticity, or higher demand sensitivity to inflation. Therefore, in addition to the improved productivity that stems from improved price stability, businesses providing non-essential goods and services can expect to experience less significant negative changes to consumer demand relative to the period of increasing inflation. On the other hand, essential goods and services have a much lower consumer demand sensitivity to inflation.
Page 10 Therefore, businesses providing essential goods and services will continue to experience minimal changes to consumer demand and largely benefit through the indirect benefits of improved business planning that price stability results in. Overall, the reduction in inflation will likely influence other macro economic variables which will lead to a more stable economy. A decreasing trend in inflation is beneficial to Zambia's economy and will benefit businesses that take advantage of the opportunities this period presents.
AmCham Policy Review| Issue 6
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REFERENCES TRADING UNDER AGOA https://agoa.info/profiles/zambia.html https://www.zambiaembassy.org/document/african-growth-and-opportunity-act-agoa-frequently-askedquestions https://www.trade.gov/country-commercial-guides/zambia-trade-agreements http://www.zda.org.zm/index.php/other-initiatives-and-trade-arrangements/ CDF GUIDELINES, PROS, CONS, AND RECOMMENDATIONS Alliance for Community Action in Zambia by Andrew Banda – Information and Advocacy Officer Casey K- Zambia's Constituency Development Fund ; Policy Considerations. GUIDELINES - Ministry of Local Government and Rural retrieved from https://www.mlgrd.gov.zm/wpcontent/uploads/2022/04/CDF-GUIDELINES-2.pdf News Diggers News Paper by Chamuka Shalubala 02/06/2022 Zambia’s Constituency Development Fund: Policy considerations retrieved https://www.theigc.org/wp-content/uploads/2022/01/Casey-et-al-Policy-paper-December
from
American Chamber of Commerce in Zambia
Policy Review The American Chamber oF Commerce in Zambia Phone: +260 975 028 026, +260955 689 301 Email: info@amchamzambia.com Website: www.amchamzambia.com Address: The Works | Latitude 15 | Leopards Lane |Kabulonga| Lusaka | Zambia CONNECT WITH US:
Prepared By: Mirriam Lungu & Memory Ziwa (Policy Research & Advocacy), with the support of Taizya S.A. Munyeyembe (Communications & Adminstration Associate), Tumelo Chitindi Bwalya (BusinessDevelopment Manager) and Chansa Mwila (Chief Executive Officer)