Scale And Continuity In Zambian Businesses:
Can Zambian Businesses Span Generations?
Zambia, located in south-central Africa, has an estimated population of 18.4 million people. Within this population, the working age group (15 years or older) was approximately 10 million in 2021. The International Labour Organization reports that a significant portion of the Zambian population, 88.7 per cent to be exact, is engaged in informal work. Of these individuals, 87.6 per cent are informal workers employed in the informal sector, while the remaining 11.3 per cent are employed in the formal sector. These statistics highlight the substantial presence of the informal sector and the entrepreneurial spirit prevalent among the Zambian population. Furthermore, they underscore the significance of businesses in supporting the livelihoods of the Zambian people, as formal employment is not the primary source of income for most households.
While it is commonly believed internationally that most businesses fail within the first five years, local research has yet to be conducted to examine the longevity of Zambian businesses. However, there is a thriving informal sector within our communities, where the formal sector accounts for only 20 per cent of the total employment rate. Consequently, most individuals are self-employed, involved in small-scale agriculture, or running small businesses. This raises an important question: why aren’t Zambian businesses growing to span multiple generations and contributing to the expansion of the formal sector? What measures can be taken to increase the growth rate?
When analysing the factors that need to be considered to facilitate growth in Zambian businesses, it is essential to focus on two major categories: environmental and individual factors.
- Access to loanable funds at competitive interest rates: Businesses require a favourable environment to thrive. One key factor is access to loanable funds at competitive interest rates. A survey of major banks in the private sector revealed that the lending rate in Zambia was around 25.25 per cent per annum as of February 2023. In comparison, large industrial economies like China and the United States have significantly lower interest rates of 3.55 and 5 per cent per annum, respectively. The high cost of capital in Zambia puts local businesses at a disadvantage, as foreign investors from countries with lower interest rates have more favourable conditions. This hinders the competitiveness of Zambian enterprises, as companies with lower costs can sell products at lower prices, making it difficult for local companies to compete. Lowering the cost of capital and providing access to affordable loanable funds are essential for creating an enabling environment for business growth.
- Making agriculture profitable through appropriate farming methods, technological advancements, and agricultural mechanisation: Agriculture plays a crucial role in the Zambian business landscape, employing 71 per cent of the total workforce. Within these statistics, 90 per cent of farmers are engaged in smallscale farming activities. Although the government has made efforts to subsidise subsistence farmers through initiatives like the Farmer Input Support Programme (FISP), over 90 per cent of Zambians are still involved in subsistence farming. While FISP has maintained productivity to some extent, it has yet to effectively facilitate the transition from small-scale to large-scale agriculture. Farmers have become dependent on the program rather than growing their businesses. Improving the success of initiatives like FISP requires the timely delivery of inputs and effective monitoring and evaluation. Additionally, mechanisation is essential for the growth of agriculture as it improves efficiency, saves time and costs, and guarantees output.
- Focus on education: There are common misconceptions about not needing education to succeed in business. These myths often arise from the success stories of college dropouts who build multimillion-dollar corporations. However, it is essential to recognise that these individuals represent exceptions rather than the norm. Moreover, a closer examination of the management structures within these companies reveals that while the owners may lack formal education, they employ teams of accountants, engineers, and business analysts, many of whom hold university degrees. Education is vital in understanding best business practices, financial literacy, and productivity, which are essential for running successful businesses. The government of the Republic of Zambia has recently reintroduced free education from grade 1 to grade 12. This initiative will have far-reaching benefits, positively impacting the economy and the wider community.
- Knowledge transfer to the younger generation: Most of Zambia’s population is under 35. Ensuring continuity in business requires actively involving the younger generation in entrepreneurship activities and providing mentorship opportunities. Additionally, it is crucial to focus on fostering the growth and empowerment of the youth, considering they make up a significant proportion of the population. Initiatives such as zero-interest loans like ‘Busulu’ and entrepreneurship training, implemented by the Citizens Economic Empowerment Commission (CEEC), aim to address this need.
The future of the Zambian business landscape holds abundant opportunities for growth and development. However, just like plants, these opportunities must land in the right environment for growth to flourish. By addressing environmental factors like access to affordable funds and making agriculture profitable through appropriate methods and mechanisation, combined with a focus on education and knowledge transfer to the younger generation, Zambia can create a conducive environment for business growth.