Drivers for diversification: Firm productivity and export growth

Fifty two years after independence Zambia remains a copper-dependent economy, and thus vulnerable to commodity price swings. During the past decade of relatively high copper prices Zambia enjoyed high growth rates of GDP but employment growth has been inadequate and narrowly concentrated.  Growth rates have declined sharply since 2014 due in large part to declining copper prices which reduced exports and foreign exchange earnings while putting pressure on exchange rates. Poverty levels remain high and Zambia has relatively high levels of income inequality.

There is renewed interest and efforts to define and drive a robust economic diversification agenda. Manufacturing, especially in agro-processing, is seen as the immediate feasible driver of diversification, in addition to broader efforts to industrialise. The performance of manufacturing firms is dependent, among other things, on macroeconomic conditions such as exchange rate movements as well as microeconomic factors such as productivity-enhancing management practices and programmes at the level of individual firms. Recognizing these influences on firm productivity and export performance is important in defining appropriate policies to support the drive towards diversification and industrialisation.

In its continuing efforts to provide evidence for policymaking, the International Growth Centre (IGC), in conjunction with the Zambia Development Agency and the Ministry of Labour and Social Security, have disseminated the following research papers on 24 November in Lusaka:

• Exports, Intermediate Imports, and Exchange Rate Volatility in Zambia
• Management Quality, Productivity and Profitability of Zambian Manufacturing Firms

The two papers, commissioned by the IGC and undertaken by qualified researchers, highlight the importance of exchange rate effects on export performance of firms and the important role of management of firms to achieving profitability, both of which are critical for the diversification agenda.