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Launch of Top Line Findings

Wednesday 16th June 2010Intercontinental Hotel – Lusaka, Zambia

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OUTLINE• Background • Approach• Profile of the Private Sector– Scope, scale & key characteristics– Drivers of informality– The infrastructure dilemma– Complexities in access to finance– Productivity drivers & profiles– New segmentation provides powerful insights

• Implications • Next Steps

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Background & Rationale• A vibrant and productive private sector is key to promoting growth

& prosperity in Zambia• Accelerated & diversified growth will require a substantial increase

in investment and business productivity• GRZ & other stakeholders are determined to broaden growth in

rural, as well as urban, areas• MSMEs dominate in numbers of enterprises, but heretofore there

has been little information about them• Public & private players must better understand the characteristics

& constraints of Zambia’s private sector• This survey will help to improve policy, programme, and service

design & delivery– NB: The source for all data is the ZBS, except for slides 5-7, which are sourced from the

World Bank Investment Climate Report, 2009, and slide 10, which was sourced from the Zambia Labour Force Survey, 2005.

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Zambia’s business environment is a great deal better than it was in 2003

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However, performance of large Zambian manufacturing businesses – as measured by labour productivity – lags far behind the performance of large manufacturing enterprises in the best performing African economies

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Yet, these low productivity firms can thrive due to lack of competition. Zambia has a much lower competition index compared to firms in more successful economies (meaning firms with low productivity have high market share)

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A NEW APPROACH GIVES US A NEW VIEW• The MSME component

– Nationally representative survey of 4 800 MSMES– Covered urban, peri-urban and rural areas– All nine provinces– Small, difficult to find, and informal businesses are fully represented

• The Large Enterprise component– Sample of 161 large enterprises– 50+ employees– Urban, peri-urban & rural

• Complemented by:– Government's Labour Force Survey– World Bank's Doing Business Indicators– World Economic Forum's Competitiveness Report– World Bank's Investment Climate Assessment– FinMark Trust’s FinScope Consumer Survey

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MSMEs AND LARGE ENTERPRISES IN ZAMBIA OCCUPY TWO DIFFERENT WORLDS

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While larger firms drive the economy, they employ only 7% of the workforce. Most Zambians are employed in its MSME sector.

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Two-thirds of MSMEs in Zambia are tiny, owner-operated businesses Most of the remainder are microenterprises with 10 or fewer employees

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Most MSMEs are based in rural areas & are small farms or retail traders, whereas Large Enterprises are highly diversified

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MSME owners have less formal education than Large Enterprise managers (as measured by the highest education level reached)

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LOW PRODUCTIVITY FUELS INFORMALITY

• Differences in access to infrastructure drive differences in productivity

• Almost all large enterprises are registered with the relevant government agencies

• But few MSMEs – especially in rural areas – are registered with any government agency

• Informality is a rational choice• Avoiding taxes & regulation is NOT the driver of

informality• Making infrastructure services more available should

encourage registration, by improving productivity

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Low incomes and poor access to information often drive informality

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MSMES ESPECIALLY THOSE IN RURAL AREAS DO NOT HAVE ACCESS TO

BASIC INFASTRUCTURE

• Lack of available water and electricity makes farmers dependent on rain

• Basic infrastructure for agro-processing is missing

• Other than cell phones, few MSME owners have access to information and communications (ICT) infrastructure

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Whereas most large enterprises have connections to infrastructure services, most MSMEs do not

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