Preliminary analysis and potential suggestions 201508
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Transcript of Preliminary analysis and potential suggestions 201508
Preliminary Analysisand
Potential Suggestions
August, 2015JICA Senior Volunteer(assigned to ZCSMBA)
Mikiya Takeuchi1
GDP Growth Trend
2Source; http://ecodb.net/country/ZM/
Unit in BillionZambian Kwacha
Unit in Zambian Kwacha(per capita)
During this 20 years, economic level has increased dramatically and its growth rate is 6.6% in 2013
In 2013, the nominal GDP is $24 billion and its per capita is $1,700 (vs. $36,332 in Japan)
GDP Portfolio Management (2008-2013)
Bubble size; Nominal GDP in 2013 (unit in billion ZMW)X (horizontal line); Relative share of GDP in 2013Y (Vertical line); Growth % of GDP (2008-2013 CAGR)
Very unique figure in GDPPM in terms of there is neither “Cash Cow” nor “Dog”
Most of sectors have strongly grown for the recent 5 years
Construction is a leading sector but there are several sectors to be prioritized in investment of which will become the next “Star(s)”
An issue is that, in spite of the utility service (electricity, gas and water) must be necessary for further growth for other sectors, its relative share is very small
Source; African Economic Outlook by AfDB, OECD, UNDP 2014Miki’s original analysis and view 3
Star Problem Child
Cash Cow Dog
To invest aggressively to nurture industry toward “Star”
May still need investment but shift to “Cash Cow” in the future
No need to invest and withdraw from industry
Matured industry in stable GDP generation and no need to invest
Sectorial Investment
4Source; Zambia Development Agency Annual Report 2014
(Unit in million USD)
Based on the GDPPM analysis, it is wondered whether we really needed to increase drastically the investment for a construction sector in 2014? – already achieved big contribution in 2013
Why the investment for a energy sector be decreased year by year in spite of all industrial activities require it to raise productivity and for job creation?
Note that the investment amount by ZDA for MSMEs in 2014 was only $1.5M for 94 projects
Govt. Cash Management
5Source; http://ecodb.net/country/ZM/
Fiscal deficit has been increasing year by year and public debt as % of GDP is 31.2% External debt is $5 billion and a credit rating is low – Moody’s B1 and S&P’s B+ mean high
interest
Unit in BillionZambian Kwacha
Need deeper investigation ・ Lack of taxation? ・ Lack of strict cost control?
Increase debt to cover the fiscal deficit?Or for advanced investment?
Industrial Income/Outgo
6Source; UNCTAD
Current balance in 2013 is almost break-even -> Seems to be stable Reasons for drastic improvement from 2009 to 2012 is tbc
Current Balance (経常収支) =+ Balance of Trade (貿易収支)+ Balance on Goods and Services (サービス収支)+ Balance on Income (所得収支)+ Current Transfers Account (経常移転収支)
US $266M
Unit in BillionZambian Kwacha
Phillips Curve
7
Unemployment Rate (%)
Inflation Rate (%)
1991
RecentYears
In theory
Phillips curve has NOT figured as it is generally said in the economic model It seems that the government made an effort to control the inflation rate but both its and the
unemployment rate are still high
Source; ILO, http://ecodb.net/country/ZM/
Correlation between Investment and Job Creation
8Source; Zambia Development Agency Annual Report 2014, Miki’s original analysis and view
Based on the regression analysis, it is indicated that we need the investment of 8,150 million USD to dissolve the current unemployment of 2 million people, which is calculated by;
14,540 thousand (population) x 13.3% (unemployment rate)= 8,150 million USD (investment) x 3.4504 + 922.66
Job Creation
Investment (million USD)
Abnormal
AbnormalAbnormal
Investment (million USD)
Job Creation
Sample data; Investment and job creation in each year from 2012 to 2014 in major sectors such as Agriculture, Construction, Health, Education, Energy, ICT, Manufacturing, Mining, Real Estate, Service, Tourism, Transport
Non-Traditional Export (NTEs)
9
(Unit in million USD)
Most of products that MSMEs are currently dealing with are commodity ones, thus facing with difficulty to differentiate from competitors
Therefore, to expand the exportation, value-added products be needed, such as refine, processing and semi-manufacturing, as well as robust marketing strategies
Source; Central Statistics Office, Bank of Zambia
Breakdown of NTEs in 2014
Circumstances surrounding MSMEs
10Source; The Micro, Small and Medium Enterprise Development Policy
MSMEs in Zambia consist of;manufacturers (41%),supply chain vendors (49%), and,service providers (10%)
52% of MSMEs are conducting business in rural areas and # of employees in each is less than 10
97% of enterprises in all over Zambia is MEMEs, which is creating 18% of employment
In India, 70% of GDP is occupied by MSMEs
To generate 20% of GDP
To create 30% of employment annually
To add value on 10% of products (e.g. refine, processing, semi-manufacturing for raw materials)
To increase 10% of productivity annually
To increase 10% of transactions annually collaborating with big enterprises
Survey in 1996 Goal in 2018
Reasonable Cost of Capital for MSMEs
11
Based on information regarding the cost for financing, actually interest rate, it is very high and we are not sure the logic how it was decided logically
If MSMEs are able to get financing as capitalization from others directly, like strategic partners, business angels and venture capitalists, it is similar to invite FDI and resulting its cost of capital can be logically calculated instead of commercial banks’ “asking price”
Source; Lusaka Stock Exchange, New York University
CAPM model; rE = β x (Rm – Rf) + Rf
β; if totally works together with the stock market, it is 1. MSMEs’ may be much higher. Rf (Risk Free Rate); 13.5% based on 5 years governmental bond issued in Dec. 2012 -> To be updated Rp (Risk Premium); Rm (Market Risk) – Rf = 12.5%, provided by the NY University -> To be confirmed
rE (Return on Equity) = 1 x 12.5% + 13.5% = 26.0% (tentative)
Coveney and Moore (1998)
Key Success Factors for MSMEs
12
Stable infrastructure
for utility service
Increaseoperating rate
Attract & invite potential sponsors
to invest
Financial support,technology &
knowledgetransfer
Improve internal operation
Value-addedproduction
Decrease COGS(scale merit)
Job creation
Re-launch product
withhigh quality,
low cost,new concept,
high profitability
Local consumptionvs. RSA products
Export as NTEs to gain foreign
currency
Promotional activities
Business matching incl. partnering, JV, M&A, consortium
Strategic planning and training for
marketing
Negotiation for supply chain and
trade
Building overall business plan
ZCSMBA to support
Lobbying and advocacy