COMMENTARY 1ST – 7TH February, 2010.

The Deputy Mission at the American Embassy in Zambia, Michael Koplovski, is reported to have challenged the Zambian financial sector to make access to finance easy for the business community.

The truth is that the default rate among Zambian borrowers across various financial institutions is over 15 percent and this development has largely contributed to the failure by banks to attain the projected profitability in 2009.

Business financing in Zambia is facing very serious challenge, not only because the interest rates are far higher than the global average but because the business environment is still hampered by various bottlenecks. The low per capita consumption accounts for the failure by businesses to pay back loans. Most businesses are operating below capacity owing to poor demand for their goods and services.

It is for this reason government should work towards unlocking consumption through demand-inducing taxes such as lower Pay-As-You-Earn and Value added tax. The real economic effect of a flexible fiscal policy has a direct positive impact on the performance of industry, general economic activity, Gross Domestic Product, job creation and higher government revenue based on an increase in taxable volumes and values.

Higher per capita incomes will also be a catalyst to increased foreign direct investments because the size of the local market in terms of buying power remains a determinant to the attraction of investors.

Zambian banks are currently lending money in a very risky environment and that explains the high interest rates even under current developments where the inflation rate is low. There are other policy interventions required that will make business financing easy in Zambia:

Government will need to speed up the process of reducing administrative costs associated with doing business in Zambia. In addition, there is need to urgently improve the state of infrastructure such as roads. We also have to work towards increasing GDP rate to over 8 percent per year. Finally but not least, Government has to enhance trade policy reforms to allow Zambian businesses easily access global and regional markets such as Comesa and SADC. These reforms go hand in hand with bank lending towards the private sector.