Zambian SMEs worry about customs union

May 18, 2010

Zambia has a large small and medium enterprise sector. But many business people are afraid that their products will not be competitive within the new COMESA customs union. Listen to Stephen Mdoma's report from Lusaka, Zambia.

It is a hot day at Buseko market in Zambia’s capital Lusaka. Most people gather in the shades of the mango trees. However, the heat of the afternoon does not discourage Moses Mwale, a 52-year-old carpenter at Buseko market. Moses works on a small piece of wood. He looks tired. He must be – the air in his small shop is sticky and he has been working all day.

When he is done working on this particular piece of wood, it will fit perfectly on the left arm of the partially made chair in the corner of the room. Moses loves his work. He would like to expand his business, but there is a problem: Moses says sometimes customers need the finished products in a short time, but he ends up loosing business because of he depends on manual equipment. “I need a loan so that I am assisted in getting machinery to ease the work we do”, says Moses Mwale.

Growing competition

Whether people are unable to get loans or fearful about it, the banking sector in Zambia has been dominated by four major banks. Private sector development chairperson Yousuf Dodia says the rules and the benchmarks in giving loans have been set by the four major players. “This has been the scenario for many years, but in the last 24 months we have seen four new banks come in and these banks are mainly African banks. So the group of competitors in the banking sector has grown quit a lot,” Dodia says.

Businesses like Moses Mwales still depend on the government to take responsibility. Moses says the government should encourage small businesses by softening up loan restrictions from banks, but Bank of Zambia's head of public relations Kanguya Mayondi says Zambians do not have a healthy borrowing culture. “When people hear about borrowing it sends chills in peoples minds, but the only chills it should send is through our conscience - are we ready to pay back?”, asks Kanguya.

Dark cloud of competition

With 2010 bringing close the implementation of the COMESA customs union, it will mean zero tariffs for goods moving among member countries. What this means is that goods coming into Zambia from Kenya or Zimbabwe will come in duty free and likewise goods manufactured in Zambia will go into these countries duty free.

Banks can help in the financing of small manufacturering businesses like Moses Mwale, who does not feel like a potential bank client, because of high interest rates. This is true for most SMEs in Zambia unless the government steps in and takes advantage of the coming competition.Yousuf Dodia says the government should see the dark cloud of competition within the region and support the private sector in a more aggressive way.

Stephen Mdoma