Zambia is a country whose economy is still heavily dependent on the copper mining industry. Between 2010-2014 on average the copper industry accounted for 66 percent of total exports, 11 percent contribution towards GDP, 16 percent revenue collected from the mines in terms of taxes and royalties and it also accounts for 21 percent formal private sector employment in the country. It is evident that the mines play a critical role in the economy of Zambia. The large mines in the country are operated by multinational corporations (MNCs). Due to the fact that most mines are owned by MNCs it adds another dimension and complexity to the interaction between the mines and the SMEs.
SMEs make-up the economic backbone of most developing countries and Zambia is no exception. They are a source of employment, revenue, contribute towards poverty reduction and economic development. Government has recognised that linkages between the mines and SMEs can yield benefits for the country. The question many people ask is that why aren't the perceived benefits coming to fruition?
Where is the Problem?
Governments usually strengthen and implement their development programmes through policies. Zambia uses policy in attempting to steer sectors in the direction that they should go in line with their objectives. This has been witnessed in the transport, agricultural, tourism and mining sectors. The number of policies in relation to SMEs and the mines include the Mining Resources Development Policy (MRDP), the Micro, Small and Medium Enterprise Development Policy (MSMEDP), National Policy on Science and Technology (NPST) and the Investment Policy.
The MRDP and MSMEDP do mention that linkage programmes should be promoted. It is the implementation of the set policies that are questionable. The country does not appear to have the capacity or the will to carry out the implementation of the policies. The Zambian government is perhaps limited in its policy influence, by prevailing copper prices. Higher copper prices give the government better bargaining power while low prices have the reverse effect. During the economic crisis of 2008, between July and December the copper price dropped from $4.00 per pound to approximately $1.00 per pound. This forced many of the copper mines in the country to trim down their operations. One of Zambia's oldest mine Mopani Copper Mine was put under 'care and maintenance'. This led to mining business opportunities disappearing and SME contracts being suspended.
It is estimated that in 2012 the largest four mining companies purchased goods and services worth US$3 billion. While it is considered that most services (transportation, security, catering, waste disposal, machinery and vehicle maintenance, and electrical installation) are procured from Zambia on the other hand manufactured products are not. About 95% of manufactured goods procured by the mining companies are not produced in Zambia. Unlike the service sector, SMEs in the manufacturing sector face greater constraints to supply the mines.
There are a number of challenges that prevent SMEs in the manufacturing sector from doing more business with mines. The manufacturing sector in Zambia is lacking in both soft and hard skills, which are critical success factors. The skills that are available within the SMEs are limited because they do not have the practical experience with the latest technology in the mining sector. Majority of SMEs in Zambia are still utilising old and outdated equipment because they do not have the financial resources to upgrade. The quality of products which encompasses performance, reliability, durability, conformity to agreed specification are key decision factors for procurement departments in mines. Unfortunately, not all SMEs in Zambia have the capacity to meet the set standards because it is costly and they may have to change their production operations. The capability to meet quality and other standards is essential as it can have fatal consequences if not met. The cost element for having a manufacturing presence for some products in Zambia is also not economically feasible.
Closely linked to capacity is the inability for the SMEs to be in a position to supply products in bulk rather than in small batches. Supplying in small batches has the potential to increase the cost for MNCs as it includes transaction costs (paper work, administration, monitoring) each time an order is placed.
SMEs require finance for both operational and expansion purposes. The lack of access to finance impedes local suppliers from purchasing suitable equipment, increase production; improve on the quality of manufactured products and to maintain sustainable growth. Finance for SMEs in Zambia is sourced from a number of places such as personal savings, friends and family, profits from the business, banks and microfinance institutions. Usually these some of the sources of funding come with high interest rates.
There does not appear to be much of a challenge for SMEs in the provision of services from doing business with the mines. It is the SMEs in the manufacturing sphere who have greater challenges to face. The main obstacles in the manufacturing sector are within skills, capacity and capabilities and finance. SMEs need to be assisted in the areas that are deficient and the mines can assist in meeting some of them. The Zambian government needs to consider various approaches to filling in the gaps and part of this can be done through the consideration of the policies and the strong implementation of these policies.