16 June 20101

Launch of Top Line Findings Wednesday 16th June 2010 Intercontinental Hotel – Lusaka, Zambia 16 June 20102

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 16 June 20103

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, June 20104

Zambia’s business environment is a great deal better than it was in June 20105

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 16 June 20106

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) 16 June 20107

A NEW APPROACH GIVES US A NEW VIEW The MSME component – Nationally representative survey of 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 16 June 20108

MSMEs AND LARGE ENTERPRISES IN ZAMBIA OCCUPY TWO DIFFERENT WORLDS 16 June 20109

While larger firms drive the economy, they employ only 7% of the workforce. Most Zambians are employed in its MSME sector. 16 June

Two-thirds of MSMEs in Zambia are tiny, owner-operated businesses Most of the remainder are microenterprises with 10 or fewer employees 16 June

Most MSMEs are based in rural areas & are small farms or retail traders, whereas Large Enterprises are highly diversified 16 June

MSME owners have less formal education than Large Enterprise managers (as measured by the highest education level reached) 16 June

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 16 June

Low incomes and poor access to information often drive informality 16 June

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 16 June

Whereas most large enterprises have connections to infrastructure services, most MSMEs do not 16 June