Last updateLun, 26 Jan 2015 6am

Industrial Development Corporation vehicle for economic growth

Economy: The Industrial Development Corporation (IDC) has finally been incorporated as a company with an initial investment of K20 million. However, when President Michael Sata announced the establishment of the IDC it attracted mixed feelings from a cross section of society with some people fearing a return to the days of the mixed economy during the first Republic. The fears of some people were that the institution would crowd out the private sector, confuse the economic landscape due largely to political interference from the ruling party, as was the case in the UNIP-era.

This is because skeptics likened the now incorporated company to Industrial Development Corporation (INDECO) of the UNIP days which collapsed due to a number of factors which, besides political interference, included mismanagement as most appointments to key positions were not on merit but along political patronage.

The other fear was the source of IDC funding, and this has now been quashed following President Sata's announcement that a whopping K20 million has been allocated towards the implementation of the IDC.

INDECO collapsed after years of incurring losses, leaving thousands of workers jobless and the country burdened by ever-increasing debts.

This happened when Zambia's economy had come under intense pressure from declining copper export earnings and rising oil prices on international market.

The INDECO was a state-owned company during First Republican president Kenneth Kaunda's reign, before it was liquidated after the introduction of liberal economy when the MMD took over power from UNIP in 1991.

MMD presidential spokesperson Muhabi Lungu is skeptical about the practicality of the creation of the IDC which is likened to the defunct (INDECO) under the UNIP era.

Mr Lungu said there are a number of countries where such policies were tried but failed just like in Zambia.

Maurice Sokoni, a Lusaka business executive, who was also quoted in one daily tabloid, said Government plans to re-establish the UNIP parastatal -INDECO will not economically benefit Zambians.

Mr Sokoni claims that the move to re-introduce INDECO is aimed at taking the country back to the Kaunda era of authoritarian control of socialist economies.

But UNIP president Tilyenji Kaunda argued that INDECO flourished during the UNIP era but it went under when the MMD came into power.

Mr Kaunda said in 1990 the International Monetary Fund report showed that the country's economy grew by more than four percent.

He, therefore, said the former ruling party is in full support of Government's plans to re-introduce the IDC because that is the only way Zambians can take part in improving their economy.

However, Private Sector Development Association Chairperson Yusuf Dodia says people should not tie the past mistakes of INDECO to the established IDC.

Mr Dodia said historically, INDECO was a company that built what Zambia was today.

He said the IDC would work well in a liberalised economy such as Zambia's to promote competition among economic players, including the private sector.

Mr Dodia, however, said IDC can open up green field business ideas that the private sector may be afraid to invest in and once the parastatal can manage to show that it is possible to succeed, the private sector may follow aggressively, citing Zambia as an example in mobile service.

He said the IDC could be another company offering competitive services and products to Zambians just like any other company.

"It is also important for Government not to give preferential treatment as that will distort the economy," he said.

Mr Dodia cited China's economic success as one which was largely developed by parastatals, which became the motivators and facilitators of private sector investment.

Labour Minister Fackson Shamenda said the move to create an IDC was part of Government's overall economic agenda aimed at improving people's living standards through rigorous and robust job creation as espoused in the Patriotic Front manifesto.

He said while the concept and objective of the former INDECO under the UNIP government and the proposed IDC may be similar; the economic environments then and now are absolutely different.

Mr Shamenda said doubts and fears being expressed by some people that the introduction of the IDC would stifle the private sector and return Zambia to monopolistic and state-controlled economy are unfounded and unjustified.

He said the fact that a similar structure once existed and failed provides valuable lessons for Government to learn from.

Mr Shamenda said ownership was not the reason why the INDECO failed, but mismanagement and political interference.

He said the decision to establish the IDC, therefore, does not amount to suffocating the private sector but the two sectors complementing each other in accelerating and deepening the country's economic development.

However, other countries that have IDCs include South Africa and India.

In South Africa the IDC was established in 1940. The corporation's vision is to be the primary driving force of commercially sustainable industrial development and innovation to the benefit of South Africa and the rest of the African continent.

The IDC is a self-financing, self-sustaining, state-owned national development finance institution whose primary objectives are to contribute to the generation of balanced, sustainable economic growth in Africa and to the economic empowerment of the South African population, thereby promoting the economic prosperity of all citizens.

The IDC achieves this by promoting entrepreneurship through the building of competitive industries and enterprises based on sound business principles.

Supporting industrial development capacity and promoting entrepreneurship are therefore key objectives of the IDC.

The outcomes of economic development efforts of the IDC include sustainable employment, regional equity, industrialisation in the rest of Africa and Environmentally sustainable growth.

Other efforts include growing sectoral diversity, broad-based black economic empowerment, growing SME sector and new entrepreneurs entering the economy

As the government's key partner in revitalising the economy, the IDC focuses on priority economic sectors that offer the greatest potential to unlock job opportunities.

Through partnership, the IDC provides funding in support of industrial capacity development by proactively identifying and funding high-impact projects, leading the creation of viable new industries, and taking up higher-risk funding in early-stage and high-impact projects.

In India, there is the Kerala Small Industries Development Corporation Limited (Kerala SIDCO) which is a state agency, established for the promotion of small scale industries in the state of Kerala.

It works in association with the National Small Industries Development Corporation.

Apart from acting as the dispenser of government subsidies for starting a new small scale industry, the Kerala SIDCO provides technical assistance, training, and also connects up the aspirant industrialists to suppliers of raw materials and machinery.

It is, however, important for the Government to avoid the pitfalls that led to the underperformance of companies that fell under INDECO.

In a nutshell, IDC is a very good idea as it will serve as an important vehicle to spearhead industrial development and job creation if lessons are learnt from past mistakes.

Appointments this time around should be on merit, and not on political patronage as was in the past and tended to have a damaging effect on the economy.

By Stanslous Ngosa

The Times of Zambia/27/01/2014