SIGNIFICANCE OF THE DEMOCRATIC REPUBLIC OF CONGO (DRC) AND CHINA AS ZAMBIA'S TRADING PARTNERS

QUESTION: DISCUSS THE SIGNIFICANCE OF THE DRC AND CHINA AS ZAMBIA’S TRADING PARTNERS

SUGGESTED ANSWER: 

INTRODUCTION

Trading partners as parties engaged in a commercial agreement. Zambia has many trading partners. Two of them are the Democratic Republic of the Congo (DRC) and China. This paper examines the significance of the two countries the DRC and China as Zambia’s trading partners. We look at each country in turn.

THE SIGNIFICANCE OF THE DEMOCRATIC REPUBLIC OF CONGO (DRC) AS ZAMBIA’S TRADING PARTNER

Zambia and the DRC export and import from each other. Zambia’s exports to the DRC, amount to over US$1.00bn per year, according to some reports.

The Zambian exports to DRC have consisted partly of sulphur, sulphuric acid, chemicals and copper ore in the industrial sector. In the consumer area, Zambian exports include beverages, cleaning products, cereal meal and raw sugar.

The exports of the Democratic Republic of Congo to Zambia amounted to over US$600m in 2022. They consisted primarily of copper ore and cobalt oxides.

Effects of the Zambia-DRC trade partnership

Employment creation. When Zambia exports, manufacturing companies keep their workers in employment. When people work, they are able to support their families, keeping them healthy and sending the children to school. In short, exporting to the DRC ultimately results in better standards of living in Zambia.

Earning foreign exchange. Zambia earns foreign exchange (forex) by exporting to the DRC. The forex is used to support importation of necessities such as some medicines Zambia does not manufacture or does not manufacture in sufficient amounts.

Earning revenue. Exports mean more revenue to the exporting companies. That revenue is taxed by the government to provide essential services such as road infrastructure and education facilities. So exports to the DRC support Zambia’s export agenda.

The effects of the DRC exporting to Zambia is the same on the economy of that country. In short, by being trading partners, the two countries are basically in a win-win situation. One notes, however, that in financial terms, Zambia potentially gains more because it has a trade surplus against the DRC. There have been no services exported either way in recent times.

Significance of Neighbours Trading

There is something to be said about neigbouring countries trading. Zambia and the DRC are next-door neighbours and that brings additional benefits (to the gains presented above), some of which we now look at.

Training ground.  Because of the proximity of the two countries, Zambian firms can use exporting to (and importing from) the DRC as low-cost training grounds before they can take on the more challenging task of exporting to or importing from farther-away countries.

Cheaper and faster trade. It should generally be quicker and cheaper for Zambia and the Congo to export to and import from a next door neighbour than it is exporting to or importing from, say, Japan, which is many thousands of kilometres away. The gain in time and reduced cost, all things being equal, should translate to higher profits, quicker transactions and higher economic growth rates for the two countries.

Similarity in consumption habits. In general, the nearer a country is to another, the greater the similarities in culture and consumption patterns. It means what is consumed in Zambia is likely to be not very different from what is consumed in the DRC. In fact, an example is maize meal. In terms of export implications, when Zambia has more than enough for its own use, a product could be exported to the DRC, and vice-versa, without the extra costs incurred when the importing country requires the product to undergo a little adaptation to suit its market tastes. So, maize meal that cannot be consumed in Zambia can be exported exactly as it was manufactured, to the Congo.

Flexibility in currency requirements. When countries are neighbours, the need to use an internationally acceptable currency potentially becomes smaller, especially if there is a lot of trade between them. Each country could accept the other’s local currency in an export transaction, comfortable that they will use it soon in a reverse (an import) transaction. So, to have the DRC as a trading partner of Zambia reduces need for use of Dollar or Euro and hence promotes business that benefits the economies of the two countries.

Economic integration becomes easier. To have the DRC and Zambia as trading partners would help make the much talked about African economic integration, a more realistic pursuit. Integration could be achieved by way of neighbour-trade expanding to more distant countries. It would enable greater intra-Africa trade and potentially boost the performance of economies in the region as a whole.

Increased export potential. According to some experts, there is a great chance that a country will start to export what is exported by the neighbour. That means, if the DRC started exporting, say, motor vehicles, the likelihood would be Zambia also starting to export motor vehicles soon.

Recommendations on DRC as Zambia’s trading partner

While the significance of the DRC as Zambia’s trading partner is huge, it is possible that there are many other ways Zambia could increase its exports to the Congo. For example, Zambia could invest heavily in improving its education physical infrastructure (like expanding the number of teaching facilities and hostels at Zambian public universities). It could also expand infrastructure at the major hospitals and give more doctors specialized training. This could open up a new frontier of exports (services) to the Democratic Republic of the Congo.

THE SIGNIFICANCE OF CHINA AS ZAMBIA’S TRADING PARTNER

China is one of Zambia’s biggest trading partners. Zambia’s exports to China are valued at more than US$2bn per year.  They are mainly raw copper, refined copper and nickel ore. Export values have been increasing steadily over the past few years.

China’s  annual exports to Zambia have recently hovered around US$1.00bn. That has represented mainly delivery trucks, rubber tyres, clothes and electrical products.

One major, well known, though ironic, advantage of trading with China is that it is a source of low-cost products, unlike the EU and United States where union power and labour laws make salaries higher. That contributes to making products more expensive. Low cost products make if easier for low-income Zambians to buy certain products they may not ordinarily afford, and hence enjoy a more decent standard of living.

 China as an importer of commodities from Zambia

China imports the bulk of world copper concentrates. The value is at least US$40bn annually. China is also the second biggest importer of commodities after the United States.

Zambia, like many other developing countries, exports mainly commodities. It is those commodity exports that enable Zambia to earn the foreign exchange it needs to make its own imports of essential and other products. If China did not import the copper commodities it imports from Zambia, two problems would arise:

-          Reduced Zambian export earnings. Indeed Zambia would earn less from exports by way of exporting less. That makes China as a trading partner valuable.

-          Reduced commodity prices. Less demand means lower price. If China did not import commodities from Zambia, or imported less, the price of the affected commodities, according to the law of supply and demand, would plummet. For Zambia, that would decrease export earnings further.

 Recommendations on China as Zambia’s trading partner

The world’s economic configuration is always changing. China may be an importer of commodities from Zambia today, but there is no guarantee that it will continue to be, or that it will import the same quantities tomorrow. Zambia needs to consider the following:

-          Investing more in value addition. Instead of exporting commodities, Zambia could stimulate manufacture of finished products and seek markets around the world. That would earn the country higher revenues and insulate it against any reductions in the export of commodities.

-          Invest in ways to make the citizens the extractors and exporters of the natural resources of the country. That means moving away from seeking foreign firms to do mining of the country’s copper or gold, for example. The gains would then be two-fold. It would make the citizens doing the mining, for example, richer, and it would bring the country more money into the tax basin. In the current scenario, the country only gains from tax, and there are questions as to whether or not all due tax is paid by the foreign mining firms.

     CONCLUSIONS ABOUT THE DRC AND CHINA AS ZAMBIA’S TRADING   PARTNERS

      Zambia exports to the Democratic Republic of Congo and imports from that country. Both countries gain from the partnership in terms of employment creation, taxes and revenue. Zambia has a trade surplus with the DRC and therefore, in financial terms, perhaps gains more foreign exchange than it loses. However, Zambia needs to look at other ways of deepening and widening its exports to the DRC, and could consider making its education and health sectors as possible offerings to the DRC. 

      China as a trading partner of Zambia offers a large market for commodities. Zambia could be more forward-looking, though. It could invest in increasing its capacity to manufacture finished products and make it easier for citizens to own and operate nature-given assets.