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Thursday, 9 April 2009

Zambia's mobile manufacturer..


  1. This is one to watch. The thing is for high-tech manufacturing at this scale, there're usually other supporting industries such as chip-makers, battery manufacturers, local R&D, etc. Will it follow, I wonder?

    We certainly have some other ingredient in abundance, cheap labour.

  2. Now folks, is this the reason why the Zambian government has raised tariffs on imported handsets, supposedly 'to protect local manufacturing' by this one single company?

    If so, I object. And here's why.

    As I said above, for there to be a viable handset manufacturing industry in Zambia, it will take far more than a single company, amongst other requirements; for a single company does not create an industry.

    There ought to have been a host of other supporting component manufacturers talking to the government in the hope of setting up alongside this handset company. So far, there appears to be no evidence of that. Real manufacturing as we know it, usually involves processing raw materials, or even basic components in terms of electronics, and fabricating something out of it. In fact the Princeton online dictionary defines manufacturing as, "the act of making something (a product) from raw materials."

    Is MTech manufacturing its components on site? I want to see evidence of that. Or are they simply assembling components to make handsets and calling that manufacturing, and for which the Zambian govt has taken such drastic action as to increase tariffs on imported ready made handsets? As we know, mobile handsets are complex pieces of equipment made up of several components from various manufacturers.

    If MTech is to be commended, it's for creating employment for local people in the wake of redundancies across the land, as well as bringing that much needed economic diversity. However, the big question is, what is the real cost to the rest of the mobile industry? What if Mtech went bust? And what is their track record anyway?

    Remember, Mtech is not an industry on its own, it's a relatively small company and as such remains vulnerable and fragile in the current economic climate, unless of course they have struck deals to be protected by the govt, such as low tariffs. If they're simply assembling handsets, then it doesn't justify govt having raised tariffs on imported handsets to the level that they did simply to enable this one company to make profits. It would only makes sense to take such action if a whole supporting industry was created involving several consortia, possibly the local universities, and so on. As things are, I remain rather sceptical and unconvinced that govt was right in raising tariffs of imported handsets.

  3. Zedian,

    I think that you make several valid points, both about the nature of multi-phase materials processing, component manufacture and assembly; as well as the track record of state-sponsored monopoly formation and protection. Let us hope that this move does not continue too far in that direction.

    However, there may be some mitigating factors in this particular instance, whereby this tariff increase will not have a devastating effect on the sector or its consumers. For example, in the article you cited there is reference made to imported handsets selling for as little as $16 under the old 5% tariff schedule. So at the low-tech end, the pre-tariff consumer cost is about $15.24 ($16/1.05), which after application of the new 15% tariff would raise the price to about $17.52, while a high-end device that currently retails at say $160 would go up to around $175. I think that it is hard to argue that this would completely exclude imported handsets from the marketplace, especially if MTech phones are not of equal quality or capability. On the other hand, it is reasonable to expect other countries to reciprocate the tariff increases, which might well preclude MTech's ability to eventually export their products abroad, given their apparently fragile profitability without state support.

    Another hopeful hypothetical would be an increase in the tariff on fully assembled phones, while maintaining a relaxed tariff on components, thus encouraging multi-national telecom equipment suppliers to set up local assembly plants in Zambia in order to avoid the new tariffs and effectively maintain current consumer price points and market shares. If indeed as we suspect MTech is a single-phase assembly plant for imported components, such a move would place multi-nationals on an equal competitive footing. Of course, this would do nothing to foster the growth of actual component manufacturing in Zambia, so still seems rather a "consolation prize".

    Yet another hypothetical would be fears of larger, more established brands flooding the Zambian market with phones at below manufacturing cost in an effort to prevent MTech from establishing a market share in the first place. Given the relative small size of the Zambian market in comparison to the total global market, this would not be much of a hardship for a corporation such as Nokia. The increased tariff would not necessarily prevent this tactic, but would mitigate it to an extent.

    In summary, I fully agree that this move is counterproductive if intended solely to protect this one local company at the expense of the entire growing telecom sector. I merely hope that the strategy is broader based and better thought out than it appears to be on the surface. I am probably hoping in vain, and chances are good that the tariff move is a mistake, especially as any increase in government revenues (either from tariffs or taxes paid by MTech) will simply come out of the pockets of Zambian consumers. The more so if export potential is curtailed by reciprocal tariff increases. Thanks for calling attention to the issue!

  4. The East African equivalent to Zambia's cellphone assembling plant:


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