Infrastructure Development And Its Impact On The Gross Domestic Product (Gdp) In Zambia

Chapter 1: Introduction

Background

Over the past couple of years, Zambia has seen rampant investment into infrastructure with notable examples in the past 9 years being the pave Zambia 2000, and the Link Zambia 8000. These projects were initiated with the incentive of stimulating positive economic growth in the country. According to (S Surbhi, 2015) economic development is defined as the manner in which there is an increase in the level of production in a country facilitated by an improvement in technology, living standards etc. It is in contrast to economic growth which relates to the increase in the money value of goods and services produced by all the sectors of an economy. Therefore, in our quest to attain infrastructure development, sustainability and economic growth should be of high importance also. According to (Mankiw, Gregory & Taylor, Mark, 2006) multiple indicators are used in determining whether or not an economy is growing. These indicators include, the Gross Domestic Product (GDP), Inflation Rate, Unemployment Rate, Government Budget Balances, Trade Balance, Level of International Reserves etc. The GDP measures an economy’s income and expenditure which is further defined as being the total market value of all goods and services produced within a country in a particular time period. GDP is also composed of components such as the consumption in a nation, the level of investment attributed to the nation, Net exports which is the net difference between the total export and imports into a nation and finally, government spending on goods and services. It is therefore implied that since infrastructure development in most cases is initiated by the government, it should raise the GDP of a nation as it may be classified as expenditure on the part of the government. Also, infrastructure is a form of investment as new developments are introduced to the economy that may spur an increase in the productivity of the nation.

Infrastructure is can be defined as the basic equipment and structures such as roads and bridges that are needed for a country, region or organisation to function properly (Ngozo et al. , 2018). Infrastructure can be categorized into two broad categories these being economic infrastructure and Social infrastructure. Economic infrastructure can be said to be the equipment and structures that are developed have the capacity to open up the full capacity that the country has in manufacturing, agriculture, mining, telecommunications, energy, amongst other industrial sectors in the country. Examples of Economic infrastructure include water and sanitation infrastructure, transportation etc. Social Infrastructure on the other hand is concerned with the provision of basic amenities that are essential to the day-to-day functionalities of the common citizen. Examples include, the provision of health and educational facilities, etc. It is therefore of paramount importance that investment into infrastructure is made with accurate information so as to make the greatest economic impact.

According to (UNDP, 2015) the contribution of the construction industry to the country’s GDP in 2000 was at 8% and this figure increased through the years with an increase in the level of infrastructure developed to a level that in 2014 the sectors contribution to GDP stood at 13%. With this investment that has been assigned towards infrastructure, it is vital to monitor the real and current effects that these developments on GDP so as to provide a better understanding and appreciation of the investment channelled into these sectors and therefore provide for much more sustained growth that trickles down to the citizens.

Statement of the Problem

According to (Ministry of National Development Planning, 2017) Zambia is currently embarking on a developmental plan to make Zambia a prosperous middle income country by 2030. In order to do this, various investments need to be made, chief among them being in infrastructure in order to provide an enabling environment for said economic growth. Studies have shown that with an increase in the factors such as government spending, consumption and others, there should in essence also be an increase in the GDP and thus the economy of a nation. Over the past 15 years, Zambia has seen investment into infrastructure at a level that the country has not seen since its independence. These investments are expected to elevate Zambia’s economic standing to higher levels and in so doing better the lives of the citizens of this nation. However, this expected growth in the economy has not been as expected for various reasons. It is therefore the focus of this research to investigate the impact of the infrastructure development in Zambia on its GDP.

Aim of Research

The aim of this research is to investigate the impact of infrastructure investment on the GDP in Zambia.

Specific Objectives

• Study infrastructure developed in Zambia looking at major investments from 2010 to 2019 in various sectors of industry.
• Determine what proportion of said development is undertaken by local contractors.
• Determine what proportion of projects’ costs are expensed in Zambia and actively contribute to the GDP of the nation.

Rationale

Zambia has seen an extraordinary amount of investment placed into the construction sector with the view to accelerate the growth of our economy and in so doing develop the nation and improve the lives of its citizens. Therefore, it is imperative that upon the completion of said projects, the performance of the infrastructure needs to be evaluated so as to ensure that the investment leads to growth to the economy and therefore the development of the nation as a whole. This assessment is a necessary tool in order to equip national planners and developers evaluate among the various forms of infrastructure that have been implemented in the country. Hence, there is a need to meticulously study if the structure (infrastructure) attains the desired impact planned for.

Research Methodology

In the pursuit of best carrying out this research, certain methods of data collection will be utilised. These will include primary and secondary data sources.

Primary Data sources;

These will be in the form of interviews with various stakeholders and government ministries and agencies. Targeted institutions for data collection will be the Road Development Agency (RDA), Ministry of Housing and Infrastructure (MoHI), National Council for Construction (NCC), Zambia Electricity Supply Corporation (ZESCO), various contractors and the institutions operating/ expected to operate the facilities after completion.

Secondary Data sources;

These will be in form of literature review of publications, journals, articles, etc. all of whom have been published in relation to what is contained in this research.

Layout of the dissertation

This dissertation is organised into various chapters as shown below;

Chapter 1; Introduction:

Chapter 2; Literature Review:

Chapter 3; Methodology:

Chapter 4;

Summary

Chapter 2: Literature Review

Introduction

In the previous chapter, the rationale, aims and other important aspects of this research were outlined. This chapter contains a literature review on infrastructure development, its significance, the infrastructure projects implemented in the target period, and other important and necessary information concerning this research. The literature reviewed will be divided amongst the various sectors that the investment was channelled into, e. g.

Similar Research

Multiple authors have agreed that a positive correlation exists between Public infrastructure investment and sustainable economic growth and development. Access to improved infrastructure in rural areas also spurs private sector investment leading to further job creation and economic growth which is the centre of most government economic policy.

According to (Aschauer, 1989) the slowdown of the private sector in the 1970’s and 70’s was caused mainly due to relatively slow accumulation of public capital in the United States of America. Further studies by (Lynde & Richmond, 1993) also showed that public capital services are an integral part of the production process and that the production decline that the US was going through from the 70’s could be attributed in part to a fall in the public-labour ratio.

According to research by (Fedderke & Garlick, 2008), there are five main ways through which infrastructure development can impact the economy positively, these are; (i) Infrastructure may simply be regarded as a direct input into the production process and hence serve as a factor of production; (ii) infrastructure may be regarded as a complement to other inputs into the production process, in the sense that its improvements may lower the cost of production or its deficiency may create a number of costs for firms, (iii) infrastructure may stimulate factor accumulation through, for example, providing facilities for human capital development; (iv) infrastructure investment can also boost aggregate demand through increased expenditure during construction, and possibly during maintenance operations; and finally, (v) infrastructure investment can also serve as a tool to guide industrial policy; Government might attempt to activate this channel by investing in specific infrastructure projects with the intention of guiding private-sector investment decisions.

According to (Heintz et al. , 2009) statistical evidence shows that infrastructure investments and economic growth rise and fall together. It is shown that in the period from 1950 to 1979, due to public investment in vital industries like water, energy, and transportation increased at an average rate of about 4% point annually, which corresponded to a growth of about 4. 1% in the GDP of the United States over the same period. This is in contrast to the period between 1987 and 2007 when with a dramatic reduction in investment in infrastructure to about 2. 3%, the country saw an almost proportional reduction in GDP to levels around 2. 9% annually. The research also showed that for the year 2007, the base line and high end scenarios for an increase in public expenditure yielded varying results. For the baseline scenario, public infrastructure investment of $54 billion yielded an annual increase $46 billion in GDP, whilst in the high-end scenario, an investment of $93 billion would yield in increase of $77 billion.

What is Infrastructure?

Infrastructure entails the basic physical equipment and structures that enable a country or region be able to function adequately and thus lead to an improvement in the lives of the citizens. It has been acclaimed by many authors as being a driving force of the economy in that it provided the backbone upon which the provision of goods and services and laid by the creation of a good climate for the development of businesses and thereafter, improvement of lives (Serkova et al. , 2018). Since infrastructure development comes with so many advantages to the economy of a country, region and a people, it is mainly governments responsibility to provide for this development. Due to this and other reasons, the largest of infrastructure projects are carried out by the public sector, with some development into infrastructure mainly personal also being carried out by entities from the private sector. However, with the significant costs of engaging in such investments, and risks in terms of project overruns and delays, have led to the slow shift from the traditional approach of handling infrastructure procurement to more dynamic models of procurement (Akinyosoye, 2010).

Why Invest in Infrastructure

According to (The World Bank Group, 2018) most of Zambia’s urban areas have had their service demands greatly outpace service delivery, this is due to both an increase in populations, and also lack of investment into water and sanitation since the 1990’s. Up to 32% of the residents in the capital of Lusaka are estimated to having access to piped water with the Copperbelt province and rural areas currently standing at 37% and 15% respectively. In the energy sector, a survey from 2013 showed that only 61% of residents in Lusaka and 45% on the Copperbelt province had access to electricity. This and so many more incidences are in occurrence in the country which are as a result of little investment in the infrastructure in these sectors which need to be addressed in order to raise the levels of productivity in the nation.

Water resources on the continent of Africa are vast in quantity and location, but are greatly underutilized due to the absence of storage and irrigation infrastructure, investment into these areas, would open up the capacity of agriculture that the continent has, and in so doing reduce the poverty level that we are fighting. This would also result in a reduction in the number of people that die from water borne and water related diseases that are caused by inadequate and unsafe water supply to populations. According to (World Health Organisation, 2010) only about 41% of people living in the country don’t have access to safe drinking water and thus provides the platform the propagation of said diseases.