ZambiA

2014

Peter Engbo Rasmussen / p.rasmussen@afdb.org

Kambaila Munkoni / kambaila.munkoni@undp.org
George Lwanda / george.lwanda@undp.org

www.africaneconomicoutlook.org

Zambia

Zambia
While Zambias real GDP growth remains robust, it decreased to 6.5% in 2013 in large
part due to a poor agriculture harvest. Investments in mining continue to drive other
sectors, especially construction, transport and energy. In the medium term, growth
is projected to increase to 7.1% in 2014 and 7.4% in 2015, while inflation is expected to
fall below the 2013 level.
Zambia has continued to strengthen governance and democratic processes, with
government institutions developing and reinforcing transparency and accountability
efforts.
Despite robust economic performance, poverty remains high at over 60%, but there
have been improvements in urban areas. Increasing youth employment remains one
of the biggest challenges.

Overview
Zambias economic growth in real terms decreased to 6.5% in 2013, mainly due to a fall in
agricultural output, particularly maize and cotton. The growth in real GDP was largely driven by
manufacturing, mining, construction, transport, communications and the public sector. Copper
remains the countrys mainstay, contributing about 70.0% to export earnings. However, over the
last few years non-traditional exports have grown substantially. Economic performance in the
medium term is expected to remain strong. Real GDP growth is projected to increase to 7.1%
and 7.4% in 2014 and 2015, respectively. Infrastructure investment, especially in mining, power
generation and roads, with the Link8000 project, will ensure that growth remains robust.
The main areas of policy focus are creating employment opportunities for the majority of
Zambians (especially the youth), improving accountability and strengthening the fight against
corruption. The government plans to create 200000 decent jobs per year. The government will also
focus on strengthening fiscal management in an effort to narrow the fiscal deficit, which doubled
in 2013 due to expansion of infrastructure spending and an increase in public sector wages. The
coming years will require a concerted effort to broaden the tax base and expand the pallet of
potential taxes to generate additional government revenues, as well as streamline expenditures,
focusing less on recurrent spending and more on priority areas. Private sector competitiveness
needs to be strengthened given the pressure on demand for higher wages, especially for skilled
labour, which is in short supply.
Manufacturing accounted for about one-tenth of GDP in 2013. The country is landlocked and
is constrained by high costs of transport, which add up to 40% of the cost of the final product.
The extractive industry is the main exporter in the country and has potential for upstream value
chain development. Competitiveness of downstream activities may be constrained given the
distance from the main markets for copper products. Food and beverages account for more than
two thirds of manufacturing value added. A growing market in the Katanga province in the south
of the Democratic Republic of Congo (DRC) fuelled by mining activity offers opportunities for
Zambian firms and farmers. Another potential consumer market is South Kivu, also in the DRC,
which is accessible from Mpulungu Port on Lake Tanganyika.

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Zambia

Figure 1. Real GDP growth

Real GDP growth (%)

Southern Africa (%)

Africa (%)

%
9
8
7
6
5
4
3
2
1
0
-1

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013(e)

2014(p)

2015(p)

Source: AfDB, Statistics Department AEO. Estimates (e); projections (p).

Table 1. Macroeconomic indicators

2012

2013(e)

2014(p)

Real GDP growth

7.2

6.5

7.1

7.4

Real GDP per capita growth

4.0

3.2

3.8

4.2

CPI inflation
Budget balance % GDP
Current account balance % GDP

2015(p)

6.6

7.1

6.8

6.3

-2.8

-7.3

-6.6

-5.7

2.1

0.2

-0.2

-0.4

Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations.

Recent developments and prospects

Zambias economy has been growing at an impressive rate over the past decade. Average
annual real GDP growth rate surpassed 6% during this period. This economic performance has
largely been driven by growth in construction, transport, communications, the public sector,
trading and mining. The Zambian economy has been relatively resilient to the global crises in
recent years.
In the medium term, strong performance is expected to continue in transport, communications
and construction. These sectors are expected to benefit from increased investment in mining,
with the need to bring in equipment and materials during construction and operations. In
2013, these two sectors contributed half of the growth in real GDP. The governments increased
allocation for infrastructure (e.g. Link 8000 and Pave Zambia), with more than USD5billion in
the road projects, will ensure that growth in construction remains buoyant. The fast expanding
mobile communications services sub-sector is also expected to continue to lead growth in the
communications industry. The public sector saw strong performance in 2013, with education and
public administration expanding. The downside risks to growth include waning global copper
demand and adverse effects on agricultural production.

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Zambia

Throughout 2013 the Central Bank of Zambia pursued a tight monetary policy, increasing
the policy rate to curb inflation. Inflation has remained largely stable during the past couple of
years, between 6% and 7%. It is expected to fall below 7% in the medium term. Growth in private
sector credit was adversely affected by a cap on interest rates for commercial banks and nonbank financial institutions, coupled with a rise in returns on government securities. This led to a
decline in the growth of private sector credit from 40% to 15% in 2013. The upward adjustments in
bank capitalisation, which were implemented in 2013, have not contributed to increased lending.
The financial sector is still expected to continue expanding in 2014 and 2015 but at a slower pace.
During the past decade, manufacturing has consistently performed well. The expansion
has been driven by strong performance in agri-business, such as food processing, tobacco and
beverages, as well as a growing need for materials to support activities in the construction
industry. However, in 2013 growth in manufacturing slowed slightly, mainly due to sluggish
growth in agri-business.
Agriculture is still the most important sector from a socio-economic point of view, providing
employment opportunities for 60.0% of the countrys informally employed population of
4.9million and 8.0% of the only 625000 formally employed. Zambias agriculture is heavily reliant
on rainfall and, due to erratic rain patterns in 2013 and an army worm outbreak, growth in the
sector faltered, contracting by more than 7.4%. The late delivery of maize seed and fertiliser to
affected areas that needed replanting also contributed to a contraction in maize output by 11.0%
and cotton production by 48.0%. The outlook for agriculture output in 2014 could also suffer from
poor rainfall, as evidenced by early signs of unfavourable rain patterns, while slow delivery of
inputs continues to pose a challenge in most areas. During 2013 the government took steps to
reduce the grain millers subsidy, as well as farmers input support subsidies, which affected
more than 800000 small-scale farmers. Agricultural reforms will continue in the medium term
as the government is expected to sequence the reforms over a number of years.
Though growth in mining slowed in 2011 and 2012, the sector (especially copper) has continued
to grow. It is the single most important recipient of large foreign direct investment (FDI) and
accounts for about 10% of the formally employed. Whilst there is agreement that copper output
expanded in 2013, the extent of the expansion depends on the source consulted. According to the
Bank of Zambia (BoZ), output increased by 21% to more than 950000tonnes, while preliminary
national accounts figures suggest expansion was only 5%. Output is projected to further increase
to 1.5milliontonnes as new copper mining operations come on stream in North-Western province
in the next few years. These include the new Sentinel Mine and the expansion of the Kansanshi
and Lumwana mines, which combined will account for more than 370000tonnes. Output at
the Konkola Deep is projected to increase by 200000 tonnes, while Konkola North is expected
to add 50000tonnes to total copper output. The main challenge for the mining industry is to
obtain reliable and sufficient power supply as this could otherwise affect copper production in
the future. The mining sector consumes more than 50% of power supply.
Government consumption grew by 35% in 2013, and it is expected to remain high in 2014 due
to an expansionary budget announced in October2013. Gross investment is also expected to grow
strongly in the medium term, brought about by the continued investment in public infrastructure
and the mining sector. The share of household consumption has decreased to 44% of GDP in 2013
from 52% of GDP the year before.
The expansion in public spending has also necessitated increased domestic and external
borrowing. External debt stock doubled from 2011 to 2013. Although the debt-to-GDP ratio is
currently sustainable, there is a need to closely monitor future debt accumulation, not least in
light of higher financing costs. Financing costs increased following the downward revision of
Zambias credit rating from B+ to B, with a negative outlook due to fiscal profligacy and policy
uncertainty in the last quarter of 2013. Interest rates on government securities rose by 238basis
points from June to December, while the spread on the 2022 eurobond increased by over 200basis
points.

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Zambia

During the past seven years, Zambia has been pursuing a policy of increased industrialisation
through the promotion of industrial parks and multi-facility economic zones inspired by the
Chinese experience. Currently, six multi-facility economic zones are on the drawing board, with
the aim of creating clusters of companies operating within the same industry. By creating a critical
mass of different service providers and operators, the expectation is that industrial development
can move to higher levels while creating jobs and allowing Zambia to participate increasingly in
GVCs. Current value chains already well-established include copper, beef and sugar; other chains
that have potential for growth include gemstones and cotton.

Table 2. GDP by sector (percentage)

2008

2013

21.2

17.7

of which fishing

1.0

0.5

Mining

3.9

2.2

10.1

8.2

Agriculture, hunting, forestry, fishing

of which oil
Manufacturing
Electricity, gas and water

3.0

3.0

Construction

17.2

29.1

Wholesale and retail trade, hotels and restaurants

19.8

15.1

of which hotels and restaurants

3.1

1.9

Transport, storage and communication

4.4

3.9

Finance, real estate and business services

9.8

9.2

Public administration, education, health and social work,

community, social and personal services

2.8

2.9

Other services

7.9

8.8

100.0

100.0

Gross domestic product at basic prices / factor cost

Source: Data from domestic authorities.

Macroeconomic policy
Fiscal policy
In 2013, the government pursued a more expansionary fiscal policy than was initially
announced in the budget. This expansion was induced by increased expenditures to support
construction of new roads, operations of the Food Reserve Agency, the provision of the farmer
input-support programme, unplanned fuel payments and increases in civil servant wages.
Government expenditures rose by 32.0% in 2013 to a total of ZMW36.6billion (or 29% of
GDP), up from ZMW26.1billion (24.7%) in 2012. Domestic revenue collection amounted to
ZMW24.5billion (20.1% of GDP). It was slightly more than targeted and was 9.4% higher than the
out-turn in 2012. In relative terms, domestic revenues fell by one percentage point, from 21.1% of
GDP in 2012. Zambia received less development assistance in 2013 due to a reduction in funding
for projects and budget support. According to preliminary figures, the government received 1.0%
of GDP through grants, down from 1.7% of GDP in 2012.
The expansion in government spending was triggered by large investment outlays in the road
sector, with the implementation of the Link 8000 programme aimed at constructing 1500km
of roads in the first phase. The project is to be implemented over the next five years. Other
programmes include Pave 2000 for pedestrian paths and Lusaka 400 for the rehabilitation of
Lusaka roads.
The budgetary allocation for agriculture was largely influenced by the need to enhance
national food security. Accordingly, ZMW1.0billion was spent on the farmer input-support
programme, representing an increase of 22% from 2012. A total of ZMW1.1billion was spent
on the strategic food reserve in order to maintain 500000tonnes maize in reserve. As part of

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Zambia

ongoing reforms aimed at increasing transparency in the maize marketing system, all food
reserve agency operations will be funded directly from the budget in 2014.
The fiscal deficit more than doubled in 2013 relative to the target and quadrupled from the
year before. The deficit widened to 7.3% of GDP from 2.8% recorded in 2012. In 2014, fiscal policy is
expected to remain broadly expansionary, focusing mainly on capital spending. Total government
expenditures are projected to increase by 34.7% compared to the 2013 budget. Nonetheless, the
government has taken some measures aimed at tightening control over implementation of the
budget to curb overruns. In 2013, subsidies on fuel were removed while subsidies on agriculture
were being reformed. The finance minister announced a moratorium on wage increases and froze
net recruitment in the public sector for the next two years. More fundamentally, the government
needs to focus on improving revenue collection as well as broadening the tax base.

Table 3. Public finances (percentage of GDP)

2005

2010

2011

2012

2013(e)

2014(p)

2015(p)

Total revenue and grants

24.2

19.6

21.6

21.8

21.7

20.8

20.2

Tax revenue

17.2

16.4

19.3

19.1

19.1

18.3

17.5

6.6

1.8

0.8

0.7

0.6

0.4

0.6

26.0

22.6

24

24.7

29.0

27.4

25.9

Grants
Total expenditure and net lending (a)
Current expenditure
Excluding interest

19.0

19.4

19.7

19.8

22.9

21.6

20.7

16.3

17.6

18.5

18.0

19.6

19.3

19.0

Wages and salaries

7.7

8.1

7.9

8.9

8.9

8.6

8.3

Interest

2.7

1.8

1.2

1.8

3.3

2.3

1.7

Capital expenditure

7.1

3.2

4.2

4.1

4.6

4.6

4.5

Primary balance

0.9

-1.3

-1.3

-1.1

-4.0

-4.3

-4.0

Overall balance

-1.8

-3.1

-2.4

-2.8

-7.3

-6.6

-5.7

Note: a. Only major items are reported.

Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations.

Monetary policy
In order to improve efficacy of monetary policy, the BoZ switched from reserve money targeting
to targeting the policy rate in April2012. The policy rate was initially set at 9.0% following the
change in the monetary framework. However, due to threats of inflationary pressures emanating
largely from lax fiscal stance, the central bank made three upward adjustments to the policy rate,
ending the year at 9.8%.
Inflation in 2013 decelerated to 7.1%, with an out-turn that was more than one percentage
point higher than the target of 6.0% set for the year. Non-food inflation was the main contributing
factor to the inflation outturn in 2013, completely offsetting the decline in food inflation. The
increase in prices of non-food items, consisting mainly of imports, was largely due to passthrough effects of depreciation of the Kwacha against the US dollar. To its credit, the BoZ has
managed to stabilise inflation at around 7.0% over the past three years.
The BoZ implemented new minimum capital requirements for the financial sector in order
to strengthen banks balance sheets. The central bank also capped interest rates for commercial
banks at not more than the policy rate plus nine percentage points (initially at 18.3%) and at 42.0%
for microfinance institutions. Although this had limited effect on incumbent large borrowers,
first time and riskier small borrowers, have had difficulty in accessing loans. The most affected
microfinance institutions had to critically assess their cost structure. This has entailed more
focused outreach activities to reduce costs while fringe and inefficient microfinance institutions
have exited the market.
The BoZ also enacted new regulation to improve the monitoring and flow of foreign exchange
to help curb tax evasion, money laundering and other unlawful transactions. The new regulation,
dubbed monitoring of balance of payments, drew sharp criticism from the private sector and

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Zambia

other stakeholders for introducing additional costs on foreign exchange transactions. After some
contentious elements of the regulation were either withdrawn or amended, a new Statutory
Instrument 55 was enacted effective July2013.
In the medium term, the BoZ is expected to continue its tight monetary policy to tame inflation
while stabilising the exchange rate. Balancing this with the sovereign credit downgrade, which
has pushed up the cost of finance, will entail prudence and close co-ordination with the fiscal
authorities. Addressing recurring concerns of policy uncertainty will also be critical to fostering
macroeconomic stability.

Economic co-operation, regional integration and trade

Zambias participation in the Common Market for Eastern and Southern Africa (COMESA) free
trade area and the Southern African Development Community (SADC) free trade area allows it
to enjoy duty free access to wider markets on the African continent. Regional trade tariffs have
largely been removed but outstanding complex rules of origin set at the product level affect flows,
particularly in the SADC region.
The government remains committed to regional integration and economic co-operation
efforts. In early 2013, Zambia signed six bilateral agreements on extensive development projects
with China as part of the strengthening of South-South co-operation. The areas of co-operation
included the development of export-oriented processing, the manufacturing industries,
telecommunications, transport and expansion of agricultural production. Other areas included
in the agreements were the development of social welfare, such as health care, education and
community housing for low-income groups, and building the capacity of personnel in critical
services.
Zambias overall external position weakened in 2013 largely due to fast rising imports against
moderate gains from exports. As a result, the current account weakened in 2013 but maintained a
surplus of 0.2% of GDP, compared to a 2.1% surplus in 2012. International reserves fell during 2013
to 2.8months of imports cover (the governments target is three months). This was equivalent to
USD2.7billion. The fall in international reserves reflected the central banks stabilisation of the
Kwacha efforts and one-off-payments for accrued fuel bills in the beginning of the year.

Table 4. Current account (percentage of GDP)

Trade balance

2005

2010

2011

2012

2013(e)

2014(p)

2015(p)

1.2

16.7

11.5

4.3

4.8

5.8

Exports of goods (f.o.b.)

31.3

45.8

45.1

45.5

43.7

43.5

43.1

Imports of goods (f.o.b.)

30.1

29.1

33.6

38.4

39.4

38.6

37.3

Services

-2.8

-3.5

-3.8

-3.7

-2.4

-2.9

-2.7

Factor income

-8.3

-8.4

-6

-3.4

-3.8

-4.1

-5.2

1.5

2.7

2.2

2.1

1.9

1.7

-8.3

7.4

3.7

2.1

0.2

-0.2

-0.4

Current transfers
Current account balance

Source: Data from the Central Bank and domestic authorities; estimates (e) and projections (p) based on authors'
calculations.

Debt policy
Although Zambias publicly guaranteed external debt increased in 2013, the risk of debt
distress remains low. The most recent figures on public debt indicate that total domestic and
external publicly guaranteed debt for 2013 was 34.1% of GDP. External public debt was estimated
at 16.5% of GDP, which is within the international threshold of 40.0% of GDP set to ensure debt
sustainability. Furthermore, according to conclusions from IMFs Debt Sustainability Analysis of
2013, debt dynamics are sustainable given the current volume of debts and the evolution of the
domestic debt stock. The present value (PV) of external public debt stock to exports ratio in the
high investment/low growth scenario was estimated at a maximum of 54.0% (the threshold is
150.0%) and the debt service to exports ratio at 5.0% (threshold is 20.0%).

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Zambia

Due to large expenditure overruns in 2013, the government increased issuances of Treasury
bills while also tapping into unused proceeds of the 2022 eurobond. These are seen as exceptional
measures in order to deal with the current challenging fiscal situation. Recent estimates by the
IMF during the 2013 ArticleIV Consultations indicate that current fiscal policy is not sustainable
on a five-year horizon and government would need to adjust policy in the medium term to target
a roughly unchanged debt-to-GDP ratio.
Zambia has indicated plans to leverage on its successful debut entry into the foreign bond
markets. However, given the fiscal slippages coupled with policy uncertainty and associated
credit downgrades, the cost of accessing new funds may be prohibitively high. In the medium-tolong term, the government will need to strengthen investment and debt management capacity to
ensure strong control and management of debt accumulation.
The public service pension fund has a deficit projected at ZMW2.9billion in 2014, increasing
to ZMW2.6billion in 2015. These deficits have to be funded from tax revenues. The government
is in the process of dismantling domestic arrears, but a lack of reliable and comprehensive data
precludes analysis.

Figure 2. Stock of total external debt (percentage of GDP)

and debt service (percentage of exports of goods and services)
Outstanding debt (public and private) /GDP

Debt service/Exports

70
60
50
40
30
20
10
0
2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

Source: IMF (WEO & Article IV).

Economic and political governance

Private sector
Zambia made improvements in starting a business, resolving insolvency issues and obtaining
credit according to the World Bank report Doing Business 2014. Its overall business environment
showed improvement in 2013, moving up seven places in the global ranking to 83 (it was ranked
7 in Africa). Within the Southern Africa region, only Botswana and South Africa are doing better
than Zambia.
Zambia increased the threshold required for a business to register for value-added tax to
ZMW800000 from ZMW200000 last year, while the minimum capital requirement was removed
some years earlier. The cost of starting a business has fallen to 27% of average income per capita.

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In addition to earlier reforms, the option of registering a company online has facilitated ease
of starting companies. This ranks Zambia at 45 globally, a substantial jump relative to the 2013
report and among the highest ranking in the region. The number of businesses registered in 2013
was 27000 compared to 15130 registered in 2012.
Last year Zambia revised the 1995 mineral resources development policy. The policy is meant
to strengthen capture of mining revenue while facilitating transparency and accountability in
the sector through closer monitoring of mineral exports. It is also meant to promote mining
diversification by exploiting the huge potential of non-traditional minerals. However, the policy
is unclear with regards to the adequate capture of mineral revenues in the national budget, the
handling of intergenerational issues and managing mineral rents to avoid price volatility shocks.
In order to reduce capital flight and stimulate beneficiation, all emeralds and gemstones
extracted locally have to be auctioned in the country. Three successful auctions were held in
2013 amounting to USD63.1million.
Another area of improvement was dealing with insolvencies. In 2012 Zambia strengthened
the qualification requirements for receivers and liquidators. Initial assessments show an increase
in recovery rates to 37cents per USD, compared to less than 33cents per dollar in 2012. The time
it takes to process insolvency decreased to 2.4years in 2013 from 2.7 in 2012.
Zambia has a flexible and business-friendly labour law framework, with limited state
intervention focused on regulating the market.
The government is currently reviewing the personal property security interest bill, which
once approved should improve the administrative procedures for providing collateral, thereby
reducing the cost to accessing credit.

Financial sector
Zambias financial sector is among the fastest growing in the economy, exceeding 12% in 2013.
The sector accounts for about 7% of GDP. Despite Fitch highlighting the fact that the pace of credit
growth in Zambia has exceeded the threshold at which there is a higher risk of stress in the banking
system (15%), financial sector growth is still expected to remain robust in the medium term.
The sector is still characterised by low financial intermediation, with limited access to
financial services for the rural population and low-to-middle income earners, high costs of funds
and an undeveloped money and capital market. In urban areas the banking network and branches
are expanding, with increasing numbers of available ATMs.
From 2014, capital requirements for locally and foreign-owned banks will be USD20million
and USD100million, respectively. Out of the 19 registered banks, 14 have met the new capital
thresholds. Four other banks have been granted temporary relief, while one was unable to meet
the threshold and converted to non-bank status. The new capital requirement contributed to
the fall in interest rates from 24.0% mid-2012 to 16.0% in 2013 while raising Kwacha lending to
the private sector. During the same period the ratio of gross non-performing-loans to total loans
remained broadly unchanged at about 8.2% in 2013 from 8.1% in 2012. Primary Capital (Tier 1) to
risk-adjusted assets now stands at above 21.5%.
The BoZ is implementing Basel II in three phases, with pillars2 and3 expected to be
completed in 2013. While elements of pillar1 were put together in 2013, the regulations are still in
preparation. Provision for Basel III has been included in the draft Banking and Financial Services
Act, but detailed regulations will only be drafted in 2014.
Market capitalisation of the Lusaka Stock Exchange (LuSE) grew to USD10.5billion in 2013
from USD9.4billion in 2012, corresponding to 52% of GDP for both years. The all-share index rose
by 42% in 2013, the fourth best performance in Africa. There were 22 companies listed on the
LuSE last year, with at least three new listings expected in 2014. The LuSE is expected to start an
alternate market for small businesses in 2014 in order to raise cheaper financing for firms.

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Public sector management, institutions and reform

The government launched the Public Financial Management (PFM) Reform Strategy for
the period 2013 to 2015. The reform strategy is estimated to cost a total of USD78million, of
which USD37million was pledged by co-operating partners. It involves undertaking reforms
in ten critical components of the PFM cycle, including budgeting, planning, cash management,
accounting, financial reporting, procurement and fiscal decentralisation.
Since its launch in 2012, the government has started implementing several reform components.
Progress has been made in the transformation of the Zambia Public Procurement Authority from
an executing institution to an oversight and regulatory agency, with procurement functions
decentralised to ministries, provinces and other spending agencies.
Reforms to improve tax administration have also been initiated in the Zambia Revenue
Authority, which has strengthened its ICT capacity in 2013, enabling it to launch an online tax
administration system. Due to delays in updating personal identification numbers of tax payers,
the system will only become fully operational in 2014, with expectations that it will enhance
levels of efficiency.
A draft Planning and Budgeting Policy has been developed and is undergoing consultations
with stakeholders. The policy aims to integrate planning and budgeting, foster parliamentary
oversight and enhance citizens participation in the planning and budgeting process. The policy
further seeks to align the national planning cycle with the electoral cycle. Once approved by the
cabinet, it will be given legal backing through a planning and budgeting act.
In order for this policy to be effective, there is a need to reduce the executives authority over
the budget process while simultaneously increasing legislative authority. Aligning the electoral
and planning cycle is likely to strengthen longer term planning while limiting the use of shortterm policies that have not been sufficiently debated and discussed.

Natural resource management and environment

Progress towards attainment of the Millennium Development Goal related to environmental
sustainability has slackened. Deforestation has escalated due to overexploitation through logging
for wood fuel and encroachment for agriculture and human settlements. To reverse this trend,
the government has put in place measures to establish 11 large-scale forestry nurseries, each
raising 1.5million seedlings per year.
Environmental degradation in the mining communities is affecting air, water and soil quality.
There is strong evidence that national environmental protection legislation and its enforcement
has not been efficient. Kabwe is ranked among the top 10 worst polluted places globally due to nonregulated emissions of heavy metals such as lead, which is particularly harmful to children and
pregnant women. However, mining companies are increasingly taking environmental concerns
seriously and have put in place measures to capture pollutants that were previously emitted into
the atmosphere (e.g. sulphur dioxide).
Added concerns around mining and the environment have increased recently due to the
awarding of a mining licence in the Lower Zambezi despite warnings by the Zambia Environmental
Management Agency and a parliamentary select committee. Although mining companies will
have to comply with the environmental regulatory framework, the new Mineral Resources
Development Policy does open up the possibility of mining in sensitive areas such as game parks.
The 2014 budget outlines government intentions to increase access to clean and safe drinking
water and to improve sanitation facilities, particularly in rural areas. This will be achieved
through a combination of maintaining, rehabilitating and building new infrastructure.

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Zambia

Political context
Zambias rating on the Ibrahim Index of African Governance (IIAG) has remained favourable. It
has been ranked 12 in Africa for two consecutive years. The political participation index improved
in 2010 and 2011, while the rate of improvement slowed in 2012. Zambia saw improved standing
in Transparency Internationals Corruption Perception Index to 83 in 2013 from 88 in 2012.
Following elections in 2011, which were won by the opposition Patriotic Front (PF) party, the
country saw its second peaceful transfer of power in Zambias democratic history. The political
landscape in Zambia continues to develop and mature. In 2013, more than 20 by-elections took
place throughout the country, with participation from major political parties. This signals a
deepening democratic process.
A new national constitution has been under development since 2012. In their manifesto,
the PF committed themselves to review recommendations from past constitutional review
commissions once elected. To this end, the review process has come to a close, with the work of
the Technical Review Committee completed. Currently, the public is awaiting the next steps from
the government in this process. Zambia continues to be a beacon of peace and stability in the
region following 50years of independence, and it continues to attract both domestic and foreign
investors.

Social context and human development

Building human resources
Zambias human development is ranked at 163 out of 187 countries. Its Human Development
Index (HDI) is 0.45 (2013), which is just below the sub-Saharan Africa score of 0.47. The country
has continued to record progress in education indicators, as evidenced by near universal primary
enrolment rates of 96% in 2011. This is attributed to increased school construction, and the reentry policies, especially for pregnant young girls. Government policies on basic education have
prioritised access and enrolment, resulting in an increase in the primary school completion rate
to 103% in 2011. However, over-age completion of primary school remains a problem (and is the
reason why primary school completion rates are above 100%). Enrolment in secondary schools
has remained stagnant at only 23% in 2011, while the completion rate stood at about 27%. Quality
of education is still a major challenge in both primary and secondary education with primary
school pupil-teacher ratio of 49. Pass rates for grade 12, although they increased slightly in 2013,
are still very low at only 60%.
The government took steps last year to reform the education system back to the old system,
with primary running from grades 1-7, lower secondary from 8-9 and upper secondary from 1012. This was not well received by the public. Another reform being piloted is the use of teaching
in local languages from pre-school to grade4. Teachers unions have welcomed the move, while
private school parents are concerned about how this will affect quality.
Although slowly declining, infant and under-five mortality rates remain very high at 76 and
138deaths per 1000 live births, respectively. The coverage of measles immunisation of one year
olds has improved to 94.0% in 2010 from 84.9 % in 2007. Nonetheless, more is still needed to
further reduce child mortality. This includes promoting breast feeding, improving nutrition and
knowledge of it and ensuring full immunisation coverage against preventable communicable
diseases.
Given the slow pace of progress, Zambia is unlikely to attain MDG targets on child mortality
and maternal health without significant reforms and investments. Although the country has
achieved its national target of a 15.6% prevalence rate concerning HIV/AIDS, HIV prevalence

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rates, particularly in the more urban areas of the country and amongst the educated, remain
above the national prevalence rate. Additionally, new infection rates remain high, especially
amongst the youth.

Poverty reduction, social protection and labour

Despite the country achieving consistently high levels of economic growth during the past
decade, equitable distribution of growth and catch-up growth have not been sufficient, thus
poverty remains high and widespread. Available national poverty data for 2010 indicate that 61%
of the Zambian population are poor. Half the population were living in extreme poverty in 2006,
but this number decreased to around 42% in 2010.
The data also indicates that poverty still remains predominantly geographically defined,
with extreme poverty in rural areas close to 58%, compared to 13% in urban areas. Accelerating
poverty reduction will require large-scale and continuous investments in agriculture, which is
the mainstay of the rural economy. More investments in infrastructure such as roads will connect
rural-producing areas to urban markets, thereby improving economic integration between the
two poles. The agricultural reforms of the farmer input-support programme and the Food Reserve
Agency should be designed to benefit the rural poor. Furthermore, the government has adopted
macroeconomic and structural policies aimed at promoting job creation, social empowerment
and significant levels of investment in the economy.
There are various social assistance and transfer programmes in the country that aim to
protect the poor and most vulnerable. These programmes provide either in-kind or cash transfers
to specifically targeted groups in the population. Despite this, coverage of social protection
schemes is still very low in terms of the number of actual recipients. A 2013 World Bank report
states that coverage of the extreme poor is between 1% and 2%.
The government is planning to expand the coverage of the Social Cash Transfer Scheme
(SCTS) to 60000 recipients in 2013. In the 2014 budget, the government has increased the
number of districts under the SCTS. The objective is to reach 150000 households by 2016. Other
important schemes are the Public Welfare Assistance Scheme, the Food Security Pack, the School
Feeding Programme and the Tertiary Bursary Scheme. Additionally, the government supports
tuition exemption up to grade7 and free primary health care for the most indigent people. The
governments allocation to social protection programmes is expected to increase in the medium
term.
The current pension system falls short of basic principles of affordability, sustainability,
portability, wide coverage and adequacy. The system is not transferable between jobs and is
unable to meet the minimum living requirements of retirees. In order to meet these shortcomings,
the government intends to implement changes to the Public Service Pension Fund, which will
include changing the retirement age from the current 55 to 65, revising the basis for calculating
the pensionable emoluments and reviewing the commutation factors. The reforms will translate
into a more favourable and sustainable pension system, with greater inter-generational equity.

Gender equality
Zambias progress in achieving gender equity and equality remains limited. It did, however,
ratify the SADC Gender Protocol in 2013 which it had signed in 2008 demonstrating a clear
commitment on its part and opening the way to increased efforts towards attaining gender
equality. Two years remain for it to achieve the 28 key goals.
Concerning womens participation in politics, Zambias performance remains below the
SADC threshold of 50.0% representation in parliament. Women in Zambia hold only 11.4% of the
seats in parliament. The situation is worse for local government administration, where only 6.3%
of seats are held by women.

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Zambia

While considerable advancements have been made in achieving gender parity in primary
school enrolment rates, gender inequalities in school attendance persist in the country. The
inequalities also increase in secondary and tertiary education.
In addition, child and maternal mortality are characterised by marked spatial inequalities.
High child and maternal mortality rates are in themselves symptoms of an unequal society in
which children and women bear a disproportionally greater health burden.

Thematic analysis: Global value chains and industrialisation in Africa

Zambia is abundantly endowed with natural resources such as land, forests and water, as
well as non-renewable minerals, including copper, cobalt and emeralds. The implementation of
appropriate development policies therefore has the potential to lead the country to reap the full
benefits of its resource endowment. Designing and implementing effective private-sector-led
economic transformation policies that create employment and reduce poverty remain a national
challenge. With little value addition, the country thus remains an exporter of unprocessed
primary products.
In order to stimulate value addition and industrialisation, as well as increase the manufacturing
sectors share of GDP from its current levels (below 10%), the country has embarked upon the
establishment of Multi-Facility Economic Zones (MFEZs). These zones blend the best features of
free trade zones, export processing zones and industrial parks. They create the administrative
infrastructure, rules and regulations to support both export and domestic-oriented industries.
The zones are designed to support firm clusters that can benefit from spatial proximity throughout
various industrial processes, from primary production, processing, marketing and sales and
ultimately distribution.
Two MFEZs have been developed and are already operational. Four others are still at early
development stages. The parks are located in the Copperbelt, North-Western and Lusaka regions.
Chambishi MFEZ in the Copperbelt is focused mainly on the copper supply chain and houses both
heavy and light industries, including copper smelting, manufacture of copper wire and cables,
household appliances such as stoves, motor parts and agro-processing. More than 10 enterprises
have been established, creating over 3500 jobs.
MFEZ development has been sluggish due to poor road infrastructure and unreliable and
undeveloped power and water supply. Successful industrialisation will require that government
creates an enabling environment by stepping up its efforts to provide infrastructure and support
services. The rewards will be access to human capital, technological innovation, financial systems
and financing.
There are some products in Zambia that are well suited to integration in global value
chains (GVCs), with the potential for further development. Copper mining is already creating
higher value through smelting and refining copper into cathodes for exports. The Chambishi
mentioned above is an example of this. Gemstone mining is another, with latent integration into
the GVC. In an attempt to realise this potential, the country has made it mandatory that all
locally extracted gemstones be auctioned in the country in order to stimulate beneficiation as
well as local market development. In order to spur this further, there is a need to ensure that the
policy is complemented by initiatives that will produce and enhance local skills in stone cutting,
polishing, jewellery design and production and marketing and sales.
The agriculture sector can be harnessed to become the leading sector for economic
transformation and employment creation. Over the past few years, agri-business has demonstrated
consistent growth, particularly in livestock production, providing linkages to the dairy, beef and
leather industries. A small niche in fruit and vegetables also provides potential for expanded

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development. The Zambia Export Growers Association assists farmers who grow vegetables
and flowers, exporting their products to Europe. Farmers lump their products together through
storage facilities provided by the association, which later handles transport and marketing of
their products to Europe and other markets. Out-grower schemes help small-scale farmers gain
access to markets, while there is technological transfer from large-scale farmers. Zambia Sugar
is one such company. It obtains 30% of its throughput from larger private growers, while 10% is
from small-scale farmers. In turn, small-scale growers receive training, extension services and
benefit from technological transfer. Another example is honey production. Beekeepers form cooperatives through out-grower schemes, provided with buckets and registered as members to
ensure traceability of the product while they receive training. The value addition is significant,
with more than 10000beekeepers occupied in major production areas of north-western Zambia.
Zambeef has been highly successful in vertically integrating its different businesses along the
value chain, from farming to beef and dairy production, manufacturing, processing and retail. In
order to meet the demand for its products, the company has enlisted local farmers, who supply
it with cattle which are slaughtered in its abattoirs. The beef is sold in its own retail outlets or
in supermarkets. The hides are processed to good standard leather for markets in the region,
the Far East and Europe. It also produces leather products such as shoes and bags for the local
market. Aside from the milk obtained from its own farms, it also buys raw milk from small and
medium-sized farmers. The milk is used to produce yogurt, cheese, butter and cream. Zambeef
also engages in pork production and processing by enlisting small-scale farmers to supply pigs.
Through these value additions the company has been able to create over 5500direct jobs.
The textile industry was historically significant in Zambia, with over 140 companies operating.
With the help of Chinese investors, the sector was resuscitated in the 1990s. But in 2007 the
industry started to crumble, with the closure of Mulungushi Textiles. It was hit by imports of
second-hand clothes and low-cost imports from Asia. In an effort to once again revamp the
industry, government recently announced that a new investor is willing to invest in the factory.
Industrial policy needs to address the integration of the rural sector in the rest of the
economy. This can be done by advancing agro-industry value addition and the supply of goods
and materials, which enhances the competitiveness of domestic enterprises. Increasing vertical
integration in global agri-business supply chains changes the requirements placed on small-scale
farmers. But policies aimed at supporting such farmers need to be realistic about the prospects
for small-scale farmers of being upgraded by large firms.
Zambia faces a number of challenges for effective participation in GVCs. First, Zambias
landlocked position substantially increases the cost of long-haul transport by up to 40% of the final
products value. There is a need to improve trans-boundary corridors and border administration
to reduce delays. Deepening regional integration could offer the potential to tackle some of these
challenges by providing access to regional and global markets.
Second, access to reliable and stable electricity is critical in ensuring constant food production
flows to reduce production wastage, particularly for perishables. Access to good quality water for
production and sufficient wastewater treatment is also required.
Third, the linkages between rural primary production areas and urban processing plants are
often weak, adding additional costs to the final product. A system of reliable feeder roads linking
rural and urban areas is critical.
Other challenges the industry is facing include access to qualified local labour, with the
right skills mix needed to operate machinery that is more automated and complex than ever.
Global consumers and health and environmental authorities require better and safer products.
This means increasingly higher food-safety standards, with smaller margins of error. Increased
technical knowledge and know-how, combined with investments and improved control
procedures, is needed to ensure continuous compliance.

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