RESTRICTED
WORLD TRADE WT/TPR/G/17
12August 1996
ORGANIZATION(96-3172)
Original: English
TRADE POLICY REVIEW
ZAMBIA
Report bytheGovernment
Inpursuance oftheAgreement establishing theTrade Policy Review Mechanism (Annex 3ofthe
Marrakesh Agreement Establishing theWorld Trade Organization), thepolicy statement submitted
bytheGovernment ofZambia isattached.
Note: Thisreport issubject torestricted circulation andpress embargo untiltheendofthemeeting
oftheTrade Policy Review Body onZambia.Zambia WT/TPR/G/17
Page iii
CONTENTS
Page
OVERVIEW 1
A. TRADE POLICIES AND PRACTICES 3
1. General Trade Polices Objectives 3
2. Sectoral Trade Policy Objectives 3
3. General Description oftheImport andExport System 7
4. TheTrade Policy Framework 7
5. Implementation ofTrade Policies 9
B. RELEVANT BACKGROUND AGAINST WHICH THE ASSESSMENT
OFTRADE POLICIES WILL BECARRIED OUT: WIDER ECONOMIC
DEVELOPMENT NEEDS, EXTERNAL ENVIRONMENT 11
1. Wider Economic andDevelopment Needs, Policies andObjectives 11
2. TheExternal Economic Environment 13
3. Problems inExternal Markets 15Zambia WT/TPR/G/17
Page 1
OVERVIEW
TheZambianeconomyhasalwaysbeendominatedbytheCopperminingindustry.Thecountry's
economic performance andpolicy making havebeenheavily influenced bycopper foritsincomes,
employment andexports.
Formany years theCopper industry hasaccounted forover90percentofforeign exchange
earnings andasubstantial proportion ofoutput. In1995 theindustry contributed 5.5percenttoreal
Gross Domestic Product (GDP), about 80percenttototalexport earnings andemployed anaverage
ofabout 59,8000 workers. Thisis11.9percentoftotalwage employment.
Duringthepastdecadetheproductionofcopperhasdeclinedsteadily.In1965,Zambiaproduced
about 680,000 metric tonsofcopper. Thisroseto700,000 tonsin1977. By1991 theproduction
hadfallen toabout 380,000 tonsanditwas307,181 tonsin1995. Thisislessthan50percentof
the1969 production.
Thisdeclineincopperproduction,compoundedbyfallingcopperpricessince1974,thedepletion
oforereserves andtheincreasing costofproduction haveadversely affected theperformance andgrowth
prospects oftheZambian economy. Thishasledtosignificant dropinGDP andliving standards.
Since 1989 forinstance, realGDP growth rateshavebeennegative except for1993 when it
shotupto9.2% gross. Output growth wasboosted bymainly thesignificant increase inagricultural
production brought about, largely bythefavourable weather conditions during the1992/93 season.
Zambia, hashadadjustment problems before. Between 1983 and1987, sheoperated under
structural adjustment programme. Theaimwassimilar tothecurrent adjustment measures. The
programmes were, astoday supported bytheInternational Monetary Fund. Unfortunately, dueto
inconsistence inimplementation, theprogrammes failed toaccomplish theirobjectives. They were
abandoned in1987.
Since 1992thenewGovernment hasmade progressive efforts totryandimprove theeconomy.
Macroeconomic andotherreform measures havebeenputinplaceforthatpurpose. These haveincluded
freeing interest andexchange rates; fighting inflation through prudent fiscal management; trade
liberalisation; public sector reform; privatisation ofstatecompanies etc.
Themain objectives ofGovernment 'seconomic policies are:
1. Restoration oftheZambian economy.
2. Acceleration ofthemanufacturing andagricultural sectors.
3. Improving andexpanding economic infrastructure forFDI, tourism andothers.
4. Improving andexpanding social infrastructure toimprove living standards.
Achievement ofthese objectives however, hasmetwithobstacles suchasdrought which has
hitthecountry thepastthree consecutive years.
Performance ofsome sectors oftheeconomy hasalsobeenaffected negatively bybothinternal
andexternal factors. Internally, theliberalisation ofinterest ratesinthepresence ofhighinflation
ledtoarapid increase innorminal interest ratesparticularly intheperiod 1992and1993. Forinstance,
byAugust, 1993, theaverage lending ratesofbanks hadgoneupto139percent, from 85percent
inJanuary, 1993. High, interest rates havediscouraged borrowing bythebusiness sector, hence
prolonging opportunities ofinvestment andoutput growth.WT/TPR/G/17 Trade Policy Review
Page 2
Stabilisation measures, havealsocaused theexchange ratestoappreciate andcause problems
forZambia 'sexporters including thecopper industry. Economic liberalisation hasalsocaused problems
forthedomestic industries debilitating many while resulting intoseveral closures ofothers.
International factors causing major problems fortheeconomy includes thesubstantial decline
inmetal prices ontheworld market since 1990.
Inspite ofalltheoddsagainst theeconomy, reform measures haveproduced some goodresults.
Themacro economy isnowmore stable thanitwasbefore newGovernment tookoverfour
years ago.Inflation islow,interest rateshavedeclined, staple foodprices havebeenstable, thebalance
ofpayments situation isviable, andZambia 'sexternal financial relationships havebeennormalized.
Thesuccesses reflect improved economic polices, enhanced financial management, andtheZambian
population 'swillingness tomake thesacrifices needed torestore theeconomic growth prospects.
Theeconomy hasmoved towards asituation ofexternal andinternal financial balance. This
hasbegun toleadtoarecovery inaverage percapita realincomes.
Overtheperiod 1991-1994 asawhole, realGDPincreased by3.2percentandrealpercapita
GDP declined byabout 7percent. These achievements havetobeseenagainst thebackground of
almost twodecades ofeconomic decline.
Numerous changes signal theeconomic turnaround. Construction activity isincreasing; local
cement salesarerising; energy use(petroleum andelectricity) isexpanding; tourism isgrowing; new
businesses arebeing formed; investment, funded frombothlocalandforeign sources isrising; small
non-traditionalexportshaveuntilrecentlybeenincreasing;Zambianasset-holdersarerepatriatingforeign
exchange; basicconsumer andinvestment goods arenolonger inshortsupply; thephysical infrastructure
isbeingrepaired;andtheprivatetransportsectorhasexpandedmarkedlybecauseofencouragingpolicies
byGovernment.
Government created Zambia Revenue Authorities aresult ofwhich hasimproved revenue
collection. Thishasledtoanimprovement inbudgetary deficits. Export Board ofZambia isinplace
topromote andimprove export performance. Theinvestment Centre wasalsocreated toimprove
investment. Zambia Privatisation Agency isinplace topromote sales ofstatecompanies. Onthe
financial side,aLusaka Stock Exchange wascreated twoyears agotodevelop thefinancial markets
andpromote equity investment. These institutional support mechanisms forexport andinvestment
effectively usedshould improve theeconomy.
Alldirect controls ontrade havebeenremoved, except forashort listofitems controlled for
environmental,healthorsecurityreasons.Levelsanddispersionofimportdutieshavealsobeenreduced.
Theengine ofeconomic growth isprivate sector. Toachieve that, Government isinthe
advanced stage ofprivatising allstatecompanies including theZambia Consolidated Copper Mines
which produces Copper.Zambia WT/TPR/G/17
Page 3
A. TRADE POLICES AND PRACTICES.
1. GENERAL TRADE POLICY OBJECTIVES.
In1991/1992 thenewGovernment ofMovement forMulti Party Democracy (MMD) embarked
ontheneweconomicrecoveryprogrammedrivenbyStructuralAdjustmentProgramme(SAP)supported
byIMF.Undertheseneweconomicmeasures,TradePolicyaimsatcreatingacompetitiveandproductive
economy driven byprivate sector initiative which willfoster living standards forZambians. Specific
objectives include thefollowing:
1. Complete trade liberalisation.
2. Trade promotion anddiversification through exports ofnon-traditional goods.
3. Creating conducive domestic environment forinvestment, growth andimproved living
standards.
Government emphasis initstradepolicy istoencourage export diversification inorder tomove
awayfromCopper dependence. Inthisregard sectors otherthanmining arebeing encouraged toexport.
Thefloricultural andhorticultural sectors arecurrently doing quite well.
Intheprocess ofimproving theeconomy, private sector emphasis remains key. TheZambia
PrivatizationAgencycontinuestosellstatecompaniestoprivateindividualsandcompanies.Government
isnolonger supporting statecompanies through subsidies aswasthecasepreviously. Monopolies
inpublic sector aregoneasdemonstrated intheliquidation ofthenational airline andmarketing boards.
2. SECTORAL TRADE POLICY OBJECTIVES.
(a) Agriculture
Governmentpolicyhasbeentocontinuepromotingefficientprivatesectoragriculturalproduction,
enhance food security, diversify agricultural output, andexpand agricultural exports. Further
liberalisation ofmaize marketing andpricing istaking place anddirect andindirect subsidies havebeen
removed. Government 'sdirect involvement inagricultural marketing andprocessing isdiminishing.
Government-owned storage facilities through outthecountry arebeing leased out.Alldomestic and
import/export trade isbeing lefttotheprivate sector. Theprovision offunds formaize marketing
hasbeenplaced onamore commercial footing withthecreation, through participating commercial
banks, ofaMarketing Credit Revolving Fund. Flour priceformaize arenolonger setbyGovernment,
andGovernment isnolonger nominating marketing agents.
Efforts arebeing made toprovide anddisseminate market information toenhance transparency
andstimulate theintegration oftheemerging domestic market. Prices ofmaize, mealie-meal, seed
andfertilizer arenowshowing pronounced regional andseasonal differentiation. These market-
determined outcomes arebeing accepted byproducers andconsumers alike.
Theneweconomic setting nowoffers attractive maize marketing opportunities throughout the
year. Marketing agents haveresponded tothese opportunities andcompetition hasincreased. Asof
October 1994, over400private traders were registered bytheMinistry ofAgriculture, Food and
Fisheries asgraindealers; thenumber ofregistered fertiliser traders exceeded 150.Thousands ofsmall-
scale, pettytraders andfarmers-traders havealsobeenengaged inmaize marketing activities throughout
thecountry. Millers arefacing intense competition duetotheproliferation ofhammermills. Thus,
market liberalisation hasincreased theefficiency andeffectiveness ofresource allocation inthe
agricultural market system. Itishelping tostimulate growth anddiversification intheagricultural
andtrading sectors.WT/TPR/G/17 Trade Policy Review
Page 4
Through theAgricultural Sector Investment Programme (ASIP), Government hasadopted a
programme approach tosupport theagricultural sector. Thebasic objective istopromote agricultural
production, particularly inthesmallholder sector. Access byfarmers tofinancial services isbeing
broadened bysupporting thecommercialisation ofruralfinance service. Government support isbeing
limited toviable financial institutions withsound lending policies, goodmanagement andgoodrecovery
rates. Overall, theprivate sector isbeginning toassume agreater roleinthesupply offinancial services
toagriculture.
(b) Mining
Zambia 'ssubstantial mineral wealth includes metals, gemstones, industrial, agricultural and
energy minerals. Themostdeveloped isthemetallic group. Nevertheless, thefullpotential ofthis
group isfarfrombeing realised andtheGovernment aimstopromote thedevelopment ofawiderange
ofunexploited mineral occurrences andtooptimise oresources indifferent parts ofthecountry.
Government efforts inthemining sector willfocus onareas complementary toprivate sector
growth. Forthispurpose, services fromseveral departments oftheMinistry ofMines andMineral
Development willbestrengthened. Inaddition, thestructure, organisation andstaffing oftheMinistry
ofMines andMinerals Development isbeing reviewed. Theaimistomake theMinistry more efficient
andmore responsive totherequirement forprivate mining sector. Anenabling environment forprivate
mining investment willbecreated through thepromulgation ofappropriate legislation, including the
Mining Code, toattract private investment inbothlarge andsmall scale mining.
AnewMines andMineral Actwasenacted in1995 andinoperation. Itcontains suitable
incentives toattract private investors. TheActhasovercome thebiasinthepastlegislation favouring
public sector dominance. Thisisconsistent withGovernment policy ofprivatising theCopper Mining
industry.
Toassist theindustry, the1996 budget reduced customs dutyonproductive machinery for
mining toZero percent.
Totakeadvantage ofthefavourable medium termprospects forminerals, asignificant increase
inexploration anddevelopment willberequired. Current legislation isdesigned tosupport these
activities.
Copper
ThemostimportantmetallicsectorinZambiaiscopperwhichisdominatedbyZCCM. Zambia's
Copper production hasbeendeclining since theearly 1970s fromanaverage annual output ofnearly
700,000 tonnes tolevels below 400,000 tonnes inrecent years. Production dropped further in1994
tosome 350,000 tons. Thedecline inproduction hasnotonlybeentheresult ofgradual exhaustion
ofreserves butalsoduetolackofinvestment inreserve management andlowproductivity alsoplayed
theirpart. Amajor concern isthesizeandcurrent levelofremuneration ofZCCM 'slabour force.
Since copper willcontinue tobethebackbone oftheeconomy intheforeseeable future, Government
considers itofcrucial importance thatthedecline inefficiency andproductivity ofthesector isarrested
through increased investment andimproved management.
Theoresources withZCCM property havetheeconomic potential tosustain Copper output
atcurrent levels foratleast15years. Significant orebodies tobeexploited include Konkola, Nkana
andChambishi. Government believes thatthefuture ofZambia willbebetter served bytheprivate
management ofZambia 'sCopper resources andtheprogressive privatisation ofZCCM willbeone
ofthemajor objectives ofGovernment policy during the1995-1997 period. Priority isbeing attachedZambia WT/TPR/G/17
Page 5
tobringing Konkola Deep Mining project onstream assoonaspossible withtheinvolvement ofprivate
andforeign Capital.
Gemstones
Thegemstones sub-sector which includes emerald, amethyst, aquamarine, tourmaline, and
anumber ofother varieties hasgreat potential andcanbeamajor contributor totheeconomy. This
subsector hasbeenadversely affected inthepastbyexcessive illicit trafficking. TheGovernment will
implement aprogramme tomake itviable andsustainable initscontribution tothenational economy.
Anumber ofmeasures including progressive liberalisation havebeenoffered totheminers tostem
offillicit trading. Security istobeimproved. Askillupgrading forgemstone mining, valuation,
processing andmarketing willbeundertaken. Promotion ofthedevelopment oflapidary operations
onacottage-industry basis byindigenous people ingemstone areas willbecarried out.Inorder to
backupthisprogramme aGemological Unitwillbesetuptodevelop expertise insorting, grading
andvaluation ofgemstones.
Energy
Zambia islargely self-sufficient inenergy, themajor exception being petroleum. The
Government 'sobjectives intheenergy sector aretoutilise available power-generating capacity by
expanding power exports, toarrest thelocaldepletion ofwood fuelresources, toensure access toan
efficient supply ofhousehold energy, andtoprotect theenvironment. TheGovernment willexecute
aprogramme thatgives priority totherehabilitation ofthesector 'sinfrastructure andtomore efficient
utilisationofexistingcapacity.Pricingpolicyinthesectorwillensurethatenergypricesreflecteconomic
costs topromote energy conservation andtoensure thefinancial viability ofsector organisations.
Lack ofadequate maintenance oftheenergy infrastructure overtheyears hasveryseriously
reduced thecapacity todeliver reliable supplies ofenergy totheeconomy. There havebeenserious
breakdowns atvarious energy installations suchastheoilrefinery, theoilpipeline andKafue Gorge
Powerstation,necessitatingmajorexpendituresonrepairsandrehabilitation.Prioritypublicinvestments
includePhaseIIIoftheKafueGorgeRehabilitationProgramme,there-enforcementofpowerdistribution
networks inLusaka andCopper belttowns ofMkushi Farm Block electrification. Work onthe
rehabilitation oftheTazama pipeline isalsoapriority.
(c) Manufacturing
Government policies aredesigned torestructure thesector. There isaphased reduction in
theeffective ratesofprotection fordomestic producers. Economic pricing ofenergy inputs isredirecting
resources andimproving efficiency.
Export production isbeing stimulated through broader provisions formanufacturing under
bond, production inexport processing zones, andstreamlines procedures forduty drawbacks.
Government hasalsotaken noteofexamples ofunfair trading practices within thesub-region which
materially harm Zambian producers. Government hasmade provision fortheimposition ofselective
countervailing measures.
Economic adjustment hasposed some problems inmanufacturing. Some enterprises andsub-
sectors arehaving difficulties while others areclosed down. Furthermore, some manufacturers have
beenadversely affected bysmuggling offinished competing products andinconsistent double taxation
arrangements.WT/TPR/G/17 Trade Policy Review
Page 6
TheZambia Revenue Authority isactively reducing theproblem ofsmuggling. Value Added
Taxwasintroduced in1995 andiseasing ontheproblem oftaxes onintermediate inputs. Inorder
toassist thesector, customs dutyonproductive machinery andrawmaterials werereduced to5per
centinthe1996 budget.
Asanintegral partofthesector, theSmall Scale Enterprise hasbeengiven particular importance
byGovernment. Thepolicy istocomplement export diversification through small andMedium
Enterprises throughout thecountry.
In1995, themanufacturing sector accounted forabout 25percentofrealGDPandcontributed
about 9percentoftotalmerchandise exports.
(d) Services
(i) Thesuccess ofGovernment efforts todevelop arobust private sector depends ontheability
ofthefinancial system tomobilise andallocate resources effectively. Forthisreason, the
Government hasaccorded highpriority tomodernizing thebanking sector andestablishing
asmall capital market. ThenewFinancial andBanking Actisnowinplace. Inaddition,
Government haslaunched reviews oftheDevelopment BankofZambia, Lima BankandEXIM
Bank toidentify howthese financial institutions canberestructured tomeet theneed for
financing.
(ii) Inthetransport andcommunications sectors Governments 'sobjectives isthemaintenance and
rehabilitation ofthesectors 'existing infrastructure andtoensure access toanefficient transport
andcommunication network. Sofar,theprivate sector 'response totheliquidation oftheState
Airline andPublic Transport Company hasbeenencouraging. There ismore private transport
onroads forthepublic thanbefore.
(iii) Roadsarebeingrehabilitatedthroughataskforceonmaintenanceandrehabilitationasastop-gap
measure toundertake emergency maintenance andrehabilitation throughout thecountry.
(iv) Railway transport isbeing commercialised overthemedium-term toallow efficient operation
andimprovement intheircorebusinesses suchasfreight handling andinsodoing, stemthe
de-capitalization oftheirassetandimprove financial control andaccountability.
(v) Airtransportneedsimprovingtoo.Governmentpolicyistoderegulatethecivilaviationindustry
andtoencourage private sector participation. Since theliquidation ofthestateairline, there
areabout three private airlines operating inZambia.
(vi) Incommunications, Government 'spolicy objective istoaccelerate thedevelopment and
installation ofruralradio andtelephone system which willinterface withthesystem enjoyed
byurban telephone users. Government isencouraging theprivatization ofthestatemonopoly
telecommunication company.
(viii) Tourism isoneindustry withgreatpotential forZambia 'seconomic development. Government
policy istheencourage private sector participation inorder todevelop thesector. Hotel tariffs
havebeenliberalized andthestatehotelcompany liquidated topavewayforprivate companies.
Inorder topromote tourism, Government istrying toimprove theinfrastructure, create astable
political environment, andfacilitate theestablishment ofaTourism Master Planthrough the
Zambia National Tourist Board.Zambia WT/TPR/G/17
Page 7
3. GENERAL DESCRIPTION OFTHE IMPORT AND EXPORT SYSTEM
InlinewiththeGovernment policy oftradeliberalisation, import andexport control measures
havebeenderegulated withtheexception ofafewrestrictions provided forbylaw. These primarily
concern products affecting security, public order, hygiene, health, protection offauna andflora. Some
ofthese goods maybeimported orexported under authority issued bytherelevant institution.
(a) Imports
Importlicensingrequirementwasabolishedin1992.InsteadtheImportlicencewasautomatically
issued bytheCommercial bankdepending ontheavailability ofForeign Exchange. Upon filling an
export retention scheme (ERS) form which acted bothasanapplication forforeign exchange andan
automatic import licence wasthenissued bytheBank.
In1995 theERSwasreplaced bytheImport Declaration Form (IDF). Thisisfilled inat
importation andthere isafeeof5percentoftheimport value. Thisfeeistemporary andwas
introduced because ofbalance ofpayment problems. Allimports aresubjected tothisfeeexcept those
importsdestinedtodutyfreestores,ExportProcessingZonesandmanufacturingunderbondwarehouses
andthose lessthanUS$500. Allimports valued atUS$2,000 andabove aresubject topre-shipment
inspection.
Allregulated orcontrolled imports forreasons ofhealth, security andotherwise require an
import permit. Agricultural andplant imports require animport permit issued bytheMinistry of
Agriculture Food andFisheries. Ivory andradio active minerals cannot beimported intoZambia.
Firearms andammunition, require apermit before theyareimported intothecountry.
(b) Exports
Exportlicensingrequirementwasabolishedin1989.ExportpermitswerereplacedbyanExport
Declaration form (EXD). There arethree types ofEXD licences, EXDI formineral exports, EXD2
fornon-traditional exports andEXD3 forcommercial samples andpersonal effects. Allthese forms
areautomatically issued andprocessed bytheCommercial banks. They arefornoother purpose other
thanastatistical one.
Afewitemsareregulatedorcontrolledforenvironmental,publicsecurityandwildlifeprotection.
These include sawn timber andlogs, charcoal, copper scrap andivory.
4. THE TRADE POLICY FRAMEWORK
(a) Domestic lawsandregulation governing theapplication oftrade policy
TheConstitution isthesupreme lawoftheRepublic ofZambia.
Thelegislative power inZambia isvested inParliament which consists ofthePresident and
theNational Assembly. Subject totheprovisions oftheZambian Constitution, thelegislative power
ofParliament isexercised bybillspassed bytheNational Assembly andassented tobythePresident.
Thepower tonegotiate andsignInternational Agreements isvested inthePresident. The
President maydelegate thisfunction toaMinister oraMember oftheExecutive. IfaTreaty requires
changes intheZambia National Laws, itisnecessary topassanActofParliament inorder tobring
Zambia 'sLawintoconformity withtheTreaty. IfsuchandActisnotpassed, theTreaty isstillbinding
byZambia from theInternational point ofview.WT/TPR/G/17 Trade Policy Review
Page 8
Trade policies areimplemented byvarious Executive institutions andorgans ofGovernments.
Where itisnecessary, theMinistry ofCommerce Trade andIndustry initiates various andrelevant
legislation ofTrade Policy.
Thecurrent lawsrelating totrade are:
- Tourism Act
- Control ofGoods Act
- Trades Licensing Act
- Scrap metal dealers licence Act
- Privatization Act
- Gold trade Act
- TheCompanies Act
- Registration ofBusiness names Act
- Patents Act
- Trade Marks Act
- Copy Right Act
- Standardisation Act
- Registered Designs Act
- Weights andMeasures Act
- Export Development (Amendment) Act1993
- Investment Act
- TheCompetition andFairTrade Act
- TheFood andDrug Act
- Customs andExcise Act
- Mines andMinerals Act
- Financial &Banking Act
(b) Process ofTrade Policy formulation andreview
TheMinistry ofCommerce, Trade andIndustry isresponsible fortheformulation, review and
administration oftrade policies. TheJudiciary plays aroleinmatters oftrade dispute prevention and
settlement andinterpretation oftrade related statutes andlaws.
TheMinistry initiates policy measures inconsultations withtheprivate sector andotherrelevant
institutions. Ithasalsoinstitutionalized theparticipation oftheprivate sector inpolicy making bysetting
upaPrivate Sector Consultative Committee attheMinistry ofCommerce, Trade andIndustry. This
meets regularly todiscuss issues affecting theprivate sector. Theproposals arepresented toCabinet.
Upon approval inprincipal, adraftbillisprepared bytheAttorney General 'schambers andapproved
byCabinet. Thebillsarepublished intheGovernment Gazette andpresented totheNational Assembly.
When theBillispassed, itdoesnotbecome lawuntilthePresident assents toitandcauses ittobe
published intheGovernment Gazette.
(c) Multilateral, Bilateral andRegional Trading Arrangements
Government 'spolicy towards Multilateral, Regional andbilateral trading arrangements isto
create aconductive environment forinternational economic integration. Thisisinorder tohavea
market forZambia 'sproducts andtopromote thedevelopment ofitsindustries.Zambia WT/TPR/G/17
Page 9
Zambia hasentered intomultilateral, regional andpreferential trade arrangements aslisted
below:
- WTO
- EU-ACP LOME Convention
- COMESA
- SADC (Still under negotiation)
Asamember oftheLome Convention, Zambia 'sproducts enter theEUmarket andother
developed countries freeofCustoms andsimilar changes.
Zambia isanoriginal member oftheGATT andnowWTO. Assuch, sheenjoys andgrants
MFN treatment toother member states. Zambia isalsoamember andactive participant inUNCTAD,
ITC, UNIDO, theIMFandtheWorld Bank aswellastheCommon Fund forCommodities.
Zambia appreciates hermembership withWTO. Asaparticipant totheUruguay Round, she
firmly believes thattheAgreement willbenefit heraswellasother developing countries particularly
theLDCs. Asherentire economy depends oninternational trading system through exportation of
Copper, Zambia hopes therules setbytheURwillbenefit hereconomy andtheerosion totheGSP
reversed.
Zambia isdefinitely going tobenefit from theURpackage. AsanLDC, andbeneficiary of
GSP, shehopes tocontinue benefiting from exporting herCopper duty-free oratlowtariff ratesto
developed anddeveloping countries. InthePost-URera,tariffs onimports ofCopper willremain
freeindeveloped countries. Imports willcontinue dutyfreeinEU,Japan, Canada andUSA.
5. IMPLEMENTATION OFTRADE POLICIES
(a) Trade policy measures implemented todateinclude thefollowing:
(i) Tariffs
Zambia hadahighly protective tariff structure during the1970s and80swithseveral tariff
lines. In1990 thelevelanddispersion ofthecustoms dutyrateswere from zerotoa100percent
with11tariff bands.
In1991 thenumber oftariff bands wasreduced tosix.Theminimum tariff ratewassetat
zeroandthemaximum at50percent. In1993, Tariff ratesweresetbetween zeroandfortypercent
withfourbands. In1996 tariffs havebeensetat0,5,15,and25percent. There areplans torevise
them downwards inthefuture.
Zambia grants tariff preferences toCOMESA member states andthose countries withwhich
shehasbilateral preferential trading arrangements.
Currently there isatemporary 5percentImport Declaration Fee(IDF) feeformostimports
duetobalance ofpayment problems. Thiswillbephased outbyDecember 1996. There are,however,
imports thatareexempt from theIDF.
Zambia isintheprocess oftransposing hertariff concession schedule LXXVII intothe
Harmonized System ofCoding (HS)andthiswillbefinalised in1997.WT/TPR/G/17 Trade Policy Review
Page 10
(ii) Levies andother charges
Taxes thatareapplied toimports inaddition tocustoms duties areexcise andvalue added tax.
Excise dutyandValue Added Tax(VAT) ischarged onbothimported andlocally produced goods.
Where itisestablished thatgoods havebeendumped orsubsidised, dumping orcountervailing measures
canbeapplied.
(iii) Customs valuation
Customs valuation currently inuseisbased ontheBrussels Definition ofValue (BDV).
Arrangements arebeing made tochange totheWTO system ofCustoms Valuation. SGSiscurrently
theGovernment 'spreshipment inspection agent.
(iv) Rules ofOrigin
Currently, Zambia applies andoperates theCOMESA rulesoforigin forallCOMESA trade.
ZambiaappliestheACP/EUrulesoforiginforallACP/EUtrade,andGeneralisedSystemofPreferences
(GSP) rules oforigin forallexports tocountries thatoffer herGSPtreatment suchastheEU.
(b) Programmesinexistencefortradeliberalisationincludingthoseagreedinthecontextofstructural
adjustment and/or debtnegotiations
Formostofthe1970sand1980s,theeconomywasheavilycontrolled,andtheeconomicstrategy
relied primarily onthepublic sector, especially parastatal enterprises, toundertake investment and
generate growth. Intheearlyyears, rising copper revenue masked theinadequacies ofthepublic sector-
dominated economy, butwhen copper revenue fellsharply in1975, thenecessary adjustment were
notmade. Instead, thegovernment borrowed heavily inanattempt tomaintain thegovernment
consumption andthehighlevels ofpublic sector investment andconsumption andreinforced controls.
Theeconomy wascharacterised byanovervalued exchanged rate,budgetary deficits, arestrictive
import andexport regime, price controls andconsumer subsidies.
Inaddition tothemacroeconomic measures already mentioned therestrictive import andexport
regime hasbeendismantled.
Theeconomic reform programme andthetrade liberalisation measures arealsoinlinewith
theStructural Adjustment Programme asagreed bytheGovernment withIMFandWorld Bank.
(c) Prospective changes intrade policies &practices totheextent thatthese changes arealready
announced orcanbemade known.
ItisGovernment policy toreform thetaxandtariff regimes inorder tosupport theexport
effort byreducing theanti-export banarising from tariffs, reduce tariffs anomalies andensure a
transparent andsimple taxandtariff structure.
Government aimstostrengthen theExport Board ofZambia (EBZ) tomake itmore effective.
Government iscommitted tofurther improve exporters 'access toworking capital. Suchmeasure are
included intheExport Development Programme andFund. Thisprogramme combines access tolow
costcredit withtechnical assistance. Theprogramme provides, through anExport Finance Facility
ofECU. 5million, forpreandcostshipment finance, airfreight costs, seasonal andproduction inputs
andminor capital items toexporters ofnon-traditional products.Zambia WT/TPR/G/17
Page 11
Tofacilitate theliberalisation oftrade, further, theGovernment enacted theCompetition and
FairTrading legislation which seeks tocontrol various forms ofrestrictive business practices likecartels,
mergers, acquisitions, monopolies, oligopolies etc,asanecessary precondition.
B. RELEVANT BACKGROUND AGAISNT WHICH THE ASSESSMENT OFTRADE
POLICIESWILLBECARRIEDOUT:WIDERECONOMICANDDEVELOPMENTAL
NEEDS, EXTERNAL ENVIRONMENT
1. WIDER ECONOMIC AND DEVELOPMENT NEEDS, POLICIES AND OBJECTIVES
Asexplained earlier, Zambia wasatthebeginning ofthe1990s faced withasevere crisis in
itseconomy. Ittherefore embarked onastructural adjustment programme withtheIMFandWorld
Bank inanattempt tostabilise theeconomy andreverse thedeclining standard ofliving andmove to
sustainable economic growth andexternal payments viability.
Themajor objectives oftheprogramme are:
(a) Torestore monetary andfiscal discipline
(b) Topromote theroleoftheprivate sector intheeconomy
(c) Torehabilitate thesocial andeconomic infrastructure anditsinstitutions.
(d) Topromote foreign anddomestic investment anddomestic savings.
(e) Topromote exports especially ofnon-traditional products andincrease foreign exchange
earning through incentive programmes.
Anumber ofpolice measures havebeenimplemented toachieve these objectives. Among
them are:
(a) Exchange Rate
Foralongperiod afterthemajor external shock ofthe1970s littleeffort wasmade tousethe
exchangerateeffectivelytopromoteeconomicmanagementandadjustment.Inpracticetherealexchange
rateappreciated andbecome overvalued. Inthe1980s, however, more active attempts were made
tousetheexchange ratetopromote economic adjustment, leading totheadoption oftheauction system
in1985.
Theauction system wasabandoned inMay, 1987andZambia returned tofixed exchange rate
regime andanadministrative mechanism forallocating foreign exchange. Thenominal ratewasfixed
atK8tothedollar. Therealexchange rateappreciated rapidly.
InJune1989 Zambia reverted toanactive exchange ratepolicy. Theexchange ratewas
determined byacrawling peg.InFebruary 1990s, adualexchange ratesystem wasintroduced. This
wasatwo-tier system consisting oftheofficial andmarket exchange rates. Finally, asystem ofbureaux
dechange wasintroduced todetermine themarket exchange rate,together withtheofficial crawl in
October 1992. InDecember 1992, theexchange ratesystem wasunified andisnowdetermined by
demand andsupply conditions. Allforeign exchange controls oncurrent andcapital transactions have
beenremoved. Thepurpose ofthechanges istoimprove resource allocation andtheefficient utilization
ofexternal resources, andthereby ultimately support realexport growth.
These measures haveledtoincreased availability offoreign exchange atbureaux forimportation
ofgoods, travel andeducation etc.WT/TPR/G/17 Trade Policy Review
Page 12
(b) Interest Rates
Inlinewiththereform program, interest ratesweredecontrolled inSeptember, 1992. Before
then, interest rateswereadministratively determined. InJanuary, 1993, theGovernment introduced
thesaleofTreasury Billsbyauction. Thisallowed thegovernment todetermine theamount offunds
itneeded foritsobligations andissued onlyenough billstothateffect. TheTreasury billauction meant
thatthegovernment borrowed atmarket determined interest rates. TheTreasury Billsmarket hasin
turninfluenced theborrowing andlending ratesinthemarket. However, borrowing isstillexpensive
untilinterest ratesarereduced further.
(c) Cash budget
Inorder toreduce inflation further bylimiting public expenditure, Government operates on
cashbudget. Thishasassisted inreducing budget deficit although theaimistohaltit.Thisdecision
hasinjected fiscal discipline inpublic spending andconsistently done willimprove theeconomic
conditions.
(d) Revenue mobilisation
Toimprove revenue collection, Government established theZambia Revenue Authority (ZRA)
in1993. Since then,therehasbeengoodprogress inrevenue collection. Taxcompliance hasimproved.
Smuggling isbeing reduced.
(e) Privatization
Theaimofgovernment istocreate astrong andefficient private sector. Inlinewiththis
objective government decided toprivatize allstateowned companies. TheZambia Privatization Agency
(ZPA) wassetin1992 tomanage thetransfer tothecompanies totheprivate sector. Thetransfer
involves aportfolio of210companies. ByMarch 1996, 118companies hasbeenprivatised.
(f) Promotion ofForeign Investment
Government istrying byallmeans toimprove FDIflows. TheInvestment Centre, mentioned
earlier isinplace topromote FDIaswellasdomestic investment. In1995 forinstance, thecentre
attracted about US$74.5 million investment inallsectors oftheeconomy compared toUS$40 million
in1994. Thiswasanincrease of86.25 percentover1994.
The1993 Investment Actgives specific incentives forpotential investors. These include:
- Duty-free exemption foragriculture andmining machinery
- 5%customs dutyonother capital machinery
- Duty exemptions onrawmaterial imports oforganic andinorganic chemicals, iron
andsteel, rubber andplastics.
- 5%dutyonother rawmaterials
- 15%dutyonintermediate goods
- 25%dutyonfinalproducts
- 15%income taxonfarming profits
- 15%income taxonnon-traditional exports
- deductible allowances ofbetween 5and50%
- 100% profit repatriation
- Noforeign exchange controlsZambia WT/TPR/G/17
Page 13
- Guarantee against compulsory acquisition ofproperty
Most FDIflows sofarhavelargely come from South Africa.
(g) Rehabilitation ofinfrastructure
Thegovernment isdetermined toimprove theallocation ofresources inthepublic sector in
amanner thatwould rehabilitate andimprove theprovision ofthephysical infrastructure andsocial
services, suchasroads, health andeducation services. Thisisinaneffort toimprove theproductive
capacity oftheeconomy.
2. THE EXTERNAL ECONOMIC ENVIRONMENT
(a) Major trends inimports andexports
(i) Imports
Measures which haveinfluenced imports intherecent pastinclude:
- Theabolition offoreign exchange controls;
- Theabolition ofimport licensing;
Table 1
Summary ofexternal trade
(US$ million)
Year Imports Exports Trade surplus
1982 1001.0 1,022.0 21.0
1983 703.0 825.0 122.0
1984 608.0 655.0 47.0
1985 692.0 543.0 -149.0
1986 603.0 403.0 -200.0
1987 739.0 909.0 170.0
1988 1,580.0 1,251.0 -329.0
1989 1,021.0 1,408.5 387.5
1990 1,084.0 1,350.0 266.0
1991 952.0 1,026.4 74.4
1992 1,351.0 1,124.4 -266.6
1993 1,018.5 990.0 -28.5
1994 1,058.3 1,066.4 8.1
1995 1,139.8 1,254.7 114.9
Source: Bank ofZambia; United Nations Handbook ofInternational Trade andDevelopment Statistics 1988.
(ii) Exports
Governmentcontinuestofocusitsattentiononthedevelopmentandpromotionofnon-traditional
exports. Inthisregard, steps havebeentaken to:WT/TPR/G/17 Trade Policy Review
Page 14
- Expand anddiversity non-traditional exports;
- promote newlocalandforeign investment toincrease export production; and
- diversify export markets.
Theestablishment ofEBZhassignificantly facilitated thegrowth ofthenon-traditional exports.
These haveincreased from US$89.02 million in1988 toUS$199.28 million in1995, ascanbe
illustrated bytable1atannex 1.
(b) Development interms oftrade andcommodity prices
Developments intheworld economy hasmixed effects ontheZambian economy. Themarked
increase incopper prices in1994which resulted fromrising demand ontheworld markets more than
compensated forthedecline incopper production which wasUS$905.9 million in1992 andUS$
830.5 million in193representing adecline of8.3%.
In1995, copper prices wereaveraging US$1.18perpound, compared totheUS$0.97per
pound in1994. However, thevolume ofcopper exports declined by6percentinthe1995 relative
to1994 duetoproduction problems inthedomestic copper mining industry.
Rising prices ofcrude oilhavehadanegative impact onZambia resulting inanincreasing
inthecostoflocalgoods astransport andproduction costswentup.Thedrought inthe1993/94 season
further complicated issues asitnecessitated foodimports aggregating thealready highimport bill.
With allthese complications andinthehighdebtservice requirements, there waspressure onthe
exchange ratewhich culminated inthedepreciation oftheKwacha.
(c) Balance ofPayments developments
Zambia hascontinued toexperience external payments difficulties. In1995, although Zambia
hasatrade surplus ofUS$114.9 million, theCurrent Account registered adeficit of$207.2 million.
Thiswasmainly asaresult ofahugeoutflow ontheservices account. Thisoutflow consisted oflarge
payments onforeign debtandnon-factor services. These outweighed theunrequited transfers from
abroad. Thecurrent account deficit in1995wasa29percentimprovement overadeficit ofUS$291.6
recorded in1994.
Thecurrent account deficit wasfinanced bythedirect foreign investment ofUS$74.5 million
andshort-term capital inflows ofUS$84.3 million. In1995, theoverall balance ofpayments deficit
wasUS$84.1 million. Thiscompares favourably withdeficits ofUS$237 million, US$160.4 million
andUS$242.5 million in1992, 1993 and1994 respectively.
Onthecapital account, direct foreign investment increased from US$40 million in1994 to
US$74.5 million in1995. However, there wasanetoutflow ofUS$35.7 million inthemedium to
longtermcapitalaccountduetodebtamortisation.Netinflowsintheshorttermcapitalaccountamounted
toUS$84.3 million. Thisresulted inthecapital account balance ofUS$161.9 million which wentinto
financing thecurrent account deficit.
Earnings fronnon-traditional exports have continued toimprove. These expanded from
US$84 million in1991, toUS$156.5 million in1994 andUS$215.5 million 1995. However, even
withthisrapidgrowth, thishasbeeninsufficient todisplace thesignificance ofcopper andcobalt exports
ofUS$1039 million in1995.
Inrecent times though, theexport sector hasbeenthreatened withlowperformance dueto
theeffect ofeconomic liberalisation. Several small companies arefailing tocomplete effectively whileZambia WT/TPR/G/17
Page 15
others arethreatened withclosure orhaveinfact closed down. In1995 forinstance, thenumber of
companies exporting non-traditional products declined by50percent. Outof190firms, only95
exported in1995.
(d) International macroeconomic situation affecting Zambia 'sexternal sector
Thetwinprocesses ofliberalisation andglobalisation arepresenting adequate opportunities
forinternational trade. Government intentions aretoparticipate fullyintotheinternational tradesystem
byunlocking allbureaucratic impediments andother obstacles ofentry.
Demand forcopper, Zambia 'smainstay oftheeconomy, according tocurrent forecasts and
projections byUNCTAD, "point toanoverall increase intherhythm ofconsumption growth inthe
coming years". Thisbright picture isbased onassumption thatdeveloping countries ofAsiaandothers
keepthemomentum ofeconomic growth, andifthelarger Eastern Europe countries achieve asuccess
transition andtheireconomies succeed inrecovering fromthepresent slump. Fordeveloped countries,
itishoped thattheydonotundergo amajor recession intheyears totheendofthecentury.
Thecurrent trend intheinternational market istocreate prospects fordebtrelief andeven
cancellation fordeveloping countries particularly LDCs. Zambia, having donesowellsofarinterms
ofimplementation ofstructural adjustment programme should takeadvantage ofinternational donors
fordebtcancellation
3. PROBLEMS INEXTERNAL MARKETS
Toappreciate theproblems faced byZambia intheExternal market, itisnecessary totake
intoaccount thecountry 'sgeographical location andthepattern ofhertrade. Zambia isalandlocked
country. Asaresult ofthispredicament, itincurs highfreight costs which result intouncompetitive
pricing ofherexports.
Furthermore, theworld copper prices aresubject tomajor price fluctuations. Thismakes the
economy vulnerable tomajor external shocks duetoitsdependence oncopper which contributes about
94percentofforeign exchange earnings overthe1990-1994 period.
RegulationsandstandardsarealsomajorobstaclesfacedbyZambianexporters.Thisisespecially
sointheexport ofagriculture products. These aresubjected tostringent rules andregulations.
Zambia benefits fromtheGeneralised Systems ofPreferences Schemes offered byDeveloped
countries. However, notallexports qualify forpreferential treatment under these schemes.
Zambia isamember ofSADC towhich allSouthern African Customs Union (SACU) member
states arealsomembers. South Africa, which isamember ofbothSACU andSADC, isZambia 's
major supplier intheregion. Itsupplies about 40percentofZambia 'stotalimports requirements,
while Zambia supplies onlyabout 1.5percentofSouth Africa 'stotalimports.
South Africa andtheother SACU members maintain highprotective tariffratesandnontariff
barriers aswellassubsidising theirexporters. Thiscreates unfair competition toZambia products in
theregional market. Theimprovement ofmarket access toZambian products intheregion will
contribute significantly toimproving Zambia 'strade balance.WT/TPR/G/17 Trade Policy Review
Page 16
Annex 1
Table 1
Visible non-traditional export earnings bysub-sector, 1987-95
(US$ '000)
Sub-sector 1988 1989 1990 1991 1992 1993 1994 1995
Animal products 2,991.92 4,203.25 2,291.48 1,184.52 456.00 740.00 355.18 1,403.73
Building materials 3,125.30 3,283.76 3,597.30 3,699.07 3,838.25 3,694.99 3,048.25 5,220.45
Chemical products 4,002.71 3,359.42 3,089.53 2,551.13 1,966.95 1,005.83 2,249.31 2,414.24
Engineering products 22,737.06 22,576.11 19,621.69 27,791.98 24,828.58 31,283.81 34,494.08 39,402.93
Floricultural products 362.56 750.00 1,050.00 1,902.00 2,986.64 5,505.64 9,110.35 13,533.97
Garments 3,200.61 2,423.21 2,513.80 2,566.20 1,360.40 687.76 500.60 145.63
Handicrafts/curios 18.00 27.00 187.00 95.00 63.87 80.49 85.00 82.99
Horticultural products 3,113.08 2,713.34 4,543.64 5,806.71 2,934.00 2,391.19 2,420.86 4,023.39
Leather 426.00 844.27 1,039.09 675.10 375.00 1,259.00 1,234.94 1,944.23
Minerals 3,009.56 2,771.40 1,712.85 1,823.98 1,548.00 1,361.41 820.94 703.67
Mining equipment 411.92 385.00 367.47 75.00 75.00 19.93 51.84 -
Other manufactures 276.50 331.90 1,086.00 907.40 389.00 30.00 27.50 530.00
Petroleum oils 7,421.00 7,521.00 11,144.00 3,742.00 1,081.00 173.34 3,917.33 11,360.75
Primary agriculture
commodity12,793.10 18,545.82 14,542.40 22,761.00 19,968.46 25,071.82 10,007.51 24,079.94
Processed foods 2,912,90 1,631.07 6,196.49 4,757.50 14,177.44 15,117.25 22,192.82 25,207.53
Semi-precious stones 5,231.99 5,945.00 7,637.58 10,188.76 9,946.74 13,300.86 9,437.07 7,539.51
Textiles 4,968.00 7,843.61 8,585.83 9,380.00 13,669.56 11,062.00 28,461.00 39,146.02
Wood products 266.13 217.00 791.00 520.38 647.48 550.12 893.00 1,417.77
Total 77,268.34 85,172.16 89,997.15 100,427.73 100,312.37 113,335.44 129,307.99 178,283.77
Electricity 11,747.00 1,522.00 12,205.00 20,893.00 1,658.00 10,756.00 19,551.64 21,100.00
Total NTEsa89,015.34 86,694.16 107,202.15 121,320.73 101,970.37 124,091.44 148,859.63 199,283.77
Total NTEs
(US$ million)89.02 86.69 102.20 121.32 101.97 124.09 148.85 199.28
Metal exports
(US$ million)1,027.70 1,279.50 1,167.50 1,041.20 1,072.00 905.70 965.20 1,038.70
Total exports 1,116.72 1,366.19 1,269.70 1,162.52 1,173.97 1,029.79 1,114.05 1,237.98
a NTEs means non-traditonal exports
Source: Export Board ofZambia, Exporter Audits 1987-1995, Bank ofZambia.