Zambia WT/TPR/S/17
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I. THE ECONOMIC ENVIRONMENT
(1) Major Features oftheEconomy
1. TheRepublic ofZambia isalandlocked Stateinsouthern Central Africa, withatropical climate.
Ithasapopulation of9.4million inhabiting anareaof753,600 square kilometres. More than50per
centofthepopulation isunder 15.Theregional distribution ofthepopulation hasbeenmuch influenced
byemployment opportunities intheprovinces withcopper mines, known astheCopperbelt. Thus,
provinces withahighpopulation density aremostly situated along therailways linking theCopperbelt
tothenearest foreign ports, andconstitute Zambia 'surban andindustrial centres. Unemployment in
theformal sector isinexcess of30percentandhasbeenafactor intherecent decline oftheurbanized
population, from42to38percentsince1990(Table I.1).Zambia 'smainurban concentrations include
thecapital, Lusaka; Copperbelt towns suchasNdola andKitwe; andtourist centres suchasLivingstone.
Table I.1
Major features ofZambia 'seconomy
Area: 752,600 square kilometres
Population growth rate: 3.4percent
GDP percapita: US$450
1990 1995
Population (million)
Urban (percentage)
Lifeexpectancy (years)8.07
42
549.37
38
...
GDP (US$ million)a
Inflation (percent)
Exchange rate(kwacha/US$)3,908
104.8
29.04,226
34.9
833.3
Share ofrealGDP percent
Agriculture, forestry andfishing
Mining andquarrying
Manufacturing
Servicesb17.5
7.4
26.5
48.620.2
5.5
24.6
49.7
Share ofemployment
Agriculture, forestry andfishing
Mining andquarrying
Manufacturing
Servicesb14.7
11.9
14.2
59.216.6c
9.9c
11.1c
62.4c
US$million
Exports, f.ob.
Copper
Imports, c.i.f.
Merchandise trade/GDP (percent)1,263
1,055
1,084
60.11,190
840
1,278
58.4
... Notavailable
a Atcurrent market prices.
b Including construction andelectricity, gasandwater.
c 1994 data.
Source: Data provided bytheZambian authorities.
2. Zambia isamong theworld 'smajor copper producers. Themining andquarrying sector
accounts forover80percentofZambia 'smerchandise exports, mainly copper; thesector producesWT/TPR/S/17 Trade Policy Review
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about 6percentofgross domestic product (GDP) andprovides employment forsome 10percentof
theformal workforce(Chart I.1).Agriculture, including forestry andfishing, accounts forover20per
centofGDP andabout 17percentofemployment. Themanufacturing sector, withsome 14percent
ofZambia 'sexports ofgoods, isthesource ofalmost aquarter ofGDP andjustover11percentof
employment. With over60percentofthelabour force, services isZambia 'slargest employer,
accounting forabout halfofGDP.
3. Inlate1991, Zambia embarked onwide-ranging, market-oriented economic reforms. This
followed alongperiod ofeconomic decline, marked inparticular byafallinpercapita income of
some 30percent,tothatoftheleast-developed countries, andaslowing ofgross domestic investment
fromover40tounder 15percentofGDPsince theearly1970s. Thedecline reflected notonlylower
copper prices andoutput butalsothegrowth inhibiting effect ofpervasive State-controls overeconomic
activity.
4. Zambia 'sreforms haveyettoshow theirfullbenefits, influenced inpartbydroughts inthree
ofthefouryears through 1995 andbyfalling copper output (exacerbated byefficiency problems).
Thuspositive growth wasrecorded onlyfor1993. However, some positive signs arestarting toshow.
Inparticular, inflation isdown significantly, fromwellover100percentin1992and1993toaround
35percentin1995, indicating amore stable macroeconomic environment. Inaddition, non-traditional
exports, mainly fromthemanufacturing sector, haverisensharply inthepastfouryears andbysome
35percentin1995. Manufacturing remains subject tohighproduction costs, including forinputs
ofbasic infrastructural services such asfinance andtelecommunication. However, continuedZambia WT/TPR/S/17
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liberalization, including recent cutsinimport tariffs andreform offinancial markets, pursuit ofthe
privatization effort, planned improvements inthemining sector, andfactors suchastheintroduction
ofthevalue-added taxinplace oftheformer salestaxareexpected tofurther improve Zambia 'sexport
andgrowth prospects.1
(2) Evolution oftheEconomy
(i) Developments upto1992
5. Atindependence in1964, Zambia adopted import-substitution policies asthekeytoits
development effort. Following theimplementation oftheprogramme ofnationalization, formulated
under the1968"Mulungushi Reforms", economic activity inZambia wasforyears dominated bythe
public sector. TheZambia Industrial andMining Corporation (ZIMCO) wascreated tooversee all
State-ownedcompanies,includinginmining,realestateandhotels,energy,transport,trading,agriculture
andrural development, posts andtelecommunications, finance andmanufacturing. Nationalized
enterprises were urged toachieve national goals, suchasregional development andemployment.2
High tariff ratesandquantitative restrictions, including licences andexchange controls, were putin
placetoprotectnationalizedcompanies.Agriculturalandminingpolicieswerepartlygearedtosupplying
inputs to,andweretaxed tofinance themanufacturing sector. However, national foodself-sufficiency
ingeneral, andfoodsecurity formine workers inparticular, wasthemain objective ofagricultural
policy. Inthisconnection, agricultural prices weresetlowandconsumer prices were subsidized to
meettheperceived needs oftheurban population, mainly mine workers.3
6. Until 1974, these policies contributed tofavourable economic growth; realGDP grew at
anannual rateof4.1percent.4Minerals, principally copper, contributed upto45percentofGDP
andabout 95percentofforeign exchange earnings frommerchandise exports; public investment was
mostly concentrated incopper production. Thetwooilshocks of1973-74 and1979-80 andasustained
decline intherealprice ofcopper from 1974, combined withtheheavy dependence oncopper,
deteriorated Zambia 'sexternal position. Depletion ofminereserves, lackofinvestment, ageing capital
stockandmachinery, andmanagement andtechnical problems reduced productivity inthemining sector
andcontributed tothedecline inproduction ofcopper. Tocompensate fortherelated fallintaxrevenue,
theGovernmentbothborrowedabroadandsignificantlyrelaxedfinancialdiscipline;thisfuelledinflation
andreduced Zambia 'sexport competitiveness. Theeconomy stagnated ordeclined intheperiod 1975
to1985. Bythelatter year, thebudget deficit wasintheorder of20percentofGDP andexternal
debtwastheequivalent oftwice GDP.
7. Firstattempts inthemid-1980s tostabilize theZambian economy contributed toasubstantial
reduction inthepublic deficit (Chart I.2)butfailed toachieve macroeconomic stabilization. Inthe
absence offundamental structural adjustment, therecurrence ofdroughts, theshortage offoreign
exchange, thebankruptcy ofdomestic companies andtheburden ofalarge foreign debttended to
exacerbateZambia'seconomicsituation.By1991,inflationexceeded100percent,growthwasnegative,
1Halbach (1994); andShams (1995).
2Gardner (1993).
3Agricultural policies tended toencourage migration from rural areas tourban centres (Mwase, 1995).
4World Bank (1993).WT/TPR/S/17 Trade Policy Review
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thebudget deficit remained highandexternal debtwastheequivalent ofwelloversixtimes export
earnings.
(ii) Recent economic developments
8. InMarch 1992, Zambia formally adopted athree-year structural adjustment programme to
stabilize itseconomy, restore economic growth, move toward external viability andreverse thedecline
inthesocial sector 'sdelivery andinfrastructure. Theprogramme consists ofmarket-oriented reforms
andprivatization ofState-enterprises foramore efficient useofresources, withstructural measures
supported bydisciplined monetary andfiscal policies. Inthecontext oftheprogramme, non-tariff
barriers totrade havebeenphased out;thetariff hasbeensimplified andratesconsiderably lowered,
fromamaximum of100percentin1991 to25percentin1996; andtariff andtaxconcessions have
beensignificantly reduced (Chapter III(2)(iii)).
9. Alsoundertheprogramme,virtuallyalldomesticpriceshavebeende-controlledandgovernment
intervention inmarketing steadily reduced. Inaddition, public-enterprise reforms andprivatization
aresignificantly reducing government involvement inbusiness activity. Thepaceofthese reforms
gained momentum withtheliquidation in1995 ofZIMCO, aState-enterprise which, asaholding
company, hadexercised control over alarge partofZambian economic activity, including in
manufacturing. Todate, almost allparastatal enterprises havebeeneither privatized, liquidated or
listedforprivatization;theZambiaConsolidatedCopperMines(ZCCM) ,thedomesticcoppercompany,
isalsoduetobeprivatized.Zambia WT/TPR/S/17
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10. Inafurther important development, early in1994 Zambia 'sexchange controls were lifted
(Annex I.1),andtheexchange rateofZambia 'scurrency, thekwacha, became market-determined.
Inthesame year, theLusaka Stock Exchange wasestablished andinterest rateswerefreed. Reforms
ofthefinancial services sector wereundertaken andprudential indicators forbanking, andcriteria for
banksolvency based oninternational practices, were set.
11. Efforts havealsobeenundertaken todiscipline public expenditure, withitsreduction from
almost 35to26percentofGDP intheperiod 1991 to1995; inparticular subsidies andagricultural
expenditure weredrastically reduced (Table I.2). Also, since 1993, theGovernment hasoperated a
cashbudget. Theestablishment in1994 oftheZambia Revenue Authority, anindependant body;
theintroduction ofavalue-added tax,amineral extraction royalty andanimport declaration feein
1995; andreceipts from privatization, combined withtherapid depreciation ofthekwacha, have
contributed toarecovery ofgovernment revenue, afterasharp decline in1993.5Since January 1996,
tariffandtaxconcessions havebeenreduced andtheGovernment haslowered reliance ontradetaxation.
Table I.2
Recent economic performance, 1991-95
Share of
1995 GDP
(percent)1992 1993 1994 1995
Percentage change
RealGDP 100.0 -2.5 6.4 -3.1 -4.1
Private consumption 80.8 12.8 2.9 -0.1 1.9
Government consumption 9.0 11.8 -27.5 18.7 -5.4
Gross capital formation 8.3 43.4 45.4 -19.5 -25.8
Netexports ofgoods andnon-factor services 1.9 -0.9 107.3 -61.0 -55.1
1991 1992 1993 1994 1995
Consumer prices (percentchange)a100.0 165.1 183.8 54.6 34.9
Realeffective exchange rate(percentchange)ab-11.4 6.9 15.5 -5.6 -8.8
Nominal effective exchange rate(percentchange)ab-43.0 -47.4 -47.2 -26.9 -25.0
Money supply (M2; percentchange) 98.7 98.6 107.1 74.8 54.9
Interest rates(Bank rate;percent)c42.0 54.0 122.5 24.8 51.5
External debt(percentofexports) 629.2 563.5 673.4 595.4 536.0
Gross international reserves (months ofimports) 2.1 1.7 2.0 3.2 1.9
PercentofGDP
Government revenue andgrants
ofwhich: revenue27.4
18.728.5
18.421.9
14.622.9
18.121.0
16.6
Government expenditure 34.7 31.0 27.0 28.6 25.8
Balance -7.2 -2.5 -5.1 -5.7 -4.8
External trade balance 3.8 -5.3 0.0 2.0 -2.1
Current account 0.2 -3.2 -2.3 -1.9 -7.0
Gross national savings 11.2 8.7 15.0 11.9 6.0
Gross investment 11.0 11.9 17.3 13.8 13.0
a Period average.
b Negative signindicates depreciation.
c Endofperiod.
Source: Dataprovided bytheZambian authorities.
5SeeDegbelo (1994).WT/TPR/S/17 Trade Policy Review
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12. Theresponse ofthedomestic economy hasbeenencouraging butuneven. Non-traditional
exports-mainlyhorticulturalproductsandtextiles-havegrownfromlowlevelstooverUS$200million
inthepastfouryears.6However, realGDP, aftergrowth ofover6percentin1993, declined by
roughly thesame percentage inthetwoyears to1995, mainly because ofadrought-induced fallin
agriculturaloutput,thecollapseofsomebanks,anddepletingreservescombinedwithefficiencyproblems
inthemining sector. This, together withthedrought-related increase infoodimports, andalower
volume ofcopper exports, contributed toawidening ofZambia 'sexternal current account deficit in
1995, from 2to7percentofGDP. Concurrently, Zambia 'sgross international reserves declined
from theequivalent ofoverthree months ofimports toacoverage ofabout twomonths.
(3) Composition andDirection ofTrade andForeign Investment
13. Zambia 'svulnerability toexternal shock isreflected initsexternal trade account, where the
price ofcopper andtheweather-related needformaize imports playanimportant rôle. Afurther
significant factor inthecurrent account isinterest onZambia 'sexternal debt, withsuchscheduled
payments averaging overaquarter ofmerchandise exports inthepastfiveyears; however, since1991,
official unrequited transfers haveexceeded scheduled interest payments.
(i) Trade ingoods andservices
14. Major imports toZambia include capital equipment forthemining sector, crude oil,fertilizer
andmaize. Theshare ofmaize intotalimports reflects theintensity ofdroughts: maize accounted
fornearly 20percentoftotalmerchandise imports in1992, 2percentin1994 and8.6percentin
1995 (Chart I.3). Theevolution ofimports offertilizer partly reflects therecent increased emphasis
putbytheprivate sector onagricultural products asnon-traditional exports. Other imports, including
consumer goods, haveincreased asashare oftotalimports -from 40toaround 60percent-since
1992, reflecting inparttheconsiderable liberalization ofthetrade régime; however, therecent
depreciation ofthekwacha 'srealeffective exchange ratehasprobably beenarestraining factor on
imports, withinputs forthemining sector andpetroleum imports particularly affected.
15. In1995, copper exports accounted forsome 71percentofZambia 'smerchandise exports,
compared to78percentin1992 andwellover80percentin1991. Intheperiod since 1991, the
volume ofcopper exports hasfallen bysome 13percent,while thecopper priceafterdeclining through
mid-1994 rosein1995toafive-year peak. Cobalt currently contributes around 10percentofZambia 's
merchandise export earnings. Exports ofzincandleadceased in1994, following theclosure ofmines.
Zambia hasrecorded strong growth ofnon-traditional exports since 1992, including inengineering
products, textiles, processed foods, primary agricultural commodities, gemstones, floricultural products
andelectricity. Suchexports increased byabout 20percentin1994andbyover35percentin1995.
Theshare ofthiscategory ofexports intotalexports rosefromlessthan10percentoftotalexports
in1990 tosome 17percentin1995.
6Non-traditional exports include allgoods andservices, excluding copper anditsby-products.Zambia WT/TPR/S/17
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16. Japan, which buysmuch ofZambia 'scopper, isthesingle largest market forZambia 'sexports,
followed closely bytheEuropean Union (EU)(Chart I.4).Textiles, which areamong themostimportant
ofZambia 'snon-traditional exports, findamarket mainly intheEUandSwitzerland. Zambia 's
agricultural exports, which arecomposed largely offloricultural products, aremarketed mainly out
oftheregion, withmany neighbouring countries producing similar items. Within theCommon Market
forEastern andSouthern Africa (COMESA), Zaire isthemajor importer ofproducts originating in
Zambia, followed byZimbabwe. South Africa iscurrently themajor supplier ofimports toZambia,
withashare inZambia 'stotalimports ofalmost 30percent; itisfollowed bytheEU,Zimbabwe,
Japan andtheUnited States.
17. Zambia isanetimporter ofabroad categories ofservices. Interest onZambia 'sexternal debt
isaprincipal source ofimbalance intheservices account, withsuchscheduled payments accounting
forover60percentoftheservices deficit in1992andforaround 50percentinboth1994and1995.WT/TPR/S/17 Trade Policy Review
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Zambia WT/TPR/S/17
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(ii) Foreign investment
18. Intheperiod 1980 to1993, Zambia wasoneofthefivelargest recipients offoreign direct
investment (FDI) among African least-developed countries, excluding Angola andLiberia.7Zambia 's
economic reform programme, including theestablishment oftheLusaka Stock Exchange, the1993
Investment Act,andtheongoing privatization mayhavegiven impetus toFDIintoZambia. FDIflows
recently rosebyover85percent, from US$40 million in1994 toUS$74.5 million in1995 (15per
centofthe1995 totalinvestment inZambia).8Itshould benoted, however, thatthisincrease may
havepartly resulted fromimplementation ofprevious investment decisions andrelated outlays, orfrom
animprovement inrecording techniques, since FDIcertificates issued byZambia 'sInvestment Centre
(Chapter II(2)) declined from376in1993tolessthan200in1995. Thevalue ofFDIcertificates issued
during thefirstninemonths of1995represented about 50percentofthevalue ofthe1993certificates
(Table I.3).
Table I.3
Foreign direct investment: certificates issued, 1993-95
Sector 1993 1994 1995a
Number
oflicencesValue in
US$millionNumber
oflicencesValue in
US$millionNumber
oflicencesValue in
US$million
Agriculture
(including fishing)128 78.12 97 54.37 41 39.52
Mining and
quarrying12 10.69 14 18.11 3 0.71
Manufacturing 106 132.84 117 60.32 36 82.58
Services
Tourism
Transport
Others130
57
42
3192.14
15.79
58.72
17.63109
37
31
4126.81
6.81
12.33
7.6751
14
12
2535.06
3.56
5.51
25.99
Total 376 313.79 337 159.61 131 157.87
a Certificates issued from January toSeptember 1995.
Source: Dataprovided bytheZambian authorities.
19. According totheauthorities, thebulkofforeign investment inZambia hascome fromtheUnited
Kingdom andSouth Africa (Chart I.5)andwasforcompanies producing mainly inthemanufacturing
andagricultural sectors;9more than70percentofFDIcertificates issued overtheperiod January 1993
toSeptember 1995 wasforactivity inthese twosectors. Thenumber ofcertificates issued in1993
fortheservices sector partly reflected theearlier liberalization ofthetransport andtourism branches.
Investment inthemining sector waslargely tofinance exploration work forbasemetal.
7UNCTAD (1995).
8Government ofZambia (1995).
9Ingeneral, investment inthemanufacturing sector wasforexpansion orrehabilitation andwasmade through
theprivatization programme.WT/TPR/S/17 Trade Policy Review
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(4) Outlook
20. TheZambian authorities aredetermined tocontinue withtheirprogramme ofstructural reform,
including further tradeliberalization andprivatization ofparastatal enterprises, andtostrengthen their
macroeconomic stabilization effort. Inthiscontext, inflows ofFDIwillbeimportant inachieving
stable growth, aswillbethecontinued development ofnon-traditional exports andimprovements in
theperformance ofthemining sector.
21. Theauthorities expect single-digit inflation, asurplus onthedomestic public budget, equivalent
to1percentofGDP, andareturn topositive growth in1996.10Gross investment isexpected topick
upin1996andtoincrease by20percentby1997. Given favourable weather conditions, agricultural
output isforecast togrow byatleast6percentayearfrom1996, and20percentannual growth of
non-traditional exports isprojected atleastto2000, contributing toannual GDPgrowth rateof5percent
intothemedium term.
22. Therecovery ineconomic activity isexpected tobereflected inanincrease inimports,
particularly ofcapital equipment. This, combined withaprojected decline inthecopper price, may
widen thecurrent account deficit intheshortterm. However, fullimplementation ofreform, aplanned
rescheduling offoreign debtandtheGovernment 'scommitment tolimiting thepublic sector 'sforeign
10SeealsoInternational Monetary Fund (1996).Zambia WT/TPR/S/17
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borrowing tolong-term loans onconcessional terms areexpected toleadtoalonger-term improvement
inZambia 'sexternal accounts. Thus, foreign exchange reserves areforecast togrow toanimport
coverage ofsome fourmonths bytheyear2000.
Annex I.1 Foreign exchange régime
23. TheZambiankwachahasgraduallybeenmadeconvertibleforallexternaltransactions,including
goods,services,transfersandcapitalmovements,afterpaymentofapplicabletaxes.Withthesuspension
oftheExchange Control Acton28January 1994, allexchange controls wereabolished; concurrently,
theexchange rateoftheZambian kwacha became market determined. Payments forauthorized
transactions (alltransactions, excluding those prohibited forsanitary, phytosanitary, environmental
andsecurity reasons) maybemade inanyconvertible currency orinZambian kwacha.11
24. Allexporters arepermitted fullretention oftheirforeign exchange earnings. Until April 1996,
activities oftheZambia Consolidated Copper Mines (ZCCM) intheforeign exchange market were
monitored bytheBank ofZambia. Under anadministrative guideline, ZCCM surrendered partofits
foreign exchange earnings totheBank ofZambia inexchange fortreasury bills. Thesurrender rate
wasraised from 45percentto100percentinApril 1996; itwas43percentuntil May1994,
40percentintheperiod May-January 1995, 30percentintheperiod January-April 1995, and
45percentuntilApril 1996.
25. Travellers areallowed tobring inortakeoutanyamount inanycurrency; adeclaration is
required foramounts exceeding US$5,000. Payments ofprivate external debtservice incurred before
28January 1994, aresubject toprior approval bytheBank ofZambia.
11International Monetary Fund (1995).