Zambia WT/TPR/S/219/Rev.1 
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I. ECONOMIC ENVIRONMENT 
(1) INTRODUCTION  
1. Zambia, a land-locked country in south-central Africa1, is known for its high-quality copper 
and cobalt reserves whose prices quintupled betw een 2002 and mid-2008, thereby greatly improving 
Zambia's terms of trade and extern al balance.  The boom in the mining sector together with prudent 
macroeconomic policies, facilitate d by substantial debt relief unde r the Heavily Indebted Poor 
Countries and G8 programmes, as well as ongoing struct ural reforms, of which trade liberalization is 
an integral part, have contributed to Zambia's  impressive economic performance during most of the 
review period.  Real GDP growth averaged 5- 6% annually between 2003 and 2008, and inflation 
dropped from 26.7% in 2002 to 8.2%  in 2006 owing to monetary and fiscal  discipline as well as the 
growth of domestic food supplies; it has since ri sen, largely due to rising food and fuel prices. 
2. The impact on Zambia of the global economic downturn on international trade has been 
marked for Zambia because of its heavy depend ence on copper, its primary export commodity. 
Copper is the world’s third most widely used metal, after iron and aluminium, and is employed mainly in highly cyclical industries, including construction and industrial machinery manufacturing. 
When global economic activity was buoyant and co mmodity prices strong, Zambia’s economy soared 
but as the global economy began to sink in the latte r part of 2008, it dra gged Zambia’s economy down  
with it.  The global economic slowdown has slowed and halted the construction of infrastructure and 
property development, and reduced the demand fo r consumer goods, including electronics.  The 
mining sector in Zambia has been hard hit by the more than 60% drop in copper prices since mid-
2008 which has resulted in cutbacks in production a nd the scaling-back or suspension of expansion 
projects.    
3. The country's continued depe ndence on copper earnings means economic growth will decline 
from the levels of the past six years when Zambia  benefited from the high international price of 
copper.  Diversifying out of copper has been an often stated objective of Zambian governments for 
several decades. Although macroeconomic management has improved, there has only been slow 
progress in reducing the domestic cost of doing business and improving productivity (and therefore 
international competitiveness) in non-mining sectors.   Thus, the goal of diversifying the economy 
away from dependence on copper has not been achieved.   
4. The dependence on mining and the limited progress in developing sectors like agriculture and 
tourism has also meant that large sections of the po pulation have not been able to benefit from the 
commodity boom.  As a consequence, roughly two thirds of the population lives in poverty, despite 
the government's strong commitment to poverty re duction and even after several years of 5-6% 
growth.  At US$934, per capita annual incomes are well below their levels at independence, placing 
the country among the world's poorest nations. Social indicators continue to decline, particularly as regards life expectancy at birth – about 40 year s according to the UN and 50 years according to the 
Zambian authorities – mainly due to the prevalence of HIV/AIDS
2, putting a heavy strain on the 
                                                      
1 It is bordered to the north by Tanzania and the Democratic Republic of the Congo (DRC), to the east 
by Malawi and Mozambique, to the south by Zimbabwe, Botswana, and Namibia, and to the west by Angola.  Zambia accounts for around 40% of southern Africa's water reserves, which have substantial potential for 
hydroelectric power generation and irrigation. 
2 In the UN Human Development Index, Zambia currently ranks 165th out of 177 countries mainly due 
to Zambia's record-low and declining life expectancy at birth.  See UNDP (2 007).  Zambia is also one of sub-
Saharan Africa's most highly urbanized countries with over one third of its 11.9 million people concentrated in a 
few urban zones strung along the major transportation corridors while rural areas are under-populated and lag behind urban dwellers in most measures of social welfare. WT/TPR/S/219/Rev.1 Trade Policy Review 
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general health system and raising child and infant mortality rates.3  HIV/AIDS presents a formidable 
challenge to Zambia's economic de velopment and poverty reduction. 
5. There has been little change in terms of the ove rall share of GDP by sector since the previous 
Review in 2002 (Table I.1).  The shares of agriculture and manufacturing remained virtually 
unchanged at around 20% and 10%, respectively.  By contrast, services' share is estimated to have 
declined from over 51% to around 46%.  While mi ning is the country's biggest export earner, 
contributing over 75% of exports, its share of GDP  is relatively small, at around 4% according to 
official statistics.  This may be somewhat mi sleading, however, as so many other sectors of the 
economy are geared toward serving the mining sector .  For example, a good part of the services 
sector, is related to mining;  in addition, the mi ning sector is an important consumer of locally 
manufactured goods. 
Table I.1 
Basic economic indicators, 2002-08 
 2002 2003 2004 2005 2006 2007 2008a 
Real GDP at market prices (ZK billion, 1994 
prices) 2,707.9 2,846.5 3,000.1 3,160.3 3,356.8  3,564.0  3,776.7 
Real GDP at market price (US$ million, 1994 
prices) 615.6 601.4 627.8 708.0 931.6  890.4  1,008.3  
Current GDP at market price (ZK billion) 16,260.4 20, 479.2 25,916.8 31,944.6 38,4 64.1  46,194.8  55,501.1  
Current GDP at market price (US$ million) 3,696.7 4, 326.6 5,423.2 7,15 6.9 10,675.4  11,5 41.4  14,817.4  
GDP per capita at current market price (ZK '000) 1,562,085 1,906,038 2,337,020 2,792,006 3,260,038  3,798,753  4,430,948  
GDP per capita at current market price (US$) 355.1 402.7 489.0 625.5 904.8  949.1  1,183.0  
 (Annual percentage change) 
GDP by economic activity at 1994 market prices        
Agriculture, forestry and fishing -1.7 5.0 4.3 -0.6 2.2 0.4 -0.1 
Mining and quarrying 16.4 3.4 13.9 7.9 7.3 3.6 5.9 
Manufacturing 5.7 7.6 4.7 2.9 5.7 3.0 3.6 
Electricity, gas and water -5.2 0.4 -1.7 5.4 10.5 1.0 -1.2 
Construction 17.4 21.6 20.5 21.2 14.4 20.0 9.9 
Services 3.8 4.5 4.2 5.4 6.7 7.1 7.2 
 Wholesale and retail trade 5.0 6.1 5.0 2.4 2.0 2.4 2.6 
 Transport, storage and communication 1.8 4.8 6.4 11.0 22.1 19.2 15.8 
 Financial institutions and insurance 3.5 3.5 3.5 3.3 4.0 4.1 5.4 
 Real estate and business services 4.4 4.0 4.0 3.2 3.2 3.1 3.1 
 Restaurants and hotels 4.9 6.9 6.4 11.7 16.1 9.6 5.7 
 Community, social and personal services 1.6 1.6 0.6 11.4 9.0 12.5 14.5 
 Public administration and defence -1.0 0.2 0.2 6.2 -8.7 14.8 3.4 
 Education 7.0 3.0 0.3 22.2 35.3 13.6 24.4 
 Health 1.0 2.5 -0.8 -2.2 5.2 1.0 19.5 
 Recreation, religious, culture -2.0 4.5 4.3 34.1 22.8 9.3 32.2 
 Personal services 3.5 3.5 3.5 3.5 3.5 3.5 3.5 
  (Per cent) 
Share of main sectors in current GDP        
Agriculture, forestry and fishing 20.0 20.7 21.4 20.7 20.3 19.7 19.3 
Mining and quarrying 3.5 2.8 3.1 3.2 4.2 4.4 4.2 
Manufacturing 10.4 10.9 10.9 10.6 10.4 9.7 9.4 
Table I.1 (cont'd) 
                                                      
3 AfDB/OECD (2008). Zambia WT/TPR/S/219/Rev.1 
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 2002 2003 2004 2005 2006 2007 2008a 
Electricity, gas and water 3.0 2.9 2.7 2.8 3.0 2.9 2.7 
Construction 6.6 7.8 9.2 11.5 12.2 14.4 16.1 
Services 51.8 50.8 49.2 48.1 47.3 46.5 46.1 
 Wholesale and retail trade 18.5 18.9 18.6 18.1 17.0 16.0 15.3 
 Transport and communication 6.5 5.2 4.8 4.3 4.2 4.6 4.4 
 Community, social and personal services 8.7 8.6 7.9 8.3 8.8 9.3 10.2 
 Financial institutions and insurance 9.2 9.0 8.8 8.5 8.4 7.9 7.6 
 Real estate and business services 6.4 6.5 6.5 6.1 6.0 5.8 5.7 
 Restaurants and hotels 2.5 2.6 2.6 2.8 2.9 2.9 2.9 
 Otherb 4.8 4.1 3.5 3.1 2.6 2.4 2.2 
Share of sector in total employment (as at January)        
Agriculture, forestry and fishing 10.2 15.4 15.6 .. 11.7 .. .. 
Mining and quarrying 8.7 11.7 11.1 .. 5.5 .. .. 
Manufacturing 15.8 9.4 10.9 .. 11.6 .. .. 
Electricity, gas and water 1.7 2.6 3.0 .. 2.6 .. .. 
Construction 0.6 0.8 1.4 .. 3.0 .. .. 
Services 63.1 60.1 58.0 .. 65.6 .. .. 
 Distribution, wholesale and retail trade 11.8 12.8 10.7 .. 13.6 .. .. 
 Transport and communication 5.0 6.4 6.4 .. 4.0 .. .. 
 Finance and insurance 12.3 6.9 7.7 .. 11.3 .. .. 
 Public administration 33.9 34.0 33.3 .. 36.7 .. .. 
.. Not available. 
 a Preliminary. 
b Import duties less imputed banking services charges. 
Source:  IMF Country Report No. 08/30 and No. 08/1 87;  and Central Statistical Office (2009), Monthly Bulletin, 
 Volume 72,  March,  Zambia. 
6. In terms of paid employment4, public administration (central and local Government and 
parastatals) is by far the largest employer, accoun ting for nearly 37% of total employment, compared 
with under 12% in agriculture and a similar share in manufacturing.  Although copper mining is the 
main contributor to growth and thus wealth, it is  capital-intensive and accounts for a relatively small 
proportion of formal-sector employment. Although there are no official estimates of the unemployment rate, it is thought to be very high  at around 50%.  In the 2009 budget and the current 
five-year National Development Plan, the Govern ment seeks to diversify the economy and achieve 
growth of 5% in 2009. In order to achieve this gr owth objective, it is promoting diversification and 
increased competitiveness through structural reform s and infrastructure development with a growing 
focus on agricultural development, tourism infrast ructure development, and the manufacturing sector. 
(2) R
ECENT ECONOMIC PERFORMANCE  
7. During the period under review (and until mid 2008), Zambia's export market for copper 
boomed and its debt burden eased under relief initia tives.  The economy moved from stagnation and 
dependence on aid toward steadier growth, greater prosperity, and easier access to domestic and 
foreign investment. GDP grew at an  annual average rate of about 5-6% from 2003 (Table I.2).  With 
improved economic management and several years of strong economic growth, Zambia has turned 
around its image as a country performing considerably below its potential.  In sharp contrast to 
                                                      
4 The formal sector is dwarfed by the informal sector.  According to IMF (2008b, p. 11), paid 
employment consisted of just over 479,000 employees in 2006, up from 429,000 in 2002. WT/TPR/S/219/Rev.1 Trade Policy Review 
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the 1990s, the country has recorded positive GDP gr owth since 2000 led by the mining, construction, 
and services sectors.  Growth of agriculture has remained low, and enhancing the productivity of 
small-scale farmers by reducing their dependency on ra in-fed agriculture is critical to the development 
of the sector and the reduction of rural poverty.   
Table I.2 
Selected macroeconom ic indicators, 2002-08 
  2002 2003 2004 2005 2006 2007 2008a 
National accounts (Percentage change, unless otherwise indicated) 
Real GDP  3.3 5.1 5.4 5.3 6.2 6.2 6.0 
  XGS/GDP (%) (at current market prices) 29.2 29.0 38.3 34.7 38.6 42.2 .. 
  MGS/GDP (%) (at current market prices) 42.9 41.5 42.8 36.8 30.2 39.2 .. 
Unemployment rate (%)        
Prices and interest rates (Per cent) 
Inflation (CPI, change, period average) 22.2 21.4 18.0 18.3 9.0 10.7 12.4 
Inflation (CPI, change, end period) 26.7 17.2 17.5 15.9 8.2 8.9 16.6 
Lending rateb (period average) 45.20 40.57 30.73 28.21 23.15 18.89 19.06 
Deposit ratec (period average) 23.33 21.95 11.51 11.19 10.33 9.22 6.55 
Moneyd and credit (end period) (Percentage change) 
Money supply (M1) 31.4 14.0 22.9 16.5 54.1 25.9 26.9 
Money supply (M2) 31.5 19.2 26.6 3.7 47.9 21.5 22.3 
Credit to private sector  4.6 35.4 50.5 17.7 52.3 43.0 44.0 
Exchange rate        
Kwacha/US$ (annual average) 4,398.6 4,733.3 4,778.9 4,463.5 3,603.1  4,002.5  3,745.7  
Kwacha/US$ (end of period) 4,334.4 4,645.5 4,771.3 3,509.0 4,406.7  3,844.8  4,832.3  
Real effective exchange rate (2000=100, % change ) -1.0 -8.3  6.2 25.0 31.0  -14.4  -4.1  
Nominal effective exchange rate (2000=100, % 
change) -12.2 -17.1 -2.3 13.9 36.9  -3.8  25.6  
 (Per cent of GDP, unless otherwise indicated) 
Central government        
Revenue and grantse 26.2 24.9 23.8 23.4 43.7 23.0 24.2 
Revenue 17.9 18.0 18.3 17.7 17.2 18.4 19.4 
     Tax revenue 17.5 17.3 17.5 17.3 16.4 17.7 18.1 
Expenditures and net lendingf 31.7 31.4 24.6 26.1 24.8 23.2 25.3 
Overall balance -5.5 -6.5 -0.8 -2.7 19.0 -0.2 -1.1 
Government total debt (end-period) .. .. .. .. .. .. .. 
   Domestic debt  .. .. .. .. .. .. .. 
Saving and investment         
Gross national savings .. .. .. 18.1 25.6  21.6 20.6 
Gross domestic savings .. .. .. .. .. .. .. 
Gross domestic investment .. .. .. 22.5 22.6  24.1 22.7 
Savings-investment gap .. .. .. -4.4  3.0  -2.5  -2.1 
Table I.2 (cont'd) Zambia WT/TPR/S/219/Rev.1 
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  2002 2003 2004 2005 2006 2007 2008a 
External sector        
Current account balance  -17.4 -16.3 -8.5 -10.2 -0.7  -6.8  -7.4 
Net merchandise trade  -5.8 -7.1  2.2  1.2 12.1   8.5  2.7 
   Merchandise exportsg 26.8 25.1 34.0 31.4 36.8  39.8  32.9 
   Merchandise importsg 32.6 32.2 31.8 30.2 24.7  31.3  30.7 
Services balance -7.0 -5.5 -4.0 -2.8 -3.4  -5.5  -4.2 
Capital account 6.4 5.5 4.4 4.0 1.8   1.9  1.8 
Financial account  5.5  9.4  1.4 -21.9 -15.0   6.3  5.7 
     Direct investment  8.2  8.0  6.7  5.0  5.8   8.5  6.3 
Balance of payments  -16.8 -10.6 -4.4 -29.1 -16.8   0.3  0.1 
Merchandise exports (% change)  8.6  9.8 69.8 21.8 74.9  16.9  6.2 
Merchandise imports (% change) -3.9 15.7 24.0 25.1 22.0  37.0  26.2 
Service exports (% change) -19.9 43.1 40.5 17.9 -16.5  22.1  19.4 
Service imports (% change)  2.2  7.6 10.9  5.3 24.7  55.7  55.5 
Gross official reservesh (US$ million, end-period) 535.1 247.7 337.1 559.8 719.7  1,090.0  1,095.6 
Months of imports .. .. .. .. .. .. .. 
Total external debt (US$ billion; end-period) .. .. .. .. 1.9 2.1 2.3 
      Government debt 6.7 6.8 6.9 6.3 1.0 1.1 1.2 
      Private sector debt .. .. .. .. 0.9 1.0 1.0 
Total external debt (% of GDP) 193.2 150.1 130.6 63.3 17.4 18.1 15.3 
.. Not available. 
a Estimates. 
b Rate charged by commerci al banks on overdrafts. 
c Rate offered by commercial banks on three- to six-month deposits. 
d M1 comprises currency in circulation plus demand deposits in national currency, other than those of the central government, i n 
the Bank of Zambia and commercial banks, and bills payable.  M2 comprises M1 plus savings and time deposits in national 
currency and demand deposits in foreign currency, other than  those of the central government, in commercial banks. 
e Grants in 2006 include MDRI debt ca ncellation amounting to 21.4% of GDP. 
f Including discrepancy between  the above-the-line balance and below-the-line balance. 
g These figures, which were provided by the Ministry of Finan ce and National Planning, are provisional;  they do not match the 
figures in Comtrade database. 
h Excluding gold. 
Source:  IMF Country Report No. 08/30 and No. 08/187;  IMF (2009), International Financial Statistics , May;  Ministry of 
Finance and National Planning (2009), "2009 Budget Addre ss";  Ministry of Finance and National Planning 
(2009), "Economic Report 2009", February.   Central Statistica l Office (2009), Monthly Bulletin, Volume 72,  
March,  Zambia;  and information provided by the Bank of Zambia. 
8. Since gaining access to an IMF poverty reducti on and growth facility (PRGF) in 2004, the 
Government's sustained efforts to strengthen publ ic financial management  have contributed to 
improved macroeconomic stability and stronger grow th, along with the favourable performance of 
non-traditional exports and the rehabilitation of the mining sector following privatization in 2000.  
Zambia successfully completed the PRGF in Se ptember 2007 and a follow-up agreement was signed 
in June 2008.  The new PRGF programme is simila r in it objectives, with the Government's economic 
policies to remain focused on preserving macroe conomic stability and debt sustainability and 
maintaining fiscal prudence, pursuing structural reforms to sustain high economic growth, reducing 
poverty further, and diversifying the economy.  
9. Implementation of Zambia's poverty reduction strategy received support from multilateral and 
bilateral donors.  In April 2005, the Internati onal Monetary Fund (IMF) and the World Bank's 
International Development Association (IDA) provi ded Zambia with significant debt service relief 
and debt forgiveness under the Heavily Indebted Poor Countries (HIPC) initiative, endorsing a WT/TPR/S/219/Rev.1 Trade Policy Review 
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US$3.9 billion package for Zambia (the 17th country  to reach the HIPC completion point). Also, in 
July 2005, the G-8 agreed on a proposal to cancel  100% of outstanding debt of eligible HIPC 
countries under the multilateral debt relief initiative (M DRI).  As a beneficiary of this debt relief, 
Zambia was able to shed its status as a "highly indebted poor country".  Under the MDRI, the IMF, 
the International Development Association of th e World Bank and the African Development Fund 
(AfDF) agreed to cancel 100% of their debt cl aims on countries that had reached the HIPC 
completion point. Over the following year all three institutions granted Zambia debt-forgiveness:  the 
IMF wrote off around US$577 million, the AfDF US$245million and the World Bank US$1.88billion.  Since then, Zambia's external pos ition has improved, allowing the Government to 
build up its foreign-exchange reserves.  
10. Debt relief, together with increased copper pr oduction and the five-fold rise in copper prices 
between 2002 and 2008, have improved Zambia's exte rnal position significantly.  The current account 
balance moved from a negative 17.4% of GDP in 2002 to a negative 7.4% in 2008, and external 
public debt had declined to less then 10% of GDP  by end 2007, down from n early 179% in 2002.  
These improvements in the external situation have resulted in an increase in international reserves, 
which, at over US$1 billion in 2008 represented nearly three months of imports, compared with barely 
one month in 2003.   
(3) M
AIN POLICY DEVELOPMENTS  
(i) Monetary and exchange rate policies 
11. The Bank of Zambia (BoZ), the central bank, administers monetary policy. Its main task is to 
ensure financial and price stability by contro lling money supply growth  through open-market 
operations.  Zambia has had a history of high in flation, persistently averaging over 20% and 
sometimes substantially exceeding this (50% in 1996) . The main causes have been lax fiscal policy, a 
weak exchange rate, and inconsistent food supply .  Under the auspices of the IMF programme, the 
Government and the BoZ have made greater efforts to bring inflation down since 2005.  Inflation fell 
to single digits in 2006, its lowest level in three decades.  Tight monetary policy, a strong kwacha, and 
lower food prices due to a recovery in food producti on (after the drought during the 2004/05 planting 
season) have helped to reduce inflation. The auth orities’ inflation target for end-2008 was 7% but 
inflation rose above the single-digit range and acceler ated to 16.6% (y/y in December 2008), largely 
due to rising food prices owing to a weather-induced  supply constraint, particularly in southern 
Zambia, that had pushed prices above average.5  
12. Monetary policy is aimed at reducing inflati on to single digits over the medium term;  
although inflation decelerated in the first two months  of 2009, Zambia’s inflation is not expected to 
fully benefit from the fall in commodity prices as domestic price pressures, due to food supply 
shortages and structural constraints, including a shorta ge in the supply of electricity and poor transport 
infrastructure, may keep prices from easing.  
13. The BoZ has no formal powers to set the exch ange rate, but intervenes in the market 
periodically, through currency purchases and the setting of  statutory reserve ratios, in an effort to 
influence the value of the kwacha.  The authoriti es remain committed to a flexible exchange rate 
regime, which is now characterized by the IMF as "independently floating".6   
                                                      
5 Food inflation soared to 20.5% y/y in December 2008, from 5.9% y/y a year earlier on the back of 
floods during the 2007/08 season, which were followed by dry spells at the end of the season. Thus, every three 
out of five percentage points of inflation were due to f ood and beverages, which is equivalent to their weight in 
the consumer price index, implying that inflation was broad based in 2008. 
6 IMF (2008a).  Up to 2007 it was characterized as a "managed float" (see IMF (2008c), p. 8). Zambia WT/TPR/S/219/Rev.1 
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14. Zambia's strong export performance, mainly i nvolving copper, in conjunction with extensive 
external debt relief and large inflows of private capital, have had an impact on the exchange rate, 
which appreciated sharply in late 2005, thereby re ducing the international competitiveness of other 
goods and services.  The BoZ pursues policies to smooth fluctuations in the exchange rate, but not to 
influence its general level.  Exch ange rate fluctuations were less  in 2007 than in 2005 and 2006.  As 
the dollar depreciated against all major currenci es, the kwacha appreciated against the dollar but 
remained relatively stable against other currencies like the euro or the South African rand.  Despite 
the large real exchange rate appreciation in recen t years, non-traditional export receipts expanded by 
30% in 2006 and remained strong in the first-half of 2007.  
15. The reduced foreign exchange inflows from the mining sector, along with outflows of 
portfolio capital, led to a steep depreciation of the kwacha in nominal and real terms, from October 2008
7, necessitated by the adjustment in Zambia’s terms of trade brought on by the fall in 
commodity prices.  The kwacha weakened against th e currencies of its major trade partners, thus 
demonstrating that it is a market-determined excha nge rate which reflects fundamentals. According to 
the IMF, the shallowness of the ex change rate market implies that the volatility of the kwacha will 
persist as long as uncertainty continues to cloud the global economy.   
(ii) Fiscal policy 
16. Since 2004 the Government has managed to keep  the fiscal deficit below 3% of GDP, down 
from 6.5% in 2003.  A return to the magnitude of  fiscal deficits – of around 6-10% of GDP – seen 
prior to 2003 is unlikely owing to the improved fisc al management, and the low level of government 
debt thanks to debt, relief. In 2007, fiscal policy was contractionary with higher revenues and lower 
than expected spending.  Revenues (excluding gr ants) amounted to 18.7% of GDP as income tax 
payments rose, primarily from mining companies and higher tariff revenues due to a rapid increase in imports.  Government revenue rose in 2007 through improved revenue collecti on as well as better tax 
policy and administration.  The Government projecte d a fiscal deficit of 3.0% of GDP in the 2008 
Budget, taking on large, non- budgeted spending commitments, incl uding fertilizer support for small-
scale farmers, salary increases for MPs, and outlays for the rehabilitation of power infrastructure and 
for the 2008 presidential election.
8  However, the deficit came in favourably at 2.7% of GDP. 
17. Following the introduction of the new tax regime for mining, which entered into effect in 
2008, tax revenues were estimated to increase from 18.7% of GDP in 2007 to 21% of GDP in 2008-
10, which is necessary to finance expenditures on in frastructure, including health and education to 
better meet Zambia's development needs.  The former mining tax regime, which was put in place at the time of the privatization of the mines in 2000 – when copper prices were low and incentives were 
needed to attract investors – was considered by both the Government and the IMF to be over-generous 
to the mining companies in the recent environment of much higher copper prices.  The revision of the 
mining tax regime was undertaken to capitalize on the windfall profits the mining companies were 
enjoying.  The adaptations to the regime included an increase in the corporate tax rate from 25% to 
30%, and in the mineral royalty tax rate, from 0.5% to 3%; the introduction of a windfall tax that is 
triggered at various price levels; and a variable prof its tax. The changes were estimated to have raised 
the effective tax rate on mining companies to 47%, from 31.7%. 
                                                     
 
7 In the 12 months to December 20 08, the kwacha depreciated  by 27.2% against the U.S. dollar and by 
18.3% against the euro but appreciated  by 12.3% against the currency of its biggest trade partner, the South 
African rand, which was one of the few that fared worse than the kwacha in the region. 
8 The IMF has noted that "implementation of fiscal policy has been weaker than planned. Large 
amounts of supplementary expenditures have been undertaken and the lowe ring of fuel taxes will result in 
sizable revenue losses.  The persistent difficulties with implementing capital projects highlight the urgent need 
to strengthen budget execution".  IMF Press Releas e No. 08/227, 30 September 2008.  Viewed at:  
http://www.imf.org/external/np/sec/pr/2008/pr 08227.htm. WT/TPR/S/219/Rev.1 Trade Policy Review 
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18. The Zambian Government received only US$26 million from mining firms in 2007. When the 
2008 Budget was presented, it was estimated that th e new tax measures would generate an additional 
US$400 million for the fiscal coffers. In July 2008 when the copper price peaked at a record high9, the 
new mining taxes earned the revenue authority US$75 million, with the windfall tax showing the 
largest contribution.  According  to the 2009 Budge t speech, collection by the end of 2008 was much 
lower than estimated, representing a 65% under-coll ection, mainly on account of "administrative 
challenges in implementing the regime during the year".10  The deterioration of the global financial 
situation in the latter half of 2008 created great uncertainty and a severe credit squeeze, with mining 
companies claiming that the new taxes called into  question the economic viability of their Zambian 
operations.11  As a result, Zambia’s revenue authorities fe lt compelled to review the national budget.  
19. In the 2009 Budget, the Government announced a partial reversal of policy with the removal 
of the windfall tax introduced on 1 April 2008, in line with a suggestion from the IMF that a more appropriate way to capture a large share of the rent s when prices are extraordinarily high is through 
the progressive profit-based variable tax that take s into account the varied cost structures across 
mines.  Thus, the variable profit tax was retained. 
20. Fiscal policy will continue to pursue infrastru cture development, which has become more 
urgent as the importance of economic diversification is  highlighted by the decline in the industry that 
produces Zambia’s primary export. Spending on tran sport networks and electricity generation and 
transmission is at the core of the capital expenditu re policy framework. In recent years, poor budget 
execution and the deviation of spending from the pl anned budget have delayed infrastructure projects. 
In 2009, the emerging constraint will probab ly be accessing credit to finance the projects. 
(iii) Poverty reduction strategy 
21. The Government's strategy to reduce poverty and reach middle-income status is articulated in 
its current five year planning instrument, the Fifth National Development Plan (FNDP) for the period 
2006–10.
12  The FNDP is guided by the National Vision 203013, which has as its goal to transform 
Zambia into "a prosperous middle income country by the year 2030".  The FNDP has four main objectives: implementing growth stimulating meas ures that will create wealth and reduce poverty; 
reducing inequality by creating opportunities, partic ularly in agriculture, education, and health; 
empowering the poor to make a decent living th rough productive ventures;  and constructing and 
rehabilitating major transport arteries to ensure th at the agricultural producing areas are connected to 
the market, so that poor peoples’ income-yield ing commodities can be transported to market. 
22. Improving competitiveness and productivity is ke y to:  increasing Zambia’s annual growth 
rate to 7% (reduced to 5% for 2009), sustaining it at that level, and making growth more inclusive.
14  
The FNDP emphasizes:  (a) improved macroeconom ic and expenditure management to strengthen 
budget execution and financial accountability, enhance the revenue base, and maintain single-digit 
inflation during the period of the Plan;  (b) institutional capacity enhancement to improve and 
institutionalize political, administrative, financial, and budgetary transparency and accountability, and 
                                                      
9 See Table IV.5 for price devel opments between 2002 and 2008/9. 
10 Ministry of Finance and National Planning (2009), p. 5. 
11 Economist Intelligence Unit (2008),  p. 4. 
12 Fifth National Development Plan 2006-2010,  December 2006 (see IMF ( 2007b)).  The paper was 
prepared by Zambia in broad consultation with stakeholders and development partners, including the staffs of 
the World Bank and the IMF.  Updated every three years with annual progress reports, it describes the country’s macroeconomic, structural, and social policies in support of growth and pove rty reduction, as well as associated 
external financing needs and major sources of financing. 
13 Republic of Zambia (2006). 
14 Discussed in more detail in the World Bank (2008b). Zambia WT/TPR/S/219/Rev.1 
 Page 9 
 
 
strengthen anticorruption programmes in all pub lic institutions by 2010;  (c) infrastructure 
development through increased expenditures on road  and rail infrastructure and investing in new 
hydroelectric power stations, and implementing a power rehabilitation programme, including rural 
electrification;  and (d) social-sector development, given the high incidence of malaria and HIV/AIDS 
and shortage of skilled labour, to  improve health and education to spur economic growth.    
(iv) Structural reforms 
23. If it is to become a middle-income economy by 2030, Zambia's economy needs to grow  
faster than its current rate of 5-6% a year.  Accelerating growth will de pend on the Government's 
ability to undertake the structural reforms that  would enable Zambian businesses to become more 
competitive.  Zambia ranks only 117th out of 128 countries included in the 2007 Global 
Competitiveness Index.15  According to the World Bank, governance challenges have also contributed 
to the cost of doing business. In 2008 Zambia ranked 115th out of 180 countries on Transparency 
International's Corruption Perception Index (102nd out of 145 countries in 2004).16  Corruption and 
theft were cited among the top five constraints facing the business community in Zambia in the 
Investment Climate Assessments carried out in 2003 and 2008.17 
24. Three sets of constraints are particularly important for businesses in Zambia:  a weak enabling 
environment for the private sector;  poor physical in frastructure; and a lack of educated/skilled human 
resources. 
25. The private sector in Zambia consists of a few large firms, mostly in the mining sector, and a 
large number of small firms and micro-firms in the in formal sector.  The share of the informal sector 
in economic activity and employment has been growi ng.  According to the authorities, currently the 
cost of doing business in Zambia is relatively high, due to a number factors such as a cumbersome licensing and regulatory framework,  high transport and communication costs, and limited access to 
finance and its high cost. The World Bank has noted that Zambian companies have to deal with over 
500 business licences and some businesses need  as many 50 licences to operate.  
26. The poor condition of Zambia's infrastructure is  also a major obstacle to growth. Transport 
costs are high, partly because Zambia is landlocked,  but also because of inefficiencies and structural 
weaknesses in the transport network with about 75% of the rural road network in poor condition.   
High costs, particularly for landlocked countries like Zambia, and above-average transit delays lead to 
lower production and trading levels, which in turn li mits the potential to raise GDP growth rates. To 
help deal with this, the North-South Corridor pr oject, a joint COMESA-EAC-SADC initiative, aims 
to reduce the time taken and, consequently, the costs of road and rail transport.  The Corridor links the 
servicing port of Dar es Salaam with the Copperbelt, and the Copperbelt to the southern ports in South 
Africa servicing Zambia and 7 other countries (T anzania, DR Congo, Malawi, Botswana, Zimbabwe, 
Mozambique, and South Africa ).  Electricity shortages are having a detrimental effect on industry and 
although Zambia has a huge potential for hydroelectri city generation, little of it is being harnessed. 
27. In addition, the low levels of health, educa tion, and entrepreneurial skills prevent most 
citizens from taking advantage of the economic liber alization and improved investment opportunities.  
Despite economic growth, almost tw o thirds of Zambians  (approximately 7.5 million people) still live 
in poverty, and rural people persisten tly lag behind urban dwellers in mo st measures of social welfare.  
Only about 3% of the rural population have access to electricity and only 58% of the population have 
                                                     
 
15 World Economic Forum (2007). 
16 Transparency Interna tional Zambia (2008). 
17 Data cited by the World Bank's Zambia Country Manager in a speech at the High level Policy 
Dialogue meeting, Lusaka, 30 March 2009. WT/TPR/S/219/Rev.1 Trade Policy Review 
Page 10 
 
 
access to clean drinking water.18 Also, health represents one of the greatest challenges, as malaria, 
HIV/AIDS, and associated diseases are affecting the population, generating large numbers of orphans and vulnerable children, and adversely affecting the workforce.  Low labour productivity, and thus 
poverty, is especially acute in the smallholder ag riculture sector, where poverty is concentrated.  
Increasing productivity of agriculture, coupled with  diversification towards higher value crops, 
enhanced commercialization among smallholders, a nd expansion of agri-processing, while improving 
connectivity and integration of Zambia's rural economy, will be essential in order to improve 
economic opportunities for the rural population and reduce their poverty. 
28. In order to improve the business climate, wide -ranging policy measures have been laid out in 
the Financial Sector Development Plan (FSDP) a nd the Private Sector Development Initiative (PSDI). 
Many of these measures have also been prioriti zed in the National Development Plan (NDP) for 
2006-11.  The PSDI action plan includes over 80 measu res, which cover:  policy environment and 
institutions, trade expansion, infrastructure,  citizens’ empowerment, business facilitation and 
economic diversification, and laws and regulation. Many of the measures in the action plan are still in 
early stages of implementation with initial studies still to be commissioned.  However, one concrete 
manifestation is the creation of the Zambia De velopment Agency, intended to be a one-facility 
resource for investors.  Action plans have also been approved for the Ministry of Tourism, Environment and Natural Resources to streamline licensing requirements and for the Ministry of 
Commerce, Trade and Industry to tackle administrative barriers. 
29. Accelerating growth, reducing poverty, and cl osing the service delivery gap between urban 
and rural Zambia will require much needed reforms across several sectors, in particular in agriculture, 
energy, and telecommunications. Positive commitment s in this regard were made in the 2009 budget 
speech regarding the Government's intent to overh aul the Fertilizer Support Programme and increase 
investment in agriculture, improve the efficien cy of the state-owned power company ZESCO and 
move towards cost recovery in electricity tariffs , reform the telecommunications sector, and advance 
the decentralization agenda. As a large, landl ocked country, Zambia would also benefit from 
improvements in both the domestic and regional tr ansportation infrastructure. A key question is 
whether these reforms will be pursued more vigorousl y than past reform efforts that floundered.   
(4) D
EVELOPMENTS IN TRADE  
(i) Composition of merchandise trade 
30. Between 2003 and 2008, exports accounted for be tween 25% and 40% of GDP, and imports 
for between 25% and 32% of GDP.  Copper conti nues to be Zambia's main export, accounting for 
over three quarters of total exports, although th e Government continues to promote non-traditional 
exports including cement, sugar, gemstones, and horticulture.  Trends in copper prices and production 
have a significant influence on the merchandise trad e balance. The increased levels of investment 
since privatization in 2000 are now yielding results  in terms of higher copper production, which, 
combined with the boom in prices, lifted total exports to US$4.8 billion in 2008 – five times more 
than recorded in 2002 (Chart I.1).  Imports surged  along with massive investment in the copper sector. 
                                                      
18 Ministry of Finance and Planning (2009). Zambia WT/TPR/S/219/Rev.1 
 Page 11 
 
 
Chart I.1
Product composition of merchandise trade, 2002 and 2008
2002 2008
(a)    Exports (f.o.b.)
Other 
manufactures
5.6
Total:   US$956.3 million Total:  US$4,808.1 million  
(b)    Imports (c.i.f.)
Chemicals
16.5Iron & steel
3.3Transport 
equipment 
10.2
Manufactures
76.0 Electrical 
machines
8.7
Non-electrical 
machinery
14.3Other mining
1.8Other
0.9
Electrical 
machines
6.6Non-ferrous metals
66.1
Other semi-
manufactures 
8.0Transport
 equipment  
9.4
Chemicals
14.7Manufactures
64.9Non-electrical 
machinery
17.0
Total:   US$1,102.5 million Total:   US$5,105.7 million Per cent
Other 
manufactures
 5.1Other
0.6Semi-manufactures
14.1Other
0.6
Semi-manufactures
9.4Agriculture
7.1
Source :  UNSD, Comtrade database (SITC Rev.3).Other manufactures
14.9
Mining
28.3Other manufactures
               3.0
Other mining
3.3
Other semi-
manufactures
8.1Agriculture
14.6
Agriculture
6.0
Mining
8.4Other mining
2.4Other 
2.5
Other mining
0.4Fuels
17.1Agriculture
15.0
Iron & steel
4.0Fuels
6.6Mining
79.9
Non-ferrous metals
60.0Mining
63.2Copper ores & 
concentrates
11.5
Ores and other 
minerals
10.8
 WT/TPR/S/219/Rev.1 Trade Policy Review 
Page 12 
 
 
31. Although still small in comparison with copper e xports, Zambia's non-traditional exports have 
also increased strongly in recent years.  These in clude cotton, sugar, gemstones, horticulture, and 
floriculture.  In 2004, primary agricultural produc ts accounted for more than a third of such exports, 
while engineering products (mainly copper wire) and floricultural and horticultural products (for 
example, cut flowers) each accounted for 13-14%.  T obacco exports have surged in the last few years 
owing to the influx of commercial farmers from Zimbabwe. Earnings from these products have 
trebled since 2002, to reach  US$924 million in 2007. 
32. Zambia mainly imports investment goods (mach inery and mechanical equipment), mineral 
fuels, food, and vehicles. Imports of petroleum produ cts are large, owing to repeated disruptions in 
domestic production, which has ne cessitated the import of  refined petroleum products rather than 
crude oil, thus adding to the import bill.  
(ii) Direction of merchandise trade  
33. For both exports and imports, the share of African countries declined markedly during the 
period under review (Chart I.2).  South Africa has maintained its position as the main source of 
Zambia's imports, supplying a wide range of goods from mining equipment to maize, processed foods 
and luxury goods.  Imports from neighbouring countri es, particularly Zimbabwe, may be subject to 
some under-reporting. 
34. Zambia's main export markets are copper-consum ing countries, but the official data do not 
reflect this.  Switzerland is listed as accounting fo r over half of exports in 2008, because copper is 
recorded as transiting Switzerland on its way to a fina l destination;  this may be mainly an accounting 
procedure rather than the copper actually making the journey.  China's importance as a destination for 
Zambian exports has increased in recent years.  
(iii) Trade in services 
35. During the review period, services only accounted for about 10% of exports, whereas they 
accounted for nearly 25% of all imports, half of whic h is attributable to freight and insurance.  The 
services account deficit almost doubled between 2006 and 2007 due to the high share of transport 
services in mining investment and exports.  The serv ices account is in structural deficit since the low 
level of services income (mainly from tourism) is dwarfed by services costs (Table I.3).  These consist largely of insurance, and freight and transport (m ostly from South Africa), si nce Zambia is  landlocked 
and over 500 miles from the ocean.  However, in recen t years the growth in service receipts has offset 
that of the debits to keep the deficit roughly constant.   
(5) F
OREIGN DIRECT INVESTMENT  
36. Zambia’s FDI performance is heavily based on the performance of its mining industry, for 
which FDI has been a vital source of capital,  technical inputs, and managerial know-how.  
Historically, FDI inflows and world copper prices ha ve been linked.  The pick-up in FDI since 2003 is 
mainly explained by the recent commodity price boom, which saw copper prices increase five-fold 
during the period under review. According to the African Development Bank19, after stagnating 
between 2004 and 2005, FDI increase d to over US$600 million and then doubled in 2007, most of it 
flowing into the mining sector (Table I.4). 
 
                                                      
19 AfDB/OECD (2008). Zambia WT/TPR/S/219/Rev.1 
 Page 13 
 
 
Chart I.2
Direction of merchandise trade, 2002 and 2008
2002 2008
(a)    Exports (f.o.b.)
Other Africa  
11.7
Africa
38.3
Total:  US$956.3 million Total:  US$4,808.1 million
(b)    Imports (c.i.f.)
Other Asia  
5.2EC27
14.7EC27
9.8
India  4.0Other
3.4
South Africa
44.6
Total:  US$1,102.5 million Total:  US$5,105.7 millionPer cent
Africa
27.7Other 
Asia  
4.6
Middle East  3.3Other
2.2
China  4.4EC27
47.8
Other Asia  
4.7EC27
5.0
Source :  UNSD, Comtrade database.D.R. Congo
8.8Switzerland
50.9
Africa
61.4Africa
68.6Switzerland
6.1D.R. Congo
4.1Other
0.6
Thailand  2.1
Other Africa
6.0South Africa
22.5Egypt
8.0
Zimbabwe
8.8
Zimbabwe
  2.1Asia
5.7
China  6.0
South Africa
9.7
Asia
13.2China  2.6
United Arab 
Emirates  2.7
Kuwait
9.5India  3.8
South Africa
55.3Other
5.1D.R. Congo
5.3
Other Africa
4.5Asia
11.6Asia
12.6Other Africa
4.7
 WT/TPR/S/219/Rev.1 Trade Policy Review 
Page 14 
 
 
Table I.3 
Trade in services, 2003-07 
 2003 2004 2005 2006 2007 
Exports      
Total credit (US$ million) 165 231.8 273.3 228.1 278.6 
 (Per cent) 
Transportation services 25.8 20.8 31.4 37.8 34.5 
Travel 53.2 39.6 36.0 48.2 49.5 
Other services 21.0 39.6 32.6 13.9 16.0 
Communications 2.7 4.4 4.4 5.8 5.3 
Insurance 4.1 4.5 2.9 3.7 3.4 
Financial .. .. .. .. 3.1 
Computer and information .. .. .. 3.5 3.2 
Other business services .. .. 1.1 0.9 1.1 
Government, n.i.e. 14.2 30.7 24.1 .. .. 
Imports  
Total debit (US$ million) -403.4 -447.3 -470.8 -586.9 -913.9 
 (Per cent) 
Transportation services 58.2 51.6 58.0 53.7 45.0 
Travel 12.0 12.3 12.3 11.6 6.1 
Other services 29.7 36.1 29.7 34.7 48.9 
Communications 1.6 1.5 1.4 1.1 0.9 
Construction 9.9 5.2 7.5 14.0 30.9 
Insurance 7.0 7.8 9.3 9.1 8.0 
Financial .. .. 0.6 0.5 0.4 
Computer and information .. .. .. .. 0.4 
Royalties and licence fees 0.1 .. 0.1 0.1 0.1 
Other business services 7.3 15.0 5.5 5.4 5.1 
Government, n.i.e. 3.9 6.6 5.3 4.5 3.1 
.. Not available. 
Source: IMF (2008), Balance of Payments Statistics,  October, Washington D.C. 
Table I.4 
Inward FDI, 2002-07 
(US$ million, unless otherwise indicated) 
 2002 2003 2004 2005 2006 2007 
FDI flows 82 172 364 380 616 1.3 bn 
FDI stocks 2,513 2,685 3,409 3,429 3,780 5,375 
Source:  UNCTAD, World Investment Report 2007 .  Viewed at:  www.unctad.org/wi r;  and Zambian authorities. 
37. Systematic data on FDI inflows by sector, industry or country of origin are not available.20  
On the whole, FDI has been concen trated in the mining sector, both in terms of stocks and flows, 
since the mid 1990s.  It is estimated that the mining sector attracted more than half the FDI inflows 
                                                      
20 The Zambia Investment Centre (ZIC) (now in the ZDA) compiles data on commitments from 
investors who obtain investment licences at ZIC.  Investors in mining projects do not invest through ZIC, but 
instead work with the Ministry of Mines and Minerals Development.  The ZIC data  are therefore incomplete, 
and do not show actual FDI flows or stocks, and should not be considered an accurate measure of investment.  However, these are the only FDI data available in Zambia. Zambia WT/TPR/S/219/Rev.1 
 Page 15 
 
 
during this period, as many large foreign mining companies entered the country for the production 
and exploration of copper and ot her minerals such as cobalt. 
38. The second largest sector for FDI is the ser vices sector, more specifically banking, 
communications, and tourism.21  In recent years, agriculture has b een attracting FDI, directed mainly 
at the production of fruit, flowers, horticultura l products, cotton, maize, tobacco, and sugar. 
(6) OUTLOOK  
39. Mining and, to a lesser extent, construction and services have driven the expansion of GDP 
while the rural economy has stalled. Poverty remains high, especially in rural areas, and the country is 
still heavily dependent on the copper sector.  As  the developed economies and China are major 
consumers of copper products, a slowdown in consumption would create a drop in demand and 
consequent price falls.  A downward trend for copp er prices began in 2008, and if copper prices 
decline strongly for an extended period, Zambia w ill suffer from its dependenc e on copper and lack of 
diversification.  Declining prices would increase investor caution regarding reinvestments or new investments;  the value of exports would fall,  causing the current account deficit to increase and 
thereby exerting downward pressure on the kwacha;  and government finances could be adversely 
affected as tax revenue from the mining sector would decline. 
40. The global economic outlook has deteriorated rapidly since September 2008.  The crisis has 
stalled global economic activity, and recessions in a dvanced economies have led to a significant drop 
in global demand for exports, with severe implicati ons for major export-driven economies, like East 
Asia, and thus for Africa’s primary commodities. This  deterioration in the global environment in 2008 
has adversely affected Zambia’s economic outlook . The drop in the copper price has accentuated 
Zambia’s resource constraints and thus highlighted the crucial importance of structural reforms and 
economic diversification, emphasized by the near-t erm slump in the mining industry. Aside from the 
metal fetching a lower price, production in some smaller or high cost mines has already halted. 
However, the coming on stream of copper from Equinox’s Lumwana mine is expected to boost production by about 30%, which should counter, to so me extent, the depressed price. The softening of 
activity in the mining sector coupled with its direct and indirect impact on the rest of the economy 
largely explains the Government's projection of a slowdown in economic growth to 3.8% in 2009, 
from 5.8% in 2008. 
41. If, however, the global slowdown is relatively short-lived and should strong Chinese demand 
for copper pick up, Zambia’s economic prospects could be favourable, provi ded that macroeconomic 
stability is maintained and progress on structural re forms is made to diversify the economy and reduce 
dependence on natural resources.  Diversification of  the economy will be needed to accelerate growth 
and poverty reduction over the medium to long term, which will require, inter alia :  continued prudent 
macroeconomic management;  ensuring that revenues ge nerated by the copper sector are used to build 
productive infrastructure and to support delivery of  social services;  improved productivity and thus 
competitiveness;  and improved ability of the public sector to channel resources to priority 
programmes in a transparent and accountable manner. 
                                                     
 
21 There are several international banks operating in Zambia, including Barclays, Standard Chartered, 
Stanbic, and Citibank.  FDI in telecommunications serv ices is more recent and concentrated in mobile 
telephony, with licences granted to Te lecel (which was acquire d by MTN in late 2005) and Celtel, which was 
acquired by Kuwait’s MTC Group in 2005.  The tourism industry has also attracted more foreign investors in recent years, especially in the deve lopment of game parks and in site s around the Victoria Falls area.