Zambia - International University of Japan

Country Profile 2006

Zambia This Country Profile is a reference work, analysing the country�s history, politics, infrastructure and economy. It is revised and updated annually. The Economist Intelligence Unit�s Country Reports analyse current trends and provide a two-year forecast.

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ISSN 0269-7300

Symbols for tables �n/a� means not available; �� means not applicable

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Comparative economic indicators, 2005

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Zambia 1

© The Economist Intelligence Unit Limited 2006 www.eiu.com Country Profile 2006

Contents

Zambia

3 Basic data

4 Politics 4 Political background 5 Recent political developments 10 Constitution, institutions and administration 12 Political forces 15 International relations and defence

18 Resources and infrastructure 18 Population 19 Education 20 Health 22 Natural resources and the environment 23 Transport, communications and the Internet 26 Energy provision

28 The economy 28 Economic structure 29 Economic policy 35 Economic performance 37 Regional trends

37 Economic sectors 37 Agriculture 41 Mining and semi-processing 43 Manufacturing 44 Construction 45 Financial services 46 Other services

47 The external sector 47 Trade in goods 49 Invisibles and the current account 49 Capital flows and foreign debt 50 Foreign reserves and the exchange rate

52 Regional overview 52 Membership of organisations

59 Appendices 59 Sources of information 61 Reference tables 61 Population 61 Paid employment by sector 61 Rail and air freight 61 Domestic electricity generation and consumption

2 Zambia


62 Central government finances 62 Money supply 63 Interest rates 63 Gross domestic product 63 Nominal gross domestic product by expenditure 64 Real gross domestic product by expenditure 64 Consumer price inflation 64 Railway freight volume and passenger numbers 64 Area under cultivation for selected crops 65 Copper and cobalt production 65 Stockmarket indicators 65 Index of industrial production 66 Balance of payments 66 Exports 66 Non-metal exports 67 Main trading partners 67 Foreign reserves 67 External debt, World Bank series 68 Net official development assistance 68 Exchange rates

Zambia 3


Zambia Basic data

752,612 sq km

11.48m (2004, IMF mid-year estimate)

Population in �000, 2000 (Economist Intelligence Unit estimates based on actual data from the 1990 census and regional growth rates from the 2000 census)

Lusaka (capital) 1,432 Ndola 536 Kabwe 512 Kitwe 373 Chingola 173 Mufulira 156 Luanshya 152 Livingstone 103

Tropical, cool on high plateaux

Hottest month, October, 18-31°C; coldest month, July, 9-23°C (average daily minimum and maximum); driest month, August, 0 mm average rainfall; wettest month, December, 231 mm average rainfall

English (official), Nyanja, Bemba, Tonga, Lozi and other local languages

Metric system

Kwacha (ZK)=100 ngwee. Average exchange rate in 2005: ZK4,464:US$1. Exchange rate on July 20th 2006: ZK3,600:US$1

2 hours ahead of GMT

January 1st (New year), Good Friday, Easter Monday, May 1st (Labour day), May 25th (Africa day), first Monday (Heroes' day) and Tuesday (Unity day) in July, October 24th (Independence day), December 25th-26th (Christmas).

Population

Main towns

Climate

Weather in Lusaka (altitude 1,277 metres)

Measures

Currency

Time

Public holidays

Land area

Languages

4 Zambia


Politics

Zambia is a republic, in which the president, who is elected every five years by universal suffrage, wields considerable power. The largest party in the National Assembly, the legislature, is the Movement for Multiparty Democracy (MMD), which has held power since 1991. It was last re-elected in December 2001, when the party�s candidate at the concurrent presidential election, Levy Mwanawasa, was elected to serve the first of a possible two five-year terms. Mr Mwanawasa has had to work hard to maintain his grip on power as splits have appeared in the MMD, with his rivals seeking to replace him. He faces another challenge from his own ill health�he suffered a stroke in early 2006�but seemingly remains determined to contest the next presidential election, due in the second half of 2006.

Political background

The British explorer, David Livingstone, travelled through Zambia in the mid-19th century, followed by European settlers keen to farm. With the assistance of British troops, the British South Africa Company (BSAC) established control over Zambia, then called Northern Rhodesia, by 1911, and soon appropriated prime agricultural land for white settlers, removing locals to �native reserves� on inferior land. The British Colonial Office took control of Northern Rhodesia in 1924. Shortly afterwards, large-scale copper mining began in Copperbelt province. As urban areas developed and the demand for food rose, settlers appropriated more land and established Zambia�s major commercial farms. Indirect rule was introduced in 1929, requiring chiefs to collect state taxes. After 1945 the chiefs, known as native authorities, acquired additional responsibilities for rural development. Educational opportunities were expanded to meet the demands of the growing local elite, from which was drawn Zambia�s post-war political leadership.

In 1953 Britain federated Northern Rhodesia, Southern Rhodesia (now Zimbabwe) and Nyasaland (now Malawi), but the federation was opposed by independence movements and finally collapsed in 1963. An election in Northern Rhodesia in October 1962 produced a coalition government of Kenneth Kaunda�s United National Independence Party (UNIP) and Harry Nkumbula�s African National Congress (ANC). The coalition fell apart in 1963 and UNIP won an outright victory in the subsequent election. The independent state of Zambia was created on October 24th 1964, and Mr Kaunda was its first president. Multiparty politics was permitted until 1972, when Mr Kaunda instituted a one-party state. Zambia was badly affected by regional instability in the 1970s. In the 1980s Zambia suffered economically for its part in attempts by South Africa�s neighbours to isolate that country�s apartheid regime.

Criticism of Mr Kaunda�s government by business and trade unions intensified in the late 1970s as economic decline set in. There was a coup attempt in 1980 and a series of strikes in 1981, after which several trade union leaders, including the next state president, Frederick Chiluba, were arrested and detained. The

Early years

Independence in 1964

Growing internal dissent and economic decline

Zambia 5


economic situation deteriorated in the 1980s and the government sought IMF assistance. However, IMF policies, including the removal of the maize subsidy, provoked riots. Alarmed, the government restored the subsidy, nationalised milling companies and denounced the Fund. The government broke with the IMF in 1987 and embarked on its own, ultimately unsuccessful, economic recovery programme.

Buoyed by electoral victory in 1988, the government attempted limited economic liberalisation, but a reduction in the maize subsidy led to renewed riots and strikes. Mr Kaunda eventually bowed to popular pressure and lifted the ban on opposition parties in December 1990. An umbrella grouping, the MMD, whose members had little in common other than their opposition to Mr Kaunda�s continued rule, was founded shortly afterwards, and quickly attracted a mass following. The MMD, led by Mr Chiluba, won a landslide victory in the 1991 presidential and legislative elections on a low turnout, judged free and fair by international observers. The MMD government soon distanced itself from its trade union support base and embraced donor-advised structural adjustment policies, including a wide-ranging privatisation pro-gramme.

A new Constitutional Amendment Act of 1996 weakened judicial powers and excluded Mr Kaunda from contesting the presidential election, by stating that anyone running for president had to have been born in Zambia and have Zambian parents (Mr Kaunda�s parents were Malawian). Most opposition parties rejected the new constitution and boycotted the November 1996 general election, with the result that the MMD and Mr Chiluba were re-elected on a low turnout. Following an attempted military coup (lasting only two hours) on October 28th 1997, the government imposed a state of emergency until March 1998. Senior politicians, including Mr Kaunda, were arrested, accused of treason and detained for several months, but were later released. The MMD won local elections in December 1998, again on a low turnout. Mr Kaunda resigned as UNIP president in March 2000.

Recent political developments

Mr Chiluba�s campaign to run for a third term�the constitutional limit is two five-year terms�and his refusal to allow other MMD members to campaign to stand as the party�s candidate in the 2001 presidential election caused major divisions within the party during 2000 and 2001. Despite strong opposition from civil society groups, the MMD formally reappointed Mr Chiluba as party president at a special party convention in April 2001�opponents of the third term within the party were barred from attending the convention. Public opinion remained strongly against a third term, and in May 2001 Mr Chiluba announced that he would not stand for the presidency, while at the same time dismissing the cabinet ministers who were opposed to his third term, including the vice-president, Christon Tembo. Most of the sacked ministers subsequently formed a new party, called the Forum for Democracy and Development (FDD).

Mr Chiluba�s third-term bid splits the MMD

Rebirth of multiparty politics in 1990s

The MMD is re-elected in 1996

6 Zambia


Ignoring the political ambitions of prominent cabinet members, Mr Chiluba picked Patrick Levy Mwanawasa as his successor. A prominent lawyer, Mr Mwanawasa served as vice-president to Mr Chiluba soon after the MMD won its first election in 1991, but resigned in 1994, following allegations he made about corruption in the upper echelons of the party. Mr Mwanawasa won the presidential poll by a narrow margin, and was inaugurated as president in early January 2002. EU monitors termed the poll �unsafe� and alleged that Mr Mwanawasa and the MMD had carried out widespread serious malpractice. Opposition leaders launched a challenge to the result in the Supreme Court in January 2002. After three years of hearings, the Supreme Court endorsed Mr Mwanawasa as the lawfully elected president of Zambia on February 16th 2005. During the 11-hour long judgement, Chief Justice Ernest Sakala said that only six of the 36 allegations of fraud and vote-rigging were partially proved against Mr Mwanawasa. The court therefore dismissed the petition, saying that the evidence was insufficient to nullify the vote as Mr Mwanawasa had been elected on a wider national constituency.

Presidential election results, Dec 2001 Candidate Party Votes % of vote % of registered voters

Levy Mwanawasa MMDa 506,694 28.70 19.50

Anderson Mazoka UPNDb 472,697 26.80 18.20

Christon Tembo FDDc 228,861 13.00 8.80

Tilyenji Kaunda UNIPd 175,898 10.00 6.80

Godfrey Miyanda HPe 140,678 8.00 5.40

Ben Mwila ZRPf 85,472 4.80 3.30

Michael Sata PFg 59,172 3.40 2.30

Nevers Mumba NCCh 38,860 2.20 1.50

Gwendoline Konnie SDPi 10,253 0.60 0.40

Inonge Mbikusita-Lewanika AZj 9,882 0.60 0.40

Yobert Shamapande NLDk 9,481 0.50 0.40

Total � 1,737,948 98.39l 66.72

a Movement for Multiparty Democracy (MMD). b United Party for National Development (UPND). c Forum for Democracy and Development (FDD). d United National Independence Party (UNIP). e Heritage Party (HP). f Zambia Republican Party (ZRP). g Patriotic Front (PF). h National Citizens� Coalition (NCC). i Social Democratic Party (SDP). j Agenda for Zambia (AZ). k National Leadership for Development (NLD). l As given in source.

Source: Electoral Commission of Zambia.

The MMD won more seats than any other party in the parliamentary poll, but initially lacked an overall majority. It was able to achieve this in November 2003 by winning several subsequent by-elections. Campaigning for the by-elections was marred by accusations over the use of state funds and privileges by the MMD, but the opposition contributed to their downfall by fielding several different candidates in each constituency, thereby splitting the potential opposition vote.

MMD wins 2001 presidential and legislative elections

Zambia 7


Distribution of parliamentary seats Dec 2001 election End-Jun 2006 ChangeMovement for Multiparty Democracy 77 85 +8United Party for National Development 49 41 -8United National Independence Party 13 12 -1

Forum for Democracy & Development 12 11 -1Heritage Party 4 2 -2

Patriotic Front 1 2 +1Independent 1 1 �Zambia Republican Party 1 0 -1

Vacant 0 4 +4

Note. The president can appoint up to eight members of parliament (MPs). Mr Mwanawasa has appointed all these from the MMD.

Sources: Electoral Commission of Zambia; Economist Intelligence Unit.

Once in office, Mr Mwanawasa embarked on a wide-ranging and high-profile anti-corruption drive, primarily targeting senior civil servants and politicians of the Chiluba era, including Mr Chiluba himself, who was charged with 264 counts of theft and diversion of state funds. The trial soon ran into problems, with the director of public prosecutions (DPP) removed from office after allegedly meeting one of the accused. A new DPP has attempted to restructure the trials, and on October 11th 2004 Mr Chiluba pleaded not guilty to fresh charges of corruption involving the theft of US$488,000 of public money�a much smaller amount than the millions of dollars that he was originally accused of stealing. Despite the restructuring of the trials, they have continued to drag on and much of the electorate has come to see the ongoing attempts to prosecute Mr Chiluba as little more than a political witch-hunt. Moreover, the slow progress made has left Mr Mwanawasa vulnerable to the charge that by concentrating on high-profile corruption cases he has failed to broaden the corruption fight to junior government officials. Although less dramatic, low-level corruption within the civil service remains endemic, and it is this type of graft that has much more of an impact on people�s everyday lives.

Patronage, state and civil society

Zambian political history has been relatively stable compared with many other states in Sub-Saharan Africa. No government has been overthrown by a coup d�état and in-fighting has been generally played out without recourse to arms, often ending up in the courts, where verdicts are in most cases accepted. Zambian politics is, however, based on patronage: leaders reward supporters with jobs and contracts to retain them and to enhance their own power, the result of which is the systematic use of the public purse for private ends. There is also turmoil every time the government changes, as new patronage networks are established as old ones are dismantled. Beneficiaries of the outgoing patronage networks are reluctant to let go, partly in fear of prosecution, and this seems to have been the reason for Frederick Chiluba�s third-term presidential bid. The public has long grown tired of the political elite looting state assets, and this has contributed to widespread electoral apathy. Patrick Levy Mwanawasa�s ongoing anti-corruption campaign was an attempt to harness public hostility to corruption to his own advantage, but an apparent lack of political will to reform

Mr Chiluba is charged with corruption

8 Zambia


the patronage system means that Mr Mwanawasa�s campaign could well backfire on him.

Mr Mwanawasa attempted to strengthen the position of himself and the MMD by co-opting members of the opposition. He brought numerous opposition politicians into the MMD, offering many of them lucrative positions in the cabinet. The twin aim of this policy appeared to be to make the MMD more representative�therefore widening its appeal to the public�and also to strengthen the MMD by gaining more seats in parliament while at the same time weakening the opposition parties. The policy was initially successful as the public�s perception of the MMD improved while opposition influence in parliament was curtailed. However, the seeds were sown for future problems for Mr Mwanawasa. The appointment of opposition figures ahead of those already in the MMD caused divisions within the president�s party. Also, those politicians joining the MMD often did so out of their desire to increase their political influence, ambitions that would prove a threat to the president.

In mid-March 2005 Nevers Mumba�who had been previously co-opted by Mr Mwanawasa from the National Citizens' Coalition party�announced that he intended to challenge the president for the leadership of the MMD at the party convention, which was scheduled for May. However, Mr Mumba was unable to take part in the contest, as he was promptly sacked from the MMD. Mr Mumba was dismissed for improper conduct and bringing the party�s name into disrepute after he accused Mr Mwanawasa of involvement in graft. Although Mr Mumba did break party rules by going to the media with corruption allegations, his sacking also served to remove a political rival, as well as upholding MMD rules and regulations. The MMD convention was deferred to July so that a tribunal could investigate the allegations of corruption. The tribunal subsequently cleared Mr Mwanawasa of any corruption, saying that Mr Mumba�s accusations were based on hearsay.

Mr Mumba was not to be the only challenger to the president�s position. On July 12th 2005 a former vice-president, Enoch Kavindele, announced his intention to challenge Mr Mwanawasa�s leadership at the MMD convention. Mr Kavindele was eventually defeated by Mr Mwanawasa during the elections at the convention. However, Mr Kavindele claimed that the poll was rigged, an allegation that the MMD hierarchy dismissed. Although poll-rigging is impossible to prove, the list of delegates was altered numerous times in the run-up to the convention, with supporters of Mr Mwanawasa being added and many of those opposed to him removed. Thus, although Mr Mwanawasa won the leadership contest comfortably, the political manoeuvring involved in securing the vote seems to have divided the MMD even further.

With presidential and legislative elections due in the second half of 2006, political tensions have been building. The announcement that on March 30th Mr Mwanawasa had been rushed to the UK for medical treatment after he suffering a minor stroke served to add much confusion to the political scene. The president's illness has raised concerns over the president's ability to run for a second five-year term of office in the presidential election. The seriousness of the stroke has been downplayed by the government, with Mr Mwanawasa

Mr Mwanawasa co-opts the opposition

The president works hard to maintain his grip on power

Mr Mwanawasa suffers a stroke

Zambia 9


himself insisting that he is perfectly capable of continuing to lead the country. However, there remain suspicions that the stroke was actually more serious, which were fuelled by the fact that the president delegated a number of state functions to the vice-president, Lupando Mwape. Nonetheless, Mr Mwanawasa has repeatedly reiterated his intention to contest the election. If he were to stand down, which is regarded as unlikely, an upsurge in in-fighting within the MMD can be expected as members compete for the presidential candidacy of the party. This would in almost any other situation hand the opposition a significant boost; however, they are currently facing their own problems.

The 2006 election hopes of the opposition suffered a major blow following the death of the leader of the United Party for National Development (UPND), Anderson Mazoka, in May. Mr Mazoka died at the age of 63 in a South African hospital after kidney complications. As well as leading the UPND, Zambia's largest opposition party, Mr Mazoka was the favourite to become the presidential candidate for the United Democratic Alliance (UDA), a coalition of the country's three largest opposition parties, of which the UPND is a member. Mr Mazoka had enjoyed a national profile following his narrow defeat to Mr Mwanawasa in the 2001 presidential election, and represented a real threat to the president at the 2006 election. Those standing to replace Mr Mazoka include the UPND vice-president, Sakwiba Sikota, and a wealthy businessman, Hakainde Hichilema. Delegates of the UPND convened in mid-July to elect the new leader, with Mr Hichilema declared the winner later in the month. However, the poll was marred by controversy, with Mr Sikota claiming that vote-buying was widespread. Mr Sikota subsequently left the UPND along with a number of his supporters, and is believed to be in the process of forming a new party.

Important recent events

February 2003

Frederick Chiluba is arrested and charged with corruption and theft. He is later released on bail. Opposition politicians are brought into the cabinet.

November 2003

The Movement for Multiparty Democracy (MMD) secures a parliamentary majority for the first time by winning six out of seven by-elections held over the previous month. Mr Chiluba�s corruption trial begins and goes badly for the government.

February 2004

Public-sector workers hold their first one-day strike for 16 years in protest at the public-sector pay freeze announced in the 2004 budget.

June 2004

The IMF resumes lending under a new three-year US$320m poverty reduction and growth facility (PRGF), triggering financial pledges from other donors.

October 2004

Mr Chiluba pleads not guilty to fresh charges of corruption. However, the amounts of money purportedly stolen are much smaller than previously alleged, leading many Zambians to question the real motives behind the corruption case.

The chief opposition leader dies

10 Zambia


February 2005

After three years of hearings, the Supreme Court dismisses an opposition petition to nullify the results of the 2001 presidential election.

March-July 2005

The president, Levy Mwanawasa, faces down two leadership challenges. He remains in power, but at the cost of deepening the divisions within his party.

March 2006

Mr Mwanawasa suffers a stroke. Despite the president's assurances that he is fit enough to remain in power, doubts remain.

May 2006

Mr Mwanawasa assents to a new Electoral Act Amendment Bill, which does not include contentious issues raised by the opposition and civil society that would level the electoral playing field. The chances of success for the opposition at the 2006 presidential and legislative elections are dealt a further blow when the popular opposition leader, Anderson Mazoka, dies.

July 2006

The United Party for National Development (UPND) begins to disintegrate as the election to choose a new leader ends in acrimony, with a number of party members resigning.

Constitution, institutions and administration

Zambia is a constitutional republic. The current constitution, the third, dates from 1996, and was passed by legislators despite hostility from opposition parties, human rights groups, churches trade unions, the free press, lawyers� associations and others. The new constitution circumscribed the power of the judiciary and increased the powers of the president to remove High Court judges. The presidency is a powerful post, offering great scope for patronage, and the incumbent enjoys wide executive and discretionary powers. Com-petition between politicians for the presidency is intense, and generally eclipses policy differences between parties. The president must seek re-election after five years and can serve only two terms. Since Mr Chiluba�s attempt to run for a third term was defeated in 2001 the two-term rule appears likely to remain.

The 1996 constitution strengthened the formal powers of the unicameral legislature, the 158-seat National Assembly. However, MMD parliamentarians have rarely challenged their government, with the notable exception of their opposition to Mr Chiluba�s third-term bid. For nearly one year after the 2001 election, no party had an overall majority in the National Assembly. However, opposition parties failed to muster sufficient unity to disturb the government�s legislative programme, and the government soon managed to build itself a majority in parliament, thereby neutralising the potential threat the Assembly had briefly posed.

Presidency confers widespread powers

Zambia 11


The president�s office dominates government. Mr Mwanawasa has demon-strated how the powers of appointment it bestows can be used to bolster the incumbent�s position, even when his original mandate and support base is weak. After the president�s office, the Ministry of Finance and National Planning is the most powerful in the government, driving economic policy and relations with donors, although, under Mr Mwanawasa, the president�s office has asserted greater control over this. Policy implementation by line ministries is generally weak because of severe capacity problems, which are exacerbated by the brevity of so many ministerial terms, which make it hard for ministers to master their briefs. The quality of senior civil servants varies between ministries, with the Ministry of Finance and National Planning seen as the most technically competent. However, the large number of HIV/AIDS cases has reduced skill levels throughout government, and hinders skills transfer, reducing the already limited effectiveness of government.

Constitutional review

A constitutional review commission (CRC) appointed by the president, Levy Mwanawasa, began work in August 2003. In early July 2005 the CRC published its interim report and draft constitution. In the draft, the CRC recommended adopting the constitution through a constituent assembly representing a cross-section of Zambians. A constituent assembly is popular with civil society and the opposition as they have little faith that a constitution approved via a parliament that is dominated by the ruling Movement for Multiparty Democracy (MMD) would serve the people rather than the governing politicians. Mr Mwanawasa and the MMD had long held out against the calls for a constituent assembly; they had cited the cost implications, but an ulterior motive appears to have been Mr Mwanawasa's fears that he might not win a second term should a popular new clause on the election of the president be implemented. Many educated Zambians want the next president to be elected through a 50%-plus-one voting system instead of the current first-past-the post or simple-majority system. However, in February 2006 Mr Mwanawasa, backed down and agreed to adopt the new constitution through a constituent assembly in the face of mounting public pressure. As well as representing a triumph for the opposition and civil society groups, Mr Mwanawasa's climb-down could actually be a shrewd move on the part of the president. His move will appeal to voters, who will credit him with listening to their requests, but it will also buy him some time to delay the constitution's implementation until after the presidential and legislative elections due in the second half of 2006. Mr Mwanawasa said that the government would facilitate the creation of a constituent assembly through amendments to the current constitution, but warned that no shortcuts would be taken. In addition, a referendum will have to be conducted to ask Zambians formally how they want a new constitution to be adopted, and this will be a relatively lengthy process. Mr Mwanawasa's determination to follow correct procedure in adopting the new constitution should go some way towards avoiding the controversy that has surrounded previous constitutions, and the opposition and civil society will therefore find it difficult to argue against his thorough approach. However, it also means that a new constitution will not be in place in time for the next elections, thus vastly improving

President�s office and Ministry of Finance lead government

12 Zambia


Mr Mwanawasa's chances of securing a second and final term in office under the existing voting system.

Despite some questionable judgements in high-profile political cases, the spirited judiciary has managed to preserve its independence from the executive and legislature. The strength and independence of the justice system is being seriously tested by the trial of Mr Chiluba. In dismissing the DPP after what from the government�s perspective was a bad start to the trial, Mr Mwanawasa went beyond what is allowed by the constitution. Although a legal tribunal recommended the DPP�s reinstatement, relations with Mr Mwanawasa had deteriorated to the point where this was not possible, so the DPP was retired with full benefits. Further pressure may be exerted on judicial independence if the government becomes concerned that it will fail to secure a conviction against Mr Chiluba. There are also doubts that the judicial system can properly handle the substantial, politically sensitive caseload.

Since 1996 Zambia has officially adopted Christianity as the state religion. Although most Zambians are Christian, there are also substantial Muslim and animist minorities. Nonetheless, church-based groups wield some authority and much of the population appears to trust their advice rather than that of the politicians. However, the involvement of church leaders in politics is growing�Mr Mumba, the former vice-president and presidential aspirant, is a Pentecostal pastor�which may diminish this trust in the long term.

Political forces

The MMD was created in December 1990 as a loose alliance united around the aim of ousting the then president, Kenneth Kaunda, and UNIP, and more broadly of modernising domestic politics. Members espousing a neo-liberal economic agenda gained control of the MMD shortly before the 1991 election and consolidated their position once the party was in power. For over a decade, the MMD remained neo-liberal in outlook, but the ardour of its faith has waned considerably in recent years; Mr Mwanawasa espouses old-fashioned state intervention and central planning. Particularly during the final years of Mr Chiluba�s rule, the distinction between the state, the party and senior MMD members became increasingly blurred, making it hard to discern any clear ideology in much of government policy and leading to increasingly endemic corruption.

Like most other Zambian parties, the MMD is not overtly ethnically based, but ethnicity does play a role. Mr Chiluba is a Bemba, and Bemba people (from Copperbelt, Luapula and Northern provinces) have been influential in the MMD in the past. This influence is resented by other ethnic groups, particularly from the south, and was a factor in their vote for opposition parties in the 2001 elections. Mr Mwanawasa grew up in the Copperbelt�his father is a Lamba from this region and his mother is a Lenje from the central province. Bemba influence in the MMD has waned since he came to power, and the ethnic groups that make up the Tonga tribe, including the Lenje, are becoming increasingly powerful. Ethnic balances within the party swing because the

The MMD is the dominant party

The judiciary is mostly independent

Zambia is officially Christian

Zambia 13


president tends to appoint people from his ethnic group to strategic government positions.

Last five election results

Year Winning party

2001 MMD

1996 MMD

1991 MMD

1988 UNIP a

1983 UNIP a

a Sole party.

Source: Economist Intelligence Unit.

In recent times, a number of Mr Mwanawasa�s actions have widened divisions in the party. In particular, supporters of Mr Chiluba have been alienated by the anti-corruption campaign, while many of the party rank and file are annoyed at being deprived of access to patronage following a clampdown by Mr Mwanawasa for the purposes of saving the party, and the state, money. Some party members are also aggrieved about the number of opposition politicians that the president has appointed to the cabinet. The political manoeuvring of Mr Mwanawasa as he attempts to maintain his grip on power has further alienated some members.

In recent years there have been upwards of 30 registered parties in Zambia, and their fragmented nature has played into the hands of the MMD, as they split the opposition vote at elections. This was evident in the 2001, polls when opposition parties won over 50% of the parliamentary seats and opposition presidential candidates received around 70% of the votes cast. With an eye on the approaching 2006 elections, many prominent opposition members of parliament have recognised that this fragmentation will severely reduce their chances of coming to power, leading to much political manoeuvring within the opposition during late 2005 and into 2006. On March 1st 2006 Zambia's three largest opposition parties agreed to field a single presidential candidate, in what represented the most potent threat to Mr Mwanawasa's re-election. The United Party for National Development (UPND), the Forum for Democracy and Development (FDD) and the United National Independence Party (UNIP) agreed to come together under the banner of the United Democratic Alliance (UDA), and said that they intended to pick their presidential candidate at a joint congress later in the year.

Opposition alliances have featured before in Zambian politics, but no major coalition has ever survived long enough to contest elections. The problem remains that few, if any, opposition leaders are willing to stand down in order to support another opposition candidate, owing to the personalities involved and the widespread ambition to ascend to the powerful position of president. It did look as though things would be different for the UDA, with the leader of the UPND (the largest of the coalition members), Anderson Mazoka, being the clear favourite to become the presidential candidate. Mr Mazoka was a close runner-up to Mr Mwanawasa in the 2001 presidential election and enjoyed a

Divisions threaten the MMD hegemony

Opposition coalitions form ahead of the 2006 elections

The death of Anderson Mazoka threatens the UDA

14 Zambia


national profile, something that the other members of the UDA lacked. However, in May 2006 Mr Mazoka died in a South African hospital following kidney complications. This has thrown the UPND and UDA into confusion, with the battle to succeed Mr Mazoka ending in acrimony and numerous members leaving the party. The UPND, and consequently the UDA, have been severely weakened as a result.

Parliament�s failure to effectively hold the MMD to account has contributed to the growth in civil society groups. The largest of these is the Oasis Forum, which is comprised of leading civil society organisations, church groups and the Law Association of Zambia, and was instrumental in the failure of Mr Chiluba�s third-term bid. The authorities attempted to ban the Oasis Forum in June 2004 for operating without registration, something that the heads of the forum, and many other Zambians, saw as a deliberate attempt by the govern-ment to silence one of its largest critics. The stand-off eventually resulted in the government backing down, as the forum and other civil society organisations mobilised much public support.

Main political figures

Levy Mwanawasa

Inaugurated as president in January 2002 following a flawed poll that left him with the weakest mandate ever received by a Zambian head of state. Mr Mwanawasa has attempted to bolster his position since taking office by spearheading an anti-corruption campaign that has pitted him against Frederick Chiluba (who chose him as the presidential candidate of the Movement for Multiparty Democracy, MMD) and co-opting members from opposition parties. Although initially successful in gaining him support, his actions have alienated many within the party, threatening his continued leadership. Ill-health in the first half of 2006 has raised questions over his ability to contest the 2006 elections, but the president remains adamant that he is healthy enough.

Frederick Chiluba

Zambia�s president from 1991 to 2001, he failed to secure the constitutional change required to allow him to stand for the presidency a third time. A former trade union leader, he came to power amid great expectations, but left it with a poor record. During his term in office Mr Chiluba became one of the richest people in Zambia, and is now on trial for a number of offences of theft by a public servant. The legal process has dragged on for several years, and it will be difficult to produce a paper trail that proves the former president�s guilt. He retains considerable popularity among some of the Bemba ethnic group.

Ng'andu Magande

Appointed finance minister in July 2003, Mr Magande is a technocrat who has never before held political office. He worked previously as the secretary-general of the African, Caribbean and Pacific (ACP) group of states, leaving him with solid connections throughout the developing world and the donor community. Since assuming office, Mr Magande has said that he is opposed to further privatisation, and has hinted at increased economic intervention to enable the state to resume a �leading role� in the economy. His actions, such as the public-sector pay freeze in

Civil society groups have a growing role

Zambia 15


2004, indicate that, despite this populist rhetoric, he is aware of the importance of keeping donors happy.

Godfrey Miyanda

A former army general and Zambian vice-president, Mr Miyanda has emerged as an unblemished politician with a respectable track record, and leads the opposition Heritage Party (HP). He has a reputation of being a firm believer in good and clean political governance. This has earned him great respect among Zambians, and he is now being seen as a credible prospect in the 2006 presidential election.

Michael Sata

Leader of the Patriotic Front (PF) and a former minister without portfolio in Mr Chiluba�s last government. Mr Sata was influential in the expulsions of his cabinet colleagues who were opposed to a Chiluba third term, but resigned from the MMD to form the PF after Mr Chiluba ignored him and appointed Mr Mwanawasa as his successor. The PF has only two seats in parliament but is influential outside the National Assembly, where Mr Sata's populist politics are increasing his profile, and his rallies have attracted big crowds.

Nevers Mumba

Mr Mumba was expelled from the MMD after he accused Mr Mwanawasa of graft. Although his Reform Party currently has no seats in the National Assembly, he enjoys significant backing from many within his influential Bemba ethnic group. Although not expected to pose a major challenge in the 2006 presidential election, Mr Mumba could cause an upset if large numbers of the Bemba ethnic group turn away from the MMD.

Vernon Mwaanga

Mr Mwaanga is the information and broadcasting minister, and is an influential figure who helped Mr Mwanawasa plan and execute his successful 2001 election campaign. A trained diplomat, Mr Mwaanga is seen as a political manipulator who keeps the MMD intact whenever it is in trouble. However, in what was seen as a shift in the leadership power base to younger members of the party, Mr Mwaanga lost his position as MMD national secretary at the party's 2005 convention, and his power within the party may be waning.

Fred M�membe

Editor of the influential privately owned daily newspaper, The Post. Mr M�membe has played a key role in exposing corruption in Zambia since the The Post began publication in 1991, and it remains the most credible newspaper in the country.

International relations and defence

South Africa�s ruling party, the African National Congress (ANC), is an old ally of Mr Kaunda and has not shown any affection for the MMD. The South African government is, however, relieved that Mr Chiluba is no longer president and relations between Mr Mwanawasa and the South African president, Thabo Mbeki, are cordial, though hardly warm. The two have been consulting on the peace process in the Democratic Republic of Congo (DRC) and Mr Mwanawasa has expressed support for the New Partnership for Africa�s Development (Nepad), co-led by Mr Mbeki. The substantial trade imbalance between Zambia

South Africa is relieved at Mr Chiluba�s departure

16 Zambia


and South Africa is a permanent strain on relations. However, the ratification in 2001 of a trade protocol between the Southern African Development Community (SADC) and the Southern African Customs Union (SACU), guaranteeing Zambian producers access to the South African market, should ease tensions in the medium term.

The end of the civil war in Angola in April 2002 benefited the whole region, not least Zambia, which then had over 200,000 Angolan refugees (many of whom have now returned home). However, Zambia still hosts DRC refugees and endures constant incursions by DRC militia to scavenge for food or commit armed robbery, but the government managed to stay neutral in the war and at no time deployed troops in the country, bucking the regional trend.

Outside of the region, international relations revolve largely around aid and debt. The country is heavily aid-dependent, meaning that relations with donor governments and multilateral agencies are of constant significance. Donor conditions for aid were essentially economic in the 1980s and 1990s, but to these were added a variety of governance criteria following the completion of the privatisation of ZCCM in March 2000. The IMF and bilateral donors suspended much of the budgetary support scheduled for 2003 in protest at the government�s fiscal laxity. Although lending resumed in mid-2004, donors will be vigilant as far as governance issues are concerned. There was strong support for Mr Mwanawasa�s anti-corruption drive, but donors are becoming increas-ingly wary at the lack of progress.

Zambia maintains smaller armed forces than its neighbours. In 2005 the UK-based International Institute for Strategic Studies estimated the Zambian army at 16,500, with another 1,600 in the air force. Paramilitary forces numbered 1,400 and comprised a 700-strong police unit as well as a police paramilitary unit. Zambian peacekeeping troops acquitted themselves well in Rwanda in 1994-95, but were at times overwhelmed in Sierra Leone, where several hundred were kidnapped in April 2000 for two months by Revolutionary United Front rebels.

Military forces, 2005 Army 16,500Air force 1,600

Total 18,100Paramilitary 1,400

Source: International Institute for Strategic Studies, The Military Balance 2005/2006.

Security risk in Zambia

Armed conflict

The risk of armed conflict is low, particularly in comparison with neighbouring states. Zambia is a much safer place to do business than the Democratic Republic of Congo (DRC), Angola or Zimbabwe, but is similar to Malawi, Mozambique and Namibia.

The presence of refugees has caused diplomatic tensions

Zambia�s armed forces are small

Donors have concerns over governance

Zambia 17


Unrest and demonstrations

Zambia�s politics are sufficiently pluralistic for there not to have been much call or support for internal armed opposition. Zambia has experienced a few coup d�état attempts by disaffected soldiers, but none have come anywhere near seizing power. Political mobilisation tends to require financial or other inducements and at most political rallies there is a �rent-a-crowd� element. These groups can also be deployed to rough up their opponents or stage noisy and intimidating demonstrations from time to time, particularly in the capital, Lusaka, but these are not generally deployed against foreign-owned businesses. Workers� grievances and protests against specific companies occasionally turn violent.

Violent crime

Unemployment and poverty are entrenched and state capacity to fight low-level crime is weak. Private security companies, many of which are of South African origin, are growing. Personal day-to-day security is still generally good, and except occasionally during periods of political unrest (such as the run-up to national elections) and outside traditional danger zones, such as taxi ranks, Lusaka and other towns are generally safe during the day. Caution at night is advised when in any urban area. The police chief, Ephraim Mateyo, initiated a crackdown on violent crime in 2005, with a number of notorious criminals subsequently arrested or killed. However, Mr Mateyo was forced to disband a crack anti-robbery squad at the biggest police station in Lusaka, after evidence surfaced that some policemen were con-niving with criminals to rob residents. Some policemen were subsequently arrested and charged with aggravated robbery, although corruption persists. An amnesty for people who were holding military firearms�many of which had entered Zambia during the periods of war in Angola and DRC�has also had a favourable impact on violent crime, although the exercise was suspended after police ran out of funds to compensate people who were turning in guns.

Organised crime and kidnapping

Organised crime does operate in the country, often as part of a regional network. Hijacked South African cars, for example, are regularly brought to Lusaka for sale or to be broken up for spare parts. Money-laundering is also prevalent, although the implementation of tough anti-money-laundering rules by the Bank of Zambia (the central bank) has had an impact. The president, Levy Mwanawasa, supports the tough stance on international terrorism of the US president, George W Bush, and has publicly pledged to enact laws that will make it difficult for people involved in clandestine activities to operate in Zambia. Kidnapping is rare, and few businesses say that organised crime is a major problem. Instead, businesses stress that their main concerns are corruption and embezzlement, primarily from within companies.

18 Zambia


Resources and infrastructure

Population

The 2000 census put the total population at 9.89m. Domestic and international estimates of the population more recently are sparse and often inconsistent. The IMF and the World Bank estimate of a total population of 11.48m for 2004 appears the most plausible, given what is known about population growth rates. Annual population growth averaged 2.9% during the 1990s, compared with 3.1% in the 1980s, and the growth rate has continued to decline more recently. The main reason for the falling population growth rate is the effect of HIV/AIDS, which is expected to reduce annual population growth to 2% by 2010. Annual population growth in the Copperbelt during the 1990s was just 0.8% owing to migration to other areas as a result of the economic crisis in the province. Population growth in Lusaka over the same period was much higher, averaging 3.5% a year, reflecting the city�s continued attraction, despite its chronic jobs shortage. Urbanisation is a growing problem in Zambia (as is the case in most less-developed countries): rural-to-urban migrants create pressure on employment structures, housing needs and security.

The population is young and getting younger. Some 45% is aged under 15 years and this segment continues to show a greater annual percentage increase than any other. The Copperbelt is Zambia�s most urbanised and populous province, followed by Lusaka. Around 62% of Zambians live in rural areas.

About one-half of the population is in some form of employment. Income distribution is highly skewed, with the majority earning very little while a minority makes a comfortable living. Subsistence agriculture is the biggest single employer, but data for this category are scarce and unreliable. However, it is estimated that around 2m people are subsistence farmers. Informal trading is believed to employ over 1m, but is under-represented in official statistics.

Population distribution (% of total)

Area 1980 1990 2000Central 9.0 9.9 10.2

Copperbelt 22.1 18.8 16.0Eastern 11.5 12.9 13.2

Luapula 7.4 7.3 7.8Lusaka 12.2 12.8 14.1Northern 11.9 11.9 12.7

North Western 5.4 5.6 5.9Southern 11.9 12.4 12.3

Western 8.6 8.2 7.7Total 100.0 100.0 100.0

Source: CSO.

Zambia has more than 70 ethnic groups, of which the largest and politically most influential is the Bemba from the Northern, Copperbelt and Luapula pro-vinces, comprising 18% of the population. Bemba support for the Movement for

HIV/AIDS reduces population growth rate

Subsistence agriculture is the main employer

Different ethnic groups vote for different political parties

Zambia 19


Multiparty Democracy (MMD) was solid in the early 1990s, but has fragmented considerably over the past few years, owing to the different ethnic background of the president, Levy Mwanawasa. Around 10% of the population are Tonga people from the Southern province, who are strong supporters of the United Party for National Development (UPND). The Nyanja from the Eastern province, who are also numerous in Lusaka, mostly support the United National Independence Party (UNIP). The Lozi from the Western province are the only group to show strong support for secession from the country (to join their fellow Lozi members in Namibia�s Caprivi strip, which, together with Zambia�s Western province, formed the majority of the old kingdom of Barotseland).

Education

Recent poverty assessment surveys show a consensus among education users that during the 1990s access to education and its perceived value deteriorated. The trends are mixed regarding quality. Almost every child of primary school age attended school in the mid-1980s. User fees were introduced in the 1990s to generate funds to improve quality, but households have increasingly removed children from school as a poverty-coping strategy and attendance fell. In 2002 the government introduced a free basic education policy, supported by the con-struction of more schools, which led to an upturn in primary school enrolment.

In 2005 the government continued to implement the free basic education policy, as well as increasing intervention to remove barriers to education for orphans and vulnerable children. According to Treasury data, pupil enrolment at basic level (grade 1-9, ages 7-15) rose by 13.1% compared with 2004. Male enrolments accounted for 51.2% of total basic school enrolments. Basic-level school enrolment is now approaching 100%. However, the national average completion rate in 2005 was just 42.7%, compared with 38.5% in 2004, indicating that problems still exist. Enrolments at high-school level rose by 5.9% in 2005 from 158,238 in 2004. The increase was partly owing to an expansion in the number of high schools to 322, from 319 in 2004. Access to high schools is still limited, as the gross enrolment ratio was just 21.7% in 2005. The gross enrolment ratio for girls was lower, at 19.4%, compared with that for boys, at 24.1%.

Enrolment at basic school level 2003 2004 2005 % change, year on yeara

Female 1,101,949 1,218,611 1,390,028 14.1

Male 1,184,666 1,300,530 1,458,329 12.1Total 2,286,615 2,519,141 2,848,357 13.1

a 2005 compared with 2004.

Source: Ministry of Education

The number of teachers at basic school level fell by 7.4% in 2005 from 45,761 in 2004. The Ministry of Education has estimated the national basic school requirement for teachers at 48,357, which implies a shortfall of 5,595. The national pupil-teacher ratio in basic schools was 55.3 in 2005, up from 52.6 in 2004, against a national recommended ratio of 45. The northern province had the highest pupil-teacher ratio of 70.8, whereas the capital, Lusaka, had the lowest ratio, at 42.8. Teacher numbers are falling owing to the incidence of

Educational access has improved in recent years

Efforts are made to increase teacher numbers

20 Zambia


HIV/AIDS and the lure of better-paid jobs abroad. Teacher morale is also a problem. Salaries have not kept pace with inflation and are lower in real terms than a decade ago. A lack of skills transfer through the school system is also of significant concern.

In an attempt to remedy the deficit of teachers, the government has stated that it intends to employ 7,000 additional teachers in 2006, plans that were initially mooted in 2005 but which were not implemented. The government is funding the process from the monies saved from debt relief, although doubts remain as whether enough teachers can actually be found in Zambia. To attract and retain more teachers the government intends to improve their conditions of service, particularly those working in rural areas where teacher retention is a major problem. Progress is slowly being made, with the share of the budget going towards education increasing in recent years. According to IMF and government data, the share of education in the discretionary budget rose to 26.9% in 2006 from 18.5% in 1999.

Zambia has two universities, the University of Zambia (UNZA) in Lusaka and the Copperbelt University (CBU) in Kitwe. According to the education ministry, total enrolment at the two public universities increased by 14.7% to 12,900 in 2005 from 11,245 in 2004. Enrolment at UNZA rose by 13.4%, while enrolment at the CBU rose by 18.2%. UNZA accounted for 71.7% of total enrolments in 2005, and the CBU accounted for 28.3%. To some extent this reflects the success of a government loan scheme, introduced in 2004. Under this scheme, students obtain loans from the government to pay for their tuition and upkeep at the universities. Nevertheless, the two universities continue to face staffing problems and heavy indebtedness to utility firms and other suppliers of goods and services. In 2005 the government released ZK4.9bn (US$1.1m) to UNZA and ZK2.3bn to the CBU for rehabilitation works, but the funds fell short of the requirements for improving infrastructure at the two institutions.

The emphasis at university level remains on the arts and social sciences, with fewer than 40% of graduates studying technical, scientific, medical, agricultural or managerial subjects. However, away from the universities, the Technical, Vocational and Entrepreneurship Training (TEVET) institutions continued to experience growth in 2005, in terms both of the number of institutions and of the level of enrolment. The number of institutions providing technical and vocational training rose to 319 in 2005, from 315 in 2004. Total enrolment in these institutions rose by 5.4% to 27,986 in 2005.

Health

Health provision is faced with a double crisis of declining resources and a growing disease burden, particularly because of HIV/AIDS (although malaria is still the main killer). Key health indicators, including life expectancy, are falling owing to poor nutrition and infant mortality, both of which are worse today than a decade ago. Average life expectancy rose from 40 years in 1964 to 54 in the mid-1980s, but has since declined to an estimated 37.5 years in 2003. The UN Development Programme�s Human Development Report 2005 ranks Zambia 166th out of 177 countries in its Human Development Index (HDI), placing it

Higher-education enrolment grows

Key health indicators are worsening

Zambia 21


between Malawi and the Democratic Republic of Congo. Zambia�s HDI score has declined since 1985, and is now 16% lower than in 1975.

The government has made better healthcare a priority in recent budgets, with large planned spending increases in 2006. In June 2006 the government announced plans to spend ZK651bn on recruitment of new doctors and also to lure back home nearly 300 doctors who are working in developed countries. Currently in Zambia, of the 2,300 doctors required only 646 are available, and of the 16,732 nurses needed only 6,096 are working domestically. In addition to raising the numbers of medical personnel, the government also scrapped user fees in rural clinics in April 2006. The ending of the fees is one of the first benefits to flow from debt relief granted to Zambia under the multilateral debt relief initiative, initiated by the G8 group of industrialised nations.

According to the IMF, procedures and mechanisms for the procurement of drugs have been tightened to improve accountability and transparency. Scandals have in the past affected the procurement of drugs, with millions of US dollars in Treasury funds often diverted to other purposes or squandered by some senior officials. Zambian authorities agreed with donors in 2004 that the Central Board of Health would be in charge of all procurement of medical drugs, and that the company�in which the government has a major interest�should provide quarterly procurement reports to enable the tracking of drug purchases.

To assist in the fight against HIV/AIDS, anti-retroviral drugs (ARVs) began to be provided free from 2005. This raised the number of people on ARVs to nearly 40,000 in early 2006, but the government still failed to attain its target of 100,000 by December 2005. The problems are more to do with the stigma attached to the illness than to problems with availability of medicine. The government is utilising debt relief savings to provide the free drugs, as well as large grants from the World Bank, the UN and the US government.

HIV infection may have peaked

In common with neighbouring states, the Zambian population suffers from high levels of HIV infection. The impact on the economy has been severe: workers� absen-teeism rates have increased, and skills are not being passed on from one generation to another. The latest estimate from the Joint UN Programme on HIV/AIDS (UNAIDS) is that 17% of adults aged 15-49 are HIV-positive (this is broadly in line with the government�s estimate), down from 21.5% in 2001. The decline is the result of a number of factors, including a government public awareness campaign, which coincided with the launch of a national council and secretariat to co-ordinate the fight against AIDS in November 2002. The provision and expansion of community-based care has also been an important factor. However, the decline in prevalence is also a reflection of the death rate among the HIV population.

Free anti-retroviral therapy is now available

The government is attempting to improve things

22 Zambia


HIV/AIDS infection levels, 2005 (% of adult population infecteda)

Ghana 2.3

Nigeria 3.9Uganda 6.7

Malawi 14.1Zambia 17.0South Africa 18.8

Zimbabwe 20.1Botswana 24.1

Swaziland 33.4

a 15-49 age group.

Source: UNAIDS, 2006 Report on the Global AIDS Epidemic.

Natural resources and the environment

Zambia is part of the southern central African plateau and lies between 1,000 metres and 1,500 metres above sea level. The plateau is mostly grassland, becoming semi-arid in the west and swampy in the north-east and is interrupted by the fertile valleys of Zambia�s three main rivers, the Zambezi, the Kafue and the Luangwa.

The country is known for its high-quality copper (and cobalt) reserves. Since the early 1920s copper has been mined commercially. Alongside base metals, artisans have mined precious and semi-precious gems (emeralds, amethyst, aquamarine and tourmaline among others) in around 400 operations, generating around US$200m per year. Maamba colliery, which the government has put up for sale, produced 92,000 tonnes of coal in 2003, well below potential capacity�it has reserves of around 60m tonnes. Aluminium, barium, calcium, chromium, manganese, nickel, uranium and zinc are some of the other minerals that have been discovered, following a joint mineral-mapping project by the British Geological Survey and Geological Survey of Zambia, which was completed in 2001.

Almost one-half of the country is covered by bush and forest, which contain few commercially exploitable species. Less than 50% of potential arable land is cultivated, mostly with maize. Rainfall is erratic, but the basic pattern is a cool, dry period from April to August, followed by hot weather during September and October and a rainy season lasting from November until March. Zambia is prone to drought, which can have a devastating impact on harvests, as was the case in much of 2005. This is despite the fact that the country accounts for around 40% of Southern Africa�s water reserves, which have substantial potential for hydroelectric power generation and could, with a large (possibly unviable) amount of investment, be diverted to dry agricultural areas. The country is also prone, although less frequently, to floods

Zambia is on the southern central African plateau

Mineral resources are abundant, led by copper

Zambia is prone to drought

Zambia 23


Transport, communications and the Internet

Transport costs are high, partly because Zambia is land-locked, but also because of inefficiencies and structural weaknesses in the transport network. Transport costs are estimated to account for 60-70% of the cost of production for many goods. This is higher than the regional average and damages the competitive-ness of exports. Government policy is to reverse the trend of the decay of transport infrastructure, particularly for roads, and the government intends to direct substantial funds to this end. The government�s policy of extending private-sector involvement to the rail network is already far advanced and is set to continue.

Beira in Mozambique is the nearest major port to Zambia and is linked by rail to Lusaka via Harare, the capital of Zimbabwe. Further away, but far better equipped and also accessible by rail, is Durban in South Africa. Zambia uses Mpulungu port on Lake Tanganyika to export to the Great Lakes region, although the volumes are not substantial owing to weak demand. Mpulungu is in a poor state and is not connected to Zambia�s rail network, but is in the process of rehabilitation. The Tanzania Zambia Railway (Tazara) is the main route for the transportation of Zambia�s copper cathode to Europe, China and the US via the port of Dar es Salaam, but has recently been losing market share to Beira and Durban. The decline in trade through Dar es Salaam has put pressure on Tazara (1,860 km of track), which was built in 1975 with Chinese assistance. Tazara is a classic parastatal, where overstaffing, weak management and poor wages have long kept industrial relations combative and service delivery poor. A private-sector participation options study was concluded in 2005 for the management of Tazara. The outright privatisation of Tazara and the formation of a joint venture between the private sector and the government were among options recommended, but the process on either front is expected to be slow.

A 20-year concession to manage Zambia Railways (with 685 miles of track) was signed in February 2003 by a consortium of two South African companies, New Limpopo Bridge Projects Investments (NLPI) and Spoornet. However, the government has recently recommended a comprehensive review of the management concession, following regular complaints raised against the concessionaire regarding poor service and lack of improvement.

The government awarded a private company, Northwest Railways, tax rebates totalling US$35m in May 2006 in a bid to speed up implementation of the rail link between Zambia and Angola, which is key to ensuring faster access to world markets for Zambia�s copper. Northwest Railways was exempted from paying customs duty on imported equipment. The project envisages a 685-km railway line running north-west from Zambia�s mining hub in the Copperbelt province to join Angola�s Benguela railway. The railway line will be constructed in three phases:

• it will initially connect the Copperbelt town of Chingola to Solwezi in the North-Western province;

Transport costs are too high

Exports are sent via ports in neighbouring countries

South Africans manage Zambia Railways

A rail link to Angola is planned

24 Zambia


• during phase two, the line will be extended to a new mine at Lumwana in the North-Western province; and

• the final phase will connect the line to Angola�s Benguela railway, itself expected to undergo refurbishment.

The chairman of Northwest Railways, Enoch Kavindele, said that discussions had made progress with the Development Bank of Southern Africa (DBSA) and the Industrial Development Corporation (IDC), which were keen to finance the project. Construction work was expected to commence once the Environ-mental Council of Zambia (ECZ) had approved an environmental impact assessment plan.

Zambia has an estimated 23,000 miles of roads, of which about 4,100 miles are tarred. The road network is in a dire state. In 1998 the National Roads Board (NRB) launched a US$1bn investment programme for the road sector, to run for ten years. The first phase closed at the end of 2002. Expenditure on the road network has risen as a result of the programme. However, there has been considerable underspend because of a shortage of funds. In addition, in some cases money earmarked for road maintenance and upgrading has been embezzled. However, according to government figures the NRB targets for end-2002�when 45% of tarred roads and 15% of feeder roads were supposed to be in good condition�were attained.

The government is now focusing on institutional reforms. The Roads Development Agency (RDA), the National Road Fund Agency (NRFA) and the Road Safety Agency (RTSA), which were created in 2004, all became operational in 2005. The government also commenced the process of working on a new partnership policy that will allow the private sector to be involved in construction, rehabilitation and maintenance of infrastructure in collaboration with the public sector.

Zambia has fully privatised its air services, following the liquidation of the loss-making Zambia Airways in 1994. There are at least 17 private airlines, but Zambian Airways, formed in 1999, has become the de facto national carrier, although it only operates within the region. A variety of African airlines fly to Lusaka, but only British Airways and South African Airways operate inter-continental flights. There is little practical competition and airfares in and out of Zambia are expensive. There are 144 airports or aerodromes in Zambia. The National Airports Corporation manages the four international airports: Lusaka, Livingstone, Ndola and Mfuwe. Flight services have increased in recent years, particularly through Ndola, reflecting the revival in copper mining.

Embezzlement compromises road investments

Zambian Airways operates international routes

Zambia 25


Aircraft movements (take-offs and landings; no. unless otherwise indicated)

2004 2005

Airport DomesticInter-

national Total Domestic Inter-

national TotalTotal

(% change)Lusaka 13,014 8,453 21,467 13,530 7,783 21,313 -0.7Ndola 3,042 2,673 5,715 3,601 2,331 5,932 3.8

Livingstone 1,857 4,294 6,151 2,252 4,643 6,895 12.1Mfuwe 2,753 840 3,593 3,235 969 4,204 17

Total 20,666 16,260 36,926 22,618 15,726 38,344 3.8

Source: National Airports Corporation.

The mobile-phone sector in Zambia has boomed in recent years, with competition between the three providers�the state-owned Cell Z, and privately owned MTN-Zambia and Celtel�resulting in major improvements in coverage and quality together with significantly lower prices. All operators have intensified efforts to cover rural areas, and nearly all nine provinces can now be reached by mobile phones on one of the networks. The active mobile-phone subscriber base on all networks rose by 114.5% to 1,080,256 in 2005. The largest mobile operator, Celtel, recorded the highest growth, at 159.4%, lifting its subscriber base to 700,438. Its market share consequently grew from 53.6% in 2004 to 72% in 2005. The subscriber base of MTN-Zambia (formerly Telecel) grew by 129% to 190,050, while Cell Z expanded its subscriber base by 61% to 96,593. The number of fixed-line telephones also rose, but at the much slower rate of 2.8%, to 93,175. This slow growth was attributed to stiff competition from mobile service providers. Meanwhile, the total national Internet subscriber base grew by 33.7% to 16,518 in 2005. The Communications Authority estimated the number of Internet users at 20 times more than the number of subscribers, owing to the growing prevalence of Internet cafés.

Subscriber base for telephone service providers, 2003-05 Service provider Type of service 2003 2004 2005 % changea

Zamtel Fixed line 88,561 90,663 93,175 2.8Cell Z Mobile 55,000 60,000 96,593 61.0

MTN-Zambia Mobile 45,151 83,000 190,050 129.0Celtel Mobile 91,000 270,000 700,438 159.4Total 279,712 503,663 1,080,256 114.5

a 2005 compared with 2004.

Source: Communications Authority of Zambia.

Zambia has one state-owned television and radio station, run by the Zambia National Broadcasting Corporation (ZNBC). A new privately-owned television station, Muvi TV, was given an operating licence in 2004 and is currently improving its network and programming, which has seen it emerge as a big threat to the ZNBC, which had previously enjoyed a monopoly on domestic television broadcasting. There has been a boom in radio stations following the liberalisation of airwaves in 2002 and several radio stations have begun operations, including Radio Phoenix, Choice FM Radio, Five FM, QFM Radio and Yatsani Radio�all apart from Radio Phoenix operate only in Lusaka. There are numerous community radio stations that operate in rural regions. The

The private media defend their independence

Most of the country is covered by the mobile network

26 Zambia


Zambia Daily Mail and the Times of Zambia are state-owned newspapers, with consistently pro-government content. Independent newspapers periodically fight off government attempts to rein them in, often in the form of libel actions. The Post is Zambia�s main independent newspaper, with a reputation for being strongly critical of the government. Other publications include the weekly National Mirror, owned by a consortium of churches. Business publications are taking root, with Business Week taking the lead. Other smaller publications include the Business and Leisure News, Tourism News, Friday Edition, Police News and Green Times, all of which service a small readership and are barely surviving in an environment where not many people have the money to buy newspapers.

Energy provision

The country has abundant hydroelectric sources and meets most of its electricity needs from its own hydroelectric stations, which are operated by the state-owned Zambia Electricity Supply Corporation (Zesco). Installed hydro-electric power-generation capacity stood at an estimated 1,692 mw in 2005 (the resource potential is believed to be 6,000 mw). The main power stations are Kafue Gorge, Kariba North Bank and Victoria Falls. A 330-kv transmission system links Kafue and Kariba to the major load centres of the Copperbelt and Lusaka. Zambia�s current maximum demand for power stood at 1,400 mw in 2006, but Zesco says that demand will rise to 1,900 mw by 2010. Woodland and forests cover about 66% of total land area, equivalent to 4.3m tonnes of wood. Wood fuel provides some 70% of the nation�s energy needs.

Zambia is a large regional electricity exporter, but in November 2005 Zesco was forced to suspend exports, as generation capacity fell owing to the start of rehabilitation work on the country�s main hydroelectric power stations under a US$260m power rehabilitation programme (PRP). The fall in generation was so steep that electricity had to be imported from South Africa and the Democratic Republic of Congo (DRC). It was revealed that generation capacity at Kafue Gorge, Kariba North Bank and Victoria Falls had fallen by 32% to 1,122 mw. In June 2006 Zesco completed its rehabilitation of two generators at the Kariba North Bank power station, bringing total operational capacity to 1,392 mw. These rehabilitations will just cover domestic demand, but with the rest of the PRP not expected to be completed until 2008 and exports a lucrative form of revenue for Zesco, power rationing for domestic users other than copper mines is expected to continue as power exports recommence.

The mining industry is the largest energy user. Most mining companies buy their electricity from the private power distributor, Copperbelt Energy Company, which bought the power division of Zambia Consolidated Copper Mines (ZCCM) in 1997. Demand is rising rapidly; not just from the booming copper sector but also from industrial, commercial and residential users. Zesco is addressing the rising demand for power by upgrading existing infrastructure and through the construction of new hydroelectric projects. The Itezhi-Tezhi and Kafue Gorge Lower power projects are seen as key. Zesco and its partners in the

Hydroelectricity is the main source of power

Technical problems have hit energy exports

High electricity tariffs erode export competitiveness

New investments are made in power infrastructure

Zambia 27


two projects, Farab International of Iran and Sinohydro of China, are due to conclude technical assessments and designs, in addition to financing arrangements for the projects, during 2006, with the implementation phase set to start in 2007. Revised data show that the two projects, which were initially forecast to cost US$720m, would now cost up to US$1bn. Initial agreements were that Farab would finance 85% of the Kafue Gorge Lower project and that Sinohydro would similarly provide 85% of funds required for the Itezhi-Tezhi project. Zesco would provide the balance required in both cases. The Kafue Gorge Lower power station is expected to generate 750 mw, while the capacity of Itezhi-Tezhi is projected at around 120 w. Both are due for completion in 2009. A further project to extend capacity at Kariba North Bank should add another 360 mw, but this is unlikely to be completed before 2010; few details have yet been announced, and the project is still in its early stages.

Demand for coal from the copper mines is rapidly increasing, and imports have grown owing to weakness in domestic supply. The majority of domestic coal comes from the Maamba colliery in the south, which has proven reserves of around 78m tonnes. The colliery has a productive capacity of 600,000-800,000 tonnes/year (t/y) of washed coal, but output has plummeted steadily since the late 1990s, from 192,000 tonnes in 1998 to a low of 73,000 tonnes in 2001, primarily owing to a chronic shortage of working capital. Attempts to privatise the colliery have failed, largely owing to the poor state of its accounts. In an attempt to clean up the colliery's books, the Zambia Privatisation Agency opened talks in 2006 with South Africa�s Investec and Industrial Development Corporation (IDC) in a bid to convince the two lending institutions to write off part of the US$18m that Maamba Collieries owes them. However, even if the ZPA is successful, local suppliers are owed a further US$27m. A new, privately owned coal-mining company, Collum Coal Mining Industries, started production in Kandanwe in 2006. The company has ambitious plans to lift output to 480,000 tonnes per year by 2008, from 120,000 tonnes in 2006.

Zambia�s retail petroleum prices (which are not subsidised) are among the highest in the region. The principal reasons are high transport costs (Zambia is a landlocked country), the inability of the sole oil refinery to guarantee supplies to the energy sector and maladministration. Most of Zambia�s oil comes through the 1,069-mile crossborder Tazama pipeline. The pipeline has a capacity of 22,000 barrels/day (around 600,000 tonnes of petroleum products are transported a year, although it was designed and constructed in 1968 to carry 1.1m t/y) and is jointly owned by Zambia (66.7%) and Tanzania (33.3%). It carries mixed cargoes of crude oil and finished products to the Indeni refinery in Ndola, which is owned 50:50 by the government and a French oil firm, Total.

Energy sector reform was an important condition for continued donor aid at the start of the current decade, and in 2002 the government announced plans to sell its stake in Indeni. These plans were shelved in 2005, when the government said that it wanted to retain a stake in Indeni for strategic national-interest reasons. The refinery was forced to close later in the year, which the government blamed on Indeni�s poor management by Total. However, it soon became apparent that most of Indeni�s problems stemmed from a desperate

The Indeni oil refinery is in poor shape

Production at Maamba colliery collapses

28 Zambia


need for repairs and upgrading. The government therefore initiated a three-year, US$65m rehabilitation programme, beginning in 2006. However, much to the government�s ire, oil companies increasingly prefer to import refined products rather than use the refinery.

The economy

Economic structure Main economic indicators, 2005 (estimates unless otherwise indicated)

Real GDP growth (%) 4.9

Consumer price inflation (av; %) 18.3a

Current-account balance (US$ m) -417.5

Exchange rate (av; ZK:US$) 4,463.5a

Population (m) 11.7

External debt (year-end; US$ m) 5,726.0

a Actual.

Source: Economist Intelligence Unit, CountryData.

Mining is the country�s biggest export earner, but it contributes a relatively small amount to overall GDP, at less than 10%. However, this is slightly misleading, as so many other sectors of the economy are geared toward serving the mining sector. For example, much of the largest segment of GDP by factor cost, namely services, is related to the mining sector. In addition, the mining industry is an important consumer of local manufactured goods. The combination of privatisation and surging international prices has provided a dramatic boost to copper mining in Zambia over the past few years. In real terms, the mining sector grew by almost 50% between 2001 and 2005. It would have been even were it not for slowdowns in growth to 3.3% in 2003 and an estimated 8% in 2005 as various problems in the sector affected production. Annual copper production in Zambia is expected to reach 600,000 tonnes during the next two to three years, a level last reached in the 1980s. Copper and cobalt account for 90% of mining production and around 65% of exports, with the mines concentrated in the Copperbelt region bordering the mineral-rich Katanga province in the Democratic Republic of Congo (DRC).

Overall manufacturing growth has been sluggish in recent years. Around 60% of manufacturing is in the food, beverages and tobacco subsector. Owing to the high weighting of food within the subsector, maize milling (officially classified as manufacturing) can distort the subsector�s actual output, depending on the size of the harvest each year. Drought and the consequent poor harvests over the past few years (excluding 2003) have thus restricted manufacturing growth. Regional competition has intensified following the conclusion of regional free-trade agreements (FTAs), and several major operations in Zambia have been forced to close. The FTAs have created new export opportunities for Zambian manufacturers, but their main market remains domestic, where demand and purchasing power are weak. In addition, prospects have been further harmed

Mining sector has recovered strongly in recent years

Manufacturing remains under pressure

Zambia 29


by increased dumping of Zimbabwean goods (assisted by that country�s dual exchange rate).

Comparative economic indicators, 2005 Zambiaa South Africab Zimbabwe a Tanzaniaa Botswanaa

GDP (US$ bn) 7.0 239.5 4.4 11.2 11.0

GDP per head (US$) 596 5,629a 338 300 6,181

GDP per head (US$ at PPP) 1,129 12,878a 1,632 1,185 14,280

Consumer price inflation (av; %) 18.3b 3.9 266.8 b 4.3b 8.6b

Current-account balance (US$ bn) -0.4 -10.1 -0.6 -0.6 1.6b

Current-account balance (% of GDP) -6.0 -4.2 -12.9 -5.0 14.4

Exports of goods fob (US$ bn) 2.1 54.6 1.6 1.6 4.6b

Imports of goods fob (US$ bn) -2.1 -56.5 -2.1 -2.4 -2.8b

External debt (US$ bn) 5.7 29.8a 5.2 8.2 0.5

Debt-service ratio, paid (%) 18.0 6.7a 9.8 6.0 1.1

a Economist Intelligence Unit estimates. b Actual.

Source: Economist Intelligence Unit, CountryData.

Most Zambians work in agriculture, but their returns are generally poor. The sector accounted for around 20% of GDP in 2005, but its contribution can vary considerably depending on weather conditions, as virtually all smallholder production is rain-fed. Commercial farmers provide almost all the export earnings from the sector. After years of subsidy under the presidency of Kenneth Kaunda, maize production continues to dominate agriculture, although Movement for Multiparty Democracy (MMD) government abolished most subsidies a decade ago. The strongest growth in recent years has been in the production of cotton, tobacco, vegetables and fresh flowers. High transport costs and inadequate access to extension services constrain agricultural growth.

Renewed investment in the mining sector has caused a strong recovery in gross fixed investment, which contributed an estimated 27% of GDP in 2005, compared with only 11% in 1993. Although much of this investment has a substantial import component, this has been more than offset by rising copper exports, leading to a fall in the drag that net trade places on GDP. Private consumption remains by far the largest component of GDP by expenditure, at 65% in 2005. Government consumption has remained around 13% of GDP in recent years. The rate should fall a little over the next few years provided the government adheres to spending targets agreed with the IMF.

Economic policy

There was broad agreement between the government and donors on the policy response to poverty and low growth during the 1990s. The policy was to reduce poverty through growth to be achieved by an orthodox structural adjustment policy centred on economic liberalisation. After disappointing economic performance and visibly worsening poverty, donors and the government began blaming each other for the policy�s apparent failure. Donors, especially the IMF, argued that the government had not properly implemented structural adjustment, which it said allowed vested interests to undermine official policy. The growing evidence of poor governance and corruption emanating from civil

Returns from agriculture are poor

Mining projects lift investment

Donors blame poor growth on weak policy implementation

30 Zambia


society groups and opposition political parties supported this view. As Zambian politics runs on patronage, the political elite and the civil service were resisting or subverting economic reforms that threatened their ability to dispense and profit from it.

Donor critique of the Zambian government was offset by the government's powerful case against donors. The government argued that it had tried to implement structural adjustment, and it did go further than almost any other African administration in this period to retrench public-sector workers, privatise state assets, liberalise foreign-exchange dealings, control money-supply growth, reduce public expenditure and increase public revenue through such mechanisms as user charges and a semi-autonomous revenue service. The government�s second point, which was supported by campaigning groups in donor countries, was that its huge debt-servicing obligations were crippling its ability to deliver. In practice conceding that this was true, towards the end of the decade the World Bank and later the IMF (Zambia�s principal creditors) reconsidered their approach to Zambia and other developing countries and agreed to new debt reduction mechanisms�the heavily indebted poor countries (HIPC) initiative.

The World Bank and the IMF have consequently tied debt reduction to the development and successful implementation of a poverty reduction strategy paper (PRSP), thus explicitly linking poverty reduction, debt-servicing and governance. Zambia�s PRSP has been costed at US$1.2bn and has been broadly welcomed by donors, who are being asked to contribute two-thirds of the total. The government says agricultural development is the key to poverty reduction and economic growth and this emphasis is reflected in the PRSP, which proposes a range of government interventions to boost agricultural production. However, so far these initiatives have failed to have a significant affect on agricultural output; the biggest driver of agricultural production remains rainfall.

The PRSP links good governance to poverty reduction

The IMF-World Bank poverty reduction strategy paper (PRSP) openly addresses donor concerns about good governance, and argues that it is essential in order to boost economic growth and reduce poverty. The PRSP proposes a three-pronged governance strategy, aimed at improving consultation between the government and the people, better and more transparent government spending, and reforms to make the judicial system more accessible. There is little evidence, however, that any real progress has been made in these areas. The ongoing anti-corruption campaign is taken as a sign of a commitment to good governance, and donors have so far placed little emphasis on strict adherence to the PRSP�s governance strategy.

Zambia has a poor record of implementing policies agreed with the IMF and disbursements are regularly suspended. Most recently, this occurred in mid-2003 as a result of higher than budgeted expenditure on public-sector pay. The government reversed the agreed pay rise and, in line with the Fund�s recom-mendations, imposed a freeze on public-sector pay in the 2004 budget. Although this brought the first national strike in 16 years, the government held

The government blames poverty levels on foreign debt

The PRSP emphasises agricultural development

New IMF lending facility agreed in 2004

Zambia 31


firm against union demands and hit the majority of the targets agreed in a staff-monitored programme with the Fund, paving the way for the approval of a new three-year SDR220m (US$320m) poverty reduction and growth facility (PRGF) in June. The government was particularly concerned about a new IMF programme, for two reasons. First, it had large debt-service payments due to the Fund in 2004 and 2005, and without new IMF disbursements these would have caused a sharp fall in foreign-exchange reserves, jeopardising the relatively benign current economic outlook. Second, the government would be entitled to debt relief under the IMF-World Bank HIPC initiative only if it had an IMF programme in place.

The IMF has now completed four reviews of Zambia�s progress under the PRGF. The reviews indicated that the country was generally on track to meet most of the conditions agreed, and waivers were granted for those targets missed. The general tone of the reviews has been positive, with the Fund acknowledging that there has been a marked turnaround in economic performance. In addition, the IMF has felt that the government's sustained efforts to strengthen public financial management have contributed to improved macroeconomic stability and strong growth, along with the favourable performance of non-traditional exports and the rehabilitation of the mining sector following privatisation. It has not all been praise for the Zambian government, however, as the IMF clearly does not want complacency to creep in and so has provided some sound advice for future policy direction as part of the third PRGF review, which was combined with its annual Article IV Consultation:

• the government needs to guard against potential pressures on economic performance in an election year;

• Zambia must closely co-ordinate fiscal and monetary policies to help break expectations of high inflation;

• strengthening the government's public expenditure management and financial accountability (PEMFA) system is critical in order to increase the efficiency and effectiveness of the public sector;

• efforts should be made to get around the delays in the implementation of the integrated financial management and information system (IFMIS), which will enable the Treasury to monitor centrally the disbursement and use of public funds by government ministries and departments;

• the expansion and deepening of financial intermediation is critical for private-sector-led growth;

• it is essential that Zambia follow through with planned measures to resolve the problems of financially troubled non-bank financial institutions and finalise the privatisation of the Zambia National Commercial Bank;

• poverty remains a serious problem, with 65% of the country�s 10m people living below the World Bank poverty threshold of US$1 per day; and

• the appreciation of the kwacha, supported by the improvement in Zambia's longer-term prospects, points to the importance of increasing productivity in order to maintain competitiveness and shore up growth.

Generally positive PRGF reviews

32 Zambia


Controlling election-related expenditure may prove difficult for the government. The amount allocated in the budget to run the elections appears fairly small, and the government has already been forced to abandon some of its new revenue-raising measures in the face of popular discontent. Inflation has been on a downward trend for a sustained period, in line with the implementation of tighter fiscal and monetary policy. However, the prime factor behind the high levels of inflation still evident is food prices; the government has struggled to tackle these high prices, and they depend ultimately on the prevailing weather conditions. Some expansion in bank credit to the private sector has taken place, facilitated by reduced government borrowing. But for real progress to be made, the government needs to enhance its financial sector supervision in order to boost confidence in the system. The debt relief awarded to Zambia over the past 18 months provides a significant opportunity to direct greater resources towards increasing economic growth and reducing poverty. To this end, the government has revised the Zambian National Development Plan to map out how it intends to progress towards meeting the Millennium Development Goals, and this should help to reduce poverty. The rapid appreciation of the kwacha over the past year represents a threat to Zambia's external competitiveness. The fact that non-traditional exports have continued to post strong growth is encouraging in this respect, but if the kwacha continues on its upward path these exports could be at risk.

When the MMD came to power in 1991, it was committed to privatising every state-owned company (or liquidating those in too poor a condition to be sold). The main privatisation was that of Zambia Consolidated Copper Mines (ZCCM), which was completed in March 2000. Because of delays in the privatisation process, the government realised far less for these assets than had originally been offered, but the sale did at least end ZCCM�s drain on state resources and enable much-needed fresh mining investment. The privatisation programme has now reached an impasse, as the companies remaining to be sold consisted of either those whose finances were in such a bad condition that buyers would not be interested, or those that the government considered strategic and in which it did not want to lose its majority holding. The government has continued to bail out the first group of companies, rather than closing them, as it cannot afford to pay the workers� termination benefits and is not prepared to accept the political fallout the redundancies would create. For the large strategic parastatals�such as the Zambia National Commercial Bank (ZNCB) and the Zambia Electricity Supply Company�the government has chosen commercialisation. Under this strategy, it will introduce private-sector management and practices (and in some cases offer private firms a minority stake) in order to reduce political influence while keeping the enterprise under state control.

The government�s change in policy, which has been grudgingly accepted by the IMF, is broadly in line with the general local sentiment, which views privatisation as a failure that has led to job losses and money flowing out of the country. The ZPA argues that the plight of most of the privatised parastatals would have been much worse if they had stayed in public hands, since they

Privatisation is relatively advanced

Some IMF recommendations are unlikely to be met

Zambia 33


would have continued to disintegrate for want of investment. Although almost certainly true, neither the government nor the electorate believe this.

The Bank of Zambia (BoZ, the central bank) administers monetary policy. Its main task is to ensure financial and price stability by controlling money supply growth through open-market operations. The BoZ has no formal powers to set the exchange rate, but intervenes in the market periodically, through currency purchases and manipulation of statutory reserve ratios, in an effort to influence the value of the kwacha. Although theoretically independent, the bank is vulnerable to political pressure, and temporary but drastic monetary policy measures are sometimes introduced to ensure that the government meets IMF monetary benchmarks.

The central bank has also sought to tackle the low level of commercial bank lending to the private sector. Low financial intermediation and little appetite for risk means that the spread between lending and deposit rates is around 15 to 20 percentage points, with deposit rates negative in real terms and lending rates too onerous for most of the private sector. After attempts to get commercial banks to cut their lending rates failed, the BoZ resorted in late 2003 to the more direct approach of cutting the statutory reserve ratios on both kwacha and foreign-currency deposits. Although there was a slight reduction in lending rates, instead of increasing credit to the private sector, commercial banks invested most of the freed-up funds in government Treasury bills. Although this was good news for the government, as it significantly reduced debt-servicing costs, it highlights how unprepared commercial banks are to lend to the private sector. This is clearly hindering the development of the private sector, but, with a culture of poor debt repayment, commercial banks� caution over lending is understandable.

A private-sector reform programme is announced

The Zambian finance and national planning minister, Ng�andu Magande, announced in April 2005 that the government had prepared a reform programme aimed at stimulating private-sector-led economic growth. Obviously motivated by the lack of appetite from the commercial banks to become more involved in lending to the private sector, the government plans to create a pool of resources from which local investors can receive loans. The government hopes that much of the funding behind future development loans will come from the money saved as a result of debt relief. The diversification of Zambia�s economy is an extremely important issue, and, with copper prices high at present, now is the time to embark upon it while the cash is readily available. Encouraging the private sector to lead this diversification is also a sensible policy, but there are concerns that the government�s new reform programme will not deliver the desired results. Notably, the reform programme does not address the important problem that commercial banks in Zambia will remain unwilling to provide loans to the private sector. Corruption is another issue, with the experience of similar initiatives in other African countries demonstrating that loans are often made on the grounds of political connections rather than sound business sense.

Monetary policy aims for monetary and price stability

BoZ has little impact on commercial bank lending

34 Zambia


In the ten years prior to fiscal year 2004 (January-December) the budget deficit averaged around 5.5% of GDP. The government has historically put the large deficits down to donors, whom it accuses of not disbursing as much as they have pledged. There is some truth in this, mainly because government budgets are always overoptimistic in their assessment of what level of donor assistance will plausibly be forthcoming. Since donors use the government�s dependence on them to exercise policy leverage (by withholding promised funds until certain conditions are met), disbursements are invariably lower than pledges and usually arrive later than initially forecast. Problems with donor relations are often triggered by government overspending, which has been another main cause of the fiscal deficits. Although increasing government spending is not too problematic if most of the new money is being spent on capital projects, in Zambia�s case it is mainly diverted to recurrent charges, such as wages and salaries, or siphoned off by loss-making parastatals.

The IMF resident representative in Zambia, Joseph Kakoza, said in May 2005 that the Zambian government would be expected to improve efficiency and transparency under its public expenditure management and financial account-ability (PEMFA) system, which is being funded by the World Bank and other donors. The five-year PEMFA programme aims to improve public expenditure management. The IMF also expects Zambia to broaden the tax base and increase the efficiency of the tax regime. This is being assisted by the semi-autonomous Zambia Revenue Authority (ZRA), which has taken over revenue collection and exceeded targets for domestic revenue in the last few years. But with tax rates already high, there is little scope for a substantial boost in revenue from the ZRA other than continued high copper prices, higher real GDP growth and the notoriously difficult task of bringing more of the informal-sector operators into the tax system.

Summary of government finances (ZK bn)

2003 2004 2005b

Domestic revenue 3,680 4,740 5,643 Tax revenue 3,548 4,546 5,518Grants 1,424 1,433 2,101

Total expenditure & net lending 6,337 6,919 8,527 Recurrent expenditure 4,002 4,654 6,160 Capital expenditure 2,335 2,265 2,367

Balancea -1,349 -442 -783.4

a Includes change in balances and statistical discrepancy. b Preliminary.

Sources: Ministry of Finance and National Planning; IMF.

By historical standards, the performance under the 2004 and 2005 budgets was a significant achievement for the government, as it managed to keep the fiscal deficit below 3% of GDP, down from 6.6% in 2003. However, the impressive performance in 2004�when the fiscal deficit fell to 1.6% of GDP�was an exception. The budget was clearly focused on the austerity measures necessary to facilitate Zambia�s qualification for the new PRGF. Such measures, including a public-sector wage freeze, could not be carried on indefinitely, and so the deficit expanded to an estimated 2.5% of GDP in 2005. A further expansion of

Government has struggled to tackle the budget deficit

Better fiscal performance since 2004, but challenges remain

Zambia 35


the deficit is likely in 2006 as spending on infrastructure grows and elections approach. But a return to the magnitude of fiscal deficits seen prior to 2003 is less likely, as robust growth in domestic revenue is also expected (owing to the fact that strong economic growth and copper prices will generate higher tax revenue).

The 2006 budget aims to consolidate previous gains

The minister of finance and national planning, Ng�andu Magande, presented the 2006 budget on February 3rd. Under the theme "From sacrifice to equitable wealth creation", Mr Magande explained how the 2006 budget was designed to consolidate on the gains made in 2005 and further strengthen the economy by directing resources towards priority programmes. Such programmes focus on road infrastructure, water supply and sanitation, agriculture, education and health. This represents a sensible policy orientation as the government seeks to move the economy away from its dependence on copper mining and a history of economic fluctuation caused by the vagaries of the commodities markets. The budget was set within the context of the government's macroeconomic targets for 2006, which are: • to achieve real GDP growth of 6%; • to bring year-end inflation down to 10%; • to reduce domestic government borrowing to 1.6% of GDP (this is the definition

of the budget deficit used by the Zambian government); and • to maintain official gross international reserves equivalent to at least 1.5 months

of import cover. All of these targets are achievable, but some are more likely to be attained than others. Real GDP growth should improve in 2006 on the back of rising copper production as well as improvements in agriculture, manufacturing and the services sector. The early indications for inflation in 2006 are good, but election-related expenditure, drought, import growth and a depreciating kwacha later in the year could halt the progress that has been made in bringing inflation down. The fiscal deficit target of 1.6% of GDP may prove to be overly ambitious. Finally, buoyant exports and significant donor inflows have dramatically improved Zambia's foreign reserves position over the past two years, and the government's official import cover target of 1.5 months�which is low by international standards�should be easily achievable.

Economic performance Gross domestic product (% real change)

2005a Annual average 2001-05Agriculture 1.0 1.2Services 4.8 3.7

Mining 8.0 11.1Manufacturing 3.7 5.2Real GDP incl others 4.9 4.7

a Preliminary.

Sources: Ministry of Finance and National Planning; World Bank; Economist Intelligence Unit estimates.

36 Zambia


The average annual real GDP growth rate during the 1990s was extremely weak owing to declining output in the mining sector, coupled with low growth in the agricultural sector and manufacturing. In addition, high debt-servicing costs limited the government�s scope to stimulate the economy. Average annual real GDP growth picked up to 4.7% between 2001 and 2005, reflecting the impact of the privatisation of Zambia Consolidated Copper Mines (ZCCM) and high global copper prices, which has led to fresh investment and increased output in the mining sector. This has also had a positive knock-on effect on the manufacturing, wholesale and retail sectors. The Economist Intelligence Unit forecasts that real GDP growth will increase from 4.9% in 2005 to 6% in 2006, mainly owing to continuing strong growth in copper production.

The main factor determining growth in the agricultural sector is the weather. Given favourable conditions, performance can be strong�the sector grew by over 10% in 1999 and by 4.3% in 2004. Poor weather conditions (either drought or excessive rain), by contrast, have caused the sector to contract in four out of the ten years since 1996�for the period as a whole growth averaged only 1%. Other considerations determining agricultural performance are farmers� access to agricultural inputs and credit.

The mining sector contracted during the 1990s because of falling production�the result of years of underinvestment�and sharp fluctuations in copper and cobalt prices. However, owing to the fact that strong world economic growth has boosting demand for copper and that there have been only small increases in copper-producing capacity, prices have risen strongly since 2003, with further increases expected into 2007. Copper mining companies in Zambia are taking advantage of the high prices, investing heavily in expanding production. Konkola Copper Mines and Mopani Copper Mines�Zambia�s two largest producers�began to undertake massive rehabilitation works in 2004 to increase their copper output, the results of which have started to come on stream. Copper output came to 409,543 tonnes in 2004, and was projected to reach 550,000 tonnes in 2005. The 2005 official target, however, proved to be optimistic, as industrial action and fuel shortages restricted production to 445,550 tonnes. Lost production should be made up in 2006, combining with increasing capacity to boost production to around 530,000 tonnes.

Inflation has persistently averaged over 20% and has sometimes substantially exceeded this�it touched 50% in 1996. The main causes of this are lax fiscal policy, a weak exchange rate and inconsistent food supply (food prices are mainly determined by the success of each maize harvest and are the largest component of the basket used to calculate the consumer price index). It is not always the case that each of these three conditions occur, but one is enough to stoke inflationary pressures. For example, the sharp depreciation of the kwacha in 2000 was the main reason that inflation averaged 21.4% in 2001. In 2002 a poor maize harvest caused inflation to rise to 22.2%. This had a knock-on effect in the first half of 2003, when inflation averaged 23.2%. Despite the impact of the bumper harvest, increased domestic financing of the fiscal deficit kept inflation high over the remainder of the year, causing inflation to average 21.4% in 2003.

The weather and inputs determine agricultural growth

New investments boost mining productivity

Inflation has been persistently high

GDP growth picks up in the 2000s

Zambia 37


Inflation moderated in 2004, breaking the 20% barrier, as the government tightened fiscal policy and the good harvest kept food prices under control. Inflation could have fallen even further, but there was some inflationary pressure caused by the appreciation of the South African rand (the currency in which most imports are denominated) against the kwacha and higher oil prices. A slightly wider fiscal deficit and drought in 2005 kept the rate of inflation around 18%, but a much better harvest in 2006 has seen a significant drop in inflation, which fell to less than 10% in April and is expected to average just over 10% for the year as a whole.

Regional trends

The capital, Lusaka, continues to act as a magnet to people from all over the country, despite a weak job base that can absorb only a small portion of new labour market entrants. Consequently, the city boasts sprawling townships and informal settlements and a huge informal sector, comprised of a wide variety of retail and petty economic enterprises. Most industry is concentrated in Lusaka and the Copperbelt, which is the most urbanised province in Zambia. The Copperbelt was severely affected by the prolonged economic downturn of the 1990s, but privatisation has brought fresh investment and renewed hope to much of the region. The Southern and Central provinces have the best agricultural land and many of Zambia�s most productive commercial farms, but have been prone to erratic weather conditions over the last few years. Eastern, Luapula, Northern and North Western are the poorest provinces, although the latter two are sparsely populated. The Western province is particularly prone to drought and was badly affected by the war in neighbouring Angola, but this improved following an end to the conflict in April 2002.

Economic sectors

Agriculture

Zambia has great agricultural potential (along with abundant water resources in some of the key provinces), but this has never been successfully unlocked, and in some seasons the country has required external food aid. The government is planning major policy changes to its land laws in a bid to attract more foreign farmers and shore up agricultural production. The finance and national planning minister, Ng'andu Magande, said in April 2006 that the current land tenure system was not attractive enough to foreign farmers and that the government intended to change the laws. Currently Zambia has a two-way land allocation system, which comprises land held by chiefs (civic leaders) and also state land. Under state land, the people awarded land for farming use are granted renewable 99-year leases, whereas there is no certificate of title provided for land given under customary law. Traditional chiefs exercise control over 90% of the land, and this land cannot be used as collateral on loans, hindering the development of smallholder agriculture. Mr Magande said that changing land laws to enable chiefs to give certificates of title to investors and locals, through the Ministry of Lands, was a priority for the government. He

Land ownership reforms are planned

38 Zambia


went on to say that the government would create a framework within which farmers could continue to obtain loans, subsidised pesticides and seed. Commercial farmers would also be assisted with cheap finance to expand their irrigation farming projects for maize and other export crops.

Land reform in Africa is a contentious and often slow-moving process. Things are no different in Zambia, and it is therefore expected to be some time before the land laws are changed. The last alteration to land laws in Zambia was made under the 1994 Land Act, which allowed communal land to be transferred to individual leasehold tenure. However, this development directly threatened the interests of traditional leaders, and they have generally been successful in frustrating its implementation. This new attempt to allow the chiefs to allocate certificates of title as they choose may be more palatable to them, but it opens the door for bribery and will need to be closely monitored by the government.

In June 2005 the government announced new measures to increase the area for plantings of white maize and other cash crops through a ten-year National Agriculture Policy (NPA), expected to run from 2005 to 2015. The NPA contains a number of ambitious plans. Perhaps the most important target is to expand the area of farmland under irrigation from 50,000 ha to 90,000 ha by 2015. Zambia�s irrigation potential is estimated at 423,000 ha, but historically poor pricing mechanisms, marketing systems and infrastructure has discouraged farmers from expanding their production through methods such as irrigation. The government plans to fund the building of storage facilities, roads and bridges and will also provide incentives to private firms operating agro-processing plants to maximise on crop output. The government�s intention is to direct some of the money saved from debt relief to supporting the agriculture sector. In addition, in the first half of 2006 donors including the EU, Finland, the UN International Fund for Agricultural Development (IFAD), the World Bank and the IMF provided US$100m to Zambia for agricultural development.

Over the past two years, the government has demarcated around 300,000 ha of previously state-owned farmland to create small, medium-sized and large farms. A large new sugar plantation is planned, and the government has also awarded D1 Oils of the UK 174,000 ha of land to grow jatropha, a plant whose seeds are used to extract oil which is then manufactured into biodiesel.

In marked contrast to Zimbabwe, the Zambian government has stressed the importance of commercial farmers and has so far left agricultural marketing to the private sector. This has reassured commercial farmers, who also point to the important differences between Zambia and Zimbabwe�Zambia avoided a sustained civil war (as the white settler community chose to grant majority rule at independence) and there is no Zambian equivalent of Zimbabwe�s war veterans. In fact, the Zambian government has welcomed white Zimbabwean farmers; a number have been allowed into the country on two-year self-employment work permits, which will be renewable if they can show that they have made genuine investments in the economy. These farmers are mainly located in the Mkushi farming bloc in the Central province, and are con-centrating on tobacco and maize production.

Zimbabwean commercial farmers encouraged

A new National Agriculture Policy is formed

Large areas of state-owned land are demarcated

Zambia 39


The government optimistically estimates that the influx of new farmers will allow annual tobacco production to rise from 4m kg to 50m kg per year over the next five years. New farmers are also being encouraged to grow other export crops, such as vegetables and horticultural and floricultural products. Although there is a substantial rural underclass that lacks land, the government is aware of the economic benefits of the inflow of farming expertise from Zimbabwe and is not expected to embark on the land-grabs that have decimated that country�s agricultural sector.

Since the 1990s commercial farmers have increased their cultivation of cash crops such as cotton, tobacco, sugar, vegetables, flowers and paprika, because of relatively favourable international prices and the depressed state of the maize market. Subsistence farmers have been slower to diversify, but have increased production of millet, sorghum, cassava and groundnuts; these require fewer inputs and are more drought-resistant than maize (and therefore more suitable as food crops). When weather conditions are favourable, however, the acreage devoted to maize generally rises substantially.

Maize remains the staple food and the main crop grown by smallholders. Most production is not irrigated, so the size of the crop varies considerably with weather conditions. A regional drought caused maize production to fall to only 600,000 tonnes in crop year 2001/02 (May-April), before improved weather conditions lifted output to 1.2m tonnes in 2002/03. Good rains lifted maize production further in 2003/04, to 1.3m tonnes, but drought in 2005 badly affected maize yields, with the harvest for 2004/05 reaching just 866,187 tonnes. This created a national deficit, given that the national food requirement is around 900,000 tonnes a year.

Maize production by province (tonnes unless otherwise indicated)

Province 2004/05 2005/06 a % change

Central 204,230 416,835 104.1

Copperbelt 118,737 165,329 39.2

Eastern 169,315 285,519 68.6

Luapula 31,883 37,774 18.5

Lusaka 33,061 61,180 85.1

Northern 118,017 123,239 4.4

North Western 40,814 71,971 76.3

Southern 120,518 230,105 90.9

Western 29,612 32,487 9.7

Total 866,187 1,424,439 64.4

a Expected.

Source: Central Statistical Office, crop forecasting surveys.

Output rose by 64.5% in 2005/06 to 1.4m tonnes, according to pre- and post-harvest surveys carried out by the Central Statistical Office. The improved harvest was almost entirely owing to better weather, but the government also played a part by providing subsidised seed and pesticide to small-scale farmers. Commercial and large-scale farmers were expected to contribute 22% to Zambia's total maize output, with the rest coming from small-scale farmers.

Crop diversity

Maize

40 Zambia


Such maize production levels are expected to result in a large surplus once domestic consumption is accounted for, but the government has banned maize exports until it builds up enough reserves for four months of consumption. The government is keen not to repeat the mistake made with the 2003/04 crop, when it allowed the export of surplus maize, only to be forced to import it the following year when the rains failed.

Cotton is the main cash crop for small-scale farmers. By the late 1990s, some 75,000 small-scale farmers were growing cotton, compared with 45,000 farmers in the mid-1980s. Despite falling international prices, cotton production is estimated to have reached a ten-year high in 2004/05, as its planting was encouraged in order to provide the raw materials to enable the textile industry to benefit from duty-free access to the US under the US African Opportunity and Growth Act (AGOA).

UK-based Tate & Lyle and CDC Capital Partners (formerly known as the Commonwealth Development Corporation) bought Zambia Sugar in 1995-96 and sold it to Illovo of South Africa in 2001. Independent farmers, who sell on to the factory, harvest sugarcane. Annual production is around 250,000 tonnes. Local demand is around 110,000 tonnes, with the remainder exported, mainly to the EU and South Africa.

Horticulture and floriculture are the largest growth industries in the agricultural sector, and its products are among Zambia�s most important non-traditional exports. Exports (mainly of speciality and organic vegetables, summer flowers and roses) totalled US$10m in 1994, rose progressively to around US$60m by 1999 and have stayed around this level in subsequent years. The Zambia Export Growers� Association, which represents most of the horticultural growers, has around 60 members, employing over 18,000 people.

Livestock numbers have been badly affected by corridor disease and foot-and-mouth disease in the Southern and Northern provinces and by contagious bovine pleura pneumonia in the Western province. Zambia exports beef to the EU under a quota system; however, owing to fears of inadequate Zambian monitoring leading to diseased meat entering its market, the EU placed a five-month ban on imports of Zambian beef in early 2005. This forced the Zambian government to tackle the problem of the spread of disease in cattle, which it did by vaccinating 90,000 cattle in a bid to eradicate foot-and-mouth. The govern-ment also said that it intended to intensify the monitoring, regulation and facilitation of disease and vector control programmes throughout the country, especially in disease-prone areas. These actions and commitments satisfied the EU, and the ban was lifted in June 2005.

Virgin bush and forest cover 370,000 sq km, about one-half of Zambia�s land area. Large plantations have been established in the Copperbelt for the paper and plywood industries, but most timber and wood for fuel still comes from indigenous forests, to the detriment of local environments. Most sawmills were privatised in the late 1990s, and output has risen consistently since then.

Cotton

Sugar

Horticulture and floriculture

Livestock

Forestry

Zambia 41


Zambia has good but relatively under-utilised fish resources, concentrated in Lakes Tanganyika, Mweru Wantipa, Mweru, Bangweulu and Kariba, as well as in the Lukanga swamps and the upper Zambezi and Kafue rivers. The real value of commercial fish production rose during the late 1990s, but has fallen since the end of the decade, ostensibly because of low prices and underinvestment.

The government has announced its intention to shore up fisheries by promoting community-based resource management. This has for the past ten years been done on a small scale, whereby major rivers are officially closed for fishing for the three months to March each year. However, inadequate financing for the fisheries department has meant that fishermen continue to fish and sell to traders privately. The government plans to finance the fisheries department adequately to enable it to enforce the fishing ban, while some rivers will be restocked and dams rehabilitated in order to breed more fish and thus enhance food security.

Mining and semi-processing

The Copperbelt has some of the largest copper and cobalt deposits in the world and Zambia was once among the top global copper producers, with production peaking at 750,000 tonnes/year (t/y) in the 1970s. The mines were nationalised in the early 1970s and annual production levels began falling, in contrast to rising output levels from its competitors, particularly Chile. Decades of underinvestment and ageing infrastructure steadily increased production costs beyond that of most global competitors, making the profitability of Zambian mines vulnerable to the international slump in base metal prices that began in the late 1990s. In 2000 Zambia�s copper output fell to 256,900 tonnes (and cobalt production to 3,500 tonnes), the lowest level since the late 1950s. However, huge investment in the mining sector since Zambia Consolidated Copper Mines (ZCCM) was privatised has lowered production costs, and output is rising again, spurred on by record international prices in 2005 and into 2006�copper production in 2005 was around 75% higher than in 2000. Production would have been even higher in 2005 had it not been for strikes, flooding and fuel shortages in the sector. The government is confident that production can reach 1m tonnes/year by 2010. Proceeds from copper and cobalt mining dominate Zambia�s foreign-exchange earnings, typically contributing around 60% of the total, although this is likely to rise over the next couple of years as high prices combine with surging output.

Copper production and prices 2002 2003 2004 2005Copper output (�000 tonnes) 337.4 349.8 409.5 445.6International copper price (US cents/lb) 70.4 80.3 129.5 166.8

Sources: Bank of Zambia; Economist Intelligence Unit.

The privatisation of ZCCM was launched in 1996 and completed four years later. Time and again during privatisation negotiations, vested interests from within government affected the process, resulting in bad decisions and costly delays. The team agreed the sale of the Luanshya mine to an Indian-based

Fishing

A booming copper sector

The privatisation of ZCCM was flawed

42 Zambia


company, Binani, in 1997, despite widespread concerns about the firms' ability to manage the asset. Binani established the Roan Antelope Mining Corporation of Zambia (Ramcoz), which struggled from the beginning and went into receivership in November 2000, owing massive debts and leaving thousands of workers jobless. The ZCCM negotiating team also rejected an offer for the Nkana and Nchanga mines from a consortium led by a South African company, AngloVaal Mining (Avmin), in 1998 (for reasons that have never been properly explained) that was much higher than the offer ultimately accepted from a consortium led by Anglo American in March 2000. Less than two years later Anglo announced that it was pulling out of Zambia.

The Anglo consortium created a new company, Konkola Copper Mines (KCM), which accounts for around one-half of the total copper mined in Zambia. KCM�s main asset is Konkola Deep, which has estimated reserves of 400m tonnes and a productive capacity of over 200,000 t/y. Anglo decided that operating costs would be too high and profits too low, which precipitated its pull-out from KCM, followed by its complete withdrawal from Zambia.

After months of uncertainty, the government announced in May 2003 that it had selected Sterlite Industries of India as the preferred bidder for a 51% equity stake in KCM. A Swiss-based commodities trader, Glencore, had been considered a strong contender to acquire the stake in KCM, but the government was concerned that this would give Glencore, which already owns most of Mopani Copper Mines (MCM), control over too much of the Zambian mining industry. Within the Zambian mining sector there was relief that KCM had found a potential buyer, but some nervousness about Sterlite. This is because it was unknown locally� Sterlite has successful copper mining operations but has never previously operated in Africa�and Zambia had a disastrous experience with Binani.

After lengthy negotiations, the Zambian government and London-listed Vedanta Resources, Sterlite�s holding company, agreed a deal at the end of 2004. An agreement for US$48.2m was signed to enable Vedanta to take a 79% stake in KCM. Vedanta has since then undertook to develop the Konkola Deep Mining project. Anglo had estimated that the mine, which is one of the wettest in the world, would require US$1bn in fresh investment before production could start. However, Vedanta has now estimated the cost of developing the Konkola mine at US$600m. On May 10th 2005 the president, Levy Mwanawasa, officially launched the Konkola Deep project, which KCM expects to be producing 200,000 t/y of finished copper by 2007. The Konkola mine is expected to produce 6m t/y of copper ore, and will help to double KCM�s total copper output to 500,000 t/y.

Significant investment in new mines is projected to lift copper production to levels last seen in the 1970s. Major investments are planned by Mopani Copper Mines (MCM), the country�s second-largest copper producer. MCM, which mainly consists of the Mufulira and Nkana mines, is 73% owned by Glencore and 17% owned by First Quantum Minerals (FQM) of Canada, with the remaining 10% held by the state-run Zambia Consolidated Copper Mines Investments Holdings (ZCCM-IH), which is supposed to hold shares in all

Sterlite takes over KCM

Other mining companies are increasing production

Zambia 43


mining firms operating in the country. The upgrades include expansions at the Mufulira Smelter, where Mopani plans to raise the capacity for handling copper concentrate to 650,000 t/y by 2008, from the current 400,000 t/y. The upgrading of the Mufulira Smelter will enable Mopani to start processing concentrate from the newly opened Kansanshi copper mine in north-western Zambia, which is being developed by FQM. FQM secured a US$224m financing package for the Kansanshi mine in February 2004. Production began in early 2005, and will peak at around 130,000 tonnes of copper and 35,000 troy oz of gold per year. The smaller Chambishi mine, which is owned by Non-Ferrous Metals Industry Corporation of China, has also undertaken major upgrades of its equipment and infrastructure to enable it to raise copper output to 65,000 tonnes in 2005, from about 49,000 tonnes in 2004. Chambishi has also revealed plans to build its own leaching plant to start cathode copper production.

The government announced in March 2006 that it would continue to give the copper mines stability periods of up to 20 years in some instances to enable the new owners to recoup their investments. The stability period includes exemp-tions for mining companies from paying customs duty on imported machinery and equipment for a period ranging from 5 to 20 years. This followed a government decision to reduce the mineral royalty to 0.6%, from 2% previously, in a bid to encourage investment in mining (mine owners are required to pay mineral royalties up front, whether they make a profit or not), but both of these initiatives were announced before copper prices reached new highs on the London Metals Exchange. As a result, the government stated in July 2006 that it wanted to review the new mining contracts signed with investors in a bid to raise mineral royalties to 3%. The government�s argument was that it was not reaping the benefits of the profits that the mines are now making in view of higher global metals prices. The finance minister, Ng�andu Magande, also said that it had become necessary to review the stability periods, because the fundamentals that prompted it to accord investors tax breaks had changed as a result of higher copper prices.

Zambia stopped producing zinc and lead in the mid-1990s. There was talk of a resumption of zinc mining in 2001, but this has yet to materialise. There are large emerald deposits on the Copperbelt, and customs officials claim that emeralds totalling US$600m are smuggled out of the country each year. Production of gemstones, mainly amethyst, reached 1,200 tonnes in 2002. The European Commission announced in early 2005 that it would finance the building of a training institute for geologists and would also help with the financing of a Gemstone Exchange Centre, which will attempt to formalise some of the informal activity in the gemstone sector.

Manufacturing

During the colonial era, little manufacturing capacity outside of the mining sector was developed in Northern Rhodesia (as Zambia was formerly known). Capacity was instead developed in Southern Rhodesia (now Zimbabwe), which

Other minerals

The government is looking to increase mineral royalties

Import-substitution policy after independence

44 Zambia


supplied Northern Rhodesia with the bulk of its manufactured products. Maize, however, was milled locally. After independence, the UNIP government tried import substitution, boosting Zambian manufacturing capacity through the establishment of state-owned manufacturing companies. Most of these required increasingly costly state subsidies in order to stay in operation, and were subsequently privatised or liquidated by the MMD government. Zambia has a regionally competitive resource base of qualified manufacturing personnel, but this is being eroded by the high incidence of HIV/AIDS. Most manufacturing plants are located in and around the capital, Lusaka, and in the Copperbelt.

Manufacturing growth has steadily climbed since 1998. Food, beverages and tobacco, and textiles and leather account for around 75% of manufacturing output, and it is growth in these two subsectors that has accounted for most of the recent growth in manufacturing. The former has benefited from fresh investment in a number of companies following their privatisation in the late 1990s, while the latter has gained from increased market access offered by regional and global free-trade deals, although the expiry of the Agreement on Textiles and Clothing, which specified textile export quotas, at the start of 2005 has had an adverse affect owing to an increase in competition from lower-cost Asian manufacturers. Although Zambia has suffered from deindustrialisation, the acceleration in manufacturing growth may be an indication that those firms that have survived are becoming more competitive.

The manufacturing sector still faces formidable challenges. Insufficient access to affordable credit is a big problem. Local real interest rates are high, and local commercial banks are risk-averse. Most new investment in manufacturing has come from foreign companies, but these companies are also under pressure, owing to high utility costs, high duties on many manufacturing inputs, a weak domestic market and a subdued regional market. In addition, manufacturing exports have been rendered uncompetitive by a strong currency and high transport costs (mainly resulting from Zambia's landlocked status�it costs around US$100/tonne to transport cargo to the coast). There are some concerns that moves towards regional free trade will highlight the lack of competitive-ness of Zambian manufacturers, which could further damage the sector.

Construction

Output in the small-scale private-sector construction industry is not measured by government statistics, but generally fluctuates in response to overall prevailing economic trends. Official figures do, however, give a reasonable indication of trends in the value of major, state-approved construction projects, and indicate that the sector contributes 9% of GDP. Activity is mainly focused on rehabilitating and maintaining infrastructure, in particular roads and bridges. Donors finance much of the work, and an increased disbursement of project-related funds lifted construction growth to an annual average of 15.5% in 2000-04 and 19.9% in 2005. The increase in the growth rate in 2005 represented infrastructure development in the copper and cobalt mines as well as the rehabilitation of the country's hydroelectric power stations. The country�s sole

The sector has grown strongly in recent years

A buoyant sector

Manufacturers still face formidable challenges

Zambia 45


cement factory, operated by Chilanga Cement, is increasing production in response.

Financial services

Zambia has among the most liberal banking regulations in southern Africa, and although residents often complain about the inefficiency of banks, compared with others in the region Zambian banks function efficiently. There are 11 operational commercial banks, including majority-foreign-owned banks such as Barclays of the UK, Citibank of the US, Stanbic (part of Standard Bank of South Africa) and Standard Chartered (also UK-based). All foreign banks are required to incorporate locally. Banks in Zambia need ZK2bn (US$400,000) in start-up capital. Statutory reserve ratio requirements are liable to amendment at short notice, as the Bank of Zambia (BoZ, the central bank) uses them as an instrument of monetary policy.

The privatisation of ZNCB

The long-running sale of the state-owned Zambia National Commercial Bank (ZNCB) looked as if it might at last be reaching a conclusion in October 2005, when the Zambia Privatisations Agency (ZPA) picked a subsidiary of the Dutch co-operative bank, Rabobank, as the preferred bidder for a 49% stake in ZNCB. The ZPA�s initial attempts to sell the ZNCB stake collapsed in March 2005 after a row with South Africa�s largest retail bank, Absa, over a disputed line of credit. The chairman of the ZPA, Luke Mbewe, said on October 13th that Rabo Financial Institutions Development, a wholly owned subsidiary of Rabobank, had beaten off bids from the Zambezi Consortium and the Industrial Credit Company. Of the remaining 51%, a 25.8% stake will be sold via the Lusaka Stock Exchange, the government will retain a 25% shareholding and the balance will be retained by minority shareholders. However, by mid-2006 the sale had still not gone through, and negotiations between the government and Rabobank are thought to be ongoing. New data from the ZPA reveal that ZNCB has total book assets of US$314m, total deposits of US$285.8m, 52 branches and agencies and a 24% share of Zambia�s retail banking market. This would represent a further expansion into Africa for Rabobank, which has also been selected as the buyer for a 49% share of the National Microfinance Bank in Tanzania.

Lending rates have been consistently high for many years. Companies that can obtain credit outside Zambia generally do so, particularly for long-term financing needs, in order to make borrowing costs less expensive and more predictable. The monetary authorities are aware of the need for lower lending rates, but commercial banks have not responded to the BoZ�s prompting. Normally, commercial banks prefer to hold government debt owing to the high real yields it offers; the fact that they continue to buy it even when yields fall illustrates how risk averse they are. This is because of the poor repayment record of most Zambian corporates and individuals, and because individuals tend to use the courts to seek redress each time a bank tries to seize loan collateral. Lengthy court proceedings, sometimes taking as long as four years, become a major cost to the commercial banks and they would therefore rather keep the money than risk not recovering it from defaulting individuals. In an effort to encourage commercial bank lending to local businesses and

Banking regulations are liberal

Lending rates have been high for many years

46 Zambia


entrepreneurs, the BoZ is spearheading the formation of a credit reference bureau (CRB). The CRB will act as an advisory body to commercial banks in a bid to build up a credit history of potential borrowers in order to exclude those with a track record of not honouring their debts. Commercial banks will be provided with information on all borrowers so that only creditworthy businesses are able to access loans.

The Zambian insurance market (life and non-life) was liberalised in the early 1990s, introducing competition to the state-owned Zambia State Insurance Corporation (ZSIC). The government had pledged to privatise ZSIC, but the process became stuck in the restructuring phase�the government was unable to afford the redundancies required to make restructuring effective, and no donors have subsequently been willing to subsidise them. The government removed ZSIC from the list of state firms to be privatised, but the company announced in February 2004 that it was looking for a strategic equity partner to acquire a 30% stake to help build its capital base. Although management of the life and pensions operations has been contracted out, debts to ZSIC�s general insurance business cover more than one year�s income. Given this precarious financial position, there is likely to be little foreign interest in the firm. Standard Chartered finances some short-term trade, but other international insurance companies, with the exception of those with a specialist understanding of the copper market, tend not to get involved. Multinational companies operating in Zambia normally obtain their insurance elsewhere, usually South Africa.

The Lusaka Stock Exchange (LuSE) was opened in February 1994, with Chilanga Cement the first firm to list. Growth in the LuSE has been slow, but the progress made in the last few years has been encouraging. Market capitalisation rose 11% in 2005 to ZK8,594.6bn, while the price of most stocks appreciated, causing the LuSE share index to close at 1,240 at the end of 2005, representing a 474-point rise. The number of listed companies was still low, at 13, an increase of one compared with 2004.

A linkage of the LuSE to the Johannesburg Securities Exchange has been mooted, and could take place in the second half of 2006 or in 2007 if sufficient cash can be raised. Although the LuSE experienced strong growth in 2005, it remains tiny by international standards. The management of the LuSE therefore sees a Johannesburg tie-up as a way of raising the bourse's profile and promoting foreign investment. The 14-member Southern African Development Community has a vision of a regional stock exchange by 2008, and has encouraged members to list across borders and experiment on linkages as a foretaste of how it would work.

Other services

Liberalisation in the 1990s diversified the range of goods available through the formal retail sector, particularly since the arrival of some of South Africa�s best-known stores. Most of these are only to be found in Lusaka, although a South African supermarket chain, Shoprite, has opened stores in several major towns. Unrecorded trade is strong throughout the country; city streets are generally

Insurance

Lusaka Stock Exchange

Formal-sector retailing remains weak

Zambia 47


filled with hawkers, often fronting for established businesses keen to lessen their tax burden.

Tourism is based mainly on high-quality lodges in game parks and hotels around Victoria Falls. The Ministry of Tourism, Environment and Natural Resources and the independent Tourist Board jointly manage the sector. There are few low- or mid-priced options, particularly in Lusaka, and there are poor public transport and road links to the country's tourism attractions (with the exception of Victoria Falls), although the government is now developing infrastructure to improve access to the Kafue National Park, to the south of Lusaka. The industry has suffered from years of official mismanagement, during which time Zambia was eclipsed as a tourist destination by every other country in the region, with the exception of Malawi and countries at war. The Zambia Privatisation Authority (ZPA) is selling or has sold most of the state�s tourism assets and has privatised management of the game lodges.

Zambia�s tourism sector has undoubtedly benefited from the political chaos in neighbouring Zimbabwe. Most tourists are keen to see the Victoria Falls, which is located on the border between Zambia and Zimbabwe. New hotels in Zambia are cashing in on the influx, and this is raising revenue collection and creating new jobs. Officials state that Livingstone airport, near the Victoria Falls, now attracts up to four international flights a day, and hotel staff say that if tourists choose to visit the Zimbabwean side of the falls they often do so only for a day, seeking accommodation in Zambia instead. The tourism, environment and natural resources ministry expects 1m foreign tourists to be visiting Zambia annually by 2010, compared with only 160,000 in 2000, 610,000 in 2004 and 649,867 in 2005. Tourism is increasingly becoming an important foreign-exchange earner, although it currently only contributes around 4% of Zambia�s GDP.

The external sector

Trade in goods

Trends in copper prices and production have a significant influence on the merchandise trade balance. In the 1990s the trade balance was in surplus in 1991, 1994 and 1997, coinciding with either higher prices (1991 and 1994) or production (1997). Fresh investment in the mining sector following the privatisation of Zambia Consolidated Copper Mines (ZCCM) caused a surge in imports at the start of the 2000s�they rose by 6% in 2000 and 28% in 2001, when the trade deficit was a record US$341m. With the most urgent rehabili-tation work on the mines completed, imports fell in 2002. Annual import growth then picked up to average around 20% between 2003 and 2005 as surging copper prices encouraged further investment in capacity expansion. The increased levels of investment are now yielding results in terms of higher copper production, which, combined with the boom in prices, lifted copper exports to over US$1bn in 2004, the highest level for almost 15 years. Consequently the trade balance tipped into surplus, where it remained in 2005,

The tourism sector is rapidly growing

The copper sector determines the trade balance

48 Zambia


albeit at a slightly lower level as production difficulties affected some mines. Even higher prices in 2006 could see copper exports surpassing US$3bn, pushing the trade surplus up to around US$800m, its highest ever level in nominal terms.

Foreign trade, 2005 (US$ m)

Exports fob 2,130 Metals sector 1,547 Non-metals sector 582Imports fob 2,068 Metals sector 309 Non-metals sector 1,759 Petroleum 365

Sources: Bank of Zambia; IMF; Economist Intelligence Unit estimates.

Government economic policy since the early 1990s has been to promote non-traditional exports, which include cement, sugar, gemstones, horticulture and floriculture. Earnings from these products were hit by the insecurity in the Great Lakes region, but have more than doubled since 2000, to reach US$582m in 2005. This is the result of an increase in the EU quota for Zambia�s sugar imports, higher sales to the Comesa countries after the signing of a free-trade deal and greater exports of precious stones following the mining of new deposits. Tobacco exports have surged in the last few years owing to the influx of commercial farmers from Zimbabwe.

Petroleum is a major component of the import bill. Imports of petroleum products are large, owing to repeated supply disruptions from the Indeni refinery in Ndola. This has necessitated the import of refined petroleum products, rather than crude oil, thus adding to the import bill. Capital goods, mainly for the mines, and consumer goods account for most of the remainder of the import bill.

Main trading partners, 2005 Exports to: % of total Imports from: % of totalSouth Africa 24.2 South Africa 53.1

Switzerland 13.7 UAE 8.6China 12.4 Zimbabwe 6.9Tanzania 6.9 UK 4.1

Source: IMF, Direction of Trade Statistics.

South Africa consolidated its position as the pre-eminent source of Zambia�s imports in the mid-1990s, supplying a wide range of goods from mining equipment to maize, processed foods and luxury goods. According to official statistics, South Africa supplied imports worth over 50% of the annual total in 2005. Imports from neighbouring states, and particularly Zimbabwe, are under-reported; official figures may capture less than one-half of the total. Zambia�s main export markets are copper-consuming countries, but the official data instead reflect which port the copper is imported through before reaching its final destination; this is why South Africa and Tanzania are reported as major

Earnings from non-traditional exports are rising

South Africa is the main source of imports

Zambia 49


export markets. China's importance as a destination for Zambian exports has increased greatly in recent years.

Invisibles and the current account

The services account is characterised by a structural deficit, since the low level of services income, which comes mostly from tourism, is dwarfed by services costs. These services costs largely consist of insurance, mostly from South Africa, freight and transport since Zambia is landlocked and over 500 miles from the ocean. The result is that, whenever there is fresh investment, as there has been in the mining sector since 2000, the services deficit rises, as freight and transport costs increase in line with rising import levels.

Income credits come mostly from interest earnings by commercial banks on foreign deposits and interest by the monetary authorities on foreign-exchange reserves. However, these are relatively small in magnitude. Historically the main income debit has been interest payments on external debt, but Zambia has recently secured a number of debt-reduction agreements with creditors (see Capital flows and foreign debt), and debt-interest payments are therefore falling. Despite this decline in interest payments, the income deficit has increased significantly in recent years. Largely responsible for this are profit repatriations from the foreign-owned copper mines. With mining production increasing rapidly and copper prices high, profit repatriations have begun to grow and will account for a rising proportion of income debits in the future. A substantial surplus is always posted on the current transfers account�the result of transfers from donors and inflows of expatriate remittances.

Current account, 2005 (US$ m)

Goods: exports fob 2,130Goods: imports fob 2,068Trade balance 62

Services balance -252Income balance -605

Current transfers balance 378Current-account balance -418

Sources: Bank of Zambia; IMF; Economist Intelligence Unit estimates.

Capital flows and foreign debt

A surplus is usually recorded on both the capital and financial accounts. The former is explained by large inflows of donor project grants, while the latter relates to inflows of foreign direct investment. However, with a substantial deficit on the current account, a significant financing gap is left. Usually, debt relief and donor balance-of-payments support cover this financing requirement.

Inflows of aid from donors are a vital source of revenue, but tend to be volatile and are often conditional on the attainment of certain benchmarks. In recent years, according to data from the OECD, net official development assistance has

High transport costs create a structural services deficit

Profit repatriations increase the income deficit

A structural financing requirement exists

Donor support varies with government performance

50 Zambia


varied from US$329m in 1998, when donors withheld funds as a result of Zambia's failure to meet agreed targets, to US$1.1bn in 2004, when donors rewarded the country for securing a PRGF with the IMF.

Data published in the World Bank�s 2006 edition of Global Development Finance, the benchmark source of external debt data, showed that Zambia�s total external debt stock rose by US$351m to US$7.3bn at end-2004. This was despite principal repayments being roughly equivalent to new disbursements, as the rise in the debt stock was mainly owing to cross-currency valuation effects. The weak US dollar meant that Zambia�s non-dollar-denominated debt, at around 30% of total debt, rose in US dollar terms.

The IMF and the World Bank formerly endorsed a US$3.9bn debt-relief package for Zambia in April 2005, under their initiative for heavily indebted poor countries (HIPC). The debt relief, provided by the Fund, the World Bank and other Western lenders, was a vote of confidence and came after Zambia fulfilled almost all of the 15 key reforms and objectives set by the IMF as conditions for debt cancellation. Although there was an initial burst of debt relief, as many bilateral creditors granted 100% forgiveness almost immediately, the bulk of Zambia's debt was owed to multilateral institutions, and their debt relief was to be spread out over the full 20-year period of the HIPC write-off. This meant that Zambia's debt stock would remain onerous.

In what amounted to an acknowledgement that the HIPC scheme was not having the desired impact on many poor countries' debt burdens, the annual summit of the G8 group of the world�s leading industrialised nations, held in July 2005, saw major agreements made on providing further debt relief for Sub-Saharan Africa. From this agreement, the multilateral debt relief initiative (MDRI) was born. Under the MDRI, the IMF, the International Development Association (IDA) of the World Bank and the African Development Fund (AfDF) agreed to cancel 100% of their debt claims on countries that had reached HIPC completion point. Over the following year all three institutions granted Zambia debt-forgiveness: the IMF wrote off around US$577m, the AfDF US$245m and the World Bank US$1.88bn. Zambia's debt stock is now forecast to fall to US$2.78bn by the end of 2006. However, although the headline figures are impressive, not to much may change for Zambia. Under the terms of the write-offs, a major portion of any savings that Zambia gains from forgiven debt-service obligations can be subtracted from future aid or lending inflows, and thus the net resource flow may remain broadly unchanged. At the same time, domestic debt is increasing steadily, which is of even more concern, since there is no mechanism available for relief on this.

Foreign reserves and the exchange rate

Donor assistance and foreign exchange generated by copper exports are the major variables affecting the level of foreign reserves. When donor inflows are suspended or postponed, the government draws down its reserves to meet foreign-currency-denominated requirements, such as debt-service payments. Foreign reserves (excluding gold) fell to just US$45.4m at end-1999 because of a

Zambia receives massive debt relief in 2005 and 2006

The external debt burden has been heavy

Donor inflows and copper sales affect foreign exchange

Zambia 51


prolonged aid freeze. Since then reserves have fluctuated but have generally been on an upward path, reaching US$559.8m by the end of 2005. However, even at this level they still provide only 2.6 months of import cover. This should increase over the next couple of years as copper exports surge further.

The kwacha was floated in October 1992, and it initially traded at ZK320:US$1. Since then, the trend has been one of depreciation, despite occasional efforts by the Bank of Zambia (BoZ, the central bank) to support it. The BoZ has been judged to be meeting international standards since 2002. In July 2003 trade in the kwacha was further liberalised, as before this date major foreign-exchange transactions had to be cleared through the BoZ�s dealing window. The market's confidence in the kwacha has increased greatly in the past two years as Zambia's two main sources of foreign exchange have both seen higher inflows. Foreign-exchange receipts from copper exports have grown substantially as production increases in the sector have coincided with record world prices. Meanwhile, donor support has also increased, as the government has successfully implemented the majority of the reforms advocated by the IMF. Such has been the recent confidence in the kwacha that large appreciations in real and nominal terms were recorded in 2005. The kwacha averaged ZK4,464:US$1 to 2005, compared with ZK4,779:US$1 in 2004. Further appre-ciation is expected in 2006, although the rate of appreciation is likely to slow at the end of the year as election-related uncertainty affects market confidence. The recent appreciations are now placing a strain on some areas of the economy. In particular, non-copper exports are being rendered uncompetitive.

The kwacha has appreciated rapidly

52 Zambia


Regional overview

Membership of organisations

In August 1992 Angola, Botswana, Lesotho, Malawi, Mozambique, Namibia, Swaziland, Tanzania, Zambia and Zimbabwe signed a treaty establishing the Southern African Development Community (SADC). It replaced the Southern African Development Co-ordination Conference (SADCC), which was formed in 1980 by the Southern African states in a largely unsuccessful attempt to reduce the region's economic dependence on white-ruled South Africa. Namibia joined the SADCC shortly after independence in 1990; South Africa became a member of SADC in 1994; Mauritius joined in 1995; the Democratic Republic of Congo (DRC, formerly Zaïre) in 1997; and Madagascar in August 2005. Although Seychelles joined in 1997, it withdrew from SADC in 2003 to cut costs and because it had difficulty adhering to all of the organisation's protocols.

SADC inherited the SADCC's secretariat, based in Gaborone, Botswana, and initially continued with allocating responsibilities for promoting develop-ment in different sectors of the economy to member states. However, since 2000 the organisation has been going through a major restructuring process, which aims to give it more focus and enhance its capacity to deliver on its policies. This involves the creation of four directorates within the SADC secretariat (trade, industry, finance and investment; food, agriculture and natural resources; infrastructure and services; and social and human development and special programmes) and an integrated committee of ministers comprising at least two ministers from each member state. There are also proposals to increase the resources available for the organisation, which has traditionally been poorly funded. The restructuring is already over schedule and may not be completed until early 2006.

The admission of South Africa into SADC in August 1994 had a profound effect on the organisation. In mid-1994, before South Africa joined, only 4% of members' trade was within the community, but this figure has now risen to around 25%, with most of the countries being major trading partners with South Africa, although not with each other. There has also been a wave of South African investment into many of the countries. After several years of negotiation, on September 1st 2000 the SADC trade protocol came into effect, having been ratified by all member states. This aims to achieve a free-trade area by 2008, when substantially all trade will be duty-free. However, progress has been limited and will depend on the speed at which member governments dismantle their existing barriers to trade, with the SADC likely to be increasingly divided into those countries making progress, such as South Africa and the countries in its immediate economic orbit, and those that are laggards, such as Angola and Zimbabwe.

Under World Trade Organisation rules, the Cotonou Convention, which provides preferential trade access to African, Caribbean and Pacific (ACP) states into the EU market, will not be renewed. This means that all SADC member

Southern African Development Community

(SADC)

Zambia 53


states will have to decide whether SADC as a region should have a free-trade agreement (FTA) with the EU or whether its members should negotiate individual FTAs. At present, some members of SADC (Angola, Botswana, Lesotho, Namibia, Swaziland and Tanzania) and the EU have agreed to negotiate an Economic Partnership Agreement during 2005-07. The EU and South Africa concluded their own FTA, which came into effect in January 2000, and the Southern African Customs Union (SACU) countries are in preliminary negotiations with the US to draw up a free-trade deal. Although there are long-term plans for a regional develop-ment bank, a common currency and a regional parliament, increased co-operation is more likely in specific sectors, particularly within the energy and transport sectors. There are relatively advanced plans for member countries to link their power grids to help to create a regional power pool, and we also expect there to be further proposals to develop cross-country infrastructure projects.

According to the SADC protocol, member states are bound to help to defend existing governments from foreign invasion and internal insurgency. An important part of this is supposed to be the establishment of a regional rapid-deployment peacekeeping force, which was voted for in 1994 but at present exists only in an embryonic form as a "stand-by force". In the past, when SADC has tried to resolve domestic political crises in its own region, it has created tensions. Despite South African opposition, several states sent troops to the DRC to support the government of the former president, Laurent Kabila, although the moves towards peace in the DRC since December 2002 and the subsequent withdrawal of the troops have eased tensions. In contrast, South Africa was keen for SADC to intervene in Lesotho in September 1998 to prevent a coup, leaving South Africa open to criticism for its inconsistent regional policy.

SADC has, however, failed to find a solution to the rapidly deteriorating political and economic situation in Zimbabwe in recent years, despite the obvious damage that this has done to the reputation of the region. Despite all SADC member states signing the Principles and Guidelines Governing Democratic Elections in August 2004, SADC's election observers failed to condemn the March 2005 parliamentary elections even though the Zimbabwe government had clearly breached the guidelines. This has once again called its credibility as an organisation able to resolve its own political crises into question.

The African Union (AU) is the successor to the Organisation of African Unity (OAU) and is based in the Ethiopian capital, Addis Ababa. The AU was formally launched in July 2002 at a meeting of African heads of state in the South African city of Durban. This came two years after the AU's formation was first agreed in Togo in July 2000, and followed a one-year transitional period that began after the ratification of the constitutive act of the AU by two-thirds of the member states in May 2001. The AU is modelled on the EU and has ambitious plans for a parliament, a central bank, a single currency, a court of justice and an investment bank. The most advanced of these is for the Pan-African Parliament, which was inaugurated in March 2004 and has since held a number of sessions, although it will not play a legislative role for five years. The president is currently Gertrude Mongella from Tanzania, and it is currently

African Union (AU)

54 Zambia


located near Johannesburg, in South Africa. The AU also aims to have common defence, foreign and communications policies, based loosely on those of the EU. Even if these goals are not fulfilled, the organisation fills the need for a forum for discussing the continent's problems, and the idea of pan-African unity exerts a strong hold over member countries.

In practical terms, the most high-profile AU event is the annual conference of heads of state, which is hosted by the member state that is due to hold the chairmanship of the organisation for the following year. The day-to-day affairs of the AU are managed by the AU commission, which is modelled on the EU commission and was endorsed by the AU heads of state summit in July 2003. The commission is headed by the former Malian president, Alpha Konaré, aided by a deputy, Patrick Mazimhaka of Rwanda, both of whom were elected at the summit. There are also seven appointed AU commissioners.

One of the main problems facing the AU is that many of the proposed new institutions and policy co-ordination mechanisms are costly and cannot be funded within the AU's current resource allocations. To help to counter this, at the July 2004 Annual Summit Mr Konaré presented a 2004-07 Strategic Framework aimed at launching Africa into the 21st century. Under this, member states are supposed to pledge 0.5% of GDP to fund the AU, which will allow it to double the staff at its headquarters and to push ahead with the implementation of the New Partnership for Africa's Development (Nepad). This is a potential bone of contention with the South African government, which is keen for Nepad to remain in its South African headquarters. However, to date many members still fail to pay their membership dues, so that further commitments, other than from external donors, are unlikely. In December 2003 donors and external lenders expressed their full support for the AU's initiatives and the creation of new institutions.

The main criticism levelled at the OAU in the last decade was that little real action resulted from its policy announcements. There are concerns that the AU, like its predecessor, will be undermined by a lack of real commitment to its initiatives among the 53 member states, many of which suffer from very weak governance. This problem is further compounded by the fact that many member states are unlikely to give up the sovereignty required to make several of the proposed initiatives�such as a single currency or a court of justice�operate effectively.

However, on a more positive note, in the last few years the AU has taken a more active role in helping to resolve political crises, such as in Côte d'Ivoire, Togo and Comoros. In this respect, it has shown a much greater willingness to overcome opposition to the principle of non-interference, which remains a contentious issue among member governments and was a major hindrance to the OAU's ability to function effectively. However, its intervention has had a mixed success rate, particularly in Côte d'Ivoire where little progress has been made, while it has avoided a wider involvement in more contentious political crises, such as that in Zimbabwe. This has opened it to charges that it is able to impose solutions on smaller states, but not deal with problems in its larger members.

Zambia 55


In 2003 the AU established a Peace and Security Council (PSC; to replace the OAU's Mechanism for Conflict Prevention, Management and Resolution) modelled on the UN Security Council. It is envisaged that the PSC will sanction military intervention in member states in cases of genocide, unconstitutional changes of government and gross human rights abuse. The proposed military intervention by the AU is to be through a standing armed force. This is projected to comprise five battalions by 2010 and will be part of a wider peacekeeping initiative proposed by the G8 in 2004, which seeks a commit-ment to train and, where appropriate, equip some 75,000 troops by 2010 to take part in peace support operations worldwide "with a sustained focus on Africa". However, even without the establishment of the PSC, since May 2003 the AU has had an observer mission in Burundi, led by South Africa and including troops from Mozambique and Ethiopia, to help enforce a peace agreement in Burundi's civil war. An AU observer mission was also sent to the Darfur region of Sudan in July 2004, and a protection force is being deployed although this has proved much too under-resourced to be effective. However, if it was increased, to become a real peacekeeping force, it could prove to be the first real test of the AU's commitment to intervening in member countries' domestic affairs.

Based in Lusaka, Zambia, the Common Market for Eastern and Southern Africa (Comesa) is the successor organisation to the regional Preferential Trading Area (PTA), and came into force on December 8th 1994 with 12 members. Comesa now has 20 members: Angola, Burundi, Comoros, the Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Libya, Madagascar, Malawi, Mauritius, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe. The Comesa region has a total population of around 374m and GDP of over US$203bn. Lesotho, Mozambique and Tanzania have all withdrawn from Comesa since 1997 to concentrate on their membership of the Southern African Development Community (SADC), and Namibia withdrew in July 2003, stating that its industries were too weak to compete with Comesa's Free Trade Area (FTA). South Africa's decision not to join Comesa makes SADC membership more attractive to its main trading partners.

The original PTA, launched in 1981, aimed to liberalise trade and encourage co-operation in industry, agriculture, transport and communications. Comesa's principal aims build on these ideals; its main goals are to eliminate the structural and institutional weaknesses of member states and to promote the political security and stability necessary for sustained development, both individually and collectively as a regional bloc. These aims are to be achieved through monetary union with a single currency and a common central bank. The creation of an FTA on October 31st 2000 was to be a major step towards achieving them. By end-2005 eleven of the 19 members had agreed to participate (Burundi, Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Rwanda, Sudan, Zambia and Zimbabwe), with Comoros expected to join in early 2006. Swaziland has been granted a derogation to participate on a non-reciprocal basis. In order to reciprocate, it would require the permission of other member states of the Southern African Customs Union (SACU), to which it also belongs. SACU has so far refused to let Swaziland reciprocate, and it is unclear

Common Market for Eastern and Southern Africa (Comesa)

56 Zambia


whether the country will be allowed to continue its membership of the FTA on a non-reciprocal basis. The 11 area members have removed all barriers to trade between themselves, granted trade preferences to the Comesa members not part of the FTA and retain tariffs on imports from outside Comesa.

The 11 FTA members have removed all barriers to intra-regional trade, although they retain tariffs on imports from outside Comesa, and the Rwandan government has stated that it will only offer zero tariffs on goods produced by Comesa countries participating in the FTA. To encourage other members to join the FTA, a fund was created in 2002 to compensate those countries facing revenue loss, although the source and extent of this funding is not clear. Indeed, this fund does not appear to have been used when Burundi and Rwanda joined in early 2004, with both countries estimating large drops in customs revenue as a result of participating.

The reluctance of most of the remaining eight member countries outside the FTA to join, coupled with intense disagreements over a Common External Tariff (CET), caused the organisation to miss its objective of a customs union by December 2004. The proposed move by Comesa from the FTA to a customs union has now been set for 2008, but further delays are likely. The target of full monetary union by 2025 remains, but seems similarly improbable.

Much intra-Comesa trade has been concentrated within a few of its members. In 2004 intra-Comesa trade as a proportion of total trade ranged from 1.6% for Egypt to 24.6% for Uganda. Indeed, Kenya, Sudan, Uganda and Zambia accounted for 56.2% of the total trade between members of Comesa in 2004. In addition, over the past four years the share of Comesa exports as a percentage of total exports from Comesa members has actually shrunk, from 6.1% in 2000 to 5.4% in 2004 (although these figures do not capture the high level of illegal crossborder trade). Reasons for the low level of intra-Comesa trade include a lack of political commitment and political stability in member countries and weak balance-of-payments and foreign-reserves positions. In some cases there are hardly any official trade links between member states.

As industry and manufacturing are generally poorly developed, many members are unprepared to reduce tariffs further for fear of undermining local industries (Tanzania's main reason for leaving) and fiscal revenue collection. A further constraint has been the strict and cumbersome rules of origin, which are open to conflicting interpretations, and there have been some instances of member countries refusing to honour the relevant certificate of origin presented with Comesa imports. In addition to these impediments, progress towards free trade is hampered by political tensions between member states.

Regional free-trade areas like Comesa's FTA aim to increase intra-regional commerce, leading to higher economic growth rates, but they attract criticism from many who feel that this cannot be achieved while supply-side constraints�such as poor infrastructure, inefficient transport links, low education and skills levels, and cumbersome bureaucracy�remain. Comesa has concentrated on trade integration, but the lack of uniformity in investment codes and regulatory arrangements has been an impediment to crossborder trade and investment. The commitment to Comesa of many of its members is

Zambia 57


weak and meetings are frequently cancelled. Moreover, attempts at promoting crossborder investment and monetary harmonisation have been superseded by initiatives introduced by the East African Community and SADC.

Under the old PTA system, a multilateral clearing facility was established and a PTA unit of account (UAPTA), equivalent to the IMF's SDR, was used to settle debts between members, the balance being payable in US dollars. In 1997 the UAPTA was replaced by the Comesa dollar, which is pegged to the US dollar. A Comesa court was officially opened in March 2001, although it had been established three years earlier. In theory, the court, which aims to be an independent arbitrator in trade-related disputes, has jurisdiction over national courts, but in practice it does not have the powers to enforce its rulings and has been hamstrung by a lack of finance.

A new, 20-year convention was signed in June 2000 in Cotonou, Benin, offering a group of 77 African, Caribbean and Pacific (ACP) countries preferential trade and aid links with the EU. The Cotonou Convention replaced Lomé IV, a convention that was signed in 1989 and replaced previous agreements signed in 1975, 1979 and 1984. Although similar to the Lomé conventions, the new convention has a stronger political dimension. Respect for human rights, democratic principles and the rule of law were essential components of Lomé IV. Under the Cotonou agreement, the ACP countries have also agreed to promote good governance, combat corruption and try to prevent illegal immigration into the EU. A revision of the Cotonou Convention is made possible every five years by a special clause. Negotiations between the ACP countries and the EU for the review and adaptation of the accord started on May 2004 and were concluded on February 23rd 2005. The aim of this revision was to enhance the effectiveness and quality of the ACP-EU partnership. Points of agreement focused on the political dimension, development strategies and investment facilities, as well as implementation and management procedures.

Under previous conventions, ACP products, whether agricultural or industrial, entered the EU duty-free, although four agricultural products�beef, sugar, bananas and rum�were subject to a more restrictive system of tariff quotas. Because the type of trade agreement established by the Cotonou Convention does not comply with the rules of the World Trade Organisation (WTO), the new agreement offers a negotiating framework for tailor-made regional FTAs known as Economic Partnership Agreements (EPAs), under which ACP countries, preferably within existing economic groupings, will gradually open their domestic markets to European products. Given the adjustment costs involved, a preparatory period of eight years (2000-08) has been agreed, during which the old system of preferences will continue to apply. However, under existing global trading rules, the 33 African countries classified as least developed countries will still have the option of entering the EU's generalised system of preferences (GSP). Unlike the Lomé Convention, the GSP, which benefits all developing countries, complies with the rules of the WTO because it is based on the twin principles of non-reciprocity and non-discrimination. In September 2003 the ACP countries and the WTO signed an agreement at the Cancun trade round, whereby the WTO will provide training and technical assistance to ACP countries as a form of mutual co-operation.

Cotonou Convention

58 Zambia


The European Development Fund (EDF, concluded for a five-year period and composed of voluntary contributions from member states) will continue to be the main source of multilateral European aid to the ACP countries. Under the new convention, EDF instruments have been regrouped and rationalised into two programmes: one to provide grants for long-term development schemes being carried out either at the national or the regional level, with additional support available in the event of a fall in export earnings, and the other to finance risk capital and loans to the private sector. The ninth EDF (2000-05) will total �13.5bn (US$12.9bn). In addition, about �10bn left undisbursed from the previous EDF will remain available until 2007, and the European Investment Bank will provide �1.7bn. The financial protocols are concluded for a period of five years, with the ninth EDF running from 2000 to 2005. The Cotonou Convention finally entered into force in April 2003, with all 15 EU members and 76 ACP nations (not Somalia) ratifying the treaty. A month later the ACP representatives signed the Brussels Declaration, which calls for the timely and effective implementation of EDF funds. This represents a commitment towards the efficient disbursement of EDF resources for the benefit of ACP countries. In June 2004, at the fourth Summit of ACP Heads of State, the ACP council of ministers was mandated to ensure the effective co-ordination and coherence of EPA negotiations within the ACP and between various ACP regions, as well as with the WTO negotiations, so as to ensure unity.

Zambia 59


Appendices

Sources of information

Zambia�s national statistics have shortcomings in a number of areas, and there are frequently major discrepancies between official figures and those of multi-lateral institutions such as the IMF. Official GDP growth data do not adequately capture activity in sectors in which mainly smaller companies operate, such as wholesale and retail trade and business services. Neither have structural changes in the economy been captured, as the surveys used to calculate the data are still based on 1994 weightings. Data on GDP by expenditure are weak. Monetary data are broadly up to the IMF�s standards, but although the government provides the Fund with monthly fiscal data, these are often substantially revised and are not published elsewhere. Balance-of-payments data are poor, owing to inadequate methodology and unreliable data sources.

Bank of Zambia, Annual Report, Lusaka

Bank of Zambia, Monthly Financial Markets Review, Lusaka

Bank of Zambia, Statistics Fortnightly, Lusaka

Central Statistical Office (CSO), The Monthly, Lusaka

Lusaka Stock Exchange, Year Book, Lusaka

Ministry of Finance and National Planning, Economic Report (annual), Lusaka

Ministry of Finance and National Planning, Macroeconomic Indicators (monthly), Lusaka

IMF, Direction of Trade Statistics (quarterly), Washington, DC

IMF, International Financial Statistics (monthly), Washington, DC

International Institute for Strategic Studies, The Military Balance (annual), London

OECD, Geographical Distribution of Financial Flows to Aid Recipients (annual), Paris

UNAIDS, Report on the Global HIV/AIDS Epidemic (annual), New York

UN Development Programme, Human Development Report (annual), New York

World Bank, African Development Indicators (annual), Washington, DC

World Bank, Global Development Finance (annual), Washington, DC

World Bank, World Development Indicators (annual), Washington, DC

IMF and World Bank, Poverty Reduction Strategy Paper, Joint Staff Assessment, Washington, DC, 2002

International statistical sources

Select bibliography

National statistical sources

60 Zambia


IMF and World Bank, Poverty Reduction Strategy Paper, Second Annual Progress Report, Washington, DC, 2005

IMF, Selected Issues and Statistical Appendix, Washington, DC, 2006

Ministry of Finance and National Planning, Poverty Reduction Strategy Paper 2002-2004, Lusaka, 2002

Bank of Zambia (the central bank): www.boz.zm

Central Statistical Office (CSO): www.zamstats.gov.zm

Electoral Commission of Zambia: www.elections.org.zm

First Quantum Minerals (minority shareholder of the Mopani Copper Mines joint venture and operator of Kansanshi and Bwana Mkubwa mine): www.first-quantum.com

Glencore (majority shareholder in MCM): www.glencore.com

IMF: www.imf.org

Lusaka Stock Exchange: www.luse.co.zm

The Post newspaper (independent): www.post.co.zm

The Times newspaper: www.times.co.zm

UN Food and Agriculture Organisation (FAO): www.fao.org

World Bank: www.worldbank.org

Zambia National Tourist Board: www.africa-insites.com/zambia

Zamnet (Internet service provider): http://zamnet.zm

Zambia News Agency (official information): www.zana.gov.zm

Zambia Privatisation Agency (ZPA): www.zpa.org.zm

Useful websites

Zambia 61


Reference tables Population (m; mid-year estimates)

2000 2001 2002 2003 2004Total 10.70 10.91 11.10 11.29 11.48

Source: IMF, International Financial Statistics (IFS).

Paid employment by sector 2000 2001 2002 2003 2004Agriculture, forestry & fishing 59,377 59,248 43,819 64,096 65,136Mining & quarrying 35,042 34,966 37,245 48,597 46,078

Manufacturing 47,782 47,679 67,752 39,385 45,340Electricity & water 5,049 5,038 7,316 10,832 12,217Construction 13,828 13,798 2,406 3,467 5,787

Transport & communications 46,719 46,618 21,566 26,725 26,510Distribution & trade 52,336 52,223 50,812 53,450 44,460

Finance & insurance 31,483 31,415 52,727 28,555 31,880Public administration 184,731 184,331 145,763 141,697 138,691

Total 476,347 475,316 429,406 416,804 416,099

Source: IMF, Zambia: Selected issues and Statistical Appendix.

Rail and air freight ('000 tonnes)

1999 2000 2001 2002 2003Zambia Railways 1,612 1,457 1,666 1,887 1,494

Tanzania Zambia Railway (Tazara) 615 634 609 578 531Air 15,370 15,763 16,624 n/a n/a

Sources: Ministry of Communications and Transport; National Airports Corporation.

Domestic electricity generation and consumption ('000 mwh)

2001 2002 2003 2004 2005

Generation 9,120 8,350a 7,630a 8,061 8,569

Consumption 4,218b 4,641b 5,042b n/a n/a

a January-November. b January-September.

Source: Zambia Electricity Supply Company.

62 Zambia


Central government finances (ZK bn)

2000 2001 2002 2003 2004

Revenue & grants 2,528 3,262 4,259 5,104 6,173

Tax revenue 1,931a 2,449a 2,849a 3,548 4,546

Company income tax 634 953 276 246 332

Personal income tax 278 366 965 1,364 1,697

Excise tax 575 821 423 482 607

Value-added tax 230 278 342 393 453

Trade taxes 345 544 828 1,051 1,453

Extraction royalty 252 285 3 10 1

Clearance of Zescob arrears 191 23 0 0 0

Non-tax revenue 22 60 60 132 194

Grants 575 754 1,350 1,424 1,433

Total expenditure 3,122 4,212 5,086a 6,337 6,919

Current expenditure 1,701 2,578 3,161 4,002a 4,654a

Wages & salaries 538 888 1,301 1,728 2,012

Public service retrenchment 74 19 80 10 20

Recurrent departmental charges 392 801 584 648 835

Transfers & pensions 219 353 412 361 446

Domestic interest 307 331 660 792 898

Other current expenditure 78 178 95 456 430

Agricultural expenditure 10 0 0 131 186

Contingency 82 8 29 6 13

Capital expenditure 1,009 1,557 1,925 2,335 2,265

Net lending 413 77 86 0 0

Otherc -114 -106 -117 -116 304

Overall balance -708 -1,056 -1,031 -1,349 -442

Financing 708 1,056 1,031 1,349 442

Domestic 177 589 337 1,041 212

Non-bank 38 106 247 62 167

Banking system 139 483 90 979 45

Foreign 531 467 693 308 230

a Does not sum in source. b Zambia Electricity Supply Corporation. c In effect a residual.


Money supply (ZK bn unless otherwise indicated; year-end)

2001 2002 2003 2004 2005Money supply (M1) 1,041.4 1,339.3 1,513.8 1,860.4 2,165.9 % change, year on year 34.2 28.6 13.0 22.9 16.4

Quasi-money 1,718.3 2,279.9 2,754.6 3,778.9 3,615.5Money supply (M2) 2,759.7 3,619.2 4,268.4 5,639.4 5,782.4 % change, year on year 13.6 31.1 17.9 32.1 2.5

Source: IMF, IFS.

Zambia 63


Interest rates (%; period averages unless otherwise indicated)

2001 2002 2003 2004 2005Discount rate (end-period) 40.1 27.9 14.4 16.7 14.8Treasury-bill rate 44.3 34.5 30.0 12.6 16.3

Deposit rate 23.4 23.3 22.0 11.5 11.2Lending rate 46.2 45.2 40.6 30.7 28.2

Source: IMF, IFS.

Gross domestic product (market prices)

2000 2001 2002 2003 2004GDP (US$ m)

At current prices 3,237.7 3,636.9 3,775.3 4,335.3 5,402.7GDP (ZK bn)

At current prices 10,071.9 13,132.7 16,260.4 20,520.0 25,814.0At constant (1994) prices 2,499.0 2,621.3 2,707.9 2,846.0 2,978.3 % change, year on year 3.6 4.9 3.3 5.1 4.6GDP per head (ZK)

At current prices 941 1,204 1,465 1,817 2,249At constant (1994) prices 234 240 244 252 259 % change, year on year 1.8 2.9 1.5 3.3 2.9

Source: World Bank.

Nominal gross domestic product by expenditure (ZK bn at current prices where series are indicated; otherwise % of total)

2000 2001 2002 2003 2004

Private consumption 8,275.5 9,177.3 11,280.4 13,903.8 17,746.4

82.2 69.9 69.4 67.7 68.7

Government consumption 960.4 1,687.0 2,109.0 2,770.6 3,260.3

9.5 12.8 13.0 13.5 12.6

Gross fixed investment 1,736.3 2,454.6 3,517.0 5,091.6 6,350.6

17.2 18.7 21.6 24.8 24.6

Stockbuilding 144.3 177.8 219.0 270.4 351.0

1.4 1.4 1.3 1.3 1.4

Exports of goods & services 2,121.0 3,537.0 3,850.0 4,218.9 5,100.1

21.1 26.9 23.7 20.6 20.0

Imports of goods & services 3,165.6 3,901.0 4,715.0 5,735.3 6,994.4

31.4 29.7 29.0 27.9 27.1

GDP 10,071.9 13,132.7 16,260.4 20,520.0 25,814.0

Source: World Bank.

64 Zambia


Real gross domestic product by expenditure (ZK bn at constant 1994 prices where series are indicated; otherwise % change year on year)

2000 2001 2002 2003 2004

Private consumption 1,785.4 1,720.7 1,679.2 1,680.8 1,775.8

0.7 3.6 -2.4 0.1 5.7

Government consumption 201.0 290.9 257.2 285.1 283.9

-21.7 44.7 -11.6 10.9 -0.4

Gross fixed investment 420.8 480.8 508.0 539.3 517.0

12.8 14.3 -11.6 10.9 -0.4

Stockbuilding 82.0 102.0 106.3 111.7 121.0

Exports of goods & services 807.3 1,041.7 1,112.2 1,224.2 1,377.9

-14.4 29.0 6.8 10.1 12.6

Imports of goods & services 797.5 1,014.8 954.8 995.1 1,097.4

-20.1 27.2 -5.9 4.2 10.3

GDP 2,499.0 2,621.3 2,707.9 2,846.0 2,978.3

3.6 4.9 3.3 5.1 4.6

Source: World Bank.

Consumer price inflation (annual av)

2001 2002 2003 2004 2005% change year on year 21.4 22.2 21.4 18.0 18.3

Sources: Bank of Zambia (BoZ), Statistics Fortnightly.

Railway freight volume and passenger numbers 2001 2002 2003 2004 2005Freight (m tonnes) 1.7 1.9 1.5 1.8 1.7

Passengers (m) 0.40 0.20 0.30 1.16 1.17

Source: Ministry of Communications and Transport.

Area under cultivation for selected crops (ha)

2000/01 2001/02 2002/03 2003/04 2004/05Maize 583,856 646,450 699,276 631,079 834,981

Groundnuts 137,108 139,015 150,460 116,978 161,962Sunflower seed 37,388 22,139 22,521 30,689 31,191

Cotton 56,933 87,026 86,431 121,593 176,217Soya beans 16,754 6,820 17,402 33,186 65,170

Wheat n/a 11,495 22,549 13,543 22,323Virginia tobacco 4,247 3,855 11,204 5,464 15,630Paddy rice 14,321 13,050 10,305 12,379 18,243

Sorghum 43,353 33,955 37,054 47,350 57,432Millet 70,129 61,347 56,751 59,081 63,411

Mixed beans 51,025 40,043 44,002 45,270 50,496


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Copper and cobalt production (�000 tonnes)

2001 2002 2003 2004 2005Coppera 294.5 337.4 349.8 409.5 445.6Cobalt 4.2 4.0 3.2 6.1 5.5

a Output from Zambia Consolidated Copper Mines (ZCCM) only.

Sources: BoZ.

Stockmarket indicators 2001 2002 2003 2004 2005Index (year-end; kwacha terms) 303 335 432 766 1,240Transactions Turnover (US$ m) 48.8 2.5 11.1 7.0 15.5Volume of shares (m) 9,886.1 82.8 311.4 211.3 215.3

Market capitalisation (US$ m) 248 246 768 1,650 2,456

Source: Lusaka Stock Exchange.

Index of industrial production (2000=100)

Weighting

in index 2002 2003 2004 2005Mining & quarrying 0.350 111.4 126.7 147.6 168.3 Coal 0.005 50.2 44.2 61.6 89.0 Non-ferrous ore 0.242 126.0 140.0 161.5 172.8 Stone quarrying 0.103 79.9 99.1 119.0 161.0Manufacturing 0.511 97.3 105.5 111.3 115.8 Food, beverages & tobacco 0.235 122.0 129.4 136.9 141.9 Textiles, clothing & leather 0.060 72.2 74.5 73.1 70.9 Wood & wood products 0.006 132.3 147.3 153.5 158.9 Paper & paper products 0.017 71.2 77.1 79.1 87.4 Chemicals, rubbers & plastics 0.059 73.8 79.6 85.0 87.7 Non-metallic mineral products 0.025 108.5 124.5 142.5 153.0 Basic-metal industries 0.009 59.0 67.9 70.0 68.6 Fabricated metal products 0.100 71.0 84.1 88.2 94.8

Electricity 0.139 106.9 106.8 103.5 109.9

Source: Central Statistical Office, Index of Industrial Production.

66 Zambia


Balance of payments (US$ m)

2000 2001 2002 2003 2004Goods: exports fob 746 884 916 1052 1,779Goods: imports fob -978 -1,253 -1,204 -1,393 -1,727Trade balancea -221 -342 -259 -311 82

Services balance -225 -228 -245 -238 -215Income balance -158 -168 -155 -148 -424

Current transfers balance -18 -20 7 -3 -25Current-account balanceb -622 -758 -652 -700 -583Capital & financial account 202 466 238 380 251

Errors & omissions 111 -107 31 -2 47Overall balance -420 -292 -414 -319 -332

a Includes goods produced in ports by carriers. b Excluding grants.

Source: Bank of Zambia.

Exports (US$ m)

2000 2001 2002 2003 2004Exports fob 746 884 916 1,052 1,779 Metals 497 590 560 669 1,322 Copper 425 507 510 607 1,037 Cobalt 72 83 50 62 285 Non-metal exports 249 295 357 383 457

Sources: BOZ; IMF.

Non-metal exports (% of non-metal exports)

2000 2001 2002 2003 2004Primary agricultural commodities 14.1 16.5 20.8 17.1 34.9

Engineering products 7.8 6.8 6.0 7.8 13.8Processed foods 13.5 13.8 11.9 10.6 10.6

Horticultural products 10.4 11.7 12.2 8.1 7.7Petroleum oils 0.2 0.5 0.4 4.5 6.0Floricultural products 12.8 10.9 8.2 5.2 5.7

Textiles 13.7 11.0 7.0 5.7 5.3


Zambia 67


Main trading partners (% of total)

2001 2002 2003 2004 2005

Exports fob to: South Africa 22.1 22.2 21.6 25.6 24.2

Switzerland 6.2 6.4 8.1 16.0 13.7

China 0.0 0.4 1.7 2.0 12.4

Democratic Republic of Congo 3.3 3.4 3.9 7.0 6.6

Imports cif from: South Africa 55.9 54.6 48.3 46.2 53.1

UAE 1.2 1.6 4.3 7.1 8.6

Zimbabwe 9.0 8.7 12.8 6.0 6.9

UK 10.0 8.2 5.9 14.2 4.1

Source: IMF, Direction of Trade Statistics.

Foreign reserves (US$ m; end-period)

2001 2002 2003 2004 2005

Total reserves incl gold 183.4 535.1 247.7 337.1 559.8

Total international reserves excl gold 183.4 535.1 247.7 337.1 559.8

Gold, national valuation 0.0 0.0 0.0 0.0 0.0

Source: IMF, IFS.

External debt, World Bank series (US$ m unless otherwise indicated; debt stocks as at year-end)

2000 2001 2002 2003 2004

Public medium- & long-term 4,443.7 4,826.6 5,267.5 5,583.5 5,871.3

Private medium- & long-term 64.6 119.2 108.4 395.5 385.6

Total medium- & long-term debt 4,508.3 4,945.8 5,375.9 5,979.0 6,256.9

Official creditors 4,412.1 4,342.3 4,748.8 5,158.0 5,434.7

Bilateral 2,008.7 1,960.9 2,010.0 2,081.1 2,079.2

Multilateral 2,403.4 2,381.4 2,738.8 3,076.9 3,355.5

Private creditors 96.2 603.5 627.1 821.0 822.2

Short-term debt 76.3 141.0 72.7 90.1 131.6

Interest arrears 33.0 0.5 4.4 20.1 42.6

Use of IMF credit 1,138.0 982.2 1,015.0 858.7 890.3

Total external debt 5,722.6 6,069.0 6,463.6 6,927.8 7,278.8

Principal repayments 97.6 298.3 322.0 524.3 345.8

Interest payments 87.9 57.2 60.0 204.6 80.6

Short-term debt 2.6 3.3 1.9 2.1 2.2

Total debt service 185.5 355.5 382.0 728.9 412.4

Ratios (%) Total external debt/GDP 176.8 166.9 171.2 159.8 137.3

Debt-service ratio, paida 20.9 33.0 34.6 57.4 19.9

Note. Long-term debt is defined as having original maturity of more than one year.

a Debt service as a percentage of earnings from exports of goods and services.

Source: World Bank, Global Development Finance.

68 Zambia


Net official development assistancea (US$ m)

2000 2001 2002 2003 2004Bilateral 486.2 274.1 359.5 591.9 745.3 Germany 112.2 13.8 44.2 233.2 36.2 UK 111.4 55.8 28.1 65.9 282.6 US 46.1 29.0 48.3 63.6 81.8 France 13.0 7.7 10.1 2.1 103.8 Netherlands 51.2 29.6 35.5 35.0 53.6 Denmark 23.1 22.6 32.2 30.2 45.1Multilateral 308.6 74.1 278.9 -16.2 333.2 International Development Association 205.8 135.8 149.7 97.7 156.0 European Commission 25.7 44.2 104.0 79.4 123.8 IMF 26.4 -148.9 -45.3 -236.0 -6.8

Total 795.1 349.1 640.6 581.3 1,081.0 Grants 523.3 396.3 525.1 734.5 924.9

a Disbursements of official development assistance (ODA) minus principal repayments on earlier lending. ODA is defined as grants and loans with a grant element of at least 25%, provided by OECD and OPEC countries and multilateral agencies, and administered with the aim of promoting development and welfare in the recipient country.

Source: OECD Development Assistance Committee, Geographical Distribution of Financial Flows to Aid Recipients.

Exchange rates (ZK per unit of currency unless otherwise indicated; annual averages)

2001 2002 2003 2004 2005

US$ 3,611 4,307 4,733 4,779 4,464

£ 5,198 6,455 7,728 8,750 8,115

R 418.6 409.5 626.4 741.1 701.8

TSh 4.12 4.46 4.56 4.39 3.95

Source: IMF, IFS.

Editors: Philip Walker (editor); Christopher Eads (consulting editor) Editorial closing date: July 19th 2006 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected]

Zambia - International University of Japan

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