• Growth in real GDP accelerated to 7.3% in 2012 from 6.8% recorded in 2011 while inflation declined to an annual average of 6.5% in 2012 from 8.7% in 2011. In the next two years, growth is expected to remain strong and inflation low.

  • Zambia’s economic and governance landscape is improving though challenges remain. The country moved up two places on the Mo Ibrahim Index of African Governance in 2012 but fell 10 places in the latest World Bank report Doing Business 2013 where it now ranks 94th out of 185 countries.

  • Despite marked improvements in economic performance, Zambia has yet to achieve significant gains in social and human development. The poverty headcount remains high, with about 60% of the population still living below the poverty line.

Overview

Zambia’s economy extended its growth momentum in 2012. Growth was driven by expansion in agriculture, construction, manufacturing, transport and finance. Economic prospects for the future appear bright if growth can be sustained and broadened to accelerate job creation and poverty reduction. After a successive slump in output, copper mining is expected to rebound in 2013, and is projected to reach 1.5 million tonnes by 2015. This is largely due to investment in new mines and the expansion of capacity at existing plants. Robust international copper prices will provide additional stimulus to mining.

Growth in other sectors is expected to remain equally robust, supported by infrastructure development and improvements in the business environment. In the agriculture sector, the government’s input subsidy to smallholder farmers will continue while growth in construction and transport will benefit from the government’s Link 8000 road infrastructure project.  Expansion in energy infrastructure, a boost in the services sector from rising urban incomes and improvements in the regulatory environment will further strengthen Zambia’s medium-term growth.

However, Zambia’s growth will remain redundant unless there is a corresponding increase in job creation and progress on poverty reduction, and further progress in tackling the HIV/AIDS pandemic. Zambia’s natural resources have not been harnessed to foster structural transformation and inclusive job creation. The country is dependent on copper mining, which accounts for about 80% of foreign exchange earnings and only 6% of total revenues. Thus, Zambia’s long-term economic prospects hinge on the prudent capture and deployment of copper revenues as well as harnessing the potential of non-copper minerals and other natural resources. Ultimately, manufacturing activity, driven by the private sector, and directly or indirectly linked to these natural resources, will be critical to the country’s long-term prosperity.

Figure 1: Real GDP growth 2013 (South)

Table 1: Macroeconomic indicators

 2011201220132014
Real GDP growth6.87.37.57.8
Real GDP per capita growth3.94.34.44.7
CPI inflation8.76.56.26.5
Budget balance % GDP-4.4-4.2-4.8-5
Current account % GDP0.3-3.3-3.3-3.8

Recent Developments & Prospects

Table 2: GDP by Sector (percentage of GDP)

 20072012
Agriculture, forestry & fishing--
Agriculture, hunting, forestry, fishing21.319.1
Construction15.627.5
Electricity, gas and water3.12.9
Electricity, water and sanitation--
Extractions--
Finance, insurance and social solidarity--
Finance, real estate and business services14.713.7
General government services--
Gross domestic product at basic prices / factor cost100100
Manufacturing10.48.6
Mining4.72.2
Other services2.33.8
Public Administration & Personal Services--
Public Administration, Education, Health & Social Work, Community, Social & Personal Services2.92.3
Public administration, education, health & social work, community, social & personal services--
Social services--
Transport, storage and communication4.63.7
Transportation, communication & information--
Wholesale and retail trade, hotels and restaurants20.416.2
Wholesale, retail trade and real estate ownership--

Zambia’s economic growth over the past decade has been robust, averaging around 6%. This growth has been boosted by a combination of improved macroeconomic management, economic liberalisation and privatisation, and the resource boom, specifically in copper mining.

The strong performance is expected to continue in 2013 and 2014 premised on increased mining output, rising construction activity and sustained robust growth in services and agriculture. After faltering in 2012 due to labour strikes and policy uncertainty following elections in 2011, growth in mining is expected to rebound. Copper output is expected to rebound in 2013, and accelerate thereafter, reaching about 1.5 million tons by 2015. Prospects in the mining industry are conditional on the restoration of investors’ confidence, which should see renewed investment flows into new mines, and an expansion of capacity at existing plants. Buoyant global copper prices will provide additional stimulus to the sector’s performance. The mining sector remains one of the key drivers of the Zambian economy, generating about 80% of foreign earnings. Nonetheless, the revenue effect of Zambia’s mineral resource boom has been weak, exacerbated by the lopsided mineral fiscal regime, which until 2008 favoured foreign investors. 

The agriculture sector, which has shown resilience in recent years, is expected to benefit from the government’s plans to improve resource allocation to the sector and planned investments in agriculture infrastructure and crop diversification. In 2012, production fell, due to late delivery of some agriculture inputs and decline in the prices of agriculture products, especially cotton. Productivity in Zambia’s agriculture sector is also low due to a number of constraints and challenges. Capacity utilisation is low, while farming has been concentrated in staple food crops with minimal export value. The cost of production is high, exacerbated by limited access to long-term finance. Access to credit remains one of the main challenges facing Zambian small businesses. The agriculture sector also suffers from a shortage of skills, particularly for veterinary and extension services.

The government has embarked upon measures aimed at addressing the binding constraints to productive agriculture. To boost crop and livestock production diversification, reforms are underway to encourage crop diversification with the Farmer Input Support Programme expanded to cover other crops such as soya, cotton, sunflower, and rice. To alleviate delays in input distribution, government plans to introduce an electronic voucher (e-voucher) system from 2013. The e-voucher system is expected to strengthen the role of the private sector in supplying agricultural inputs. Livestock restocking, and streamlining of policy and scaling up of extension services, irrigation and research are additional policy measures being undertaken to increase agricultural productivity.

In June 2012, the government announced establishment of industrial clusters zones countrywide, to be supported by appropriate industrial infrastructure for small- and medium-sized enterprises (SMEs). This is meant to add value to agriculture products, making them competitive in exports markets. In order to ease credit constraints, the government has announced recapitalisation of the development bank of Zambia, a government owned institution providing long-term finance. Improving the recovery of loans by the Citizens Economic Empowerment Commission is also expected to avail resources to new applicants, especially the micro, small and medium entrepreneurs, which are hugely credit constrained. The banking sector is also expected to continue playing its intermediation role, with products designed for agriculture-related SMEs.

The government continues to put emphasis on the development of tourism sector, viewed as a new growth frontier sector. Current challenges in the sector include uncompetitive tourism products characterised by the high cost of rooms and consumables and poor access to tourism sites. Thus, opening up pristine tourism spots outside the traditional tourism hub of Livingstone remains top priority on the government’s policy agenda. Accordingly, the government has upgraded major roads and related infrastructure leading to attractive yet unexploited tourism facilities. In 2013, Zambia and Zimbabwe will jointly host the 2013 United Nations World Tourism Organisation Conference. The government will leverage on this conference to portray Zambia to the world as a preferred tourism destination. The conference will also be an opportunity to highlight Zambia’s investment potential in the tourism industry.

Growth in the construction industry is expected to gain from increased public infrastructure investments, including the launch of the Link 8000 road network, and energy projects. Services growth will be driven by improvements in telecommunications, financial services, retail, and the public sector. Investors’ concerns about the fate of Zamtel have now eased. Zamtel was privatised and sold off to the Libyan owned LapGreen but later repossessed following a public inquiry commissioned by the new government revealing irregularities of sale. The telecommunications industry is primed for further growth. However, poor connectivity, particularly of the internet, and high costs of mobile phone calls remain the vexing challenges facing the information communications and telecommunications sector.  

Zambia’s economic prospects are however subject to a number of risks. The country’s dependence on the mining sector continues to expose the economy to external vulnerabilities, such as demand and price shocks. With the global economy still plagued by uncertainty, demand for copper could remain depressed, even with China showing signs of recovery. This could adversely put a cap on a rally in copper prices, and consequently delay recovery of the mining industry, harming economic growth. In the agricultural sector, the recent infestation of cropland by arm worms in parts of the country could adversely affect agriculture. Given that Zambian agriculture is predominantly rain-fed, adverse weather conditions - poor rainfall or floods – could jeopardise the sector’s growth prospects.

Although investors’ concerns have somewhat eased following the 2011 elections, there are still lingering doubts that could raise expectations of possible policy reversals, causing investors to hold back on planned investments. In the worst-case scenario, investors could completely downsize their investments. Table 2 provides a snapshot of GDP growth by sectors.

Macroeconomic Policy

Fiscal Policy

The main objective of government fiscal policy is to strengthen revenue collection by expanding the tax base. Nonetheless, total revenue and grants for 2012 as a percent of GDP remained broadly unchanged.  The overall fiscal deficit narrowly declined in 2012 from the preceding year. The deficit reflected the government’s reorientation of expenditure towards higher spending on infrastructure development. Capital expenditure was increased further in 2012 relative to 2011. More than half of the capital budget was financed by foreign borrowing and grants while net domestic financing was kept to a minimum. In 2013, higher revenues are expected mainly through improvements in tax administration, especially with respect to the VAT and mining taxes, and new tax policy measures aimed at broadening the tax base. These include reducing tax incentives and exemptions as well as the introduction of new taxes.

Expansionary fiscal policy is expected to continue in 2013 as government ramps up infrastructure spending. The government’s Medium Term Expenditure Framework (MTEF) for 2013-15, which aims at economic transformation with emphasis on inclusive growth and job creation, will be the bedrock of expanded expenditures. In particular, spending will be targeted towards stimulating sectors with the highest potential for creating employment, under a National Strategy for Industrialisation and Job Creation. This strategy prioritises policy interventions and investments in agriculture, tourism, manufacturing, and infrastructure development in energy and transportation infrastructure, identified as the growth generating and employment creating sectors. The bulk financing of these initiatives will come from proceeds of the USD 750 million sovereign bond the government issued in September 2012.

The main challenge facing fiscal policy remains low revenue taken in from domestic resources. Fiscal reforms and improvements in domestic mobilisation are guided by two of the government’s blueprints – Vision 2030 and the Sixth National Development Plan. In this regard, the government continues to explore ways of widening the tax base and strengthening administration of both tax and non-tax revenues (i.e. aid and loans from international agencies/other governments, royalties, concessions, fees) and how to allocate these resources to productive use. Given the infrastructure financing requirements, the government successfully issued sovereign bond worth USD 750 million in September 2012. This debut bond issuance provides a further opportunity for the country to mobilise funds from the international markets on commercial terms. The challenge would be to ensure that the resources mobilised from the euro bond are judiciously spent on properly appraised projects that offer a positive return.

Table 3: Public Finances (percentage of GDP)

 200920102011201220132014
Total revenue and grants18.919.621.721.620.420
Tax revenue1516.419.318.517.616.9
Oil revenue------
Grants2.91.80.81.51.31.6
Total expenditure and net lending (a)21.422.626.125.825.125
Current expenditure17.919.419.720.620.520.3
Excluding interest16.317.618.518.818.818.8
Wages and salaries8.28.17.97.87.77.5
Interest1.61.81.21.81.71.5
Primary balance-1-1.3-3.3-2.5-3.1-3.5
Overall balance-2.6-3.1-4.4-4.2-4.8-5

Monetary Policy

Monetary policy remains focused on sustaining macroeconomic stability, while ensuring adequate liquidity to sustain economic growth and attain single-digit inflation objectives. In 2012, the average annual inflation rate stood at 6.5% down from 8.7% in 2011. The reduction in average inflation occurred despite a spike in inflation in the fourth quarter, triggered by rising prices of the staple maize and imported inflation attributable to exchange rate depreciation. The rate of depreciation accelerated in 2012, reaching an average of 6% from 1.5% the previous year.

The depreciation in the exchange rate was reflective of the weakened external sector position and lingering uncertainty about policy continuity by the new government. On the premise of prudent monetary policy, improved food supply and a stable exchange rate, inflation is anticipated to fall further to 6.2% in 2013.

The Bank of Zambia’s conduct of monetary policy continued to rely on the use of indirect instruments with Open Market Operations (OMO), the main tools of managing banking system liquidity. Monetary policy has been complimented by a flexible exchange rate regime, which has helped the country absorb external shocks. In April 2012, the authorities introduced a benchmark policy rate as the main operating target. The policy rate was initially set at 9%, centred within a band of 400 basis points of the interbank rate but subject to monthly reviews, conditional on inflation developments.

Furthermore, Statutory Instrument No. 33 was implemented in Zambia in 2012, with the purpose of firming up control over monetary policy, stabilising the exchange rate and addressing the problem of increasing dollarisation of the economy. The regulation also prescribed that all transactions should be conducted in the local currency, effectively prohibiting use of foreign currency in the country. This regulation was expected to bolster the local currency and consequently dampen inflationary pressures in the short term.

In January 2012, the central bank announced two important monetary/banking policy changes: i) an increase in the commercial bank’s minimum capital requirement, from ZMK 12 billion (USD 2.5 million) to ZMK 104 billion (USD 20 million), for local banks, and ZMK 500 billion (USD 100 million) for foreign banks, respectively; and ii) rebasing/redenomination of the kwacha, by removing three zeros, effective January 2013. The central bank also introduced the policy rate as an anchor of monetary policy, thus providing guidance to the banks’ setting of base lending rates. This regulation is expected to bring down banks’ interest rates, averaging above 20% at the end of 2012.

Economic Cooperation, Regional Integration & Trade

Zambia and China signed four economic partnership agreements in December 2012, including duty-free treatment of Zambian products. Under the agreement, Zambian exporters will enjoy duty-free exports to China of up to 95% from the current 60%. It is expected that more than 8 000 Zambian products could benefit from this arrangement. The new deal is expected to boost and diversify Zambia’s trade markets. Traditionally the country’s export market for products has been to South Africa and the EU.

At the Third Korea-Africa Economic Cooperation (KOAFEC) in Seoul, South Korea, in October 2012, the Government of the Republic of Zambia (GRZ) reiterated its commitment to an inclusive growth agenda that seeks to attain sustainable social and economic growth. In the same vein, Zambia is implementing key regional infrastructure operations such as the major One Stop Border Post at Chirundu with Zimbabwe and the Nacala Corridor Development project. Other regional infrastructure initiatives include development of the railway system linking the north-western corridor of Zambia with Angola, and the eastern part of the country with Tanzania, Malawi and Mozambique. The initiative is aimed at promoting trade with neighbouring countries, and increasing access to the seaboard.

The external sector deteriorated as shown by a current account deficit posted in 2012 from the surplus recorded the previous year. This weakness stemmed largely from a decline in the size of a surplus on merchandise trade and widening of the deficit on the services account, triggered by inflows of FDI. The trade surplus fell by 36% while the service account shrunk. This was mainly due to a decrease in metal exports on account of lower copper prices as global demand for base metals remained subdued. The external sector is projected to remain stressed in the medium term mainly due to weakness in service and factor income accounts.

Table 4: Current Account (percentage of GDP)

 2004200920102011201220132014
Trade balance-0.57.115.810.76.55.73.7
Exports of goods (f.o.b.)33.933.744.944.340.439.537.6
Imports of goods (f.o.b.)34.426.629.133.633.933.833.8
Services-4-3.6-3.9-4.2-4.3-3.8-2.9
Factor income-6.4-3.3-8.4-8.1-7.4-7.2-6.3
Current transfers0.542.721.91.91.7
Current account balance-10.44.26.10.3-3.3-3.3-3.8

Debt Policy

Zambia’s public sector external debt and risk of debt distress remained relatively low in 2012. External public and publicly guaranteed debt was estimated at USD 2.4 billion. Although the size of external debt is expected to increase with the acquisition of a USD 750 million Eurobond, this is not expected to undermine debt sustainability.

In September 2012, the government sold a long-awaited USD 750 million Eurobond - the largest in sub-Saharan Africa. The maiden 10-year dollar bond was issued at yield of 5.6% and received book orders of more than USD 11 billion, signalling investors’ confidence in the Zambian economy. This is also underpinned by the rating agencies, which maintained Zambia’s credit rating at B+, albeit with negative outlook due to potential policy uncertainty.

Since benefiting from debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative and Multilateral Debt Relief Initiative (MDRI) in 2006, the government has pursued a conservative debt policy, restricting borrowing to concessional loans from multilateral creditors and inexpensive commercial sources. Accordingly, public sector external debt has increased only modestly. Between 2008 and 2012, it averaged 10.8% of GDP. The Eurobond debt is expected to push this to 14 % of GDP in 2013 but recent joint IMF/World Bank debt sustainability analysis shows the risk of debt distress remains low. Furthermore, there is more scope for additional external borrowing, even on non-concessional terms. However, Zambia needs to build and strengthen capacity in debt management to avoid getting trapped into unsustainable debt positions.

According to a report published jointly by four government agencies (Bank of Zambia, Zambia Development Agency, Private Sector Development Programme and the Central Statistical Office), private sector external debt holdings stood at USD 4.9 billion by the second quarter of 2012, down from USD 5.2 billion recorded at the end of 2011. Private sector debt holdings were made up of short- and long-term loans, trade credits and debt securities. The mining and quarrying sector accounted for more than half of total private sector debt, followed by the manufacturing sector, with about one fifth and the information and communication sector, which accounted for about 10%.

Figure 2: Stock of total external debt and debt service 2013

Economic & Political Governance

Private Sector

Zambia launched the Private Sector Development (PSD) initiative in 2005 with the purpose of promoting private sector investment. The PSD is a joint initiative by the Zambian government and the private sector aimed at promoting quality of service and private investment by addressing numerous bottlenecks affecting the performance of the private sector including access to finance, poor state of infrastructure and bureaucracy. Since it was established, a number of achievements have been made, including, among other things, reducing the amount of time it takes to register a company; speeding up border clearance time; and reducing in the number of licences required to start and operate a business. 

The key reform areas under the PSD initiative include: business licensing reform, micro small and medium enterprise (MSME) development, public private partnership (PPP) development, labour law reform and productivity, trade expansion. The program also focuses on three cross cutting areas of doing business, communication and capacity building to manage and implement reforms and gender mainstreaming. In the context of the PSD, the government planned to introduce two key bills in 2013 to further strengthen private sector participation in the economy. These were the Insolvency Bill and Companies Bill.

To further enhance the role of the private sector, the government continues to engage in dialogue with private sector stakeholders under the auspices of the Zambia International Business Advisory Council (ZIBAC VIII). The Advisory Council meeting held in 2012 focused on the theme “Value Addition for Sustainable Development”, a key aspect in fostering Zambia’s competitiveness.

The above reforms notwithstanding, Zambia’s ranking in the World Bank report Doing Business 2013 dropped. The Doing Business 2013 report shows it falling to 94th place out of 185 countries compared with its 84th position in the previous year’s survey. The drop is mainly due to the fact that the country undertook only one reform in 2012 – strengthening the insolvency process by qualifying requirements for receivers and liquidators, and establishing specific duties and remuneration rates.

Financial Sector

Zambia’s financial landscape during 2012 remained buoyant, supported by a favourable political and socio-economic environment, which enabled the country to record positive and significant growth. Investments showed positive signs as evidenced by a successful issuance of the USD 750 million bond, which attracted bids amounting to USD 12 billion. There were general improvements in all areas as the banking sector recorded growth in loans, advances and total deposits. Yields on government securities remained positive in real terms due to a sustained reduction in the inflation rate. However, high lending rates and other usury charges constrained access to financial services. At the end of 2012, only 37% of the bankable population had access to banking services. This shows that financial outreach, especially to the rural areas, remains a major challenge. It is the main focus of the Financial Sector Development Plan II (FSDP II).

The FSDP II, which builds upon the FSDP I, was rolled out in 2012 in an attempt to address constraints to financial inclusion by increasing outreach and access, improving market infrastructure, and fostering competition. The vision of the FSDP II is to increase domestic savings by improving financial intermediation. However, delays in concluding financing arrangements of the plan have undermined implementation of some of its programmes. Nonetheless, a framework for improving financial literacy has been adopted and is expected to be operational in 2013.

The government is also seeking to ensure financial stability. This was reflected in a number of regulatory changes made in 2012, notably the reforms to improve banks’ capital base. These measures are also aimed at addressing challenges affecting the financial sector, including the high cost of doing business and the high level of non-performing loans. Speeding up the implementation of the National Financial Switch remains a major priority, with a view to enhance interoperability of payment systems through shared infrastructure.

Public Sector Management, Institutions & Reform

The Government of Zambia recognises that prudent public expenditure management and financial accountability are key ingredients in national development. In this regard, the authorities have continued with Public Sector Reforms, encompassing public expenditure management and improvements in financial accountability. In September 2012, the Cabinet approved the new 3-Year Public Financial Management Strategy for the period 2013-15.

In keeping with these reforms, the government is committed to supporting transparent policy making. One of the government’s key strategies is to support the fight against corruption, which aims to prevent or uncover abuses by public service officers. To this effect, the government, with the support of the United States’ Millennium Challenge Corporation, has set up Integrity Committees in government departments and agencies.

In order to strengthen the fight against corruption, the government has reinstated the Anti-Corruption Commission (ACC) law in March 2012, making abuse of office of authority a corrupt matter. The previous government had removed it from the ACC statute. The ACC is the autonomous institution mandated by law to lead the fight against corruption. Nonetheless, it works closely with other law enforcement agencies, including the Policy Service, Drug Enforcement Commission. The ACC consists of a chairperson, four commissioners and a directorate headed by a director-general, all of whom are appointed by the President subject to parliamentary approval.

In the 2013 Budget Speech, the government announced the implementation of reforms that will simplify the tax code in order to improve revenue collection from small- and medium-sized enterprises. The government also stated its commitment to modernise tax administration. In the same vein, the government remains committed to introducing revenue sharing arrangements with local councils, although progress with its decentralisation programme has been slow. The authorities also plan to decentralise procurement functions for ministries, provinces and other spending agencies.

Natural Resource Management & Environment

The increasing demand for natural resources such as minerals, forests, fisheries, land and wildlife calls for sustainable management to reduce problems of climate change, biodiversity loss, and environmental degradation in Zambia. Achieving these objectives requires a high calibre of well-trained professionals and adequately resourced institutions for monitoring offences and enforcing penalties.

The government’s Environment, Natural Resources Management and Mainstreaming Programme, launched in 2009, is a broader initiative aimed at improving co-ordination and implementation capacity for the environment and natural resources sector. It draws its mandate from the Sixth National Development Plan, and specifically, its predecessor, the Fifth National Development Plan. The programme was designed in recognition of the urgent need to address key environmental issues affecting the country.

The government is in consultation with stakeholders regarding the appropriate policy framework to guide the mining industry. The government has identified some shortcomings in the existing Mines and Minerals Act (1995), which the new framework seeks to address. In particular, the state would like to strengthen capacity for monitoring of mining activities and export of minerals, encourage exploration in non-traditional mining areas, and streamline mining license requirements to foster transparency and accountability whilst promoting private sector investment in the industry.

Political Context

Zambia held its sixth consecutive multiparty elections in September 2011, which were won by the opposition Patriotic Front, ousting the Movement for Multiparty Democracy that had held power since 1991. While challenges remain in the current political landscape, democratic institutions are being strengthened.

The new government has retained the broad development policy framework laid out by the previous regime, namely the National Vision 2030, the Sixth National Development Plan 2011-2015 and Medium Term Expenditure Frameworks. The government’s development path places strong emphasis on job creation, especially for women and youth. In order to improve service delivery throughout the country, the president has created a new Province and established new districts by dividing up large ones. These initiatives are outlined in the party’s Manifesto.

The government has made the fight against corruption another priority. However, despite numerous reforms to tackle graft, Zambia’s ranking on the corruption index has not significantly improved. In 2012, Zambia was 88th on Transparency International’s Global Corruption Perception Index out of 176 countries surveyed. This represented only a slight improvement over 2011 when the country was ranked 91st among 183 countries. The administration has repeatedly announced bold measures to reduce corruption and improve overall governance and transparency.

Reflecting these efforts, the 2012 Mo Ibrahim Index of African governance ranked Zambia 12th out of 52 countries surveyed. This represented an improvement from 16th in 2011. Zambia is one of only seven countries demonstrating significant improvements on the Mo Ibrahim Index in overall governance since 2000.

Social Context & Human Development

Building Human Resources

Despite the acceleration of economic growth, there has been slow progress in improving Zambia’s human development social conditions. With the exception of education, most Millennium Development Goals (MDGs) are likely to be missed. Zambia has made significant progress in improving universal access to education. The latest available statistics for 2010 show that primary school completion rates increased from 64% in 1990 to 91.7% in 2010. Of the total enrolment, there were more girls than boys. This achievement is partly attributed to increased intake in community schools, which however puts into question the quality of education. Thus, looking ahead, emphasis should be placed on the quality of education and increasing completion rates for girls in secondary education and improving access to post-secondary education and skills training.

In the health sector, progress has been slow. Latest available statistics show that the number of under-five deaths dropped from 119 in 2007 to 111 per thousand live births in 2011 against the MDG target of 63.6. Similarly, additional measures may be necessary to attain the infant mortality target of 35.7 by 2015. The current infant mortality rate is at 85.3.

Maternal health care also improved but fell short of the MDG targets of 162 (per one hundred thousand) in 2015. The proportion of births attended by skilled healthcare workers to total births reached 65% in 2011 from 52% in 2005. Nonetheless, maternal mortality ratio (per one hundred thousand) dropped only to 440 from 500 over the same period. To reach the target, there is need for increased investment in training, oversight and improved access to health facilities, particularly in rural areas in order to curb unsafe home-based birth practices.

The national average of HIV/AIDS prevalence among the working age population has declined slightly from 13.5% in 2011, to an estimated 13.2% in 2012. The prevalence rate in urban areas was double that in the rural areas. In an effort to improve the provision of healthcare services, the government has increased expenditure to approximately 6% from 4.5% percent in 2011. The government is also leading awareness campaigns on of HIV/AIDS, malaria and tuberculosis.

Unless further improvements are made, Zambia’s ranking on the Human Development Index (HDI) will continue to lag compared to its regional peers. In 2011, Zambia’s HDI score was 0.43 against a mean of 0.46 for sub-Saharan Africa, and has showed no meaningful improvement over the last years. This has implications for the country’s future human capital development.

Poverty Reduction, Social Protection & Labour

Zambia’s trend of inequalities in incomes, assets, and social services is on the rise. Latest data shows that the Gini coefficient increased to 0.65 in 2010 from 0.60 in 2006. Similarly, due to limited job opportunities, the level of unemployment worsened to 28% in 2010 from 22%, five years earlier. For those who are employed, 95% are estimated to be in vulnerable work, mostly in low productive informal activities. This problem is related to low skills levels, and a concomitant decline in labour productivity, exacerbated by concentration of growth in highly capital-intensive and urban-based sectors like mining, construction and services. Zambia epitomises the present African challenge of ensuring that growth is inclusive in an environmentally sustainable framework.

In order to address these challenges, the government improved its budgetary allocation to social protection programmes to 2.8% in the 2013 from 2.4% the previous year. Out of this allocation, 2% is meant to clear outstanding arrears owed to the Public Service Pension Fund for retirees. The remainder is for various social safety nets, such as public welfare assistance and social cash transfers.

The increase in budgetary allocation to social protection programs will facilitate progress achieving MDG 1 - reducing extreme poverty and hunger - by 2015.

Gender Equality

Gender issues remain among the government’s top priorities. Women constitute 52% of the country’s population and unless there is gender equity, there will be no meaningful social and economic development. In this regard, the President upgraded the gender division into a full Ministry, in March 2012, in order to strengthen the implementation capacity of policies and activities on gender issues.

The elevation of gender issues to ministerial functions should accelerate gender mainstreaming and advocacy. In particular, it is expected to create incentives for women to participate in political and governance affairs of the country. In the previous election, only 18 seats (11%) of out of the 150 parliamentary seats contested in 2011 went to women. This is below the SADC target of 50% representation of women in national parliaments. While the rural poverty level in Zambia is 68%, 80% of those poor are women and children. The incidence and prevalence of HIV/AIDS is more severe for women than for men.

Under the Sixth National Development Plan, gender has been systematically mainstreamed in all sectors of the economy. This has been buttressed by the allocation of additional funds to gender issues in the 2013 budget, funds that are specifically meant to advance women’s employment.

Thematic analysis: Structural transformation and natural resources

Zambia is richly endowed with copper, the country’s major source of foreign exchange, accounting for about 80% of total exports. Zambia is Africa’s top copper producer and the world’s seventh-largest, making up about 6% of global output. Zambia also has sizable proven deposits of other mineral resources, including cobalt, nickel, manganese, gold, nickel, gemstones, non-metal resources (e.g. coal, uranium) and soft natural resource commodities (forests, fertile land). Furthermore, it is believed that Zambia accounts for about 60% of water resources in southern Africa. These diverse natural resources present numerous opportunities for economic transformation.

Whilst previous attempts to diversify Zambia’s exports and foster structural transformation have proved futile, current economic conditions and political dispensation offer favourable incentives for a new economic model. If properly harnessed, these natural resources could be exploited for the benefit of the Zambian people. However, identifying economic sectors that offer the best competitive advantage is the most critical issue.

The potential of agriculture to contribute towards structural transformation is immense. Zambia has abundant arable land and climatic conditions suitable for production of a variety of crops. Currently, agriculture contributes about 7% to GDP growth and employs an estimated 85% of the workforce, mostly in the subsistence sub-sector. However, productivity is very low. Output per worker in constant US dollars is only USD 221 against USD 900 for sub-Saharan Africa. Furthermore, agriculture contributes no more than 5% of total merchandise exports and the linkages with manufacturing are generally weak.

The major hindrance to improved agriculture and livestock productivity is investment in infrastructure and lack of extension services, particularly to small-scale farmers who face higher per unit costs. Mainstreaming the agriculture sector requires the commitment of substantial public resources, especially in productivity improving technologies and a retrenchment from inefficient input subsidies. Investment in research and development, extension services and rural infrastructure is essential to making Zambia’s agriculture sector more competitive.

Zambia is currently enjoying its longest commodity boom ever, driven in part by high international copper prices. Apart from providing fiscal benefits, copper mining can lead the way to Zambia’s greater industrialisation. Evidence of satellite SMEs supporting the mining industry is already in place. These include Scaw Limited, a large foundry for the supply of grinding media for ore milling operations, and African Explosives Limited, which manufactures rock blasting explosives. Strategic outsourcing is another form of generating value from mining to spur development of local entrepreneurship and job creation. Examples include outsourcing of subsidiary professional services such as the haulage of ore, and labour sourcing, both of which offer opportunities for employment creation. 

Other minerals, such as gemstones and coal, also offer opportunities for government revenue, employment creation and poverty reduction. However, the gemstone industry is largely characterised by artisanal miners, and exports often escape formal capture. Less than 20% of gemstone exports pass through the official channel. Although the sector has potential to generate USD 600 million in foreign exchange per annum, only USD 40 million is captured. Opportunities for structural transformation from the gemstone sector include processing and polishing to add value to raw gemstones. Currently, the government is experimenting with this model through its support of the Lapidary and Gemstone Processing Training Centre, which develops skills for emerald processing.

Zambia’s rich coal deposits could be used to generate thermal power, thereby alleviating the country’s energy shortfall. Maamba Collieries, jointly run by the state owned ZCCM-IH (35%) and Nava Bharat of Singapore (65%), is currently exploring the potential for a thermal power plant that would generate 300 MW in the first phase of investment.

Constraints to Zambia’s structural transformation and rapid industrialisation are well documented. Growth diagnostic studies undertaken in the country demonstrate that Zambian firms are hugely penalised by an underdeveloped infrastructure, a burdensome regulatory and tax regime, limited access to finance, low level of skills, and the general high cost of doing business. Zambia’s current expenditure on infrastructure is about 10% of GDP, lower than the estimated 20% the country needs to address the infrastructural deficit. Even with proceeds from the Eurobond, the infrastructure financing gap remains huge.

The current shortage of skills puts a premium on production costs and undermines productivity. Large infrastructure and construction works by foreign firms rely on imported labour, mainly from South Africa or East Asia. Narrowing the education-skills mismatch would require reforming the technical and vocational curriculum, investing resources in research and development, and providing targeted incentives to firms that exhibit strong commitment to improving human capital development.

There are indications of government commitment in pursuing the diversification process with policies focused on overcoming these constraints. In the strategic plan for 2011-2015, the government has set benchmarks for promoting and enhancing value addition on local products. This is envisaged through the establishment of industrial clusters through the country, based on the regions’ comparative advantage. Local entrepreneurs facing financing constraints could access funds through the revamped Citizens’ Economic Empowerment Commission (CEEC). The CEEC, and other initiatives, including the Private Sector Development Reform Programme (PSDRP), the Triangle of Hope Initiative and the Millennium Challenge Corporation, seek to alleviate binding constraints to Zambia’s long-term development. 

Zambia could enter a new phase towards distributive and inclusive growth, with the mining industry ramping up production to about 1.5 million tons by 2015, the multi-facility economic zones coming on stream, and the provision of infrastructure and equipment to Nansanga and two other farming blocs. But this will require effective leadership and strong partnership between the state and non-state actors. The government must inculcate a spirit of ownership and strengthen the role of the private sector by nurturing industrial enterprises, allowing them to venture into niche products within complex value-added chains.

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