The Zambian government, led by President Edgar Lungu, is pushing ahead with economic diversification efforts, transforming the country from one heavily reliant on copper exports to one with highly developed industries across the economic spectrum, including energy, agriculture, infrastructure, manufacturing and tourism. Hoping to realise its long-term development goal of becoming a middle-income nation by the year 2030, Zambia is inviting international investors in order to achieve meaningful and enduring change.
Zambia, in Southern Africa, is a beacon of political stability in a continent where peace can be a rare commodity. It is bordered by eight countries including Angola, Zimbabwe and Mozambique. Unlike many African nations it has not experienced civil war and multiparty elections have been held regularly since 1991.
Over the past 25 years Zambia has undergone a period of reform as it transitioned from a central-planning model to a market economy. The last decade has seen rapid economic progress and 7.5 per cent GDP growth. In 2010, the World Bank named Zambia one of the world’s fastest economically reformed countries. This remarkable growth has been enabled by the strength of the mining industry, in particular the export of copper.
A former British colony which gained independence in 1964, Zambia maintains close ties with Britain, it is the top destination for Zambia’s overseas investment. Britain also invests heavily in Zambia and contributes 3 per cent a year to the total aid received. In 2011 the two countries hit a record $333 million (£221 million) worth of goods traded between them.
However Zambia is not afraid to admit there have been problems in recent years caused by the lack of economic diversification. The Minister of Commerce, Trade and Industry Margaret Mwanakatwe concedes, “We’re an economy that imports too much and we’re dependent on the export of copper.”
The recent economic difficulties in China have meant that the price of copper, which accounts for 70 per cent of Zambia’s export earnings, has fallen sharply. This has been followed by a significant devaluation of the country’s Kwacha currency and power shortages have become an increasing problem.
Instead of pressing on with tired tactics, the government, led by President Edgar Lungu is concentrating on the country’s economic diversification, particularly focusing on the development of energy, agriculture, infrastructure, manufacturing and tourism. Zambia is particularly keen to welcome international investors in order to achieve meaningful and long-lasting change in the country.
Dr Richard Chembe, Managing Director of Investrust, a Zambian-owned bank, believes the country presents excellent opportunities for investment. “There are opportunities in finance, agriculture, housing, tourism and energy. You get rewards here that you can only dream about in the rest of the world,” he says. Dr Chembe’s view is shared by Dr Denny Kalyalya, Governor of the Central Bank of Zambia who states, “We don’t want to attract aid, we want trade and foreign direct investment to capitalise on our strengths. We are pushing for access to markets and technology. Zambia has so much potential and having eight countries as neighbours means we could well be a hub for the region.”
Over the past ten years the market has been liberalised to make it easier for foreign businesses to conduct operations in Zambia. The Organisation of Economic Co-operation and Development (OECD) has described Zambia as one of the most open nations to foreign direct investment (FDI) in Africa, while the International Monetary Fund (IMF) has named it one of the six best countries in Africa to do business with. Andrew Okai, Managing Director of Standard Chartered Bank in Zambia explains that this is because a regulatory structure has been created by the government to promote and protect investment, aided by tax incentives for certain projects. “There are no restrictions or exchange controls in place, it is fairly easy to transact and move money,” he says. “We have an open economy and Zambia offers very decent returns on investments.”
The mining sector is undoubtedly the main source of income for Zambia, creating government revenues of $1.5 billion annually. Zambia is the eighth largest producer of copper and ninth largest producer of cobalt in the world. It also boasts important reserves of gold and gemstones. Since 2012 the country has been EITI compliant, meaning it operates with transparency in its extractive pursuits and will use revenue from mining to contribute to poverty reduction.
Christopher Yaluma, the Minister of Mines, believes the industry can diversify from copper into other natural resources. “We have good minerals such as uranium, phosphate and nickel and there’s the possibility of creating finished products from gemstones and gold, rather than just exporting the raw material,” he says. A ‘win-win’ tax and legal framework is currently in the process of ratification which will create an attractive business environment for investors.
As well as the fall in copper prices a key challenge facing the mining industry is a power deficit which is currently being cushioned by costly imports of energy. Mr Yaluma echoed President Lungu’s speech at the United Nations a few months ago articulating that public private partnerships (PPPs) are the way forward to fund the upgrade of existing infrastructure and to meet growing demand within the energy sector.
The government is working on a number of plans to secure energy in the short, medium and long term, with a number of power plant projects set for completion in the next few years and regional interconnectors being built to link Zambia with neighbouring countries. The intention is to import power with the hope of eventually being in a surplus position to export power.
Hanson Sindowe, Chairman of the Copperbelt Energy Corporation believes hydroelectric and solar power are the future for Zambia. The country holds 40 per cent of the water reserves in the region and the Ropora river which forms the boundary between Zambia and the Democratic Republic of Congo is just one site he is considering for development. In Livingstone he is developing a solar power plant. “I’m actively looking for long term partners to back my projects. On a national level regulations have changed to make power prices more expensive in order to attract foreign investors who will get quicker returns on their investments,” he says, adding that while Zambians have started to appreciate that electricity will not be as cheap as it used to be, they are broadly in favour of Zambian companies and investors working together to plug the power deficit.
Mr Okai agrees that power is the best opportunity for investment as in the future Zambia “won’t just be supplying power to the [domestic] economy, but the wider region”.
“As the sun is so abundant in Zambia it will be the driver for the main source of energy,” adds Mr Yaluma. “By next year we’ll have about 600 solar power generated farms connected to the grid with the aim of supporting the agricultural sector both directly and indirectly.”
Over 70 per cent of the Zambian workforce is occupied in agriculture and it is responsible for 14 per cent of the country’s GDP but there is still room for growth. Zambia’s Minister of Information and Broadcasting Services Chishimba Kambwili explains, “We need to invest more in value crops that can add to our exports.” Cephas Chabu, Managing Director of the National Savings and Credit Bank (NATSAVE) likewise believes agriculture is a key driver for economic diversification. “We have a lot of arable land, water resources and good weather,” he says.
Financial inclusion in the country is still a problem, however. While only around 50 per cent of the population use banks, a strongly regulated banking sector is now cleverly tailoring its products to the country’s agricultural demands and the use of mobile internet technology is helping to narrow the gap. NATSAVE has created programmes to enable people in rural areas to access equipment to mechanise their operations. “In some places where farmers were growing below five hectares of land, they are now able to plough 50-100 hectares which will all work towards driving growth,” says Mr Chabu proudly.
At Investrust, Dr Chembe is focused on small- and medium-sized enterprises (SMESs) and people who operate outside of mainstream banking. They are targeting rural areas through agency banking, where people access the bank’s services through someone they know and start from small transactions such as buying mobile phone airtime and work up to loans for fertilizer. He believes it is the responsibility of banks, as well as the government to teach people methods of modern farming, how to run a farm as a business and financial literacy.
To facilitate agricultural exports as well as the movement of agricultural investors, Zambia has embarked on an ambitious project to upgrade its road infrastructure. The Link Zambia 8000 plans to build 8000km of roads to open rural areas and connect districts and provinces. Currently 2500km of roads have been completed.
Manufacturing goods for export is also part of the plan for economic diversification. Zambia is in the process of setting up tax-free Multi-Facility Economic Zones. As Ms Kambwili explains, “the country will benefit from the inflow of foreign exchange that will be realised from the export of goods manufactured in these multi-economic zones. At the same time, the country will enjoy creation of much sought after employment.” These zones are aimed at both local and foreign investors.
A key theme that all of the major players in Zambia’s future have repeated is their hope that the people of Zambia benefit from the investment they want to attract to their country. This feeling is best summed up by Mr Yaluma who says, “So far, Zambians have only benefited as employees but not as owners or shareholders. We’re trying to bring in initiatives that will empower Zambians so that they can sustain themselves and their families in the long term.”
¡Indeed Zambia is trying to encourage a spirit of entrepreneurship amongst its youthful population, with the Ministry of Commerce, Trade and Industry developing special programmes to encourage SMEs. Ms Mwanakatwe is also focused on encouraging women to be involved in business, asserting, “I really believe that economic emancipation through women is something that can turn this country around.”
Currently tourism plays only a small role in Zambia’s economy but the government has plans to attract over one million tourists a year and bring revenues from the industry up to 7 per cent of GDP. Didier Coeln, General Manager of the InterContinental Hotel in Zambia’s capital Lusaka believes that figure is achievable. “The country has great potential as a tourist destination, the UNSECO World Heritage Site of Victoria Falls is one of the natural wonders of the world but there are definitely some other places that remain undiscovered by tourists such as the Southern Luangwa park.” The country boasts some 40 national parks and Mr Coeln believes there are many opportunities for eco-tourism which has been one of the new trends in travel over the last few years. He admits the majority of travellers to Zambia come from the corporate sector but that the country is focused on developing the talent of young people to serve the hospitality industry. “At the InterContinental hotel we have partnerships with institutions in Lusaka where we give young people training and help them find suitable opportunities in the industry either with ourselves or others,” he says.
A key challenge in developing the tourism sector is improving the connectivity of Zambia to other countries. Currently four airlines fly to Zambia but it is not possible to fly directly from Europe. The government hopes to re-establish a national airline in the future and is working to attract other international airlines to the country.
As Zambia has moved from a low-income country to a low-middle income country its ambitions are similarly growing in stature. By 2030 it hopes to be a prosperous middle-income nation with a range of foreign direct investment. This is by no means an impossible task, with the IMF predicting sustained growth of around 7 per cent per annum and export growth of 10 per cent per year up to 2020.
Zambia is certainly aware of the challenges it faces but it is focusing on the positives, seeing itself as landlinked rather than landlocked and entering numerous bilateral trade agreements with its neighbours in the hope of becoming a hub for the huge market around the region. As Ms Mwanakatwe puts it, “we want you to come and work with us, partner with us, and exploit this huge potential that is currently here but won’t be forever. The time is now.”