Zambia

Zambia 2014

www.africaneconomicoutlook.org

Peter Engbo Rasmussen / [email protected] Kambaila Munkoni / [email protected]

George Lwanda / [email protected]

2 African Economic Outlook AfDB, OECD, UNDP 2014

Zam

bia

Zam

bia

Zambia

WhileZambiasrealGDPgrowthremainsrobust,itdecreasedto6.5%in2013inlargepartduetoapooragricultureharvest.Investmentsinminingcontinuetodriveothersectors,especiallyconstruction,transportandenergy.Inthemediumterm,growthisprojectedtoincreaseto7.1%in2014and7.4%in2015,whileinflationisexpectedtofallbelowthe2013level.

Zambia has continued to strengthen governance and democratic processes, withgovernmentinstitutionsdevelopingandreinforcingtransparencyandaccountabilityefforts.

Despiterobusteconomicperformance,povertyremainshighatover60%,buttherehavebeenimprovementsinurbanareas.Increasingyouthemploymentremainsoneofthebiggestchallenges.

Overview

Zambias economic growth in real terms decreased to 6.5% in 2013, mainly due to a fall in agricultural output, particularly maize and cotton. The growth in real GDP was largely driven by manufacturing, mining, construction, transport, communications and the public sector. Copper remains the countrys mainstay, contributing about 70.0% to export earnings. However, over the last few years non-traditional exports have grown substantially. Economic performance in the medium term is expected to remain strong. Real GDP growth is projected to increase to 7.1% and 7.4% in 2014 and 2015, respectively. Infrastructure investment, especially in mining, power generation and roads, with the Link 8000 project, will ensure that growth remains robust.

The main areas of policy focus are creating employment opportunities for the majority of Zambians (especially the youth), improving accountability and strengthening the fight against corruption. The government plans to create 200 000 decent jobs per year. The government will also focus on strengthening fiscal management in an effort to narrow the fiscal deficit, which doubled in 2013 due to expansion of infrastructure spending and an increase in public sector wages. The coming years will require a concerted effort to broaden the tax base and expand the pallet of potential taxes to generate additional government revenues, as well as streamline expenditures, focusing less on recurrent spending and more on priority areas. Private sector competitiveness needs to be strengthened given the pressure on demand for higher wages, especially for skilled labour, which is in short supply.

Manufacturing accounted for about one-tenth of GDP in 2013. The country is landlocked and is constrained by high costs of transport, which add up to 40% of the cost of the final product. The extractive industry is the main exporter in the country and has potential for upstream value chain development. Competitiveness of downstream activities may be constrained given the distance from the main markets for copper products. Food and beverages account for more than two thirds of manufacturing value added. A growing market in the Katanga province in the south of the Democratic Republic of Congo (DRC) fuelled by mining activity offers opportunities for Zambian firms and farmers. Another potential consumer market is South Kivu, also in the DRC, which is accessible from Mpulungu Port on Lake Tanganyika.

3African Economic Outlook AfDB, OECD, UNDP 2014

Zam

bia

Zam

bia

Figure 1. RealGDPgrowth

%

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013(e) 2014(p) 2015(p)-1

0

1

2

3

4

5

6

7

8

9

Real GDP growth (%) Africa (%)Southern Africa (%)

Source: AfDB, Statistics Department AEO. Estimates (e); projections (p).

Table 1. Macroeconomicindicators

2012 2013(e) 2014(p) 2015(p)Real GDP growth 7.2 6.5 7.1 7.4

Real GDP per capita growth 4.0 3.2 3.8 4.2

CPI inflation 6.6 7.1 6.8 6.3

Budget balance % GDP -2.8 -7.3 -6.6 -5.7

Current account balance % GDP 2.1 0.2 -0.2 -0.4

Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations.

Recent developments and prospects

Zambias economy has been growing at an impressive rate over the past decade. Average annual real GDP growth rate surpassed 6% during this period. This economic performance has largely been driven by growth in construction, transport, communications, the public sector, trading and mining. The Zambian economy has been relatively resilient to the global crises in recent years.

In the medium term, strong performance is expected to continue in transport, communications and construction. These sectors are expected to benefit from increased investment in mining, with the need to bring in equipment and materials during construction and operations. In 2013, these two sectors contributed half of the growth in real GDP. The governments increased allocation for infrastructure (e.g. Link 8000 and Pave Zambia), with more than USD 5 billion in the road projects, will ensure that growth in construction remains buoyant. The fast expanding mobile communications services sub-sector is also expected to continue to lead growth in the communications industry. The public sector saw strong performance in 2013, with education and public administration expanding. The downside risks to growth include waning global copper demand and adverse effects on agricultural production.


Zam

bia

Zam

bia

Throughout 2013 the Central Bank of Zambia pursued a tight monetary policy, increasing the policy rate to curb inflation. Inflation has remained largely stable during the past couple of years, between 6% and 7%. It is expected to fall below 7% in the medium term. Growth in private sector credit was adversely affected by a cap on interest rates for commercial banks and non-bank financial institutions, coupled with a rise in returns on government securities. This led to a decline in the growth of private sector credit from 40% to 15% in 2013. The upward adjustments in bank capitalisation, which were implemented in 2013, have not contributed to increased lending. The financial sector is still expected to continue expanding in 2014 and 2015 but at a slower pace.

During the past decade, manufacturing has consistently performed well. The expansion has been driven by strong performance in agri-business, such as food processing, tobacco and beverages, as well as a growing need for materials to support activities in the construction industry. However, in 2013 growth in manufacturing slowed slightly, mainly due to sluggish growth in agri-business.

Agriculture is still the most important sector from a socio-economic point of view, providing employment opportunities for 60.0% of the countrys informally employed population of 4.9 million and 8.0% of the only 625 000 formally employed. Zambias agriculture is heavily reliant on rainfall and, due to erratic rain patterns in 2013 and an army worm outbreak, growth in the sector faltered, contracting by more than 7.4%. The late delivery of maize seed and fertiliser to affected areas that needed replanting also contributed to a contraction in maize output by 11.0% and cotton production by 48.0%. The outlook for agriculture output in 2014 could also suffer from poor rainfall, as evidenced by early signs of unfavourable rain patterns, while slow delivery of inputs continues to pose a challenge in most areas. During 2013 the government took steps to reduce the grain millers subsidy, as well as farmers input support subsidies, which affected more than 800 000 small-scale farmers. Agricultural reforms will continue in the medium term as the government is expected to sequence the reforms over a number of years.

Though growth in mining slowed in 2011 and 2012, the sector (especially copper) has continued to grow. It is the single most important recipient of large foreign direct investment (FDI) and accounts for about 10% of the formally employed. Whilst there is agreement that copper output expanded in 2013, the extent of the expansion depends on the source consulted. According to the Bank of Zambia (BoZ), output increased by 21% to more than 950 000 tonnes, while preliminary national accounts figures suggest expansion was only 5%. Output is projected to further increase to 1.5 million tonnes as new copper mining operations come on stream in North-Western province in the next few years. These include the new Sentinel Mine and the expansion of the Kansanshi and Lumwana mines, which combined will account for more than 370 000 tonnes. Output at the Konkola Deep is projected to increase by 200 000 tonnes, while Konkola North is expected to add 50 000 tonnes to total copper output. The main challenge for the mining industry is to obtain reliable and sufficient power supply as this could otherwise affect copper production in the future. The mining sector consumes more than 50% of power supply.

Government consumption grew by 35% in 2013, and it is expected to remain high in 2014 due to an expansionary budget announced in October 2013. Gross investment is also expected to grow strongly in the medium term, brought about by the continued investment in public infrastructure and the mining sector. The share of household consumption has decreased to 44% of GDP in 2013 from 52% of GDP the year before.

The expansion in public spending has also necessitated increased domestic and external borrowing. External debt stock doubled from 2011 to 2013. Although the debt-to-GDP ratio is currently sustainable, there is a need to closely monitor future debt accumulation, not least in light of higher financing costs. Financing costs increased following the downward revision of Zambias credit rating from B+ to B, with a negative outlook due to fiscal profligacy and policy uncertainty in the last quarter of 2013. Interest rates on government securities rose by 238 basis points from June to December, while the spread on the 2022 eurobond increased by over 200 basis points.


Zam

bia

Zam

bia

During the past seven years, Zambia has been pursuing a policy of increased industrialisation through the promotion of industrial parks and multi-facility economic zones inspired by the Chinese experience. Currently, six multi-facility economic zones are on the drawing board, with the aim of creating clusters of companies operating within the same industry. By creating a critical mass of different service providers and operators, the expectation is that industrial development can move to higher levels while creating jobs and allowing Zambia to participate increasingly in GVCs. Current value chains already well-established include copper, beef and sugar; other chains that have potential for growth include gemstones and cotton.

Table 2. GDPbysector(percentage)2008 2013

Agriculture, hunting, forestry, fishing 21.2 17.7

of which fishing 1.0 0.5

Mining 3.9 2.2

of which oil

Manufacturing 10.1 8.2

Electricity, gas and water 3.0 3.0

Construction 17.2 29.1

Wholesale and retail trade, hotels and restaurants 19.8 15.1

of which hotels and restaurants 3.1 1.9

Transport, storage and communication 4.4 3.9

Finance, real estate and business services 9.8 9.2

Public administration, education, health and social work, community, social and personal services 2.8 2.9

Other services 7.9 8.8

Gross domestic product at basic prices / factor cost 100.0 100.0

Source: Data from domestic authorities.

macroeconomic policy

Fiscalpolicy

In 2013, the government pursued a more expansionary fiscal policy than was initially announced in the budget. This expansion was induced by increased expenditures to support construction of new roads, operations of the Food Reserve Agency, the provision of the farmer input-support programme, unplanned fuel payments and increases in civil servant wages.

Government expenditures rose by 32.0% in 2013 to a total of ZMW 36.6 billion (or 29% of GDP), up from ZMW 26.1 billion (24.7%) in 2012. Domestic revenue collection amounted to ZMW 24.5 billion (20.1% of GDP). It was slightly more than targeted and was 9.4% higher than the out-turn in 2012. In relative terms, domestic revenues fell by one percentage point, from 21.1% of GDP in 2012. Zambia received less development assistance in 2013 due to a reduction in funding for projects and budget support. According to preliminary figures, the government received 1.0% of GDP through grants, down from 1.7% of GDP in 2012.

The expansion in government spending was triggered by large investment outlays in the road sector, with the implementation of the Link 8000 programme aimed at constructing 1 500 km of roads in the first phase. The project is to be implemented over the next five years. Other programmes include Pave 2000 for pedestrian paths and Lusaka 400 for the rehabilitation of Lusaka roads.

The budgetary allocation for agriculture was largely influenced by the need to enhance national food security. Accordingly, ZMW 1.0 billion was spent on the farmer input-support programme, representing an increase of 22% from 2012. A total of ZMW 1.1 billion was spent on the strategic food reserve in order to maintain 500 000 tonnes maize in reserve. As part of


Zam

bia

Zam

bia

ongoing reforms aimed at increasing transparency in the maize marketing system, all food reserve agency operations will be funded directly from the budget in 2014.

The fiscal deficit more than doubled in 2013 relative to the target and quadrupled from the year before. The deficit widened to 7.3% of GDP from 2.8% recorded in 2012. In 2014, fiscal policy is expected to remain broadly expansionary, focusing mainly on capital spending. Total government expenditures are projected to increase by 34.7% compared to the 2013 budget. Nonetheless, the government has taken some measures aimed at tightening control over implementation of the budget to curb overruns. In 2013, subsidies on fuel were removed while subsidies on agriculture were being reformed. The finance minister announced a moratorium on wage increases and froze net recruitment in the public sector for the next two years. More fundamentally, the government needs to focus on improving revenue collection as well as broadening the tax base.

Table 3. Publicfinances(percentageofGDP)2005 2010 2011 2012 2013(e) 2014(p) 2015(p)

Total revenue and grants 24.2 19.6 21.6 21.8 21.7 20.8 20.2

Tax revenue 17.2 16.4 19.3 19.1 19.1 18.3 17.5

Grants 6.6 1.8 0.8 0.7 0.6 0.4 0.6

Total expenditure and net lending (a) 26.0 22.6 24 24.7 29.0 27.4 25.9

Current expenditure 19.0 19.4 19.7 19.8 22.9 21.6 20.7

Excluding interest 16.3 17.6 18.5 18.0 19.6 19.3 19.0

Wages and salaries 7.7 8.1 7.9 8.9 8.9 8.6 8.3

Interest 2.7 1.8 1.2 1.8 3.3 2.3 1.7

Capital expenditure 7.1 3.2 4.2 4.1 4.6 4.6 4.5

Primary balance 0.9 -1.3 -1.3 -1.1 -4.0 -4.3 -4.0

Overall balance -1.8 -3.1 -2.4 -2.8 -7.3 -6.6 -5.7

Note: a. Only major items are reported.Source: Data from domestic authorities; estimates (e) and projections (p) based on authors' calculations.

Monetarypolicy

In order to improve efficacy of monetary policy, the BoZ switched from reserve money targeting to targeting the policy rate in April 2012. The policy rate was initially set at 9.0% following the change in the monetary framework. However, due to threats of inflationary pressures emanating largely from lax fiscal stance, the central bank made three upward adjustments to the policy rate, ending the year at 9.8%.

Inflation in 2013 decelerated to 7.1%, with an out-turn that was more than one percentage point higher than the target of 6.0% set for the year. Non-food inflation was the main contributing factor to the inflation outturn in 2013, completely offsetting the decline in food inflation. The increase in prices of non-food items, consisting mainly of imports, was largely due to pass-through effects of depreciation of the Kwacha against the US dollar. To its credit, the BoZ has managed to stabilise inflation at around 7.0% over the past three years.

The BoZ implemented new minimum capital requirements for the financial sector in order to strengthen banks balance sheets. The central bank also capped interest rates for commercial banks at not more than the policy rate plus nine percentage points (initially at 18.3%) and at 42.0% for microfinance institutions. Although this had limited effect on incumbent large borrowers, first time and riskier small borrowers, have had difficulty in accessing loans. The most affected microfinance institutions had to critically assess their cost structure. This has entailed more focused outreach activities to reduce costs while fringe and inefficient microfinance institutions have exited the market.

The BoZ also enacted new regulation to improve the monitoring and flow of foreign exchange to help curb tax evasion, money laundering and other unlawful transactions. The new regulation, dubbed monitoring of balance of payments, drew sharp criticism from the private sector and


Zam

bia

Zam

bia

other stakeholders for introducing additional costs on foreign exchange transactions. After some contentious elements of the regulation were either withdrawn or amended, a new Statutory Instrument 55 was enacted effective July 2013.

In the medium term, the BoZ is expected to continue its tight monetary policy to tame inflation while stabilising the exchange rate. Balancing this with the sovereign credit downgrade, which has pushed up the cost of finance, will entail prudence and close co-ordination with the fiscal authorities. Addressing recurring concerns of policy uncertainty will also be critical to fostering macroeconomic stability.

Economicco-operation,regionalintegrationandtrade

Zambias participation in the Common Market for Eastern and Southern Africa (COMESA) free trade area and the Southern African Development Community (SADC) free trade area allows it to enjoy duty free access to wider markets on the African continent. Regional trade tariffs have largely been removed but outstanding complex rules of origin set at the product level affect flows, particularly in the SADC region.

The government remains committed to regional integration and economic co-operation efforts. In early 2013, Zambia signed six bilateral agreements on extensive development projects with China as part of the strengthening of South-South co-operation. The areas of co-operation included the development of export-oriented processing, the manufacturing industries, telecommunications, transport and expansion of agricultural production. Other areas included in the agreements were the development of social welfare, such as health care, education and community housing for low-income groups, and building the capacity of personnel in critical services.

Zambias overall external position weakened in 2013 largely due to fast rising imports against moderate gains from exports. As a result, the current account weakened in 2013 but maintained a surplus of 0.2% of GDP, compared to a 2.1% surplus in 2012. International reserves fell during 2013 to 2.8 months of imports cover (the governments target is three months). This was equivalent to USD 2.7 billion. The fall in international reserves reflected the central banks stabilisation of the Kwacha efforts and one-off-payments for accrued fuel bills in the beginning of the year.

Table 4. Currentaccount(percentageofGDP)2005 2010 2011 2012 2013(e) 2014(p) 2015(p)

Trade balance 1.2 16.7 11.5 7 4.3 4.8 5.8

Exports of goods (f.o.b.) 31.3 45.8 45.1 45.5 43.7 43.5 43.1

Imports of goods (f.o.b.) 30.1 29.1 33.6 38.4 39.4 38.6 37.3

Services -2.8 -3.5 -3.8 -3.7 -2.4 -2.9 -2.7

Factor income -8.3 -8.4 -6 -3.4 -3.8 -4.1 -5.2

Current transfers 1.5 2.7 2 2.2 2.1 1.9 1.7

Current account balance -8.3 7.4 3.7 2.1 0.2 -0.2 -0.4

Source: Data from the Central Bank and domestic authorities; estimates (e) and projections (p) based on authors' calculations.

Debtpolicy

Although Zambias publicly guaranteed external debt increased in 2013, the risk of debt distress remains low. The most recent figures on public debt indicate that total domestic and external publicly guaranteed debt for 2013 was 34.1% of GDP. External public debt was estimated at 16.5% of GDP, which is within the international threshold of 40.0% of GDP set to ensure debt sustainability. Furthermore, according to conclusions from IMFs Debt Sustainability Analysis of 2013, debt dynamics are sustainable given the current volume of debts and the evolution of the domestic debt stock. The present value (PV) of external public debt stock to exports ratio in the high investment/low growth scenario was estimated at a maximum of 54.0% (the threshold is 150.0%) and the debt service to exports ratio at 5.0% (threshold is 20.0%).


Zam

bia

Zam

bia

Due to large expenditure overruns in 2013, the government increased issuances of Treasury bills while also tapping into unused proceeds of the 2022 eurobond. These are seen as exceptional measures in order to deal with the current challenging fiscal situation. Recent estimates by the IMF during the 2013 Article IV Consultations indicate that current fiscal policy is not sustainable on a five-year horizon and government would need to adjust policy in the medium term to target a roughly unchanged debt-to-GDP ratio.

Zambia has indicated plans to leverage on its successful debut entry into the foreign bond markets. However, given the fiscal slippages coupled with policy uncertainty and associated credit downgrades, the cost of accessing new funds may be prohibitively high. In the medium-to-long term, the government will need to strengthen investment and debt management capacity to ensure strong control and management of debt accumulation.

The public service pension fund has a deficit projected at ZMW 2.9 billion in 2014, increasing to ZMW 2.6 billion in 2015. These deficits have to be funded from tax revenues. The government is in the process of dismantling domestic arrears, but a lack of reliable and comprehensive data precludes analysis.

Figure 2. Stockoftotalexternaldebt(percentageofGDP)anddebtservice(percentageofexportsofgoodsandservices)

%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150

10

20

30

40

50

60

70

Outstanding debt (public and private) /GDP Debt service/Exports

Source: IMF (WEO & Article IV).

Economic and political governance

Privatesector

Zambia made improvements in starting a business, resolving insolvency issues and obtaining credit according to the World Bank report Doing Business 2014. Its overall business environment showed improvement in 2013, moving up seven places in the global ranking to 83 (it was ranked 7 in Africa). Within the Southern Africa region, only Botswana and South Africa are doing better than Zambia.

Zambia increased the threshold required for a business to register for value-added tax to ZMW 800 000 from ZMW 200 000 last year, while the minimum capital requirement was removed some years earlier. The cost of starting a business has fallen to 27% of average income per capita.


Zam

bia

Zam

bia

In addition to earlier reforms, the option of registering a company online has facilitated ease of starting companies. This ranks Zambia at 45 globally, a substantial jump relative to the 2013 report and among the highest ranking in the region. The number of businesses registered in 2013 was 27 000 compared to 15 130 registered in 2012.

Last year Zambia revised the 1995 mineral resources development policy. The policy is meant to strengthen capture of mining revenue while facilitating transparency and accountability in the sector through closer monitoring of mineral exports. It is also meant to promote mining diversification by exploiting the huge potential of non-traditional minerals. However, the policy is unclear with regards to the adequate capture of mineral revenues in the national budget, the handling of intergenerational issues and managing mineral rents to avoid price volatility shocks.

In order to reduce capital flight and stimulate beneficiation, all emeralds and gemstones extracted locally have to be auctioned in the country. Three successful auctions were held in 2013 amounting to USD 63.1 million.

Another area of improvement was dealing with insolvencies. In 2012 Zambia strengthened the qualification requirements for receivers and liquidators. Initial assessments show an increase in recovery rates to 37 cents per USD, compared to less than 33 cents per dollar in 2012. The time it takes to process insolvency decreased to 2.4 years in 2013 from 2.7 in 2012.

Zambia has a flexible and business-friendly labour law framework, with limited state intervention focused on regulating the market.

The government is currently reviewing the personal property security interest bill, which once approved should improve the administrative procedures for providing collateral, thereby reducing the cost to accessing credit.

Financialsector

Zambias financial sector is among the fastest growing in the economy, exceeding 12% in 2013. The sector accounts for about 7% of GDP. Despite Fitch highlighting the fact that the pace of credit growth in Zambia has exceeded the threshold at which there is a higher risk of stress in the banking system (15%), financial sector growth is still expected to remain robust in the medium term.

The sector is still characterised by low financial intermediation, with limited access to financial services for the rural population and low-to-middle income earners, high costs of funds and an undeveloped money and capital market. In urban areas the banking network and branches are expanding, with increasing numbers of available ATMs.

From 2014, capital requirements for locally and foreign-owned banks will be USD 20 million and USD 100 million, respectively. Out of the 19 registered banks, 14 have met the new capital thresholds. Four other banks have been granted temporary relief, while one was unable to meet the threshold and converted to non-bank status. The new capital requirement contributed to the fall in interest rates from 24.0% mid-2012 to 16.0% in 2013 while raising Kwacha lending to the private sector. During the same period the ratio of gross non-performing-loans to total loans remained broadly unchanged at about 8.2% in 2013 from 8.1% in 2012. Primary Capital (Tier 1) to risk-adjusted assets now stands at above 21.5%.

The BoZ is implementing Basel II in three phases, with pillars 2 and 3 expected to be completed in 2013. While elements of pillar 1 were put together in 2013, the regulations are still in preparation. Provision for Basel III has been included in the draft Banking and Financial Services Act, but detailed regulations will only be drafted in 2014.

Market capitalisation of the Lusaka Stock Exchange (LuSE) grew to USD 10.5 billion in 2013 from USD 9.4 billion in 2012, corresponding to 52% of GDP for both years. The all-share index rose by 42% in 2013, the fourth best performance in Africa. There were 22 companies listed on the LuSE last year, with at least three new listings expected in 2014. The LuSE is expected to start an alternate market for small businesses in 2014 in order to raise cheaper financing for firms.


Zam

bia

Zam

bia

Publicsectormanagement,institutionsandreform

The government launched the Public Financial Management (PFM) Reform Strategy for the period 2013 to 2015. The reform strategy is estimated to cost a total of USD 78 million, of which USD 37 million was pledged by co-operating partners. It involves undertaking reforms in ten critical components of the PFM cycle, including budgeting, planning, cash management, accounting, financial reporting, procurement and fiscal decentralisation.

Since its launch in 2012, the government has started implementing several reform components. Progress has been made in the transformation of the Zambia Public Procurement Authority from an executing institution to an oversight and regulatory agency, with procurement functions decentralised to ministries, provinces and other spending agencies.

Reforms to improve tax administration have also been initiated in the Zambia Revenue Authority, which has strengthened its ICT capacity in 2013, enabling it to launch an online tax administration system. Due to delays in updating personal identification numbers of tax payers, the system will only become fully operational in 2014, with expectations that it will enhance levels of efficiency.

A draft Planning and Budgeting Policy has been developed and is undergoing consultations with stakeholders. The policy aims to integrate planning and budgeting, foster parliamentary oversight and enhance citizens participation in the planning and budgeting process. The policy further seeks to align the national planning cycle with the electoral cycle. Once approved by the cabinet, it will be given legal backing through a planning and budgeting act.

In order for this policy to be effective, there is a need to reduce the executives authority over the budget process while simultaneously increasing legislative authority. Aligning the electoral and planning cycle is likely to strengthen longer term planning while limiting the use of short-term policies that have not been sufficiently debated and discussed.

Naturalresourcemanagementandenvironment

Progress towards attainment of the Millennium Development Goal related to environmental sustainability has slackened. Deforestation has escalated due to overexploitation through logging for wood fuel and encroachment for agriculture and human settlements. To reverse this trend, the government has put in place measures to establish 11 large-scale forestry nurseries, each raising 1.5 million seedlings per year.

Environmental degradation in the mining communities is affecting air, water and soil quality. There is strong evidence that national environmental protection legislation and its enforcement has not been efficient. Kabwe is ranked among the top 10 worst polluted places globally due to non-regulated emissions of heavy metals such as lead, which is particularly harmful to children and pregnant women. However, mining companies are increasingly taking environmental concerns seriously and have put in place measures to capture pollutants that were previously emitted into the atmosphere (e.g. sulphur dioxide).

Added concerns around mining and the environment have increased recently due to the awarding of a mining licence in the Lower Zambezi despite warnings by the Zambia Environmental Management Agency and a parliamentary select committee. Although mining companies will have to comply with the environmental regulatory framework, the new Mineral Resources Development Policy does open up the possibility of mining in sensitive areas such as game parks.

The 2014 budget outlines government intentions to increase access to clean and safe drinking water and to improve sanitation facilities, particularly in rural areas. This will be achieved through a combination of maintaining, rehabilitating and building new infrastructure.


Zam

bia

Zam

bia

Politicalcontext

Zambias rating on the Ibrahim Index of African Governance (IIAG) has remained favourable. It has been ranked 12 in Africa for two consecutive years. The political participation index improved in 2010 and 2011, while the rate of improvement slowed in 2012. Zambia saw improved standing in Transparency Internationals Corruption Perception Index to 83 in 2013 from 88 in 2012.

Following elections in 2011, which were won by the opposition Patriotic Front (PF) party, the country saw its second peaceful transfer of power in Zambias democratic history. The political landscape in Zambia continues to develop and mature. In 2013, more than 20 by-elections took place throughout the country, with participation from major political parties. This signals a deepening democratic process.

A new national constitution has been under development since 2012. In their manifesto, the PF committed themselves to review recommendations from past constitutional review commissions once elected. To this end, the review process has come to a close, with the work of the Technical Review Committee completed. Currently, the public is awaiting the next steps from the government in this process. Zambia continues to be a beacon of peace and stability in the region following 50 years of independence, and it continues to attract both domestic and foreign investors.

Social context and human development

Buildinghumanresources

Zambias human development is ranked at 163 out of 187 countries. Its Human Development Index (HDI) is 0.45 (2013), which is just below the sub-Saharan Africa score of 0.47. The country has continued to record progress in education indicators, as evidenced by near universal primary enrolment rates of 96% in 2011. This is attributed to increased school construction, and the re-entry policies, especially for pregnant young girls. Government policies on basic education have prioritised access and enrolment, resulting in an increase in the primary school completion rate to 103% in 2011. However, over-age completion of primary school remains a problem (and is the reason why primary school completion rates are above 100%). Enrolment in secondary schools has remained stagnant at only 23% in 2011, while the completion rate stood at about 27%. Quality of education is still a major challenge in both primary and secondary education with primary school pupil-teacher ratio of 49. Pass rates for grade 12, although they increased slightly in 2013, are still very low at only 60%.

The government took steps last year to reform the education system back to the old system, with primary running from grades 1-7, lower secondary from 8-9 and upper secondary from 10-12. This was not well received by the public. Another reform being piloted is the use of teaching in local languages from pre-school to grade 4. Teachers unions have welcomed the move, while private school parents are concerned about how this will affect quality.

Although slowly declining, infant and under-five mortality rates remain very high at 76 and 138 deaths per 1 000 live births, respectively. The coverage of measles immunisation of one year olds has improved to 94.0% in 2010 from 84.9 % in 2007. Nonetheless, more is still needed to further reduce child mortality. This includes promoting breast feeding, improving nutrition and knowledge of it and ensuring full immunisation coverage against preventable communicable diseases.

Given the slow pace of progress, Zambia is unlikely to attain MDG targets on child mortality and maternal health without significant reforms and investments. Although the country has achieved its national target of a 15.6% prevalence rate concerning HIV/AIDS, HIV prevalence


Zam

bia

Zam

bia

rates, particularly in the more urban areas of the country and amongst the educated, remain above the national prevalence rate. Additionally, new infection rates remain high, especially amongst the youth.

Povertyreduction,socialprotectionandlabour

Despite the country achieving consistently high levels of economic growth during the past decade, equitable distribution of growth and catch-up growth have not been sufficient, thus poverty remains high and widespread. Available national poverty data for 2010 indicate that 61% of the Zambian population are poor. Half the population were living in extreme poverty in 2006, but this number decreased to around 42% in 2010.

The data also indicates that poverty still remains predominantly geographically defined, with extreme poverty in rural areas close to 58%, compared to 13% in urban areas. Accelerating poverty reduction will require large-scale and continuous investments in agriculture, which is the mainstay of the rural economy. More investments in infrastructure such as roads will connect rural-producing areas to urban markets, thereby improving economic integration between the two poles. The agricultural reforms of the farmer input-support programme and the Food Reserve Agency should be designed to benefit the rural poor. Furthermore, the government has adopted macroeconomic and structural policies aimed at promoting job creation, social empowerment and significant levels of investment in the economy.

There are various social assistance and transfer programmes in the country that aim to protect the poor and most vulnerable. These programmes provide either in-kind or cash transfers to specifically targeted groups in the population. Despite this, coverage of social protection schemes is still very low in terms of the number of actual recipients. A 2013 World Bank report states that coverage of the extreme poor is between 1% and 2%.

The government is planning to expand the coverage of the Social Cash Transfer Scheme (SCTS) to 60 000 recipients in 2013. In the 2014 budget, the government has increased the number of districts under the SCTS. The objective is to reach 150 000 households by 2016. Other important schemes are the Public Welfare Assistance Scheme, the Food Security Pack, the School Feeding Programme and the Tertiary Bursary Scheme. Additionally, the government supports tuition exemption up to grade 7 and free primary health care for the most indigent people. The governments allocation to social protection programmes is expected to increase in the medium term.

The current pension system falls short of basic principles of affordability, sustainability, portability, wide coverage and adequacy. The system is not transferable between jobs and is unable to meet the minimum living requirements of retirees. In order to meet these shortcomings, the government intends to implement changes to the Public Service Pension Fund, which will include changing the retirement age from the current 55 to 65, revising the basis for calculating the pensionable emoluments and reviewing the commutation factors. The reforms will translate into a more favourable and sustainable pension system, with greater inter-generational equity.

Genderequality

Zambias progress in achieving gender equity and equality remains limited. It did, however, ratify the SADC Gender Protocol in 2013 which it had signed in 2008 demonstrating a clear commitment on its part and opening the way to increased efforts towards attaining gender equality. Two years remain for it to achieve the 28 key goals.

Concerning womens participation in politics, Zambias performance remains below the SADC threshold of 50.0% representation in parliament. Women in Zambia hold only 11.4% of the seats in parliament. The situation is worse for local government administration, where only 6.3% of seats are held by women.


Zam

bia

Zam

bia

While considerable advancements have been made in achieving gender parity in primary school enrolment rates, gender inequalities in school attendance persist in the country. The inequalities also increase in secondary and tertiary education.

In addition, child and maternal mortality are characterised by marked spatial inequalities. High child and maternal mortality rates are in themselves symptoms of an unequal society in which children and women bear a disproportionally greater health burden.

Thematic analysis: Global value chains and industrialisation in africa

Zambia is abundantly endowed with natural resources such as land, forests and water, as well as non-renewable minerals, including copper, cobalt and emeralds. The implementation of appropriate development policies therefore has the potential to lead the country to reap the full benefits of its resource endowment. Designing and implementing effective private-sector-led economic transformation policies that create employment and reduce poverty remain a national challenge. With little value addition, the country thus remains an exporter of unprocessed primary products.

In order to stimulate value addition and industrialisation, as well as increase the manufacturing sectors share of GDP from its current levels (below 10%), the country has embarked upon the establishment of Multi-Facility Economic Zones (MFEZs). These zones blend the best features of free trade zones, export processing zones and industrial parks. They create the administrative infrastructure, rules and regulations to support both export and domestic-oriented industries. The zones are designed to support firm clusters that can benefit from spatial proximity throughout various industrial processes, from primary production, processing, marketing and sales and ultimately distribution.

Two MFEZs have been developed and are already operational. Four others are still at early development stages. The parks are located in the Copperbelt, North-Western and Lusaka regions. Chambishi MFEZ in the Copperbelt is focused mainly on the copper supply chain and houses both heavy and light industries, including copper smelting, manufacture of copper wire and cables, household appliances such as stoves, motor parts and agro-processing. More than 10 enterprises have been established, creating over 3 500 jobs.

MFEZ development has been sluggish due to poor road infrastructure and unreliable and undeveloped power and water supply. Successful industrialisation will require that government creates an enabling environment by stepping up its efforts to provide infrastructure and support services. The rewards will be access to human capital, technological innovation, financial systems and financing.

There are some products in Zambia that are well suited to integration in global value chains (GVCs), with the potential for further development. Copper mining is already creating higher value through smelting and refining copper into cathodes for exports. The Chambishi mentioned above is an example of this. Gemstone mining is another, with latent integration into the GVC. In an attempt to realise this potential, the country has made it mandatory that all locally extracted gemstones be auctioned in the country in order to stimulate beneficiation as well as local market development. In order to spur this further, there is a need to ensure that the policy is complemented by initiatives that will produce and enhance local skills in stone cutting, polishing, jewellery design and production and marketing and sales.

The agriculture sector can be harnessed to become the leading sector for economic transformation and employment creation. Over the past few years, agri-business has demonstrated consistent growth, particularly in livestock production, providing linkages to the dairy, beef and leather industries. A small niche in fruit and vegetables also provides potential for expanded


Zam

bia

Zam

bia

development. The Zambia Export Growers Association assists farmers who grow vegetables and flowers, exporting their products to Europe. Farmers lump their products together through storage facilities provided by the association, which later handles transport and marketing of their products to Europe and other markets. Out-grower schemes help small-scale farmers gain access to markets, while there is technological transfer from large-scale farmers. Zambia Sugar is one such company. It obtains 30% of its throughput from larger private growers, while 10% is from small-scale farmers. In turn, small-scale growers receive training, extension services and benefit from technological transfer. Another example is honey production. Beekeepers form co-operatives through out-grower schemes, provided with buckets and registered as members to ensure traceability of the product while they receive training. The value addition is significant, with more than 10 000 beekeepers occupied in major production areas of north-western Zambia.

Zambeef has been highly successful in vertically integrating its different businesses along the value chain, from farming to beef and dairy production, manufacturing, processing and retail. In order to meet the demand for its products, the company has enlisted local farmers, who supply it with cattle which are slaughtered in its abattoirs. The beef is sold in its own retail outlets or in supermarkets. The hides are processed to good standard leather for markets in the region, the Far East and Europe. It also produces leather products such as shoes and bags for the local market. Aside from the milk obtained from its own farms, it also buys raw milk from small and medium-sized farmers. The milk is used to produce yogurt, cheese, butter and cream. Zambeef also engages in pork production and processing by enlisting small-scale farmers to supply pigs. Through these value additions the company has been able to create over 5 500 direct jobs.

The textile industry was historically significant in Zambia, with over 140 companies operating. With the help of Chinese investors, the sector was resuscitated in the 1990s. But in 2007 the industry started to crumble, with the closure of Mulungushi Textiles. It was hit by imports of second-hand clothes and low-cost imports from Asia. In an effort to once again revamp the industry, government recently announced that a new investor is willing to invest in the factory.

Industrial policy needs to address the integration of the rural sector in the rest of the economy. This can be done by advancing agro-industry value addition and the supply of goods and materials, which enhances the competitiveness of domestic enterprises. Increasing vertical integration in global agri-business supply chains changes the requirements placed on small-scale farmers. But policies aimed at supporting such farmers need to be realistic about the prospects for small-scale farmers of being upgraded by large firms.

Zambia faces a number of challenges for effective participation in GVCs. First, Zambias landlocked position substantially increases the cost of long-haul transport by up to 40% of the final products value. There is a need to improve trans-boundary corridors and border administration to reduce delays. Deepening regional integration could offer the potential to tackle some of these challenges by providing access to regional and global markets.

Second, access to reliable and stable electricity is critical in ensuring constant food production flows to reduce production wastage, particularly for perishables. Access to good quality water for production and sufficient wastewater treatment is also required.

Third, the linkages between rural primary production areas and urban processing plants are often weak, adding additional costs to the final product. A system of reliable feeder roads linking rural and urban areas is critical.

Other challenges the industry is facing include access to qualified local labour, with the right skills mix needed to operate machinery that is more automated and complex than ever. Global consumers and health and environmental authorities require better and safer products. This means increasingly higher food-safety standards, with smaller margins of error. Increased technical knowledge and know-how, combined with investments and improved control procedures, is needed to ensure continuous compliance.

Date post:	09-Jan-2016
Category:	Documents
Upload:	kanekanekane
View:	2 times
Download:	0 times

Zambia

Documents