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Country Profile 2003

ZambiaThis Country Profile is a reference work, analysing thecountry�s history, politics, infrastructure and economy. It isrevised and updated annually. The Economist IntelligenceUnit�s Country Reports analyse current trends and provide atwo-year forecast.

The full publishing schedule for Country Profiles is nowavailable on our website at http://www.eiu.com/schedule

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Contents

3 Regional overview3 Membership of organisations

10 Basic data

11 Politics11 Political background12 Recent political developments16 Constitution, institutions and administration17 Political forces20 International relations and defence

22 Resources and infrastructure22 Population24 Education26 Health27 Natural resources and the environment28 Transport, communications and the Internet31 Energy provision

34 The economy34 Economic structure35 Economic policy41 Economic performance43 Regional trends

43 Economic sectors43 Agriculture47 Mining and semi-processing49 Manufacturing50 Construction50 Financial services52 Other services

53 The external sector53 Trade in goods55 Invisibles and the current account56 Capital flows and foreign debt57 Foreign reserves and the exchange rate

58 Appendices58 Sources of information60 Reference tables60 Population60 Labour force60 Rail and air freight61 Domestic electricity generation and consumption61 Government finances61 Money supply61 Interest rates62 Gross domestic product by expenditure

2 Zambia

Country Profile 2003 www.eiu.com © The Economist Intelligence Unit Limited 2003

62 Gross domestic product by sector63 Gross domestic product by sector63 Consumer price inflation63 Consumer price index63 Copper and cobalt production63 Manufacturing value added64 Stockmarket indicators64 Exports64 Imports64 Main trading partners65 Balance of payments65 External debt, World Bank series66 Net official development assistance66 Foreign reserves66 Exchange rates

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Regional overview

Membership of organisations

The African Union (AU) is the successor to the Organisation of African Unity(OAU) and is based in the Ethiopian capital, Addis Ababa. The AU was formallylaunched in July 2002 at a meeting of African heads of state in the SouthAfrican city of Durban. This came two years after the AU�s formation was firstagreed in Togo in July 2000 and followed a one-year transitional period whichbegan after the ratification of the constitutive act of the AU by two-thirds ofmember states in May 2001. The AU is modelled on the EU and has ambitiousplans for a parliament, a central bank, a single currency, a court of justice andan investment bank. Apart from the parliament, none of these is likely to beestablished in the foreseeable future. The AU also aims to have commondefence, foreign and communications policies, based loosely on those of theEU. The success of the AU, like that of its predecessor, will depend on theindividual performance of its 52 member states, many of which suffer fromweak governance.

The OAU was criticised for ineffectiveness!little real action resulted from itspolicy decisions!and it is not clear how the AU will differ. But the organisationfills the need for a forum for discussing the continent�s problems, and the ideaof pan-African unity exerts a strong hold over member countries. Many of theproposed new institutions and policy co-ordination mechanisms are costlyinitiatives and cannot be funded within the AU�s current resource allocations.The OAU was hindered by a shortage of funds; many members failed to paytheir membership dues and several states are currently banned from voting inthe AU because of this. In addition, most African states are unlikely to give upthe sovereignty required to make several of the proposed initiatives, such as asingle currency or a court of justice, operate effectively. Less costly initiativesthat could more effectively promote African unity include trade integration,particularly the rationalisation of the many overlapping regional trade blocs,regulatory harmonisation, and the promotion of the rule of law andmacroeconomic stability.

The principle of non-interference, which has been a major hindrance to theresolution of conflicts on the continent, is a contentious issues among membergovernments. Although non-interference was enshrined in the old OAU, the AUis attempting to tackle this issue, one potentially useful initiative being theproposed Peace and Security Council (PSC), which is to replace the OAU�sMechanism for Conflict Prevention, Management and Resolution. Modelled onthe UN Security Council, the PSC could sanction military intervention inmember states in cases of genocide, unconstitutional changes of governmentand gross human rights abuse. The AU heads of state conference in Maputo,Mozambique, in July 2003, discussed the PSC but failed to reach agreement asmember governments are wary of condoning intervention in each other�saffairs. Only 14 of the continent�s 52 members backed a protocol establishingthe PSC, short of the 26 needed. A meeting of African defence ministers is to becalled in the coming months as a matter of urgency, to discuss the security and

The African Union (AU)

4 Zambia


legal ramifications of the PSC. If established, the PSC would have a standingarmed force at its disposal by 2010, comprising five battalions. Westerncountries have promised to help fund the force if it is established. Other AUinitiatives such as the establishment of a pan-African parliament has also failedto gain support as not enough national parliaments have ratified the proposal.The AU has urged its members to do so before the end of 2003.

The OAU was founded in Addis Ababa in May 1963 by 32 African nations topromote solidarity and higher living standards, defend the sovereignty ofmember states, and eliminate colonialism. Another 21 signatories joinedsubsequently, the last being South Africa in 1994. Morocco left in 1985, after thedisputed state of Western Sahara was admitted as a member in 1984. TheOAU�s general secretariat had an annual budget of roughly US$31m, which theAU inherits. As in the OAU, the foreign ministers of member states meet twicea year to discuss the implementation of the organisation�s accords. The issuesraised will be dealt with at the annual assembly of heads of state, which meetsin June or July. The annual conference is hosted by the member state that is dueto hold the chairmanship of the organisation for the next year. The currentchairman of the AU is the Mozambican president, Joachim Chissano, who tookover from South Africa�s Thabo Mbeki in July 2003. The day-to-day affairs ofthe AU are managed by the AU commission, which is modelled on the EUcommission and was endorsed by the AU heads of state summit in July 2003.The commission is headed by the former Malian president, Alpha Konaré,aided by a deputy, Patrick Mazimhaka of Rwanda, both of whom were electedat the summit. There are also seven appointed AU commissioners.

The OAU held three extraordinary conferences of heads of state: the first was in1970 to discuss the Angolan crisis; the second, in 1980, sought to address thecontinent�s economic problems; and the third, in 1990, attempted to address theproblem of African external debt. The AU carries forward the aims of the OAU,which included the creation of an African Economic Community (AEC), inaccordance with the Lagos Plan of Action drawn up in 1980. Originally this wasscheduled to be in place by 2000, but at the OAU�s 27th summit of heads ofstate in Abuja, Nigeria, in June 1991, this target was postponed to 2025. The AECtreaty, signed at the summit, outlined six stages, including the removal of tariffand non-tariff barriers to trade and the establishment of a continent-widecustoms union by 2004. A commitment was also made to establish an Africancommon market, with a central bank and single currency, by 2031.

The possibility of establishing a military force to observe and monitorceasefires negotiated by the OAU has been considered. Although the OAUnever deployed peacekeeping forces, it did undertake observer missions!something the AU is doing as well. Since May 2003 the AU has had anobserver mission in Burundi, led by South Africa and including troops fromMozambique and Ethiopia, to help enforce a peace agreement in the country�scivil war.

Conflict resolution came to dominate the annual summit of OAU heads ofstate from the mid-1990s, owing to the crises in the Great Lakes, the DemocraticRepublic of Congo (DRC), Somalia, Sierra Leone, and Ethiopia and Eritrea. From1999 the OAU was involved in conflict mediation in Somalia, Ethiopia and

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Eritrea, Comoros, and the DRC, where four member states!seven at the heightof the fighting!are involved in the conflict. Although the OAU did notintervene during the genocide in Rwanda in 1994, it was the only internationalinstitution quickly to recognise the gravity of the crisis and openly condemnevents at an early stage. During 2002 it also became involved in mediation inthe disputed legislative election in Madagascar. However, the AU has refused torecognise the government of the current president, Marc Ravalomanana, thedemocratic challenger who finally displaced the country�s long-serving ruler,Didier Ratsiraka, being one of the only international organisations to do so. Thishas tended to confirm the allegation that the AU is inherently biased towardsincumbent governments rather than a supporter of democratic politics andgood governance. In 2002 the AU also endorsed the disputed re-election of theZimbabwean president, Robert Mugabe, and refused to criticise the breakdownof law and order in Zimbabwe.

Based in Lusaka, Zambia, Comesa is the successor organisation to the regionalPreferential Trading Area (PTA), and came into force on December 8th 1994 with12 members. Comesa now has 20 members: Angola, Burundi, Comoros,Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya,Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan,Swaziland, Uganda, Zambia and Zimbabwe. The Comesa region has a totalpopulation of around 385m and an estimated GDP of US$170bn. Lesotho,Mozambique and Tanzania have all withdrawn from Comesa since 1997 toconcentrate on their membership of the Southern African DevelopmentCommunity (SADC). South Africa�s decision not to join Comesa makes SADCmembership more attractive to its main trading partners.

The original PTA, launched in 1981, aimed to liberalise trade and encourage co-operation in industry, agriculture, transport and communications. Comesa�sprincipal aims build on these ideals; its main goals are to eliminate thestructural and institutional weaknesses of member states and to promote thepolitical security and stability necessary for sustained development, bothindividually and collectively as a regional bloc. These aims are to be achievedthrough monetary union with a single currency and a common central bank.The creation of a free-trade area on October 31st 2000 was to be a major steptowards achieving them. However, by early 2003, only nine of the 20 membershad agreed to participate fully (Djibouti, Egypt, Kenya, Madagascar, Malawi,Mauritius, Sudan, Zambia and Zimbabwe)!Rwanda, Burundi and Comoroshave committed to join by the end of the year. The nine have removed allbarriers to intra-regional trade, though they retain tariffs on imports fromoutside Comesa. To encourage other members to join the free-trade area, a fundwas created in 2002 to compensate those countries facing revenue loss, thoughthe source and extent of this funding is not clear. Although the targets ofachieving a customs union by 2004 and full monetary union by 2025 remain,neither is likely to be attained.

The most recent figures, for 1998, give total intra-Comesa trade as US$4.2bn;intra-Comesa trade as a proportion of total trade ranged from 3.2% for theSeychelles to 17.1% for Kenya. During the past 30 years the share of intra-regional trade in total exports has actually fallen, from 9% in 1970 to 7.7% in 1998

Common Market for Easternand Southern Africa (Comesa)

6 Zambia


(although these figures do not capture the high levels of illegal crossbordertrade), lower than the average of 10.5% for the whole continent. Reasons for thelow level of intra-Comesa trade include a lack of political commitment andweak balance-of-payments and foreign reserve positions. In some cases thereare hardly any official trade links between member states. Kenya, Malawi,Uganda, Zambia and Zimbabwe accounted for 58% of the trade betweenmembers of Comesa in 1998.

As industry and manufacturing are generally poorly developed, manymembers are unprepared to reduce tariffs further for fear of undermining localindustries (Tanzania�s main reason for leaving) or fiscal revenue. A furtherconstraint has been the strict and cumbersome rules of origin, which are opento conflicting interpretations and not expected to be harmonised until 2004. Inaddition to these impediments, progress towards free trade is hampered bypolitical tensions between member states.

Regional free-trade areas such as Comesa aim to increase intra-regionalcommerce, leading to higher economic growth rates; but they attract criticismfrom many who feel that this cannot be achieved while supply-sideconstraints!such as poor infrastructure, inefficient transport links, loweducation and skills levels, and cumbersome bureaucracy!remain. Comesa hasconcentrated on trade integration, but the lack of uniformity in investmentcodes and regulatory arrangements has been an impediment to crossbordertrade and investment. The commitment to Comesa of many of its members isweak!in 2002 most members were not paying their membershipcontributions!and meetings are frequently cancelled. Moreover, attempts atpromoting crossborder investment and monetary harmonisation have beensuperseded by initiatives from the East African Community and the SADC.

Under the old PTA system, a multilateral clearing facility was established and aPTA unit of account (UAPTA), equivalent to the IMF�s SDR, was used to settledebts between members, the balance being payable in US dollars. In 1997 theUAPTA was replaced by the Comesa dollar, which is pegged to the US dollar. AComesa court was officially opened in March 2001, although it had beenestablished three years earlier. In theory, the court, which aims to be anindependent arbitrator in trade-related disputes, has jurisdiction over nationalcourts, but in practice it does not have the powers to enforce its rulings and ithas been hamstrung by a lack of finance. Comesa also set up the African TradeInsurance Agency (ATI), in 2001. Financed by a US$5m start-up loan from theWorld Bank, the ATI aims to provide political risk cover for investors in allmember countries.

A new 20-year convention was signed in June 200o in Cotonou, Benin, offeringa group of 77 African, Caribbean and Pacific (ACP) countries preferential tradeand aid links with the EU. The Cotonou Convention replaced Lomé IV, aconvention which was signed in 1989 and had replaced previous agreementssigned in 1975, 1979 and 1984. Although similar to the Lomé conventions, thenew convention has a stronger political dimension. Though respect for humanrights, democratic principles and the rule of law were essential components ofLomé IV, under the Cotonou agreement ACP countries have also agreed to

Cotonou Convention

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promote good governance, combat corruption and try to prevent illegalimmigration into the EU.

Under previous conventions, ACP products, whether agricultural or industrial,entered the EU duty-free, though four agricultural products!beef, sugar,bananas and rum!were subject to a more restrictive system of tariff quotas.Because the type of trade agreement established by the Cotonou Conventiondoes not comply with the rules of the World Trade Organisation, the newagreement offers a negotiating framework for tailor-made regional free-tradeagreements (RFTAs), under which ACP countries, preferably within existingeconomic groupings will gradually open their domestic markets to Europeanproducts. Given the adjustment costs involved, a preparatory period of eightyears has been agreed, during which the old system of preferences willcontinue to apply. However, under existing global trading rules, the 33 Africancountries classified as least developed countries will still have the option ofentering the EU generalised system of preferences (GSP). Unlike the LoméConvention, the GSP, which benefits all developing countries, complies withthe rules of the World Trade Organisation because it is based on the twinprinciples of non-reciprocity and non-discrimination.

The European Development Fund (EDF) will remain the main source ofmultilateral EU aid to the ACP countries. Under the new convention, EDFinstruments have been regrouped and rationalised into two programmes: oneto provide grants for long-term development schemes being carried out eitherat national or at regional level, with additional support available in the event ofa fall in export earnings; and the other to finance risk capital and loans to the

private sector. The ninth EDF will total €13.5bn (US$12.9bn). In addition, about

€10bn left undisbursed from previous programmes will remain available until

2007, and €1.7bn will be provided by the European Investment Bank. However,given that it took until the end of 2002 for a quorum of countries to ratify theagreement, it is highly likely that considerable sums will remain undisbursed.

In August 1992 Angola, Botswana, Lesotho, Malawi, Mozambique, Namibia,Swaziland, Tanzania, Zambia and Zimbabwe signed a treaty establishing theSADC. It replaced the Southern African Development Co-ordinationConference (SADCC), which was formed in 1980 by the Southern African statesin a largely unsuccessful attempt to reduce the region�s economic dependenceon white-ruled South Africa. Namibia joined the SADCC shortly afterindependence in 1990; South Africa became a member of the SADC in 1994;Mauritius joined in 1995; and the Democratic Republic of Congo (DRC, formerlyZaire) and Seychelles joined in 1997.

The SADC inherited the SADCC�s secretariat, based in Gaborone, Botswana, andthe responsibilities of each member for co-ordinating a different policy sectorhave remained broadly unchanged. The end of apartheid in South Africa,following multiracial elections, and South Africa�s admission into the SADC onAugust 29th 1994, inevitably shifted some of the SADC�s political and economicemphasis, but its goals remain much the same: to promote regional trade andintegration, to boost the region�s general economic independence, and tomobilise support for national and regional projects. In mid-1994, before South

Southern AfricanDevelopment Community

(SADC)

8 Zambia


Africa joined the SADC, only 4% of members� trade was within the communityand 25% was with South Africa!this pattern has not changed greatly.

Although the SADC voted in 1994 to set up a regional rapid-deploymentpeacekeeping force!and there are long-term plans for a regional developmentbank, a common currency and a regional parliament!in recent years theorganisation has focused mainly on energy and trade issues. The membercountries aim to link their power grids, and considerable progress has beenmade on this to date. As for trade issues, on September 1st 2000 the SADCtrade protocol came into effect, having been ratified by all member states. Thisaims to remove tariff and non-tariff barriers to trade in the region within eightyears, although progress will depend on the speed at which membergovernments dismantle their existing barriers to trade. So far, only South Africahas made a concrete commitment to progress, agreeing to reduce its tariffssubstantially during the eight-year period. Progress in reducing tariff barrierswithin the region is also likely to be complicated by the fact that many of thecountries belong to other regional groupings, such as the Common Market forEastern and Southern Africa (Comesa), diverting time and energy andoccasionally presenting conflicting agendas. In addition, the EU and SouthAfrica have now concluded their own free-trade agreement, and many of theother SADC countries!particularly members of the Southern African CustomsUnion!feel that they may be flooded with cheap European imports. However,now that the EU and African, Caribbean and Pacific states have replaced theLomé Convention with a new agreement, the Cotonou Convention, it is clearthat all SADC member states will have to decide whether the SADC as a regionshould have a free-trade agreement with the EU, or whether they shouldnegotiate individual free-trade agreements on a bilateral basis.

Progress in other areas of potential intra-SADC co-operation, such as mining,making the subregion a landmine-free zone and measures to combat drug-trafficking, have been delayed by disagreements over the civil war in the DRC.According to the SADC defence protocol, member states are bound to helpdefend existing governments from foreign invasion and internal insurgency.Zimbabwe, Angola and Namibia sent troops to the DRC to support the thenpresident, Laurent Kabila, but South Africa opposed the intervention. SouthAfrica has acted as a mediator in the DRC conflict, which will continue toovershadow all SADC initiatives, although a peace process now seems to begathering momentum.

The SADC has also tried to resolve domestic political crises in its own region.In September 1998 South African and Botswanan troops entered Lesotho toprevent a coup, leaving South Africa open to criticism for its inconsistentregional policy. More importantly, the SADC has been accused of being littlemore than a talking shop, having failed to present a coherent policy for dealingwith the worsening political and economic situation in Zimbabwe in the run-up to the March 2002 presidential election despite the obvious damage it hasdone to the region (both the fall in the South African rand in 2002 and negativeinvestor sentiment towards the region are blamed on the situation inZimbabwe). The crisis has also deepened the animosity between Zimbabwe�s

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president, Robert Mugabe, and the South African leadership, which threatens toundermine the SADC.

Despite its difficulties in presenting a united political front, the SADC hasrecently started to reform its institutions to further its other aim, regionaleconomic integration. One measure has been the establishment of anintegrated committee of ministers, comprising at least two ministers from eachmember state. This should accelerate the implementation of policy. In addition,the old allocation of development responsibilities to the different members isbeing replaced by four directorates. A directorate for trade, industry, finance andinvestment was established in August 2001 and a directorate for food,agriculture and natural resources in January 2002. The two other directorates,infrastructure and services, and social and human development and specialprogrammes, should be in place by the end of 2002. The SADC�s organ onpolitics, defence and security, which had been headed by President Mugabe,has now been brought formally within the organisation�s structure and has anew chairman every year.

10 Zambia


Basic data

752,612 sq km

10.29m (2000, official estimate)

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

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

Tropical, cool on high plateaux

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

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

Metric system

Kwacha (ZK)=100 ngwee. Average exchange rate in 2002: ZK4,307:US$1.Exchange rate on August 21st 2003: ZK4,660:US$1

2 hours ahead of GMT

January 1st, second Monday in March, Good Friday, Easter Monday, May 1st,May 25th, first Monday and Tuesday in July, August 1st, October 24th,December 25th-26th

Population

Main towns

Climate

Weather in Lusaka (altitude1,277 metres)

Measures

Currency

Time

Public holidays

Land area

Languages

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Politics

Zambia is a republic, in which the president, elected every five years byuniversal suffrage, wields considerable power. Zambia follows the "Westminstersystem", and has an elected National Assembly as a legislature. The largestparty in the National Assembly is the Movement for Multiparty Democracy(MMD), which has held power since 1991. It was last re-elected in December2001, when the party�s candidate at the concurrent presidential election, LevyMwanawasa, was elected to serve the first of a possible two five-year terms. MrMwanawasa"s election victory was controversial and is currently beingchallenged in the Supreme Court by opposition parties. However, an anti-corruption campaign launched by the president in mid-2002 is popular and haswon him a degree of moral legitimacy with the public. The next elections aredue in late 2006.

Political background

The British explorer, David Livingstone, travelled through Zambia in the mid-19th century, followed by European settlers keen to farm. In 1890 the BritishSouth Africa Company (BSAC) secured exclusive mineral rights in Barotselandfor £2,000. With the assistance of British troops, the BSAC established controlover Zambia, then called Northern Rhodesia, by 1911, and soon appropriatedprime agricultural land for white settlers, removing locals to �native reserves�on inferior land. The British Colonial Office took control of Northern Rhodesiain 1924. Shortly afterwards, large-scale copper mining began in Copperbeltprovince. As urban areas developed and the demand for food rose, settlersappropriated more land and established Zambia�s major commercial farms.Indirect rule was introduced in 1929, requiring chiefs to collect state taxes. After1945 the chiefs, known as native authorities, acquired additional responsibilitiesfor rural development. Educational opportunities were expanded to meet thedemands of the growing local elite, from which was drawn Zambia�s post-warpolitical leadership.

In 1953 Britain federated Northern Rhodesia, Southern Rhodesia (nowZimbabwe) and Nyasaland (now Malawi), but the federation was opposed byindependence movements and finally collapsed in 1963. An election inNorthern Rhodesia in October 1962 produced a coalition government ofKenneth Kaunda�s United National Independence Party (UNIP) and HarryNkumbula�s African National Congress (ANC). The coalition fell apart in 1963and UNIP won an outright victory in the subsequent election. The independentstate of Zambia was created on October 24th 1964, and Mr Kaunda was its firstpresident. Multiparty politics was permitted until 1972, when Mr Kaundainstituted a one-party state. Zambia was badly affected by regional instability inthe 1970s. The border with Rhodesia (now Zimbabwe) was closed in 1973because of conflict there, and access to Angolan ports was halted in 1975 whenPortugal gave up its colony, throwing it into civil war. The border withindependent Zimbabwe was reopened in 1980. During the 1980s Zambia

Early years

Independence in 1964

12 Zambia


suffered economically for its part in attempts by South Africa�s neighbours toisolate that country�s apartheid regime.

Criticism of Mr Kaunda�s government by business and trade unions intensifiedin the late 1970s as economic decline set in. There was a coup attempt in 1980and a series of strikes in 1981, after which several trade union leaders, includingthe next state president, Frederick Chiluba, were arrested and detained. Theeconomic situation deteriorated in the 1980s and the government sought IMFassistance. However, IMF policies, including the removal of the maize subsidy,provoked riots. Alarmed, the government restored the subsidy, nationalisedmilling companies and denounced the Fund. The government broke with theIMF in 1987 and embarked on its own, ultimately unsuccessful, economicrecovery programme.

Recent political developments

Buoyed by electoral victory in 1988, the government attempted limitedeconomic liberalisation, but a reduction in the maize subsidy led to renewedriots and strikes. Mr Kaunda eventually bowed to popular pressure and liftedthe ban on opposition parties in December 1990. An umbrella grouping, theMovement for Multiparty Democracy (MMD), whose members had little incommon other than their opposition to Mr Kaunda�s continued rule, wasfounded shortly afterwards, and quickly attracted a mass following. The MMD,led by Mr Chiluba, won a landslide victory in the 1991 presidential andlegislative elections on a low turnout, judged free and fair by internationalobservers. The MMD government soon distanced itself from its trade unionsupport base and embraced donor-advised structural adjustment policies,including a wide-ranging privatisation programme. The sale of the state-ownedZambia Consolidated Copper Mines (ZCCM), which then produced 57% of thecountry�s export earnings, was initiated in 1996 (but only completed in March2000, for far less money than had earlier been on offer).

A new Constitutional Amendment Act of 1996 weakened judicial powers andexcluded Mr Kaunda from contesting the presidential election, by stating thatanyone running for president had to have been born in Zambia and haveZambian parents (Mr Kaunda�s parents were Malawian). Most oppositionparties rejected the new constitution and boycotted the November 1996 generalelection, with the result that the MMD and Mr Chiluba were re-elected on alow turnout. Following an attempted military coup (lasting only two hours) onOctober 28th 1997, the government imposed a state of emergency until March1998. Senior politicians, including Mr Kaunda, were arrested, accused of treasonand detained for several months, but were later released. The MMD won localelections in December 1998, again on a low turnout. Mr Kaunda resigned asUNIP president in March 2000.

Mr Chiluba�s campaign to run for a third term!the constitutional limit is twoterms!and his refusal to allow other MMD members to campaign to stand asthe party�s candidate in the 2001 presidential election caused major divisionswithin the party during 2000 and 2001. The environment minister, Ben Mwila,

Rebirth of multiparty politicsin 1990s

The MMD is re-elected in 1996

Mr Chiluba�s third-term bidsplits the MMD

Growing internal dissent andeconomic decline

Zambia 13


and several of his supporters were expelled from the MMD in July 2000 overthe issue, and they established the Republican Party (now the ZambiaRepublican Party!ZRP). Despite strong opposition from civil society groups, theMMD formally re-appointed Mr Chiluba as party president at a special partyconvention in April 2001!opponents of the third term within the party werebarred from attending the convention. Public opinion remained strongly againsta third term, and in May 2001 Mr Chiluba announced that he would not standfor the presidency, while at the same time dismissing the cabinet ministers whowere opposed to his third term, including the vice-president, Christon Tembo.Most of the sacked ministers subsequently formed a new party, called theForum for Democracy and Development (FDD).

Ignoring the political ambitions of prominent cabinet members, Mr Chilubapicked Patrick Levy Mwanawasa as his successor. A prominent lawyer,Mr Mwanawasa served as vice-president to Mr Chiluba soon after the MMDwon its first election in 1991, but was dismissed in 1994, following allegationshe made about corruption in the upper echelons of the party. Mr Mwanawasawon the presidential poll by a narrow margin, and was inaugurated aspresident in early January 2002. EU monitors termed the poll "unsafe" andalleged that Mr Mwanawasa and the MMD had carried out widespread seriousmalpractice. Opposition leaders launched a challenge to the result in theSupreme Court on January 15th 2002.

Presidential election results, Dec 2001% of registered

Candidate Party No. of votes % of votes votersLevy Mwanawasa MMDa 506,694 28.70 19.50Anderson Mazoka UPNDb 472,697 26.80 18.20

Christon Tembo FDDc 228,861 13.00 8.80Tilyenji Kaunda UNIPd 175,898 10.00 6.80

Godfrey Miyanda HPe 140,678 8.00 5.40Ben Mwila ZRPf 85,472 4.80 3.30Michael Sata PFg 59,172 3.40 2.30

Nevers Mumba NCCh 38,860 2.20 1.50Gwendoline Konnie SDPI 10,253 0.60 0.40

Inonge Mbikusita-Lewanika AZj 9,882 0.60 0.40Yobert Shamapande NLDk 9,481 0.50 0.40

Total - 1,737,948 98.39 l 66.72

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

Source: Electoral Commission of Zambia.

The MMD won more seats than any other party in the parliamentary poll, butinitially lacked an overall majority. It was able to achieve this by winningseveral subsequent by-elections and further strengthened its position byagreeing an ill-defined alliance with UNIP in May 2003.

Once in office, Mr Mwanawasa embarked on a wide-ranging and high profileanti-corruption drive, primarily targeting senior civil servants and politicians of

MMD wins 2001 presidentialand legislative elections

Mr Chiluba is charged ofcorruption

14 Zambia


the Chiluba era, including several former ministers and Mr Chiluba himself. InJuly 2002, the National Assembly lifted Mr Chiluba"s immunity fromprosecution. The former president challenged this in the High Court and thenthe Supreme Court, but eventually lost the case and was charged with 59counts of theft and diversion of state funds in February 2003. Further countswere added in August 2003 and the trial was scheduled to begin at the end ofthat month.

The prosecution case in the Supreme Court challenging the legitimacy of MrMwanawasa�s election victory proceeded, with prolonged delays, throughout2002, and by August 2003 was nearly complete. The head of the EU electionmonitoring team Michael Meadowcroft, opposition leaders, and formermembers of Mr Chiluba�s cabinet, including Michael Sata and VernonMwaanga have provided telling evidence. Perhaps the most damagingtestimony from Mr Mwanawasa�s point of view has come from the formerdirector of the Zambia Security Intelligence Services, Xavier Chungu. MrChungu, who is facing charges of his own over theft and corruption, testifiedthat he personally delivered state funds to Mr Chiluba to finance MrMwanawasa�s electoral campaign. Using state funds for party political purposesviolates the constitution, and if the Supreme Court finds that this happened inthe 2001 election, Mr Mwanawasa�s victory may be annulled, triggering a freshelection. The case for the defence, which has yet to begin!and may not bedecided until 2005!is likely to focus on alleged tampering of evidence.

Patronage, state and civil society

Zambian political history has been relatively stable compared with many otherstates in Sub-Saharan Africa. No government has been overthrown by a coup d"étatand aside from the occasional high profile assassination, in-fighting has beengenerally played out without recourse to arms, often ending up in the courts, whoseverdicts are in most cases accepted. Zambian politics is, however, based onpatronage: leaders reward supporters with jobs and contracts to retain them and toenhance their own power, the result of which is the systemic use of the public pursefor private ends. There is also turmoil every time the government changes, as newpatronage networks are established, while old ones are dismantled. Beneficiaries ofthe outgoing patronage networks are reluctant to let go, partly in fear of prosecution,and this seems to have been the reason for Mr Chiluba"s third-term bid. The publichas long grown tired of the political elite looting state assets, and widespreadelectoral apathy suggests growing scepticism that elections can bring genuine change.Nonetheless, popular opposition to Mr Chiluba"s third-term bid in 2000-01 helpedforce him to abandon it. Mr Mwanawasa�s ongoing anti-corruption campaign is anattempt to harness public hostility to corruption to his own advantage, but thepresident has made extensive use of patronage to shore up his position following adisputed election victory, and shows no intention of wanting to reform thepatronage system.

Mr Mwanawasa brought UNIP, ZRP and FDD members into the cabinet inFebruary 2003!despite opposition, in the FDD�s case, from its leadership!in anattempt to bolster his position and divide the opposition. In May 2003 thepresident removed the vice-president, and ministers of finance andinformation. Another opposition politician, Nevers Mumba, was appointed the

Zambia 15


new vice president. As Mr Mumba stood in the 2001 presidential election asthe candidate of the National Citizens Coalition, was not an elected MP andwas appointed while parliament was in recess, opposition parties claim theappointment breached the constitution and have initiated impeachmentproceedings against Mr Mwanawasa.

Important recent events

March 1999

The Anglo-South African mining company, Anglo American (Anglo), announces itsintention to buy the major assets of the state-owned Zambia Consolidated CopperMines (ZCCM).

March 2000

Kenneth Kaunda retires from Zambian politics. The privatisation of ZCCM iscompleted, prompting donors to release funds.

May 2001

Mr Chiluba sacks cabinet ministers opposing his third term, but following strongopposition says he will not stand for president again. A large group of sackedministers establish the Forum for Democracy and Development.

August 2001

Levy Mwanawasa (a former vice-president) is named the MMD�s presidentialcandidate, following a long absence from politics.

December 2001

Mr Mwanawasa wins the presidential election and the MMD the parliamentaryelection, but an EU monitoring team terms the results "unsafe".

January 2002

Anglo says it will withdraw from Zambia by the end of 2002. The governmentcommits itself to keeping Anglo�s mines open. Opposition leaders launch a SupremeCourt challenge to Mr Mwanawasa�s electoral victory.

July 2002

Mr Mwanawasa asks the National Assembly to lift Mr Chiluba"s immunity fromprosecution so he can be charged with corruption. The Assembly complies.

February 2003

Mr Chiluba is arrested and charged with corruption and theft. He is later released onbail. Politicians from UNIP, ZRP and the FDD are brought into the cabinet.

August 2003

Mr Chiluba is again arrested, and further charges are brought against him. Public-sector workers begin a series of strikes as the government attempts to reverse a paydeal awarded earlier in the year that caused it to exceed expenditure targets agreedwith the IMF.

16 Zambia


Constitution, institutions and administration

Zambia is a constitutional republic. The current constitution, Zambia�s third,dates from 1996 and, for the most part, it preserves a balance of power betweenthe state�s executive, legislative and judicial functions. The 1996 constitutionwas passed by legislators despite hostility from opposition parties, humanrights groups, churches trade unions, the free press, lawyers� associations andothers. The new constitution circumscribed the power of the judiciary topronounce legislation as unconstitutional and increased the powers of thepresident to remove High Court judges (both rarely used). A constitutionalreview commission appointed by Mr Mwanawasa began work in August 2003,and is scheduled to complete its task in twelve months. Most civil societyorganisations agree with the president that the 1996 constitution lackslegitimacy, but oppose the review on the grounds that Mr Mwanawasa has toomuch control over the process!namely that the review commission has beenhandpicked by him.

The presidency is a powerful post, offering great scope for patronage, and theincumbent enjoys wide executive and discretionary powers. Competitionbetween politicians for the presidency is intense, and generally eclipses policydifferences between parties. The president must seek re-election after five yearsand can serve only two terms. Since Mr Chiluba"s attempt to run for a thirdterm was defeated in 2001 the two-term rule appears likely to remain.

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

The president"s office dominates government. Mr Mwanawasa hasdemonstrated how the powers of appointment it bestows can be used tobolster the incumbent�s position, even where his original mandate and supportbase is weak. After the president"s office, the Ministry of Finance is the mostpowerful in the government, driving economic policy and relations withdonors, though under Mr Mwanawasa, the president�s office has assertedgreater control over this. Policy implementation by line ministries is generallyweak because of severe capacity problems, which are exacerbated by thebrevity of so many ministerial terms, which make it hard for ministers tomaster their briefs. The quality of senior civil servants varies betweenministries, with the Ministry of Finance and National Planning seen as themost technically competent. However, the number of HIV/AIDS cases hasreduced skill levels throughout government, and hinders skills transfer, reducingthe limited effectiveness of government.

The constitution is beingreviewed

President's office and Ministryof Finance lead government

Little challenge to governmentpolicy from National Assembly

Zambia 17


Despite some questionable judgements in high-profile political cases, thespirited judiciary has managed to preserve its independence from the executiveand legislature. The justice system is being seriously tested by the anti-corruption campaign launched by Mr Mwanawasa and the oppositionchallenge to his electoral victory, and it will be further challenged by the trial ofMr Chiluba. There are doubts that the judicial system can properly handle thesubstantial, politically sensitive caseload, resulting in delays that will chieflybenefit the government.

Since 1996 Zambia has officially adopted Christianity as the state religion.While most Zambians are Christian, there are also substantial Muslim andanimist minorities. Nonetheless, church-based groups wield some authorityand much of the population appears to trust their advice rather than that of thepoliticians. However, the involvement of church leaders in politics is growing!Nevers Mumba, who was appointed vice-president in 2003, is a Pentecostalpastor!which may diminish this trust in the long run.

Political forces

The MMD was created in December 1990 as a loose alliance united around theaim of ousting then-president Kenneth Kaunda and UNIP, and more broadly ofmodernising domestic politics. Members espousing a neo-liberal economicagenda gained control of the MMD shortly before the 1991 election andconsolidated their position once the party was in power, largely at the expenseof trade unions. For over a decade, the MMD remained neo-liberal in outlook,but the ardour of its faith waned considerably in recent years; Mr Mwanawasaespouses old-fashioned state intervention and central planning. Particularlyduring the final years of Mr Chiluba"s rule, the distinction between the state,the party and senior MMD members became increasingly blurred, making ithard to discern any clear ideology in much of government policy. Corruption,therefore, became both increasingly systemic and extreme. The current anti-corruption campaign, which is resulting in a constant stream of high-profileprosecutions, is intended to change this perception and demonstrate that evenfor MMD high-flyers, crime does not pay. However, it is widely recognised thatthe campaign is also part of Mr Mwanawasa�s strategy to remove Mr Chiluba�scohorts from power and bolster his own position.

Like most other Zambian parties, the MMD is not overtly ethnically based butethnicity does play a role. Mr Chiluba is a Bemba, and Bemba people (fromCopperbelt, Luapula and Northern provinces) have been influential in theMMD in the past. This influence is resented by other ethnic groups, particularlyfrom the south, and was a factor in their vote for opposition parties in the 2001elections. Mr Mwanawasa grew up in the Copperbelt!his father is a Lembafrom this region and his mother is a Lenje from the south. Bemba influence inthe MMD has waned since he came to power.

The judiciary is mostlyindependent

Zambia is officially Christian

Corruption worsens theMMD's reputation

18 Zambia


Last five election results

Year Winning party2001 MMD

1996 MMD1991 MMD

1988 UNIPa

1983 UNIPa

a Sole party.

Source: Economist Intelligence Unit.

After three decades at the helm, Mr Kaunda finally resigned as UNIP presidentin March 2000. The perception that UNIP is more comfortable as a dynastythan a party was strengthened when Mr Kaunda�s successor, Francis Nkhoma,lasted less than a year as party president, before being replaced by Mr Kaunda�sson, Tilyenji, in April 2001. Mr Mwanawasa has cultivated good relations withthe Kaundas, rehabilitating the former president as a national hero and forminga political alliance between the MMD and UNIP in 2003. The alliance, whoseprecise nature remains undefined, has been vigorously opposed by somewithin UNIP, who fear it will be the death of the party, but for the partyleadership it represents a welcome return to power.

Anderson Mazoka, the former managing director of Zambian operations forSouth African mining firm Anglo American (Anglo), formed the United Partyfor National Development (UPND) in December 1998. The UPND far exceededexpectations in the 2001 legislative election, making strong inroads in Lusakaand Central Provinces as well as winning all but one of the seats in theSouthern Province, its home base. Mr Mazoka claims, plausibly, that he won the2001 presidential election. Officially Mr Mwanawasa beat him by around34,000 votes, or 1.9% of votes cast, but there is suspicion that theannouncement of the result was delayed by several days because Mr Mazokahad done better than expected and the results required altering. The UPND isthe second largest party in the National Assembly, but has failed to buildalliances with other parties or make much impression on the electorate andmay struggle to achieve the same level of support in future polls.

Three parties consisting of disgruntled or expelled senior MMD members wereformed in 2000-01. Of the three, only the FDD, formed by cabinet ministersexpelled by Mr Chiluba for opposing the third-term bid, performed credibly inthe 2001 legislative election. The FDD won 12 seats, but party cohesion hasbeen weak since the election and in February 2003, one of its most talentedMPs, Dipak Patel, joined Mr Mwanawasa�s cabinet despite opposition from therest of the party. The ZRP, headed by Ben Mwila, the former environmentminister and Mr Chiluba�s uncle, won just one seat in 2001. However, it hasalleged that it was cheated of victory in some constituencies and the matter isbefore the courts. Meanwhile, its one assembly member, Sylvia Masebo, joinedthe cabinet as minister of local government, also in February 2003. TheHeritage Party, formed in mid-2001 and led by the former education minister,Godfrey Miyanda, won four seats in the 2001 election and has also gone to

Kenneth and Tilyenji Kaundakeep control of the UNIP

FDD cohesion is weakening

The UPND is the largestopposition party

Zambia 19


court to prove that it should have won more. Two of the Heritage Party�s MPsjoined the MMD during 2003.

Main political figures

Levy Mwanawasa

Inaugurated president in January 2002 following a flawed poll that left him with theweakest mandate ever held by a Zambian head of state. Mr Mwanawasa hasbolstered his position since taking office by spearheading an anti-corruptioncampaign that has pitted him against Mr Chiluba, who chose him as the MMD"spresidential candidate. The public and donors have broadly supported the campaignso far, which has diverted much of the attention away from the Supreme Courtchallenge to his 2001 election victory. A good harvest in 2003 has also buoyed MrMwanawasa�s standing, but donor concern at his approach to pressing economicproblems is growing.

Frederick Chiluba

Zambia�s president from 1991 to 2001, he failed to secure the constitutional change toallow him to stand for the presidency a third time. He came to power amid greatexpectations, but left it with a poor record. While in office he combined notableachievements, including some bold economic reforms and retaining Zambia"sneutrality in the region while conflicts raged on its borders, with disasters such asthe botched privatisation of the mining parastatal, Zambia Consolidated CopperMines (ZCCM), and a seemingly endless stream of corruption scandals. Mr Chilubaselected Mr Mwanawasa as his successor in the expectation that Mr Mwanawasawould not target him once he became president, yet this is precisely what hashappened. Although he exploited every legal option to halt or delay the process,Mr Chiluba was eventually put on trial for theft and corruption in August 2003.

Peter Magande

Appointed finance minister in July 2003, Mr Magande is a technocrat who has neverbefore held political office. He worked previously as the secretary-general of theAfrican, Caribbean and Pacific (ACP) group, leaving him with solid connectionsthroughout the developing and donor world; before then was a senior civil servantand managing director of several parastatals. Since assuming office, Mr Magande hassaid he is opposed to further privatisation and has hinted at increased economicintervention to enable the state to resume a �leading role� in the economy.

Anderson Mazoka

Leader of the opposition after a coming second the 2001 presidential election.Previously the managing director of Anglo in Zambia and a strong believer in thefree market. Frustrated in his attempts to ascend the MMD hierarchy!apparentlybecause he is Tonga rather than Bemba!Mr Mazoka formed the United Party forNational Development (UPND) in 1998. Mr Mazoka has failed thus far to workeffectively with other party leaders, which has weakened his party�s impact. If theSupreme Court does order fresh elections, few expect Mr Mazoka to perform as wellas in 2001, when he far exceeded expectations.

Christon Tembo

A minister in nearly every one of Mr Chiluba�s cabinets until his expulsion from theMMD in mid-2001 (owing to his opposition to a third term). Mr Tembo stood as the

20 Zambia


Forum for Democracy and Development (FDD) presidential candidate but came apoor third. He has failed to achieve a significant political profile since the election,and is increasingly ignored.

Fred M�membe

Editor of The Post, Zambia�s main independent newspaper, and highly influential innational politics. The Post was critical of Mr Chiluba"s presidency, constantlypresenting exposés of government mismanagement and corruption, but has beengenerally supportive of Mr Mwanawasa, and particularly his anti-corruptioncampaign. This has prompted accusations from some quarters that The Post�sindependence has been compromised.

International relations and defence

International relations revolve largely around aid and debt. External debt isover 150% of GDP and the country is heavily aid-dependent, meaning thatrelations with donor governments and multilateral agencies are of constantsignificance. Donor conditions for aid were essentially economic in the 1980sand 1990s, but to these were added a variety of governance criteria followingthe completion of the privatisation of ZCCM in March 2000. Because of theirconcerns about political instability in the region, donors are wary ofundermining the government and generally continue to disburse funds, despiteits apparent systemic failure to meet the required targets and conditionalities.(IMF lending was suspended in mid-2003, however, owing to the governmentexceeding expenditure targets.)

South Africa"s ruling party, the African National Congress (ANC), is an old allyof Mr Kaunda and has not shown any affection for the MMD. The SouthAfrican government is, however, relieved that Mr Chiluba is no longer presidentand relations between Mr Mwanawasa and the South African president, ThaboMbeki, are cordial, though hardly warm. The two have been consulting on thepeace process in the Democratic Republic of Congo (DRC) and Mr Mwanawasahas expressed support for the New Partnership for Africa"s Development(NEPAD), co-led by Mr Mbeki. The substantial trade imbalance betweenZambia and South Africa is a permanent strain on relations. However, theratification in 2001 of a trade protocol between the Southern AfricanDevelopment Community (SADC) and the Southern African Customs Union(SACU), guaranteeing Zambian producers access to the South African market,should ease tensions in the medium term.

The end of the civil war in Angola in April 2002 is of benefit for the wholeregion, not least for Zambia, which then hosted over 200,000 Angolan refugees(many of whom have now returned or are returning home). Zambia hostedpeace talks between the Angolan government and the União Nacional para aIndependência Total de Angola (UNITA) rebels that culminated in the 1994Lusaka peace accord. The accord failed and the Angolan government afterwardsaccused the Zambian government of covert dealings with UNITA. The Zambiangovernment always denied the allegation, though some politicians wereinvolved in gun-running to UNITA across the vast shared border. Relations

South Africa is relieved atMr Chiluba�s departure

The end of the Angolan civilwar improves relations

Donors have concerns overgovernance

Zambia 21


began to improve in 2001, following the establishment of a tripartite securitymechanism with Namibia, although the border regions remained volatile whilethe Angolan civil war continued. The end of the war has greatly improvedrelations, which are now the best they have been in over a decade.

Mr Mwanawasa is the formal overseer of the DRC peace process, but in practicehas no influence over events. Zambia hosts tens of thousands of DRC refugeesand endures constant incursions by DRC militia to scavenge food or commitarmed robbery, but the government managed to stay neutral in the war and atno time deployed troops in the country, bucking the regional trend.

Zambia maintains smaller armed forces than its neighbours. In 2002 theLondon-based International Institute for Strategic Studies estimated theZambian army at 20,000, with another 1,600 in the air force. Paramilitaryforces numbered 1,400 and comprised a 700-strong police mobile unit and apolice paramilitary unit. Zambian peacekeeping troops acquitted themselveswell in Rwanda in 1994-95, but were at times overwhelmed in Sierra Leone,where several hundred were kidnapped in April 2000 for two months byRevolutionary United Front rebels. Zambian peacekeepers have nonethelessretained a presence in the country and a fresh battalion was despatched therein July 2003.

Military forces, 2002Army 20,000

Air force 1,600Total 21,600Paramilitary 1,400

Defence budget (US$ m) 23

Source: International Institute for Strategic Studies, The Military Balance 2002/03.

Security risk in Zambia

Armed conflict

The risk of armed conflict is low, particularly in comparison with neighbouringstates. Zambia is a much safer place to do business than the Democratic Republic ofCongo (DRC), Angola or Zimbabwe, but is roughly similar to Malawi, Mozambiqueand Namibia. Government forces control the whole country, but troops are morethinly spread in remote border regions than is ideal for security reasons. They arerarely called on to defend the country from incursion. The Copperbelt"s mining andmanufacturing assets are all close to the shared DRC border, but there has beennever been much spillover of fighting into Zambia since the DRC war began andbusinesses have been left untouched. The Angolan civil war did lead to sporadicfighting on Zambian soil, sometimes resulting in Zambian casualties, but the conflictzones were in remote areas near the western border where there is no significantforeign business presence. Furthermore, the conclusion of a peace accord in Angolain April 2002 has led to an end to these incursions.

Zambia remains neutral in theDRC conflict

Zambia�s armed forcesare small

22 Zambia


Unrest and demonstrations

Zambia"s politics is sufficiently pluralistic for there not to have been much call orsupport for internal armed opposition. Zambia has experienced a few coup d�étatattempts by disaffected soldiers, but none have come anywhere near seizing power.In both the Kaunda and Chiluba eras, coup attempts, some of which appearedfabricated, were used at times to justify states of emergency and the harassment ofpolitical opponents. Well-established businesses recognise these ploys and generallyhave reacted calmly to news that a coup attempt is under way. Political mobilisationrequires financial or other inducements and at most political rallies there is a "rent-a-crowd" element, usually of unemployed young urban men, paid by the party tocheer at the right moments, shout the required slogans and look out for potentialtrouble-makers. The hired element can also be deployed to rough-up their opponentsor stage noisy and intimidating-looking demonstrations from time to time,particularly in Lusaka, but these are not generally deployed against foreign-ownedbusinesses. Workers" grievances and protests against specific companies occasionallyturn violent, although usually only when conditions are absolutely desperate andthe relevant union is not functioning properly.

Violent crime

Violent crime has notably worsened in recent years, particularly in Lusaka and in theCopperbelt. Firearms are easy and relatively inexpensive to obtain (often smuggledin from the DRC and Angola). Unemployment and poverty are entrenched and statecapacity to fight crime is weak. Private security companies, many of which are ofSouth African origin, are growing, yet incidents of armed burglary and robbery arecontinuing to increase. Personal daily security is, however, generally good and exceptoccasionally during periods of political unrest (such as the run-up to nationalelections) and outside traditional danger zones such as taxi ranks, Lusaka and othertowns are generally safe to walk about in during the day. Caution at night is advisedwhen in any urban area.

Organised crime and kidnapping

Organised crime does operate in the country, often as part of a regional network.Hijacked South African cars, for example, are often brought to Lusaka for sale, orbroken for spare parts: Lusaka"s Soweto market is extraordinary for the ease andspeed with which one can procure almost any spare part for any kind or make ofvehicle. Money laundering is also prevalent, helped by weak banking laws and laxsupervision. Kidnapping however, is rare and few businesses say organised crime isa major problem. Instead, businesses stress that their main concerns are corruptionand embezzlement, primarily from within the company.

Resources and infrastructure

Population

The preliminary results of the 2000 census put total population at 10.29m.Annual population growth averaged 2.9% during the 1990s, compared with 3.1%in the 1980s. Based on these figures, the EIU estimates the population in 2002at 10.59m. The main reason for the declining population growth rate is theeffect of HIV/AIDS, which is expected to reduce annual population growth to

HIV/AIDS reduces populationgrowth rate

Zambia 23


2% by 2010. Population growth in the Copperbelt during the 1990s was just 1.3%owing to migration to other areas as a result of the economic crisis in theprovince. Population growth in Lusaka over the same period was much higher,averaging 3.8% a year, reflecting the city"s continued attraction, despite itschronic jobs shortage. Urbanisation is a growing problem in Zambia (as is thecase in most less developed countries): rural-to-urban migrants create pressureon employment structures, housing needs and security.

Populationa

1980 1985 1990 1995 2000Total 5.86 6.89 8.05 9.22 10.42

a Medium variant measurement.

Source: UN, Population Division.

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

Population size and growth rates, 2000Intercensal growth % change on Population No. of people

Province Male Female rate (annual av) 1990 census Area (sq km) distribution (%) per sq kmCentral 489,436 517,330 2.7 -1.5 94,394 9.8 10.7

Copperbelt 824,912 832,734 1.3 -0.2 31,328 16.1 52.9Eastern 642,433 658,540 2.6 -1.8 69,106 12.6 18.8Luapula 388,189 396,424 3.4 0.5 50,567 7.6 15.5

Lusaka 712,393 720,008 3.8 0.1 21,896 13.9 65.4Northern 696,626 710,462 4.3 1.1 147,826 13.7 9.5

North-Western 301,596 309,379 3.4 -0.4 125,826 5.9 4.9Southern 639,356 663,304 3.0 -0.7 85,283 12.7 15.3Western 375,950 406,559 2.1 -0.7 126,386 7.6 6.2

Total 5,070,891 5,214,740 2.9 -0.2 752,612 100.0 13.7

Sources: Central Statistical Office (CSO), preliminary Report of Census 2000 of Population and Housing; Ministry of Finance and National Planning.

About half the population is in some form of employment. Income distributionis highly skewed, with the majority earning very little, while a minority makesa comfortable living. Some 73% of the population is officially classified as poorand 58% as extremely poor. Subsistence agriculture is the biggest singleemployer, but data for this category are scarce and unreliable. However, it isestimated that around 2m people are subsistence farmers. Informal trading isbelieved to employ over 1m, but is under-represented in official statistics.Formal sector employment in 2001 was officially calculated at 494,457, up by1.5% on the year earlier. Most of the increase was in the private sector, whichaccounts for 46% of the total. Central government employment also increasedslightly in 2001, to 124,000, after an earlier period of decline caused by therequirements of structural-adjustment programmes.

Subsistence agriculture is themain employer

24 Zambia


Population distribution(% of total)

Area 2000 1990 1980Central 9.8 9.9 9.0Copperbelt 16.1 16.8 22.1

Eastern 12.6 12.9 11.5Luapula 7.6 7.3 7.4

Lusaka 13.9 12.8 12.2Northern 13.7 11.9 11.9

North Western 5.9 5.6 5.4Southern 12.7 12.4 11.9Western 7.6 8.2 8.6

Total 100.0 100.0 100.0

Source: CSO.

Zambia has more than 70 ethnic groups, of which the largest and politicallymost influential is the Bemba from the Northern, Copperbelt and Luapulaprovinces, comprising 18% of the population. Bemba support for the Movementfor Multiparty Democracy (MMD) was solid in the early 1990s, but hasfragmented considerably over the last few years. Around 10% of the populationare Tonga people from the Southern province, who are strong supporters of theUPND. The Nyanja from the Eastern province, who are also numerous inLusaka, mostly support UNIP. The Lozi from the Western province are the onlygroup to show strong support for secession from the country (to join theirfellow Lozi members in Namibia�s Caprivi strip, which, together with Zambia�sWestern province, formed the majority of the old Kingdom of Barotseland).

Urban population distribution1990 1998a

Lusaka 982,362 1,450,000Ndola 499,535 738,000

Kabwe 380,792 521,000Kitwe 347,769 456,000

Chingola 161,065 220,000Mufulira 146,451 200,000

Luanshya 141,927 195,000Livingstone 82,952 114,000

a Official estimates.

Source: National census.

Education

Recent poverty assessment surveys show a consensus among education usersthat during the 1990s access to education and its perceived value deteriorated.The trends are mixed regarding quality. Almost every child of primary schoolage attended school in the mid-1980s. User fees were introduced in the 1990s togenerate funds to improve quality, but households have increasingly removedchildren from school as a poverty-coping strategy and attendance fell. Anongoing donor-funded Basic Education Sub-Sector Investment Programme(BESSIP) has begun to address the problem!primary school attendance rose by

Different ethnic groups votefor different political parties

Educational value and accessdeclined in the 1990s

Zambia 25


20% between 1997 and 2002 according to the Ministry of Education. Up-to-datedata on secondary school enrolment is not available, but the number ofsecondary schools rose from 228 in 1998 to 335 in 2002, which would suggestan improvement. In some schools, the introduction of user fees has improvedquality, partly by increasing the parents" stake in their children�s success.Overall, however, pass rates are falling, school infrastructure is decaying and theavailability of teaching materials and trained teachers has also declined.Teacher morale is also a problem. Salaries have not kept pace with inflationand are lower in real terms than a decade ago. Many parents complain ofteacher drunkenness and say it is a major factor in the decline of educationalquality. In addition, many teachers are HIV-positive and the mortality rate fromAIDS in the profession is high. A lack of skill transfer through the school systemis of significant concern.

Education statistics2001 2002 % change

Primary school enrolment 1,740,274 1,865,677 7.2

Number of primary schools 4,558 4,503 1.2Number of secondary schools 282 335 18.8

Source: Ministry of Education.

Education reform is an important component of the poverty reduction strategypaper (PRSP), which is supposed to form the basis of government policy. ThePRSP aims to boost attendance, quality and access through interventions thatinclude expanding BESSIP, establishing new bursaries, improving teachersalaries and working conditions and instituting an equity programme toincrease female participation in education. According to the PRSP, theattendance of boys and girls is about the same until age 10 and then worsensprogressively through the rest of the system. By age 17, about two-thirds ofpupils are boys. Part of the problem is that in rural areas the education of girlsis not believed to be important. In addition, early pregnancies are increasingand many girls are forced to abandon their studies for this reason.

Zambia has two universities, the University of Zambia and the CopperbeltUniversity in Kitwe, though plans have been announced to upgrade theNational College for Management Studies to a university. There are also severalpolytechnics and technical schools. In 2002 university enrolment totalled 8,565,up from 7,804 in 2001, a rise the government attributes to reform to the studentadmission system that allow students to sponsor themselves instead of relyingon government bursaries. The frequent closure of the universities because ofstudent and teacher unrest has led to a backlog, forcing students to enteruniversity later than they intended. The emphasis at this level remains on thearts and social sciences, with fewer than 40% of graduates studying technical,scientific, medical, agricultural or managerial subjects. The government has forseveral years been replacing state funding of tertiary education with private-sector sponsorship and income-generation schemes by the universities andcolleges themselves.

Higher education funding failsto keep pace with enrolment

Educational improvement is amajor PRSP target

26 Zambia


The adult literacy rate is estimated at 77%; two-thirds of women are believed tobe literate. Illiteracy rates are higher among the 14-20 age group than those aged20-30, highlighting the decline in education during the 1990s.

Health

Health provision is faced with a double crisis of declining resources and agrowing disease burden, particularly because of HIV/AIDS (although malaria isstill the main killer). Key health indicators, including life expectancy, are fallingowing to poor nutrition and infant mortality, both of which are worse todaythan a decade ago. Average life expectancy rose from 40 years in 1964 to 54 inthe mid-1980s, but has since declined to an estimated 33 years in 2001. The UNDevelopment Programme�s Human Development Report 2003 ranks Zambia163rd out of 175 in its Human Development Index (HDI), placing it betweenMalawi and Angola. Zambia�s HDI score has declined since 1985 and is now16% lower than in 1975. However, a decentralisation policy introduced by theChiluba government has borne some fruit and resource allocation to the healthsector has become more equitable and transparent. In addition, structures forcommunity participation in decision-making about health have beenestablished at local level and in some areas at least, function well. Access andthe level of provision available remain the main problems, particularly since, asin the educational sector, the charging of user fees for services since 1994 hassignificantly reduced the utilisation of services by the poor.

At independence, health services were almost all located in towns, with onedoctor per 11,400 people. By 1984 this figure had been reduced to just over onedoctor per 7,000 people, but rose again to one per 10,000 by 1994 and was oneper 14,000 in 2001. There are major regional discrepancies. In Luapula provincethere is one doctor per 145,780 people, while there is one doctor per 6,660people in Lusaka.

HIV infection may have peaked

In common with neighbouring states, the Zambian population suffers fromhigh levels of HIV infection. The impact on the economy has been feltstrongly; workers� absenteeism rates have increased and skills are not beingpassed on from one generation to another. The latest estimate from the JointUnited Nations Programme on HIV/AIDS (UNAIDS) is that 21.5% of thepopulation is HIV positive, with 29% of the population infected in urban areasand 14% in rural areas (the government estimates a prevalence rate of 16%).About one-fifth of households have experienced an HIV-related death, butHIV prevalence has peaked (at over 30% in 1998) and is now stabilising. Thereis also evidence that infection rates are declining in the critical 15-19 age group.A national council and secretariat to co-ordinate the fight against AIDS wasestablished in November 2001. The government fully backs the provision ofanti-retrovirals to people who are HIV positive, but can only afford to supplythem to around 10,000 people per year.

Literacy rates are falling

Key health indicators areworsening

Zambia 27


Zambia�s PRSP advocates increasing health expenditure from its current level ofaround 15% of the national budget and under 2% of GDP, to 3% of GDP. Theincreased funding is for a so-called basic healthcare package, which appears toencompass most state healthcare interventions. Included in the basic healthcarepackage, according to the PRSP, are improved fee exemption mechanisms forthe vulnerable, a campaign to combat malaria, the national HIV/AIDS strategy,reproductive and child health and sanitation. The government calculates that itspends an estimated US$10 per head per year on health; the WHO estimatesthat spending of US$60 per head is necessary to provide quality healthcare indeveloping countries.

HIV/AIDS infection levels, 2001(% of adult population infected)a

Ghana 3.0

Uganda 5.0Nigeria 5.8

Côte d�Ivoire 9.7Malawi 15.0

South Africa 20.1Zambia 21.5Zimbabwe 33.7

Botswana 38.8

a 15-49 age group.

Source: UNAIDS/WHO Global Surveillance, Epidemiological fact sheets by country, 2002 updates.

Natural resources and the environment

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

The country is known for its high-quality copper (and cobalt) reserves. Since theearly 1920s copper has been mined commercially. Alongside base metals,artisans have mined precious and semi-precious gems (emeralds, amethyst,aquamarine and tourmaline among others) in around 400 operations,generating around US$200m per year. Maamba colliery, which the governmenthas put up for sale, produced 80,000 tonnes of coal in 2002, well belowpotential capacity!it has reserves of around 60m tonnes. Aluminium, barium,calcium, chromium, manganese, nickel, uranium and zinc are some of the otherminerals that have been discovered, following a joint British Geological Surveyand Geological Survey of Zambia minerals-mapping project completed in 2001.

Almost one-half of the country is covered by bush and forest, which containfew commercially exploitable species. Less than 50% of potential arable land iscultivated, mostly with maize. Rainfall is erratic, but the basic pattern is a cool,dry period from April to August, followed by hot weather during Septemberand October and a rainy season lasting from November until March. Zambia isprone to drought, which can have a devastating impact on harvests, as was the

Zambia is on the southerncentral African plateau

A country prone to drought

Abundant mineral resources,led by copper

28 Zambia


case in the 2001/02 season. The country is also prone, although less frequently,to floods.

Transport, communications and the Internet

Transportation costs are high, partly because Zambia is land-locked, but alsobecause of inefficiencies and structural weaknesses in the transportationnetwork. Transportation costs are estimated to account for 60-70% of the cost ofproduction for many goods. This is higher than the regional average anddamages the competitiveness of exports. Government policy is to reverse thetrend of the decay of transportation infrastructure, particularly for roads andthe government intends to direct substantial PRSP funds to this end. Thegovernment policy of extending private-sector involvement into the railnetwork is already far advanced and is set to continue.

Beira in Mozambique is the nearest major port to Zambia and is linked by railto Lusaka via Harare, the capital of Zimbabwe. Further away, but far betterequipped and also accessible by rail, is Durban in South Africa. Dar es Salaam,linked to Zambia by the Tanzania Zambia Railway (Tazara), handles somemineral exports (though most copper concentrate is exported by lorry), but hasrecently been losing market share to Beira and Durban. Zambia uses Mpulunguport on Lake Tanganyika to export to the Great Lakes region, although thevolumes are not substantial owing to weak demand. Mpulungu is in a poorstate and is not connected to Zambia�s rail network, but is in the process ofrehabilitation. Talks are underway on the development of railway infrastructureas part of the Nacala Development Corridor project!specifically the possibilityof extending a railway which links Malawi to the port of Nacala inMozambique, to Lusaka. Considerable investment is required to build a newsection of track to link the Zambian and Malawian rail networks.

The decline in trade through Dar es Salaam has put pressure on Tazara (1,860km of track), which was built in 1975 with Chinese assistance. Tazara is a classicparastatal, where overstaffing, weak management and poor wages have longkept industrial relations combative and service delivery poor. Limited reformssince 1999 have brought some improvements. Export volumes transported byTazara in 2001 were 21% lower than in 1997, but there was an overall increase ingoods transported by the company of 9% over the same period, because of anincrease in import volumes and the movement of local goods.

Freight on Tazara, 1997-2001('000 tonnes)

Year Exports Total1997 261 555

1998 209 6321999 205 615

2000 206 6342001 208 609

Source: Ministry of Communications and Transport.

The role of Beira and Durbanas ports for exports is growing

Tazara is plagued byinefficiency

Transport costs are too high

Zambia 29


A 20-year concession to manage Zambia Railways (with 685 miles of track) wassigned in February 2003 by a consortium of two South African companies,New Limpopo Bridge Projects Investments (NLPI) and Spoornet. Under theterms of the agreement, the government will receive US$253m from theconsortium over this time period, as well as 5% of turnover. Spoornet�s maininterest in Zambia Railways is in its role in regional freight movement,particularly the planned transport corridor from Lubumbashi in the DRC toDurban in South Africa. The consortium hopes to boost freight volumes andreverse the sharp decline in passenger transport through greater investment inZambia Railways.

Railways freight volumes and passenger numbersFreight Passengers

(m tonnes) (m)1998 1.4 1.01999 1.6 0.6

2000 1.5 0.82001 1.7 0.4

2002 1.9 0.2

Source: Ministry of Communications and Transport.

Zambia has an estimated 23,000 miles of roads, of which about 4,100 miles aretarred. The road network is in a dire state. In 1998 the National Roads Board(NRB) launched a US$1bn investment programme for the road sector, to run forten years. The first phase closed at the end of 2002. Expenditure on the roadnetwork has risen as a result of the programme. However, there has beenconsiderable under-spend because of a shortage of funds from both donors andthe fuel levy. In addition, in some cases money earmarked for roadmaintenance and upgrading has been embezzled. In the most notorious case, in2001 funds meant for the upgrading of roads in Northern Province were insteadspent on an MMD party congress. However, according to government figuresthe NRB targets for end-2002!when 45% of tarred roads and 15% of feeder roadswere supposed to be in good condition!were attained. The PRSP has noted thecritical role transport plays in helping to deliver economic development andreduce poverty levels. It advocates a national transport policy to addressdeficiencies with rail, road, air and maritime sub-sectors.

Zambia has fully privatised its air services, following the liquidation of the loss-making Zambia Airways in 1994. There are at least 17 private airlines, butZambian Airways, formed in 1999, has become the de facto national carrier andoperates the lucrative Lusaka-London and Lusaka-Frankfurt routes. A variety ofAfrican airlines fly to Lusaka, but Zambian Airways� main competitors areBritish Airways and South African Airways. However, there is little competitionbetween them in practice and airfares in and out of Zambia are expensive.There are 144 airports or aerodromes in Zambia. The National AirportsCorporation manages the four international airports: Lusaka, Livingstone,Ndola and Mfuwe.

Embezzlement compromisesroad investments

Zambian Airways operatesinternational routes

South Africans manageZambia Railways

30 Zambia


Aircraft takeoffs

Airport 1999 2000 2001 2002Lusaka 10,694 10,030 7,825 9,272

Ndola 3,387 3,545 2,934 2,890Livingstone 1,465 1,350 1,517 2,172

Mfuwe 1,395 1,467 1,429 1,310Total 16,941 16,392 13,705 17,646a

a Does not sum in source

Source: Ministry of Communications and Transport

The state-owned Zambia Telecom (Zamtel) has a monopoly on landlines and asubscriber base of 83,688. Cellular phone subscribers exceeded landlines in2001 and in 2002 accounted for 60% of total phone subscribers, up from only8% in 1997. The IMF has pushed for the privatisation of Zamtel, which has areputation for poor service, but the government has refused and instead says itwill commercialise the parastatal. Landline connections are slowly increasing,but the obvious alternative for most people, as in the rest of Africa, is a cellularphone. Coverage extends along a narrow corridor from Lusaka to Livingstoneand northwards into the Copperbelt, where there is reception in all the maintowns. There are plans to widen the coverage to other leading provincialcentres by 2005. The biggest mobile phone provider is Celtel, which had 73,000subscribers in 2001, followed by Telecel. Zamtel lagged a poor third, with just2,969 subscribers, but re-launched its service as Cell Z in May 2003 and claimsto have already signed up 5,000 subscribers. In late 2001 Telecel and Celtelsuccessfully went to court to prevent the government issuing a fourth licence,arguing that the market was too small. As well as the intermittently reliableZambia Postal Services Corporation (Zampost!with 134 post offices and 98 sub-post offices), eight major companies provide courier services, including DHL,TNT and Federal Express.

Telephone and internet operators

Operator ServiceSubscriber

base (2002) Growth (2002/01)Zamtel PSTN a 83,688 9.9Celtel Mobile 73,000 46.0

Telecel Mobile 45,231 5.5Zamtel Mobile 2,969 -23.0

Zamnet Internet 3,505 -6.1Zamtel Internet 3,073 399.0Coppernet Internet 1,980 843.0

a Public switched telephone network

Source: Ministry of Communications and Transport

Zambia has one state-owned television and radio station and one private radiostation, Radio Phoenix. The Zambia Daily Mail and the Times of Zambia arestate-owned newspapers, with consistently pro-government content.Independent newspapers periodically fight off government attempts to reinthem in, often in the form of libel actions. The Post is Zambia�s mainindependent newspaper, with a reputation for being strongly critical of thegovernment. However, The Post strongly supports President Mwanawasa and

There are around 90,000mobile phone users

The private media defends itsindependence

Zambia 31


has urged its readers to do the same. The Monitor, run by Afronet, a localhuman rights organisation, is more critical of Mr Mwanawasa, but supportiveof the UPND president Anderson Mazoka.

The home page of Zambia�s main Internet service provider (ISP), Zamnet(www.zamnet.zm), provides links to an expanding list of websites, includingthose of the daily press, local businesses and government departments.Coppernet (www.coppernet.zm), Zamtel (www.zamtel.zm) and the recentlylaunched Microlink (www.microlink.zm) are Zambia�s other main ISPs. ThePost's website has for many years been host to Zambia�s most popular website.Access to Internet services still remains low, though a handful of internet cafeshave opened recently.

Energy provision

The country has abundant hydroelectric sources and meets most of its energyneeds from its own hydroelectric stations, which are operated by the state-owned Zambia Electricity Supply Company (Zesco). Installed hydroelectricpower generation capacity is over 1.72 mw (although the resource potential isbelieved to be 6 mw). The main power stations are Kafue Gorge, Kariba NorthBank and Victoria Falls. In February 2003 the World Bank announced it wasready to provide financial guarantees to develop new hydroelectric projects atKafue Gorge Lower and Itezhi-Tezhi, which would require investment ofUS$600m-US$750m and US$100m-US$150m respectively. This is, however,subject to an assessment of both projects that will not be complete until early2004. A 330-kv transmission system links Kafue and Kariba to the major loadcentres of the Copperbelt and Lusaka. Woodland and forests cover about 66%of total land area, equivalent to 4.3m tonnes of wood. Wood fuel providessome 70% of the nation�s energy needs.

For several years the government had pledged to unbundle Zesco into separateenergy generation, distribution and transmission utilities and place them allunder private management. However, in May 2003 the government stated thatinstead Zesco would be commercialised. This apparently means that ownershipand management will remain in state hands, but that the company will bemanaged according to �best� commercial practice. It is hoped that this willprotect the public finances, enhance development and leave Zesco safe from�undue� political interference, but there is no indication that there will be anychanges to management.

A total of 230,406 households used electricity in 2002 according to Zesco, an 8%increase year on year, meaning that an estimated 21% of Zambians have accessto electricity. Electricity consumption from January to September 2002 wasestimated at 4.64m mwh, a 10% increase on the same period one year earlier,owing to growing demand from every user category. Technical problems at twohydroelectric power stations caused a 9% fall in generation over the sameperiod. These supply problems meant that electricity exports were down by35% in 2002 (January-September) compared to their level in the same period of

Zamnet is the main Internetservice provider

Hydroelectricity is the mainsource of power

Energy exports to the regionare increasing

Zesco is to be commercialisedrather than privatised

32 Zambia


2001. South Africa consumed 95% of Zambia"s electricity exports in 2002, at acost of US$3.2m.

Electricity generation('000 mwh)

2001a 2002a

Main hydroelectric stations 8,359 7,630

Mini hydroelectric stations 37 33Diesel 16 15

Total 8,412 7,678

a January-November.

Source: Zambia Electricity Supply Company.

Electricity tariffs are among the highest in the region and both undermineexport competitiveness and stoke domestic inflation. The Energy RegulationBoard is supposed to regulate price increases, but usually accepts Zesco�sproposed increases. About 70% of domestic non-household power is providedby hydroelectricity, 20% by imported oil and 10% by coal, most of which issupplied locally. The mining industry is the largest energy user, although itsshare of total consumption has fallen from 70% in the 1990s to less than 60% in2002, owing to rising residential demand. Most mining companies buy theirelectricity from the Copperbelt Energy Consortium, which bought the powerdivision of Zambia Consolidated Copper Mines (ZCCM) in 1997. Industrialusers account for 15% of electricity consumption, with residential andcommercial users accounting for most of the balance. A rural electrificationprogramme is in progress and projects are under way in six of the nineprovinces. However, most people in rural and also urban, areas still depend onwood and charcoal.

Electricity generation(mwh)

2001a 2002a

Residential 789,475 888,353

Commercial 103,485 121,253Industrial 666,501 739,693Social services 129,350 150,334

Mining 2,528,870 2,739,094Total 4,217,681 4,640,729

a January-September.


Domestic coal comes from the Maamba colliery in the south, which has provenreserves of around 60.2m tonnes. The colliery has a productive capacity of600,000-800,000 tonnes/year of washed coal, but output has plummetedsteadily since the late 1990s, from 192,000 tonnes in 1998 to under 100,000 t/yin 2002, primarily owing to a chronic shortage of working capital. Despite theobjections of the Mineworkers Union, which predicted the deal would fail,Maamba was sold to a South African company, Benicon, in 1997. However, thesale was annulled in November 2000, after Benicon failed to pay the US$1.5m ithad promised for the asset. Maamba colliery was re-advertised, but the

Production at Maamba collierycollapses

Most still use wood andcharcoal

High electricity tariffs erodeexport competitiveness

Zambia 33


preferred bidders, another South African company, Kuyesa, declined to takeover the mine. The government is continuing to look for potential purchasers.

Solar electricity has great potential in Zambia, but has never been extensivelydeveloped, although a pilot project in the Eastern province, in co-operationwith the Swedish aid agency, SIDA, got under way in 2001. Initial results wereencouraging, but the investment required to roll out solar panels is lacking.

Most of Zambia�s oil comes via the 1,069-mile crossborder Tazama pipeline. Thepipeline has a capacity of 22,000 barrels/day (around 600,000 tonnes ofpetroleum products are transported per year, although it was designed andconstructed in 1968 to carry 1.1m t/y) and is jointly owned by Zambia (66.7%)and Tanzania (33.3%). It carries mixed cargoes of crude oil and finished productsto the Indeni refinery in Ndola. The Indeni refinery is in poor shape and inneed of a major overhaul and, much to the government"s ire, oil companiesincreasingly prefer to import refined products rather than use the refinery.Energy sector reform is an important condition for donor aid and in 2002 thegovernment announced plans to sell its majority stake in Indeni, though littleprogress has been made so far.

Zambia�s retail petroleum prices (which are not subsidised) are among thehighest in the region. The principal reasons are the weak domestic currency,high transport costs (owing to Zambia being landlocked), the inability of theIndeni refinery to guarantee supplies to the energy sector and, until recently,maladministration within the Zambia National Oil Company (ZNOC). Foryears ZNOC had a monopoly on the procurement and processing of crude oil,but, to the relief of private operators, the government liquidated ZNOC in April2002 and assumed its US$150m debt owed to the Zambia National CommercialBank.

The liberalisation of oil procurement has not proceeded smoothly. A contractawarded to Trans Sahara Trading (TST) of South Africa in October 2002 tosupply 180,000 tonnes of petroleum was terminated in early 2003. Theuncertainty this generated, together with earlier alleged serious errors in thetype of fuel imported by TST, caused fuel shortages and escalating prices,particularly for diesel. Diesel stocks began to run out in late April 2003 resultingin panic buying, which exacerbated the shortage and pushed prices still higher.As the crisis worsened, the government authorised oil companies to importalready refined diesel. Supply returned to normal levels in June, accompaniedby price reductions, but uncertainties seem set to remain until the governmentfinds a way to source reliable crude oil supplies for the Indeni refinery. Asidefrom the fuel shortages, TST also dragged the government through a lengthylegal battle over the termination of its contract, while the vice president,Emmanual Kasonde, was dismissed in May 2003 ostensibly over hisconnections to TST.

Tazama and Indeni aretargeted for privatisation

Crude oil procurement andprocessing are liberalised

34 Zambia


The economy

Economic structureMain economic indicators, 2002Real GDP growth (%) 2.8a

Consumer price inflation (av; %) 22.2Current-account balance (US$ m) -265a

Foreign debt (US$ bn) 6.1a

Exchange rate (av; ZK:US$) 4,307

Population (m) 11.2a

a Estimate.


Mining is the country"s biggest export earner, but it contributed only 8% of GDPin 2002, down from a high of 19% in 1992. The fall in mining"s contribution toGDP is attributable to reduced mining output and declining world prices, butsince 2001 production has begun to rise, following the privatisation in March2000 of Zambia Consolidated Copper Mines (ZCCM). Real mining growth roseby 33% between 2000 and 2002. Some mines appear destined for majorexpansion, but there is still uncertainty about the assets of Konkola CopperMines (KCM), which contribute nearly 70% of total mining production. TheSouth African mining company, Anglo American (Anglo), the former majorityshareholder in KCM, withdrew from Zambia in 2002. The government and theWorld Bank are running KCM�s assets until a new buyer is brought in!SterliteIndustries of India has been selected as the preferred bidder and a deal shouldbe concluded in 2003. Copper and cobalt account for 90% of mining productionand around 65% of exports, with the mines concentrated in the Copperbeltregion bordering the mineral-rich Katanga province of the Democratic Republicof Congo (DRC).

There are significant coal reserves, but its one colliery is producing at only one-tenth of capacity. Emeralds and other precious stones are also plentiful and aregenerally mined by artisans; most are sold on the parallel market, despiteperiodic government efforts to regulate the sector.

Manufacturing grew by an estimated 5.8% in 2002 and contributed nearly 11%of GDP. Around 60% of manufacturing is in the food, beverages and tobaccosub-sector, which grew by 5.1% during 2002. Owing to the high weighting offood within the sub-sector, maize milling (officially classified as manufacturing),depending on the size of the harvest each year, can distort the sub-sector�sactual output. Regional competition has intensified following the conclusion ofregional free-trade agreements and increased dumping of Zimbabwean goods(assisted by that country�s dual exchange rate). Several major operations inZambia have been forced to close. The free-trade agreements have created newexport opportunities for Zambian manufacturers, but their main marketremains domestic, where demand and purchasing power are weak. Thedomestic mining industry is an important consumer of local manufacturedgoods and fresh investment following privatisation has boosted demand.

Manufacturing remains underpressure

Mining growth prospects aremixed

Zambia 35


Comparative economic indicators, 2002Zambia Botswana Malawi South Africa Zimbabwe

GDP (US$ bn) 3.8 5.7 1.8 104.5 2.4Real GDP growth (%) 2.8 4.2 1.8 3.0 -12.1

GDP per head (US$) 337 3,321 158 2,321 184Consumer price inflation (av; %) 22.2 8.1 16.0 9.2 134.5

Current-account balance (% of GDP) -7.0 11.1 -9.9 0.3 -4.2Merchandise exports fob (US$ bn) 0.9 2.4 0.4 31.1 1.7Merchandise imports fob (US$ bn) 1.2 1.7 0.6 26.7 1.6

External debt (US$ bn) 5.9 0.4 2.8 24.4 3.5


Most Zambians work in agriculture, but their returns are generally poor. Thesector accounted for 6.5% of GDP in 2002, down from 8.5% in 2000 owing toseveral years of poor harvests caused by bad weather. Commercial farmersprovide almost all the export earnings from the sector. After years of subsidyunder the presidency of Kenneth Kaunda, maize production continues todominate agriculture, although the Movement for Multiparty Democracy(MMD) abolished most subsidies a decade ago. The strongest growth in recentyears has been in the production of cotton, tobacco, vegetables and freshflowers. There are now signs of stagnation in these sub-sectors because of hightransport costs and a reduction in the availability of funds for start-ups.

The services sector accounted for 52% of GDP in 2002. Within this sector, retailand wholesale trade is the largest component!35%!and it grew by 4% in 2002,although the official statistics capture an unknown proportion of total activityand should be treated with caution. Transport and communications was thefastest growing sub-sector in 2002, owing to the sharp increase in expenditureon cellular phones. Growth in the tourism sector slowed to 4.7% in 2002 from24.7% in 2001, when the figure was boosted by a solar eclipse in June and theopening of the Sun International hotels development at Victoria Falls. Thegovernment is the largest purchaser of services, and trends in governmentspending have a significant impact on service-sector growth.

National statistics on the expenditure breakdown of GDP are poor, extendingonly as far as 1999. This mirrored the increase in gross fixed investment, from10.6% of GDP in 1990 to 15.4% of GDP in 1999. Nominal gross domesticinvestment was 17.3% of GDP in 1990, rising slightly to 17.5% in 1999. However,gross domestic savings fell to #1.1% of GDP in 1999, from 16.6% of GDP in 1990.The decline was partly attributable to lower levels of disposable income andpartly because interest rates on savings have been consistently lower thaninflation, serving as a powerful disincentive to save.

Economic policy

There is apparent consensus in Zambia and among donors that the maineconomic problem is the level of poverty, which has worsened over the pastdecade and continues to deteriorate, owing to the effect of HIV/AIDS, loweconomic growth levels, poor governance and unsustainable debt servicing. In

Negative real interest ratesdepress investment

Returns from agriculture arepoor

Services dominate GDP atfactor cost

The level of poverty is themain problem

36 Zambia


the 2003 Human Development Report of the UN Development Programme(UNDP), Zambia was ranked 163rd out of 175 countries, ten places worse thanthe previous year. The UNDP estimates that GDP per head fell by an average of2.4% per year during the 1990s!Zambia is one of only three countries in theworld with a worse development indicator index in 2001 than in 1975.

Real GDP growth during the 1990s averaged just 0.4% and was negative in fiveof the ten years. Performance has since improved. Real GDP growth averaged3.6% in 2000-02 and is forecast at 3.1% in 2003, with the improvement owing inlarge part to the investments made by the privatised copper mines. However, itis estimated that real GDP growth of 5-8% per year is required to make a seriousimpact on poverty levels. Central to achieving this will be diversifying theeconomy. The government says it is committed to diversification, particularlyinto agriculture and tourism, but progress will be slow and mining will beZambia"s mainstay for many years to come.

There was broad agreement between the government and donors on the policyresponse to poverty and low growth during the 1990s. The policy was toachieve poverty reduction through growth and growth through structuraladjustment. However, after disappointing economic performance and visiblyworsening poverty, donors and the government began blaming each other forthe policy�s apparent failure. Donors, especially the IMF, argued that thegovernment had not properly implemented structural adjustment, which theysaid allowed vested interest to undermine official policy. The growing evidenceof poor governance and corruption emanating from civil society groups andopposition political parties supported this view. The underlying truth was thatbecause Zambian politics runs on patronage, the political elite and the civilservice were resisting or subverting economic reforms that threatened theirability to dispense and profit from it.

Substantial as the donor critique of government was, the government"s caseagainst donors was also powerful. The government argued that it had tried toimplement structural adjustment and indeed, it did go further than almost anyother African administration in this period to retrench public-sector workers,privatise state assets, liberalise foreign-exchange dealings, control money-supplygrowth, reduce public expenditure and increase public revenue through suchmechanisms as user charges and a semi-autonomous revenue service. Thegovernment"s second point, which was supported by campaigning groups indonor countries, was that its huge debt-servicing obligations were crippling itsability to deliver. Effectively conceding this, towards the end of the decade theWorld Bank and later the IMF (Zambia�s principal creditors) reconsidered theirapproach to Zambia and other developing countries and agreed to new debtreduction mechanisms (the heavily indebted poor countries (HIPC) initiative).

The World Bank and IMF have consequently tied debt reduction to thedevelopment and successful implementation of a poverty reduction strategypaper (PRSP), thus explicitly linking poverty reduction, debt-servicing andgovernance. Zambia�s PRSP has been costed at US$1.2bn and has been broadlywelcomed by donors, who are being asked to contribute two-thirds of the total.

The PRSP emphasisesagricultural development

Donors blame poor growth onweak policy implementation

The economy needs todiversify

The government blamespoverty levels on foreign debt

Zambia 37


The government says agricultural development is the key to poverty reductionand economic growth and this emphasis is reflected in the PRSP, whichproposes a range of government interventions to boost agricultural production,including support for winter cropping, improved rural credit mechanisms andaccess to inputs. Work on implementing these proposals has already begun andthis was one of the factors, along with favourable weather, behind theimpressive 2003 maize harvest. The PRSP also emphasises the importance ofthe commercial sector in agriculture and wants less communally held land andmore commercial farming blocks. The PRSP reserves a role for the state inagricultural marketing, mainly in the name of food security. Despite promisesmade by Mr Mwanawasa that appear to advocate a return to a guaranteedpurchasing of maize, the PRSP pledges that the state�s role will be "indirect andsupportive" and will not compete with the private sector. Commercial farmersand traders, however, remain sceptical, since they have been deceived on thispoint many times before, particularly in the build up to general elections, but ashortage of funds is likely to prohibit sustained state intervention in marketing.

The core mining policy in the PRSP is to keep existing mines open. Thegovernment has so far successfully managed this, securing a new investor forthe Konkola Copper Mines, which Anglo abandoned in 2002, and for the RoanAntelope Mine, which went into receivership in 2000. There is little industrialpolicy in the PRSP, besides a vague commitment to support ruralindustrialisation and small and medium-sized enterprises (SMEs). The PRSP"sgoal for tourism is to make Zambia a leading regional destination; policy ismainly geared to removing the obstacles that prevent the private sector fromoperating effectively. Implementation of this policy has been weak and mosttourism growth is driven through the appropriation of Zimbabwe�s marketshare, owing to that country�s ongoing political and economic woes.

The PRSP links good governance to poverty reduction

The PRSP openly addresses donor concerns about good governance and argues thatit is essential for boosting economic growth and reducing poverty. The PRSPproposes a three-pronged governance strategy, aimed at improving consultationbetween the government and people, better and more transparent governmentspending and reforms to make the justice system more accessible. There is littleevidence, however, that any real progress has been made in any of these areas. Theongoing anti-corruption campaign is taken as a sign of a commitment to goodgovernance and donors have so far placed little emphasis on strict adherence to thePRSP�s governance strategy.

The government has promised to consult the people in a newly-launchedconstitutional review process, but has unilaterally appointed its own body to carry itout, rejecting civil society demands for a constituent assembly. Implementation of amedium-term expenditure framework (MTEF), which is intended to improve thequality and transparency of expenditure, was supposed to have begun in 2002, butis now due to start in 2004. Meanwhile, government spending appears as opaque asever and there appear to be no serious proposals in sight for judicial reform.

Mining policy adheres tokeeping mines open

38 Zambia


Mr Mwanawasa likes plans and, on coming into office, established a specialplanning unit in the Ministry of Finance, which he renamed the Ministry ofFinance and National Planning. The unit has been busy and two further planshave been launched in addition to the PRSP: the Transitional NationalDevelopment Plan (TNDP), unveiled in December 2002 and the NationalEconomic Diversification Implementation Plan (NEDIP), released in May 2003.The TNDP and NEDIP are relatively consistent with the PRSP, but more closelyreflect the president�s ideological bent, placing little emphasis on privatisationand proceeding from slightly different macroeconomic assumptions. Since thelaunch of these two latter plans, the status of the PRSP within the governmenthas been left in some doubt, though its implementation remains a majorcriterion of HIPC debt relief.

Transitional National Development Plan: spending allocations, 2002-05ZK bn % of total

Agriculture 626.92 9.43Central administration 864.26 13.00

Education 759.20 11.42Energy 265.94 4.00

Environment & natural resources 11.89 0.18Foreign representation 81.71 1.23Gender 6.02 0.09

Governance 37.94 0.57Health 195.20 2.94

HIV/AIDS 130.94 1.97Information services 51.30 0.77

Information systems 3.38 0.05Law & order 106.60 1.60Local government & housing 127.67 1.92

Manufacturing 38.72 0.58Mining 171.00 2.57

Nutrition 14.35 0.22Population development 90.41 1.36Regional development 2,019.83 30.38

Resettlement 35.48 0.53Science & technology 64.45 0.97

Tourism 193.04 2.90Transport & communication 546.44 8.22

Water & sanitation 143.99 2.17Totala 6,586.67 100.00

a % of total as given in source.

Source: Transitional National Development Plan 2002-05.

When the MMD came to power in 1991, it was committed to privatising everystate-owned company (or liquidating those in too poor a condition to be sold).The main privatisation was that of Zambia Consolidated Copper Mines(ZCCM), which was completed in March 2000. Because of delays in theprivatisation process, the government realised far less for these assets than hadoriginally been offered, but the sale did at least end ZCCM"s drain on stateresources and enable much-needed fresh mining investment. In all, 257companies out of a portfolio of 281 have been sold or have completed sale

Privatisation remainscontroversial

Two new economic plans arelaunched

Zambia 39


negotiations. While a few remaining minor assets may still be disposed of,owing to a change in policy under Mr Mwanawasa all but one of theremaining major parastatals is likely to remain state owned. Instead ofprivatisation, the government has chosen to commercialise the management ofthe energy, telecommunications and insurance parastatals in order to reduce thescope for government interference. The IMF has accepted this change in policybut has insisted that the Zambia National Commercial Bank be sold. A 49%stake in the bank is on offer to potential buyers, though there is a lack of clarityas to whether the buyer will be allowed to increase its stake to secure amajority holding. The government�s change in policy is broadly in line with thegeneral local sentiment, which views privatisation as a failure that has led tojob losses and money flowing out of the country. There has been particularanger at the fate of Luanshya miners, who were left without pay or terminationbenefits for two years following the liquidation of the Ramcoz mine. TheZambia Privatisation Agency argues that the plight of most of the privatisedparastatals would have been much worse if they had stayed in public hands,since they would have continued to disintegrate for want of investment. Whilealmost certainly true, neither the government nor the electorate believe this.

Summary of Zambia Privatisation Agency status report, Jan 2003Companies privatised 254Negotiations complete 3Heads of agreement 0

Companies/units privatised 257Companies ready/under negotiation 0

Companies under preparation 24Total working portfolio 281

Source: Zambia Privatisation Agency.

Monetary policy is administered by the Bank of Zambia (BoZ, the central bank),whose task is to assure financial and more specifically, price stability, bycontrolling money supply growth, rather than inflation-targeting. However,since 1990 there has been little monetary stability and real deposit rates havegenerally been negative. The average real deposit rate in 1993 was -76.7%. In2002 it had improved, to -3.4%, while the average real lending rate in the sameyear was 18.5%, reflecting a limited appetite for risk among commercial banksand a lack of financial intermediation. The BoZ has no formal powers to set theexchange rate, but intervenes in the market periodically, through currencypurchases and manipulation of statutory reserve ratios, in an effort to influencethe value of the kwacha. Although theoretically independent, the BoZ isvulnerable to political pressure and temporary but drastic monetary policymeasures are sometimes introduced just before the end of the financial year toensure that the government meets IMF monetary benchmarks.

The ultimate aim of monetary policy is to achieve sustained single-figureinflation, which will allow banks to reduce interest rates, stimulating theeconomy. Central to achieving this is a reduction in the government�s budgetdeficit, which will reduce its need to borrow from domestic markets to financethe deficit. Yet persistent fiscal indiscipline has instead led the government toincrease its reliance on domestic borrowing for funds. The monetary authorities

Monetary policy aims formonetary and price stability

40 Zambia


have reduced yields on short term Treasury-bills, with the result that the 21 dayT-bill accounted in mid-2003 for only 1% of total holdings, but yields on longerterm T-bills and bonds have remained high. The 12 month bond yielded around40% during the first half of 2003, during which time holdings rose fromZK300bn at the beginning of the year to ZK355bn in June 2003, an increase ofover 18%. The kwacha, meanwhile, remains highly prone to devaluation, whichcan be a significant source of inflationary pressure. This is owing to sustainedperiods when the supply of foreign currency!mainly from the mining sectorand donors!is outstripped by commercial demand. The exchange rateplummeted from an average of ZK65:US$1 in 1991 to ZK4,398:US$1 in 2002 andstood at around ZK4,700:US$1 in August 2003.

Summary of government finances(ZK bn)

2000 2001 2002Domestic revenue 1,953 2,695 2,909 Domestic goods & services 509 644 764 Tax revenue 1,931 2,449 2,849Total expenditure & net lending 2,175 3,009 3,583 Recurrent expenditure 1,534 2,352 3,080 Domestically financed capital expenditure 228 578 417Balancea -222 -314 -674

a Without HIPC relief.

Source: Ministry of Finance and National Planning, Economic Report 2002.

The budget deficit has remained around 4% of GDP in recent years, despite theoft-repeated commitment from the government to reduce it and theintroduction of a cash budget, which, theoretically, makes a deficit impossible.The government blames the widening deficit on donors, whom it accuses ofnot disbursing as much as they have pledged. This is in fact the case, but onlybecause government budgets are always overoptimistic in their assessment ofwhat level of donor assistance will plausibly be forthcoming. Since donors usethe government"s dependence on them to exercise policy leverage (bywithholding promised funds until certain conditions are met), disbursementsare invariably lower than pledges and usually arrive later than initially forecast.In years when the government deviates greatly from policies and benchmarksagreed with donors, as is happening in 2003 following the award ofunbudgeted public-sector pay increases, donor disbursals can fall dramatically,resulting in instant fiscal and political crisis for the government. In this latestinstance, donors, led by the IMF, are withholding assistance in an attempt toforce the government to rescind the wage increases, which has prompted civilservants to embark on a national strike.

Despite the widening budget deficit, state expenditure is still too low to contain,let alone reverse, the steady shrinkage of its capacity. Donor willingness toassist is limited and sustained higher spending in the future will requireimproved domestic revenue collection to finance it. The latter is being assistedby the semi-autonomous Zambia Revenue Authority (ZRA), which has takenover revenue collection and exceeded targets for domestic revenues in the lastfew years. But with tax rates already high, there is little scope for a substantialboost in revenue from the ZRA other than higher real GDP growth and the

Donors never disburse asmuch as they pledge

Zambia 41


notoriously difficult task of bringing more of the informal-sector operators intothe tax system.

2003 budget bares little relation to economic reality

The 2003 budget, presented on January 31st, turned out to be the swansong offinance and national planning minister, Emmanuel Kasonde, who was sacked a fewmonths later. The budget, which was poorly received domestically, not least byMMD members of parliament, who demanded that much of it be rewritten beforethey would vote for it, projected a deficit of 1.55% of GDP. Revenue was forecast to be33.5% higher than 2002, because of anticipated increases in donor funding and highertax revenues. The budget optimistically assumed that donors would finance 43% ofexpenditure and did not take into account expensive new political initiatives such asthe constitutional review commission, nor the government�s eventual wagesettlement with public servants, which was far higher than originally anticipated.The budget affirmed the government�s commitment to spending on the PRSP and toservicing foreign and domestic debt and pledged to draw private transport operatorsinto the tax system, as well as increasing the mineral royalty tax from 2% to 5%.The suspension of donor funding will cause a shortfall in budgeted revenue. Asmuch of this money was targeted for capital projects, these will not be undertaken,therefore total expenditure will also fall, but not by as much. Nonetheless, the over-expenditure so far this year will cause the deficit to exceed the government�sprojection, and the EIU is forecasting a deficit of 4%.

Economic performanceGross domestic product(% real change)

2002a Annual average 1998-2002Agriculture -12.1 -1.2

Services 3.8 5.0Mining 16.4 -3.9Manufacturing 5.8 4.0

Real GDP incl others 3.0 2.4

a Preliminary.

Source: Ministry of Finance and National Planning.

The average annual real GDP growth rate during the 1990s was just 0.4%, farpoorer than the Sub-Saharan African average of 2.4% and one of the worstperformances of an African country not at war. The main reason for the poorperformance was declining output in the mining sector, coupled with lowgrowth in the agricultural sector manufacturing. In addition, high debt-servicingcosts limited the government"s scope to stimulate the economy. Average annualreal growth picked up to 3.6% between 2000 and 2002, reflecting the impact ofthe privatisation of ZCCM, which has led to fresh investment and increasedoutput in the mining sector. This has also had a positive knock-on effect on themanufacturing, wholesale and retail sectors. The EIU forecasts real GDP growthof 3.1% in 2003 owing to a further increase in copper output and a muchimproved agricultural performance!the 2003 maize harvest is expected to benearly double the 2002 harvest, owing to better weather conditions.

GDP growth picks up in the2000s

42 Zambia


The main factor determining growth in the agricultural sector is the weather.When favourable conditions are present, performance can be strong!the sectorgrew by over 10% in 1999 and is expected to do so again in 2003. Conversely,poor weather conditions (either drought or excessive rain) have caused thesector to contract in three years since 1997, including a 4.1% fall in 2002. Otherconsiderations determining agricultural performance are farmers" access toagricultural inputs and credit. Access has been problematic in recent years,partly owing to a high level of farmer debt and the result has been reducedplanting and lower yields, both of which have a negative impact onproduction.

The mining sector contracted during the 1990s because of falling production!the result of years of under-investment!and sharp fluctuations in the price ofcopper and cobalt. Although international copper prices have been low,averaging 74.4 US cents/lb between 2000 and 2002, new investment in themining sector has had a notable effect in recent years. After the main ZCCMmines were privatised in 2000, mining output rose by around 15% in both 2001and 2002. Although Anglo"s pullout from KCM created some uncertainty andthe new owners are unlikely to match Anglo�s investment plans in the nearterm, other mining companies are continuing to invest and production isexpected to rise further in 2003-04.

According to the official figures, real annual growth in manufacturing averaged4.0% in 1998-2002. The figures, however, give a misleading impression ofdevelopments, since maize milling is classified as a manufacturing activity,which means sectoral growth rates are unduly influenced by the size of theannual harvest. The real picture is that, in many ways, Zambia isdeindustrialising. Major companies such as Dunlop and Lever Brothers haveclosed operations since the late 1990s, citing high fixed costs, weak domesticdemand and stiff and frequently illegal, regional competition. The revival of themining sector has, however, had a positive impact on manufacturing industryand demand has increased, particularly on the Copperbelt, despite the fact thatmuch of the mines" requirements are sourced in South Africa.

The services sector accounted for 52% of GDP in 2002 and has been the fastestgrowing sector of the economy in recent years. Particularly strong growth hascome from the real estate and business services and restaurants and hotels sub-sectors, which grew by 10.3% and 7.8% respectively between 1998 and 2002. Theformer is the by-product of the increase in investment in the mining sector,while the latter is the result of growth in tourism. Growth in financial serviceshas been much lower, at only 1.2% between 1998 and 2002, reflecting the stillunder-developed nature of financial services available.

National savings levels have been falling for several years and are not highenough to fund substantial investment. Real gross fixed capital formation rosefrom 13.5% of GDP in 1990 to 40.9% by the end of the decade. Although awelcome improvement, this primarily reflects the investment made in the minesector prior to privatisation (although below what was required). In the rest of

New investments boost miningproductivity

Domestic savings are too lowto fund investment

The weather and inputsdetermine agricultural growth

The revival of the miningsector has helped industry

The services sector has beenthe fastest growing

Zambia 43


the economy, investment levels have been low, following years of under-investment during the rule of the one-party state.

Inflation has persistently averaged over 20% and has sometimes substantiallyexceeded this!it touched 50% in 1996. The main causes of this are lax fiscalpolicy, a weak exchange rate and inconsistent food supply (food prices aremainly determined by the success of each maize harvest and are the largestcomponent of the basket used to calculated the consumer price index). It is notalways the case that each of these three occurs, but one is enough to stoke upinflationary pressures. For example, it was the sharp depreciation of thekwacha in 2000 that was the main reason that inflation averaged 21.4% in2001. In 2002 a poor maize harvest caused inflation to rise to 22.2%. This hashad a knock-on effect over the first half of 2003, when inflation averaged 23.2%.Increased domestic financing of the fiscal deficit will keep inflation high overthe remainder of the year, despite the impact of the bumper harvest; we aretherefore forecasting an average of 21.5%. High inflation rates have harmedbusiness profitability, although most international companies operating in thecountry mitigate its effect by hedging against the kwacha"s depreciation.

Only 0.5m of the country"s estimated 5.5m workers are employed in the formalsector. Accurate wage data on the remainder working in the informal sector arenon-existent. Wages in both the formal and informal sectors are low, but thishas little impact on export competitiveness because the same is truethroughout the region, although Zambia"s utility costs and tax rates are high byregional standards. Wages have struggled to keep pace with inflation and thiserosion in living standards is a serious political issue.

Regional trends

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

Real wages are falling

Inflation has been persistentlyhigh

44 Zambia


Economic sectors

Agriculture

Zambia has great agricultural potential (along with abundant water resources insome of the key provinces), but it has never been successfully unlocked and insome seasons, including 2000/01, 2001/02 and 2002/03, the country hasrequired external food aid to feed itself. Commercial farmers, represented bythe Zambia National Farmers� Union own most of the best agricultural landcurrently in cultivation. Almost all subsistence farming land remains undercustomary and collective tenure, with local traditional leaders responsible forits allocation. The 1994 Land Act allowed communal land to be transferred toindividual leasehold tenure, to encourage rural capital accumulation and thedevelopment of rural markets, thus boosting production. However, thisdevelopment directly threatens the interests of traditional leaders and theyhave, generally successfully, frustrated its implementation, assisted in mostareas by the extremely weak capacity of local government and the Ministry ofAgriculture and Fisheries. The administration of the President Mwanawasa hasput agricultural reform at the centre of its policy programme and hascommitted itself to a fresh effort to take land out of communal tenure and intoprivate ownership. Mr Mwanawasa says he wants new commercial farmingblocks and has promised that the state will assist in providing them withservices and infrastructure. However, it remains to be seen whether there is thecapacity, finance and political will within government structures to challengethe resistance of traditional leaders to surrendering the land they administer.

In marked contrast to Zimbabwe, the new government has stressed theimportance of commercial farmers and has so far left agricultural marketing tothe private sector. This has reassured commercial farmers, who also point to theimportant differences between Zambia and Zimbabwe!Zambia avoided asustained civil war (as the white settler community chose to grant majority ruleat independence) and there is no Zambian equivalent of Zimbabwe"s warveterans. In fact, the Zambian government has welcomed white Zimbabweanfarmers who are prepared to invest in the country. However, perceptivecommercial farmers know that they cannot afford to be complacent. Whileland hunger can theoretically be sated by bringing new land into cultivation,the fact remains that, as in Zimbabwe, there is a substantial rural underclassthat either lacks land or farms in communal areas where productivity is poorowing to over-cultivation and soil erosion. The underclass is frustrated andpoor and were it offered the opportunity to occupy commercial farms, whichare currently owned predominantly by whites, it would probably respond justas enthusiastically as has been the case in Zimbabwe.

Renewed efforts at landreform

Commercial farmers are stillwelcome, unlike in Zimbabwe

Zambia 45


Crop production(tonnes)

1999/2000 2000/01 2001/02Maize 1,310,000 801,889 601,606Sorghum 25,494 30,245 16,801

Millet 69,618 46,875 37,615Paddy rice 16,537 12,387 11,645

Wheat 75,000 69,226 74,527Cassava 969,000 815,246 850,627

Groundnuts 53,950 51,000 41,421Mixed beans 14,708 11,860 16,619Seed cotton 56,758 49,485 47,394

Source: Ministry of agriculture and co-operatives.

UNIP governments were highly interventionist in the agricultural sector,encouraging maize production throughout the country, while a crop marketingboard, the Namboard, guaranteed the purchase of maize at fixed prices fromproducers and subsidised its sale to urban consumers. Zambia�s mills werenationalised and the state incurred huge losses underwriting rural creditschemes that enabled farmers to buy fertiliser and other inputs. The MMDgovernment of Frederick Chiluba immediately ended the guaranteed maizepurchases and consumer subsidies and privatised the mills. The governmentclosed down the Namboard, which had become notorious formaladministration and corruption and replaced it with the Food ReserveAgency (FRA). The FRA"s mandate was simply to maintain sufficient stocks fora national food reserve, buying and selling from the private sector to do so.However, over time the FRA became used for a host of differing functions,including purchasing large stocks of maize or fertiliser and distributing it atsubsidised prices and thus undercutting the private sector. This usuallyhappened in election years, during which time the FRA was also obliged to�lend� maize and inputs to Movement for Multiparty Democracy (MMD)politicians, who would then distribute them to the electorate. The result wasthat, like the Namboard before it, the FRA acquired substantial debts.

The new MMD government has said it will close down the FRA and establish anew Crop Marketing Authority (CMA). However, in December 2002 thegovernment was forced to withdraw the bill establishing the new authorityfrom parliament, following its near universal rejection. MPs from both thegovernment and the opposition criticised the bill for being poorly drafted andmany predicted that the CMA would end up in the same difficulties as theFRA, which has over ZK100bn (US$23m) in debts, despite trying for over a yearto recover them. Collecting these debts is a problem, as apart from corruption, asuccession of poor harvests has made it difficult for honest creditors to honourtheir debts, though the bumper 2003/04 harvest should improve this situation.A revised bill to establish the CMA is, as of August 2003, before cabinet.

The government wants the CMA to be a buyer of last resort for selected cropsin areas that it may be uneconomical for private traders to operate. Farmers willbe paid a price that would enable them to recover their production costs.Despite, the failure so far to create the CMA, the government has gone someway toward this objective by announcing a floor price for maize in the 2003/04

Agricultural marketing policieskeep changing

46 Zambia


season of ZK30,000 per 50-kg sack, equivalent to US$122/tonne. This is the firsttime since 1992 that the government has set a floor price, which is expected toprevent small-scale farmers from being exploited by traders; before it wasintroduced, some were selling their maize for as little as ZK15,000 per 50-kgsack. However, it will prove costly to many commercial farmers, particularlythose who harvested early, since they will now have to store their maize untilthe end of the harvesting season, when prices will start climbing again and itwill be profitable to sell their crop. The lower prices will, however, be beneficialfor urban consumers.

The UNIP governments� subsidisation of maize led many farmers to abandonother crops, but since the 1990s commercial farmers have increased theircultivation of cash crops such as cotton, tobacco, sugar, vegetables, flowers andpaprika, because of relatively favourable international prices and the depressedstate of the maize market. Subsistence farmers have been slower to diversify,but have increased production of millet, sorghum, cassava and groundnuts;these require fewer inputs and are more drought-resistant than maize (thereforeare more suitable as food crops). When climatic conditions are favourable,however, the acreage devoted to maize generally rises substantially.

Cotton is the main cash crop for small-scale farmers. By the late 1990s, some75,000 small-scale farmers were growing cotton, compared with 45,000 farmersin the mid-1980s. Despite falling international prices, cotton production isestimated to have reached a ten-year high in 2003/04 as its planting wasencouraged to provide raw material so that the textiles industry can benefitfrom duty-free access to the US under the US African Opportunity and GrowthAct (AGOA).

UK-based Tate & Lyle and CDC Capital Partners (formerly known as theCommonwealth Development Corporation) bought Zambia Sugar in 1995-96and sold it to Illovo of South Africa in 2001. Sugarcane is harvested byindependent farmers, who sell on to the factory. Production in 2002 was 233,765tonnes. Local demand is around 110,000 tonnes, with the remainder exported,mainly to the EU and South Africa.

Horticulture and floriculture are the largest growth industries in the agriculturalsector and its products are among Zambia�s most important non-traditionalexports. Exports (mainly of speciality and organic vegetables, summer flowersand roses) totalled US$10m in 1994 and rose progressively to around US$65mby 1999, although this dropped back in 2000 to US$61m. The Zambia ExportGrowers� Association, which represents most of the horticultural growers, hasaround 60 members employing over 18,000 people.

Livestock numbers have been badly affected by corridor and foot and mouthdiseases in the Southern and Northern provinces and by contagious bovinepleura pneumonia in the Western province. Drought has also been a problemin some areas and in 2001 Zambia�s cattle population was estimated at 2.5m,the lowest level for a decade. However, a government vaccination programmeis yielding some dividends and only 2,500 cattle deaths were recorded in 2001.

Crop diversity

Cotton

Sugar

Horticulture and floriculture

Livestock

Zambia 47


Virgin bush and forest cover, 370,000 sq km, about one-half of Zambia�s landarea. Large plantations have been established in the Copperbelt for the paperand plywood industries, but most timber and wood for fuel still comes fromindigenous forests, to the detriment of local environments. Most of thesawmills were privatised in the late 1990s and output has consistently risensince. The value of forestry production rose by 4.3% year on year in 2002 andwas 18% higher in that year than in 1998.

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

Mining and semi-processing

The Copperbelt has some of the largest copper and cobalt deposits in the worldand Zambia was once among the top global copper producers, with productionpeaking at over 700,000 tonnes per year in the 1960s. The mines werenationalised in the early 1970s and annual production levels began falling, incontrast to rising output levels from its competitors, particularly Chile. Decadesof under-investment and an ageing infrastructure steadily increased productioncosts beyond that of most global competitors, making the profitability ofZambian mines vulnerable to the international slump in base metal prices thatbegan in the late 1990s. In 2000 Zambia�s copper output fell to 256,900 tonnes(and cobalt production to 3,500 tonnes), the lowest level since the late 1950s.However, fresh investment in the mining sector since ZCCM was privatised haslowered production costs and output is rising again!copper production in 2002was 31% higher than in 2000. Proceeds from copper and cobalt miningdominate Zambia�s foreign-exchange earnings, typically contributing 55-70% ofthe total.

Copper production and prices2000 2001 2002

Copper output (�000 tonnes) 257 298 338International copper price (US cents/lb) 81.3 71.7 70.3

Sources: IMF; Ministry of Mines and Mineral Development.

The privatisation of ZCCM was launched in 1996 and completed four yearslater. Time and again during privatisation negotiations, vested interests fromwithin government affected the process, resulting in bad decisions and costlydelays. The team agreed the sale of the Luanshya mine to India-based Binani in1997, despite widespread concerns about the company"s ability to manage theasset. Binani established the Roan Antelope Mining Corporation of Zambia(Ramcoz), which struggled from the beginning and went into receivership inNovember 2000, owing massive debts and leaving thousands of workersjobless. The ZCCM negotiating team also rejected an offer for the Nkana andNchanga mines from a consortium led by Avmin of South Africa in 1998 (forreasons that have never been properly explained) that was much higher than

Forestry

Fishing

Copper production is risingonce more

The privatisation of ZCCMwas flawed

48 Zambia


the offer ultimately accepted from a consortium led by Anglo in March 2000.Less than two years later Anglo announced that it was pulling out of Zambia.

The Anglo consortium created a new company, Konkola Copper Mines (KCM),which accounts for around half of the total copper mined in Zambia. KCM"smain asset is Konkola Deep, which has estimated reserves of 400m tonnes anda productive capacity of over 200,000 tonnes/year. However, the mine, whichis one of the wettest in the world, requires US$1bn in fresh investment. Anglodecided that operating costs would be too high and profits too low, whichprecipitated their pull-out from KCM followed by their complete withdrawalfrom Zambia. KCM owns the Nchanga mine, which is the most productive onthe Copperbelt (but has only six to eight more years of productive life) and theNampundwe pyrite mine. KCM�s ownership was extensively restructured inSeptember 2002, after which it acquired ownership of the Nkana smelter.

After months of uncertainty the government announced in May 2003 that ithad selected India�s Sterlite Industries as the preferred bidder for a 51% equitystake in KCM. A Swiss commodities trader, Glencore, had been considered astrong contender to acquire the stake in KCM, but the government wasconcerned that this would give Glencore, which already owns most of MopaniCopper Mines (MCM), too much of the Zambian mining industry. The otherlosing bidders were South Africa�s Metorex, which already owns ChibulumaWest and Chibuluma South, and a Japanese consortium comprising Mitsui andMitsubishi. Within the Zambian mining sector there was relief that KCM hasfound a potential buyer, but some nervousness about Sterlite. This is because itis unknown locally and Zambia had a disastrous experience with Binani.Sterlite has an annual turnover of US$1.5bn and has mining assets in India,Australia, Armenia and Canada, with copper mines the most successful amongthem, but the company has never previously operated in Africa. Sterlite haspromised the Zambian government a �substantial� capital investmentprogramme at KCM and says that it intends to attempt the development ofKonkola Deep. Negotiations on the terms of Sterlite�s investment in KCM wereongoing in August 2003.

First Quantum Minerals (FQM) of Canada is one of the mining sector"s majornew investors. FQM"s main projects in Zambia are the Kansanshi deposit,where it plans to develop an open-pit mine by 2004 with estimated productioncosts of just US 35 cents/lb and Bwana Mkubwa, which processes copper fromthe rich Lonshi deposit across the border in the Democratic Republic of Congo(DRC). FQM also has a 17% stake in Mopani Copper Mines (MCM), whichmainly consists of the Mufulira and Nkana mines. MCM"s other shareholdersare Glencore, with around 73%, and ZCCM, which retains a 10% share.

Other ZCCM assets sold earlier in the privatisation process included Chambishi,which was bought by Non-Ferrous Metals Industry Corporation of China in1998, with its cobalt and acid plant acquired by a South African company,AngloVaal Mining (Avmin). After a US$150m rehabilitation programme,Chambishi restarted production in July 2003 at 110,000 tons of copperconcentrates a year, which could be smelted down to of 50,000 tons of copper.

First Quantum Minerals showsa commitment to Zambia

Chambishi is rehabilitated andRamcoz is to re-open

Sterlite Industries is thepreferred bidder for KCM

Zambia 49


A further investment of over US$100m is being considered to allow a doublingof production capacity in five years.

In April 2003 the government confirmed that it would sell Ramcoz to J&WInvestments Group of Switzerland for US$7m. J&W has reportedly pledged tospend US$50m on capital expenditure, as well as US$23m on a plannedconcentrator for Ramcoz. It is widely suspected that the Zambian negotiatingteam had wanted to sell Ramcoz to Avmin, which operates the nearbyChambishi Metals copper and cobalt plant, but was overruled at a late stage bythe cabinet, though the government denies this. Had it won the Ramcoz bid,Avmin had planned to process the mine�s concentrate at Chambishi, boostingChambishi�s output and profitability. Having lost the bid, Avmin agreed in earlyApril 2003 to sell 90% of its holdings in Chambishi to J&W.

Canada�s Crew Development Corporation and a Canadian-South Africanconsortium, Metorex, bought Chibuluma West. Metorex opened a new coppermine, Chibuluma South, in May 2001!the first new mine of its kind in Zambiafor 30 years. However, only four months later Metorex put Chibuluma Southon a care-and-maintenance footing because low international copper prices hadmade its losses unsustainable. Chibuluma West has remained in operation.

Zambia stopped producing zinc and lead in the mid-1990s. There was talk of aresumption in zinc mining in 2001, but this has yet to materialise. There arelarge emerald deposits on the Copperbelt and customs officials claim thatemeralds totalling US$600m are smuggled out of the country each year.Production of gemstones, mainly amethyst, reached 1,200 tonnes in 2002.

Manufacturing

During the colonial era, little manufacturing capacity outside of the miningsector was developed in Northern Rhodesia (as Zambia was formerly known).Capacity was instead developed in Southern Rhodesia (Zimbabwe), whichsupplied Northern Rhodesia with the bulk of its manufactured products. Maize,however, was milled locally. After independence, the UNIP government triedimport substitution, boosting Zambian manufacturing capacity through theestablishment of state-owned manufacturing companies. Most of theserequired increasingly costly state subsidies to stay in operation and weresubsequently privatised or liquidated by the MMD government. Zambia has aregionally competitive resource base of qualified manufacturing personnel, butthis is being eroded by high rate of HIV/AIDS infection. Most manufacturingplants are located in and around Lusaka and in the Copperbelt.

Manufacturing growth has steadily climbed since 1998 and rose from 4.2% in2001 to 5.8% in 2002. Food, beverages and tobacco and textiles and leatheraccount for 76% of manufacturing output and it is growth in these two sub-sectors that has accounted for most of the recent growth in manufacturing. Theformer has benefited from fresh investment in an number of companiesfollowing their privatisations in the late 1990s, while the latter has gained fromincreased market access offered by regional and global free-trade deals.Although Zambia has suffered from deindustrialisation, the acceleration in

Other minerals

Manufacturing growth rises in2001 and 2002

Import substitution policyafter independence

50 Zambia


manufacturing growth may be an indication that those firms that havesurvived are becoming more competitive.

Nonetheless, the manufacturing sector still faces formidable challenges.Insufficient access to affordable credit is a big problem. With local real interestrates high and treasury-bills offering a generous return, there is little incentive toinvest in more risky manufacturing projects. Most new investment inmanufacturing has come from foreign companies, but these are also underpressure, owing to high utility costs, high duties on many manufacturing inputs,a depreciating local currency, a weak domestic market and a subdued regionalmarket. A further concern is the influx of cheap goods from Zimbabwe. Thedifference between the official and parallel exchange rates in Zimbabwe hasmeant that goods produced there, particularly those smuggled across theborder, can be retailed in Zambia for far less than domestically producedequivalents. This competition forced a number of manufacturers to close downand led to the government banning the import of a range of Zimbabweangoods in July 2002. After pressure from the Common Market for Eastern andSouthern Africa (Comesa), the ban was lifted in December 2002.

The government hopes that recent trade deals, both within the region and withthe US and EU, will boost exports of manufactured products. So far there hasbeen little sign of this, owing to Zambia�s high cost base (mainly resulting fromits landlocked status) and poor co-ordination between producers and exporters.There are some concerns that moves towards regional free trade will highlightthe lack of competitiveness of Zambian manufacturers, which could furtherdamage the sector.

Construction

Output in the small-scale private-sector construction industry is unmeasured bygovernment statistics, but generally fluctuates in response to overall prevailingeconomic trends. Official figures do, however, give a reasonable indication oftrends in the value of major, state-approved construction projects and put thesector at 6% of GDP. Activity is mainly focused on rehabilitating andmaintaining infrastructure!in particular, roads and bridges. Donors financemuch of the work done and the availability of donor funds affects growth inthe construction sector.

Financial services

The principal purpose of the Bank of Zambia (BoZ; the central bank) is �toformulate and implement monetary and supervisory policies that will ensureprice and financial systems stability in order to promote balancedmacroeconomic development�. For 2003, the Bank is aiming to reduce end-yearinflation to 8% by slowing growth in reserve money through the use of openmarket operations. In general, it has failed to promote monetary stability, asinflation rates have consistently remained high, as has money supply growth!the EIU is forecasting end-year inflation of 20.6%. This is largely because thebank is not fully independent and is thus prone to political spending whims.

Manufacturers still faceformidable challenges

Bank of Zambia is aiming toreduce end-year inflation

Much construction work isfinanced by donors

Zambia 51


Zambia has some of the most liberal banking regulations in southern Africaand although residents often complain at the inefficiencies of banks, comparedwith others in the region, Zambian banks function efficiently. There are 14operational commercial banks, including four international ones: Barclays,Citibank, Stanbic (part of Standard Bank) and Standard Chartered. All foreignbanks are required to incorporate locally. Banks in Zambia need ZK2bn(US$400,000) in start-up capital. Statutory reserve ratio requirements are liableto amendment at short notice, as the BoZ uses them as an instrument ofmonetary policy!in August 2003 the reserve requirement was 17.5%.

The privatisation of Zanaco

The state-owned Zambia National Commercial Bank (Zanaco) is in poor shape, withat least US$150m in non-performing loans, owing to politically driven, commerciallyunsound. Donors have for years wanted Zanaco privatised, but becauseMr Chiluba"s government only made a 35% stake available, there were no seriousexpressions of interest. The new government is keener than its predecessor todispose of Zanaco and has offered a 49% stake (and taken on the bank"s major debtsas a sweetener). Only two companies submitted formal bids!Amalgamated Banksof South Africa (ABSA) and Africa International Financial Holdings (Zambia). Thelatter is a consortium of HSBC, the International Finance Corporation, the EuropeanInvestment Bank, the Netherlands Development Finance Organisation and theNational Bank of Malawi. The sale has, however, hit a potentially serious delay sinceboth bidders want to secure majority ownership of the bank.

Lending rates have been consistently high for many years and recently peakedat 57.3% in February 2002 (when the real rate was 38.1%). Companies that canaccess credit outside of Zambia generally do so, particularly for long-termfinancing needs, in order to make borrowing costs less expensive and morepredictable. The monetary authorities are aware of the need for lower lendingrates, but moves to stimulate, such as cutting the statutory reserve requirementwill have short-term inflationary impact. Lending rates have eased recently,they were 42.4% in May 2003, but this is still 18.7% in real terms. Bank lending todomestic businesses is therefore low (despite donor-funded grant facilitiesintended to encourage this) and the banks� main activity is buying governmentsecurities. Commercial banks hold around 70% of Zambia�s total Treasury-billissuance. Deposit rates have remained consistently below the rate of inflation,which has depressed savings levels. Nonetheless, demand deposit volumes incommercial banks have been rising in recent years.

The management of rural credit has proved an intractable problem in Zambiaand a succession of state-owned development banks have failed. The LimaBank was liquidated in early 1997 and the Agricultural Credit ManagementProgramme (ACMP) failed in the same year. The other state-owneddevelopment bank, the Development Bank of Zambia (DBZ) ceased lending in1998 after struggling with non- and under-performing loans. Much of these badloans arose from lending to firms owned by prominent officials from theChiluba era. After cleaning up its balance sheet the DBZ was re-launched inApril 2003. The bank now claims it is more rigorous in examining the loan

Development banking

Lending rates have been highfor many years

Banking regulations are liberal

52 Zambia


applications it receives. Loans awarded will be charged at an interest rate that is10 percentage points below the prevailing base rate.

The Zambian insurance market (life and non-life) was liberalised in the early1990s, introducing competition to the state-owned Zambia State InsuranceCorporation (ZSIC). The government had pledged to privatise ZSIC, but theprocess became stuck in the restructuring phase!the government was unable toafford the redundancies required to make restructuring effective and no donorshave subsequently been willing to subsidise them. After a recent investmentprogramme the government claims that it no longer plans to sell ZSIC. StandardChartered finances some short-term trade, but other international insurancecompanies, with the exception of those with a specialist understanding of thecopper market, tend not to get involved. Multinational companies operating inZambia usually obtain their insurance elsewhere, usually South Africa.

The Lusaka Stock Exchange (LuSE) was opened on February 21st 1994 andChilanga Cement was the first firm to list on it. New listings have come slowly.The latest was that of retailer Shoprite in February 2003, bringing the total to 12.Shoprite, which has a primary listing on the Johannesburg Stock Exchange, isthe first dual-listed share on the LuSE. Turnover on the bourse leaped fromUS$6.1m in 2000 to US$52.6m in 2001, owing to block trades followingmandatory offers to minority shareholders from the majority shareholders inChilanga Cement and Zambia Sugar. Turnover slumped in 2002 to just US$2.5mMarket capitalisation, at US$246m, was lower in 2002 than in 2001, despiterights issues by BP Zambia and Zambia Breweries (capitalisation also remainedlower than in 1994, when the bourse was launched). Weak economic growthand the relentless decline in the value of the kwacha during the period are themain reasons for this fall. The LuSE all share index has performed poorly inrecent years, falling by 0.6% in 2001 and only rising by 10.3% in 2002!wellbelow the rate of inflation. As in the previous year, the money market in 2002has seen much more interest than the equity market, as investors have soughtto lock into high interest rates. The secondary market for bonds has grown, butactivity remains low. The first municipal bond, from the Nkana Water andSewerage Board, was issued on the LuSE in March 2003.

Other services

The state owned most of the formal retail trade sector under UNIPgovernments and product choice was limited and drab. Liberalisation in the1990s diversified the range of goods available through the formal sector,particularly since the arrival of some of South Africa�s best-known stores. Mostof these are only to be found in Lusaka, although the South Africansupermarket chain Shoprite has opened stores in several major towns.Unrecorded trade is strong throughout the country; city streets are generallyfilled with hawkers, often fronting for established businesses keen to lessentheir tax burden.

Tourism is based mainly on high-quality lodges in game parks and hotelsaround Victoria Falls. The Ministry of Tourism and the independent Tourist

Insurance

Lusaka Stock Exchange

Formal sector retailing remainsweak

Tourism had a good year in2001

Zambia 53


Board jointly manage the sector. There are few low- or mid-priced options,particularly in Lusaka and there are poor public transport and road links to itstourism attractions apart from the Victoria Falls. The industry has suffered fromyears of official mismanagement, during which time Zambia was eclipsed as atourist destination by every other country in the region, with the exception ofMalawi and states at war. The Zambia Privatisation Authority (ZPA) is selling orhas sold most of the state�s tourism assets and has privatised management ofthe game lodges.

The opening of two luxury Sun International hotels in Livingstone, by VictoriaFalls and the rehabilitation of Livingstone Airport to allow the handling ofinter-continental flights helped the tourism sector grow by 24.2% in 2001.Growth eased to 4.7% in 2002 but, maintained the recent trend of exceedingoverall real GDP growth. The new hotels look set to attract growing custom,partly because of continued problems on the Zimbabwean side of the border.Zimbabwe"s woes have also generated extra business at Zambia"s game parks,especially from South Africans. The number of foreign holidaymakers jumpedfrom 86,266 in 1998 to 150,451 in 2002, owing to improved marketing by boththe private sector and government. Just under half of the visitors came fromSouthern Africa, while the number of visitors from Europe and Americaincreased by 26% in 2002, to reach 27% of the total.

TourismEarnings Share of GDP

Holidaymakers (ZK m) (%) Employment1998 86,266 74.7 1.9 8,9911999 90,336 88.0 1.8 10,340

2000 122,762 110.8 1.9 11,8912001 147,350 117.1 2.1 13,4442002 150,451 145.3 2.5 14,996

Source: Ministry of Tourism, Environment and Natural Resources.

The external sector

Trade in goods

Trends in copper prices and production have a significant influence on themerchandise trade balance. Since 1990 the trade balance has only been insurplus in 1991 (US$420m), 1994 (US$64m) and 1997 (US$54m), coinciding witheither higher prices (1991 and 1994) or production (1997). Fresh investment in themining sector following the privatisation of Zambia Consolidated CopperMines (ZCCM) caused a surge in imports at the start of the decade!they roseby 6% in 2000 and 28% in 2001, when the trade deficit was a record US$366m.With the most urgent rehabilitation work on the mines completed, imports fellin 2002 and are expected to remain on a downward trend during the next fewyears. The new investment is now leading to higher copper production andcopper exports are rising, though at an estimated US$594m in 2002 they are stillwell below the 1989 total of US$1.2bn.

A trade deficit is usuallyrecorded

54 Zambia


Foreign trade, 2002a

(US$ m)

Exports fob Imports fobMetal sector 594 Metal sector 194Non-metals 326 Non metals 963

Total 920 Total incl others 1,157a Estimates.

Source: Bank of Zambia.

Government economic policy since the early 1990s has been to promote non-traditional exports, which include cement, sugar, gemstones, horticulture andfloriculture. Earnings from these products were hit by the insecurity in theGreat Lakes region, which is the main export market for cement and sugar.However, non-traditional exports have jumped by over 30% since 2000, toreach US$326m in 2002. This is the result of an increase in the EU quota forZambia�s sugar imports, higher sales to the Comesa countries after the signingof a free trade deal and greater exports of precious stones following the miningof new deposits.

Petroleum is a major component of the import bill. Imports petroleum productsbegan rising sharply in 1998 owing to the breakdown of the Indeni refinery inNdola, necessitating the import of finished petroleum products, rather thancrude oil, thus adding to the import bill. This trend continued even afteroperations resumed at Indeni, because of low confidence in the plant amongdomestic fuel companies. Capital goods, mainly for the mines, and consumergoods account for most of the remainder of the import bill.

South Africa consolidated its position as the pre-eminent source of Zambia�simports in the mid-1990s, supplying a wide range of goods from miningequipment to maize, processed foods and luxury goods. According to officialstatistics, South Africa supplied imports worth US$678m in 2002, 63% of theannual total. Zambia�s main export markets are copper consumers. Importsfrom neighbouring states and particularly Zimbabwe, are under-reported;official figures may capture less than one-half of the total.

Unrecorded crossborder trade

According to an authoritative 1998 report unrecorded crossborder trade betweenZambia and its neighbours was worth US$100m that year compared with US$113mof recorded trade. The study, based on monitoring at every major border crossing,estimated that US$65m of trade was made up of exports from Zambia to the regionand was mostly legal trade in food. The Democratic Republic of Congo (DRC) wasthe main food importer, owing to the collapse of its agricultural sector through stateneglect.. Zimbabwe was the main exporter, both of manufactured goods and food.This picture may have altered recently, as poor harvests will have reduced foodexports from Zambia, while food imports from Zimbabwe are also likely to havefallen as a result of the disastrous impact on food production of poor weather andthe mishandled land reform programme. In addition, unrecorded imports,particularly of manufactured goods, from Zimbabwe have reached unprecedentedlevels because of currency distortions in that country.

Earnings from non-traditionalexports are falling

South Africa is the mainsource of imports

Zambia 55


Main trading partners, 2002(% of total)

Exports to: Imports from:Thailand 9.4 South Africa 63.3Japan 9.0 China 4.1

South Africa 8.0 US 3.7Egypt 6.5 Tanzania 3.5

Source: IMF, Direction of Trade Statistics.

The Common Market for Eastern and Southern Africa (Comesa), whichincludes Zambia, launched a free-trade agreement (FTA) in Lusaka on October31st 2000. The agreement is intended to boost recorded intra-regional trade,which is currently estimated at 6% of the region�s total recorded trade. The jointfree-trade agreement of the Southern African Development Community (SADC)and the Southern African Customs Union (SACU) was launched in Windhoek,Namibia, in September 2000. Zambia ratified the agreement in January 2001.Progress towards free trade within the region is proving slow, since eachmember state has to pass legislation to lower tariffs during an eight-year periodand few have yet completed the process. The agreement envisages that 85% ofintra-regional trade will be tariff-free by 2008 and full trade liberalisationachieved in 2012. Delays to both implementation dates are likely.

Invisibles and the current accountCurrent account, 2002a

(US$ m)

Goods: exports fob 920Goods: imports fob -1,157

Trade balance -237Services balance -261Income balance -148

Current-transfers balance 7Current-account balance -610

a Official estimates.


The services account is characterised by a structural deficit, since the low levelof services income, which comes mostly from tourism, is dwarfed by servicescosts (mainly transport charges). These services costs largely consist ofinsurance, mostly from South Africa, and freight and transport since Zambia islandlocked and over 500 miles from the ocean. The result is that wheneverthere is fresh investment, as there has been in the mining sector since 2000, theservices deficit rises, as freight and transport costs increase in line with risingimport levels. The steep rise in imports to the mining sector in 2001 led to anannual increase of 14% in transport costs. Although imports declined in 2002,services debits rose because of higher insurance costs as premiums wereincreased following the September 11th, 2001 attacks on the US. Despite theincrease in tourist spending, a decline in other services credits caused totalservices credits to fall in 2002, resulting in a widening of the services deficit toUS$288m in 2002 from US$261m in 2001.

New trade barriers despiteComesa free-trade area

High transport costs create astructural services deficit

56 Zambia


Income credits come mostly from interest earnings by commercial banks onforeign deposits and interest by the monetary authorities on foreign-exchangereserves. These average only around US$20m per year. The main income debitis interest payments on external debt. Although Zambia has negotiated anumber of debt-reduction agreements with creditors (see Capital flows andforeign debt), debt-interest payments rose in 2002 as the scheduled repaymentof some loans began. A substantial surplus is always posted on the currenttransfers account!the result of transfers from donors and inflows of expatriateremittances.

Capital flows and foreign debt

A surplus is usually recorded on both the capital and financial accounts. Theformer is explained by large inflows of donor project grants, while the latterrelates to inflows of foreign direct investment. According to the BoZ, thecombined surplus on the capital and financial accounts was US$308m in 2002(compared with US$435m in 2001). However, with a substantial deficit on thecurrent account, this still left a financing gap of US$403m. As usual, debt reliefand donor balance of payments support covered the financing requirement.

Inflows of aid from donors are a vital source of revenue, but tend to be volatileand are often conditional of the attainment of certain benchmarks. In recentyears, according to data from the OECD, net official development assistance hasvaried from US$329m in 1998, when donors withheld funds as a result offailing to meet agreed targets, to US$703m in 2000 when donors rewardedZambia for finally completing the sale of ZCCM. The Consultative Group ofdonors agreed in July 2002 to release US$1.3bn in balance-of-payments andproject support to assist in the implementation of the PRSPs. However, manydonors will follow the lead of the IMF, which withheld funding in June 2003owing to government over-expenditure.

Total external debt peaked at US$7.05bn at end-1996 and, according to theWorld Bank was US$5.67bn in 2001, down from US$5.73bn in 2000. Theprincipal reason for the slight fall was a number of bilateral debt deals!thelargest being a US$122m write-off agreed with France!and a decline in the useof IMF credit, related to the start of repayments of an earlier loan. Debtservicing also declined as Zambia became entitled to relief under the IMF-World Bank�s heavily indebted poor countries (HIPC) initiative. Zambia isentitled to relief on debt stock!currently it only receives relief on debtservicing!when it reaches the HIPC completion point. This had originally beenscheduled for late 2003, but will be delayed owing to the government�s failureto meet key benchmarks and can only be achieved during 2004 at the earliest.Even with the anticipated debt relief, external debt is likely to rise in the longerterm as government expenditure continues to outstrip revenue. At the sametime, domestic debt is rising steadily, which is of even more concern, since thereis no mechanism available for relief on this. There is a structural foreign debtproblem in Zambia; even with the enhanced HIPC relief on offer, it appearsunlikely that export earnings can rise sufficiently to repay all the debt,particularly as more debt is being contracted.

Reduced debt servicing lowersthe income deficit

A structural financingrequirement exists

Donor support varies withgovernment performance

HIPC is only a temporary debtsolution

Zambia 57


Foreign reserves and the exchange rate

Donor assistance and foreign exchange generated from copper exports are themajor variables affecting the level of foreign-exchange reserves. When donorinflows are suspended or postponed, the government draws down its reservesto meet foreign-currency denominated requirements, such as debt-servicingpayments. Foreign-exchange reserves, excluding gold, fell to just US$45.4m atend-1999 because of a prolonged aid freeze, but rose to US$244.8m by end-2000, with the aid of the release of donor funds following the conclusion ofthe ZCCM privatisation.

Reserves slipped again, to US$183.4m at the end of 2001, partly owing toelection-related spending and foreign-exchange releases into the foreign-exchange domestic market to meet importers� demand. Since 2002, however,reserves have surged and stood at US$549m in April 2003 (the latest availabledata), representing around 4.5 months of import cover. This has been the resultof a combination of two PRGF payments of SDR41.4m (US$55.5m) from theIMF, a $50m (US$53m) grant from the EU and support from other donors, muchof which was associated with the famine. Higher copper production and priceshas also helped build up reserves. With IMF and other donor assistancesuspended in June 2003, reserves are expected to fall during the remainder ofthe year.

The kwacha was floated in October 1992 and it initially traded at ZK320:US$1.Since then, the currency has depreciated sharply, despite occasional efforts bythe BoZ to support it. The kwacha fell by 36% against the US dollar in 2000 butstrengthened by 7% in 2001, partly because of the central bank�s imposition offoreign-exchange controls and a tightening of monetary policy early in the year.The foreign-exchange controls were removed in March 2002, following theadvice of the IMF that the controls were against its Article VIII obligations!which prevent the imposition of restrictions on the making of payments andtransfers of current international transactions and from engaging indiscriminatory currency arrangements or multiple-currency practices. In July2003 trade in the kwacha was further liberalised, as prior to this date majorforeign-exchange transactions had to be cleared through the BoZ�s dealingwindow. Higher inflation, high demand for imports and a lack of confidence inthe currency have caused it to depreciate against the US dollar by 12% in 2002and a further 8% so far in 2003 (to August 21st). While these factors remain, thekwacha will continue to depreciate in the long term.

Donor inflows and coppersales affect foreign exchange

The kwacha depreciates

58 Zambia


Appendices

Sources of information

Zambia�s national statistics are notoriously unreliable; there are frequentlymajor discrepancies between official figures and those of multilateralinstitutions such as the IMF.

Anglo American Corporation (Anglo, the majority owner of Konkola CopperMines!Zambia�s largest copper-mining firm): http://www.angloamerican.co.uk

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

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

Coppernet (Internet service provider): http://www.coppernt.zw

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

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

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

Government of Zambia: http://www.state.gov.zm/index.html (not working inAugust 2002)

International Monetary Fund (IMF): http://www.imf.org

London Metals Exchange: http://www.lme.co.uk

Lusaka Stock Exchange: http://www.luse.co.zm

Ministry of Finance and National Planning: http://www.finance.gov.zm (notworking in August 2002)

The Daily Mail newspaper: http://www.daily-mail.com

The Monitor newspaper (independent): http://www.monitor.co.zm

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

The Times newspaper: http://www.times.co.zm

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

World Bank: http://www.worldbank.org

Zambia business directory and trade portal: http://www.zambiz.co.zm

Zambia Consolidated Copper Mines (ZCCM): http://www.zccm.com.zm (notworking in August 2002)

Zambia Legal Information Institute (set up by the Law School of the Universityof Zambia to provide access to and information on, legal matters):http://zamli.zamnet.zm

Useful websites

Zambia 59


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

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

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

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

Bank of Zambia, Annual Report, Lusaka

Bank of Zambia, Statistics Fortnightly, Lusaka

Bank of Zambia, Quarterly Financial and Statistical Review, Lusaka

Barclays Bank, Quarterly Economic Review, Lusaka

Central Statistical Office (CSO), Monthly Digest of Statistics, Lusaka

Citibank, Treasury Newsletter (monthly), Lusaka

Lusaka Stock Exchange, Year Book, Lusaka

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

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

Ministry of Finance and National Planning, Transitional National DevelopmentPlan 2002-05, Lusaka

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

IMF, International Financial Statistics (monthly), Washington DC

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

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

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

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

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

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

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

Bartlett, David, Civil Society and Democracy: a Zambian Case Study, Journal ofSouthern African Studies, Vol. 26, No. 3, September 2000, Basingstoke, Reading

Burnell, Peter, The Party System and Party Politics in Zambia: Continuities Past,Present and Future, African Affairs, Vol. 100, Issue 399, April 2001, London

Chipungu, Samuel (ed.), Guardians of Their Time, Macmillan, London, 1992

Daloz, Jean-Pascal and Chileshe, John D, La Zambie contemporaine, Karthala,Paris, 1996

International statistical sources

Select bibliography

National statistical sources

60 Zambia


HSBC Securities, The Zambian Copperbelt: All Good Things to Those Who Wait,HSBC, London, 1999

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

Lamb, Christina, The Africa House, Penguin Books, London, 2000

Milimo, John, Shilito, Toby and Brock, Karen, The Poor of Zambia Speak, ZambiaSocial Investment Fund, Lusaka, 2001

Ministry of Finance and National Planning, Poverty Reduction Strategy Paper2002-2004, Lusaka, 2002

Roberts, A D, A History of Zambia, Heinemann, London, 1976

World Bank, Aid and Reform in Africa: Lessons from 10 Case Studies, WashingtonDC, 2001

Reference tablesPopulation(m)

1996 1997 1998 1999 2000Total 9.21 9.44 9.67 9.88 10.08

Source: World Bank, African Development Indicators.

Labour force(no. employed unless otherwise indicated)

1997 1998 1999 2000 2001Formal sector 475,100 467,193 477,508 487,340 494,457 Agriculture 58,898 58,898 60,000 59,377 n/a Mining 44,498 39,160 38,521 35,042 n/a Manufacturing 47,118 46,685 46,000 47,782 n/aTransport of goods 48,893 48,964 51,097 52,336 n/aInformal sector 3,264,662 3,566,224 3,678,661 n/a n/aAgriculture 2,579,407 2,807,174 1,951,671 n/a n/aTotal incl others 4,411,263 4,579,000 4,635,000 n/a n/aUnemployment (%) 15.2 11.9 10.3 n/a n/a

Source: Central Statistical Office.

Rail and air freight('000 tonnes)

1998 1999 2000 2001 2002Zambia railways 1,413 1,612 1,457 1,666 1,887

Tazara 632 615 634 609 n/aAir 13,209 15,370 15,763 16,624 n/a

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

Zambia 61


Domestic electricity generation and consumption('000 mwh)

1998 1999 2000 2001 2002Generation 7,602 7,763 7,798 8,412a 7,678a

Consumption n/a n/a 5,717 4,218b 4,641b

a January-November. b January-September.


Government finances(ZK bn)

1998 1999 2000 2001 2002Revenue 1,124 1,322 1,965 2,695 2,909 Tax revenue 1,086 1,290 1,929 2,449 2,849 Non-tax revenue 38 33 36 60 60 HIPC resources - - - 186 -Expenditure & net lending 1,110 1,251 2,175 3,008 3,583 Recurrent Expenditure 995 1,128 1,534 2,352 3,080 Domestically financed capital

expenditure 115 123 228 578 417


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

1998 1999 2000 2001 2002Demand deposits 243.7 299.0 472.0 637.1 912.6

Money supply (M1) 414.9 513.0 775.9 1,041.4 1,339.3 % change, year on year 16.8 23.6 39.5 34.2 28.6Quasi-money 679.8 884.9 1,653.2 1,718.3 2,279.9

Money supply (M2) 1,094.7 1,397.9 2,429.1 2,759.7 3,619.2 % change, year on year 25.1 25.6 27.7 13.6 31.1

Source: IMF, International Financial Statistics.

Interest rates(%)

1998 1999 2000 2001 2002Treasury-bill rate 24.9 36.2 31.4 44.3 34.5Deposit rate 13.1 20.3 20.2 23.4 23.3

Lending rate 31.8 40.5 38.8 46.2 45.2


62 Zambia


Gross domestic product by expenditure(ZK bn at current prices unless otherwise indicated; % of total in brackets)

1995 1996 1997 1998 1999Private consumption 1,776 2,033 3,006 5,122 6,885

(59.2) (51.2) (58.3) (84.8) (91.5)

Government consumption 464 677 792 677 722(15.5) (17.0) (15.4) (11.2) (9.6)

Gross fixed investment 799 1,720 1,929 986 1,314(26.7) (43.3) (37.4) (16.3) (17.5)

Stockbuilding 105 63 74 62 n/a(3.5) (1.6) (1.4) (0.9) n/a

Exports of goods & services 1,082 1,237 1,552 1,610 1,674(36.1) (31.2) (30.1) (26.7) (22.3)

Imports of goods & services -1,228 -1,710 -2,196 -2,362 -3,073(41.0) (43.1) (42.6) (39.2) (40.9)

GDP 2,998 3,970 a 5,156 6,033 a 7,522 % change, year on year 33.8 32.4 29.9 17 24.7GDP volumeb 2.19 2.33 2.41 2.36 2.42

a Does not sum in source. b ZK bn at 1977 prices.

Sources: IMF, International Financial Statistics; World Bank, World Development Indicators.

Gross domestic product by sector(ZK m, constant prices)

1998 1999 2000 2001a 2002b

Agriculture, forestry & fishing 384.6 423.3 429.9 418.9 401.6

Mining & quarrying 213.0 160.3 160.4 182.9 212.9Manufacturing 247.2 254.2 263.3 274.4 290.3

Electricity, gas & water 70.3 72.1 72.9 82.1 79.5Construction 112.4 116.0 123.6 137.8 161.8Wholesale & retail trade 427.3 446.2 456.6 481.7 500.9

Restaurants, bars & hotels 45.8 43.0 48.2 60.0 62.8Transport, storage &

communications 145.7 154.0 157.7 162.1 170.8Financial intermediation &

insurance 201.6 206.7 205.4 205.6 212.7Real estate & business services 179.0 203.7 238.2 246.6 257.4Community, social & personal

services 178.8 193.7 192.8 203.9 207.3GDPc 2,360.8 2,413.3 2,499.6 2,622.5 2,701.9

a Estimate. b Preliminary. c After adjustment for financial intermediation services indirectlymeasured and taxes.


Zambia 63


Gross domestic product by sector(% of total; current prices)

1998 1999 2000 2001 2002a

Agriculture, forestry & fishing 18.7 21.6 19.9 19.6 19.8Manufacturing 11.5 10.8 10.2 10.0 9.6

Mining & quarrying 6.3 3.8 4.1 3.9 3.5Services 53.6 55.1 56.8 56.1 51.2

Others 9.9 8.7 9.0 10.4 15.9Total GDP 100.0 100.0 100.0 100.0 100.0

a Preliminary.


Consumer price inflation(annual av)

1998 1999 2000 2001 2002% change, year on year 24.5 26.8 26.0 21.4 26.7

Sources: IMF, International Financial Statistics; Central Statistical Office.

Consumer price index(1994=100)

1998 1999 2000 2001 2002Index 298.9 408.1 531.1 644.8 817.0


Copper and cobalt production(�000 tonnes)

1998 1999 2000 2001 2002Copper 249.0 296.6 256.9 298.8 337.7Cobalt 7.2 4.2 3.5 4.4 4.0

Sources: Ministry of Mines and Mineral Development; Bank of Zambia.

Manufacturing value added(ZK bn at constant 1994 prices unless otherwise indicated)

1998 1999 2000 2001 2002Food, beverages & tobacco 146.0 154.8 155.7 164.0 172.3Textiles & leather products 42.4 44.8 45.8 46.8 50.0Wood & wood products 19.2 19.3 19.2 20.3 22.2

Paper & paper products 7.3 7.6 7.5 7.8 8.0Chemicals, rubber & plastics 18.7 15.5 21.9 22.8 25.1

Non-metallic mineral products 4.5 4.4 4.6 4.8 4.9Basic metal products 1.3 1.3 1.4 1.2 1.2

Fabricated metal products 7.3 5.9 6.5 6.0 5.8Others 0.5 0.6 0.6 0.7 0.8Total manufacturing production 247.2 254.2 263.3 274.4 290.3 % of total GDP 10.5 10.5 10.5 10.6 10.7


64 Zambia


Stockmarket indicators1998 1999 2000 2001 2002

Index (year-end; kwacha terms) 163 195 305 303 335

TransactionsValue (US$ m) 3.2 13.4 6.1 52.7 2.5Volume of shares (m) 157.9 133.0 182.5 9,884.0 82.8

Market capitalisation (US$ m) 301 280 236 248 246

Source: Lusaka Stock Exchange.

Exports(US$ m)

1998 1999 2000 2001 2002Exports fob 816 756 746 887 920 Metals 520 468 497 593 594 Non-metals 296 288 249 294 326


Imports(US$ m)

1996 1997 1998 1999 2000Importsa 1,056 1,055 971 870 1,008 Petroleum 78 87 42 115 176 Metals 237 289 221 121 170 Fertiliser 80 50 54 2 13 Maize 25 12 108 0 0 Others 636 617 547 632 649

a Fob from 1997.


Main trading partners(US$ m)

1998 1999 2000 2001 2002Exports to:Thailand 52 22 - 62 61Japan 60 22 - 55 59South Africa 93 63 186 48 52Egypt 1 - - 39 42Imports from:South Africa 427 373 625 763 678China 7 7 11 43 44US 28 26 55 17 39Tanzania 12 26 31 34 37

Source: IMF, Direction of Trade Statistics.

Zambia 65


Balance of payments(US$ m)

1998 1999 2000 2001 2002 a

Goods: exports fob 816 756 746 887 920Goods: imports fob -971 -922 -978 -1,253 -1,157

Trade balance -155 -166 b -232b -366 b -237 b

Services balance -179 -211 -225 -228 -261

Income balance -215 -156 -148 -140 -148Current transfers balance -27 -16 -18 -20 7

Current-account balancec -574 -532 -612 -727 -610Capital & financial account 321 335 202 435 308Errors & omissions -200 -137 -6 -106 -100

Overall balance -453 -334 -416 -399 -403Financing requirement 453 334 416 399 403

Debt relief 122 443 217 170 170

a Estimates. b Does not sum in source. c Excluding grants.


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

1996 1997 1998 1999 2000Total external debt 7,054 6,654 6,865 5,853 5,730 Medium & long-term debt 5,379 5,257 5,348 4,571 4,513 Public 5,363 5,245 5,320 4,498 4,448 Private 16 13 29 73 65 Short-term debt 477 259 329 111 79 Interest arrears 151 138 135 37 36 Principal arrears 711 739 749 143 141 Use of IMF credit 1,198 1,138 1,188 1,171 1,138Public & publicly guaranteed long-term debt 5,363 5,245 5,320 4,498 4,448 Official creditors 5,186 5,075 5,207 4,465 4,417 Bilateral 3,018 2,908 2,965 2,135 2,008 Multilateral 2,169 2,167 2,242 2,331 2,409 Private creditors 177 170 113 33 32Total debt service paid 251 245 202 439 186 Principal 156 164 132 295 98 Interest 95 81 70 144 88 Short-term debt 9 10 10 8 3

Ratios (%)Total external debt/export of goods & services 575.2 457.6 662.4 611.8 578.1Total external debt/GNI 230.2 179.6 227.1 198.6 205.3Debt-service ratio, paida 20.4 16.9 19.5 45.8 18.7

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

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

Source: World Bank, Global Development Finance.

66 Zambia


Net official development assistancea

(US$ m)

1997 1998 1999 2000 2001Bilateral 372.2 271.9 347.4 409.8 293.2 UK 120.6 39.4 99.7 129.5 59.1 Japan 43.5 27.2 60.3 32.0 50.3 US 46.0 11.6 32.6 60.4 30.8 Netherlands 22.5 22.5 13.5 51.1 29.6 Denmark 24.0 17.9 25.7 23.1 22.6 Norway 37.2 31.8 27.4 24.8 20.8Multilateral 196.1 57.8 261.5 292.9 103.3 International Development Association 165.6 39.6 151.6 205.8 135.8 European Commission 28.7 20.5 80.9 25.7 44.2 International Finance Corporation 3.1 1.8 1.9 6.4 19.5Total 568.3 328.9 609.1 702.9 397.3 Grants 382.9 354.0 439.5 523.3 388.7

a Disbursements of ODA minus principal repayments on an earlier lending. ODA is defined as grants and loans with a grant element of at least25%, provided by OECD and OPEC member countries and multilateral agencies, and administered with the aim of promoting development andwelfare in the recipient country.

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

Foreign reserves(US$ m unless otherwise indicated; end-period)

1998 1999 2000 2001 2002Foreign exchange 68.6 45.3 222.5 116.5 464.8SDRsa 0.6 0.1 17.1 53.3 51.7

Total reserves excl gold 69.4 45.4 244.8 183.4 535.1Deposit money banksAssets 198.9 201.4 239.5 233.3 293.5Liabilities 29.2 34.9 25.9 24.5 26.0

a Special drawing rights.


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

1998 1999 2000 2001 2002US$ 1,862.1 2,388.0 3,110.8 3,610.9 4,398.6£ 3,084.4 3,864.3 3,864.3 5,199.7 6,603.6

R 336.8 390.9 448.3 419.4 417.3


Editors: Paul Gamble (editor); Christoper Eads (consulting editor)Editorial closing date: August 21st 2003

All queries: Tel: (44.20) 7830 1007 E-mail: [email protected]

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