Zambia ready for economic take-off

The twin policies of liberalisation and privatisation of the economy have combined to create new stimuli. Economic activity in the major sectors has been rekindled and there has been a discernible forward-movement since 2000 when these reforms were completed.

There has been a rush of new investment and copper mining, the traditional mainstay, has attracted the lion’s share.

The Bank of Zambia has, for instance, recently disclosed that in the first six months of this year, finished copper production rose to 250,744, up from 201, 993 tonnes in the same period last year.

Exports were at 229247 tonnes of copper, earning a total of USD1.4 billion.

Even with all the elaborate plans for diversification of the economy away from mining it is still the sector leading the turn around.

Re-capitalisation of the privatised copper mines continues and is increasingly taking the form of expansion or construction of new smelters to increase capacity. In fact, inadequate smelter capacity is turning out to be a major impediment to increased output.

With metal prices remaining firm, more new mines and resuscitation of old ones, abandoned due to low metal prices, are under active consideration.

Agriculture, though still heavily dependent on climatic conditions, is looking up. Cash crops, such as tobacco and cotton, production of which had until now been in the doldrums, are rapidly again becoming some of the country’s significant hard currency earners.

Last year, cotton brought in USD70 million, while forty-two million kilogrammes of tobacco, worth about USD56 million, was sold this year, compared to 36 million kilogrammes last year.

Fresh vegetables and other horticultural products, cut- flowers mainly, are equally a growing source of export earnings.

Tourism is growing too, the only sector, in fact, to record consistent growth since 2004 and there is no end in sight, given the vast potential. The Victoria Falls city of Livingstone is today among the major construction sites in the country, with a varied portfolio of tourism infra-structure going up including an international airport.

Hydroelectric power has perhaps the greatest potential for regional exports. Plans are afoot for the construction of a second power station on the Kafue River with a generation capacity of 750MW.

The resource potential is estimated at 6000Megawatts, but with an installed capacity of only 1876MW, 68 per cent of which is consumed by the mines and only 19 per cent by households.

Even given an upsurge in mining and household connections, at full potential there will still be a surplus for export to the region to which Zambia is already largely connected by a series of inter-connectors.

It is an area that is already receiving the active attention of some well-heeled investors. David White, Southern Africa Director of the European Investment Bank (EIB) has indicated that the EIB is considering investing in hydroelectric power, mining and tourism, because of the latent potential and described the country’s hydroelectric power as a “regional asset” that must be used fully.

He said the EIB would soon open discussions with the World Bank and the Zambia Electricity Supply Corporation (ZESCO) to explore the investment possibilities.

There is steady growth in GDP, inflation is reducing and gross international reserves are on target. The exchange rate is to a large extent stable. The Kwacha had even appreciated by about 40 per cent against the US dollar but is now depreciating. Banks have had the opening to marginally reduce the lending rate. Domestic borrowing and debt remain problematic but are carefully monitored and controlled. The external debt has declined by about 36.1 per cent following the attainment in April 2005 of the completion point of the Highly Indebted Poor Countries Initiative (HIPC). It is now at USD four billion compared to USD 7.1 billion in 2004.

Zambia qualified for further debt relief under the Multilateral Debt Relief Initiative (MDRI) of the G8 countries in July last year and when that is effected the external debt will be in the region of USD700 million. These results have been achieved with the close “co-operation” of the IMF/World Bank and Zambia has their stamp of approval which should make for increased international confidence. Relations between Zambia and the IMF/World Bank are probably the best they have ever been. There is basic agreement between government and the two institutions on the way forward.

This is the K57.6 Trillion Fifth National Development Plan (FNDP) for the period 2006-2010 that is due for launch before the end of the year. Final consultations took place in July and though there is still a financing shortfall of about K7.7 trillion, with IMF/World Bank support there is reason to expect that it will be bridged.

The FNDP is the ambitious first step towards realisation of the “Vision 2030,” the country’s first ever long-term economic and social plan. Drawn up through a participatory and consultative process, Vision 2030 has the ultimate goal of transforming Zambia into “a prosperous middle-income nation” by that date.

A major thrust of the FNDP towards “Vision 2030” is improvement of the business and investment climate. It will seek to bolster investor confidence in the economy largely through the ongoing Private Sector Development (PSD) Programme.

Among some of the specific interventions will be the removal of administrative barriers to business entry and operation, focusing on simplifying, streamlining and rationalising the various licences and inspections that businesses are subject to.

August 2006
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