Zambia: copper conductor

Neil Ford

Zambia’s economic development has been largely driven by copper mining. While planning to increase its copper production year on year, the government is also hoping to diversify industrial output to avoid overreliance on one commodity 

Zambia has undergone a remarkable economic transformation over the past decade, but the jury is out on whether the government’s current strategy will undermine or reinforce the progress made. In common with neighbouring Tanzania, strong state control over economic activity during the 1970s and 1980s proved unsuccessful. Deregulation and privatisation in the 1990s has underpinned growth since the turn of the millennium but some fear that President Michael Sata is attempting to turn the clock back. 

According to government estimates, the Zambian economy grew by seven per cent in 2013, putting it ahead of most other African countries and at the heart of the African economic transformation. The International Monetary Fund predicts that it will remain at this level for the next two years. GDP per capita increased from US$349 in 2002 to $1,469 by 2012. As a result, the World Bank now classifies Zambia as a lower middle-income country. 

Speaking to the nation in January, President Sata said: “At this pace, I wish to assure the citizens that our government will continue to foster a stable macro-economic environment, which will be reflected in low and stable inflation and a competitive exchange rate, as well as prudent fiscal management.” 

The country’s economic development over the past decade has not attracted as much attention as some other African states, such as the oil economies of Angola, Nigeria and Equatorial Guinea, yet Zambia’s success has been almost as dependent on the export of a single commodity – in this case, copper. The government has pledged to reduce its dependence on copper exports, but there is no doubt that Zambia has benefited from its mineral wealth. China’s economic explosion and the long boom in the global telecoms industry has pushed up demand for Zambian copper, so the country now exports more and generates increased income per tonne of production. Annual copper production increased from 257,000 tonnes in 2000 to more than 900,000 tonnes last year, with the government setting a target of 1.5 million tonnes for 2015. 

Some progress was made on rebalancing the economy last year. The strongest performing sectors during the year were transport, storage and communications, with a 27.1 per cent rise in GDP; construction (24 per cent); community, social and personal services (17.4 per cent); financial institutions and insurance (13.7 per cent); manufacturing (8.2 per cent); and mining (five per cent). In common with the rest of the continent, most people are employed in agriculture and it is here that stronger growth had most effect on living standards. 

Following a continent-wide trend, the government is banking on infrastructural improvements to help drive private sector development. The country’s road network is being upgraded, in urban and rural areas, to enable farmers to transport their crops to market – even during the rainy season. A total of 8,000 km of road is to be surfaced and sealed by 2017, taking the total to 16,000 km. Much of the work is being carried out by Chinese companies and funded by Beijing or Lusaka itself. The country’s first Eurobond issue in 2012 was 15 times oversubscribed and raised $750 million, but yields on the bond have increased as government spending has risen and another issue may be required later this year. In addition, Lusaka has taken out a wide range of loans with various Chinese state-owned organisations, probably on attractive terms, but whose details have not been published. 

The future of one of the country’s main export routes was assured in December, when investors, including the Chinese Government, contributed $221 million in the troubled Tanzania to Zambia Railway (Tazara). The acting managing director of Tazara, Ronald Phiri, said: “Now that the framework has been approved, we shall immediately embark on discussions with strategic partners in order to quickly secure sufficient investment funding for key needy areas of operations.” 

A total of $90 million will be spent on rolling stock and it is anticipated that the volume of freight handled by the line will more than treble from 480,000 tonnes in 2013 to 1.5 million tonnes in 2018. The railway was originally constructed with Chinese funding, technology and manpower in the 1970s in order to benefit the two left-leaning countries and reduce Zambia’s dependence on Apartheid-era South Africa. 

A lack of investment and poor management in the intervening years, however, has reduced capacity and performance on the line. However, the Tanzanian and Zambian governments have now finalised a five-year rescue plan that they hope will secure Tazara’s future at a time when African railways are benefiting from substantial investment for the first time since the colonial period. The line runs from Zambia’s copper belt to the port of Dar es Salaam. 

While the general trend has been towards more market-driven African economies, Lusaka is pursuing a more interventionist policy, challenging the country’s biggest investor, Konkola Copper Mines, over plans to reduce its workforce. President Sata personally intervened to stop South African supermarket chain Shoprite from making workers redundant. His government has also increased the income threshold for paying income tax from 2,200 kwacha ($392) a month to 3,000 kwacha ($535) a month, thereby taking many middle-class Zambians out of income tax and reducing government revenues. Politically popular, such measures have generated some unease within the international financial community. Credit ratings agency Fitch cut its rating on Zambian sovereign debt from B-plus to B last year and warned of “crumbling government finances”. 

The key to taking the economy on to the next level is encouraging domestic private enterprise. However, in common with most other African economies, bank lending rates are too high, averaging 16.3 per cent in 2013, although this was a 2.8 per cent reduction on the previous year. The country’s geographical location calls for trade liberalisation. Totally landlocked, it relies on access to ports on the Indian Ocean, Atlantic Ocean and South African coasts. 

As a committed member of the Southern African Development Community (SADC), it has more than most to gain from the success of Africa’s most successful regional trade body. The big question is whether Lusaka will continue to intervene as directly as it has done recently, while deregulating where genuine benefits can be generated. This would be a tough juggling act for any government.


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