2010 Investment Climate Statement - Zambia

2010 Investment Climate Statement
Bureau of Economic, Energy and Business Affairs
March 2010

Zambia has a generally positive investment climate, although progress toward a more open economy has been sporadic in recent years. During the 1990s, the Zambian Government (GRZ) opened its doors to foreign investment, reduced government intervention in commercial activities, privatized over 250 state-owned enterprises, and eliminated many market distortions. The impact of these progressive policies, however, was undermined by persistent fiscal deficits and widespread corruption at all levels of government.

This led many Zambians to lose confidence in the efficacy of economic liberalization and led the GRZ to seek alternatives in 2002-03 to privatization of the national railroad as well as the national electricity and telecommunications utilities. Beginning in 2003, the GRZ increased dialogue with the private sector and placed a new emphasis on attracting investment. The GRZ implemented a new mining tax regime in early 2008, thus abrogating elements of existing privatization agreements. With the late 2008 downturn in copper prices and production, the GRZ initiated a policy to discourage job cuts in response to economic conditions and withdrew the mining windfall tax. As world copper prices rebounded in 2009, the GRZ resisted calls to re-impose a windfall tax on the sector.

Zambia experienced positive economic growth for the ninth consecutive year in 2008 with a real growth rate of 5.8 percent to a gross domestic product (GDP) of USD 15.2 billion. At the end of 2009, the GRZ announced that it expected GDP to grow by over six percent, while the IMF expected GDP growth to be about 5.3 percent.

The inflation rate dropped from 30 percent in 2000 to single digits in 2007. However, rising food and fuel prices caused inflation to hit a year-on-year rate in December 2008 of over 16 percent.

Inflation fell during 2009, aided by a bumper harvest of Zambia's staple crop, maize, and ended the year in single digits at 9.9 percent.

With the privatization of Zambia's mines in 2000, the GRZ reversed an almost thirty-year downward trend in production and exports, resulting in renewed capital investments and increased exploration. Copper production rose to 573 thousand tons between January and October 2009 compared to 480 thousand tons in the same period in 2008. Cobalt production dropped to 3,537 tons between January and October 2009 compared with 3,902 tons during the same period of 2008 due to lower demand caused by the global economic slowdown. While end of year numbers have yet to be released, Zambia's 2009 copper output is projected to be 664 thousand tons.

Leading investors in Zambia's mining industry are Glencore International (Switzerland), First Quantum Minerals (Canada), Equinox Minerals (Canada and Australia), and Non-Ferrous China Africa (China), and Vedanta Resources (UK).

In April 2005, the International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) provided Zambia significant debt service relief and debt forgiveness under the Heavily Indebted Poor Countries (HIPC) initiative. Zambia was the 17th country to reach the HIPC completion point and benefited from approximately USD six billion in debt relief. In July 2005, the G-8 countries agreed on a proposal to cancel all outstanding debt to IMF, African Development Fund, and IDA for HIPC-eligible countries, including Zambia. Zambia also completed a Poverty Reduction and Growth Facility (PRGF) arrangement with the IMF in September 2007. The executive Board of the IMF approved another three year PRGF arrangement for Zambia of USD 79.2 million on June 4, 2008, in support of the country's economic policies aimed at alleviating poverty and sustaining economic growth.

Zambia implemented a USD 24.3 million Millennium Challenge Account (MCA) Threshold Program from 2006 to 2008 that targeted three important areas, namely:

-- addressing administrative corruption by helping to streamline business processes at the Ministry of Lands, the Department of Immigration, and the Zambia Revenue Authority;

-- improving the environment for doing business in Zambia by helping the newly-created Zambia Development Agency simplify business registration, licensing, and inspection procedures, and rationalize the economic regulatory framework, and by supporting Provincial offices of the Patent and Companies Registration Office (PACRO) to facilitate greater investment outside of the capital;

-- facilitating trade by helping improve the efficiency of border procedures through the modernization of customs and border control.

As a result of the MCA Threshold program, Zambia met its anti-corruption target in 2008 and was deemed Compact eligible by the Millennium Challenge Corporation in December 2008. In December 2009, the MCA-Zambia office solicited project proposals from Zambian stakeholders and sector advisory groups for inclusion in Zambia's application for MCA Compact funding, and plans to submit its application in early 2010.

Openness to Foreign Investment

The GRZ actively seeks foreign investment through the Zambia Development Agency (ZDA), which was established in January 2007, by consolidating a number of trade and investment promotion entities into a one-stop resource for international investors interested in investing in Zambia. The ZDA board screens all investments for which incentives are requested and usually makes its decision within 30 days. The reviews appear routine and non-discriminatory, and applicants have the right to appeal investment board decisions.

In addition to complying with Companies Act No. 26 of 1994, a foreign company must provide within 28 days of establishing operations in Zambia the Registrar of Companies a list of its directors, a copy of its constitution, and the name of its local representative.

There is no distinction in Zambian law between foreign and domestic investors. Investors are free to invest in any sector of the economy and are entitled to incentives per the ZDA Act of 2006 (discussed later in this report). In the privatization process, foreign investors are eligible to bid on state-owned companies.

Non-Zambians may also invest in the Lusaka Stock Exchange without restriction and on terms comparable to those Zambians receive.

Companies seeking licenses or concessions or investors bidding for privatized companies are encouraged to seek local partners. It is not clear how such commitments are weighed when decisions are made by the Zambia Development Agency.

A Citizens' Empowerment Act (CEA) of 2006 aims to provide business opportunities to Zambian citizens through the creation of a Citizens Economic Empowerment Commission (CEEC). The Act is broadly worded and gives the GRZ latitude in defining the targets and beneficiaries of the Act. One of the first accomplishments of the CEEC was the consolidation of several government empowerment funds into a single Citizens Economic Empowerment Fund designed to be a revolving loan fund to support local entrepreneurialism.

The Zambian judicial system has a mixed record in upholding the sanctity of contracts. The judicial process is lengthy and inefficient. Many magistrates lack experience in commercial matters. The GRZ established a Small Claims Court in 2008 to settle disputes involving less than USD 400. In 2004, the High Court established a commercial division to adjudicate high-value claims.

Conversion and Transfer Policies

Investors are free to repatriate capital investments as well as dividends, management fees, interest, profit, technical fees, and royalties. Foreign nationals can also transfer and/or remit wages earned in Zambia without difficulty. There is no exchange control in Zambia for anyone doing business as either a resident or non-resident. Additionally, there are no restrictions on non-cash transactions.

Over-the-counter cash conversion of the local currency, the Kwacha, into foreign currency is restricted to a USD 5,000 maximum per transaction for account holders and USD 1,000 for non-account holders.

Expropriation and Compensation

Investments may only be expropriated by an act of Parliament relating to the specific property expropriated. Although the ZDA Act states that compensation must be at a fair market value, the method for determining fair market value is ill-defined.

Compensation is convertible at the current exchange rate. The ZDA Act also protects investors from being adversely affected by any subsequent changes to the Investment Act of 1993 for seven years after initial investment. In addition, investors are guaranteed that investments will not be adversely affected by any changes in the Investment Act for a period of seven years.

Leasehold land, which is granted under 99-year leases, may revert to the government if it is ruled to be undeveloped. So far, no privately held land has reverted.

Dispute settlement

There have been relatively few investment disputes involving U.S. companies since the Movement for Multi-party Democracy (MMD) government took office in 1991. The Zambian Investment Code stipulates that claimants must first file internal dispute settlements with the Zambian High Court. Failing that, the parties may go to international arbitration, which the state recognizes as binding. Zambia is a member of the International Center for the Settlement of Investment Disputes (ICSID) and the United Nations Commission of International Trade Law (UNCITRAL).

Previous disputes involved delayed payments from state-owned enterprises for goods and services and the delayed deregistration of a U.S.-owned aircraft despite contractual obligations.

Disputes have arisen over issuance of game management area permits and awards of hunting concessions, and investors have complained that procedures in this sector lack transparency.

The courts in Zambia are reasonably independent, but contractual and property rights enforcement is weak, and final court decisions can take a prohibitively long time.

There is no bankruptcy law in Zambia. Secured interests in property are possible and recognized but fairly rare. There is no system for recording these interests.

Performance Requirement and Incentives

No requirements currently exist for local content, equity, financing, employment, or technology transfers. The ZDA Act provides incentives for investments in rural enterprises, farming, and non-mineral exports (see following sections for details).

Although performance requirements are not imposed, authorities expect commitments made in applications for investment licenses to be fulfilled. For example, the government requires that all international firms licensed operating a domestic cellular telephone network offer ten percent of shares on the Lusaka Stock Exchange, per commitments made by agreement prior to entering the market.

General Incentives and Taxation: Foreign investors receive national treatment under the tax system. Income from farming is taxed at a rate of 15 percent, below the standard corporate tax rate of 35 percent. In addition, that portion of income determined by the Commissioner of Taxes to originate from the export of non-traditional products is taxed at a rate of 15 percent (traditional exports include copper, cobalt, lead, zinc, gold, and silver).

Work Permit Requirements: Notwithstanding the provisions of the Immigration and Deportation Act of 1994, a foreign national who invests a minimum of USD 250 thousand or equivalent in convertible currency and who employs a minimum of ten persons is entitled to a self-employment license or resident permit if needed. Investors operating in Zambia must obtain an investment permit (the ZDA provides assistance in obtaining this), in addition to other licenses/certificates, which may be required, depending on the sector (timber, tourism, and mining are some examples of sectors requiring special permits). With an approved investment license, an investor is eligible for up to five expatriate work/resident permits. However, in practice companies have had difficulty securing these permits, and smaller-scale investors reported some difficulty in obtaining work permits especially if their investments fall below USD 250 thousand.

Capital Allowances: Manufacturing, mining, and hotel structures qualify for a depreciation allowance of five percent per year plus an initial allowance of ten percent of the cost in the year in which the building was first used. Equipment, machinery, and plants used exclusively for farming, manufacturing, and tourism qualify for a depreciation allowance of 50 percent. Capital expenditures on farm improvements qualify for a farm improvement allowance of 20 percent per year for the first five years after improvement. Capital expenditure allowance on the growing of coffee, tea, bananas, citrus fruits, or similar plants qualifies for a development allowance of ten percent per year through the first year of production. A farm work allowance of 100 percent applies to farmland expenditures such as stumping; clearing; preventing soil erosion; drilling boreholes, wells, and water conservation; and aerial or geographical surveys. The depreciation allowance for non-commercial vehicles is 20 percent (straight-line depreciation).

Expenditure on other assets used in creating income qualifies for a depreciation allowance of 25 percent (straight-line depreciation).

Special Incentives: Investors in one of the five categories below are entitled, in addition to general incentives, to an exemption from customs duties and sales duties on all machinery and equipment (excluding motor vehicles) required for the establishment, rehabilitation, or expansion of that enterprise:

-- Exporters of non-traditional products that result in net foreign exchange earnings;

-- Producers of products for local agricultural use and the production of agricultural commodities or other agriculture-related products for export;

-- Businesses engaged in tourism resulting in foreign exchange earning in excess of 25 percent of the gross annual earnings of the business unit;

-- Businesses engaged in an import substitution industry using a significant proportion of local raw materials resulting in net foreign exchange savings; and

-- Businesses located in a rural area.

Additional investment incentives for qualified investors include :

-- Suspension of customs duty for a period of five years on all machinery, fixtures and equipment, tools, and parts used in the assembly of motor vehicles, motorcycles and bicycles;

-- No customs duty on computer parts;

-- Suspension of customs duty for a period of five years on inputs used in the textile and clothing industry such as grey fabrics including loom stead, machinery, sewing threads, sewing machine spare parts and trimmings;

-- No customs duty on printed board-paper used in the packaging of Ultra High Temperature (UHT) milk;

-- Reduced excise duty on liquefied petroleum gas (LPG) from 30 percent to 15 percent;

-- Removal of customs duty for a period of five years on materials used in the manufacture and packaging of cement;

-- Removal of customs duty for a period of five years on imported materials used in the manufacture of roofing sheets; and

-- Removal of customs duty for a period of five years on machinery and equipment acquired by business enterprises that will operate in a Multi-Facility Economic Zone (MFEZ), in a priority sector or rural enterprise.

In 2007 the GRZ announced the formation of two MFEZ projects to diversify the economy and promote exports. The Japanese International Cooperation Agency hired a Malaysian company to develop a MFEZ in Lusaka south, and the Chinese government is developing a zone in Chambishi in the Copperbelt and a sub-zone east of Lusaka International Airport. Investors who commit to invest more than USD 500 thousand in an MFEZ and a priority sector or product receive additional tax incentives, including a five-year dividend tax exemption from the first year of declared dividends and a five-year general tax exemption from the first year of declared profits. During years six to ten, investors pay taxes on an increasing percentage of profits and dividends. MFEZ investors will also be exempt from import duties on raw materials, capital goods and machinery for five years, and VAT deferment on machinery and equipment.

The 2008 National Budget introduced a new mining tax regime which unilaterally altered valid concession agreements. The new tax regime raised mineral royalty tax from 0.6 percent to three percent, raised the corporate tax rate to 30 percent, and introduced windfall taxes to take effect when the price of copper surpasses certain thresholds. In the face of strong opposition from the mining companies and the collapse of world copper prices in 2008, the GRZ eliminated windfall taxes from the 2009 budget. After world copper prices rebounded in 2009, the GRZ resisted calls to re-impose a windfall tax on the sector, arguing that such a move could stifle future foreign investment in mining.

Right to Private Ownership and Establishment

The law affirms the right to private ownership of business enterprises, and no business ventures are reserved solely for the government. In practice, however, the national telecommunications parastatal ZAMTEL maintains a monopoly on the international gateway (IGW) by charging a prohibitively high fee (USD 19 million) for an IGW license on "national security" grounds. GRZ commitments to liberalize the gateway have not yet been realized. As part of the planned ZAMTEL privatization scheduled for mid-2010, control over the international gateway will transfer to the telecommunications regulatory authority, the Zambia Information and Communications Technology Authority (ZICTA). Although private entities may freely establish and dispose of interests in business enterprises, investment board approval is required to transfer an investment license for a given enterprise to a new owner. Private enterprises have occasionally complained that the playing field is not level when they compete with public enterprises for licenses or concessions.

A subsidiary of a foreign company is regarded as a Zambian company. The legal liability of the parent company is limited to the amount of capital invested in Zambia, together with any guarantees provided.

Protection of Property Rights

The ZDA Act assures investors that property rights shall be respected. No investment of any description can be expropriated unless Parliament has passed an act relating to the compulsory acquisition of that property. Also, in the case of expropriation, full compensation is made at fair market value and is convertible at the then-current exchange rate.

The legal framework for trademark protection is adequate. There are fines for revealing business proprietary information; however, they are not large enough to penalize disclosure adequately. Copyright protection is limited and does not cover computer applications.

Zambia's patent laws conform to the requirements of the Paris Convention for the Protection of Industrial Property, to which Zambia is a signatory. It takes a minimum of four months to patent an item or process. Duplicative searches are not done, but patent awards may be appealed on grounds of infringement.

Zambia is a signatory to a number of international agreements on patents and intellectual property, including the World Intellectual Property Organization (WIPO), Paris Union, Bern Union, African Regional Industrial Property Organization (ARIPO), and the Universal Copyright Convention of UNESCO. National laws are generally adequate in protecting intellectual property rights, and there recently has been effective enforcement against pirated musical and video recordings, cosmetics, as well as software.

Small-scale trademark infringement occurs for some packaged goods through copied or deceptive packaging. Embassy Lusaka co-hosted a two-day intellectual property workshop in November 2008 that underscored the economic costs of intellectual property rights (IPR) infringement, shared best practices, and discussed international legislation and enforcement standards. Following the workshop, Minister of Information and Broadcasting Services Ronnie Shikapwasha issued a directive establishing an interagency working group to update Zambia's IPR legislation and draft an IPR policy. The IPR policy was still in draft by December 2009.

Enforcement of property rights is weak in Zambia, and courts have little experience with commercial litigation.

Transparency of Regulatory System

The government has made strides toward introducing transparent policies to foster competition, although complaints arise from time to time. Questions have arisen in recent years regarding the process of awarding Game Management Areas by the Zambia Wildlife Authority, the enforceability of existing mine development agreements which gave mine owners the right to compensation if government failed to comply with agreed tax stability guarantees, and the fairness of competition between state-owned enterprises and private firms. In the agricultural sector, Zambian government interventions, through the purchase of maize (corn) at subsidized prices and the distribution of subsidized fertilizer, undercut the private sector's capacity to enter these markets. The unpredictability of import and export bans on commodities, especially maize, is a deterrent to private sector participation in commodity markets.

Labor laws provide for extremely generous severance pay, leave, and other benefits to workers, which can impede investment. Such rules do not apply to personnel hired on a short-term basis. As such, the vast majority of Zambian employees are hired on an informal or short-term basis.

Although the Zambia Development Agency seeks to serve as a "one-stop shop" for investors, in practice red tape associated with licenses and permits presents problems. In some cases, dozens of licenses are required to establish and run a business. As mentioned above, the Zambian Government is working to streamline numerous licensing requirements and administrative procedures, including licensing. The 2010 World Bank Doing Business Report ranked Zambia 90th out of 183 countries, a 10 percent improvement from their 99th position in 2009.

Proposed laws are usually not published in draft form for public comment.

Although the underpinnings of an efficient system to handle court disputes exist, Zambian courts are relatively inexperienced in the area of commercial litigation. This, coupled with the large number of pending commercial cases, keeps the regulatory system from being prompt and transparent. Some measures to promote resolution of disputes by mediation have been implemented in an attempt to clear the case backlog. The courts support alternative dispute resolution, including a mechanism for binding arbitration. In 2004, the High Court established a commercial division to adjudicate high-value claims. This fee-based system has accelerated resolution of such cases.

Efficient Capital Markets and Portfolio Investment

A) Banking Sector

Government policy generally encourages the establishment of free market financial institutions. Banking supervision and regulation by the Bank of Zambia (BoZ), the central bank, has improved over the past few years. Improvements include revoking licenses of some insolvent banks, denying bailouts, limiting deposit protection, strengthening loan recovery efforts, and upgrading the training and incentives of bank supervisors. On October 1, 2007, the statutory reserve requirement was reduced to 8 percent from 14 percent, injecting additional liquidity into the banking system. In 2010, the BOZ plans to institute overnight lending facilities to inject further liquidity into the market.

Although some improvements have been registered in recent years, credit to the private sector is expensive and readily available only for low-risk investments. One factor inhibiting lending is a culture of tolerating loan default, which many borrowers view as a minor transgression. In addition, high returns on government securities encourage commercial banks to invest heavily in government debt, to the exclusion of financing productive private sector investments. Banking officials readily acknowledge that they need to upgrade the risk assessment and credit management skills within their institutions in order to better serve private sector investors. Banks provide credit denominated in foreign currency only for investments aimed at producing goods for export.

Banks provide services on a fee-based model, and banking charges are generally high. Home mortgages are available from several leading Zambian banks, although interest rates are still very high.

B) Lusaka Stock Exchange

The 15-year old Lusaka Stock Exchange (LuSE) is structured to meet international recommendations for clearing and settlement system design and operations. The LuSE has offered trading in equity securities since its inception, and in March 1998, the LuSE became the official market for selling Zambian Government bonds.

Investors intending to trade in a listed security or government bond are now mandated to trade via the LuSE. The market is regulated by the Securities Act of 1993 and enforced by the Securities and Exchange Commission of Zambia. The secondary trading of financial instruments in the market is very low or non-existent in some areas.

At the end of 2009, 21 companies were listed on the LuSE. In 2008 telecom giant Zain Zambia Plc's (formerly Celtel) USD 133 million initial public offering (IPO) was oversubscribed by 300 percent. The successful IPO followed a period when market capitalization of the LuSE increased from USD 3.18 billion in 2006 to USD 4.82 billion in 2007, an increase of over 50 percent. During that period, trade volume also increased by more than two-thirds.

The second half of the 2008 saw the stock market experience some turbulence. Rumors of President Levy Mwanawasa's death in July 2008 caused movements at the LuSE, especially from international institution investors who were selling their shares in Zain. The turbulence continued through the death of the president, the change of government, and the worldwide stock market slumps to the end of the year. Bank officials reported that as much as $200 million in foreign portfolio investment left Zambia during the economic downturn, although it started returning in mid-2009 as Zambia's economy quickly rebounded.

There are no restrictions on foreign participation in the LuSE and foreigners may invest in stocks on the same terms as Zambians.

Zambia's largest banks include Zambia National Commercial Bank (Zanaco), Barclays Bank Zambia, Standard Chartered Bank Zambia, and Stanbic Zambia Limited. In 2009, Zanaco accounted for 35 percent of the banking sector's total assets while its deposits accounted for 20 percent of all deposits. Zanaco's loan portfolio accounted for 44 percent of the total loans in the banking sector. Barclays Bank accounted for 24.3 percent of the banking sector's total assets while its deposits accounted for 18.3 percent of deposits. The bank's loan portfolio has continued to grow and accounted for 36.6 percent of the total loans in the sector. The third largest bank, Standard Chartered Bank, accounted for 14.4 percent of the banking sector's total assets while its deposit base remained strong at 16.3 percent of the total deposits. In October 2009, Stanbic Zambia's total assets accounted for 12.1 percent of the banking sector's total assets. Its deposit base remained strong at 12.9 percent of total deposits while loans accounted for 13.8 percent of the sector's total loans.

Competition from State Owned Enterprises

Private enterprises are allowed to compete with public enterprises under the same terms and conditions with respect to access to markets, credit and other business operations, such as licenses and supplies. There are few state-owned enterprises (SOEs) remaining in Zambia, and all have serious operational and management challenges. ZESCO Ltd is responsible for generation, transmission, and distribution of electricity in Zambia. Two private entities are contracted to supply electricity to some mines. Copperbelt Energy Corporation supplies electricity to mining companies on the Copperbelt while North-Western Energy Company supplies power to Lumwana (Equinox) Mine in Solwezi. Private investment in electricity generation is discouraged by commercial and residential rates that remain below long-term cost recovery levels. The Energy Regulation Board raised rates 35 percent in 2009 and the GRZ committed to increase rates to long-term cost recovery by 2011.

Zambia has a pipeline of privately developed hydro-power projects, but few have attracted financing.

The SOEs are governed by Boards of Directors that are appointed by Government with consultations and participation of the private sector. Zambian parastatals are audited by the Auditor General's Office as required by law.

Corporate Social Responsibility

The concept of corporate social responsibility (CRS) has only recently gained traction in Zambia. Activities most commonly identified by companies as CSR are donations to orphanages, sponsorship of sporting events, cultural ceremonies, education and health provision, and donations to religious and arts organizations.

Political Violence

Zambia does not have a history of significant political violence. Infrequent student protests sometimes turn violent. The presidential by-election in October 2008 following the death of President Levy Mwanawasa was peaceful. Three by-elections in 2009 were relatively peaceful. Presidential and parliamentary elections are scheduled to be held in 2011.


During the 1990s, corruption undermined Zambia's economic stability. Corruption is pervasive in Zambia and ranges from senior government officials abusing the privatization process to local policemen committing extortion. President Rupiah Banda's administration pledged to continue efforts by previous administrations to uncover corrupt abuses, punish perpetrators, and recover assets, with mixed results. Low salaries for government employees undermine efforts at reform, and petty corruption remains common. Excessive regulations create opportunities for bribes. The issuance of land titles has been singled out as a process particularly susceptible to corruption.

The GRZ Anti-Corruption Commission investigates allegations of misconduct. In 2002, the government formed a Task Force on Corruption (TFC) to spearhead efforts to hold accountable high level officials from the previous administration. At former President Mwanawasa's urging, Parliament lifted former President Frederick Chiluba's immunity from prosecution, and he was among those charged with various corruption-related offenses. While the TFC secured convictions against many former members of the Chiluba administration, including a 2007 civil judgment against Chiluba in a London court, a Zambian magistrate acquitted Chiluba of criminal charges in August 2009. The acquittal prompted anti-corruption watchdog groups and civil society organizations in Zambia to question the magistrate's decision and claim government interference in the case. When the TFC prosecutor announced that the case would be appealed, he was dismissed from his position, the TFC was disbanded, and the GRZ announced that it would not appeal the case.

The Anti-Corruption Commission was given remit over the TFC's remaining cases.

Zambia ratified the Southern African Development Community (SADC) protocol against corruption in 2003. In 2007, Zambia became a party to the United Nations Convention against Corruption and ratified the African Union (AU) Convention on the Prevention and Combating of Corruption. These have not yet been put into force domestically, and Zambia lacks adequate asset forfeiture, whistleblower protection, asset disclosure, evidence, plea bargaining, and freedom of information laws. Transparency International has an active Zambian chapter.

Bilateral Investment Agreements

Zambia does not have a bilateral investment treaty or a bilateral taxation treaty with the United States. Zambia has signed bilateral reciprocal promotional and protection of investment protocols with most of the Common Market for Eastern and Southern Africa (COMESA) and the SADC member states. In November 2001, COMESA signed a Trade and Investment Framework Agreement with the United States. On October 2, 2000, Zambia became a beneficiary of the African Growth and Opportunity Act (AGOA). Zambia has initialed market access offer through the Eastern and Southern Africa (ESA) interim Economic Partnership Agreement (IEPA) with the European Union on September 30, 2008. In completing these negotiations, the provisions of trade in goods chapter and related annexes of the ESA IEPA now apply to Zambia.

OPIC and Other Investment Insurance Programs

An OPIC/Zambia agreement was signed in June 1999. Zambia is also a signatory to the Multilateral Investment Guarantee Agency (MIGA), which guarantees foreign investment protection in cases of war, strife, disasters, other disturbances, or expropriation. In June 2001, the World Bank extended credit in the amount of USD five million for starting the African Trade Insurance Agency (ATI). This institution, which is open to all African states that are members of the AU, provides exporters with insurance against receivables on export trade deals and political risk insurance for trade transactions.

The Embassy uses approximately USD 19.2 million in Zambian Kwacha per year. Kwacha are purchased at the market exchange rate, which ranged between Kw 5720 and Kw 4570 to the U.S. dollar over the course of 2009.


Although there is an abundance of unskilled labor in Zambia, investors complain that there is an inadequate supply of skilled and semi-skilled labor. The government adheres closely to International Labor Organization (ILO) conventions. Labor-management relations vary by sector. Strikes are not uncommon in the public sector and often are related to the government's failure to pay salaries or allowances on time. The minimum monthly entitlement for any permanent employee including general workers is approximately Kwacha 268,000 (USD 53).

Foreign-Trade Zones/Free Ports

An investor may apply to be appointed and licensed by the Commissioner General to establish and operate a bonded factory under Section 65 of the Customs and Excise Act. In early 2007, the GRZ announced the creation of multi-facility economic zones (MFEZ) where foreign firms enjoy a waiver on customs duty on imported equipment, excise duty and value added tax, among other concessions.

On October 31, 2000, the COMESA Free Trade Area (FTA) was launched. Zambia and eight other participating countries in the region are working toward a monetary union to reduce transaction costs and to make the region more competitive. COMESA launched a customs union in June 2009, during the 13th Summit of the COMESA Heads of State and Government. The top five intra-COMESA exports from Zambia include tobacco, raw sugarcane, wire, refined copper and Portland cement.

Foreign Direct Investment Statistics

The ZDA compiles data on investment commitments from investors who obtain investment licenses at the ZDA. Investors in mining projects do not invest through the ZDA but instead work with the Ministry of Mines and Mineral Development. The ZDA data are therefore incomplete and do not show actual foreign direct investment (FDI) flows or stock and should not be considered a complete measure of investment. However, these are the only FDI data available in Zambia.

Investment Commitments by Sector (USD), as provided by the ZDA (January to December 2009):

Sector2008 (Jan to Nov) 2009 (Jan to Dec)
Real Estate76,125,000433,538,456
Total 9,510,391,8821,823,252,915
Total pledged investment in 2009 is USD 1.8 billion, which is expected to create almost 20,000 jobs. From the companies monitored in 2009, an indicative average project implementation rate of 57.5 percent may be applied to pledges to estimate actualized investments.

FDI pledges in 2009 were well below 2008 pledges. In 2008 14 foreign companies committed to invest over USD 6 billion in the mining sector. The investment was mostly in new mining projects for copper and cobalt. U.S. companies are not among the large investors in copper, gold and gem mines. Allied Energy Corporation of Alabama in 2007 signed a Memorandum of Understanding to acquire a mine producing tin, tantalite, and mica, in Choma, Southern Province from an Australian company, Starfield Mine. The issuance of all prospecting, retention, and mining licenses is the responsibility of the Mines Development Department of the Ministry of Mines and Mineral Development. Data on mining investment is not readily available from official sources, but the following paragraphs describe some of the major investments, based on publicly available reports.

Konkola Copper Mines (KCM) In 2000 Anglo American Corporation (AAC) acquired the Konkola and Nchanga copper mines and the Nampundwe pyrite mine from Zambia Consolidated Copper Mines (ZCCM) through a new subsidiary called Konkola Copper Mines. Following an upturn in global copper prices in 2004, Vedanta Resources Plc, which has its principal operations in India and is based in Great Britain, acquired a 51 percent stake in KCM for USD 48.2 million.

KCM announced that an estimated USD 400 million would be used to expand its smelter and improve underground operations. The smelter plant was commissioned in mid-2008. Equinox Minerals' Lumwana Mining signed a five-year off-take agreement with Konkola Copper Mines (KCM) to supply between 70 thousand and 80 thousand tons of concentrate from the Lumwana copper mine. KCM is negotiating with Frontier Mine in the DR Congo, Chibuluma and Kansanshi Mine in North-Western Province over supply of feed to process at the new smelter which has an annual capacity of 300 thousand tons. KCM is developing the Konkola Deep Mining Project which aims to expand the production of copper ore at Konkola Mine from two million tones per annum to 7.5 million tones per annum by accessing the rich ore that lies beneath current operations. This project is expected extend the life of Konkola Mine by 23 years.

Mopani Copper Mine (MCM) MCM started off as a joint venture between Glencore International (46 percent) of Switzerland and First Quantum (44 percent) of Canada, with Zambia Consolidated Copper Mines (ZCCM) holding the balance (ten percent). Glencore later assumed complete control of the operation by increasing its shareholding to 73.1 percent. The MCM Mufulira Deep and Nkana mines have been in operation since 1933 and 1932, respectively. Glencore has been rebuilding, upgrading and setting up new facilities in order to increase production. From 2005 to 2007, MCM spent more than USD 700 million on upgrades and capital improvements. The expansion work increased copper production capacity to 380 thousand tons. The Mufulira smelter capacity was expanded to 800 thousand tons by the end of 2007. Expansion work has continued despite the drop in prices of copper on the international market. The slump in copper prices in the early part of 2009 forced MCM management to lay off almost 13,000 of its 20,000 employees. Despite the rebound in world copper prices, MCM is reported to have re-hired few of the laid off workers. MCM is the largest employer of miners in Zambia.

Kansanshi Copper-Gold Mine Kansanshi Copper Mine is located about 15 kilometres north of Solwezi, in North Western Province. First Quantum Minerals holds 80 percent of the project, and Zambia Consolidated Copper Mines (ZCCM) holds the remaining 20 percent. During the commissioning stage (November 2004 to April 2005), Kansanshi production totaled 6,792 tons of copper in concentrates and 1,941 tons of finished copper cathodes. In 2006, production went up to 127 thousand tons of copper, and 2007 production reached almost 164 thousand tons. First Quantum obtained a USD 120 million loan facility for the development of Kansanshi Mine to boost production. The mine expanded its treatment capacity a third time in 2006. In light of the economic downturn in early 2009, First Quantum reviewed its investment and operations. The Bwana Mkubwa Mine in Ndola shut down its copper processing plant and at Kansanshi the company modified its structures and re-deployed staff where necessary. Operations have since returned to previous levels with the rebound of international copper prices.

Lumwana Copper Mine Lumwana Mine is located in North Western Province, 220 kilometers northwest of the Copperbelt region. It is one of the largest undeveloped copper deposits in the world, with a low-grade copper resource containing 901 million tons of 0.7 percent copper.

Lumwana is 100 percent owned by First Equinox of Canada and Australia. Equinox Minerals, Ltd. invested USD 583.8 million to develop the open-pit project. The mine employs 4,500 people.

Initial production is forecast to be about 172,000 tons per year starting in mid-2009. The company has made significant progress on the establishment of a uranium plant at the mine and is hoping to be granted a license to mine uranium soon (see paragraph 65).

In April 2009 the GRZ approved 1,300 hectares for a MFEZ in Lumwana that will focus on light and heavy industries. Activities within the MFEZ include explosives manufacturing, agro-processing, horticulture, fisheries, hotel accommodation among others.

Kagem Zambia produces approximately 20 percent of the world's emeralds, and foreign investment has played a vital part in building up the industry. Kagem Mining Ltd. is the largest gemstone mining operation in Zambia. It is 75 percent owned by the Israeli-Indian consortium Hagura Mining Ltd. and 25 percent by the GRZ. Hagura awarded a contract to Gemfields Resources Plc to manage and operate the Kagem Emerald Mine. Gemfields reported that it earned USD 815,456 in revenue for its fiscal year that ended on June 30, 2009, after reporting no revenue for fiscal 2008.

Gemfields Resources Plc Gemfields Resources Plc is a gemstone mine development and gemstone prospecting company primarily focused on mining emeralds.

The company currently owns five Zambian emerald mining licenses, including the Kamakanga, Pamodzi, Mbuva-Chibolele, and Arinus concessions. The company also holds prospecting licenses covering a substantial part of the prospective emerald-yielding areas in Ndola Rural Emerald Restricted Area (NRERA), together with a 50 percent interest in Kariba Minerals, which operates Zambia's largest amethyst mine. The quality of the Zambian emerald is almost at par with the Colombian emerald, with the most valuable emeralds currently sourced from the NRERA. During the fiscal year which end June 2007, Gemfields held two emerald sales from its Mbuva-Chibolele Mine. The company sold 992,997 carats of emeralds valued at USD 1.8 million.

Uranium Mining Uranium deposits have been found in Southern, Lusaka, and Northwestern provinces of Zambia. The GRZ, in consultation with the United Nations International Atomic Energy Agency (IAEA), formulated a policy to allow uranium mining in Zambia. African Energy Resources Ltd. announced in October 2009 that the Zambian Minister for Mines and Minerals Development has granted a Large Scale Mining License to Albidon Exploration Ltd. for the development of a uranium project in Chirundu, Southern Province. Canadian-owned Equinox Ltd. stated that the Lumwana copper deposit contains approximately 1.94 million tons of uranium. Other companies actively carrying out exploration works include Denison Mines Corporation and African Energy Resources Ltd.

Kabwe Zinc Mine Alberg Mining and Exploration of South Africa is scheduled to re-open the Kabwe zinc and lead mine, one of the oldest mines in Zambia which was shutdown in 1994 due to poor management and lack of capital. GRZ will retain a 20 percent stake in the mine.

Maamba Collieries Limited Maamba Collieries, established in 1971, is the largest coal mine in Zambia. With the liberalization of Zambia's economy in the 1990s, the company faced challenges, including low production and a lack of capitalization. In November 2007, ZCCM-International Holdings (ZCCM-IH) acquired 100 percent of the Zambian Government's shareholding in Maamba, although the government retained a golden share with rights to appoint a director to sit on the board. In December 2009, the GRZ agreed to sell a 65 percent interest in the mine to Nava Bharat (NBS) Plc for USD 26 million. The GRZ will retain a 35 percent interest and a golden share. The mine will be redeveloped at a cost of about USD 93 million and the company plans to develop a USD 420 million, 300 megawatt coal-fired power plant at the mine site.

Chinese Investment China is a significant source of FDI in Zambia. While data on Chinese investment in Zambia is incomplete, Chinese firms have invested substantial amounts in Zambia, primarily in the mining sector. In 2008, copper production by Chinese-owned mines in Zambia was estimated at between 25,000 and 30,000 tons per annum.

Chinese-controlled output should increase as investments come on line, including at the Luanshya Copper Mine, which China Nonferrous Metal Mining Co. (CNMC) acquired in 2009. CNMC and another smaller Chinese copper firm signed a deal in 2006 to invest USD 220 million to build a 150,000-ton copper smelting plant, which became operational in 2008. Chinese-owned firm CBMI Construction was contracted by France's Lafarge to construct a new USD 120 million cement plant in Lusaka, which was commissioned in November 2008.

The new plant produces 2,000 tons (80,000 50-kilogram bags) per day.

China is setting up the USD 900 million Multi-Facility Economic Zone (MFEZ) in Chambishi, Copperbelt Province underwritten by the Chinese business community and the People's Republic of China.

Zambia is the first African country to have a Chinese MFEZ. The Chambishi Copper Smelter (CCS), commissioned in October 2009 in the MFEZ, has a capacity of 150,000 tons of concentrates annually and receives feed from Lumwana, Chambishi Non Ferrous Metals Corporation Africa (NFCA) and Chibuluma.

Chinese developers plan to start construction on a 570 hectare MFEZ near Lusaka this year. The USD 350 million project will create an economic zone near the international airport to include residential areas and industrial and commercial activities. In early 2009, the Chinese Government signed agreements to loan and grant Zambia a further USD 67 million as part of the zone and other projects.

Luanshya Copper Mines Luanshya Copper Mine (LCM) was shut down and put under care and maintenance in December 2008 due to low international metal prices and other effects of the global economic crisis. As part of the shutdown, the mine laid off 1,740 workers. The GRZ sold 85 percent of LCM to a CNMC subsidiary for USD 50 million in May 2009, retaining a 15 percent share through ZCCM-IH. By November 2009, operations at LCM's Baluba copper mine resumed with some workers being re-employed. The Mulyashi Mine, an open pit mine with copper and cobalt deposits at LCM, will be developed in 2010. LCM is Zambia's largest cobalt producer.

Munali Nickel Mine (formerly Albidon Zambia) Australian Albidon Zambia Ltd. halted operations in March 2009 at Zambia's only nickel mine and put the mine under care and maintenance. Munali was expected to produce 10 thousand tons of nickel per year in concentrates, 15 thousand ounces of platinum, 1,400 tons of copper, and more than 400 tons of cobalt. Chinese state-owned Jianchuan Group Ltd., which signed an off-take agreement, bought the mine and resume production. Jianchuan now owns 70 percent shares in Munali Nickel Mine. Restarting production has been delayed from October 2009 until early 2010 due to financing issues. Jinchuan secured a USD 12.6 million facility loan from Barclays Bank Zambia Plc for the purchase of underground mining equipment to manage production capacity and to meet other financial obligations.

Major U.S. investments in Zambia include :

-- Cargill Cotton Ginners Ltd.: a wholly-owned subsidiary of Cargill of Minneapolis, Minnesota, an investment worth over USD 18 million.

-- Dunavant Cotton: a wholly-owned subsidiary of Dunavant Cotton of Tennessee, worth approximately USD 25 million.

-- Pioneer DuPont: a wholly-owned subsidiary of Pioneer Hi-Bred International of Des Moines, Iowa, an investment worth USD two million.

-- National Milling Corporation: a wholly-owned subsidiary of Seaboard Corporation of Kansas, representing an initial investment of over USD 20 million.

-- Metal Fabricators of Zambia (ZAMEFA): a vertically integrated manufacturing company which was acquired by Kentucky-based General Cable Corporation from Phelps Dodge International Corporation in 2007.

--Lilayi Housing Estates: Nevada-based Houses for Africa, Pangaea Partners of Wisconsin, and Zambian partner City Investments Limited are together investing in a project to build 3,700 houses in southern Lusaka.