Published on May 18th, 2015 | by Pierfrancesco GENNARO | Credit: Commons Wikimedia1
Doing Business in Zambia: an Interview with Zambian Ambassador
“Zambia’s political and social situation are our assets. Zambia has enjoyed political stability since attaining independence in 1964 and the country is one of Africa’s most peaceful, tolerant and democratic State, with extremely low levels of crime”. Read the interview with Zambian Ambassador in Belgium, Ms. Grace M. Mutale Kabwe, to discover
Key Facts and Figures
Population: 14 million
Borders: Democratic Republic of Congo, Tanzania, Malawi, Mozambique, Zimbabwe, Botswana, Namibia, Angola.
Official language: English
GDP: US$ 1,700 (2014)
Economic growth: 7.3% GDP growth
Currency: Kwacha (ZMW)
What is it that makes Zambia one of the most attractive investment destinations to European companies and beyond?
Zambia has vast resource endowment in terms of land, labour and water, indicating the high potential to expand and develop. Zambia has a total land area of 75 million hectares, out of which 58% (42 million hectares) is classified as medium to high potential for agricultural production, this aspect can be very attractive for foreign investments.
Being Africa’s largest producer of copper and cobalt, Zambia represents a great place for investors venturing in the mining sector too
Lastly, being a member of a number of regional and international groupings, make Zambia strategic both in its location and abundance in natural resource as our market offers direct access to other Common Market for Eastern and Southern Africa (COMESA), which is currently a customs union, and the Free Trade Area of the Southern Africa Development Community (SADC).
Could you outline sectors that offer the most investment potential?
Currently the agriculture sector, the energy sector, the mining sector and the manufacturing sector offer the most potential in terms of investment incentives and potential for growth.
More in detail, regarding agriculture, Zambia is endowed with a large land resource base of 42 million hectares of which only 1.5 million hectares is cultivated every year. There are abundant water resources for irrigation and the country has 40 per cent of the water in Central and Southern Africa.
The main priority crops for investment in the country are wheat, sugar, cotton, tobacco, coffee, tea and maize as well as rice, sorghum, soya beans, sunflower and dry beans offering enormous investment opportunities.
The potential for agro-processing industrial development in Zambia is largely associated to the relative abundance of agricultural raw materials and low-cost labour. The most suitable industries therefore are those that make intensive use of these abundant raw materials and unskilled labour.
As you can see, the agricultural sector continues to be the backbone of the Zambian economy as it contributes to the growth of the economy and also to exports.
Tourism is currently one of the main country’s growth potential areas. It has been given the non-traditional export status and is receiving a lot of support from the Government by way of infrastructure development, promotion of increased private sector participation, as well as attractive tax incentives for all investments in the sector.
Tourism as an industry is seen to offer opportunity for revenue generation in both the private and public sectors, whilst at the same time, stimulating economic activities that deliver conservation, social and financial benefit to the communities where the facilities are based, as well as the nation.
Zambia stands out as one of the prime tourism destinations in Africa offering a wealth of natural tourism assets – waterfalls, lakes and rivers holding about 35% of Southern Africa’s total natural water resource, ‘wildlife protected areas’ occupying about 10% of the country’s total land area and a tropical climate – a passport to sunshine almost throughout the year.
The energy sector is potentially quite important. Zambia’s energy sources include: electricity, petroleum, coal, biomass, and renewable energy and among them it is only petroleum which is wholly imported in the country, while the country is basically self-sufficient in all the other energy resources, as it has substantial unexploited reserves of these forms of energy. The country’s economy has been growing at an average of 5 per cent per year over the past 10 years and demand for energy has also been rising. Conversely, the demand for renewable energies has also seen significant growth in the recent years as the market explores alternative sources of energy, with renewable energies proving to be a viable alternative.
Regarding mining, Zambia is Africa’s largest producer of Copper and Cobalt. The rise in copper production over the years is attributed to investment in rehabilitation of infrastructure and technological innovations in existing mines, the coming on board of new mines and the increase in existing mines, the coming on board of new mines and the increase in small-scale copper mining activities.
The Zambia Development Agency Act provides for incentives for companies investing substantial amounts in the mining sector in the country. The Act provides for the investment thresholds that investors have to meet in order to qualify for fiscal and non-fiscal incentives.
The manufacturing sector in Zambia accounts for about 11 percent of the country’s Gross Domestic Product and has been growing at an average annual growth rate of three per cent in the last five years. Growth in the sector is largely driven by the agro processing (food and beverages), textiles and leather subsectors. Secondary processing of metals in another main activity in the sector, including the smelting and refining of copper, and this has led to the manufacturing of metal products. Fertilizers, chemicals, explosives and construction materials such as cement are also produced in the sector. Other activities include wood products and paper products.
Zambia has seen tremendous economic growth; how has this been achieved over the years?
Indeed, we have witnessed a tremendous growth in the past years: Zambia has had a long period of political stability. With strong growth in the last decade the country has reached lower middle income status. Investor confidence has been high as evidenced in the successful issue of two Euro bonds.
Moreover, Zambia has had a decade of rapid economic growth. A combination of prudent macroeconomic management, market liberalisation policies, and steep increase in copper prices helped drive investments in the copper industry and related infrastructure to achieve an average annual growth of about 6.4% during the last decade.
With regard to value addition, what is Zambia’s strategic focus and which sectors are best placed for value addition?
There is need for value addition if our economy is to perform better, most of our products are exported in the raw form and we cannot perform well as a country if we do not add value to Zambian products. The Government is promoting high level investment in value-addition to enhance business linkages in the country’s economy.
It is through value-addition that Zambia could be able to enhance linkages at various levels of the economy.
Some of the sectors that offer conducive incentives for investment and potential for growth include: manufacturing, agriculture, and mining.
The agriculture sector can be harnessed to become the leading sector for economic transformation and employment creation. Over the past few years, agri-business in Zambia has demonstrated consistent growth, particularly in livestock production, providing linkages to the dairy, beef and leather industries. The Zambia Export Growers Association assists farmers who grow vegetables Zambia and flowers, exporting their products to Europe. Farmers lump their products together through storage facilities provided by the association, which later handles transport and marketing of their products to Europe and other markets. Out-grower schemes help small-scale farmers gain access to markets, while there is technological transfer from large-scale farmers. Zambia Sugar is one such company. It obtains 30% of its throughput from larger private growers, while 10% is from small-scale farmers. In turn, small-scale growers receive training, extension services and benefit from technological transfer.
The mining sector has attracted investment in excess of USD 8 billion since the year 2000, creating over 80,000 jobs by the year 2013 up from 27,000 jobs in the year 2000.
Zambia’s endowment of mineral resources is substantial and the mineral wealth includes metals, gemstones, industrial minerals, agricultural, building and energy minerals. Production of metallic minerals dominates the mining sector. Nevertheless, the full potential of these and other known mineral deposits is yet to be realised creating greater exploration opportunities.
In order to stimulate value addition and industrialisation, as well as increase the manufacturing sectors share of GDP from its current levels, the country has embarked upon the establishment of Multi-Facility Economic Zones (MFEZs). These zones blend the best features of free trade zones, export processing zones and industrial parks. They create the administrative infrastructure, rules and regulations to support both export and domestic-oriented industries. The zones are designed to support firm clusters that can benefit from spatial proximity throughout various industrial processes, from primary production, processing, marketing and sales and ultimately distribution.
What fiscal incentives does Zambia offer to potential investors, taking into account investment guarantees and protection?
Zambia offers investment guarantees and protection against state nationalization through the Certificate of Registration for your investment. It offers Guarantees through Zambia’s participation in the World Bank Group’s Multilateral Investment Guarantee Agency.
Concretely, in the agriculture sector, Zambia offers (just to mention few):
- Corporation tax at 15 per cent on income from farming and non-traditional exports;
- Development allowance of 10 per cent of the cost of capital expenditure on growing of coffee, banana plants, citrus fruits or similar plants;
- Farm improvement allowance – capital expenditure incurred on farm improvement is allowable in the year of incurring the expenditure;
- Dividends paid out of farming profits are exempt for the first five years the distributing company commences business;
The Zambia Development Agency (ZDA) Act provides for investment thresholds that have to be met to qualify for fiscal and non-fiscal incentives. Projects that qualify may be new or existing ones undergoing expansion or modernization. These are the categories of investors who can be considered under the ZDA Act.
Investors who invest not less than US$ 500,000 in the Multi Facility Economic Zone, an Industrial Park, a Priority Sector, and invest in a Rural Enterprise under the ZDA Act, are entitled to the following fiscal incentives:
- Zero percent tax rate on dividends for 5 years from year of first declaration of dividends.
- Zero percent tax on profits for 5 years from the first year of operation.
- Zero percent import duty rate on capital goods, machinery including specialized motor vehicles for five year
Why is Zambia different from other countries, be, at regional, continental and even global level when it comes to doing business?
Zambia’s political and social situation are our assets. As alluded to earlier, Zambia has a consolidated and long-lasting stability: it has enjoyed political stability since attaining independence in 1964, and the country is one of Africa’s most peaceful, tolerant and democratic states with extremely low levels of crime.
With strong growth in the last decade the country has reached lower middle income status.
What advice would you give to the business community in the EU and beyond, particularly SMEs seeking to invest in Zambia?
Doing business in Africa has sometimes been tagged as being frustrating and at times too bureaucratic. We, as Zambia, are proud to mention that the Government of the Republic of Zambia has taken several strides to easing the process of setting up a business for both local and foreign entities.
The Zambia Development Agency (ZDA) was established in 2006 after the amalgamation of five statutory bodies that hitherto operated independently to foster economic growth and development by promoting trade and investment. The ZDA’s primary mandate is to effectively and efficiently promote and facilitate investment, trade and competitiveness of businesses in Zambia. Therefore foreign companies seeking to establish their business in Zambia and seek advice and facilitation in this process would contact the Zambia Development Agency as their first contact point.
Thanks to the interview to Ms Grace M. Mutale Kabwe we now have a more clear image of the business opportunites Zambia has to offer. Time has come, start investing in this Southern African country.
To have a deeper and more detailed view on business opportunites you can find in Zambia, read the full interview with Her Excellency here.