The projected 6.6% growth in Zambia’s GDP in 2010 is up from 6.4% in 2009. Agriculture, tourism, construction, manufacturing and mining are driving growth which is expected to expand by 6.5% and 6.7% in 2011 and 2012 respectively.

Overall, primary industries performed well in 2010 with agriculture growing by 7.6%. In 2011 and 2012 agriculture growth is projected at 3.2% and 4.6%, respectively. The largest contribution to 2010 growth came from maize production. The harvest reached 2.8 million tonnes compared to 1.9 million tonnes in the previous season. Zambia is Africa’s biggest copper producer and the mining sector’s big recovery was due to improved global copper prices. The sector is estimated to have grown by 7.4% in 2010.

Manufacturing, which historically has contributed about 10% of GDP, grew by 2.5% in 2010. The government has made substantial progress in infrastructure construction and has invested in manufacturing through the establishment of Multi Facility Economic Zones. Tourism, which was hard hit by the financial crisis, is expected to rebound strongly with estimated growth of 25% in 2010. Construction was expected to expand by 10% in 2010 and maintain double-digit growth in the next few years.

Monetary policy focused on sustaining stability by maintaining single digit inflation while ensuring adequate liquidity for the growing economy. Annual inflation declined to an estimated 7.9% at the end of 2010, down from 9.9% in December 2009. Annual food inflation declined sharply from 8.0% in December 2009 to 2.8% in September 2010.

The Zambian government is pursuing aggressive business reforms to encourage increased private investment and reduce business costs. The Private Sector Development Reform Programme is intended to ease private sector development. The barriers include: i) limited and high cost credit; ii) excessive bureaucratic trade procedures due to the involvement of multiple government agencies and border clearance systems; iii) lengthy inspection and certification processes; iv) poor border information technology; v) outdated customs techniques;vi) inadequate skilled personnel; vii) inadequate infrastructure.

Progress in improving public financial management has led to the publishing of work plans by government agencies, and the introduction of a Treasury Single Account to improve budget execution and cash management.

In the past few years, donor assistance has shifted from developed countries to emerging economies, especially from Asia. Zambia has built new partnerships with China and India. There is, however, growing concern that the motives of these new powers may not be very different from the traditional partners – all are interested mainly in Zambia’s vast mineral and energy resources.

Zambia remains one of the most politically stable countries in the Southern African Development Community (SADC) and Africa as a whole. There has been democracy since 1991 when a two-decade old single party system was ended. The Movement for Multiparty Democracy (MMD) which has been in power since 1991 is likely to face a formidable challenge from a possible merger between the Patriotic Front (PF) and the United Party for National Development (UPND) going into presidential and general elections in 2011. The vote is expected to be peaceful and whatever the outcome, the country is likely to remain stable.

Table 2: GDP by sector (in percentage)

Source:AfDB Statistics Department, based on data from Statistics Zambia.

Figures for 2010 are estimates; for 2011 and later are projections.

Table 3: Demand composition

Source:Data from the National Bank of Zambia; estimates (e) and projections (p) based on authors’ calculations.

Figures for 2010 are estimates; for 2011 and later are projections.

To consolidate the improving economy, the Zambian government is directing more resources to stimulating growth and diversifying the economy. The government is seeking to get through the international economic troubles and get growth back to pre-crisis levels.

Under its 2011-13 Macroeconomic Framework, the government will focus on maintaining stability and building on the achievements of the last framework. The Sixth National Development Plan sets out the key economic objectives of: i) expanding and diversifying the economy; ii) keeping inflation to single digits; iii) increasing domestic revenue mobilisation;iv) reducing commercial lending rates; v) maintaining public debt sustainability; vi) and increasing productive employment.

Table 4: Public finances (percentage of GDP)

a  Only major items are reported.

Figures for 2010 are estimates; for 2011 and later are projections.

Monetary policy in 2010 aimed for stability – maintaining single digit inflation while ensuring adequate levels of liquidity for the growing economy. The financial crisis left little room for monetary manoeuvre. The Bank of Zambia had to shift from strict use of monetary aggregates to short-term interest rates to anchor monetary policy. To help financial markets, the central bank introduced an overnight lending facility for commercial banks. The Bank of Zambia is trying to reduce interest rates. On average, commercial bank lending rates declined from 29.2% in December 2009 to 26.8% in September 2010. Rates remain high however for small and medium enterprises. The Bank of Zambia is trying to find ways to reduce the gap between central bank interest rates and those used by commercial banks for lending.

Annual inflation decreased to an estimated 7.9% at the end of 2010 from 9.9% in December 2009. The major contributing factor was a sharp decrease in food inflation from 8.0% in December 2009 to 2.8% in September 2010 due to bumper yields in maize and other staples. However, non-food inflation rose during the same period, mainly due to fuel and electricity prices for which annual inflation reached a high of 12.5% in September 2010. The weakening of the kwacha against major currencies in the first half of the year contributed significantly to inflationary pressures.

Although Zambia has a growing trade surplus, turbulent financial markets and a lack of confidence by investors, particularly from the country’s traditional partners, remain stumbling blocks. Uncertainty about a full recovery from the financial crisis in developed countries means prices of commodities such as copper remain uncertain though there are signs that copper could reach a record high USD 10 000 per tonne.

The 2010 currency reserves are expected to revolve around four months of imports. Additional revenues from the sale of raw materials, non-traditional exports and tourism are likely to be boosted by the depreciation of the kwacha and the gradual recovery of the global economy. Additional debt relief funds under the Heavily Indebted Poor Countries (HIPC) and Multilateral Debt Relief Initiatives programme in 2006 will help strengthen Zambia’s external position.

Zambia’s exports are still heavily dependent on copper. The financial crisis slowed demand for Zambian exports and reduced its trade surplus. New partnerships with China and India are expected to restore and increase demand for Zambia’s natural resources and guarantee increasing trade surpluses. However, the additional surplus will not cover the deficits in services and income balances. Additional foreign direct investment is expected from China which has invested heavily in mining and infrastructure such as hydro electricity generation projects.

A strategy to make Zambia a middle-income country by 2030 partly involves reducing dependency on aid. However, this will also require substantial economic growth, prudent export diversification and expansion of the domestic revenue base. The government is seeking to strengthen public financial management and ensure that domestic and external resources are utilised in an accountable, efficient manner.

Despite tighter fiscal management, external borrowing is expected to increase significantly from 2008-13 to finance the economic infrastructure which the government has made a priority. Most of the funds will go to the rehabilitation of roads, bridges, power generation projects, schools and hospitals. About USD 2 billion was expected to be contracted to support the financing of various infrastructure projects in 2010. The contracted figures will increase Zambia’s debt to GDP ratio from 9.1% in 2009 to about 14.9% of GDP in 2010.

Zambia reached the HIPC completion point in 2005 and has had about USD 7 billion in debt cancelled. Zambia’s external debt in 2010 stood at USD 1.2 billion, up from about USD 500 million in 2005. But the figure is only very slightly up from 2009 (USD 1.16 billion) so Zambia should not fall into another unsustainable debt trap.

Financial assistance from its main partners has been unpredictable since 2008, mainly due to the financial crisis. This uncertainty is expected to continue through 2012 and beyond, until there is a full recovery from the financial meltdown. The lack of assistance has put pressure on the 2010 and 2011 budgets.

The trade balance increased to 13.7% of GDP in 2010 up from 7.1% in 2009. The trade balance is expected to increase to 16.4% in 2011 while the current account balance is expected to improve from -3.2% in 2009 to about -1.5% in 2010.

Table 5: Current account (percentage of GDP)

Source:Data from the National Bank of Zambia; estimates (e) and projections (p) based on authors’ calculations.

Figures for 2010 are estimates; for 2011 and later are projections.

Figure 2: Stock of total external debt (percentage of GDP) and debt service (percentage of exports of goods and services)

Zambia, like other African nations, has strengthened co-operation with China, India and Brazil, in line with the shift in global economic power. The change can be seen particularly in infrastructure, mining, manufacturing, and agriculture.

While African nations prefer South-South co-operation for development partnership building, Africa sees the traditional economic giants and the emerging powers as having the same interests: access to the continent’s vast energy and raw material resources.

Zambia’s exports to the emerging economies are dominated by unprocessed primary products, particularly minerals such as copper. Levels of foreign direct investment (FDI) from emerging economies have significantly increased however compared to those from developed countries.

Zambia has increased co-operation with China since 2005, particularly in mining and commodities. Mining is Zambia’s economic backbone and accounts for about 70% of its foreign exchange earnings. However with the global crisis, revenue from copper sales dropped to USD 2.9 billion in 2009 from USD 3.6 billion in 2008, an 18% decline.

During the crisis, investors from developed countries closed or scaled down mining operations in Zambia, which badly hit the economy and opened the door to players from China, Brazil and India who stepped in to reopen some major mines and manufacturing projects. China’s Non-Ferrous Metal Mining Company (NFC) won a contract to reopen the Luanshya Copper Mines – and re-employ about 1 700 miners. In 2009, China invested more than USD 400 million in Zambia’s mining industry. In addition, Chinese concerns own at least three mining operations in Zambia, including a new 150 000 tonne-a-year copper smelter for new mines in northwest Zambia. Despite these positive developments, there are mixed views regarding China’s interest in Zambia’s mining industry.

Zambia and India have also strengthened economic ties. In 2010, India offered lines of credit amounting to USD 125 million and the Exim Bank of India and Zambian government signed an agreement on a USD 50 million concessional loan for the Itezhi-Tezhi hydropower project which will generate about 120 MW of power. Another USD 75 million loan has been extended over two years for health, education and other social sectors.

India, like China, has vast mining interests. Vedanta Resources, one of India’s big mining companies, has invested about USD 1.5 billion in Konkola Copper Mines (KCM). India has also helped with training. Vedanta Resources has an exchange programme for Zambian engineers and the Indian government has trained more than 2 300 Zambians under the Indian Technical and Economic Cooperation (ITEC) programme which organises short-term courses at Indian institutions.

Zambia and Brazil have signed memorandums of understanding and several agreements to enhance bilateral and economic co-operation. There are major prospects for co-operation in mining. Vale, one of the world’s biggest mining companies, started a new mine in August 2010 and the concentrator plant is expected to be commissioned in late 2010 with the mine at full production in 2015. Despite interest by Brazilian investors in Zambian mining, annual trade between the two countries has remained at about USD 10 million for the past five years.

Zambia is considered one of the most stable countries in southern Africa.

Multi-party democracy was interrupted in 1972 when Zambia became a single party dictatorship. But democracy returned in 1991. The Movement for Multiparty Democracy (MMD) has been in power since then. One reason for its success has been the rotation of the leadership between ethnic groups.

Zambia went through a special presidential election after the death in September 2008 of President Levy Mwanawasa, two years into his second term of office. The election was won by Rupiah Banda, who was vice president. A legislative election in 2011 and a possible alliance between the Patriotic Front (PF) and the United Party National Development (UPND) is likely to put pressure on the MMD. Whether the opposition parties succeed will depend on their willingness to compromise and agree on power sharing. In addition to the new alliance, tensions have risen in the MMD following President Banda’s announcement that he would seek a new term.

The Zambian government has put a high priority on social investment to reduce poverty. About 85% of people in rural areas and 34% in urban districts live below the poverty line. About 64% of the population of more than 13.5 million people live on less than one dollar a day.

Fifty per cent of the 2011 budget was allocated to social spending and infrastructure – both with the aim of combating poverty. The 2010 budget statement said spending will increase on health, education, water and sanitation. With government intervention, access to health services has significantly improved. There are fewer cases of malaria and maternal, infant and child mortality rates have dropped along with HIV/AIDS prevalence. It is likely that 2011 expenditure will be lower than 2009-10 due to a fall in aid from developed countries as a result of the financial crisis. The government may struggle to keep up with the good intentions it has expressed. The share of health spending in the national budget is likely to increase from 25% in 2010 to 30% in 2011.

Zambia has made mixed progress on achieving the United Nations’ eight Millennium Development Goals (MDGs). According to the 2008 MDG Progress Report, targets on hunger, universal primary education, gender equality and HIV/AIDS are likely to be met by 2015. Progress on reducing extreme poverty, child and maternal mortality, malaria and other diseases, and improving water and sanitation has been slow. Zambia has improved primary education enrolment and is firmly on track to meeting the target of universal access to education. The government is also addressing other education issues, including learning standards.

Access to clean water and sanitation in urban and rural areas has increased through the National Rural and Urban Water Supply and Sanitation programmes. The rural programme, in particular, will be scaled up in a bid to attain the MDG on sustainable access to safe drinking water and sanitation.

To improve gender equality, the government put gender components in the Fifth National Development Plan for 2006-10, aiming to improve gender capacity building and to review legislation. Despite these efforts, women’s empowerment remains a challenge. Women account for about 70% of the labour in subsistence farming. Gender disparity remains widespread in decision making. Out of 150 members of parliament only 22 are women. Only five of the 26 cabinet ministers are women and only two of them are full cabinet ministers.

Zambia has one of the world’s highest HIV/AIDS prevalence rates and is rated seventh among sub-Saharan African nations suffering from the huge burden of HIV epidemic. About 14.3% of the adult population aged between 15 and 49 is estimated to be HIV positive, though this has been reduced from 16%. Between 1980 and 2010, Zambia’s Human Development Index (HDI) rose by 0.1% annually and the country was ranked 150th out of 169 countries in the last UN report.