Still too dependent on copper
From independence in 1964 through the 1980s, Zambia pursued a stateled import-substitution strategy. It sought to promote industrialization through backward and forward linkages to its copper mining industry. The initial success in building its manufacturing sector and industry was short-lived. As output collapsed so did government revenues, and the external current account balance deteriorated. Zambia experienced continuous declines in GDP per capita in the 1970s, 1980s, and 1990s, driven largely by a combination of poor economic policies and a downward trend in the international price of copper.
With policy reforms and an upswing in copper prices, the economy recovered in the 2000s. But the economy continues to depend heavily on copper mining and exports, despite government attempts to promote diversification.
The sector composition of the economy has changed notably since the 1980s with the most striking change being the decline in manufacturing. The sector’s share in GDP increased from 21% in the early 1980s to a high of 30% in the early 1990, before declining to 11% in 2005–09 and further to 8% in 2011– 12. Services dominated throughout the period, accounting for an average of about 41% a year in the early 1980s, declining marginally to 38% in the late 2000s but rebounding to 43% in 2010–12. Agriculture value added, which made up the smallest share in the 1980s (16%) expanded to around 21% of GDP in 2005–09, but fell back to 20% in 2010–12.
Copper mining remains the major contributor to Zambia’s export earnings and economic growth, contributing about 70% to the country’s foreign exchange earnings and 9% to formal employment.
Zambia’s overall rank of 113th of 142 countries puts it in the bottom quarter on most 2011–12 Global Competitiveness Index indicators. On the World Bank’s Doing Business rankings Zambia lost ground in 2012 compared with 2011, dropping 11 places in starting a business to 69th of 183 countries, 12 in registering property to 96th, and 5 in protecting investors to 79th. But it gained in enforcing contracts.
The Sixth National Development Plan 2011–15 identifies agriculture, tourism, manufacturing, mining, and energy as growth sectors. Mining remains important and dominant, and will most likely continue to be promoted. But there is the need to diversify the economy to other sectors to cushion it against the negative effects of external commodity price shocks.
To this end, government intends to promote private investment and public-private partnerships. The developments in these sectors are to be augmented by human development, particularly in health, education, and skills development, and by investments in water and sanitation.
The Private Sector Development Reform Program addresses a range of issues that stifle business growth and discourage investment. The Action Plan contains about 78 actions rationalized into six reform areas: policy environment and institutions, regulations and law, infrastructure, business facilitation and economic diversification, trade expansion, and citizen empowerment.
The Zambia Development Agency promotes and coordinates the establishment of public-private partnerships. There are ongoing efforts to set up multifacility economic zones as an important form of cooperation under the public-private partnership framework.
Production and trade trends reveal the following (merchandise) products as being among those with significant potential for exports: cotton, tobacco, and sugar. Cotton is among the top 10 exports. Zambia has a world share of total exports at 0.71% and a revealed comparative advantage of 21.4 in 2008. Zambia’s world market share in sugar moved from 0.15% in 1993 to 0.25% in 2000 and 2008. Zambia has the land and vast water systems to promote massive sugar production, and yet one company is currently responsible for more than 90% of Zambia’s total sugar production. Other goods that have featured significantly in the country’s total merchandise exports in recent times include edible vegetables, precious and semiprecious stones (natural and processed), electrical machinery and equipment, textile, honey, and soya bean products.
Investors have shown interest in the mining sector through investment pledges and inflows. Investment pledges (both local and international) more than doubled to $4.8 billion in 2010 compared with $2 billion in 2009. Both traditional large-scale mining of copper, nickel, and cobalt as well as new small-scale mining in semiprecious and precious stones have received attention. There is considerable scope for backward and forward linkages in the copper value chain. Zambia’s exports of semifabricates including copper plates, copper wire, sheets and strips, and export values have increased substantially. There is good scope for expanding the downstream processing of copper into fabricates.
Zambia’s tourism, cut flowers, sugar, and high-value financial services have the highest potential for spurring growth and development through links with other sectors. But they face challenges and risks that will need to be carefully considered product by product.
Zambia’s growth with depth
- Transformation—13th of 21. Zambia fell in the overall transformation ranking from 12th in 2000 (1999–2001) to 13th in 2010 (2009–11), trading places with Tanzania.
- Growth. Zambia went through three decades of negative GDP per capita growth. It averaged –1.6% a year during 1971–80; –2.3% in 1981–90; and –1.7% in 1991–2000. By 2000 the level of real GDP per capita was almost half—57%—of the level in 1971. Fortunately for Zambia, growth has been robust since 2000. Average GDP growth was 5% from 2001 to 2010, with GDP per capita growing at 2.9%. Projections are for growth of around 6.3% in 2013/14. Recent growth has been boosted by a resource boom, specifically the price of copper, improved macroeconomic management, and sustained growth in services (including tourism) and agriculture.
- Diversification—16th. All the indicators of diversification deteriorated between 2000 and 2010. The share of manufacturing in GDP fell from 11.0% to 9.6%; the share of the top five products in merchandise exports rose from 75% to 85%; and the share of manufacturing and services in exports plunged from 23% to 12%. The rank on diversification thus deteriorated from 12th to 16th.
- Export competitiveness—14th. Zambia’s export competitiveness ratio (the exportto- GDP ratio relative to the ratio for the world, excluding extractives) fell from 0.80 in 1999–2001 to 0.55 in 2009–11, which resulted in its export competitiveness rank dropping from 10th to 14th.
- Productivity—10th. Zambia saw an improvement from 12th to 10th. Manufacturing value added per worker increased from $11,855 to $18,044 (in 2005 US$), while cereal yields rose from 1,470 kilograms per hectare to 2,322, which improved Zambia’s rank on productivity.
- Technology—6th. Zambia’s rank on technology fell from 5th to 6th. The share of medium and high technology in production and exports have basically stagnated.
- Human well-being—11th. Real GDP per capita in 2010 was $1,385 (PPP 2005 US$) compared with $1,033 in 2000, but the rise was not enough to prevent Zambia falling one notch in human well being, from 10th to 11th.