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Zambia: Zambia Finance Profile 2012






Zambia Finance Profile 2012

Zambia is a peaceful country endowed with enormous natural resources. The country’s heavy reliance on copper, however, proved disastrous in the 1980s, when a fall in copper prices took a heavy toll on the economy. The subsequent nationalization of copper mines and generally poor economic management turned Zambia into one of the poorest countries in Africa.

Zambia’s participation in the Highly Indebted Poor Country (HIPC) and Multi-Donor Debt Reduction Initiative (MDRI) in 2005 and 2006 reduced debt from USD 7.2 billion to USD 0.5 billion, thereby creating fiscal space for development. At the same time, improved macroeconomic management and the fast growth of the mining, construction, telecommunications and tourism sectors, helped increase GDP growth to an average of 4.9 % in 2001-2008, with a peak of 6.3 % in 2007. While the increase in oil and food prices caused inflation to reach 16.6 % in 2008, the recent commodity price shocks and subsequent financial crisis seemed to have only a moderate effect on the Zambian growth rate, which was of 5.3 % in 2009.

Zambia’s financial sector is relatively small and dominated by banking. As of end-2006, 12 commercial banks operated in the country, the majority of which are South-African owned. Concentration is high, with the five largest banks accounting for the bulk of total banking assets: the state-owned Zambia National Commercial Bank alone controls 24 % of the retail banking market. Banks appear to be adequately capitalized, with regulatory capital at 18 % and loan loss provisioning at over 100 %. Non-performing loans (NPLs) stood at 7 % of total outstanding loans. Private credits to the economy grew by about 50 % in 2008, and the country’s domestic savings as a share of GDP surpassed the corresponding average for Sub-Saharan Africa.

Access-to-finance rates in Zambia are significantly lower than the African average, with less than 5 % of the population holding a bank account. Only 19 % of the country’s small and medium enterprises are able to obtain loans, compared with nearly 50 % for larger firms, and the cost of credit was on average 10 %age points higher than for large firms.

The market capitalization of the Lusaka Stock Exchange (LuSE) stands at a substantial 45 % of GDP. Trading was automated as of November 2008, with the introduction of electronic clearing and settlement. Currently, 20 companies are listed on the LuSE, mostly state enterprises that have undergone privatization, and the top five companies account of over 77 % of total market capitalization. The LuSE sees significant, if infrequent foreign participation: in 2008, 10 % of total trades and 50 % of volume traded was attributable to foreign investors.

The LuSE is an active member of the Committee of South African Development Community Stock Exchanges (CoSSE), whose primary objective it is to increase cooperation in operations, communications, regulations, and technical skills development among all of the member stock exchanges.

Government debt is issued through the Bank of Zambia on a competitive and non-competitive basis, but issuance has so far been limited. Efforts to pursue a sovereign credit rating have been temporarily suspended due to current global economic conditions.

The institutional investor base remains limited. Efforts were started in 2003 to privatize the insurance industry, with the restructuring of the Zambia State Insurance Company and the emergence of five private insurance firms. Privatization of the state-owned company have, however, been placed on hold.

Banking Sector

The Central Bank (Bank of Zambia) is responsible for executing and implementing the Government's monetary policy and licensing of commercial banks. The bank is currently pursuing, successfully, a "tight" policy characterized by curtailed money supply in order to reduce both inflation rates and bank lending rates.

Commercial banking is provided by local and international banks which offer a wide range of financial sources. Major international banks include Barclays Bank, Citi Bank, Standard Chartered Bank, and Stanbic Bank; the larger local banks include Zambia National Commercial Bank, Finance Bank, and Indo-Zambia Bank.

Sources of Financing

Zambia is a member of a number of international and regional organizations through which private-sector companies can seek support for development of new projects. Medium-term funding is available from the European Investment Bank, the Commonwealth Development Corporation (with the Zambia Venture Capital Fund), the Zambia Development Programme (World Bank), and Japanese Grant Aid. Longer term investment can be sought from the International Finance Corporation (World Bank) and the Commonwealth Africa Investment Fund.

Company Registration
Company registration is undertaken through the Registrar of Companies at the Ministry of Commerce, Trade and Industry. The law requires that foreign investors wishing to conduct business in Zambia should apply for and obtain an Investment Certificate from the Zambia Investment Centre. The Centre has a legal department to help such investors register their companies, within three days, and the Centre's Business and Investor Relations department will help investors obtain work permits for any expatriate staff. The Immigration Department meets twice a week to consider applications for work permits, and the Investment Centre has senior liaison officers at the department to ease the issuance of such permits.

Business and Professional Organizations
The strengthening and expansion of Zambia's economy has seen a growth in the number of business and professional organizations in the country.

Chief amongst these are:

  • * The Zambia Association of Chambers of Commerce and Industry (ZACCI)
  • * The Zambia Association of Manufacturers (ZAM)
  • * The Economic Association of Zambia (EAZ)
  • * The Zambia Institute of Certified Accountants (ZICA)

The Zambia Association of Manufacturers in particular represents a large number of companies that can offer a range of supporting services to the mining and minerals industry, thus permitting incoming companies to operate on a low-cost basis.

Due to the monolithic nature of the mining industry in the past (predominantly copper), no Chamber of Mines has been established but the recognition that the current high-level of investment in mining and exploration will lead to the emergence of such an organization is welcomed by the Government.

Reforms in the agricultural sector are also relatively slow. Despite a good national policy document, actual implementation on the field continues to promote a dominant public sector over private-sector participation. The sector is still characterised by limited levels of public investments in key activities such as livestock extension, support to crops other than maize, and support to research and development, and by the dominance of input and output marketing subsidies (more than 70% of budgetary resources). There is an apparent parallel growth of the private sector, devoid of public support systems. Outgrower schemes offer an opportunity to address some of the perennial constraints to agricultural growth. The land market is growing and large-scale farming enterprises are expanding, but more than 90% of the land is still under traditional property. Yields and productivity have not improved, and the agricultural sector remains stagnant. Its contribution to GDP revolves around 15% when it could rise potentially to 25%.