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2013 Investment Climate Statement - Zambia


2013 Investment Climate Statement
Bureau of Economic and Business Affairs
February 2013
Report
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Openness To, and Restrictions Upon, Foreign Investment

The Government of the Republic of Zambia (GRZ) seeks foreign investment through the Zambia Development Agency (ZDA) which was established in January 2007 through the consolidation of a number of trade and investment promotion entities as a one-stop resource for international investors interested in Zambia.

The major laws affecting foreign investment in Zambia include:

  • The Zambia Development Agency Act of 2006, which offers a wide range of incentives in the form of allowances, exemptions and concessions to companies.
  • The Public-Private Partnership (PPP) Act of 2009, which established a PPP Unit under the Ministry of Finance and National Planning to promote and facilitate privately financed infrastructure projects and effective delivery of social services. The GRZ has stated plans to merge the Zambia Development Agency and the PPP Unit to establish an Industrial Development Commission under the Ministry of Commerce, Trade and Industry to enhance capacity for the country’s economic development. Progress on projects brought to the PPP Unit stalled following the election of the new Patriotic Front (PF) government in September 2011.
  • The Companies Act of 1994, which governs the registration of companies in Zambia. In 2012, changes to the Companies Act were proposed which could impose indigenization requirements ranging from zero to fifty-one percent on foreign-invested companies, depending on the size of the investment. Any revisions to the Companies Act, however, remain in draft.
  • General incentives to investors in various sectors are provided in assorted legislation that governs the Zambia Revenue Authority (ZRA), including the Customs and Excise Act, Income Tax Act of 1966 and the Value Added Tax Act of 1995.
  • The Employment Act Cap 268, Zambia’s basic employment law that provides for required minimum employment contractual terms.
  • The Immigration and Deportation Act Cap 123, which regulates the entry into and residency in Zambia of visitors, expatriates and immigrants.

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.

No distinction exists in Zambian law between foreign and domestic investors, though changes to the Companies Act, which could create such distinctions, were proposed in 2012. Investors are free to invest in any sector of the economy and are entitled to incentives provided through the ZDA Act of 2006 (discussed later in this report). Zambian businesses have complained the government sometimes gives foreign companies tax preferences that are unavailable to Zambian companies in the same line of business. 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, although it is not clear how such commitments are weighed when licensing decisions are made by the ZDA.

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 the investment board decisions. The ZDA board is comprised of 16 members, including representatives from various government and private sector stakeholders.

An investment can be subject to review for determination of sector or value and filing is mandatory. An investment application is subjected to a screening mechanism to determine, among other things: the extent to which the proposed investment will help create employment and the development of human resources; the degree to which the project is export oriented; the impact the proposed investment is likely to have on the environment and, where necessary, the measures proposed to deal with an adverse environmental consequence, in accordance with the Environmental Protection and Pollution Control Act; the possibility of the transfer of technology; and any other considerations that the Board considers appropriate.

The possible outcome of the review could be prohibition or imposition of additional requirements, especially where adverse environmental issues arise. The reviews are generally completed in a timely manner. An investor may, within fourteen days of receiving a Board decision, appeal the decision to the Minister of Finance and National Planning. Within thirty days of receiving the appeal, the Minister may confirm, set aside or amend the decision of the Board. An investor dissatisfied with the decision of the Minister may, within thirty days, appeal to the High Court of Zambia against the decision. No negative reports have been received from U.S. firms concerning this process.

The ZDA Act does not discriminate against foreign investors, and all sectors are open to both local and foreign investors. The Citizens’ Economic Empowerment Commission is working with the Zambia Public Procurement Authority to implement preferential procurement that would support Zambian-owned and based firms.

The following table indicates where the GRZ ranks in various indices related to openness to foreign investment prepared by think tanks and other organizations, including the Millennium Challenge Corporation (MCC):

Measure

Year

Index/Ranking

TI Corruption Index

2012

3

Heritage Economic Freedom

2012

58.3

World Bank Doing Business

2012

84

MCC Govt. Effectiveness

2013

0.22 / 71%

MCC Rule of Law

2013

0.44 / 85%

MCC Control of Corruption

2013

0.36 / 78%

MCC Fiscal Policy

2013

-2.8 / 55%

MCC Trade Policy

2013

82.3 / 96%

MCC Regulatory Quality

2013

0.33 / 76%

MCC Business Start Up

2013

0.942 / 75%

MCC Land Rights Access

2013

0.65 / 69%

MCC Natural Resource Mgmt

2013

100.0 / 100%

Conversion and Transfer Policies

There are no restrictions on converting or transferring funds associated with an investment (including remittances of investment capital, earnings, loan repayments and lease payments) into freely usable currency and at a legal market-clearing rate. 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. No exchange controls exist 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 $5,000 maximum per transaction for account holders and $1,000 for non-account holders. There are no known plans to change remittance policies affecting foreign exchange for investment remittance.

Investors can remit through a legal parallel market, including one utilizing convertible, negotiable instruments, and there is no limitation on the inflow or outflow of funds for remittances of profits, debt service, capital, capital gains, returns on intellectual property, or imported inputs. There are no surrender requirements for profits earned overseas.

Expropriation and Compensation

Investments may only be legally 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.

Leasehold land, which is granted under 99-year leases, may revert to the government if it is ruled to be undeveloped after a certain amount of time (generally five years). Land title is sometimes questioned and land is re-titled to other owners.

In 2012, the GRZ took several actions similar to expropriation, reversing the privatization of one state owned enterprise (SOE) and terminating two government concessions. In all three instances, full compensation for GRZ actions has yet to be finalized, though GRZ figures for 2012 foreign direct investment reflect a significant offset for the return of foreign acquisition capital. In January 2012, the GRZ reversed the June 2010 sale of the SOE Zambia Telecommunications Company (Zamtel) to Libya’s LAP GreenN, which acquired a 75 percent shareholding in Zamtel for $257 million. The GRZ unilaterally reversed the sale and re-appropriated the telecom company citing corruption and flaws in the privatization process. LAP GreenN has since challenged the decision in the courts of law. In September 2012, the GRZ terminated and re-acquired its concession agreement with the country’s largest railway operator, Railway Systems of Zambia (RSZ). The GRZ said termination of the concession, which had been expected to last until 2023, was necessitated by RSZ’s inefficiencies, including high levels of derailments and the loss of life and property. The concession was returned to Zambia Railway, the parastatal former operator of the railway networks in Zambia. In November 2012, the GRZ also terminated its concession agreement with the privately owned Zambia Border Crossing Company to manage the Kasumbalesa border post with the Democratic Republic of the Congo along with five other border concessions for Jimbe (with Angola), Nakonde (with Tanzania), Chanida (with Mozambique), Kipushi (with Congo DR) and Mwami (with Malawi). The GRZ cited smuggling and loss of revenues in terminating the concession, which had been awarded as a PPP on a design, build and operate basis.

The GRZ does not discriminate against investors or U.S. investments, companies or representatives in expropriation.

Dispute Settlement

Relatively few investment disputes involving U.S. companies have occurred since the economy was liberalized following the introduction of multi-party democracy 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 to U.S. companies for goods and services and the delayed deregistration of a U.S.-owned aircraft that was leased to a Zambian airline company that went bankrupt.

The courts in Zambia are somewhat independent, but contractual and property rights enforcement is weak, and final court decisions can take a prohibitively long time. The Foreign Judgments (Reciprocal Enforcement) Act, Chapter 76, of the Laws of Zambia (cited as the Act) makes provision for the enforcement in Zambia of judgments given in foreign countries that accord reciprocal treatment. The registration of a foreign judgment is not automatic. In 2010, a Lusaka High Court Judge ruled that a London civil judgment against former president Frederick Chiluba could not be registered in a Zambian court, despite contrary precedent.

The Bankruptcy Act Cap 82 of the Laws of Zambia provides for the administration of bankruptcy of the estates of debtors and makes provision for punishment of offenses committed by debtors. It also provides for reciprocity in bankruptcy proceedings between Zambia and other countries and provides for matters incidental to and consequential upon the foregoing. This applies to individuals, local and foreign investors. Bankruptcy judgments are made in local currency, but can be paid out in any international convertible currency.

The Zambian Arbitration Act No. 19 of 2000 applies to both domestic and international arbitration and is based on the UNCITRAL Model Law. Arbitration agreements must be in writing. Parties may appoint an arbitrator of any nationality, gender or professional qualifications. Foreign lawyers cannot be used to represent parties in domestic or international arbitrations taking place in Zambia. There are no facilities that provide online arbitration, although there is an arbitral institution, the Zambia Institute of Arbitrators. Arbitration awards are enforced in the High Court of Zambia, and judgments enforcing or denying enforcement of an award can be appealed to the Supreme Court. On average, it takes about 14 weeks to enforce an arbitration award rendered in Zambia, from filing an application to a writ of execution attaching assets. It takes about 18 weeks to enforce a foreign award. Contracts involving state entities commonly rely upon arbitration as a dispute resolution tool.

Zambia is party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, which entered into force on June 7, 1959, and party to the Convention of the Settlement of Investment Disputes between States and Nationals of Other States of 1965 and entered into force on October 14, 1966. These are being enforced through the Investment Disputes Convention Act Cap 42 of the Laws of Zambia.

Performance Requirements and Incentives

The GRZ strives to be consistent with Trade Related Investment Measures (TRIMs) requirements and generally abides by the WTO’s TRIMs obligations.

Priority sectors under the ZDA Act include: agriculture, manufacturing, mining and tourism. The ZDA Act of 2006 offers a wide range of incentives in the form of allowances, exemptions and concessions for companies, which are applied uniformly to both local and foreign investments. Investors who invest at least $10 million in an identified sector or product are entitled to incentives stipulated under the ZDA Act. Investors who invest at least $500,000 in a Multi-Facility Economic Zone (MFEZ) and/or in a sector or product provided for as a priority sector or product under the ZDA Act are entitled, in addition to general incentives, to:

  • Zero percent tax rate on dividends for five years from the first year of declaration of dividends.
  • Zero percent tax on profits for five years from the first year profits are made. For year six to eight, only 50 percent of profits are taxable, and for years nine and ten, only 75 percent of profits are taxable.
  • Zero percent import duty on raw materials, capital goods and machinery, including trucks and specialized motor vehicles, for five years.
  • Deferment of VAT on machinery and equipment, including trucks and specialized motor vehicles.

Foreign investors receive national treatment under Zambia’s tax system. 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 certain farmland expenditures. The depreciation allowance for non-commercial vehicles is 20 percent (straight-line depreciation). Expenditure on other assets used in generating income qualifies for a depreciation allowance of 25 percent (straight-line depreciation).

Although performance requirements are not imposed, authorities expect commitments made in applications for investment licenses to be fulfilled. There are no requirements for local content, equity, financing, employment, or technology transfers. Government does not impose offset requirements or impose conditions on permission to invest in specific geographic area or local content, but investors are encouraged to employ local nationals.

The 2012 National Budget removed a five percent customs duty on helicopters and micro-lights for use in the tourism sector. The export duty applicable on copper and cobalt concentrates has been reduced from 15 to 10 percent and extended to cover all unprocessed or semi-processed minerals. This extension is intended to encourage local processing and value addition. In the 2013 National Budget, GRZ removed customs duties on a wide range of mechanical and electrical machines, machine tools and vehicles, including locomotives and carriages, refrigerated fishing vessels, cruise and ferry boats, dredgers, and motor cycles and ambulances.

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. Investors are required to disclose proprietary information to ZDA as part of the regulatory approval process.

Notwithstanding the provisions of the Immigration and Deportation Act of 1994, a foreign national who invests a minimum of $250,000 or equivalent in convertible currency is entitled to a self-employment permit and employment permits for up to five expatriates. In practice, however, some foreign companies have had difficulty securing these permits, especially smaller-scale investors.

Import restrictions are in force on poultry and meat products and genetically modified products for environmental, health and security reasons. Import licensing is required for most agricultural products, and Zambia does not apply trade sanctions. Food imports must satisfy the provisions of the Food and Drugs Act of September 1978, which requires packaging and labeling requirements to be in English. In 2011, a consignment of assorted food products that were labeled in Chinese were destroyed at the Chirundu border post for not meeting the packaging and labeling requirements.

Right to Private Ownership and Establishment

Foreign and domestic private entities have a right to establish and own business enterprises and engage in all forms of remunerative activities, and no business ventures are reserved solely for the government. 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.

Protection of Property Rights

The ZDA Act assures investors that property rights will be respected. Secured interests in property, both movable and real, are recognized and enforced. The ZDA Act provides for legal protection and facilitates acquisition and disposition of all property rights such as land, buildings and mortgages. The ZDA is working with the Commissioner of Lands to develop a fast-tracking system for identifying land for investment in priority sectors.

The legal framework for trademark protection in Zambia is adequate. There are fines for revealing business proprietary information; they are not large enough, however, to penalize disclosure adequately. Copyright protection is limited and does not cover computer applications. Enforcement of intellectual property rights is weak in Zambia and courts have little experience with commercial litigation.

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 recent enforcement has been effective against pirated musical and video recordings, cosmetics and software. Small-scale trademark infringement occurs for some packaged goods through copied or deceptive packaging.

Transparency of the Regulatory System

The government has made strides toward introducing transparent policies to foster competition, although complaints arise from time to time. In the agricultural sector, GRZ 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 and other grains 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. In July 2012, the GRZ revised the Minimum Wages and Conditions of Employment Act, Cap 276, of the Laws of Zambia for various categories of workers following the amendment of statutory instruments order 2011 No. 1 of 2011, order 2011 No. 2 of 2011 and order 2011 No. 3 of 2011. The upward revision of wages caused industrial unrest as most employers could not pay the revised wages and opted to temporarily close operations.

The GRZ has established a One-Stop Shop and e-Registry primarily to streamline bureaucratic procedures and requirements faced by entrepreneurs at business start-up stage. Services include business name registration, company incorporation, tax registration, employer registration for the employee pension scheme, loan application, MSE registration through the Zambia Development Agency, Immigration and licensing bodies such as the Zambia Wildlife Authority and Zambia Environment Management Agency. In December 2012, the Minister of Tourism and Arts dismissed the Director General of the Zambia Wildlife Authority and four other directors for allegedly corrupt practices in the issuance of hunting concessions, cancelling concessions already awarded by the administration.

Proposed laws and other statutory instruments are usually not vetted with interest groups or published in draft form for public comment before coming into effect. Opportunities for comment on proposed laws and regulations sometimes exist through trade associations, such as the American Chamber of Commerce in Zambia – established in 2011 – Zambia Chamber of Commerce and Industry (ZACCI), Zambia Association of Manufacturers (ZAM), Zambia Chamber of Mines and Zambia Business Forum. In general, however, consultation with stakeholders when developing legislation and regulations has decreased.

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

Government policies generally facilitate the free flow of financial resources to support the entry of resources in the product and factor market. 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.

Although some improvements have been registered in recent years, credit to the private sector is expensive and readily available only for low-risk investments. The persistence of high interest rates led the GRZ to direct the Bank of Zambia to cap commercial lending rates at 18.25 percent in December 2012, effective January 2013. The Bank of Zambia subsequently capped lending by non-banking financial institutions, including microfinance lenders, at 42 percent in January 2013.

One factor inhibiting lending is a culture of tolerating loan default, which many borrowers view as a minor transgression. Despite the licensing of Zambia’s first credit rating agency in 2007 – Credit Reference Bureau Africa Limited – lender data reporting remains erratic and credit rating information is not widely available. In addition, high returns on government securities have historically encouraged commercial banks to invest heavily in government debt, to the exclusion of financing productive private sector investments. Banking officials acknowledge that they need to upgrade the risk assessment and credit management skills within their institutions in order to better serve borrowers. At the same time, they argue that widespread financial illiteracy limits borrowers’ ability to access credit. 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. Nineteen banks operate in Zambia, including Citibank. Zambia’s largest banks are Zambia National Commercial Bank (Zanaco), Barclays Bank Zambia Limited, Standard Chartered Bank Limited and Stanbic Zambia Limited.

The 17-year old Lusaka Stock Exchange (LuSE) is structured to meet international recommendations for clearing and settlement system design and operations. There are no restrictions on foreign participation in the LuSE, and foreigners may invest in stocks on the same terms as Zambians. 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 2011, 22 companies were listed on the LuSE.

In September 2012, Zambia raised $750 million on its debut 10-year Eurobond. Both the amount and yield of the issuance exceeded expectations. The bond was issued with a 5.625 percent yield and was raised from $500 to $750 million. The issuance was greatly oversubscribed, with an excess of $11 billion in orders received. The GRZ has stated plans to use proceeds from the issue to upgrade national infrastructure, particularly in the transport and energy sectors.

Private firms are open to foreign investment through mergers and acquisitions. The Competition Consumer Protection Commission (CCPC) reviewed and handled 23 big mergers and acquisitions in 2011, including Bharti Airtel’s purchase of Zain/Celtel Zambia, the purchase through privatization of Zamtel by LAP Green, the acquisition of Chevron’s assets in Zambia by Engen Petroleum, Wal-Mart Stores’ takeover of Game Stores through the acquisition of Massmart Holdings Limited of South Africa, Barrick Gold Corp takeover of Equinox Lumwana Copper Mines, the purchase of BP shares in Southern Africa, including BP Zambia by Puma Energy, and the Jinchuan Group Limited takeover of Metorex Chibuluma Copper Mine.

Competition from State-Owned Enterprises (SOEs)

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 (Barrick Gold) Mine in Solwezi.

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. Zambia has a pipeline of privately developed hydro-power projects. To name but a few: a $650-million project with Lunzua Power Authority for the construction of a 93-MW power plant at Kabweluma; a 151-MW power plant at Kundabwika; a 40-MW power project to be undertaken by Copperbelt Energy Corporation, with partners; and the $250-million Itezhi Tezhi Hydro power project to produce 120 MW by ZESCO and Tata Africa Corporation.

The SOEs are governed by Boards of Directors that are appointed by Government, with consultations and participation of the private sector. The chief executive of the SOE reports to the Board Chairperson. In the event that the SOE declares dividends, these are paid to the Ministry of Finance and National Planning. The Board Chairperson is informally obligated to consult with government officials before making decisions. Zambia does not have a Sovereign Wealth Fund.

Zambian SOEs are audited by the Auditor General’s Office, as required by law and using international reporting standards. The audited reports are submitted to the President for tabling in the National Assembly, in accordance with the provisions of Article 121 of the Constitution of Zambia and the Public Audit Act, Cap 378, of the Laws of Zambia. The audits are carried out annually, but delays in finalizing and publishing results are common.

Corporate Social Responsibility

The concept of corporate social responsibility (CRS) has recently gained traction in Zambia. General awareness of corporate social responsibility exists among both producers and consumers. Some local and foreign enterprises tend to follow generally accepted CSR principles, such as the OECD Guidelines for multinational enterprises, while other foreign firms ignore complex issues, such as labor rights, environmental protection, bribery, corruption and human rights. The firms that pursue CSR are viewed favorably by the government and the communities in which they operate.

Political Violence

Zambia does not have a history of significant political violence. Zambia held relatively peaceful presidential, parliamentary and local government elections in September 2011 which ushered in a change of governing party from the Movement for Multiparty Democracy (MMD) to the Patriotic Front (PF), led by now-President Michael Sata. Infrequent student protests sometimes turn violent, but they are generally short-lived and confined to small areas in and around universities. Tensions have been rising in Western Province over the rights under the Barotseland Agreement of 1964. In January 2011, protests in Mongu and Limulunga turned violent resulting in two deaths, several injuries, and hundreds of arrests. We advise caution when traveling to the Mongu area. In August 2012, Zambian miners killed a Chinese manager at a Chinese-owned coal mine in Southern Province during a riot over low wages and dangerous working conditions.

Corruption

Zambia’s anti-corruption activities are governed by the Anti-Corruption Act of 2010 and the National Anti-Corruption Policy of 2009, which stipulate penalties for different offenses. While legislation and stated policies on anti-corruption are adequate, implementation sometimes falls short. Zambia lacks adequate laws on whistleblower protection, asset disclosure, evidence, and freedom of information.

Zambia signed and ratified the United Nations Convention Against Corruption in December 2007. Zambia is also a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Other regional anti-corruption initiatives are the Southern Africa Development Community (SADC) Protocol Against Corruption, ratified on July 8, 2003, and the African Union (AU) Convention on Preventing and Combating Corruption, ratified on March 30, 2007.

U.S. firms and the Zambian government have identified corruption as an obstacle to foreign direct investment. Corruption is most pervasive in government procurement and dispute settlement. Giving or accepting a bribe by a private, public or foreign official is a criminal act, and a person convicted of doing so is liable to a fine or a prison term not exceeding five years. A bribe by a local company or individual to a foreign official is a criminal act and punishable under the laws of Zambia. A local company cannot deduct a bribe to a foreign official from taxes.

The Anti-Corruption Commission (ACC) is the agency mandated to spearhead the fight against corruption in Zambia. The Anti-Money Laundering Unit of the Drug Enforcement Commission (DEC) also assists with investigation of allegations of misconduct. An independent Financial Intelligence Unit (FIU) was formed in 2010, but has not yet developed the capacity to take the lead in investigating financial crimes. In November 2012, the FIU Board of Directors was appointed and sworn in with a challenge to implement its mandate. Zambia’s anti-corruption agencies generally do not discriminate between local and foreign investors.

Transparency International has an active Zambian chapter. The GRZ encourages companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials. The Integrity Committees (ICs) Initiative is one of the strategies of the National Anti-Corruption Policy (NACP), which is aimed at institutionalizing the prevention of corruption. The NACP was approved by the previous government in March 2009, and its implementation is spearheaded by the Anti-Corruption Commission. Eight institutions were targeted, including the Zambia Revenue Authority, Immigration Department and Ministry of Lands. Most companies have effective internal controls, ethics and compliance programs to detect and prevent bribery. The PF government has not yet signaled whether it will follow the NACP or develop a new policy to fight corruption; although President Sata has said that anti-corruption will be a central pillar of his presidency.

Bilateral Investment Agreements

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 initialed market access 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. Zambia has signed protective agreements with Chinese, Nigerian, Libyan and Indian investors.

Zambia does not have a bilateral investment treaty or a bilateral taxation treaty with the United States.

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 $5 million to start up 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. In the event that OPIC should pay an inconvertible claim, the local currency accepted by OPIC would be made available, pursuant to the bilateral agreement providing for the OPIC program, to the Mission/ATI on a priority basis for USG expenses.

The Embassy uses approximately $33.7 million in Zambian Kwacha per year. Kwacha were purchased at the average market exchange rate of K5, 135 to the U.S. dollar in 2012. Note: The Zambian Kwacha was rebased, effective January 1, 2013, dropping the final three zeros from the currency; 20,000 old Kwacha becomes 20 rebased Kwacha. Zambia’s foreign exchange rates track closely with international copper prices. As such, when copper prices rise, the Kwacha generally appreciates in value.

Labor

Although an abundance of unskilled labor exists in Zambia, investors complain that the supply of skilled and semi-skilled labor is inadequate. The government adheres closely to International Labor Organization (ILO) conventions. Labor-management relations vary by sector. The minimum monthly entitlement for any permanent employee, including general workers, is approximately Kwacha 700 rebased ($135). The new government reviewed and amended labor policy and labor laws which raised the minimum wage levels for different categories of workers. The revised minimum wages caused industrial unrest in most manufacturing and service industries while some companies opted to lay off some workers as they could not meet the upward revised minimum wages.

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) in which investors enjoy waivers on customs duty on imported equipment, excise duty and value added tax, among other concessions. Foreign-owned firms like any investor do enjoy the same investment opportunities in Foreign Trade Zones.

On October 31, 2000, the COMESA Free Trade Area (FTA) was launched. COMESA established 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 cement.

The SADC (Southern Africa Development Community) Trade Protocol Member States, a regional grouping of 13 African states, came into force in 2008. The protocol promotes regional integration through trade development and develops natural and human resources for the mutual benefit of their people. Trade among SADC member states is conducted on reciprocal preferential terms. Rules of Origin define the conditions for products to qualify for preferential trade in the SADC region. Products have to be ‘wholly produced’ or ‘sufficiently processed’ in the SADC region to be considered compliant with Rules of Origin. The Rules of Origin for SADC are product-specific and not generic, as are the ones for COMESA.

Foreign Direct Investment Statistics

The ZDA compiles data on investment commitments from investors who obtain investment licenses at the ZDA and from other investment reports. Investors in mining projects do not invest through the ZDA, but instead work with the Ministry of Mines and Mineral Development. ZDA data are, therefore, incomplete and should not be considered a complete measure of foreign direct investment (FDI). They are, however, the only FDI data available in Zambia. Current estimated FDI stock as a percentage of GDP is 23 percent, according to 2011 ZDA data. Zambia recorded a drop in FDI in early 2012, primarily due to a significant offset for the return of foreign acquisition capital related to the re-acquisition of Zamtel from Libya’s LAP GreenN. This drop in FDI may also have been influenced by investor concerns regarding PF management of the economy, including economic policy volatility, de facto business expropriations, and the deportation of several foreign investors without due process.

Below is a summary of investment pledges in U.S. Dollars for 2010 and 2011

Sector

2010

2011

Agriculture

194,346,500

482,550,696

Construction

86,810,000

73,384,279

Education

214,600,000

3,578,633

Energy

570,200,000

1,098,600,000

Financial Institutions

-

52,800,000

Health

22,490,000

13,298,000

ICT

161,729,000

20,450,000

Manufacturing

1,907,061,350

712,234,051

Mining

986,350,000

429,398,615

Real Estate

413,639,000

821,476,779

Service

99,806,630

145,914,489

Tourism

127,177,812

742,218,420

Transport

4,100,000

42,387,426

Total

4,788,310,292

4,638,291,388

Pledged investments in US $

Source: Zambia Development Agency, Research, Planning and Policy Division, 2011

Summary of Investment pledges from the United States for 2010 and 2011

Sector

2010

2011

Construction

550,000

550,000

Manufacturing

31,585,000

6,317,000

Mining

-

25,000,000

Real Estate

2,000,000

-

Tourism

1,024,850

600,000

Transport

-

7,501,000

Totals

35,159,850

39,918,000

 

Pledged investments in US $

Source: Zambia Development Agency, Research, Planning and Policy Division, 2011

National Level Actual FDI Inflows by Source Country – 2010 to 2011

Country

2010
US$ millions

2011
US$ millions

Australia

389.40

40.00

British Virgin Islands

271.80

87.30

Canada

443.40

590.70

China

32.40

6.60

France

-2.30

28.00

India

-17.00

19.80

Mauritius

1.90

8.10

Netherlands

78.80

59.30

South Africa

-51.30

21.20

Sweden

18.40

2.00

Switzerland

-15.20

19.20

Tanzania

36.20

-0.90

United Arab Emirates

18.00

-3.90

United States

250.60

-24.40

United Kingdom

-3.20

5.70

Zimbabwe

-6.60

-2.90

Source: Private Capital Flows and Investor Perceptions Survey, 2010 and 2011 Reports

Note:

The outflows are represented by a negative (-) sign.

The FDI statistics for 2011 are for the first and second quarter of the year only.



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