Zambia

Executive Summary

The Republic of Zambia is a landlocked country in southern Africa that shares its borders with eight countries: Angola, Democratic Republic of the Congo, Tanzania, Malawi, Mozambique, Zimbabwe, Botswana, and Namibia. The country has an estimated population of 17.35 million and GDP per capita of $1,430, according to the World Bank.

The economy slowed to 1.8 percent growth in 2019, down from four percent in 2018 and well below initial IMF projections. Zambia’s economy was hit by drought in the south and west that lowered 2018 and 2019 agricultural production and hydropower electricity generation considerably. Inflation also rose from 7.5 percent in 2018 to 9.2 percent in 2019 and is expected to remain above the Bank of Zambia’s target range of six to eight percent in 2020. Severe electricity rationing continues and has dampened activity in almost all economic sectors. In 2019 copper production, the country’s largest export, fell 12.5 percent from 2018 levels, attributed to an onerous mining tax regime implemented in 2019 and falling global market demand.

Zambia’s external debt grew to $11.2 billion in 2019, up from $10.2 billion at the end of 2018. The fiscal deficit at the end of 2019 was 8.2 percent of GDP, well above the 6.5 percent target. The kwacha also depreciated against the dollar by 18.2 percent in 2019, increasing the cost of external debt service. Investor appetite for domestic bonds continued to shrink, and short- and long-term domestic borrowing costs rose. Government austerity and fiscal consolidation remain key to ensuring that the macroeconomic fundamentals do not deteriorate further, but these challenges have been exacerbated by the COVID-19 pandemic. Foreign exchange reserves stood at $1.45 billion year-end 2019 (representing 1.9 months of import cover) from $1.59 billion year-end 2018.

Budget execution by the Government of the Republic of Zambia (GRZ) has historically been poor, with documented evidence of significant extra-budgetary spending and annual budgets that are widely viewed as aspirational rather than accurate. The IMF continues to delay a much-discussed loan package due to the GRZ’s unsustainable debt trajectory and lack of transparency on its Chinese debt pipeline.

The Embassy works closely with the American Chamber of Commerce of Zambia (AmCham) to support its 60+ American and Zambian firms seeking to increase two-way trade. Agriculture and mining continue to be the headlining sectors of Zambia’s economy. U.S. firms are present or exploring new projects in tourism, power generation, agriculture, and services.

Despite broad economic reforms in the early 2000s, Zambia still struggles to diversify its economy and accelerate private-led growth to address the poverty of its people. Cumbersome administrative procedures, unpredictability of legal and regulatory changes, lack of transparency in government contracting, the high cost of doing business due to poor infrastructure, the high cost of finance, inadequate human resources, and the lack of reliable electricity and internet service remain concerns.

Note: Due to the ongoing global COVID-19 pandemic, in April 2020, Zambia’s Finance Minister forecasted 2020 GDP will be -2.3 percent, a sharp contraction from the over 3 percent growth that had been projected. Inflation is expected to rise to 13.4 percent. The GRZ is currently seeking emergency funding, debt relief, and debt restructuring to mitigate the pandemic’s economic impact.