Burundi is located in Central Africa and is one of the six member states of the East African Community (EAC). Burundi is one of the world’s most impoverished countries, with almost two-thirds of the population living below the poverty line, approximately 90 percent of the population reliant on subsistence farming, and a youth unemployment rate of about 65 percent. Economic growth is insufficient to create employment for Burundi’s rapidly growing population and the new administration of President Ndayishimiye, in power since June 2020, is actively seeking to increase existing value chains and find new sources of employment and revenue.
The government of Burundi (GoB) is also seeking to attract more foreign direct investment (FDI). In sharp contrast with the isolationist tendencies of the last administration, since taking office President Ndayishimiye has made or hosted multiple state visits with potential trade and development partners in the region, including Tanzania, Equatorial Guinea, Gabon, Central African Republic, Ethiopia, and Egypt. Given the importance of agriculture, the GoB is promoting initiatives to modernize and diversify agricultural production, seeking to increase production of crops beyond coffee and tea. In order to attract FDI, the GoB must address longstanding issues of poor governance and weak institutional capacity, corruption, instability of the local currency, financial restrictions and capital controls that limit access to and expatriation of foreign exchange, a low-skilled workforce, poor internet connectivity, and limited/unreliable economic statistics. Since 2008, members of the executive branch have granted large discretionary tax or related exemptions to private foreign companies by presidential decree or ministerial order to attract FDI. These direct government-to-company agreements undermine the Burundian tax law and the investment code. In addition to reducing revenues for the state, these exemptions disadvantage private companies already operating in Burundi by granting advantages to select competitors. The corporate tax rate is 30 percent, with reductions for companies that employ certain numbers of Burundian nationals.
The GoB is also working to develop infrastructure, including photovoltaic and hydroelectric power plants, road construction to improve access to the country and projects that will contribute to regional trade, such as the rehabilitation of Bujumbura Port and the construction of a railway joining Burundi and Tanzania. Burundi’s landlocked location and infrastructure constraints severely limit transportation of goods. Demand for electricity and water significantly exceeds capacity, and the transmission system is old and poorly maintained, leading to rolling blackouts and outages. In the mining sector, which some industry players believe has great potential for development, activity has increased but overall yields remain low, and infrastructure needed to support an expansion of mining, including electricity and transportation, are insufficient.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Government of Burundi (GoB) is generally supportive of FDI and seeks investment as a means to promote economic growth. Uneven implementation of laws and regulations, however, limits the predictability of the environment for Burundian and foreign investors alike. The GoB has not implemented laws, regulations, or economic or industrial strategies that limit market access or discriminate against foreign investors. There is a minimum initial foreign investment of $50,000, which does not apply to domestic investors. An overview of the legal framework for foreign investment can be found at: http://www.eatradehub.org/burundi_investment_policy_assessment_2018_presentation
Based on the Burundi Investment Code enacted in 2008, the government established the Burundi Investment Promotion Agency (API) in 2009. API is the government authority in charge of promoting investment, improving the business climate, and facilitating market entry for investors in Burundi. API offers a range of services to potential investors, including assistance in acquiring the licenses, certificates, approvals, authorizations, and permits required by law to set up and operate a business enterprise in Burundi. API has set up a “one-stop shop” to facilitate and simplify business registration in Burundi. For now, investors must be physically present in country to register with API. API provides investors with information on investment and export promotion, assists them with legal formalities, including obtaining the required documents, and intervenes when laws and regulations are not properly applied. API also designs reforms required for the improvement and the ease of doing business environment and ensures that the impact of investments on development is beneficial and sustainable.
The GoB conducts dialogue with national and foreign investors to promote investment. API is the initial and primary point of entry for investors, but government ministries meet regularly with private investors to discuss regulatory and legal issues.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic companies have the same rights to establish and own businesses in the country and engage in all forms of activities. However, there are restrictions on foreign investments in weaponry, ammunition, and any sort of military or para-military enterprises. There are no other restrictions nor are there any other sectors in which foreign investors are denied the same treatment as domestic firms. There are no general limits on foreign ownership or control.
Article 63 of the 2013 mining code stipulates that the GoB must own at least 10 percent of shares in any foreign company with an industrial mining license and state participation cannot be diluted in the event of an increase in the share capital.
Burundi does not maintain an investment screening mechanism for inbound foreign investment.
Other Investment Policy Reviews
No investment policy review from a multilateral organization has taken place in the last three years. The most recent review was performed in 2010 by UNCTAD.
Business Facilitation
In addition to fiscal advantages provided in the investment code, Burundi has implemented reforms, including reinforcing the capabilities of the one-stop shop at API, simplifying tax procedures for small and medium enterprises, launching an electronic single window for business transactions, and harmonizing commercial laws with those of the East African Community.
Business registration takes approximately four hours and costs 40,000 Burundian francs (around $21). For more details and information on registration procedures, time and costs, investors may visit API’s website at https://www.investburundi.bi/.
There is no specific mechanism for ensuring equitable treatment of women and underrepresented minorities.
Outward Investment
The host government does not have mechanisms for promoting or incentivizing outward investment. The host government does not restrict domestic investors from investing abroad.
4. Industrial Policies
Investment Incentives
The current Investment Code grants various potential fiscal and customs benefits to investors including: three or more years of tax-free operation; exemption of charges on property transfer; exemptions from duties on raw materials, capital goods, and specialized vehicles; tax exemptions for goods used to establish new businesses; exemptions from customs duties if investment goods are made within the EAC or COMESA; a corporate tax rate of 30 percent with a reduction to 28 percent if 50-200 Burundians are employed and to 25 percent if more than 200 are employed; and free transfer of foreign assets and income after payment of taxes due.
The GoB does not issue guarantees, but does co-finance foreign direct investment projects, albeit typically on an in-kind basis, such as by granting land for facilities.
Foreign Trade Zones/Free Ports/Trade Facilitation
Burundi already belongs to the trading blocs of the EAC, the CEPGL (Economic Community of the Great Lakes Countries), COMESA, and the Economic Community of the States of Central Africa (CEEAC). In 2020, GoB adopted new laws to accelerate its integration into other trading blocs such as the African Continental Free Trade Area (AfCFTA), and the Tripartite Free Trade Area (TFTA) between COMESA, EAC and SADC (Southern Africa Development Community). GoB also began harmonizing its policies and legal framework with those of regional entities to advance regional integration, improve its competitiveness, and take better advantage of external economic potentials. However, as the enabling regulations do not yet exist, Burundi does not yet have operational free economic zones.
One of the objectives on Burundi’s agenda is urgent integration into AfCTA, one of the largest free trade areas in the world since the formation of the World Trade Organization with a total of 55 member states. The AfCFTA aims to stimulate intra-African trade (BIAT) and Burundi wants to share in these gains. Burundi and Tanzania are the only countries within the East African Community that have not yet ratified the agreement. The GoB has already set up an ad hoc committee to accelerate the process of integration within AfCTA, and negotiations are underway with a view to ratifying the instruments of this agreement in the very near future. Burundi expects tangible benefits from this large continental market (1.2 billion people with a GDP of over USD 2.5 trillion and a purchasing power of more than USD 4 trillion) due to its strategic location and natural resources.
In addition, the GoB is working to establish its first Special Economic Zone (ZESB) in order to enhance growth and development after the breakdown of cooperation with several European countries. ZESB is still under construction on the Warubondo site (a strategic location of 5.43 square km area located between Burundi and neighboring DRC with easy access to Bujumbura city, Bujumbura International Airport, Bujumbura Port and Lake Tanganyika). ZESB is a result of a business partnership between GoB and private foreign investors and its main objective is to revive the industrial sector and to promote exports. The economic model behind this partnership is that the zone will be a window for foreign investors, but all the products produced within the zone will bear the label “Made in Burundi.”
Performance and Data Localization Requirements
The current government policy for both domestic and foreign companies is mandatory employment of local workers unless it is not possible to find a local candidate with the required skills or expertise. The number of expatriate employees is limited to 20 percent of the total workforce. There is no policy mandating foreign companies to appoint local personnel to senior management or boards of directors.
Burundian visa requirements are not excessively onerous and do not generally inhibit the mobility of foreign investors and their employees. Since 2015, Burundi has removed the possibility for visitors to apply for a visa upon arrival at the airport unless authorized by the PAFE (immigration authority). Travelers to Burundi must apply for visas in one of the Burundian missions abroad. A foreigner holding a residency visa is permitted to work in Burundi. A two-year residence visa (renewable) costs USD500 and it can only be issued after making a refundable deposit of USD1,500 in a local bank (BANCOBU). There are no government/authority-imposed conditions to invest except for a minimum investment requirement of USD50,000 applicable to foreign investors only.
The 2000 Arusha Agreements for peace and reconciliation for Burundi and the Constitution recommend ethnic and gender quotas for new hires (60 percent from the Hutu ethnic group, 40 percent from the Tutsi ethnic group and 30 percent women) in state and security institutions. However, neither the Constitution nor the Arusha Agreements mention ethnic or gender quotas for the private sector. In 2017, a law was passed obliging International Non-Governmental Organizations (INGOs) to recruit local staff while respecting the ethnic and gender quotas that apply to state institutions. Between December 2018 and April 2019, several INGOs decided to close their doors rather than submit to the requirements, arguing that the practices based on ethnicity were against their principles and values and the only recruitment criteria should be competency-based.
There are no requirements that investors purchase from local sources. However, the mining law requires a commitment from the investor to recruit staff or subcontractors of Burundian nationality as a precondition for granting a mining license, with mandatory quotas currently in place. The GoB imposes no performance requirements on investors as a condition for establishing, maintaining, or expanding their investments or for access to tax and investment incentives.
There are no laws requiring foreign IT providers to turn over source code and/or provide access to encryption except for a law requiring that companies share user information with law enforcement authorities during terrorism investigations; this law applies equally to Burundian and foreign companies. There are no laws that prevent companies from transmitting data outside the country.
6. Financial Sector
Capital Markets and Portfolio Investment
Although there are no regulatory restrictions on foreign portfolio investment, Burundi does not have capital markets that would enable it. Capital allocation within Burundi is entirely dependent on commercial banks.
The country does not have its own stock market. There is no regulatory system to encourage and facilitate portfolio investment. Existing policies do not actively facilitate nor impede the free flow of financial resources into product and factor markets.
There is no regulation restricting international transactions. In practice, however, the government restricts payments and transfers for international transactions due to a shortage of foreign currency.
In theory, foreign investors have access to all existing credit instruments and on market terms. In practice, available credit is extremely limited.
Money and Banking System
Burundi has very limited banking services penetration according to the most recent national survey on financial inclusion conducted by the central bank. In this 2016 survey, the Bank of the Republic of Burundi (BRB) found a penetration level of approximately 22 percent. Several local commercial banks have branches in urban centers. Micro-finance institutions mostly serve rural areas. The Burundian government is a minority shareholder in three banks.The banking sector’s soundness has improved with capitalization and liquidity ratios above regulatory standards and profitability indicators on the rise. However, bank portfolio quality remains a concern, with the level of non-performing loans (NPLs) reaching six percent when five percent is the benchmark rate among East African Community states. The sector also suffered from shortages of foreign currency following the Central Bank’s establishment of de facto capital controls in 2019.
The financial sector includes 14 credit institutions (Banks) including a new youth investment bank and an agricultural bank, 40 microfinance institutions, 16 insurance companies, three social security institutions and three payment institutions. A bank for women is also under development. All these institutions aim at reducing unemployment by creating job opportunities, particularly small and medium-scale entrepreneurship. The banking market is dominated by the three largest and systemically important banks: Credit Bank of Bujumbura (BCB), Burundi Commercial Bank (BANCOBU), and Interbank Burundi (IBB).Foreign banks can establish operations in the country. Foreign banks operating in the country include ECOBANK (Pan African Bank-West Africa), CRDB (Tanzanian Bank), DTB and KCB (both Kenyan Banks). The central bank directs banking regulatory policy, including prudential measures for the banking system. Foreigners and locals are subject to the same conditions when opening a bank account; the only requirement is the presentation of identification.
Foreign Exchange and Remittances
Foreign Exchange
According to the law, after paying taxes, there are no restrictions on expatriating funds associated with an investment. In practice, foreign investors have encountered difficulties in converting funds associated with investments into foreign currency due to de facto capital controls implemented by the BRB in 2019.
According to the GoB, funds associated with an investment can be converted into a freely usable currency at a legal market rate, pending their availability. Due to a shortage of foreign currency, the central bank prioritizes companies in specific strategic industries for access to foreign exchange accommodation. In practice, the Burundian franc (BIF) is not freely convertible at the official government rate.
The BRB publishes the daily exchange rate on its website each morning. In practice, the BIF fluctuates, and the government has imposed de facto capital controls to prevent abrupt exchange rate movements; there is a significant gap between the official rate and a floating parallel unofficial market rate.
Remittance Policies
The government has not passed any new laws regarding a change to investment remittances policies. The average delay for remitting investment returns (once all taxes have been paid) is three months due to general inefficiency in the banking sector and the rarity of such transactions in an environment with very little foreign direct investment.
Sovereign Wealth Funds
Burundi does not have a sovereign wealth fund.
Mozambique
Executive Summary
Mozambique’s vast natural resources, lengthy coastline with deep water ports, favorable climate, rich soil, and premiere geographic location as the gateway to landlocked countries in southern Africa make it an attractive investment target. While the country welcomes foreign investment, investors must factor in corruption, an underdeveloped financial system, poor infrastructure, frequent natural disasters, and significant operating costs. Transportation inside the country is unreliable and expensive, while bureaucracy, port inefficiencies, and corruption complicate imports. Local labor laws remain an impediment to hiring foreign workers, even when domestic labor lacks the requisite skills. In the last year, the COVID-19 pandemic impacted investment amid an economic downturn. A surging terrorist movement in the same northern province that is home to Mozambique’s nascent natural gas industry has also delayed expected investment.
In April 2021, Total, the lead operator for the USD 20 billion Mozambique LNG project in northern Mozambique, withdrew its staff from the project site, putting construction on hold until the government can guarantee the security necessary for the project to continue. While no formal announcements have been made yet, the move likely delays the project and any future government revenues. Earlier, in April 2020, ExxonMobil announced it would delay the long-awaited final investment decision in its separate USD 25 billion LNG project mostly because of the poor market conditions. A smaller floating LNG platform remains on track to produce first gas in 2023. However, with both major projects on pause, Mozambique’s hopes for a gas bonanza have been delayed.
The COVID-19 pandemic hit Mozambique’s formal economy built around the extractive industries and tourism, but other sectors have seen unexpected benefits. For example, Mozambique’s ports have seen increased volume despite the global slowdown because they remained open while competing ports in South Africa closed. The Mozambican government also launched a new rural development program, Sustenta, supported by a USD 500 million World Bank Loan. Sustenta aims to integrate small holder farmers into robust supply chains to create up to 200,000 jobs and boost annual growth in the critical agricultural sector from 2.3 percent to 5 percent.
Despite the pandemic and terrorism, Mozambique has a decent mid-term outlook. Following four years of reforms since the hidden debt scandal, Mozambique has made progress in the fight against corruption. Thanks in part to these efforts, the IMF and Mozambique entered into discussions to re-launch a new lending program, potentially the first non-emergency budgetary assistance to the government in five years. If Mozambique continues on this path of reform, it will be better placed to manage its eventual resource income and attract other foreign investments.
U.S. businesses are poised to play a key role in this country’s transformation. In June 2019, Mozambique signed a commercial Memorandum of Understanding with the Department of Commerce, outlining six key areas for investment including energy, infrastructure, financial services, agri-business, tourism, and fisheries, opening the door to increased cooperation and U.S. investment. In December 2020, the U.S. government’s Millennium Challenge Corporation also announced it would focus on rural transport and agriculture for its second compact. While still under development, this compact will make a significant investment in key sectors and help create the enabling environment for additional investments.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Government of the Republic of Mozambique (GRM) welcomes foreign investment and sees it as a key driver of economic growth and job creation. With the exception of a few sectors related to national security, all business sectors are open to foreign investment. Mozambique’s 1993 Law on Investment, No. 3/93, and its related regulations, govern foreign investment. In 2009, Decree No. 43/2009 replaced earlier amendments from 1993 and 1995, providing new regulations to the Investment Law.
In general, large investors receive more support from the government than small and medium-sized investors. Government authorities must approve all foreign and domestic investment requiring guarantees and incentives. Regulations for the 2009 Code of Fiscal Benefits, Law No. 4/2009, were established in 2009 under Decree No. 56/2009.
The Agency for Promotion of Investments and Exports (APIEX, Agencia para a Promocao de Investimentos e Exportacoes) is the primary investor contact within the GRM, operating under the Ministry of Industry and Commerce. Its objective is to promote and facilitate private and public investment. It also oversees the promotion of national exports. APIEX can assist with administrative, financial, and property issues. Through APIEX, investors can receive exemptions from some customs and value-added tax (VAT) duties when importing “Class K” equipment, which includes capital investments.
Contact information for APIEX is:
Agency for Promotion of Investments and Exports http://www.apiex.gov.mz/
Rua da Imprensa, 332 (ground floor)
Tel: (+258) 21313310
Ahmed Sekou Toure Ave., 2539
Telephone: (+258) 21 321291
Mobile: (+258 ) 823056432
Government dialogue with the private sector is primarily coordinated by Mozambique’s Ministry of Industry and Commerce. Most businesses in Mozambique interact with the government via the country’s largest business association, the Confederation of Economic Associations (CTA, Confederação das Associações Económicas de Moçambique). CTA was formed in 1996 and continues to be the dominant and most influential business association in Mozambique.
Limits on Foreign Control and Right to Private Ownership and Establishment
Mozambique investment law and its regulations generally do not distinguish between investor origin or limit foreign ownership or control of companies. With the exception of security, safety, media, entertainment, and certain game hunting concessions, there were no legal requirements that Mozambican citizens own shares of foreign investments until 2011, when the government adopted Law No. 15/2011, otherwise known as the “Mega-Projects Law.” This law governs public-private partnerships, large scale ventures, and major business concessions and states that Mozambican persons must hold between 5 percent to 20 percent of the equity capital of the project company. Implementing regulations were approved by the Council of Ministers in 2012.
Article 4.1 of Law 14/2014, often referred to as the “Petroleum Law,” states that the GRM regulates the exploration, research, production, transportation, trade, refinery, and transformation of liquid hydrocarbons and their by-products, including petrochemical activities. Article 4.6 established the state-owned oil company, the National Hydrocarbon Company (ENH, Empresa National das Hidorcorbonetos) as the government’s exclusive representative for investment and participation in oil and gas projects. ENH typically owns up to 15 percent of shares in oil and gas projects in the country.
Depending on the size of the investment, the government approves both domestic and foreign investments at the provincial or national level, but there is no other formal investment screening process.
Other Investment Policy Reviews
Mozambique has not undergone a third-party investment policy review in the last three years.
Business Facilitation
Starting a business in Mozambique is a lengthy and bureaucratically complex process which has led to Mozambique’s relatively low score on the World Bank’s 2020 Doing Business Report. In the 2020 report, Mozambique ranked 176 out of 190 economies worldwide in terms of starting a new business, scoring well below the regional average for sub-Saharan Africa, in particular due to the relatively high cost of registering a business and number of procedures required to complete the process.
Registering a business typically involves reserving a name, signing an incorporation contract, payment of registration fees, publishing the company’s name and statutes in the national gazette, registering with the tax authority, and then notifying relevant agencies of the start of activity including the municipality’s one-stop-shop, the municipality’s labor office, national tax authority, and social security institute. According to the World Bank’s estimates, this process takes approximately 17 days. There is no single business registration website.
In May 2020, the Maputo City “one stop shop” known as the balcão de atendimento unico (BAU) introduced reforms that effectively reduced the number of procedures required to set up a new company from 11 to four by consolidating several steps required to register a new business.
Outward Investment
The government does not promote or incentivize outward investment. It also does not restrict domestic investors from investing abroad. However, Mozambique does require domestic investors to remit investment income from overseas, except for amounts required to pay debts, taxes, or other expenses abroad.
4. Industrial Policies
Investment Incentives
The 2009 Code of Fiscal Benefits, Law No. 4/2009, contains specific incentives for entities that intend to invest in certain geographical areas within Mozambique that have natural resource potential, but lack infrastructure and have low levels of economic activity. Rapid Development Zones (RDZ) were also created to facilitate investment. Investments in these zones are exempt from import duties on certain goods and are granted an investment tax credit equal to 20 percent of the total investment (with a right to carry the credit forward for five years). Additional modest incentives are available for professional training and the construction and rehabilitation of public infrastructure, including, but not limited to roads, railways, water supply, schools, and hospitals.
The Regulations for the Code of Fiscal Benefits are set forth in Decree No. 56/2009, which was approved in October 2009. APIEX can assist companies with the investment incentives stipulated in the Code of Fiscal Benefits.
With the exception of sectors like oil and gas where government participation is mandatory, the government does not issue joint guarantees or jointly finance foreign direct investment projects.
Foreign Trade Zones/Free Ports/Trade Facilitation
Mozambique’s eight free trade zones provide a variety of fiscal exemptions depending on the sector of investment as well as the project location. Investors should pay close attention to documents and procedures requested in order to establish a business locally or to request fiscal and customs incentives if investing in an industrial free zone. Investors have complained that certain government officials may not be aware of some of the benefits conferred by tax free status, in particular related to customs and duty-free imports.
In January 2021, the government of Mozambique approved the Limpopo Valley Agribusiness Economic Zone with the main objective to explore and develop the agricultural potential of the Limpopo Valley. The newly approved zone falls under the 2009 Code of Fiscal Benefits. According to the government, studies are now under way to identify new infrastructure investments and potential incentives to realize the agro-ecological potential of the region and maximize economic efficiency and social wellbeing.
Performance and Data Localization Requirements
In general, the government generally does not require investors to purchase from local sources, nor does it require technology or proprietary business information to be transferred to a local company. However, within certain sectors, the government has implemented specific local content requirements. In the oil and gas sector in particular, the government’s 2014 Petroleum Law, Law No. 21/2014, requires oil and gas companies to give preference to Mozambican individuals and companies if the goods or services are of an internationally comparable quality and competitively priced. The exact local content requirements for each project operating under this law are negotiated within the so-called “Local Content Working Group,” an inter-ministerial body responsible for implementing the government’s local content strategy. The government continues to debate the idea of a local content law which could create additional requirements and consolidate the various requirements across sectors into a single law. The proposed law has been drafted and presented at the Council of Ministers but as of April 2021 has not been finalized or adopted.
Companies may hire foreign workers only when there are not sufficient Mozambican workers available that meet specific job qualifications. The Ministry of Labor enforces quotas for foreign workers as a percentage of the workforce within companies that varies based on the size of the company. Per the 2007 Labor Law, Law No. 23/2007, companies with 10 employees or fewer can employ no more than 10 percent expatriates (effectively one person in a 10-person company), companies with 11-100 employees may employ up to 8 percent expatriates, and large companies with over 100 employees may employ no more than 10 percent expatriates. Many companies use foreigners as outside consultants, which allows them to get around the quota system by hiring a “company” instead of a foreigner who would be subject to the quota requirement. Work permits for foreigners cost approximately USD 370 and take at least one month to be issued. All investments must specify the number and category of Mozambican and foreign workers.
There are currently no data localization policies in effect in Mozambique. Several international companies offer cloud services to Mozambique; however, none operate in-country data centers. In addition to the government operated Maluana Park and Teledata centers, Mozambique hosts three data centers: SEACOM, Webmasters, and Eduardo Mondlane University. As part of the e-Government strategy, Maluana Park aims to ensure the migration of computing systems used in public administration. None of Mozambique’s facilities are carrier neutral and they do not host individual servers.
The government agency responsible for enforcing IT policies and rules is:
UTICT – Unidade Tecnica de Implementacao da Politica de Informatica
Technical Implementation Unit for IT Policy
Tel: (258) 21 309 398; 21 302 241
Mobile (258) 305 3450
Email: cpinfo@infopol.gov.mz
6. Financial Sector
Capital Markets and Portfolio Investment
The Mozambique Stock Exchange (Bolsa de Valores de Mocambique, BVM) is a public institution under the guardianship of the Minister of Economy and Finance and the supervision of the Central Bank of Mozambique. In general, the BVM is underutilized as a means of financing and investment. However, the government has expressed interest in reforming market rules in an effort to increase capitalization and potentially prepare the ground for new rules that would require foreign companies active in Mozambique to be listed on the local stock exchange. Corporate and government bonds are traded on the BVM and there is only one dealer that operates in the country, with all other brokers incorporated into commercial banks, which act as the primary dealers for treasury bills. The secondary market in Mozambique remains underdeveloped. Available credit instruments include medium and short-term loans, syndicated loans, foreign exchange derivatives, and trade finance instruments, such as letters of credit and credit guarantees. The BVM remains illiquid, in the sense that very limited activity occurs outside the issuing time. Investors tend to hold their instruments until maturity. The market also lacks a bond yield curve as government issuances use a floating price regime for the coupons with no price discovery for tenures above 12 months.
The GRM notified the IMF that it has accepted the obligations of Article VIII sections 2, 3, and 4 of the IMF Articles of Agreement, effective May 20, 2011.
Money and Banking System
According to the Mozambican Bank Association December 2020 bank survey, there are 19 commercial banks operating in Mozambique. The top three banks – Banco Comercial e de Investimentos (BCI), Banco Internacional de Mocambique SA (BIM), and Standard Bank – account for 69 percent of the total assets, total loans and advances, and total deposits held by commercial banks in Mozambique.
Between 2018-2019, the value of non-performing loans (NPL) decreased by 2 percent, but the NPL ratio worsened from 8.5 percent to 9.1 percent over the same period. Banking sector profits have dropped by 2 percent due to the reduction of prime lending rates, costs of rehabilitation of branches and property damage from cyclones Idai and Kenneth, and reduced commission income following new Central Bank legislation limiting charges for certain services to promote financial inclusion.
In 2016, Mozambique launched a six-year National Financial Inclusion Strategy which has led to limited improvements in access to formal financial services. According to 2019 FinScope data, 21 percent of the population has access to a bank account, still well below the country’s 2022 target of 60 percent. As of March 2020, Mozambique had 706 bank agencies, 1,755 ATMs and 36,701 point of sale devices. Most banking locations are concentrated in provincial capitals and rural districts often have no banks at all. Thanks to the partnership between mobile communications companies and banks for electronic or mobile-money transactions, access to financial services is improving. The number of services available from ATMs is also increasing. There are also 1,697 banking agents in the country that provide basic banking services to customers without access to a bank branch.
Credit is allocated on market terms, but eligibility requirements exclude much of the population from obtaining credit. Banks request collateral, but since land cannot be used as collateral, the majority of individuals do not qualify for loans. Foreign investor export activities in critical areas related to food, fuel, and health markets have access to credit in foreign and local currencies. All other sectors have access to credit only in the local currency.
Foreign Exchange and Remittances
Foreign Exchange
In 2017 Mozambique approved new foreign exchange control rules in Law No. 49/2017. Under the terms of the new law, Mozambican residents are now required to deposit export earnings into an export earnings account in foreign currency, which can only be used for specifically defined purposes. Under the new decree, foreign exchange operations will now be processed electronically in real time by the commercial banks. Applications for capital operations are now processed by commercial banks and forwarded to the Central Bank. Foreign direct investment (FDI) up to USD 250,000 no longer requires prior authorization from the Bank of Mozambique and only needs to be registered with the commercial bank handling the transactions. Shareholder and intercompany loans made by foreign entities up to USD 5 million require no authorization from the Central Bank, provided the loans are interest free or lower than the base lending rate for the relevant currency, the repayment period is at least three years, and no other fees or charges apply.
A special foreign exchange regime for oil, gas, and mining sectors allows for greater flexibility in foreign exchange and financing operations. The law, which went into force in January 2018, stipulates that profits from petroleum rights are entirely taxed at an autonomous tax rate of 32 percent. The law also guarantees tax stabilization for up to 10 years, starting from the beginning of commercial production with an investment amount of USD 100 million. The Ministry of Economy and Finance can also approve the use of U.S. dollars, if the company has invested at least USD 500 million and more than 90 percent of its transactions are in U.S. dollars. The law also revoked a 50 percent tax rate reduction related to the production tax that was available when extracted products were used locally.
Remittance Policies
The 2021 Central Bank’s Aviso 6/GBM/2020 requires at least 30 percent of export proceeds to be converted into local currency. However, per the Central Bank Circular issued in February 2021, this conversion rule does not apply for rent paid in a foreign currency by non-resident entitles to a Mozambican landlord.
Sovereign Wealth Funds
In October 2020, Mozambique’s Central Bank published an initial proposal for a Sovereign Wealth Fund (SWF) to manage the expected increase in government revenues from the natural gas projects in northern Mozambique. As of April 2021, the government is currently revising the proposal and aims to put forward a formal legislative proposal by the end of the year for review and approval by Mozambique’s National Assembly.
The initial draft from the Central Bank calls for 50 percent of government revenue from the natural gas sector as well as other extractive industries to be used to fund the SWF for a period of 20 years and sets up strict payout criteria for any withdrawals from the SWF before it reaches maturity. In general, the government’s proposal follows the Santiago Principles and the government is working with the International Forum of Sovereign Wealth Funds to refine its proposal. In total, the government estimates it will receive USD 96 billion from the Rovuma Basin natural gas projects over the lifetime of the projects. Delays in construction and evolving international energy prices, however, could lead to lower-than-expected returns from the natural gas projects.
Zambia
Executive Summary
Zambia is a landlocked country in southern Africa that shares a border with eight countries: Angola, Democratic Republic of the Congo, Tanzania, Malawi, Mozambique, Zimbabwe, Botswana, and Namibia. The country has an estimated population of 17.86 million and GDP per capita of USD 1,430, according to the World Bank.
Despite broad economic reforms in the early 2000s, Zambia has struggled to diversify its economy from mining and accelerate private-led growth to address the poverty of its people. Cumbersome administrative procedures and unpredictable legal and regulatory changes inhibit Zambia’s immense potential for private sector investment. This is compounded by insufficient transparency in government contracting, ongoing lack of reliable electricity, and the high cost of doing business due to poor infrastructure, the high cost of capital, and lack of skilled labor.
Zambia’s already struggling economy was deeply impacted by the COVID-19 global pandemic. The International Monetary Fund (IMF) estimates Zambia’s economy contracted by 3.5 percent in 2020, after previously slowing to 1.8 percent in 2019 in a marked decline from the 4.0 percent growth seen in 2018. Inflation rose from 9.2 percent in 2019 to 19.2 percent by December 2020, well above the Bank of Zambia’s target range of 6.0 to 8.0 percent for 2020. In 2018 and 2019, Zambia’s economy was hit by a severe nationwide drought that considerably lowered agricultural production and hydropower electricity generation; electricity rationing continued in 2020, which dampened activity in almost all economic sectors. Copper is the country’s largest export; copper production in 2020 increased in the face of rising global copper prices to 10.8 percent over 2019’s anemic levels. Production in 2019 suffered a 12.5 percent decline from 2018 levels due in part to an onerous mining tax regime and falling global demand.
Zambia’s external debt grew to USD 11.98 billion in 2020, up from USD 11.2 billion at the end of 2019. The fiscal deficit at the end of 2020 was 11 percent of GDP, well above the government’s 6.5 percent target. The Zambian kwacha depreciated against the dollar by 34.1 percent in 2020, increasing the cost of external debt service and reducing the purchase power of Zambian businesses and consumers. Investor appetite for domestic bonds continued to shrink, and short- and long-term domestic borrowing costs rose. In November 2020 Zambia defaulted on a USD 42.5 million payment on its Eurobond, and the country has defaulted on numerous other commercial loans with foreign creditors. Fiscal responsibility is key to ensuring that macroeconomic fundamentals do not deteriorate further. At the end of 2020, foreign exchange reserves stood at USD 1.18 billion (representing 2.4 months of import cover), compared to USD 1.45 billion as of year-end 2019.
Budget execution by the Government of the Republic of Zambia (GRZ) has historically been poor and is widely viewed as aspirational rather than accurate, with documented extra budgetary spending. The GRZ continues to negotiate a potential loan package from the International Monetary Fund (IMF) intended to put Zambia on a path of debt sustainability and improved fiscal governance.
The U.S. Embassy works closely with the American Chamber of Commerce of Zambia (AmCham) to support its 65+ American and Zambian members seeking to increase two-way trade. Agriculture and mining remain headlining sectors for the Zambian economy. U.S. firms are present or exploring new projects in tourism, power generation, agriculture, and services.
Note: The ongoing global COVID-19pandemic brought not only health but additional economic challenges. The GRZ in collaboration with the United Nations Development Program (UNDP) conducted a business survey in May 2020 to provide data on measures to help businesses respond during and after the pandemic. The report indicates that the pandemic has adversely affected business operations, with 71 percent of respondents indicating they partially closed their businesses, while another 14 percent of respondents noted that they closed their businesses totally. The GRZ is currently seeking emergency funding, debt relief, and debt restructuring to mitigate the pandemic’s economic impact.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
In general, Zambian law does not restrict foreign investors in any sector of the economy, although there are a few regulations and practices limiting foreign control laid out below. Foreign Direct Investment (FDI) continues to play an important role in Zambia’s economy. The Zambia Development Agency (ZDA) is charged with attracting more FDI to Zambia, in addition to promoting trade and investment and coordinating the country’s private sector-led economic development strategy.
Zambia has undertaken certain institutional reforms aimed at improving its attractiveness to investors; these reforms include the Private Sector Development Reform Program (PSDRP), which addresses the cost of doing business through legislation and institutional reforms, and the Millennium Challenge Account (MCA), which addresses issues relating to transparency and good governance (https://data.mcc.gov/evaluations/index.php/catalog/72/study-description). However, frequent government policy changes have created uncertainty for foreign investors. Recent examples include a rapid transition from a value-added tax regime to a sales tax that was slated to take effect in July 2019, but ultimately scrapped in September 2019 after multiple last minute delays and stakeholder backlash; taxes and royalty increases in the mining sector that took effect in January 2019 and marked the tenth significant change to mining taxes and regulations in 16 years; a labor law update with insufficient public consultation that significantly increased hiring costs for formal businesses; and unpredictable changes to limits on various crop exports.
Limits on Foreign Control and Right to Private Ownership and Establishment
The ZDA does not discriminate against foreign investors, and all sectors are open to both local and foreign investors. 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.
Currently, all land in Zambia is considered state land and ownership is vested in the president. Land titles held are for renewable 99-year leases; ownership is not conferred. According to the government, the current land administration system leaves little room for the empowerment of citizens, especially the poor and vulnerable rural communities. The government began reviewing the current land policy in earnest in March 2017; though shorter terms continue to be suggested, no changes have been adopted to date.
Foreign investors in the telecom sector are required to disclose certain proprietary information to the ZDA as part of the regulatory approval process. Further information regarding information and communication regulation can be found at the website of the Zambia Information and Communication Technology Authority at http://www.zicta.zm
The ZDA board screens all investment proposals and usually makes its decision within 30 days. The reviews appear to be routine and non-discriminatory and applicants have the right to appeal investment board decisions. Investment applications are screened, with effective due diligence to determine the extent to which the proposed investment will help to create employment; the development of human resources; the degree to which the project is export-oriented; the likely impact on the environment; the amount of technology transfer; and any other considerations the Board considers appropriate.
The following are the requirements for registering a foreign company in Zambia:
At least one and not more than nine local directors must be appointed as directors of a majority foreign-owned company. At least one local director of the company must be resident in Zambia, and if the company has more than two local directors, more than half of them shall be residents of Zambia.
There must be at least one documentary agent (a firm, corporate body registered in Zambia, or an individual who is a resident in Zambia).
A certified copy of the Certificate of Incorporation from the country of origin must be attached to Form 46.
The charter, statutes, regulations, memorandum and articles, or other instrument relating to a foreign company must be submitted.
The Registration Fee of K5,448.50 (~ USD 250.00) must be paid.
The issuance and sealing of the Certificate of Registration marks the end of the process for registration.
This information can also be found at the web address of the Patents and Companies Registration Agency (PACRA), http://www.pacra.org.zm
Other Investment Policy Reviews
The GRZ conducted a trade policy review through the World Trade Organization (WTO) in June 2016. The report found that Zambia recorded relatively strong economic growth at an average rate of 6.6 percent per year up to 2015. The improvement was attributed to growing demand for copper (the main export product) and its spillover effects on some other sectors such as transport, communications, and wholesale and retail trade. Buoyant construction activity and higher agricultural production also helped.
The trade policy review report of 2016 reached the following conclusions: the government should continue to implement programs and initiatives directed at attaining inclusive growth and job creation and pay particular attention to macroeconomic stability, diversification of the economy, support to small and medium enterprises (SMEs), engagement with cooperating partners, and promotion of investment. Zambia also uses bilateral, regional, and multilateral frameworks to support economic growth and development.
The Zambian government, often with support from cooperating partners, has undertaken economic reforms to improve its business facilitation process and attract foreign investors, including steps to support more transparent policymaking and to encourage competition. The impact of these progressive policies, however, has been undermined by persistent fiscal deficits, struggling economy, high cost of doing business and widespread corruption. Business surveys, including TRACE International, generally indicate that corruption in Zambia is a major obstacle for conducting business in the country.
The Zambian Business Regulatory Review Agency (BRRA) manages Regulatory Services Centers (RSCs) that serve as a one-stop shop for investors. RSCs provide an efficient regulatory clearance system by streamlining business registration processes; providing a single licensing system; reducing the procedures and time it takes to complete the registration process; and increasing accessibility of business registration institutions by placing them under one roof.
The government established RSCs in Lusaka, Livingstone, Kitwe, and Chipata, and has plans to establish additional RSCs so that there is at least one in each of the country’s 10 provinces. Information about the RSCs can be found at the following links:
The Companies Act No. 10 of 2017 was operationalized through a statutory instrument (June 2018) and implementing regulations (February 2019) aimed at fostering accountability and transparency in the management of companies. Companies are required to maintain a register of beneficial owners, and persons holding shares on behalf of other persons or entities must now disclose those beneficial owners.
In order to facilitate improved access to credit, the Patents and Company Registration Office (PACRA) established the collateral registry system, a central database that records all registrations of charges or collaterals created by borrowers to secure credits provided by lenders. This service allows lenders to search for collateral offered by loan applicants to see if that collateral already has an existing claim registered against it. Creditors can also register security interests against the proposed collateral to protect their priority status in accordance with the Movable Property (Security Interest) Act No. 3 of 2016. Generally, the first registered security interest in the collateral has first priority over any subsequent registrations.
Parliament passed the Border Management and Trade Facilitation Act in December 2018. The Act, among other things, calls for coordinated border management and control to facilitate the efficient movement and clearance of goods; puts into effect provisions for one-stop border posts; and simplifies clearance of goods with neighboring countries. While one-stop border posts have existed for several years and agencies are co-located at some border crossings, the new law seeks to harmonize conflicting regulations and processes within the interagency.
Outward Investment
Through the Zambia Development Agency (ZDA), the government continues to undertake a number of activities to promote investment through provision of fiscal and non-fiscal incentives, establishment of Multi-Facility Economic Zones (MFEZs), the development of SMEs, as well as the promotion of skills development, productive investment, and increased trade. However, there is no incentive for outward investment nor is there any known government restriction on domestic investors from investing abroad.
4. Industrial Policies
Investment Incentives
The ZDA Act provides for a number of incentives available to both local and foreign investors.
Under the Income Tax Act, Chapter 323, or the Customs and Excise Act, Chapter 322, investors who invest not less than USD 500,000 in a Multi-Facility Economic Zones (MFEZ), an industrial park, a priority sector, or who invest in a Rural Enterprise under the ZDA Act, are entitled to the following fiscal incentives:
A corporate tax rate of 0 percent for five years from commencement of operations.
Taxation on only 50 percent of profits in year six through year eight from commencement of operations and only 75 percent for years nine and ten.
Five-year exemption on dividend taxes following the first year of declaration.
Five-year customs duties exemption on imported machinery and equipment.
Improvement allowance of 100 percent of capital expenditure on improvements or upgrading of infrastructure.
In addition to fiscal incentives, the above category of investors, along with those who invest an amount not less than USD 250,000 in any sector or product not provided for as a priority sector or product under the Act, are entitled to investment guarantees and protection against state nationalization along with free facilitation for application of immigration permits, secondary licenses, land acquisition, and utilities. For major investments the Minister of Finance may specify additional incentives for investment in an identified sector or product of not less than USD 10 million or equivalent in convertible currency in new assets that qualify for those incentives.
Foreign Trade Zones/Free Ports/Trade Facilitation
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. The GRZ created MFEZs in 2007 that provide investors with waivers on customs duty on imported equipment, excise duty, and value added tax, among other concessions. It is currently unclear if the government will maintain these incentives (see Investment Incentives section).
There are four MFEZs currently operating: the Chambishi MFEZ in Copperbelt Province, the Lusaka South MFEZ which houses a mix of multi-national firms, and the Lusaka East MFEZ located near Lusaka’s international airport and Chibombo MFEZ in Central Province which are heavily (if not exclusively) dominated by Chinese-owned enterprises. Foreign-owned firms enjoy the same investment opportunities as domestic firms in MFEZs. The ZDA Act is the primary legislation for investment in Zambia. An investor, foreign or local, is free to identify and suggest any other location in the country deemed economical for MFEZ development, although the government has prioritized designated areas in Lusaka, Chibombo, Ndola, Mpulungu, Chembe, Nakonde, Kasumbalesa, and Mwinilunga. Investors are encouraged to provide local employment and skills transfer to local entrepreneurs and communities. Investors are also encouraged to utilize local raw materials and intermediate goods and engage in technology transfer to qualify to operate in an MFEZ.
Zambia is active in several key regional organizations that promote regional trade and regulatory harmonization. COMESA launched its FTA in October 2000 and established a customs union in June 2009. The top five intra-COMESA exports from Zambia include tobacco, raw sugarcane, wire, refined copper, and cement. The SADC Protocol on Trade came into force in 2008. The Trade 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” often warranting change in tariff heading in the SADC region to be considered compliant with the SADC Rules of Origin. The SADC Rules of Origin are product-specific and not generic, like the Rules of Origin for COMESA.
COMESA, the EAC, and SADC member states agreed in October 2008 to negotiate a Tripartite Free Trade Area (TFTA) covering half of Africa. The Tripartite Free Trade Area (TFTA) was launched in June 2015 in Egypt; to date, Zambia is one of the 22 out of the 27 member states which have signed the agreement. The Agreement will enter into force once it has been ratified by 14 Member States; only Egypt and Uganda have ratified the Agreement thus far. In February 2019, Zambia signed the African Continental Free Trade Agreement (AfCFTA) and deposited the instruments of ratification to the African Union in February 2021, becoming the 36th African Union member to fully accede to the Agreement. The trade agreement between 49 African Union member states plans to create a single market, followed by the free movement of people and a single-currency union; much work remains to develop implementation protocols and mechanisms continent-wide. The TFTA and AfCFTA have yet to enter into effect.
According to OECD trade facilitation indicators, Zambia performs better than the average sub-Saharan African and lower middle-income countries in the areas of information availability, involvement of the trade community, appeal procedures, and automation. Zambia’s performance for internal border agency co-operation and governance and impartiality is below average for sub-Saharan African and lower middle-income countries.
Performance and Data Localization Requirements
Although performance requirements are not imposed, authorities expect commitments made in applications for investment licenses to be fulfilled. Foreign contractors bidding on infrastructure projects are required by law to give 20 percent of works to Zambian small contractors. Outside of infrastructure projects, no requirements currently exist for local content, equity, financing, employment, or technology transfers. However, in January 2018 the government issued a Statutory Instrument (SI) instructing all industries to transport 30 percent of their cargo by rail. The Data Protection Bill, which was signed into law in March 2021, mandates data localization for sensitive personal data, but also outlines conditions for the cross-border transfer of other kinds of personal data. The government does not impose offset or local content requirements or preconditions for permission to invest in a specific geographic area, but investors are encouraged to employ local nationals. There is no legal definition of local content, and the most comprehensive local content legislation is contained in the Mines and Minerals Development Act of 2008. The Citizens Economic Empowerment Act of 2006 and Statutory Instrument of 2008 also contain local content provisions.
The GRZ favors the use of local workers for unskilled labor as well as for skilled middle or senior management workers. Under the ZDA Act, any foreign investor who invests a minimum of USD 250,000 or its equivalent and employs a minimum of 200 employees at certain technical or managerial levels is entitled to a self-employment permit or resident permit. The ZDA assists the qualifying investor to obtain work permits for up to five expatriate employees. In practice, however, some foreign companies, especially smaller-scale investors, have had difficulty securing these permits. Any entry permit holder can apply for a dependent’s pass for each of his dependents. The government is considering limiting foreigners to obtain work permits only for rare skills not found in Zambia. While not yet implemented, the GRZ has at times denied work permits or work permit renewals. The ZDA is also in the process of developing standards regarding investment performance benchmarks that it seeks to establish within an MFEZ to assist the government in monitoring company performance against the commitments made when investment incentives are granted.
The GRZ encourages investors where possible to use domestic content in goods or technology if available. In 2017 the government started the formulation of a local content strategy to promote inclusive and sustainable growth through increased use of locally available goods and services in development sectors. According to the Ministry of Commerce, Trade, and Industry, once the strategy is developed, a law will be passed to compel businesses to use a certain percentage of local inputs and products in the production and provision of goods and services. In a speech to Parliament in March 2018, the president criticized a perceived influx of foreign workers into Zambia’s mining industry; the government followed with a month-long review of foreign labor quotas in the sector. They developed sustained opposition to working practices by domestic unions and civil society organizations. While this was not the first time that scrutiny of foreign labor has surfaced as a strategic issue for the government, the latest review is a reminder of the burgeoning pressures that continue to underpin sector management and policymaking.
Currently, there is no requirement for foreign information technology providers to turn over source code or provide access to surveillance. The telecommunications sector is governed by the Information and Communications Technology Act No. 15 of 2009 (ICT Act) and falls under the Ministry of Communications and Transport.
The government strives to be consistent with Trade Related Investment Measures (TRIMs) requirements and generally abides by the WTO’s TRIMS obligation. Although performance requirements are not imposed, authorities expect commitments made in applications for investment licenses to be fulfilled.
6. Financial Sector
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) has improved slightly 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 of and incentives for bank supervisors. High domestic lending rates, a lack of dollar and foreign exchange liquidity, and the limited accessibility of domestic financing constrain business. High returns on government securities encourage commercial banks to invest heavily in government debt to the exclusion of financing productive private sector investments, particularly for SMEs.
The Lusaka Stock Exchange (LuSE), established in 1993, 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 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 (SEC) of Zambia. Secondary trading of financial instruments in the market is very low or non-existent in some areas. As of the beginning of 2021, there were 25 companies listed on the LuSE with a portfolio worth about K24 billion (USD 1.2 billion).
Existing policies facilitate the free flow of financial resources into the product and factor markets. The government and the BoZ respect IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions. Credit is allocated on market terms and foreign investors can get credit on the local market, although local credit is relatively expensive and most investors therefore prefer to obtain credit outside the country.
Money and Banking System
The financial sector is comprised of three sub-sectors according to financial sector supervisory authorities. The banking and financial institutions sub-sector is supervised by the BoZ, the securities sub-sector by the SEC, and the pensions and insurance sub-sector by the Pensions and Insurance Authority. The Banking and Financial Services Act, Chapter 387, and the Bank of Zambia Act, Chapter 360, govern the banking industry. Zambia’s banking sector is considered relatively well-developed in the African context, but the sector remains highly concentrated. There are currently 19 banks in Zambia with the largest four banks holding nearly two-thirds of total banking assets. The dominance of the four largest banks in deposits and total assets has been diluted by increased market capture of smaller banks and new industry entrants, an indication of growing competitive intensity in this segment of the banking market. Government policies generally facilitate the free flow of financial resources to support the entry of resources in the product and factor market. There continued to be a steady increase in electronic banking and related services over the last few years.
The BoZ’s current policy rate, as of February 2021, was 8.5 percent. Commercial lending rates range between 23 and 30 percent, among the highest in the region. The persistence of high interest rates led the government to urge commercial banks to reduce their lending rates in order to stimulate private sector growth and the economy as a whole. One factor inhibiting more affordable lending is a culture of tolerating loan default, which many borrowers view as a minor transgression. Non-performing loans (NPLs) remain elevated, with some estimates as high as 15 percent. The government contributes to this problem, as it has arrears of about USD 1.3 billion to government contractors who reportedly hold a high percentage of the NPLs.
Banking officials acknowledge the need to upgrade the risk assessment and credit management skills of their institutions to better serve borrowers, but note widespread financial illiteracy limits borrowers’ ability to access credit. Banks provide credit denominated in foreign currencies 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.
To operate a bank in Zambia, the bank must be licensed by the Registrar of Banks, Financial Institutions, and Financial Businesses (“the Registrar”) whose office is based at the BoZ. The decision to license banks lies with the Registrar. Foreign banks or branches are allowed to operate in country as long as they fulfill BoZ requirements and meet the minimum capital requirement of USD 100 million for foreign banks and USD 20 million for local banks. According to the BoZ, many banks in the country have correspondent banking relationships; it is difficult to assess how many there are or whether any bank has lost any correspondent banking relationships in the past three years. It is also difficult to analyze if any of those correspondent relationships are currently in jeopardy as the daily management of those relationships are carried out by the individual banks and not by the BoZ.
Generally, all regulatory agencies that issue operating licenses have statutory reporting requirements that businesses operating under their laws and regulations must meet. For example, the Banking and Financial Services Act has stringent reporting provisions that require all commercial banks to submit weekly returns indicating their liquidity position. Late submission of the weekly returns or failure to meet the minimum core liquidity and statutory reserves incur punitive penalty interest, and may lead to the placement of non-compliant commercial banks under direct supervision of BoZ, closure of the undertaking, or the prosecution of directors.
All companies listed under the Lusaka Stock Exchange (LuSE) are obliged to publish interim and annual financial statements within three months after the close of the financial year. Listed companies are also required to disclose in national print media any information that can affect the value of the price of their securities. According to the Companies Act, Chapter 388, company directors need to generate annual account reports after the end of each financial year. The annual account, auditor’s report or reports on the accounts, and directors’ report should be sent to each person entitled to receive notice of the annual general meeting and to each registered debenture holder of the company. A foreign company is required to submit annual accounts and an auditor’s report to the Registrar.
The Non-Bank Financial Institutions (NBFIs) are licensed and regulated in accordance with the provisions of the Banking and Financial Services Act of 1994 (BFSA) and related Regulations and Prudential Guidelines. As key players in the financial sector, NBFIs are subject to regulatory requirements governing their prudential position, consumer protection, and market conduct in order to safeguard the overall soundness and stability of the financial system. The NBFIs comprise eight leasing and finance companies, three building societies, one credit reference bureau, one savings and credit institution, one development finance institution, 80 bureaux de change, one credit reference bureau, and 34 micro-finance institutions.
Private firms are open to foreign investment through mergers and acquisitions. The CCPC reviews and handles big mergers and acquisitions. The High Court of Zambia may reverse decisions made by the Commission. Under the CCPA, foreign companies without a presence in Zambia and taking over local firms do not have to notify their transactions to the Commission, as it has not established disclosure requirements for foreign companies acquiring existing businesses in Zambia.
Foreign Exchange and Remittances
Foreign Exchange
There are currently no restrictions or limitations placed on foreign investors 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. Funds associated with investments can be freely converted into internationally convertible currencies. The BoZ pursues a flexible exchange rate policy, which generally allows the currency to freely float, though it intervened heavily to support the local currency, the kwacha, in 2014 to 2016. Currency transfers are protected by IMF Article VII.
In March 2014, the government announced the revocation of SI Number 33 (mandating use of the kwacha for domestic transactions) and SI Number 55 (monitoring foreign exchange transactions). The government experienced challenges implementing these statutory instruments and – along with problems of fiscal management and weakening global copper prices – the SIs were perceived as undermining confidence in Zambia’s economy and currency, leading to sharp depreciation of the kwacha. The decision to revoke the SIs was widely praised in the business community. The kwacha, however, has remained weak in historical terms and continues to depreciate against the dollar. As of early April 2021, the kwacha was trading at more than 22 to the dollar.
Over-the-counter cash conversion of the kwacha into foreign currency is restricted to a USD 5,000 maximum per transaction for account holders and USD 1,000 for non-account holders. No exchange controls exist in Zambia for anyone doing business as either a resident or non-resident. There are no restrictions on non-cash transactions. The exchange rate of the Zambian national currency is mostly determined by market forces; because the volume and value of exports from Zambia are overwhelmingly related to the extractive industries sector, mining companies’ financial transactions play a major role in exchange rate determination.
Remittance Policies
There are no recent changes or plans to change investment remittance policies that tighten or relax access to foreign exchange for investment remittances. There are no restrictions on converting or transferring funds associated with an investment (including remittances of investment capital, earnings, loan repayments, or lease payments) into freely usable currency at the legal market clearing rate. Foreign investors can remit through a legal parallel market, including one utilizing convertible, negotiable instruments such as dollar-denominated government bonds issued in lieu of immediate payment in dollars. There are no limitations on the inflow or outflow of funds for remittances of profits or revenue and there is no evidence to show that Zambia manipulates the currency. Zambia is a member of the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), which in 2018, conducted an on-site assessment of the implementation of anti-money laundering and counter-terrorist financing (AML/CTF) measures in Zambia. ESAAMLG coordinates with other international organizations concerned with combating money laundering, studying emerging regional typologies, developing institutional and human resource capacities to deal with these issues, and coordinating technical assistance where necessary. In June 2019, Zambia adopted the recommendations. Zambia has demonstrated commitment to establish an AML/CTF framework. The enactment of the Prohibition and Prevention of Money Laundering Act and the Anti-Terrorism Act, establishment of the Anti-Money Laundering Investigations Unit and the Financial Intelligence Center as the sole designated national agencies mandated to handle AML/CTF and other serious offences, and its September 2018 accession to the Egmont Group reflect this commitment.
Sovereign Wealth Funds
The GRZ had planned to launch a Sovereign Wealth Fund (SWF) following the 2015 reincorporation of the Industrial Development Corporation (IDC) as the parastatal holding company, but has yet to establish the fund.