Transparency of the Regulatory System
The GRZ has made strides, in principle, toward introducing transparent policies to foster competition, although complaints arise from time to time. In the agricultural sector, government interventions through the purchase of maize (corn) at subsidized prices, the distribution of subsidized fertilizer, and controls of exports of maize and ground maize continue to undercut the private sector’s capacity to engage competitively in these markets. The unpredictability of import and export bans on commodities, especially on maize and other grains is a deterrent to private sector participation in commodity markets. There are no informal regulatory processes managed by non-governmental organizations or private sector associations that discriminate against foreign investors. The government has also adopted the use of Regulatory Impact Assessment (RIA) as part of the policy and legislative making process. The introduction of RIA is therefore expected to improve the decision making process, create a platform for Public Private Dialogue and healthy debate on economic development laws and policies, and ultimately improve the quality of regulation. Under the Business Regulatory Act No. 3 of 2014, the law requires that regulators consider alternatives to proposed regulations and these are part of the consultations and the RIA Report.
In 2015, the government introduced the Output Based Budget (OBB) as a tangible outcome of implementing the Planning and Budgeting Policy that requires a more results-oriented budget in line with national development priorities. The OBB also provides more relevant information for assessing government’s estimates of revenue, expenditure, and performance. In addition, government began rolling out the Treasury Single Account System in 2015; it has not yet achieved full utilization by all budget entities. This system is a unified structure of bank accounts which gives a consolidated position of the government’s cash resources. It aims to improve the government’s ability to efficiently and effectively manage public financial resources by refining current payments processes and eliminating redundant procedures between itself and its clients.
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. The proposed regulations as bills are published on the National Assembly of Zambia website (http://www.parliament.gov.zm/ ) for public viewing. Hard copies of the documents are delivered by courier to the stakeholders’ premises/mail boxes.
Opportunities for comment on proposed laws and regulations sometimes exist through trade associations, such as the Zambia Chamber of Commerce and Industry, Zambia Association of Manufacturers, Zambia Chamber of Mines, Zambia Business Forum, and American Chamber of Commerce in Zambia. Stakeholder consultation in developing legislation and regulation has generally been poor under the current administration; however, the government recently established a Business Regulatory Review Agency (BRAA) with the mandate to formalize public notice and comment requirements for new regulations. The BRRA, established after the enactment of the Business Regulatory Act in 2014, strives to improve the quality of regulations and ensure cost effective and efficient business regulation in Zambia.
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.
International Regulatory Considerations
While the government has made gains in improving the business and operating environment for companies, especially for foreign investors, weaknesses in the regulatory framework remain apparent. Zambia is signatory to a range of international treaties that govern international investment and has signed several bilateral investment treaties (BITs), but still lacks harmonized legislation for investment built on a national investment policy.
Zambia is engaged in regional and international integration programs aimed at expanding its trading links and volume to spur further diversification. Zambia is a member of a number of regional and international groupings aimed at expanding markets for domestically produced goods and services. These include membership in both Common Market for Eastern and Southern Africa (COMESA), which is currently a customs union headquartered in Zambia with a mandate for the provision of the adoption of regulations to regulate competition within the member states in order to strengthen the process of economic integration within the COMESA market. Zambia is also a part of the Southern Africa Development Community (SADC) Free Trade Areas (FTA). Zambia is also an active participant in the establishment of the Tripartite Free Trade Area between COMESA, SADC, and the East Africa Community (EAC).
At the multi-lateral level, Zambia is a member of the World Trade Organization (WTO) and its incentives scheme is transparent and has been included in the WTO’s trade policy reviews, to which all WTO members including Zambia have access. The incentive packages are also subject to reviews by the Board of the ZDA and to periodic reviews by the Parliamentary Accounts Committee. Under the Cotonou agreement, Zambia has benefited from duty-free and quota-free market access to the European market and from the Generalized System of Preference (GSP) in the U.S. market under AGOA.
Membership in the above organizations has led to improved market access under preferential trade terms for the private sector that can invest and take advantage of larger foreign markets. The major challenge has been the low productive capacity of the private sector and its difficulty to meet the competitive demands and standards of regional and international markets so as to take advantage of increased market access.
Legal System and Judicial Independence
The Zambian legal framework consists of a multiplicity of customary laws and statutory laws administered through a single formal court system. The statutory laws are derived from the British legal system with some of the British legislation still deemed to be in full force and effect within Zambia. The customary laws, which remain in a state of flux, are not written or codified, although some of them have been unified under Acts of Parliament. No clear definition of customary law has been developed by the courts nor has there been any systematic development of this subject.
Zambia has a written commercial law. The Commercial Court, a division of the High Court, deals with disputes arising out of commercial transactions. All commercial matters are registered in the Commercial registry and judges dealing with matters in the Court are experienced in commercial law. Appeals from the Commercial Court, based on the amended January 2016 constitutional reforms, now fall under the recently established Court of Appeals, comprised of eight judges. Constitutional appeals would default to the Constitutional Court, another new judicial body. 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. Although Zambia is a state party to international human rights and regional instruments, it has a dualist system of jurisprudence that considers international treaty law as a separate system of law from the domestic law. Domestication of international instruments by Acts of Parliament is necessary for these to be applicable in the country but there are no systematic efforts to domesticate international instruments.
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. At times, the government has exerted pressure on the judiciary in politically controversial cases. Regulations or enforcement actions are appealable and adjudication depends on the matter at hand and the principal law or act governing the regulations. Some actions can be handled through commercial arbitration, tribunals, or ADR (Alternative Dispute Resolution). Also, courts have powers to determine whether a matter can be handled under any of these mechanisms.
Laws and Regulations on Foreign Direct Investment
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 Companies Act of 1994, which governs the registration of companies in Zambia.
- The Zambia Revenue Authority’s Customs and Excise Act, Income Tax Act of 1966 and the Value Added Tax of 1995 provide for general incentives to investors in various sectors.
- 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, regulates the entry into and residency in Zambia of visitors, expatriates, and immigrants.
Competition and Anti-Trust Laws
Market competition operates under a weak regulatory framework although there is freedom of pricing, currency convertibility, freedom of trade, and free use of profits. A fairly strong institutional framework is provided only for strategic sectors linked to the mining industries and also for large-scale commercial farming. The Competition and Consumer Protection Commission (CCPC) is a statutory body established with a unique dual mandate to protect the competition process in the Zambian Economy and also to protect consumers. The CCPC was established in 1997 under the name Zambia Competition Commission (ZCC). The name was then changed in 2010 to Competition and Consumer Protection Commission (CCPC) following the enactment of the new act called the Competition and Consumer Protection Act (CCPA) No. 24 of 2010 and repeal of the old act. The mandate of the Commission cuts across all economic sectors. The CCPC regulates the Zambian economy to avoid restrictive business practices, abuse of dominant position of market power, anti-competitive mergers and acquisitions, and cartels as these erode consumer welfare. The Commission is also mandated to enhance consumer welfare. In general terms, therefore, the principal aim of the Commission is to safeguard competition and ensure consumer protection but it has been described as ineffectual and lacks legislative influence.
The Zambian competition law applies to all entities, regardless of whether private, public, or foreign. Although the Commission largely opens investigations when a complaint has been filed with it, it opens investigations on its own initiative as well. Zambian competition law can also be enforced by civil lawsuits in court by private parties and criminal prosecution by the Commission is possible in cartel cases without the involvement of the Director of Public Prosecution under the 2010 Act. However it is further perceived that the Commission may sometimes be restricted in applying the competition law against government agencies and State Owned Enterprises (SOEs), especially those protected by other laws. There has been no known competition case within the past year.
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 from their 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 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 at Jimbe (with Angola), Nakonde (with Tanzania), Chanida (with Mozambique), Kipushi (with Congo DR), and Mwami (with Malawi). The GRZ cited smuggling and loss of revenue in terminating the concession, which had been awarded as a PPP on a design, build, and operate basis.
There is no pattern of discrimination against U.S. persons by way of an illegal expropriation by the government or authority in the country. There are no high-risk sectors prone to expropriation actions.
ICSID Convention and New York Convention
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, which entered into force on October 14, 1966. These are being enforced through the Investment Disputes Convention Act Cap 42 of the Laws of Zambia.
Zambia is also a member state of the International Centre for the Settlement of Investment Disputes (ICSID Convention) and a signatory to the United Nations Commission of International rade Law (UNCITRAL Model Law). In 2002, Zambia ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York convention).
Investor-State Dispute Settlement
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). Over the past 10 years, 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.
Relatively few investment disputes involving U.S. companies have occurred since Zambia’s 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.
In practice, there are also few recorded cases where Zambia has used sovereignty provisions to countermand its international obligations related to investment and settlement of disputes arising out of asset expropriation. Recently, in November 2016, under the provisions of section 84B of the Banking and Financial Services Act (BSFA) chapter 387 of the Laws of Zambia, the Bank of Zambia took possession of Intermarket Banking Corporation Zambia Limited (IBC), stating the bank had become insolvent. Currently, IBC is restructuring to restore its solvency and operations.
International Commercial Arbitration and Foreign Courts
The Zambian Arbitration Act Number 19 of 2000 applies to both domestic and international arbitration and is based on the UNCITRAL model law. Arbitration agreements must be in writing and 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, which promotes and facilitates arbitration and other forms of alternate dispute resolution (ADR). 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.
Foreign arbitral awards are recognized and enforced in Zambia under the Arbitration Act, Section 27 of which provides for the recognition and enforcement of foreign arbitral awards. It takes about 18 weeks to enforce a foreign award. The United States has a Bilateral Investment Treaty with Zambia through the African Growth and Opportunity Act (AGOA) and through the Common Market for Eastern and Southern Africa (COMESA) of which Zambia is a member. There have been no claims under these agreements.
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 internationally convertible currency. Under the Bankruptcy Act, a person can be charged as a criminal. A person guilty of an offense declared to be a felony or misdemeanor under the Bankruptcy Act in respect of which no special penalty is imposed by this Act shall be liable on conviction to imprisonment for a term not exceeding two years.