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. The unpredictability of import and export bans on commodities, especially on maize (corn) and other grains, is a deterrent to private sector participation in commodity markets. There are no informal regulatory processes managed by non-governmental organizations (NGOs) or private sector associations that discriminate against foreign investors. The government continues to use the Regulatory Impact Assessment (RIA) as part of its policy and legislative making process. The introduction of the RIA in 2015 was a welcome move with the expectation of improving the decision making process, creating a platform for public-private dialogue and healthy debate on economic development laws and policies, and ultimately improving 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 consultations and the RIA Report.
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, 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 established the BRRA in 2014 with the mandate to administer the Business Regulatory Act. The Act requires public entities to submit for Cabinet approval a policy or proposed law that regulates business activity, after the policy or proposed law has BRRA approval. A public entity that intends to introduce any policy or law for regulating business activities should give notice, in writing, to the BRRA at least two months prior to submitting it to Cabinet; hold public consultations for at least 30 days with relevant stakeholders and perform a Regulatory Impact Assessment (RIA). The BRRA works in close collaboration with the Ministry of Justice, which does not approve any proposed law to regulate business activity without the approval of BRRA. While this framework is solid on paper, the BRRA and the consultative process is still relatively new and unknown even by other government officials.
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 (ADR), including a mechanism for binding arbitration, but this has yet to be adopted due to lack of funding. The establishment of the fee-based judicial commercial division in 2014 to adjudicate high-value claims has helped accelerate resolution of such cases.
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 2017, the government announced the long-pending migration to the modern Treasury Single Account (TSA) system by all ministries and spending agencies; the system however has not yet achieved full utilization by all budget entities. The TSA is a unified structure of bank accounts that 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.
International Regulatory Considerations
Zambia is signatory to a range of international treaties that govern international investment and has signed several BITs, but still lacks harmonized legislation for investment built on a national investment policy. 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. The United States has a BIT with Zambia through AGOA and through COMESA, of which Zambia is a member.
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 COMESA and SADC Free Trade Areas (FTAs). Zambia is also an active participant in the establishment of the Tripartite Free Trade Area between COMESA, SADC, and the East African Community (EAC).
At the multilateral level, Zambia has been a WTO member since January 1, 1995. Zambia’s incentives scheme is transparent and has been included in the WTO’s trade policy reviews. The incentive packages are also subject to reviews by the Board of the ZDA and to periodic reviews by the Parliamentary Accounts Committee. Zambia is a signatory to the WTO Trade Facilitation Agreement (TFA) but still faces major challenges in expediting the movement, release, and clearance of goods, including goods in transit, which is a major requisite of the TFA. Zambia has benefited from duty-free and quota-free market access to the European market and from the Generalized System of Preference (GSP) and AGOA in the U.S. market.
Membership in all 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 the difficulty it has in meeting the competitive demands and standards of regional and international markets so as to take advantage of increased market access.
Legal System and Judicial Independence
Zambia has a dual legal system – consisting of statutory and customary law administered through a single formal court system. Statutory law is derived from the English legal system with some English Acts of Parliament still deemed to be in full force and effect within Zambia. Traditional, 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 of the Commercial Court are experienced in commercial law. Appeals from the Commercial Court, based on the amended January 2016 constitution, now fall under the recently established Court of Appeals, comprised of eight judges. Constitutional appeals default to the Constitutional Court, another new judicial body per 2016 reforms. The Foreign Judgments (Reciprocal Enforcement) Act, Chapter 76, 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 domestic law. Domestication of international instruments by Acts of Parliament is necessary for these to be applicable in the country. Systematic efforts to domesticate international instruments is quite slow, but progressive.
The courts in Zambia are generally independent, but contractual and property rights enforcement is weak and final court decisions can take a prohibitively long time. At times, politicians particularly in power have 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. 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, Chapter 268, Zambia’s basic employment law that provides for required minimum employment contractual terms; and
- The Immigration and Deportation Act, Chapter123, 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 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 economy and to protect consumers. The mandate of the Commission cuts across all economic sectors. The CCPC regulates the economy to avoid restrictive business practices, abuse of dominant position of market power, anti-competitive mergers and acquisitions, and cartels that 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.
In 2016, the CCPC published a series of guidelines and policies that included adopting a formal Leniency Policy, a policy that encourages persons to come report to the CCPC information that may help to uncover prohibited agreements. In certain circumstances, the person receives immunity from prosecution, imposition of fines, or the guarantee of a reduction in fines. The policy also calculates administrative penalties. In addition, the CCPC in 2016 also published the draft Settlement Guidelines, which provide a formal framework for parties seeking to engage the CCPC for purposes of reaching a settlement. The Settlement Guidelines present a number of practical challenges as currently drafted. One example is that the guidelines do not cater or seem to recognize without prejudice settlement negotiations.
The Competition and Fair Trading Act, Chapter 417, prevents firms from distorting the competitive process through conduct or agreements designed to exclude actual or potential competitors, and applies to all entities, regardless of whether private, public, or foreign. Although the Commission largely opens investigations when a complaint is filed, it can also open investigations on its own initiative. 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 Competition and Consumer Protection Act (CCPA) No. 24 of 2010. However, the general perception is 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 were 29 competition cases in 2017.
Expropriation and Compensation
Zambia is a signatory to the Multilateral Investment Guarantee Agency (MIGA) of the World Bank and other international agreements. This guarantees foreign investment protection in cases of war, strife, disasters, and other disturbances or in cases of expropriation. Zambia has signed bilateral reciprocal promotional and protection of investment protocols with a number of countries. Furthermore, the ZDA also offers further security for investments in the country through the signing of the Investment Promotion and Protection Agreements (IPPAs).
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 (there is an ongoing policy debate to reduce this to 25 years), 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 SOE and terminating two government concessions. In two of 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 USD 257 million. The GRZ unilaterally reversed the sale and re-appropriated the telecom company, citing corruption and flaws in the privatization process. LAP GreenN through the Libyan Investment Authority, the investment arm of the Libyan government, challenged the Zambian government’s decision in court and asked for USD 480 million in compensation. In October 2017, the London High Court ordered the Zambia government to compensate Libya, via LAP GreenN, USD 380 million for re-nationalizing Zamtel. The Zambian government insists it will compensate LAP GreenN for its investment in Zamtel, but will not transfer ownership of the company back to the operator.
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, loss of revenue, and threat to national security 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 enforced through the Investment Disputes Convention Act Chapter 42.
Zambia is a member state of the International Center for the Settlement of Investment Disputes (ICSID) Convention and a signatory to the United Nations Commission of International Trade 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
Over the past 10 years, previous disputes involved delayed payments from SOEs 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. Currently, a U.S. company is in dispute over the refusal of payment by its local joint venture partner that resulted from goods delivered to the government of Zambia. The case, however, has not officially reached the courts of Zambia.
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. However, difficulty remains for U.S. companies in receiving payments from the government for work performed or products and services rendered due sometimes to government bureaucracy or lack of funding.
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, the Bank of Zambia took possession of Intermarket Banking Corporation Zambia Limited (IBC), stating the bank had become insolvent. In October 2017, the Minister of Finance announced that the government had successfully restructured the IBC and that its capital requirement had been met. The bank was re-opened under the name Zambia Industrial Commercial Bank Limited and took over the assets and deposits of Intermarket Banking Corporation Zambia Limited.
International Commercial Arbitration and Foreign Courts
The Zambian Arbitration Act Number 19 of 2000 incorporates the UNCITRAL and the New York Convention on the recognition and enforcement of foreign arbitral awards. The Act 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 ADR. The New York Convention on the recognition and enforcement of foreign arbitral awards has been domesticated into Zambian legislation by virtue of Section 31 of the Arbitration Act. 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,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 BIT with Zambia through AGOA and through COMESA, of which Zambia is a member. There have been no claims under these agreements. Proceedings against the state are subject to the State Proceedings Act, Chapter 71, and Volume 6, which grants the state immunity against execution.
The Bankruptcy Act, Chapter 82 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.
Zambia has made strides in improving its credit information system. Since 2008, the credit bureau, TransUnion, requires banks and some nonbanks to provide loans requirement information and consult it when making loans. The credit bureau eventually captures data from other institutions such as utilities. The bureau’s coverage is still less than 10 percent of the population; the quality of information is suspect; and there is lack of clarity on data sources and the inclusion of positive information.