Fourth Trade Policy Review of Zambia: Minutes of the meeting
The fourth Trade Policy Review of Zambia was held on 21 and 23 June 2016. The review shed light on areas requiring the Government’s attention, and possibly further reforms to help Zambia develop its economy and liberalize its trade regime.
At the previous TPR meeting in 2009, Members had commended Zambia on its rapidly growing economy and had observed an impressive growth in non-traditional exports. They had encouraged Zambia to further reduce its dependence on copper mining and develop a more diversified economy, but they had also noted obstacles such as high-cost and inefficient services in transport, electricity, and fixed telecommunications.
Since then, Zambia’s GDP had continued to expand, at annual rates averaging over 6%. A high demand for copper was the principal factor behind this. As a result, in 2014, the country had been upgraded from the low-income to the lower-middle-income category in the World Bank analytical classification. However, structural weaknesses, including supply-side constraints and significant State intervention, still made the economy narrow-based and highly vulnerable. In the various economic sectors, including agriculture, manufacturing and services, Members saw growth potentials largely untapped.
Meanwhile, headwinds in the mining sector (affecting copper in particular), exacerbated by weaker global economic growth, had frustrated Zambia’s economic performance in the last two years. Amidst these challenges, Zambia had implemented several reforms aimed at improving its business environment and attracting foreign investment, and had recently rolled out a strategic plan for long-term development. The Chairperson believed Members would wish to learn more about these reforms and development plans, and their implications for international trade.
Regarding existing trade policies, one important area was Zambia’s tariff regime. At the last TPR, Members had encouraged Zambia to improve its binding commitments by increasing their coverage and reducing the gap between bound and applied rates. It seemed that not much had changed since then, except for the migration to HS 2012. Besides, Zambia still had difficulty fully implementing the Customs Valuation Agreement, and still imposed export taxes, some of which aimed at promoting local value addition.
That said, Members were pleased to know that Zambia had already ratified the Trade Facilitation Agreement and had notified all its Categories A, B and C commitments. Thanks to the authorities’ efforts, all customs declarations could also be conducted electronically now, which made clearance simpler and faster. In addition, Zambia had amended or had enacted a number of trade-related laws over the period under review. They included the promulgation of a new Competition and Consumer Protection Act in 2010; adoption of a National Quality Policy in 2011; and amendment to the Copyright and Performance Rights Act in 2010. The last one in particular had been a matter of great interest to Members at the last TPR, and Members understood that the process of establishing a TRIPs-compliant regime in Zambia had not yet been completed. The Chairperson noted that it would be useful to know the review process for other IPR legislation currently under consideration.
On the international front, Members had commended Zambia’s commitment to the WTO and the multilateral trading system. Members noted that Zambia was also a member of the Common Market for Eastern and Southern Africa (COMESA), and the Southern African Development Community (SADC). Overlapping membership in different trade agreements bore costs and certain challenges. At the last TPR, some Members had expressed concern in this regard. The Chairperson suggested that Zambia might also like to share with the Members how it saw and managed these agreements.
Opening Statement by the Representative of Zambia
Honourable Raymond Mpundu, Deputy Minister of Commerce, Trade and Industry
During the period under review, the Government implemented its strategic interventions through the Fifth National Development Plan from 2006 to 2010, and the Sixth National Development Plan from 2011 to 2015 which was subsequently revised to cover the period 2013 to 2016.
The Fifth and Sixth National Development Plans were primarily focused on implementing reforms targeted at reducing the cost of doing business and creating an enabling environment for private sector growth and development. In line with this, Government, through the Private Sector Development Reform Programme, implemented reforms targeted at making the licensing regime simpler, transparent and more focused on legitimate regulatory purposes.
On the other hand, the strategic focus of the Revised Sixth National Development Plan was on capital investments with an emphasis on promoting economic diversification and industrialization. In line with this, the Government adopted the Industrialization and Job Creation Strategy aimed at enhancing Zambia’s productive capacity while at the same time creating jobs and wealth for the population. The Strategy prioritized four sectors namely: agriculture (including agro-processing); manufacturing; construction and tourism which not only have great potential for accelerating industrial development but also have the highest absorption capacity for skilled, semi-skilled and unskilled labour.
In the area of trade, Zambia continued to maintain a liberal trade policy regime whose main focus has been to enhance productivity and competitiveness of Zambian products in both the domestic and international markets.
Similarly, Zambia has remained an active player in the regional integration processes under the Southern African Development Community (SADC) and the Common Market for Eastern and Southern Africa (COMESA). These Regional Economic Communities are important trading blocks for Zambia in terms of import and export trade. Zambia is one of the seventeen countries that have signed the Tripartite Free Trade Area Agreement, and is actively involved in the continental negotiations aimed at establishing the Continental Free Trade Area which aims at opening up market opportunities for participating countries.
At the same time, Zambia has been a beneficiary of preferential market access schemes offered by both developed and developing countries, which it considers as important initiatives to assist developing and least developed countries integrate into global trade and as such continues to work towards the effective utilization of preferences offered under such schemes.
In terms of sector performance, at the macroeconomic level, Zambia has recorded positive growth with an average real GDP growth rate of 6.5% during the period 2009 to 2014. This positive growth was driven largely by improvements in the non-mineral sectors of agriculture, manufacturing and infrastructure developments among others.
During this same period, the country recorded single digit inflation rates. The annual overall inflation rate in 2009 was 9.9% and as at 31st December 2013 it dropped to 7.1% before raising to 7.9 in 2014. This was on account of a decline in staple food prices.
However, as at 31 December 2015, the inflation rate rose to 21.1% due to the effects of the sharp depreciation of the Kwacha experienced in the third quarter of 2015, which was partly due to the global economic slowdown and poor performance of the commodity prices on the international market, coupled with the increased production costs caused by low electricity supply.
Zambia’s export trade overall has been positive in the period under review, with total export trade having grown from a level of US$4.3 billion in 2009 to US$9.6 billion by 2014 with the highest level recorded in 2013 at US$10.6 billion. However, Zambia’s export trade experienced a down ward trend in 2015 falling to about at US$7 billion. Over the same period, non-traditional exports increased from US$976 million in 2009 to US$4.1 billion by 2013 before falling to US$2.6 billion in 2014 and a further fall of US$1.7 billion recorded in 2015.
Zambia witnessed improvements in investment flows with continued investor confidence. Evidence to this was the re-affirmation of the country’s sovereign credit ratings at a ceiling of B+ coupled with the continued rise in FDI inflows. For example, as at end of September 2014, FDI inflows were US$2,231.5 million, 6.3% higher than for the whole of 2013.
In terms of sector performance during the period under review, the agriculture sector grew by an average of 7% which was above the Comprehensive Africa Agriculture Development Programme target of 6%. During the same period, the sector’s contribution to GDP averaged 18.5%.
In mining, the sector continued to dominate Zambia’s economic growth path in the period under review. Mining remained the dominant sector in terms of Zambia’s export earnings, accounting for approximately 70%. This high dependence on a single commodity for export earnings has placed Zambia in a vulnerable position in as far as external factors are concerned. The recent downturn in commodity prices on the global market did not spare the Zambian economy.
The manufacturing sector’s contribution to GDP averaged 7.7%. The main destination for Zambia’s exports in manufacturing during this period was the SADC market which accounted for approximately 80% of Zambia’s exports.
Following the introduction of the new Information Communication and Technology (ICT) law in 2009, the sector has equally recorded impressive growth with mobile penetration rate increasing from 34% in 2009 to 74% in 2015. Internet penetration rate also increased from less than 1% to 39% during the same period. The ICT sector contribution to real GDP increased from1.5% to 3.5% over the same period.
With regard to infrastructure development to open up key economic sectors such as tourism and agriculture, Zambia has invested heavily in transport and energy infrastructure. The investments include the link Zambia 8000 and pave Zambia 2000 projects. Other investments include the modernization of four international airports.
The installed capacity in the energy sector is 2451megawatts of which 97% is hydro and 3% from other sources. In addition to the existing developed generation capacity, the country’s total generation potential is about 6000 megawatts.
Substantial progress has also been made in health and educational infrastructure across the country.
Having said this, Madam Chair, allow me to highlight some challenges that Zambia continues to face.
Zambia is facing challenges with diversification issues as the country continues to depend on copper for export earnings. While progress has been made in terms of non-traditional exports, the composition is still dominated by raw materials and low value products;
Infrastructure in major economic sectors is limited;
The electricity energy mix remains undiversified while supply continues to be inadequate. The sector is highly dependent on hydro for power generation; therefore, it has remained vulnerable to climate change such as drought or poor rainfall;
The private sector still requires a lot of support to effectively spearhead economic growth;
The tax base remains narrow;
access to affordable finance is still a major challenge for enhancing production and productivity; and last but not least
Investment in research and development is at its infancy stage.
The fluctuations in global commodity prices and instability in global currencies has had telling effects on the Zambian economy. The fall in copper prices in the recent past has resulted in a substantial reduction in the intake of revenue from copper sales, which in turn has had negative effects on Zambia’s current account, the exchange rate and planned capital expenditure. The current commodity prices on the international market present compelling reasons for the urgent reform of the global architecture of trade rules in order to discipline measures that distort trade;
Other factors associated with operations of multinational corporations have also affected the Zambian economy in as far as capital flight is concerned, especially in the mining sector;
Market entry requirements have limited Zambia’s capacity to penetrate certain markets. Standards and technical requirements maintained by trading partners continue to be a challenge. This problem has further been compounded by the proliferation of private standards, which are beyond the capacities of the private sector to cope and are thus deemed as a disguised barriers to trade; and
Challenges associated with trade liberalization.
Future outlook and policy thrust
Looking ahead, the ultimate goal of the Government is to improve the quality of life for all Zambians. Therefore, the major policy thrust going forward is to continue with policies and strategies that are targeted at diversifying the economy and also improving the productivity and competitiveness of the priority sectors. To this end, the Government will continue to ensure that the economy remains resilient to any adverse external developments, such as those associated with volatile commodity prices in general and copper prices in particular.
The Government will continue to implement prudent fiscal and monetary policies so as ensure macroeconomic stability. The Government will also continue nurturing the private sector growth and promoting research and development in all sectors of the economy.
At the same time, the Government aims to continue to pursue measures aimed at promoting inclusive growth and job creation. The Government will also continue to work with its cooperating partners in its quest to enhance Zambia’s trade and economic development.
In an effort to support the measures of inclusive growth, Zambia recognizes the importance of easing the cost of trading across borders and in that regard, the country has embarked on a number of initiatives such as integrated systems for managing payment of systems and the latest being the national electronic single window which was launched in June 2016.
In conclusion, I would like to reiterate Zambia’s commitment to the multilateral trading system. Zambia believes that the WTO is an important forum for promoting freer and fairer trade through a predictable trading environment that is governed by rules. It is therefore important that we work towards concluding negotiations under the Doha Development Agenda and to implement commitments that have been made thus far including the outcome of the 10th WTO Ministerial Conference which was held in Nairobi, Kenya.
It is important to continue pursuing programmes that assist developing and least developed countries deal with impediments to trade so that they can be equal partners in global trade. Therefore, support towards the aid for trade initiative as well as the Enhanced Integrated Framework and the regular technical assistance programmes of the WTO should be enhanced.
In addition, we are of the view that institutions such as the International Trade Centre and the United National Conference on Trade and Development (UNCTAD) should be adequately resourced so that they continue to provide the valuable services to developing and least developed countries.
With these few remarks, I thank you all for your kind attention.
Concluding Remarks by the Chairperson
This fourth Trade Policy Review of Zambia has provided a good opportunity for Members to better understand Zambia’s trade and investment policies and practices, and the institutional framework within which they have been formulated and implemented since its last review in 2009. We owe this to the informative documentation prepared for the meeting, the active participation of the Zambian delegation as well as the constructive comments of the discussant and of all Members who had taken the floor.
In their statements, many Members congratulated Zambia on its graduation from the low income to the lower-middle-income category in the World Bank analytical classification in 2014. This was mainly due to the buoyant global demand for copper, which is Zambia’s top export product. However, Members also noted that structural weaknesses, including supply-side constraints, significant State intervention, and high costs of doing business still impeded full exploitation of Zambia’s potential and had dampened its economic diversification efforts. Members raised questions about specific actions undertaken by the Zambian authorities to address these constraints and diversify the economy. They invited Zambia to further improve its business environment with a view to attracting investments needed for the diversification. Some Members indicated readiness to assist Zambia in tapping its growth potential in sectors such as agriculture and services.
Members commended Zambia for its commitment to the multilateral trading system. They encouraged it to fully meet the WTO notification requirements and other commitments such as those in relation to customs procedures, standards and other technical regulations, SPS measures, and IP protection. Some Members saw the relevance of assistance programmes, including training, to this endeavour. As an LDC, Zambia is eligible for the Everything-But-Arms (EBA) initiative of the EU and has duty-free and quota-free access to the U.S. market under AGOA. Members urged Zambia to better utilize these preferential trade schemes for the benefit of its economy.
Outside the WTO, Zambia is a member of overlapping trade agreements including the Common Market for Eastern and Southern Africa (COMESA) and the Southern African Development Community (SADC). Some Members expressed concern about the apparent conflicting obligations in those agreements.
Regarding Zambia’s trade policies, Members were pleased to note that, in the area of trade facilitation, Zambia had ratified the WTO Trade Facilitation Agreement in December 2015, and notified its categories A, B and C commitments. They sought information about the establishment of a National Committee for implementation of the Agreement. In addition, some Members raised concerns about specific trade facilitation measures, including border procedures and taxation issues. Commenting on the tariff regime, they encouraged Zambia to improve its tariff binding commitments by enlarging their coverage and reducing the gap between bound and applied rates, with a view to improving the predictability of its tariff regime. Members also urged Zambia to assess the impact of its export taxes on the promotion of local value addition.
Members sought clarification on transparency in Zambia’s public procurement framework, and some were interested in knowing whether the country is considering to become a member or an observer to the WTO Agreement on Government Procurement. They were also interested in the country’s priorities regarding, inter alia, effective protection of intellectual property rights, business licensing, etc. Furthermore, some Members raised questions regarding Zambia’s plan to develop its agriculture and promote rural development.
Several Members expressed interest in private sector participation in Zambia’s trade policy formulation, including tariff setting and revision, and sought information about the effectiveness of the newly promulgated Public-Private Partnership Act in boosting related projects.
Before the end of this session, Zambia has received more than 100 advance written questions posed by Members, and has already responded to most of them. This fourth Review of Zambia’s trade policies and practices will be successfully concluded in a month’s time, when Zambia replies to all outstanding questions. I hope Zambia will favourably look at the results of this review in formulating its policies, and will benefit from the market access and assistance offered by fellow WTO Members.