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Trade Policy Review: Zambia


Trade Policy Review: Zambia

Trade Policy Review: Zambia
Photo credit: World Bank

The fourth review of the trade policies and practices of Zambia took place on 21 and 23 June 2016. The basis for the review is a report by the WTO Secretariat and a report by the Government of Zambia.

Concluding remarks by the Chairperson

This fourth Trade Policy Review of Zambia has provided a good opportunity to better understand its 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 led by Mr. Raymond Mpundu, Deputy Minister of Commerce, Trade and Industry; and the constructive comments of the discussant, Ambassador Mothusi Bruce Rabasha PALAI from Botswana, and of 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, 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 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 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 system. 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 of or an observer to the plurilateral Agreement on Government Procurement. They were also interested in the country’s priorities regarding, inter alia, effective protection of intellectual property rights, and business licensing. 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 responded to most of the 108 advance written questions posed by Members. This fourth Review of Zambia’s trade policies and practices will be successfully concluded in a month’s time, when Zambia replies to all oustanding questions. The review has shed light on areas requiring the Government’s attention, and possibly further reforms to help Zambia develop its economy and liberalise its trade regime. 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.

Report by the Secretariat: Summary

Since its last trade policy review in 2009, Zambia, a Least Developed Country (LDC), recorded relatively strong economic growth at an average rate of 6.6% per year up to 2015. According to the World Bank analytical classification, it became a lower-middle income country in 2014, with a GNI per capita of US$1,680. This performance was mainly 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 activities and higher agricultural production also helped. GDP growth has however decelerated since 2013, due to technical difficulties in the mining sector; in particular, some unscheduled maintenance problems left a number of mines out of operation for several months. In addition, weaker global demand for copper further frustrated investments in mining.

Zambia succeeded in lowering annual inflation from two digits to a one-digit level as from 2010, but it has remained generally higher than the 6.5% target of the Bank of Zambia, and it even reached 10.1% in 2015. Indeed, high world prices of petroleum products, elimination of consumer subsidies, depreciation of the Zambian Kwacha by some 50% over the period September 2014 to September 2015, and financing of increasing public deficit by the Bank of Zambia have contributed to maintaining inflation high.

In an attempt to curb inflation, the Bank of Zambia has implemented various measures. However, while the gradual increase in the policy rate from 9% in 2012 to 15.5% in November 2015 is likely to contribute to containing inflation, the elimination of the reserve requirement and liquid asset ratios may exert inflationary pressure. Moreover, falling international copper prices and high depreciation of the Kwacha have negatively affected Zambia’s external position, the country being a price taker for copper and a net food importer. As a result, the external current account has turned into deficit in recent years after registering surpluses up to 2012.

Zambia’s ratio of trade in goods and services to GDP (82% in 2014) suggests that trade is important to its economy. Copper continues to be by far the top export earner (accounting for over 70% of the value of merchandise exports). Its imports are more diversified and consist mainly of machinery, transport equipment, and oil and automotive products. Africa is the leading source of Zambia’s imports, with South Africa and the Democratic Republic of the Congo leading the way. Europe remains the top destination for its exports and, in particular, Switzerland, the single most important destination.

Investment is regulated by the Zambia Development Agency Act that opens most activities to foreign investors. Zambia performed relatively well in attracting foreign direct investment: FDI inflows registered an almost fourfold increase from US$700 million to US$2.5 billion from 2009 to 2014. However, FDI is largely destined to the mining sector, highlighting the lack of diversification in the economy. High costs of doing business, due to unreliable energy, difficult access to finance, high interest rates, and recent macroeconomic uncertainties (due to frequent tax policy changes in mining and exchange rate volatility) are among the main factors holding back the country’s diversification efforts.

Zambia has implemented several reforms aimed at improving its business environment and attracting foreign investment. In fact, an online system was introduced for business registration and an e-registry was implemented. The registration time was reduced to less than 24 hours in areas where one-stop shops have been established. The Business Licensing Reform Committee recommended that, of the 517 licences identified as affecting business operations in Zambia, 290 be retained, 170 be eliminated, and the others be reclassified, merged, or converted. A Business Regulatory Review Agency was established in 2015 to review new proposals for licences, to ensure that only necessary licences are introduced and to increase the accountability of regulatory authorities.

Zambia ratified the WTO Trade Facilitation Agreement in December 2015, and notified its Categories A, B, and C commitments in January 2016. Zambia is a member of both COMESA (Common Market for Eastern and Southern Africa), and SADC (Southern African Development Community). Negotiations on a Tripartite Free Trade Area (TFTA) between COMESA, SADC, and the EAC (East African Community) aim at creating a free trade area among the members of the three regional economic communities and addressing inconsistencies related to their overlapping membership. Zambia has also maintained preferential trade agreements with other countries. It is involved in negotiations on Economic Partnership Agreement (EPA) with the EU. 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.

Zambia implements ASYCUDA World, and all customs declarations are conducted electronically. Difficulties in implementing the WTO Customs Valuation Agreement in Zambia are reportedly due mainly to frequent falsification of invoices by importers. Zambia bound tariffs on 16.7% of all lines: tariffs on all agricultural products (WTO definition) are bound, as well as on 3.7% of all lines for non-agricultural products. The simple average of Zambia’s final bound tariff rates is 105.9%. The applied MFN rates are much lower than the bound rates. Its average applied MFN tariff rate was reduced from 13.4% in 2008 to 12.9% in 2016: the simple average rate for agricultural products (WTO definition) fell from 19.1% to 18.9%, while that for non-agricultural products fell from 12.5% to 11.9%.

Recognizing that one obstacle for Zambian manufactured products to access global markets is the lack of adherence to systematic and internationally acceptable quality standards, the Government developed its National Quality Policy in 2011. It aims at establishing by 2020 a national quality infrastructure, to ensure locally-produced goods and services are recognized and accepted by Zambia’s trading partners. By mid-September 2015, a total of 2,434 standards had been published in Zambia, of which 60% are adopted international standards, and the other 40% are Zambian standards based on international/regional/foreign standards or with a mix of source documents. About 2% are technical regulations. The SPS regime remained unchanged during the review period. COMESA has been assisting Zambia in identifying priorities for SPS investment, considering that resources are generally insufficient.

Export taxes apply on a number of products including mineral ores and concentrates, waste and scrap metals, and some types of timber products. According to the authorities, this is to encourage value addition within the country and to control the stealing of copper. Export prohibitions apply to, inter alia, raw animal hides and skins, logs, and wood charcoal. The Government may restrict maize exports from time to time, for food security reasons.

Zambia amended or enacted various trade-related laws over the period under review. It promulgated a new Competition and Consumer Protection Act in 2010, with a view to enhancing the predictability of the related enforcement mechanism; however, sectoral regulators still play an important role in monitoring competition in their respective domains. The Copyright and Performance Rights Act was amended in 2010 with a view to better countering piracy, handling complaints, addressing offences and enhancing sanctions. Other IPR-related legislation remained unchanged, although five bills are under consideration on: trademarks, patents, industrial designs, layout designs, and traditional knowledge.

The public procurement regime was reformed in 2013: public procurement has been decentralized and the Zambia Public Procurement Authority (ZPPA) is no longer involved in proceedings. Nevertheless, the wide range of methods available to procuring entities and the large flexibility in their use suggest that transparency could be improved in the new regime. Currently, statistical data are not available on public procurement. The Government intends to develop an e-procurement system to address these weaknesses.

Agriculture remains an important sector in Zambia, providing livelihood for over 70% of the population, and contributing 10% to GDP and to total export earnings. Maize, the country’s staple food, together with seed cotton, sorghum, rice, millet, sunflowers tobacco, Irish potatoes, wheat, and soya beans remain the leading crops. The sector has a strong growth potential given the country’s large fertile land and water resources endowment. Indeed, some 58% of Zambia’s total land area is classified as having medium to high potential for agricultural production, but only 14% of agricultural land is utilized. The National Agriculture Policy pursues objectives of, inter alia, food security, a sustainable increase in productivity for major crops, and continuous improvement of access to export markets for Zambian agricultural products. A number of assistance programmes are in place to support mainly small-scale farmers and promote the participation of the private sector in agriculture.

Zambia is well endowed with copper and cobalt (over 97% of mineral exports), with mining still an important pillar of its economy. In recent years, this sector has been facing various challenges, including infrastructural constraints, uncertainties in taxation, and low international copper prices. However, the sector remains the main recipient of FDI in the country.

Manufacturing remains underdeveloped. It is dominated by agro processing (over 63% of total manufacturing production), textiles and leather industries. Recognizing the fundamental role of the sector in Zambia’s economic diversification strategy, the Government has implemented various support measures, such as the establishment of multi-facility economic zones (MFEZs) and industrial parks.

Services, mainly finance, tourism, transport, and communication continue to be the backbone of the Zambian economy (approximately two-thirds of GDP). A number of constraints impede significant expansion of its international trade in services, with the country remaining a net services importer during the review period. The constraints include limited services supply capacity; an inadequate regulatory framework; absence of a national policy concerning services trade; and difficulties in translating regulatory frameworks into opportunities. Under the GATS, Zambia has bound market access in certain business services, construction and related engineering services, healthcare and social services, and tourism and travel-related services.

Economic environment

Trade Performance

Trade in goods and services grew steadily during the review period, from over US$8 billion in 2009 (58% of GDP) to some US$21 billion in 2014 (82% of GDP).

The value of imports more than doubled, up from US$4 billion in 2009 to some US$10 billion in 2014, with a significant share attributed to manufactures (over 60% of import value on average), as the kwacha has recently depreciated significantly. The broad composition of imports remained mainly unchanged. Machinery and transport equipment, oil products, and automotive products are the main import categories.

Zambia’s main exports are traditionally copper products, whose share in total exports further expanded between 2008 and 2014 from 41.1% to 73.3. Agrifood products, chemicals, and certain semi-manufactures are also exported in substantial quantities.

Africa is the leading source of Zambia’s imports, with South Africa and the Democratic Republic of the Congo (DRC) leading the way. With shares averaging some 10% of Zambia’s total imports, the EU and Middle East countries are also noticeable exporters to Zambia. During the review period, China became an increasingly important source for Zambia’s imports with its share almost doubling, up from 4.7% in 2009 to 9% in 2014.

Europe remains the top destination for Zambia’s export products, by accounting for nearly half of its total exports. Switzerland is by far Zambia’s single most important export destination, with a record high in 2010, when it absorbed 51% of its total exports. Like in the case of imports, China has become a significant market for Zambian products, with shares increasing from 11.2% to 18.5% between 2009 and 2014.

Zambia’s services trade balance is traditionally in deficit. Services exports are highly concentrated, and dominated by travel services. Imports are more diversified and they are mostly associated with mining activities. Transport, travel and construction services are the main components.

Foreign Direct Investment

During the review period, Zambia performed relatively well in terms of foreign direct investment (FDI). The inflows registered an almost fourfold increase from nearly US$700 million to US$2.5 billion between 2009 and 2014. As a consequence, the inward stocks of FDI firmed up during the same period by doubling in value. Switzerland, Canada, South Africa, and the United Kingdom are the main investor countries in Zambia.

Zambia’s FDI is largely destined for the mining sector. This highlights the lack of diversification in the whole economy. High costs of doing business, due to unreliable energy, weak access to finance, high interest rates, and macroeconomic uncertainties are among the main factors holding back the country’s diversification efforts.


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