Historically reliant on copper mining, Zambia is trying to diversify its economy in order to protect it against future price drops and encourage greater foreign investment.
When commodity prices, most notably for oil, dropped in 2014, many African economies were left exposed. Too many of them were over-reliant on their natural resources and lacked other means of income.
Zambia was no exception. Traditionally reliant on copper mining, when prices dropped, its economy and currency dropped with them. Now the government is determined to secure foreign investment in a range of other sectors, so that it is protected from future fluctuations in the copper price.
“Our main objective is to sell the country as the best investment destination,” says Secretary to the Treasury in the Ministry of Finance Fredson Yamba. “We strongly believe that there are a lot of opportunities, especially in mines and also in agriculture and tourism, where potentially people can invest and get a return on their investment,” he tells ALB.
“We don’t want to just rely on mining as a major source of economic activities,” he says, explaining that the expansion into other areas is “a deliberate policy” of which he is realistic about the need to diversify. “We are aware in Zambia that we rely too much on copper as a source of foreign exchange earnings, because currently 70% of our foreign exchange is derived from copper mining activities and 30% comes from non-copper activities.”
Playing a prominent role in attracting foreign investment and developing different areas of industry are two companies: ZCCM Investment Holdings (ZCCM-IH), which owns and operates a significant proportion of Zambia’s copper mining industry, and which, while publicly traded, is majority owned by the wholly state-owned Industrial Development Corporation (IDC).
The other is Africa Prospect Development Zambia (APDZ), launched late last year, a private company which is developing investment opportunities in collaboration with the government.
Founder and managing director of APDZ Sam Mulligan says that whereas the African mining scene is largely dominated by the majors, the company aims to bring “qualified juniors” into the Zambian prospecting market “by presenting attractive investment opportunities with very strong corporate governance to the international mining community”. There is a longer-term view to expand into other industries, but for now Mulligan says the focus is on mining.
DIVERSIFICATION OPTIONS
“The diversification will not be rhetorical, it will be practical,” says Muyeba Chikonde, High Commissioner to the United Kingdom, who explains that the government will redirect resources to the project as and when necessary.
The agricultural expansion is not just about growing more crops, but also adding value to the industry overall. Yamba highlights the cultivation of fast-growing eucalyptus, which can be used for perfumes, timber and eucalyptus oil
Manufacturing and tourism are also on the agenda. Yamba cites the success of tourism to Livingstone to see Victoria Falls, but is also eyeing the potential for other regions, such as Eastern Province or the Northern Circuit.
The country is also trying to diversify within the mining sector, progressing with mining projects including uranium, manganese and gypsum, which is used in the production of cement, another industry which Zambia is pursuing. In August, ZCCM-IH announced a joint investment with China Machinery Construction Group (SinoConst) in a company called Central African Cement, which will build a new cement plant in Zambia.
There is also interest in the way that separate industries can interact, such as using by-products of copper mining as fertiliser for agriculture.
With the government predicting increased mining and agricultural production for 2018, Yamba says there should be greater revenue available to fund future development in health and education. “Going forward as a country we should be able to provide for certain basic needs so we foresee a situation where everything looks brighter as we stand in the short term and medium term.”
Chikonde reports a positive response from foreign governments so far: “We are finding that Zambia has continued to be a favourite destination for investment. We have conversations with other countries, and we know that comparatively we are at an advantage,” he says, citing political stability and ease of doing business. Zambia was listed at 85 in the World Bank’s 2018 Doing Business rankings, three places below South Africa, but three places ahead of Tunisia and more than 20 places ahead of other African countries including Namibia, Malawi, Cape Verde, Egypt, Tanzania, Ivory Coast and Senegal.
The presence of the delegation of government, ZCCM-IH and ADPZ at the Mines & Money conference in London last year was no coincidence either, with Zambia courting British investors ahead of the United Kingdom’s departure from the European Union, scheduled for 2019.
“With the coming of Brexit, we feel we stand a better chance of being in a good pipeline position in the UK and also the others that are looking for investment in Zambia,” says Chikonde.
Lack of electricity has been a major hinderance to industrialisation efforts in many African economies, including South Africa, and it was a contributing factor to Zambia’s economic decline during 2014 and 2015.
ZCCM-IH owns a 35% stake in Maamba Collieries, which has built a thermal plant, powered by low grade coal, in the south of the country, and the company is also investing in hydro power, which is quite strong in Zambia, and solar, with the aim of lowering the price of energy in Zambia.
In 2016, Infrastructure development company InfraCo Africa invested in a hydropower project in Zambia’s Western Province, while Chinese investment in Africa’s energy and infrastructure sector trebled in 2017.
ECONOMIC CHALLENGES
It has not been all smooth sailing, however. Zambia had hoped to improve its economy during 2018, to the point that it could agree a loan programme with the International Monetary Fund (IMF). However, the IMF put any such programme on hold last year, over concerns about Zambia’s debt levels; a problem that has plagued many African nations.
IMF mission chief Boileau Loko said in February this year that the government’s plans “continue to compromise the country’s debt sustainability and risk undermining its macroeconomic stability and, ultimately, living standards of its people. Against this background, future program discussions can only take place once the Zambian authorities implement credible measures”. Recent reports suggest that a deal is no closer.
Yamba had said the hope was for IMF funds to help with the budget, balance of payments and foreign exchange reserve.
Another issue facing the Zambian economy is employment. While the government is focused on improving the overall economic picture, so that more job opportunities will be created, APDZ chairman Caleb Mulenga said it was up to business to help meet the demands being placed on the economy by the population growth which has given it a sizeable young population.
“These people need employment. So it is up to us in the private sector to go and create more employment.” APDZ believes it can offer this by attracting small and medium-sized mining projects to the country.
Given the economic obstacles that still face Zambia after the 2014 crash, the diversification plans are an important part of the path to the government’s vision for the country.
“We want as a country to attain the status of a middle-income country,” says Yamba, pinning hopes on its medium-term development plans, with the aim of being “more systematic and consistent [in order] to achieve certain goals in the foreseeable future”.
Source: African Law Business
