AmCham Q4 Policy Review Journal by American Chamber of Commerce in Zambia

AMCHAM POLICY REVIEW JOURNAL 2021 Q4 - OCTOBER - DECEMBER

WHAT'S INSIDE Copper Performance in 2021 Rethinking Climate Change Investment AmCham 2022 Budget Infographic Current Legislation WWW.AMCHAMZAMBIA.COM

Foreword Dear AmCham Member, Quarter 4 started with the Minister of Finance, Dr. Musokotwane making his maiden budget speech presentation to parliament. The speech was well received by the public and generally seen to be audacious, bold and innovative. Debates on the speech are still underway in parliament and the business community and the nation at large continue to keenly follow the procession. The quarter and indeed the year is closing on a high for the Business Environment in Zambia with the nation having secured an IMF program to the tune of $1.4 Million. We wait to see the full effect of this program and how it will benefit Zambia. In this publication, AmCham shares insights on the macroeconomic environment to provide you with perspectives on what the overall business environment is looking like. Also, we turn attention to the Copper production performance in Zambia for the year 2021 when prices of copper were soaring high. Also, we highlight climate change and its impact on Zambia’s economy and the need for businesses to rethink their investment strategies. A section of the publication is dedicated to sharing key takeaways from the budget speech presentation by the Minister of Finance. The publication concludes with a presentation of legislation from parliament. Do enjoy this publication and have a pleasant festive period. Secretariat.

2021 Q4 Policy Review Journal

Macroeconomic Indicators

2021 Q4 Policy Review Journal

Copper Performance in 2021

Mining is Zambia's crucial productive industry that contributes to 77% of total export value and 27.77% of government revenues, according to the latest EITI reporting. Most recently, the increased demand for copper globally saw Zambia hitting a historical production record of 882,061 tonnes of copper in 2020. This was attributed to a worldwide shift to electric cars, which use much more copper than cars using traditional combustion engines. Forecasts by the Ministry of Mines and Mineral development indicated that the country would produce more than 900,000 tonnes of copper in 2021, and has a long-term goal of exceeding 1 million tonnes in annual production. However, the latest monthly data bulletin report by the Zambia Statistics Agency (ZamStats) revealed that Zambia's ten large-scale mining companies produced 735,200 tonnes in the 10 months ending October 31, 2021. This is in stark contrast to the 771,600 tons of copper produced from January to October 2020. Further findings by ZamStats indicate that the volume of refined copper exported between January to October 2021 was 735.2 thousand mt while that of 2020 for the same period was 771.6 thousand mt, representing a 4.7 percent decrease.

2021 Q4 Policy Review Journal

Copper prices on London Metal Exchange (LME) increased by 4.9 percent to US$9,778.5 per mt in September 2021 from US$9,324.1 per mt in October 2021. The increase in prices presents considerable rewards for Zambia as it can derive benefits through increased foreign exchange earnings and high domestic revenue generation through fiscal instruments such as the sliding scale copper mineral royalty linked to international copper prices. As a case in point, mining companies pay 5.5% of royalties when at a minimum threshold of $4500/mt tonne and 10% when the copper price is $9,000/mt or higher. This means that copper mining companies are currently paying the maximum threshold for mining royalties. Copper price forecasts issued by leading international agencies such as the World Bank estimated in a commodity forecast report that the spot price for copper will average $8,500/mt by the end of 2021. The price is expected to decrease to $7,500 in 2022 and grow to $8,250 by 2035. The IMF projects an average of $8,313/mt in 2021, followed by a gradual decline to $7,600 per metric ton by 2026. Despite these estimated copper prices being lower than the 2021 copper prices, Zambia can further benefit from the estimated prices if production levels are scaled up. The government has set a target to increase copper output to over three million metric tonnes in a decade. This means existing mines must produce more while new mines must be opened. Additionally, the reintroduction of deductibility of mineral royalties is poised to increase greater copper output. These goals further present opportunities for investors seeking to penetrate the mining industry.

Copper Performance in 2021 Sources: https://www.spglobal.com/platts/en/market-insights/latest-news/metals/051821-record-copperprices-double-edged-sword-for-zambian-miners ZamStats, November Bulletin, vol. 1, no. 1, pp. 41-54, viewed 3 December 2021, https://www.zamstats.gov.zm/phocadownload/Monthly/2021/Vol%20224%20of%202021%20The%20 Monthly%20November.pdf.

2021 Q4 Policy Review Journal

THE 2022 NATIONAL BUDGET INFOGRAPHIC Budgetary Allocations

Macroeconomic Objectives Attain a real GDP growth rate of at least 3.5 percent; Reduce inflation to single digits by end of 2022 and within the target band of 6-8 percent by mid 2023; Limit international reserves to at least 3 months of import cover; Increase domestic revenue to not less than 21.0 percent of GDP; Reduce the fiscal deficit to no more than 6.7 percent of GDP; and Limit domestic borrowing to no more than 5.2 percent of GDP. Proposed PAYE Tax Bands Proposed PAYE TAX Bands From

4500

Tax Rate % 0

4500

4800

6900

Above

37.5

Transport Sector Revenue Sources

Foreign Financing 19.1%

Domestic Financing 9.8%

Domestic RevenueRevenue 39.4% Tax Revenue 31%

Budget Expenditure in percentage terms is as follows:

2021

2022

48.3

49.9

19.5

11.5

10.4

Health

8.1

8.0

Defence

4.7

4.5

Public Order & Safety

2.6

2.0

Environmental Protection

0.8

0.6

Housing & Community Saftey

1.9

1.4

Recreation, Culture & Religion

0.1

Social Protection

4.0

3.6

General Public Service Economic Affairs Education

2021 Q4 Policy Review Journal

In the transport sector, the Government highlighted that good roads, rail, air and maritime infrastructure are the backbone for facilitating economic activities as well as trade and investment domestically and within the region and beyond. In road transport, priority will be placed on maintenance, rehabilitation, and upgrading of feeder roads. Emphasis will also be placed on the rehabilitation of economic roads. To solve the challenges of railway transport, priority in the near-term will be maintenance of the infrastructure. Financing requirements to improve and maintain the tansport sector is beyond the financial capacity of the Government. In order to mitiagte this, Government will, therefore, aggressively pursue Public Private Partnerships in the overhauling of the existing line and construction of new railway spurs as well as roads. In the aviation sub-sector, focus will be on the completion of Kasama and Mbala airports; maintainence & rehabilitation of provincial airports; and increased numbers of communication towers for the benefit of all citizens. Tourism Sector

Zambia remains a destination of choice for tourism. To improve the sector's competitiveness, Government proposed to reduce visa fees of all categories by 50 percent. In view of the continued negative effects of the COVID-19 pandemic on the tourism sector, Goverment has extended the 15 percent Corporate Income Tax rate on income earned by hotels and lodges on accommodation and food services to 31st December, 2022 from 31st December, 2021. To expand the growing tourism scetor, Government will diversify areas of visitations so as to attract more tourists. Further, Government will in the next five years establish the necessary infrastructure and regulatory framework that will other areas of destination attractive for the private sector to establish hotels, lodges and other tourism facilities.

THE 2022 NATIONAL BUDGET INFOGRAPHIC Manufacturing Sector

To promote the growth of the manufacturing sector, Government will facilitate trade and investment as well as enhance the competitiveness of local products. The government will attract investment and help to concretise value addition, by reinvigorating the programme of Multi-Facility Economic Zones and industrial parks. In order to achieve this, Government will: 1. Provide tax incentives 2. Undertake a comprehensive review of the investment promotion strategy. To promote the manufacturing of ceramic products, I propose to suspend Corporate Income Tax for persons carrying on the business of manufacturing ceramic products for the charge years 2022 and 2023. To further promote the local manufacturing industry, Government will increase customs duty to 25 percent from 5 percent and 15 percent on yarn made from acrylic fibre of specific HS codes imported from outside the COMESA and SADC regions. Government will also promote access to export markets

Health Sector

Reform the National Health Insurance Scheme 11,200 frontline health personnel to be recruited Prioritize completion of unfinished health infrastructure and equipping and re-equipping of health facilities with modern equipment. To further enhance healthcare in the country, Government will partner with the private sector to create centres of specialisation so that Zambians can access specialised healthcare locally whilst attracting regional medical tourism. Increase financing towards epidemic and pandemic management to prepare for unforeseen diseases such as Ebola and COVID-19. Social Protection

Energy EnergySector Sector

To ensure an effective and efficient energy sector, the Government will undertake reforms in the electricity and petroleum sub-sectors. In the electricity sub-sector, Government implement a Renewable Energy Investment Plan that will improve the energy mix. To attract investment within the electricity sub-sector, Government will implement cost-reflective tariffs. Government will also also scale-up the programme of rural electrification through the extension of the grid network and deployment of off-grid electrification solutions. Further, Government plans to review the efficieny of the ZESCO Corporate Structure and re-negotiate the Purchase Power Agreements.

Scale up beneficiaries to over 1 million for social cash transfer Increase the transfer value of the social cash transfer to K200 per month Food security pack benefiiaries to increase Dismantling all oustanding pension arrears in 2022 Mining Sector

Education and Skills Development

Education remains the greatest equalizer, in order to improve the education sector and mitigate some of its present challenges, Government will undertake and implement the following: 1. Recruit 30,000 teachers in 2022, 2. Extend free education to early childhood and secondary schools in 2022 in public schools, 3. Abolish tuition,PTA and exam fees in 2022 4. Construct 120 secondary schools 5. Introduce bursary schemes for vulnerable learners in boarding schools through the CDF 6. Address the challenges faced by the girl child by expanding the support to the girl child through the Keeping Girls in School Programme from the current 28,964 in 2021 to 43,520 girls in 2022.

2021 Q4 Policy Review Journal

The mining sector remains critical to the Zambian economy as it is the main contributor to foreign exchange earnings. To benefit from the expected copper boom, Government will ramp up production from 800,000Mt to over 3 million Mt in a decade. In a quest to further benefit from the mining sector, Government will diversify the sector to other minerals such as gemstones, manganese and gold Further, promotion of small-scale mining will be undertaken through cooperatives. Water and Sanitation Sector

To improve access to clean and safe drinking water, Government will reduce the cost of drilling boreholes through scrapping off fees for application and registration and annual fees to drill domestic boreholes. Application, registration and annual fees will only apply to commercial boreholes.

Rethinking Climate Investment

Climate change is one of the world's biggest environmental threats exacerbated by human activity. With rising sea levels, global warming, extreme weather conditions, imperiled ecosystems, and so forth, the effects of climate change are apparent for all to see. As climate change transforms global ecosystems, it affects everything from the places we live to the water we drink to the air we breathe, and thus rethinking climate investment remains crucial now more than ever. Despite climate change affecting everyone in some way, emerging economies such as Zambia disproportionately bear the negative impacts of climate change as opposed to developed nations that are better equipped to mitigate and adapt to climate change. A report by UNDP found that Zambia has been experiencing adverse impacts of climate change including an increase in frequency and severity of seasonal droughts, occasional dry spells, increased temperatures in valleys, flash floods, and changes in the growing season. Further to this, seasonal droughts and occasional dry spells continue to impact the energy and agriculture sectors in Zambia.

2021 Q4 Policy Review Journal

In a most recent 2020/2021 agro meteorological update by the Zambia Meteorological department, farmers were advised not to plant any crop (except cassava) until there is adequate moisture. This further highlights the need for greater investment in smart agriculture practices such as: the use of quality seeds and planting materials; implementation of soil and water conservation techniques; drip irrigation and so forth. With regards to the energy sector, research reveals that 88% of Zambia’s households rely on wood for fuel, and that 89% of fuelwood in Zambia is considered non-renewable, there is a significant opportunity for the provision of an affordable, sustainable alternative fuel source which could also provide significant social and environmental benefits to farmer households. A 2021 Impact Climate Investment Survey revealed that Confidence is high amongst all investors that the new administration will implement the right changes to ensure macroeconomic stability over the next 10 years.

Rethinking Climate Investment The forward outlook of rising and stable copper prices supported by the global push for greener economies will serve as a foundation for stability and growth. Zambia’s strategic location, a young and affordable labour force and its abundance of natural resources allows the country to stand out regionally as an attractive option for growing foreign capital and seeking higher returns in emerging markets.

2021 Q4 Policy Review Journal

With climate change effects becoming more pronounced, Zambia is better placed to take advantage of the increased number of potential investors that can serve as a means to increasing climate investment funds thereby creating more activities that enhance the country's climate adaptation and mitigation strategies.

Legislation from Parliament 2021 Acts of Parliament The Electronic Government Act, 2021( Act No. 41 of 2021) Land Survey (Amendment) Act, 2021 ( Act No. 40 of 2021) Lands and Deeds Registry (Amendment) Act, 2021 ( Act No. 39 of 2021) The Insurance Act, 2021 ( Act No. 38 of 2021) The Zambia Correctional Service Act, 2021 ( Act No. 37 of 2021) Acts of Parliament (Amendment) Act, 2021 ( Act No. 36 of 2021) The Narcotic Drugs And Psychotropic Substances Act, 2021 ( Act No. 35 of 2021) The Industrial Hemp Act, 2021 ( Act No. 34 of 2021) The Cannabis Act, 2021 ( Act No. 33 of 2021) Electoral Process (Amendment) Act, 2021 ( Act No. 32 of 2021) The Zambia Institute of Tourism and Hospitality Studies (Amendment) Act, 2021 ( Act No. 31 of 2021) The Chartered Institute of Logistics and Transport (Amendment) Act, 2021 ( Act No. 30 of 2021) The Zambia Institute of Advanced Legal Education (Amendment) Act, 2021 ( Act No. 29 of 2021) The Engineering Institution of Zambia (Amendment) Act, 2021 ( Act No. 28 of 2021) The Zambia Institute of Marketing (Amendment) Act, 2021 ( Act No. 27 of 2021) The Health Professions (Amendment) Act, 2021 ( Act No. 26 of 2021) Urban and Regional Planners (Amendment) Act, 2021 ( Act No. 25 of 2021) The Accountants (Amendment) Act, 2021 ( Act No. 24 of 2021) The Higher Education (Amendment) Act of 2021 ( Act No. 23 of 2021) The Public-Private Partnership (Amendment) Act, 2021 ( Act No. 22 of 2021) The Health Professions (Amendment) Act, 2021 ( Act No. 21 of 2021) The Rural Electrication (Amendment) Act, 2021 ( Act No. 20 of 2021) The National Heritage Conservation Commission (Amendment) Act, 2021 ( Act No. 19 of 2021) The Examination Council of Zambia (Amendment) Act, 2021 ( Act No. 18 of 2021) The Zambia Law Development Commission (Amendment) Act, 2021( Act No. 17 of 2021) The Zambia Institute of Advanced Legal Education (Amendment) Act, 2021 ( Act No. 16 of 2021) The Zambia Revenue Authority (Amendment) Act, 2021 ( Act No. 15 of 2021) The Zambia Institute of Diplomacy and International Studies (Amendment) Act, 2021 ( Act No. 14 of 2021) The Tropical Diseases Research Centre (Amendment) Actl, 2021 ( Act No. 13 of 2021) The Service Commissions (Amendment) Act, 2021 ( Act No. 12 of 2021) The Public Service Pensions (Amendment) Act, 2021 ( Act No. 11 of 2021) The Petroleum (Exploration and Production) (Amendment) Act, 2021 ( Act No. 10 of 2021) The National Institute of Public Administration (Amendment) Act, 2021 ( Act No. 9 of 2021) The National HIV/AIDS/STI/TB Council (Amendment) Act, 2021 ( Act No. 8 of 2021) The Control of Goods (Amendment) Act, 2021 ( Act No. 7 of 2021) The Compensation Fund (Amendment) Act, 2021 ( Act No. 6 of 2021) The Citizen Economic Empowerment (Amendment) Act, 2021 ( Act No. 5 of 2021) The Electronic Communications and Transactions Act, 2021 ( Act No. 4 of 2021) The Data Protection Act, 2021 ( Act No. 3 of 2021) The Cyber Security and Cyber Crimes Act, 2021 ( Act No. 2 of 2021) The Legal Aid Act, 2021 ( Act No. 1 of 2021) The Zambia Institute of Marketing (Amendment) Act, 2021 ( Act No. 27 of 2020)

2021 Q4 Policy Review Journal

Prepared By Sharon K. Nkandu (Policy Research & Advocacy), with the support of Daniel Chibutu (Business Development) and Taizya Munyembe (Administration & Communication)

2021 Q4 AMCHAM POLICY REVIEW