The Investors' Road Map Zambia 2019

COUNTRY PROFILE POLITICS ZDA ECONOMY BANKING CAPITAL MARKETS INSURANCE INDUSTRY & MANUFACTURING ENERGY TRANSPORT TOURISM AGRICULTURE MINING CONSTRUCTION & REAL ESTATE ICT HEALTH EDUCATION HEALTH STARTING A BUSINESS IN ZAMBIA ACCOUNTANCY & TAX LEGAL FRAMEWORK ART

INVESTORS’ ROAD MAP

ZM ZAMBIA

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Zambia’s Unlimited Po

otential, Awaits you!

The Zambia Development Agency invites you to be a part of Africa’s Fastest developing economy It is Africa’s new frontier for Investments and Profits Whether it’s Agro-processing, Engineering Products, Livestock or service Industry, WE WELCOME YOU.

Be a part of Zambia’s success story.

WEBSITE: www.zda.org.zm EMAIL: zda@zda.org.zm

TEL: +260 211 228240/221467 FAX: +260 211 225270

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CONTENTS

ZAMBIA 2019

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COUNTRY PROFILE (1) ANALYSIS: A Country with Diverse Opportunities: The Heart of the SADC

16 19

POLITICS (2) ANALYSIS: A Record of Political Stability: A Country of Great People VIEWPOINT: Edgar Lungu, His Excellency, President of the Republic of Zambia

22 24 27

ZAMBIA DEVELOPMENT AGENCY (3) ANALYSIS: Zambia Development Agency: The Investors’ First and Last Stop ARTICLE: Investor Aftercare is a ZDA Priority: The Investors Permit is just the Beginning ARTICLE: ZDA investment promotion activities for 2019

30 33 36 38 40 44 46

ECONOMY (4) ANALYSIS: Moving Forward: An Economy of Growth VIEWPOINT: Margaret D. Mwanakatwe, Minister of Finance INTERVIEW: Betty Wilkinson, CEO, FSD Zambia ARTICLE: A Fleeting Lifeline from China: What FOCAC 2018 Entails for Zambia ARTICLE: Successful 2018 IMF / World Bank Annual Meetings ARTICLE: In Search of Zambia’s ‘Hidden’ Public Debt ARTICLE: Zambia’s Unfinished Business with the IMF

50 53 56 58 60

BANKING (5) ANALYSIS: Financing Growth and Development: Bank with Us INTERVIEW: Douglas Kamwendo, MD, FINCA Zambia INTERVIEW: Brian Malambo, MD, Izwe Loans Zambia INTERVIEW: Henk G. Mulder – CEO, ZANACO VIEWPOINT: Kingsley Kaswende, Senior Communication Specialist, Zanaco

64 67 69

CAPITAL MARKETS (6) ANALYSIS: Shares of Wealth: State Owned Enterprises are Listing INTERVIEW: Priscilla Sampa, CEO, Lusaka Securities Exchange ARTICLE: Focus on Zanaco

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INSURANCE (7) ANALYSIS: Guarantees against Risk: Ensuring Peace of Mind

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INDUSTRY AND MANUFACTURING (8) ANALYSIS: Manufacturing profit: A Sector to make a Mark ARTICLE: Cabinet Approves National Industrial Policy: Promoting the Creation of more Industries INTERVIEW: Chipengo Zulu, CEO, Zambia Association of Manufacturers INTERVIEW: Lux Subramaniam, Group General Manager, Trade Kings

86 89

ENERGY (9) ANALYSIS: Sustainably energising Growth and Development ARTICLE: EU & Germany give Zambia K333m Grants

92 95 98 100

TRANSPORT (10) ANALYSIS: Opening Routes to Opportunities: Linking Zambia to the World INTERVIEW: Satrajit Chakraborty, Business Head, Tata Zambia Limited INTERVIEW: Alex Ehui, Country Chief Executive, Bureau Veritas Zambia ARTICLE: Tata Success Story: Far more than just Quality Busses

104 107

TOURISM (11) ANALYSIS: Spectacular Natural Wonders abound ARTICLE: Areas of Investment in the Tourism Sector: Lodge your Investment License Application

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CONTENTS

ZAMBIA 2019

110 115 117

AGRICULTURE (12) ANALYSIS: Opportunities for Growth: A Harvest waiting to be Reaped VIEWPOINT: Michael Katambo - Minister of Agriculture INTERVIEW: Dr Akintayo Adisa, MD and Business Development Manager, BASF Southern Africa

122 125 127 129

MINING (13) ANALYSIS: Diversified Geological Wealth: Exploring a New Tax Regime INTERVIEW: Dr Raj Sharma, MD, Jewel of Africa ARTICLE: Zambian Emeralds conquer the World Market ARTICLE: Miners and Government need to Dig Deep

134 137 140 142 144

CONSTRUCTION AND REAL ESTATE (14) ANALYSIS: Constructing the Nation: Infrastructure Development Core to Zambia’s Growth Plans ARTICLE: Financial and Economic aspects of the New Kenneth Kaunda International Airport ARTICLE: Room for Growth: High Demand for Quality across the Sector INTERVIEW: Sydney Popota, CEO, REIZ INTERVIEW: Diego Casilli, CEO, Napoli Property Ltd.

148 151 154 155

ICT (15) ANALYSIS: Creating Connections: Accessing Information VIEWPOINT: Brian Mushimba, Minister of Transport and Communication ARTICLE: A Match made in the Cloud INTERVIEW: Samson Longwe, MD, Hai Telecom

158 163

HEALTH (16) ANALYSIS: Equitable access to Quality Health Care: Increasing Productivity through Health Goals VIEWPOINT: Chitalu Chilufya, Minister of Health

166 169 172 174 175

EDUCATION (17) ANALYSIS: Enhancing Human Development with Relevant Skills: Increasing PS Involvement VIEWPOINT: Nkandu Luo, Minister of Higher Education INTERVIEW: Ajay Poddar, Deputy Vice Chancellor, Texila American University, Zambia VIEWPOINT: Moono Sindowe, Head Human Resources, Hai ARTICLE: Focus on Texila American University: Attracting Students from around Africa

180 184 186

STARTING A BUSINESS IN ZAMBIA (18) ANALYSIS: A practical Guide to Procedures VIEWPOINT: Matongo Matamwandi, Director Investments, ZDA ARTICLE: Procedures & Guidelines for Certificate of Registration/ MFEZ Permit

190 193 195

TAX AND ACCOUNTANCY (19) ANALYSIS: How Companies are Taxed in Zambia: A Guide to the Tax Framework ARTICLE: Visualising Sales Tax VIEWPOINT: Katrina Mabika, BDO, Director, Tax Advisory Services

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LEGAL FRAMEWORK (20) ANALYSIS: Legally Speaking: Legal Aspects of Doing Business

204 205

ART (21) ARTICLE: Whoman Exhibition: Realities faced by Zambian Women ARTICLE: Lechwe Trust: A Charitable Trust for the Visual Arts in Zambia

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CREDITS

ZAMBIA 2019

Managing Partners

Creative Director

Baiba Petrusevica Norman Barrett

Evan Barrett

Editorial Director

Graphics

Kevin Whitfield

Agape Factory

Contributors

Drone Photography

Caesar Cheelo Florence Banda-Muleya Katrina Mabika Kingsley Kaswende Mbewe Kalikeka Moono Sindowe Pamela Nakamba-Kabaso

Colin Miller

Art

Thanks

ZANACO Trade Kings Ltd TATA Zambia Ltd Real Estate Investments Plc Napoli Property Investment Ltd HAI Telecom FINCA Zambia Bureau Veritas Zambia BASF Zambia Ltd

Alex Ehui Betty Wilkinson Diego Casilli Douglas Kamwendo Dr. Akintayo Adisa Kingsley Kaswende Lishala Situmbeko Loiwe Shawa Lomthunzi Mbewe Lux Subramaniam Martinet Malyo

Matongo Matamwandi Moses Mwanakatwe Moses Vera Mukuka Bwalya Mutinta Musokotwane Nicholas Mukupa Russell Haamubbi Samson Longwe Satrajit Charkaborty Sydney Popota William Bwalya Miko

David Daut Makala Lechwe Trust Marcel van Driel Nicholas Mukupa William Bwalya Miko

Publishing BRIG Zambia Sponsors

CONTACTS BRIG: hello@bri-group.org Agape Factory: info@agapefactory.com ZDA: zda@zda.org.zm

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CREDITS

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ZAMBIA 2019

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by eMDee

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COUNTRY PROFILE

Zambia is a land-linked country with access to 8 neighbouring countries A country endowed with a beautiful natural environment A liberal economy with little price and exchange controls A population that is young and rapidly growing

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COUNTRY PROFILE

ANALYSIS

A Country with Diverse Opportunities

The Heart of the SADC Zambia is located in the centre of Southern Africa. It is considered the ideal gateway for accessing the whole of the Southern African Development Community (SADC) as it shares borders with eight neighbouring countries. The country has experienced political stability since its independence in 1964. In 1991, a multi-party democracy was established and major economic reforms were undertaken, which has led to ongoing investments from the international community.

Vision 2030: The country’s development is guided by the National Long-Term Vision 2030, which is commonly known as Vision 2030. Vision 2030 can aptly be described as the people of Zambia’s vision to become a prosperous middle-income nation by 2030. Vision 2030 was a result of a nationwide consultative process that involved various stakeholders such as traditional leaders, civil society, government departments, cooperating partners and ordinary citizens. It is the Zambian people’s aspiration of “a common and shared destiny, united in diversity, equitably integrated and democratic in governance, promoting patriotism and ethnic integration. Further, the nation should have devolved political systems and structures while retaining the roots and positive aspects of their own mould of social, cultural and moral values.”

These aspirations are based on the principles of gender-responsive sustainable development, democracy, respect for human rights, good traditional and family values, positive attitudes towards work, peaceful coexistence and private-public partner-

ships. The country’s development has been guided by a number of short and medium-term plans. Vision 2030 would be operationalised through five medium-term plans, which coincidentally began with the nation’s 5th National Development Plan (20062010). Currently, the nation’s mid-term development is guided by the 7th National Development Plan (7NDP). This medium-term plan follows after the revised 6th National Development Plan (2013-2016). The 7NDP is a document that has been built upon the achievements and lessons learnt through the implementation of the previous national development plans.

7NDP: The theme of the 7th National Development Plan is accelerating development efforts towards the Vision 2030 without leaving anyone behind. The previous national development plans were economic-sector specific. The 7NDP has followed an integrated multi-sectoral development approach that understands that sustainable development requires the coordination of development programs as sustainable development has a multifaceted and interlinked nature. With this approach, the 7NDP has considered the comparative and competitive advantages of the country’s different regions. As such, different regions are allocated resources according to their strengths and opportunities during the 7NDP’s period.

Ultimately, this multi-sectoral development strategy sets in motion mutually-supportive activities across different sectors with the ultimate purpose of achieving Vision 2030. In this manner of an integrated-development approach, the focus of government

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COUNTRY PROFILE

line ministries and provinces would change from competing with each other for resources towards coordinated harmonisation, whereby everyone works together for the greater good. As such, the 7NDP aims at development interventions that tackle various issues simultaneously with an integrated approach to planning and resource allocation.

Among other important aspects discussed in the 7NDP, the document discusses strategic areas such as economic diversification and job creation, poverty and vulnerability reduction, reducing developmental inequalities, enhancing human development and creating a conducive governance environment for a diversified an inclusive economy. The government’s annual budget is directed towards these strategic areas and this offers the investor a myriad of opportunities for investment and capital generation, and corporate social responsibility spending.

Zambia has a liberalised economy with copper and cobalt being major exports of approximately 70% of foreign exchange earnings. This dependence on a single sub-sector has made the country vulnerable to external price shocks and the subsequent effects on the economy. Hence, the holistic focus on economic development in the country.

About the country: Since independence in 1964, the country has enjoyed unrivalled political stability. From 1991, the country has been a multi-party democracy and major economic reforms have been undertaken to transform Zambia into the economic investment hub of the SADC, which is evident with a number of international businesses using Zambia as their base for entering Southern Africa. Zambia is the 39th-largest country in the world (752,614 km² (290,586 sq. mi) and it has been estimated to be the 66th most populous country in the world. The population is expected to grow at an annual average rate of 3%. The median age of Zambians is 17 years old; the country has a working population of over 50%. Over the past 50 years, the population has grown exponentially with increasing proportions of the population living in urban areas.

In terms of the country’s geopolitical location, it borders the Democratic Republic of Congo in the north, Tanzania in the northeast, Malawi in the east, Mozambique, Zimbabwe, Botswana and Namibia in the south, and Angola in the west. Its proximity to so many countries within the Southern African Development Community, Zambia is referred to as a land-linked country. As such, many companies have chosen Zambia to be their headquarters as they expand into the economic potential of neighbouring countries. Internally, the country has 10 provinces, 106 districts, 156 constituencies and 1281 wards. Lusaka is the country’s capital city and the economic hub of the country, the Copperbelt Province is well known to be a mineral-rich while other provinces have numerous business opportunities due to their strategic and comparative advantages. This is worth noting when considering Zambia’s diversification agenda.

The country’s climate is classified as tropical but with its location on the plateau of Central Africa (1,000-1,600 m above sea level), the elevation modifies the tropical climate, which produces pleasant subtropical weather. The country experiences rainy season from around November to April, which is followed by a cool dry season (from May/June to August) and a hot dry season (from September to October/November). The average month-

ANALYSIS

ly temperatures are above 20°C for most of the year, although different areas of the country have different micro-climatic conditions.

The history of people in the country has ancient roots, with the first discovery in Africa of a fossilised early humanoid. The hunter-gatherer Khoisan was the only ethnic group that occupied the modern-day territory of Zambia until around the 4th century. Thereafter Bantu tribes started migrating down from the North with their farming systems and with this, cultivated land and the human population grew.

From around the 11th and 12th centuries, long-distance trade had developed with the export of ivory and the import of cotton textiles; copper was used as a currency and more complex social structures developed. From the 16th to the 19th century, there were four kingdoms in modern-day Zambia. In the 18th century, the first European traders had arrived in the area. In 1888, Cecil John Rhodes received mineral rights concessions from local authorities in what was known as Northern and Southern Rhodesia (Zambia and Zimbabwe today). This area was later claimed as a British Colony with the British South Africa Company (BSAC), which Rhodes was managing, administering the area.

In 1923, the British ended the BSAC charter and the administration of the country was transferred to the British Colonial office by 1924. The country was transformed in 1928 when enormous copper deposits were found; within a decade, the country was producing 13% of the world’s copper production. In 1953, Southern and Northern Rhodesia, as well as Nyasaland (today Malawi), formed the Central African Federation. For the next decade, there was much turmoil and crises as the African population demanded greater participation in government, with European administrators fearing the loss of political control. This resulted in an election in 1962, which saw the majority of the Legislative Council seats in the hands of the African population. The following year, the Central African Federation was dissolved, which led to Northern Rhodesia becoming the Republic of Zambia on the 24th of October 1964.

The first elections were won by the United National Independence Party (UNIP), with Kenneth Kaunda leading the country.

The government of that time had left-wing economic policies that focused on central planning and nationalisation. Kaunda was re-elected after four years and the government implemented a one-party system that banned all political forces except the UNIP. The UNIP ruled the country up until 1991. The economy was based largely on copper production and an oversupply of copper on the global market caused the economy to decline sharply, which resulted in discontented citizens and major strikes in 1981, 1986, 1987 and 1990. President Kaunda and his government realised the need for major political reforms. Bans on other political parties were lifted and democratic elections took place in 1991 after a new constitution had been drafted. As such, the era of democracy in Zambia had started.

The people of Zambia are diverse with over 70 different native languages and dialects spoken throughout the country. English is the official language of the country and it is used as the medium of instruction in schools and business transactions. Different languages are more prominent in different parts of the country as well as varieties of indigenous dialects that have borrowed

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ANALYSIS

words from the English language. The country’s official religion is Christianity and the constitution declares that the country is a Christian nation but upholds the right of every person to enjoy religious freedom. Other religions practised in the country include the Baha’i faith, Islam, Hinduism, Sikhism, and Judaism.

Indigenous beliefs are often blended with Christian doctrine. Regarding education, the population of Zambia has one of the highest literacy rates in Africa. The constitution provides the right to equal and adequate education, and primary education (grades 1 to 7) is free at government schools while secondary education (grades 8 to 12) and tertiary education requires the payment of fees. There are 30 higher education institutions in the country, of which three are public universities.

Of the countries area, just under 50% is considered arable, with most of this area underutilised. While a variety of crops are grown, maize and wheat are the country’s most important source of food. Zambia’s vast water resources allow the irrigation of the country’s rapidly growing agricultural sector. Water resources are also used to create hydroelectricity (most of the country’s electricity is obtained from renewable resources) and the country still has a large unexploited hydropower potential.

Zambia offers a wide variety of business opportunities within the country as well as expansion into the broader economic region.

Zambia is a land of natural splendour and is estimated that the country holds 40% of the SADC’s water resources. Underneath the surface lies major deposits of copper, cobalt, zinc, lead, coal, emeralds, gold, silver and uranium. The country is the 5th largest copper-producing nation, Africa’s largest producer of cobalt and is estimated to hold 6% of global copper reserves.

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POLITICS

Harmonious relations with eight neighbours Cosmopolitan, multicultural and vibrant A common and shared destiny, united in diversity Decades of political stability

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POLITICS

ANALYSIS

A Record of Political Stability A Country of Great People Location and Geopolitics: Zambia is in the heart of southern Africa. It is a landlocked country surrounded by Angola, Botswana, the Democratic Republic of the Congo, Malawi, Mozambique, Namibia, Tanzania and Zimbabwe. Political relations between Zambia and its neighbours are good and there have been little international disputes after the independence of other African countries. Lusaka is the capital city and is located in the south-central part of Zambia. The country has ten provinces that are divided into 103 districts, 156 constituencies and 1,281 wards.

The People: Zambia has a population of around 16 million people. Zambia’s population is generally concentrated around the main economic hubs of the country, namely Lusaka and the Copperbelt Province, with over 40% of the population living in urban areas. The median age in Zambia is 17.2 years, and around half of the population is considered to be of working age (15 years or older); a high proportion of the population is under the age of 15. A high percentage of the working age population is literate. Around 54% of the population is considered poor, with poverty trends showing a decrease from 2010 to 2015.

Culturally, the population speaks over 70 different ethnic languages and dialects, most of which are Bantu-based languages.

About 90% of the population falls within nine major ethnolinguistic groups. In addition, there is a large community of people from Asia, mostly of Chinese and Indian origin, as well as a people of European descent. With so many different ethnic groups, and

due to the migration of these different groups of peoples towards economic hubs, different cultures have intertwined and made these areas very cosmopolitan, multicultural and vibrant. There is very little ethnic/tribal animosity and is not a political problem as in many other countries.

Early History: The hunter-gatherer Khoisan initially inhabited the area known as Zambia today. Bantu expansion across Africa was underway in the early 12th century and the region experienced an influx of Bantu people. Towards the end of the 12th century, several kingdoms had been established across the region. The first European explorers entered the region in the late 18th century. The late 19th century witnessed David Livingstone’s discovery of Mosi-oa-Tunya (the smoke that thunders).

His accounts of the region and the Victoria Falls enticed the migration of Europeans into the region. Another development during this time - and up until today - was the permanent established of the various ethnic groups’ boundaries. In 1888, the British South Africa Company (BSA Company), under the leadership of Cecil John Rhodes, obtained mineral rights in the region and later became the administrator for what was then known as Northern Zimbabwe. His control was surrendered to the British government in 1923 and modern-day Zambia became a British protectorate.

The Federation of Rhodesia and Nyasaland (present-day Zambia, Zimbabwe and Malawi) established itself in 1953 as a federal semi-Dominion. The Federation ended within a decade when

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POLITICS

demands for majority rule and independence for Zambia were met. This was followed by an African majority in the legislative council and the resolutions for Northern Rhodesia’s secession from the Federation.

Independence Day: On 24 October 1964, Zambia gained independence from the United Kingdom. Kenneth Kaunda was voted in as the first President and thereafter Northern Rhodesia became known as the Republic of Zambia. Kaunda and his socialist United National Independence Party (UNIP) ruled the country from 1964 until 1991, and the UNIP was the sole political party from 1972 to 1991 when the party nationalised political and economic processes. In 1991, multiparty elections were reinstated after growing discontentment with the government of the day and its poor economy. Thereafter, the country’s new political and electoral system was within the framework of a Presidential representative democratic republic. This is a political system where the President is the head of state and the head of government and is within a pluriform multi-party system. In this system, the government has executive power but legislative power is with both the government and parliament.

Democratic Era: In snap elections held in 1991, Kaunda lost the elections and peacefully handed power over to Frederick Chiluba’s Movement for Multi-Party Democracy. Decentralisation was the order of the day and a period of social-economic growth occurred. Chiluba won a second term, and a bid was put forth to amend the constitution to allow a third term. This bid became of no result even though his party had a majority in parliament. Chiluba nominated his deputy President, Levy Mwanawasa, to take over. On January 2, 2002, Chiluba stepped down. Mwanawasa was elected President and served until his death in 2008.

During Mwanawasa rule, the economy stabilised, there were increases in the real GDP and levels of trade, single-digit inflation was achieved and interest rates reduced. While improvements to the economy have been credited to the higher global copper prices and increased foreign investments in mining, it was during Mwanawa’s presidency that saw greater interest in the country from foreign investors and aid donors, and a rise of investor confidence. His term as President has also been known for reduction in corruption and improved standards of living. After Mwanawa’s death, Rupiah Banda was the Acting President in the interim period before elections and was later in the year elected President.

In the 2011 elections, Banda lost the vote to Michael Sata of the Patriotic Front (PF) and Banda peacefully stepped down. Sata served the country as President until his death in October 2014.

Sata’s death led to Zambia’s vice-President, Guy Scott, serving as acting President, and according to the constitution, had to set a Presidential by-election within 90 days. Shortly after Scott started leading the PF party, he dismissed his Secretary

ANALYSIS

General, Edgar Lungu. Lungu was re-instated as secretary general the following day after protests in Lusaka. Lungu won the PF’s candidacy and the Presidential by-elections in January 2015 to finish Sata’s term. The vote count was close and Lungu gained Zambia’s presidency by narrowly defeating Hakainde Hichilema’s United Party for National Development (UPND). The opposition cried foul but tensions were calmed amicably.

Shortly thereafter, on the 11th of August 2016, official Presidential elections were held. In addition to the elections, a referendum to amend Article 79 in the bill of rights was undertaken, of which over 70% of voters voted in favour but the 50% threshold required to validate the vote was not reached and the bill of rights remained unchanged. These elections were different from the past in that the winner required over 50% of the vote to achieve victory. In addition, the election of the vice-President - who could be appointed President if the incumbent was declared unfit to govern - was included. The National Assembly consists of 150 members that are elected from single-member constituencies, a further eight members are Presidentially appointed and the Speaker of Parliament is elected from outside the National Assembly.

Lungu won these 2016 elections with just over 50% of the vote, with the PF winning 80 of the 156 seats. While elections were peacefully conducted, the country’s record of peaceful elections was tarnished by periodic violence before the election. Due to delays in the announcement of election results, the opposition cried foul and there was short-lived protests. Observer missions found the election to be free and fair.

Political Rivalry: There is often tension between the two political parties but there is political maturity in that political issues are dealt with peacefully. Recently, President Lungu has been lawfully permitted to run for President in the 2021 Presidential elections.

The issue was over whether Lungu’s term in office after winning the Presidential by-elections in January 2015 - to finish Sata’s term - should be considered as his first term in office and therefore should not be eligible to run for re-election. Courts ruled that the finishing of Sata’s term should not be considered Lungu’s first term and that he was allowed to run for re-election. Developments in the country’s economic activities - like the listing of state-owned enterprises on Zambia’s stock exchange - are often used as political footballs to garner public support despite the logic for such decisions.

Zambia’s new constitution, which was effected in 2016, has been labelled as an investor-friendly policy, which is innovative in itself and encourages innovation. The Government shows its seriousness to the development of the economy through removal of subsidies and shows consistency of policy and the implementation thereof.

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ANALYSIS

Political Stability: As mentioned in the Country Profile, Zambia has its long-term development plan - Vision 2030 - that is widely accepted due to its broad consultative process that included ordinary citizens, civil society, traditional leaders, government Ministries and cooperating partners. Due to this, Vision 2030 has had buy-in across the political lines. The Vision is to become “a prosperous middle-income nation by 2030”. This is expanded with Zambians’ aspirations “to live in a strong and dynamic middle-income industrial nation that provides opportunities for improving the wellbeing of all, embodying values of socioeconomic justice, which are underpinned by the seven principles of:

• Gender-responsive sustainable development; • Democracy;

• Respect for human rights;

• Good traditional and family values;

• Positive attitude towards work;

• Peaceful coexistence; and

• Private-public partnerships.”

In addition, there is the people’s objective of “a common and shared destiny, united in diversity, equitably integrated and democratic in governance, promoting patriotism and ethnic integration. Further, the nation should have devolved political systems and structures while retaining the roots and positive aspects of their own mould of social, cultural and moral values.”

While there were medium-term National Development Plans (NDPs) in the past, Vision 2030 was Zambia’s first long-term development plan that would thereafter guide all future medium-term NDPs. The late President Mwanawasa started the process towards realising Vision 2030 in 2005. It was presented to the country in December 2006. Today, Zambia and its annu-

al budgets are guided by the 7th National Development Plan (NDP7) until 2021. The NDP7’s theme is “Accelerating development efforts towards the Vision 2030 without leaving anyone behind”.

The NDP7 has built upon the successes and lessons learnt from the previous NDPs. The NDP7 has followed a more integrated-development approach compared to previous NDPs’ sectoral-based planning. The integrated approach recognises the multi-faceted and interlinked nature of sustainable development.

This requires development interventions to be coordinated and approached simultaneously for greater success through coordinated harmonisation of government line ministries’ and provinces’ efforts towards the greater good.

The NDP7 notes the country’s record of eight successful elections since the return to multi-party politics in 1991. Elections have been characterised by peaceful transitions of power that makes Zambia one of the most politically stable countries in Africa. The government has recognised that good governance and a stable political framework are essential for sustainable development as it promotes a conducive business environment, increases market confidence and attracts foreign direct investment, amongst other benefits. The NDP7 states that a stable political environment gives Zambia an opportunity to continue strengthening its institutions in order to support growth and development, and maximise the attainment of its development outcomes.

To further aid in sustainable development, the Government has continued to implement policies that promote transparency, accountability and citizen participation to strengthen governance institutions.

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VIEWPOINT

His Excellency Mr Edgar Chagwa Lungu President of The Republic of Zambia

My Government is committed to deliver on the promises we have made to the people of Zambia through the creation of a conducive business environment for wealth creation and employment opportunities. It is for this reason that my Government has embarked on various project to make these promises a reality. Infrastructure development remains a cornerstone for national development, with this in mind, my Government is bringing the people of Zambia closer to much needed public services.

Effectively linking workers to their work places, farmers’ produce to markets, the sick to hospitals, and students to schools, among others, a good road network is the all-important component that interconnects our economic infrastructure.

or us to achieve a diversified and resilient economy as espoused in the Seventh National Development Plan, we have to build a well-functioning transport system, the project is a fulfilment of my Government’s commitment to infrastructure development as one of the key priorities and strategies for accelerating our country’s socio-economic development. The project, which will later be replicated elsewhere, does not only aim at reducing journey time, but more importantly, focuses on improving the safety of all road users. The project will include fly-over bridges at various points, ring roads and overpasses.

Good roads are therefore crucial and vital to our development agenda. This is why Government is spending large amounts of money to develop our roads nationwide. During the 2017-2018 rainy season some roads became impassable, forcing motorists to crowd in the few that are in a good condition. This negatively affects people’s mobility and their day-to-day activities as well as the economy. There is a strong correlation between the quality of the country’s road network and our overall economic development. Roads are the arteries that run the pulse of our economy.

It is for this reason that my Government has embarked on the Lusaka Roads Decongestion project.

My Government is concerned with the increasing traffic congestion on the country’s roads. Traffic congestion is slowing down the economy. People are spending too much time driving to their work and places of business than doing the actual work or transactions. The project once completed will significantly reduce journey time thereby reducing the cost of fuel and car maintenance consequently reducing the country’s overall import bill. The project will also create employment in the process and the city will be beautified. Lusaka is poised to benefit since improved traffic flow will lead to reduced emissions of pollutants from vehicles.

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VIEWPOINT

The mammoth project is the starting point of towards archiving sustainable mobility in the country. This project will greatly improve the country’s infrastructure and thus in turn attract the much needed foreign investment. A greater, well-developed Lusaka will also truly serve as a gateway to the Southern Africa Development region.

The aviation sector is another aspect my Government is working on for the purpose of making Zambia open to the outside world.

My Government is committed to make Zambia an attractive investment destination and this will create an opportunity for the people to open either direct or indirect business.

With regards to the long awaited National Airline, my Government has put in measures, including the necessary assessment to give the required assurance that Zambia is on course to the launch. Zambia’s economy cannot survive with externalisation of resources which is done due to unavailability of a National Airline. The non-existence of a National Airline has affected the tourism, commerce and trade potential of the country as it has had to rely on foreign airlines, which are expensive and are characterised by connectivity challenges. The lack of a National Airline has also hindered Zambia from benefiting from the $1.5Bn

passenger revenue per annum, from which the airlines operating in Zambia are benefiting.

Let me take this opportunity to praise our Zimbabwean brothers and sisters for maintaining peace and harmony during the transition of power that ensued in November 2017. Zambia and Zimbabwe have for many years enjoyed long-standing cordial relations, and my Government is committed to strengthening these ties through trade and commerce. To foster this relationship, our collective Governments have embarked on a joint project that aims to mitigate our countries’ power deficits.

Furthermore, my Government has revived the Lion’s Den-Kafue, Zambia Rail line that was mooted in 1980. The two projects goes to show the high level of camaraderie between our two countries. Our country is going through changes. While change can bring about uncertainty, even anxiety, it also offers great opportunities for renewal and revitalisation and for progress. Together we can make our country a place we all want to live in. We all can do it – bonded by our common love for our country, resolute in our determination to overcome the challenges that lie ahead and convinced that by working together we will build a fair, just and decent Zambia enshrined in our motto, “One Zambia, One Nation”.

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Promoting economic development for all Facilitating the development of multi-facility economic zones Focus on investor aftercare Busy investment promotion calendar

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ZDA

ANALYSIS

Zambia Development Agency The Investors’ First and Last Stop

Background: The Zambia Development Agency (ZDA) was established in 2006 by an Act of Parliament and became operational in January 2007 after the amalgamation of five statutory bodies that hitherto operated independently to foster economic growth and development by promoting trade and investment through an efficient, effective and coordinated private sector led economic development strategy. These institutions were the Zambia Investment Centre (ZIC), Zambia Privatisation Agency (ZPA), Export Board of Zambia (EBZ), Small Enterprise Development Board (SEDB) and Zambia Export Processing Zones Authority (ZEPZA).

The Act gives powers to the ZDA in key areas of trade development, investment promotion, enterprise restructuring, development of green fields’ projects, small and enterprise development, trade and industry fund management, and contributing to skills training development.

The amalgamated Agency is therefore a semi-autonomous institution with its Board of Directors appointed, by the Minister of Commerce Trade and Industry. The Board comprises members of the public and private sector as well as civil society organisations, while both the Chairperson and the Vice Chairperson are appointed from the private sector. The organization has its head office in Lusaka and regional offices in Chipata, Kitwe, Kasama, Livingstone, Mansa, Solwezi and Mongu.

Vision statement: A dynamic hub for promoting economic development for all.

Mission Statement: To efficiently and effectively promote and facilitate investment, trade and enterprise development in Zambia.

ZDA Functions: The specific functions of ZDA are provided in the ZDA Act as follows:

• Give advice to the Minister on matters

relating to industry, industry development

and productivity, investments, exports of

goods and services, operations of

multi-facility economic zones and matters

relating to micro and small-scale business enterprises;

• On the request of government, study market

access offers received from trading partners

under COMESA, WTO or SADC and advise

the government on opportunities and challenges generated;

• Make detailed impact analysis on select

sectors of the economy such as textiles,

agriculture, mining, tourism, education, skills

training, communication, transport, infra

structures development, automobiles, in

formation technology, chemicals and steel

engineering goods, through a multi-disciplinary team;

• Establish a database of facilities, human

resource and their skills, sources of finance,

technology, raw materials, machinery,

equipment and supplies with the view to

promoting accessibility of these industry;

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ZDA

• Develop entrepreneurship skills and the

business culture in the citizens of Zambia;

• Promote and facilitate the development of

micro and small business enterprises;

• Formulate investment promotion strategies;

• Promote and coordinate government

policies on, and facilitate, investment in Zambia;

• Assist in the security from any state

institution any permission, exemption,

authorization, licence, bonded status, land

and any other thing required for the

purposes of establishment of operating a business enterprise;

• Undertake economic and sector studies and

market surveys so as to identify investment opportunities;

• Plan manage, implement and control the

privatization of state owned enterprises;

• Oversee all aspects of the implementation of

the privatisation programme;

• Monitor progress of the privatization

programme in Zambia;

• Monitor post privatization activities to ensure

compliance with any agreement entered into

for the privatization of any state owned enterprises;

• Develop-multi facility economic zones or

facilitate the development of multi-facility

economic zones by any investors;

• Administer control and regulate multi-facility

economic zones and ensure compliance

with this act and any other laws relevant to

the activities of multi-facility economic zones;

ANALYSIS

• Monitor and evaluate the activities,

performance and development of

enterprises operating in multi-facility

economic zones and prescribe and

enforce measures, for the business or

activity carried out within a multi-facility

economic zone so as to promote the safety

and efficiency of its operations;

• Promote and market multi-facility economic

zones among investors;

• Facilitate adjustment to structural changes in

the economic hardships arising from those changes;

• Protect the interests of industries,

employees, consumers and the

community that are likely to be affected by

the measures proposed by the agency;

• Increase employment in Zambia;

• Promote regional development, cooperation and integrity;

• Monitor the progress made by Zambia’s

trading partners in reducing both tariff and non-barriers;

• Ensure that industry develops in a way that

is ecologically sustainable;

• Ensure that Zambia meets its international

obligations and commitments, including

those under the WTO, COMESA and SADC; and

• Maintain regular, productive and effective

dialogue and cooperation with the public

and private sector and encourage

public-public dialogue, private-private and

private to public dialogue.

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Investor Aftercare is a ZDA Priority The Investors Permit is just the Beginning

The Zambia Development Agency (ZDA) believes that Foreign Investment (FDI) is not a transaction, it is a relationship over the entire lifecycle - attraction, entry, establishment, retention, expansion and linkages with domestic entrepreneurs and companies.

Proactive promotion of strategic sectors is essential given fierce competition for FDI in the region and worldwide, so simply improving the investment climate is not enough. There is, therefore, a strategic focus on those sectors that can bring the most benefits and be attractive to investors.

While promotion is key to attracting investment, just as important to retaining and expanding it, is the aftercare accorded to investors by the ZDA. It is an opportunity for first hand feed-back about deficiencies in the investment climate and the most effective way of increasing the value of the investment to the host country. It is not about reacting to customer complaints - a proactive approach will be more successful when it comes to the retention, expansion, embedding and diversification of the investor base.

By adopting a strategic and systematic approach to this crucial function, the ZDA gives itself a tremendous advantage in the intense international competition for more and better FDI. With this in mind, the ZDA realises that over 60% of new jobs are created

by FDI from expansions of their existing investors rather than from new first time investors.

The ZDA’s Aftercare objectives include the retention and growth of FDI, to be the reference to attract more FDI, identify and overcome weaknesses in the FDI environment, to exploit industry value chains and deepen industry roots in the country, the promotion of increased ‘spillover’ benefits and linkages with local SMEs and to contribute to the building of industry clusters.

In practice, Aftercare activities include understanding investors, their needs and perceptions, building long-term, collaborative relationships with investors and addressing the needs of these investors, helping remove obstacles and solve problems faced by investors in their start-up, operations or expansion phases, helping investors meet and cooperate with officials, local suppliers, service providers, and other investors and the provision of information to investors about doing business locally. Ultimately, investor aftercare is about helping investors grow, diversify and anchor their businesses in the local economy.

For the ZDA the point in time for the handing over from Investment Promotion to Aftercare needs to be defined in advance and could be one year after the investor’s decision to invest or when the first local employee is hired, whichever comes first, the date of purchase or rental of land or building or the date of first installation of machinery or equipment or any milestone that makes sense. As with best practice in Investment Promotion and Aftercare, the ZDA recognises the Importance of independent Investor Surveys. The bi-annual surveys ask investors to rate their satisfaction with the country as an investment location, their

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ZDA

level of satisfaction with the level of service they receive from the ZDA so that the organization is able to make policy advocacy recommendations to Government to improve the investment climate and improve their own service to investors.

ZDA Targets 2018 -21. In order to deliver on their mission, the ZDA have set ambitious targets for the next three years based on a detailed assessment of the global FDI marketplace, the outlook for sectors, the factors influencing the ZDA’s ability to win job creating investments and their past performance. The goals are to win 2000 new investments for Zambia and to support all clients in creating 1 million new jobs. These investments will be a combination of new name investments and expansions from existing overseas companies in Zambia and will be won for each province in Zambia in partnership with stakeholders.

The Agency sees its role in problem solving as acting as interlocutor between investors and institutions in Zambia and to understand the investor’s business and the impact of the problem on their operation. The solutions come from understanding the governmental landscape and levers of power, by having operational staff in constant contact with key public institutions and then having top management as an advocate of changes in laws and regulations to improve the investment climate of the country.

For this to really work, there must be trust between Government and the Private Sector as well as good mechanisms in place to facilitate dialogue between them.

The ZDA’s Aftercare program and survey includes large and small investors, new and already established. A sample that these that need little further assistance and some specific interventions include both recognised and low profile investors such as: Surya Bio Fuels who are implementing a project that will produce over 125 KVA of power using cassava and molasses as raw material. The promoters have commenced construction works and initiated the process of engaging local farmers that will be cultivating and supplying cassava. The project will also produce ethanol.

Medland Hospital Limited’s investment consists of a four floor hospital building of 5,500 m² with a 78-bed capacity. Located in Lusaka, Medland hospital is a combination of clinics and the first cardiac VIP hospital in Zambia. The equipment is from General Electrics and Mindray and apart from the complete Cardio-thoracic Surgery Unit there will also be an Anti-Aging Department and cater for outpatients and inpatients services.

Mpande Limestone, also trading as Sinoma Zambia, and are operated by the China National Building Materials Group Corporation (CNBM) Zambia who invested $500m in a cement project in Chongwe in 2015 and are currently constructing a 1.16Mta cement plant located there as well. The company will be producing cement and pan bricks with Zambians being sent for further training in China, after which they will be employed at the plant.

Marco Polo Tiles Co. (Zambia) Ltd falls under the Wonderful Group of Companies which is involved in research, manufacturing and sales of ceramics, porcelain and marble tiles for interior and exterior decoration as well as construction materials. They

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were the first to establish porcelain, ceramics and marble tiles in Zambia, and respond to approximately 70% of Africa’s total market demand. They acquired the most advanced state-of-theart technology and plant costing $35m in 2016 that produces 10,000 m² of a wide range of tiles per day to serve markets spread across Zambia with expansion into countries such as South Africa, Congo DRC, Malawi, Namibia, Mozambique, Tanzania, Botswana, and Zimbabwe. The first phase created over 1,000 job opportunities and, with the second phase, Wonderful Group of Companies, through Marco Polo Tiles, has invested $30m that will further increase the employment numbers.

Roland Imperial Tobacco Company Limited are in the process of establishing a cigarette manufacturing plant within the LSMFEZ. The project has two segments of production with the second segment registered under Cutrag Processors Zambia Limited who have been processing tobacco supplied by Zambian farmers. RITCO employs a workforce of 250-plus employees specialised in various aspects of cigarette production. The LS-MFEZ project comprises the $50m Green Leaf Threshing and Primary Processing plants. The current RITCO cigarette manufacturing plant in Makeni has the capacity to produce 7 billion sticks of cigarettes per annum, which is far more than the 3 billion the country consumes. RITCO has also signed an agreement with Japan Tobacco International, the third biggest producer of cigarettes in the world, to produce the JTI brands of cigarettes in Zambia.

Mylan Pharmaceutical’s project was inaugurated in September 2018 in the LSMFEZ with state-of-the-art medical machinery and equipment for the manufacture of drugs. The key business activities include manufacturing, packaging and distribution of pharmaceuticals products in Zambia and the surrounding countries in the region. Not only will this facility provide the much-needed help in the fight against HIV/AIDS and malaria, but this $9m injection of capital will offer skilled job opportunities to 100 Zambian workers.

Zambian Fertilizer’s project is located in the LSMFEZ and specialises in the production of crop specific, organic and lime enriched fertilizers that cater for different parts of Zambia and for most soil types. They have been trading under ETG Inputs Zambia Ltd and the primary elements and micro-nutrients are blended to meet specific needs of the customers before being bagged and distributed to customers through ETG’s supply chain. Under the Zambian Fertilizers Brand, ETG Inputs Zambia Ltd produces blended fertilisers which are also crop specific, lime and organic matter enriched. They also deal in other renowned fertiliser brands such as Falcon and Kynoch.

Dangote Industries Zambia Ltd plan on expanding operations with a second 1.5Mta plant near Lusaka during 2019. The expansion will include transport, quarry mine and cement manufacturing. They are Zambia’s market leader with their initial $400m, 1.5Mta integrated plant at Ndola. In three years, the company has managed to claim leadership in the sector including about half of sales market in Lusaka. Dangote have been credited with reducing the price of cement in Zambia.

Superdoll Limited established an Off the Road (OTR) re-treading plant in Ndola and has been accredited in the field of manufacturing and supplying OTR tyre re-treads to the mining industry.

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ZDA

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The plant started operations in 2016 with an aim of delivering quality and cost-effective tyre management solutions for the mining industry. It has state-of-the-art facility that include the tyre re-treading plant, a tyre servicing centre for passenger, 4Ă—4 vehicles, light and heavy-duty trucks.

Elsewedy Electric Zambia (EEZL) is subsidiary of ELSEWEDY ELECTRIC and joint venture with ZESCO that was founded in 2009. It is the sole supplier of transformers and pre-paid meters to ZESCO. The operational area of the factory is 3,500 m² under roof, which enables it to produce 1500 units annually. The highly qualified personnel, state of art machinery, modern facilities, type tested products and ISO certification are enabling them to produce all types of transformers up to 220 kV with a recognized quality and speed. The Elsewedy Electric Group is expanding its presence in Zambia and recently signed an MOU with the ZDA that will result in a further 40,000 jobs.

Where the ZDA is able to assist, they do and the current companies in the Aftercare environment are facing the following challenges: Immigration: The rejection of work permits for their employees as one of the biggest challenges and the ZDA will consider the rejections on a case by case basis to determine which cases would need its intervention directly with the Immigration authorities.

Zambia Revenue Authority: The ZDA engages ZRA on a number of issues hand-in-hand with the investor. These include VAT

refunds for specific projects, delays in VAT refunds and duty drawbacks, to name a few. They also lobby for the enhancement of efficiency in approving the necessary rebates and engaging ZRA on how best to handle imports that could not be sourced locally. They also advise investors on all the rebates and incentives that apply to them specifically. Where needed, the ZDA arranges site visit to the project with the ZRA team for a fuller understanding of the issues involved.

The Ministries: The ZDA lobbies Government on behalf of a specific investor or a sector on as diverse matters as exemptions and incentives for plant, equipment and inputs, rezoning of land or unfair competition from imports. They have lobbied for incentives for industries where current investors are battling with supply from within Zambia.

Linkages: Through its Exports Development Division, the ZDA is able to assist investors in finding opportunities outside Zambia.

They also link new investors with businesses already operating in Zambia, both as suppliers and customers. Linkages would include Public Private Partnerships with local government, the Investment Symposium and Business-to-Business initiatives at the various trade fairs and expos.

In addition, the ZDA has assisted investors with other challenges faced where ZESCO, the Zambia Roads Agency, MFEZs, or other parastatal organizations can resolve the specific challenge.

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ZDA Investment Promotion Activities for 2019

Busy Year Ahead The Zambia Development Agency (ZDA) has planned for five major outward missions to attract Investors to Zambia and meet its strategic objectives. The private sector will accompany ZDA on its outward missions which will mainly target five investment priority areas of Agriculture, Tourism, Energy, Infrastructure and Manufacturing.

South Africa: South Africa is one of the major investors in Zambia and have invested in all the sectors. The mission to South Africa will be undertaken in the last quarter of the year. The invitation is open to all the Zambian businesses.

International Investment Promotion Activities

Local Investment Promotions Activities

Spain: The Spanish mission is focuses on tourism and ZDA invites all the players in tourism industry to come on board. The mission coincides with the Spanish International Tourism and Trade fair (FITUR) which is held annually in January. During this mission ZDA will hold a Business forum and participate in the Business to Business (B2B) forum organised under the INVESTUR. Zambia will present all available investment opportunities although tourism and energy are central in this mission.

Kitwe: Copperbelt Agriculture, Mining, Industrial Networking Enterprise (CAMINEX), June 2019. This is a trade event that delivers the largest agricultural, mining and industrial exhibition on the Copperbelt. It will showcase the latest in products, machinery, technologies and services that these and related industries can offer.

Saudi Arabia: This mission cuts across all the sectors and it is aimed mainly on joint ventures. Saudi Arabian investors have in the past shown interest in Agro processing. This year’s mission is scheduled for February/March. There will B2B sessions and the private sector will have the opportunity to present their business plans or projects to Saudi Arabian investors.

France: The mission to France is slated for the second quarter of the year and will focus on Tourism and Energy. French government has massive investment in energy and enjoys a high number of tourists annually. The mission will also be used to revive the memorandum of understanding signed between ZDA and Business France which among other be used to benchmark best practices.

India: The Indian economy ranks as a second fastest growing economy to China and it has done well in the areas of health, ICT, Agriculture and Education. The mission aims to attract Indian investors to construct specialised hospitals, set up pharmaceutical manufacturing industry and agro processing industries.

The mission is planned for March 2019.

Ndola: Copperbelt Province Investment Expo, July 2019. The Investment Expo will bring together leading International and Zambian decision makers, business leaders, investors, and entrepreneurs to dialogue and transact on bankable investment opportunities in the Copperbelt Province of Zambia.

Ndola: Zambia International Trade Fair, July 2019. The Zambia International Trade Fair is the biggest trade and commercial exhibition in Zambia which hosts both local and foreign exhibitors from all sectors of the economy with a view of enhancing global trade. During the fair, the ZDA will host an Investment Forum.

Choma: Southern Province Investment and Tourism Expo, September 2019. The Expo is aimed at unlocking investment opportunities in various sectors such as mining, tourism, agriculture and livestock in the Southern Province.

Chipata: Eastern Province Investment Expo, Eastern Province, Date TBA. Luangwa: Luangwa District Investment Expo, Eastern Province, Date TBA.

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TEN REASONS TO INVEST IN ZAMBIA

1. Political stability, peace and democracy 2. Adherency to rule of Law, positive and investor friendly environment 3. Investment guarantees and Security 4. Abundant natural resources presenting excellent investment and trade opportunities 5. Private Sector driven Government Economic Development Policy in place 6. Attractive Investment Incentives 7. No exchange controls and repatriation of 100% of profits since 1994 8. Duty free access to regional, wider Africa, EU and USA Market.

9. Progressive Banking, Legal and Insurance Services of International standards 10. Good place to work and live, friendly people with rich culture

Phone:Â +260 211 220177 - Email: info@zda.org.zm - http://www.zda.org.zm Privatization House, Nasser Rd, Lusaka, Zambia

ECONOMY

Zambia’s long-term economic plan universally accepted across political lines Zambia’s medium-term plan now follows a multi-sectoral development approach Macroeconomic stability through stable and predictable policies GDP to be rebased in 2019

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ECONOMY

ANALYSIS

MOVING FORWARD An Economy of Growth History of the Economy: For the past century, copper mining has driven Zambia’s economy. The industry contributes the greatest proportion of foreign direct investments, foreign exchange earnings and fiscal revenue. In 1964, Zambia gained independence and by the end of the 1960s and into the 1970s, the Government affected a policy of nationalisation. The nationalisation of economic resources coincided with major slumps in the global copper price from the mid-1970s. The country’s economy declined and the Government borrowed money to maintain social provisions. After the oil crisis in the late 1970s, interest rates increased drastically with a resultant debt crisis and economic collapse.

From the late 1980s to the early 1990s - with the copper price still not recovering as well as other factors - the Government had to implement various liberal policy reforms to access international financing. These policy reforms were aimed at opening market access and boosting business opportunities as well as the privatisation of state companies. This resulted in the economy recovering and the increase of investments in the country.

Between 2006 and 2015, the Gross Domestic Product (GDP) has experienced growth at an average of 6.9%. During this time, the inflation rate has decreased to single digits. In 2015, however, the GDP dropped to 2.9%, which was due to a decline in commodity prices, depreciation of the Kwacha and low electricity generation. This was despite an increase in public spending on infrastructure projects

Due to the Government’s increased infrastructure investments, the Government’s borrowing has increased as did the pressure on lending rates (averaging above 20%), which has been largely due to stringent monetary policy measures. There is the need for increased borrowing to fund infrastructure development as the infrastructure gap is seen as a binding constraint to Zambia’s growth. This explains the fiscal deficit with a percentage of 9.4% in 2015, which fell to 5.7% in 2016. In a joint IMF and World Bank assessment, Zambia’s external debt risk has been determined as moderate and its macroeconomic policies have been acknowledged for the role they have played in ensuring sustainability. However, greater diversification of the country’s export base, strong debt management and improved project appraisals were recommended to maintain Zambia’s debt sustainability.

From the country’s independence, Zambia’s development has been guided by several medium-term national development plans. Towards the end of the fourth national development plan, Zambia - through a broad consultative process - formulated a universally accepted long-term development plan, which is known as Vision 2030 and to which all subsequent medium-term plans are aligned. Zambia’s vision is to become a prosperous middle-income country by 2030. Currently, the Seventh National Development Plan (7NDP), which runs from 2017 to 2021, guides the country’s development. The 7NDP has taken a different approach to previous national development plans by following an integrated, multi-sectoral development approach. This is a holistic approach to development that not only focuses on core

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ECONOMY

development initiatives but also focuses on the development of infrastructure that supports these core initiatives. In addition, the country’s national budgets are aligned with the 7NDP. The Seventh National Development Plan: The Government’s policy stance remains focused on maintaining price and financial system stability during the 7NDP’s period. Moreover, the Government remains dedicated to maintaining single-digit inflation levels and a stable exchange rate to enhance economic competitiveness, which is critical to support the country’s growth.

Compared to previous medium-term plans, the 7NDP’s macroeconomic framework is a paradigm shift from a sectoral to an integrated, multi-sectoral development approach. It takes into account Zambia’s regional comparative advantage and deals with the impact of slow and fragile global economic growth prospects, domestic challenges and the effects of climate change.

In addition, the 7NDP’s macroeconomic framework aims at achieving economic transformation for livelihood improvement and creation of decent, gainful and productive employment, especially for the youth. The Government realises that a stable and predictable policy environment - for macroeconomic stability increases investor confidence and helps build a resilient and diversified economy. To sustain price and financial market stability, maintaining a favourable monetary policy environment is paramount for sustaining single-digit inflation, a stable market and a competitive exchange rate. Positive and sustained growth with fiscal consolidation is essential for supporting macroeconomic stability and improving Zambia’s competitiveness. As such, the macroeconomic objectives are to:

• Attain an average annual real GDP growth

rate in excess of 5%;

• Maintain single-digit inflation;

• Increase international reserves to at least

four months of import cover;

• Raise domestic revenue collections to over

18% of GDP;

• Limit domestic borrowing to below 2% of GDP;

• Reduce the budget deficit to below 3%;

• Create a million productive and gainful job

opportunities, and improve the country‘s competitiveness;

• Increase the share of earnings from

non-mining exports to around 50%; and

• Increase infrastructure development in the

transport and energy sectors, with an

emphasis on greater private sector participation.

With economic growth projected for above 5% during the 7NDP’s period, the economic growth strategies include:

• Policy interventions for increased

investments in sectors poised for growth

(agriculture, energy, manufacturing and

tourism), which will be supported by mining

and public infrastructure development in

transport and communication, especially in rural areas;

•

•

ANALYSIS

Continued investments in education and health, and continuous improvements in service delivery; and Industrialisation strategies to reinforce the country’s economic growth prospects.

These are aimed at increasing foreign exchange earnings from agriculture, tourism and small-scale mining, which would diversify the economy and increase the economy’s resilience to external shocks and dilute the mining sector’s share of contributions to foreign exchange earnings.

Fiscal policy - during the 7NDP’s period - is to ensure financial restoration, prudence and sustainability, especially in light of challenges that arise from both domestic and international factors. The focus of fiscal policies will be to restore budget credibility and transparency while ensuring policy consistency.

Fiscal consolidation - both revenue and expenditure - will continue as a means to provide a supportive environment for opening development bottlenecks and stimulating growth. Moreover, public-private partnerships will be pursued for resource sharing where viable economic programmes and projects exist. Key fiscal activities to be conducted during this period will include:

• Resolving the accumulation of high-interest

payments on public debt - and the risks as

sociated with it - by minimising domestic and

foreign borrowing, among other things;

• Re-aligning infrastructure spending for budgetary sustainability;

• Enhancing the credibility of the budget by

strictly adhering to budget allocations and

ending the accumulation of arrears;

• Continuously reforming, reviewing and/or

better targeting of subsidies in fuel,

electricity and agriculture;

• Developing robust funding systems so

revenue collection entities have adequate

funding by introducing fiscal registers and

the strengthening of tax administration,

which includes the increased interaction

between and among revenue collection agencies; and

• Strengthening and rolling out collection mechanisms.

Regarding the monetary and financial sectors, the focus to maintain price and financial system stability, maintain single-digit inflation levels and a stable exchange rate. Policies will be focused on ensuring stability in the bank and non-bank sectors; this includes increased access to financial services that support economic growth. Other points of focus in these sectors are:

• Addressing the cost of finance;

• Putting in place measures to improve credit

provision to Micro-, Small- and Medium-sized Enterprises;

• Mitigating risks in key sectors such as

agriculture, tourism and mining; and

• Developing a new policy and strategy for

financial inclusion that makes financial

services inclusive and affordable to all.

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ECONOMY

ANALYSIS

The Government’s policies will keep their focus on maintaining an open economy, which has a competitive and market-driven foreign exchange rate regime while sustaining the stability of the Kwacha. In addition, a diversified export base, which focuses on non-extractive sectors (agriculture, forestry and energy), will be promoted.

Economic Developments during the Plan’s Period: According to the IMF, there was 3.8% growth of the GDP in 2016, which was followed by 3.4% in 2017. In the World Bank’s 2018 Doing Business report, Zambia came among the top 10 improvers with a forecasted GDP growth rate of 4.3% in 2018 and 4.7% in 2019. The IMF recorded a growth rate of 3.8% in 2018 and forecasted a growth rate of 4.5% for 2019. This has been credited to the government’s policy reforms. The IMF did raise concerns about Zambia’s rising external debt and public sector wage bill.

Due to this, the Government has - for the first time - published a medium-term debt strategy that will be updated annually as progress is made. In 2019, the Government will undertake an exercise to rebase the GDP, an exercise last conducted in 2012.

The rebasing of the GDP will provide reliable and updated information on the current size and structure of the national economy.

In October 2015, inflation levels rose to over 14%, which was largely due to the depreciation of the Kwacha. Inflation reverted to single digits in 2016. The Consumer Price Index (CPI) was recorded at 213.42 in October 2018 in comparison to 199.84 in November 2017 and 188.0 in November 2016. The inflation rate was measured as 7.8% in November 2018, down from 8.3% the month before, which has been attributed to the purchase of vehicles and passenger transport by air. This is in comparison to 6.3% in November 2017.

Growth in the economy has continued to depend on the copper industry, which has made the country’s economy vulnerable to commodity price fluctuations. Due to this, the Government has stimulated - through policy reforms and investment incentives the diversification of the economy by building the manufacturing and agricultural sectors, amongst others.

In terms of international trade, traditional exports (TEs) refer to metal (mostly copper) exports, while non-traditional exports (NTEs) refer to any other exports. The country’s trade surplus/ deficit is dependent on copper exports and its global price. The country’s trade deficit decreased by 35.7% - from K2,691.2 million recorded in October 2018 to K1,729.5 million in November 2018. The trade deficit means Zambia imported more, albeit at a slower rate than it exported in nominal terms. Imports decreased by 12% from K11,095.5 million in October 2018 to K9,763.0 million in November 2018. This decrease is mainly attributed to the decrease in the imports of intermediate goods by 42.3% from K 3,095.7 million in October 2018 to K 1,784.7 million in November 2018. Exports also decreased at a slower rate of 4.4% from K8,404.3 million in October 2018 to K 8,033.5 million in November 2018. The decrease is mainly attributed to the decrease in consumer goods and intermediate goods categories by 20.7% and 2.8% respectively.

TEs earnings decreased by 2.5% - from K5,799.2 million in Oc-

tober 2018 to K5,654.8 million in November 2018. In terms of their share in total exports, TEs recorded an average of 70.1% in revenue earnings between November 2018 and October 2018.

The volume of copper exported in November 2018 decreased by 1.7% from 77,994 metric tonnes in October 2018 to 76,696 metric tonnes. The copper prices on the LME market for the corresponding months decreased by 0.4%, from $6,215.9 per metric tonne in October 2018 to $6,193.0 per metric tonne in November 2018. Since copper accounts for the largest proportion of TEs, changes in the volume and price/value has a direct bearing on the performance of TEs. Therefore, the net effect of the changes in volume and LME prices was a decreased export earnings from copper.

Non-Traditional Exports (NTEs) earnings decreased by 8.7% - from K2,605.1 million in October 2018 to K2,378.7 million in November 2018. In terms of their share in total exports, NTEs recorded an average of 29.9% in revenue earnings between November 2018 and October 2018. NTEs are divided into agricultural and non-agricultural products. Agricultural products accounted for a share of 23.1% of Zambia’s NTEs in November 2018 compared to 21.0% recorded in October 2018. The export earnings from agricultural products recorded a marginal increase of 0.5% from K547.3 million in October 2018 to K549.8 million in November 2018. The major export commodities were tobacco (19.1%), raw cane sugar (12.1%), and maize seed (11.2%).

Non-agricultural products accounted for a share of 76.9% of Zambia’s NTEs in November 2018 compared to 79.0% recorded in October 2018. The export earnings from non-agricultural products recorded a decrease of 11.1% - from K2,057.8 million in October 2018 to K1,828.9 million in November 2018. The major export commodities were articles of stone or other mineral substances (14.9%), sulphuric acid/oleum in bulk’ (8.6%) and bullion in semi-manufactured forms/gold (4.6%).

The proportion of major import products by product category in November 2018 were capital goods (37.0%), which was followed by the consumer goods (29.0%), intermediate goods (18.3%) and raw materials 15.7%.

In terms of socio-economic developments, the country has seen a steady decrease in poverty levels, and greater access to services such as access to safe water, sanitation, health services and electricity. Above and beyond the statistics mentioned and the trends thereof, the country is a figurative gold mine in terms of resources and opportunities for good returns on investments.

Furthermore, the Government’s policies are investor friendly and are improved upon when need be, with the ease of doing business being a continuous activity. The country long-term vision is universally accepted across political lines and medium-term plans are directed towards achieving the Vision. However, as much as policies, stats and their trends can explain a situation, it should be remembered that these figures do not run an economy; people do! The people of Zambia are friendly, hardworking and easy to work with. They are humble, genuine and willing; eager for both personal and national development. They are passionate; the kind of people that you would want on your team.

Invest in Zambia. Invest in the Heart of Africa!

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VIEWPOINT

Preliminary Review of the Zambian Economy in 2018 & Outlook for 2019

Hon. Margaret D. Mwanakatwe, Minister of Finance

Overview: Economic performance in 2018 remained generally resilient. The performance was supported by relative macroeconomic stability as well as less volatile commodity prices particularly for copper. This notwithstanding, several downside risks to the economic performance encountered included: continued global trade tension; and, rise in global oil prices. On the domestic front, negative market sentiment related to fiscal challenges; upward adjusted debt; sluggish credit growth; depreciation of the Kwacha from the third quarter which triggered inflationary pressures; and, lower than anticipated agriculture output arising from the poor rainfall, impacted on the overall performance of the economy.

Developments in 2018: Growth momentum remained positive in 2018 with quarterly GDP trending upwards. Preliminary growth estimates indicated a pick-up in the third quarter to 5.0% from 3.9% and 2.7% in second and first quarters. The buoyant performance in mining, manufacturing and construction as well as stable supply of electricity aided the growth momentum in 2018. The annual growth is expected to remain robust around 4% albeit slower than year projection on account of poor performance of the agriculture sector as well as weak credit growth to the private sector and continued elevation in non-performing loans.

Copper output in 2018 continued to increase with a total of 696,526 Mt produced between January and October, compared

with 654,743 Mt in the same period in 2017. The fairly high global copper prices which averaged $6,598 and demand provided impetus for copper production. It is projected that annual copper output for 2018 will increase to over 800,000 Mt. Stable electricity supply also supported industrial production. In the last ten months of 2018 electricity generation increased by 12.6% to 13.29 million.

Public debt (domestic and external debt) trended upward in 2018. External debt stock as at close of the third quarter was $9.51Bn from $8.7Bn at end December 2017. The upward adjustment in debt was on account of new disbursements on previously contracted financing, particularly for infrastructure. Total guaranteed debt at end September 2018 was at $1.2Bn. External Debt service between January and September amounted to $545.02m.

Domestic debt stock which composed of mainly government securities also rose to K54.6Bn as at end September 2018 from K48.36Bn at the end December 2017. Despite sustained efforts to dismantle domestic arrears, the figures trended upwards in 2018 mainly due to VAT refunds; and, capital spending - particularly in the road sector. As a result, domestic arrears were K14.7Bn at end of June from K12.7Bn as at close of 2017. In terms of domestic debt service, a total of K5.1Bn was paid out between January and September 2018.

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Inflation was relatively stable and within the target range of 6-8 percent for most of part of the year. A slight headwind of Inflationary pressure during the early part of the third quarter triggered by depreciation of the Kwacha against tradable currencies and the pass-through effect of the domestic fuel price adjustment impacted on inflation. The highest inflation of 8.3% was recorded in October and 7.9% in December 2018. Despite the edging up of inflation, 2018 average rate was sustained in the target range.

The Kwacha was relatively weak but stable in 2018 against major tradable currencies. Among other factors, the Kwacha weakened in the final third of the second quarter on account of higher than projected external debt service payments. A stronger US Dollar following the hike of the United States of America Federal Reserve Fund Rate, coupled with adverse market sentiment, were the major drivers for depreciation of the Kwacha and deterioration of the Purchasing Manager’s Index which, therefore, also impacted on overall business conditions. The Kwacha traded at an average of K10.33 per USD during the period January to November from an average of K9.49 per USD over the same period in 2017.

Lending rates edged downward marginally although still elevated in 2018 thereby constraining credit growth to the private sector. The continued liquidity constraints during the year, impacted on the slow downward movement in lending rates. As at November 2018, average lending rates marginally declined to 24.1% from 24.6% recorded as at end 2017. On the other hand, the Bank of Zambia adjusted the Monetary Policy Rate to 9.75% in November 2018 compared to 10.25% in November 2017.

Trade deficit in 2018 - During the period January to November, 2018, Trade deficit widened to K11, 256m compared to K6,329m recorded in same period in 2017. This weighed on the current account deficit which also widened. In nominal terms total exports of goods, however, during the period January to November increased by 24.5% while imports of good increased by 28.8%.

Notwithstanding higher than programmed debt service payments, gross national reserves remained around 2 months of import cover at $1.73 as at August,2018.

Reforms and Legislation in 2018: During the year, we continued to implement austerity, economic stabilisation, and growth reforms. Several public service performance enhancement legislation was also enacted during the year under review. Key among the amended and enacted legislation was the Public Finance Management Act 2018, the Supplementary Appropriation Act of 2018, Credit Reporting Act 2018, National Health Insurance Act 2018, and the Public Private Partnership Act 2018.

Consistent with the target of improving domestic revenue mobilisation through enhanced provision of land titles, the National Land Titling Centre has been established and is operational. The Zambia Credit Guarantee Scheme was also launched to facilitate affordable credit to SMEs. Government also continued to roll out IFMIS (Integrated Financial Management Information System) and TSA (Treasury Single Account) of which 57 out of 62 MPSA’s (Ministries Provinces and Other Spending Agencies) have been put on the platform.

This is critical for enhancement internal controls and facilitation of timely production of financial management reports for informed decision making.

In February, 2019, Zambia will be hosting the annual meeting of the East and Southern Africa Association of Accountants General (ESAAG). As Government, we will take the opportunity to award certificates of recognition to Ministries, Provinces and Other Controlling Bodies that had no audit quarries in the current report of the Auditor General and those that have met non-tax revenue collection targets.

Most provisions in the Public Finance Management Act No. 1 of 2018 apply to both Central and Local Government Systems.

To a great extent, the Public Finance Management Act No. 1 of 2018 will address the financial irregularities existent in local authorities. The wish of the Government is to see less and less public organisations both at central and local government level appearing in the Auditor General’s Report.

In addition, a code of corporate governance guidelines for the public sector is also being developed in order to effectively monitor performance of Boards of State Owned Enterprises and Statutory Corporations.

Budget Performance in 2018: Budget execution in 2018 was broadly in line with annual target despite some fiscal challenges.

Revenues and grants collections between January and November were above target by 4.2%. The performance was mainly driven by improved compliance in VAT and corporate tax especially from mining sector. Expenditure was also above target by 2% mainly due increase in interest payments on debt and spending on assets. Consequently, fiscal deficit out-turn for the year is expected to be around 7%.

Economic Outlook for 2019: In 2019 macroeconomic stability is projected to be sustained, aided by continued implementation of reforms and policies to support delivery of fiscal consolidation for sustainable and inclusive growth. Inflation is projected to remain with the medium-term range of 6-8%, robust growth of at least 4% is projected driven by both public and private sector investments, enhanced domestic revenues collection through continued implementation revenue boosting measures among other.

Downside risks to growth prospects include continued global trade tension, projected rise in crude oil prices due to continue geopolitical tensions, climate change related effects, and maintaining the fiscal deficit, weak credit growth and any failure to address domestic arrears may constrain growth and delayed implementation of reforms that will support growth.

Implementing reforms is challenging but the rewards are great.

Unity of purpose makes it easier to achieve transformation and we in Government have led the way. Each key player must take the initiative to drive reforms at their level.

In order to sustain growth and create wealth, it is important that all stakeholders commit the legal reforms and the measures outlined in the economic stabilisation and growth programme.

To reiterate the commitment made by the President of the Republic of Zambia, Mr. Edgar Chagwa Lungu, to fellow citizens and to the international community that the austerity, fiscal consolidation, and economic stabilisation measures undertaken by the government are aimed at creating a strong foundation for improved economic management, sustained growth, and safeguarding the people’s welfare; through consistent and predictable public investments in education, health, social welfare and growth promoting programmes in accordance with the country’s aspirations outlined in the Seventh National Development Plan (7NDP).

As Government, we stand on firm grounds in our belief that Zambia’s prospects are bright. The country has sufficient talents to overcome the tide that is set against our economy, and together, we will achieve full stabilisation, strong growth, sustainable development goals and the Vision 2030.

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Government can meet Financial Inclusion Targets Ms Betty Wilkinson, CEO, FSD Zambia BRIG: What are the greatest investment opportunities present in the financial sector?

Betty Wilkinson: The biggest opportunities, in my opinion, are in the bottom-end financing. Digital finance is going to be able to be rolled out more effectively because the government is investing directly in cell phone towers; currently, over a thousand of them are going up across the country. It’s going to open the door to cell phone operations, to a lot more people owning them, using them for data and for financial transactions. The Central Bank of Zambia has been very open about moving ahead fast on the digital front. It’s part of the government’s official policy to go cash-lite and to start incorporating more people in the formal sector. So digital finance is going to move fast, as soon as the infrastructure is there and, in the next two years, we will see the build-up.

The government and, particularly the regulator has been extremely supportive of engagement and, as they open the national financial switch, so it lowers transaction costs for electronic transfers and as they work more actively on interoperability we’re going to see a lot of growth opportunities in digital finance and digitisation of data. We’re already getting phone calls from companies internationally who want to invest in microfinance and financial institutions using the data which is currently in a paper form.

With the Government’s commitment to universal biometric IDs we’re going to see the whole digitisation process, eKYC is go-

ing to go online. Digital finance is going to develop, especially in rural areas. I think that we’ll see opportunities for investment in low cost digitisation of data, big data. All financial institutions are exploring how to manage their relationship with the clients more effectively. How do we take advantage of the information we already have; how do we offer new products like Zanaco’s Zapit account, which is working very well. We’re seeing all those kinds of opportunities, also bringing in the savings. For example, there are currently 600,000 people who are members of savings groups in Zambia – in their last three months of their cycle they save but they don’t borrow, and these are large amounts of money. We’re seeing a link developing with the banks who could pay interest on these amounts and have additional capital available.

600,000 members is a pretty big number.

So, I think we’re going to see some opportunities in the informal to formal linkages and we’re already seeing linkages in the insurance business. We’re seeing some interest in the banks also.

Another opportunity I see is working with the youth. In Zambia, you can’t have an account in your own name until you are 16. In economies where people manage their savings effectively, they learn about it early and start saving when they’re quite young.

The Central Bank is also looking into how this can be made easier. And I think that focusing on youth-based products, especially for savings, presents a huge opportunity. The insurance sector is also growing, and we expect growth in the house and care

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insurance. The broker arrangements have changed, with a lot of different and important changes in the law. The international micro-insurance conference is going to take place this year in Zambia, which tells you that there are a lot of people that are looking at this market.

For example, we had a competition for an innovation fund and the three out of the eight insurance companies took minor grants from us. They said, “we’ll spend the rest on it ourselves. We think we can do it.” All three of them have released the products and they’re great and they engage very effectively with the potential clients and have long talks with them how this could work rather than designing it in the boardroom. I’m excited about the options and the market response is amazing. One of them is a funeral product that’s associated with travel as there have been problems in Zambia with accidents. They released it at the bus centre in Lusaka and hundreds of people were there saying I’m willing to put down my kwacha. I think that the insurance industry also needs to better communicate what they are and how they work.

They’re doing a much better job at it and they will continue to do so as well.

The Government has committed to financial education through grades one to 12 and they’ve just finalised the curriculum and will be rolling it out in the next year. So that means every kid who is in school is going to get information on how to manage their money, what options are available and how does it work, including the stock market. We will have a better-educated population as half of the Zambian population is under 15 and we must be looking at how we bring them into the financial system at a young age.

BRIG: What are the challenges and how can they be overcome?

Betty Wilkinson: I have already mentioned that the Government is pushing for the changes in the banking system and the financial inclusion for those at the bottom of the pyramid. The second challenge is that the financial culture is highly conservative and thinks about itself in terms of how are we going to spend two or three years satisfying our stockbrokers or making enough money? The good news is that there are a lot of the younger, smaller banks that are pushing the changes through.

There is bit of laziness in the system, a little bit of unwillingness or inability to figure out how do we reach down to these people who are selling tomatoes and how are you going to deal with them as clients, then there is a language problem, especially with women in the rural areas. Also, it is easier to keep the money in the envelope at home than to get a TPIN. I think that some of the opportunities are challenges because of the paperwork.

The TPIN numbers have been a real problem. I understand that the government want to collect more revenue but requiring people to go formal with the TPIN is not the way to do this. Using the biometric IDs will sort everything out, including helping address corruption, so the rollout should be accelerated.

We have developed something called Finclient Centric Cycle (f3C) solutions, which we just introduced to financial service providers in the middle of March. In partnership with financiers, we test the market for this potential client group - and if you have got the right kind of data - and then introduce the product internally and then learn from it and adjust it. We had 18 financial companies, including five banks, willing to participate, so clearly there’s interest. I think the other challenge with the banks is

INTERVIEW

that they’re controlled from outside and because of that control, largely from South Africa, those banks are very conservative and they’re looking at Zambia as a high-risk market. Barclays is turning their cost structure around, their social responsibility team is working fantastically, and they are looking into what the shared values, shared benefits mean and what does that mean to the way we approach our business. Many of their clients are saying that their fees are too high, and their staff have moved their personal accounts because it is much easier and much cheaper in other banks, so banks will learn. And, if they’re not learning fast enough they will be forced to, but this is sort of managing from a distance, which means more inhibition.

BRIG: What measures need to be taken to facilitate greater financial inclusion for all segments of society?

Betty Wilkinson: The Government is committed to financial inclusion. There is a national financial inclusion strategy, which was released in November. We participated at the end-point of these deliberations and discussions, which took place for almost two years. It is broad, they’re going to face some challenges with the implementation, but I think it’s possible to do pretty much everything the Government wants to achieve, and their targets are significant. They’re now at 59% financial and they want to reach 80% by the end of 2022, and it is going to take a lot of hustling. The target is 70% for formal financial services inclusion from 39% now, which is a big jump and they also want to have parity for women who are 10% behind. All of that’s going to take a lot of work. To their credit, they passed the NFIS at the end of November 2017 and in January 2018, the Ministry of Finance was already scheduling meetings for working groups. I am the only non-government person who is on the implementation committee and they have asked for help from us, and we have budgeted for it. I think they’re very serious. The central bank has financial inclusion and gender equality included in their four-year strategic plan. The Central Bank is ahead of the curve, they only started talking about this last year, but they were thinking about the plan well before that. All the signs were there, and this is an official policy of the Government, which they are moving ahead with. The key regulators are all aligned, and they have MOUs with each other and they’re talking to each other, the working groups have all met. Some of them have work plans, the rest of them are on it. And I think the odds of them being successful are much higher than that in many places.

They’re talking about regulatory sandboxing here for anything on financial inclusion. This could be a ground-breaker for the planet. We are thrilled and excited that this may move forward.

They are looking at what are the rules that are currently in place, and they’re moving ahead on legislation that has been stalled for ten years. And, fortunately, the changes in ministers, especially the finance minister are not going to affect these issues because Margaret Mwanakatwe has worked in the financial sector. The laws are getting there, the central bank is well staffed, and they understand the issues very well and the Finance Ministry has taken it on board.

In Zambia, 97% percent of transactions take place in cash by volume. Putting cash in a system would make better use of it.

So, we have done a range of activities on geospatial mapping and we have put a wide variety of services and all this data is available for free online now. The government is using it to determine, for example, where they should put the cell phone towers because this is where the schools and clinics are and putting the 4G there would mean better access to data.

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A Fleeting Lifeline from China What FOCAC 2018 Entails for Zambia Pamela Nakamba-Kabaso, Executive Director, ZIPAR Caesar Cheelo, Senior Research Fellow, ZIPAR

The buzzword around Africa is China! Earlier in the month, Chinese President Xi Jinping made an impressive and generous offer of $60Bn in financial support to African countries over the next three years. Since then the African continent cannot stop talking about China.

Some observers are keen for Africa to benefit from the funding galore. Others are worried that the financial bonanza is actually a spring-trap set to ensnare African states into inadvertently giving up their sovereignty.

On that note, it might be a good idea to understand what this $60Bn financial support really entails for Africa and Zambia, lest the continent’s borrowing enthusiasts go laughing all the way to the nearest Chinese bank to borrow some more.

Reports pursuant to the Forum on China-Africa Cooperation (FOCAC) held in Beijing are that President Xi pledged: $15Bn (25% of the total pledged support) in grants, and concessional and interest-free loans; $20Bn (33%) in credit line financing; $10Bn (17%) in development financing; $5Bn billion (8%) in funds to buy imports from the continent; and $10Bn (17%) pledged on behalf of Chinese companies who will be encouraged to invest in African countries.

So what does all this mean, especially for Zambia, a heavily in-

debted poor African country? Based on an assessment of each of the five components of FOCAC 2018, the following is noteworthy: Above all else, given Zambia’s current circumstances, when presented with any financing option, yes even FOCAC, our first instinct should be: “we already owe too much; let us not borrow more!” To the extent possible, we should avoid borrowing more until we have a handle on the current debt challenges.

However, realistically speaking, some amount of borrowing will be inevitable despite our dire fiscal and debt situation. Given this inevitability, the $15Bn pot of funds for grants, interest-free loans and concessional loans should probably be at the front and centre of any “borrow-from-China” plan. These funds would impose the least amount of additional debt service burden to Zambia since they entail relatively low interest payment obligations.

The $20Bn credit line is the largest pot under FOCAC 2018.

However, Zambia should avoid this pot like the plague! By definition, a credit line is a non-concessional, commercial lending option. Zambia simply cannot afford any more non-concessional borrowing now and over the next three to five years. Thus, tempting as the option might be (considering that commercial loans are usually the easiest to access) Zambia must stay away from this pot.

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The development financing option ($10Bn) would typically be quite attractive for Zambia. However, drawing lessons from the country’s failure to account for the utilization of the debt proceeds from the three Eurobonds, totalling $3Bn, Zambia must come to terms with the fact that we are not prudent in using development financing resources. This development financing option is yet another poison chalice, which Zambia should avoid.

The $5Bn earmarked for Chinese entities to buy imports from the continent is welcome, but now puts pressure on countries like Zambia to restructure their economies quickly and establish value-added export lines. If, for instance, Zambia remains dependent on the export of the primary commodity exports like copper, the benefits from the import purchases pot will be meagre.

Finally, the $10Bn that President Xi pledged on behalf of Chinese companies as foreign direct investment (FDI) into Africa tops the list as the best financial support option under FOCAC 2018. If Zambia can improve its business environment and reclaim a spot as one of African’s most attractive FDI destinations, it could benefit considerably from the proceeds of this pot. The financing will be indirectly available for private Zambia businesses that are worthwhile for China and for joint public-private part-

ARTICLE

nerships. However, it will be outside the control and influence of the fiscal authorities, thus being insulated from risks of fiscal slippage and misappropriation. Moreover, if well-targeted to Greenfield projects (as opposed to mergers and acquisitions), the FDI will protect itself from possible nationalisation sentiments in the future. That is, the risk that someone down the road will claim that China took over strategic assets of national interest, which should be nationalised, will be averted.

Thus in closing, our view is that Zambia should focus on attracting FDI, attracting China to import from the country, and to a much lesser (and more calculated) extent, accessing grants, concessional loans and interest-free loans. These options should be pursued in that order of priority under FOCAC 2018. The country should stay clear of the development financing option and especially credit line option. Of course, all five financing options are quite fleeting for Zambia currently, given the prevailing economic situation. In particular, the huge debt overhang should impose natural borrowing constrains over the medium term.

The authors are Executive Director and Senior Research Fellow, respectively, at the Zambia Institute for Policy Analysis and Research (ZIPAR).

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Successful 2018 IMF / World Bank Annual Meetings Zambia Maintains its Commitments Hon. Margaret Mwanakatwe, Minister of Finance shared her insights after leading a delegation from Zambia to the 2018 Annual Meetings of the International Monetary Fund and the World Bank Group, that were held in Bali, Indonesia. The delegation attended various meetings, sessions and events of both the International Monetary Fund (IMF) and the World Bank Group i.e.

International Bank for Reconstruction and Development (IBRD), International Development Association (IDA), International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA). The delegation also attended events of other international organisations that have a bias towards economics, finance, development, and monetary affairs. They took the opportunity to address two business forums separately organized by Standard Chartered Bank and Standard Bank for investors from Asia, Mainland Europe, the United Kingdom, and the United States.

The delegation included the Minister of National Development Planning Hon. Alexander Chiteme, MP, the Secretary to the Treasury – Mr. Fredson Yamba, Deputy Secretary to the Cabinet – Mr. Christopher Mvunga, Bank of Zambia Governor - Dr. Denny Kalyalya, Ministry of Development Planning Permanent Secretary – Mr. Chola Chabala, and Ministry of Finance Permanent Secretary for Economic Management and Finance – Mr. Mukuli Chikuba.

Apart from attending the meetings, public events and dialogue with the two Bretton Woods Organisations, the delegation held bilateral meetings with institutions such as the Department for International Development (DFID) of the United Kingdom, the Japanese Cooperation Agency (JICA), and the Arab Bank for African Development (BADEA). The delegation also had a country-level bilateral meeting with Sweden and had business meetings with Standard Chartered Bank, Franklin Templeton,

Goldman Sachs, Lazard, White Oak, Moody’s, and Standard & Poor’s. Through such interactions, Zambia is working to ensure that its bonds and debt return to the level at which other emerging market bonds are trading.

The successful bilateral meetings with development partners, the cordial business meetings and the great investor forums which were had in Bali are signals that Zambia’s economic reform policies and programmes are of international market standard and will continue to attract quality stakeholder interest, both locally and in the international community because they have credible third party international validation.

As a member and shareholder in both institutions, Zambia endorses the communiqués issued by the International Monetary and Finance Committee (IMFC) of the International Monetary Fund and the World Bank Group Development Committee (WBG-DC) at the end of the 2018 Annual Meetings.

The Ministry’s thoughts resonate with the thoughts of Zambia’s development partners that debt vulnerabilities over the last few years pose the risk of reversing the benefits of earlier debt relief initiatives. The Hon Minister will present specific details on the implementation of austerity measures related to debt to Parliament. The effort is already being complimented by solid policy frameworks, plans for adequate fiscal and external buffers as stated in the 2019 Budget Address, and sustainable and transparent lending practices as espoused in the Medium Term Debt Strategy. This year, over $800m has so far been paid in debt service. Zambia has also not registered any default or the investors in Zambia’s Eurobonds and other financing facilities would have activated cross-default provisions in accordance with international debt market regulations.

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The Government requested that the WBG and IMF, based on their respective mandates, help Zambia in further strengthening the fiscal position by improving debt management capacity, increasing domestic resource mobilization and deepening local capital markets. The Government stands on firm grounds in implementing of the Public Financial Management Act and through quarterly reports, it has also embarked on a progress tracking system that will help to strengthen monitoring and demonstrate that tax-payers money is being used prudently. A clear picture on the size of the Zambian economy is needed due to its changed structure from 2010 to date, therefore, funds have been set aside in the 2019 budget for rebasing the Gross Domestic Product in order to better measure the economy.

The Government is aligned with the view that in light of Zambia’s debt vulnerability, there is need for greater collaboration to enhance debt transparency and sustainable financing practices. It is also noted that there is the need to strengthen creditor coordination in debt restructuring and liability management situations. As a country, Zambia will maintain its commitment to the Medium-Term Debt Management Strategy; grow the sinking fund for Eurobond repayments; and remain confident that the economy will have a low risk debt position from 2021 onwards when disbursements from Chinese commercial borrowers begin to reduce and pressure on debt amortization and interest payments lessens.

Zambia also welcomes the pledge by the IMFC to facilitate multilateral solutions for global challenges and offer support to the IMF’s continued role in international tax issues and domestic resource mobilization and endorses the request of the IMFC for the IMF to continue working with members to strengthen fiscal frameworks, improve debt management capacity, and implement updated debt sustainability frameworks programme as a step in the right direction. There is confidence that this approach to engagement will crystallize when the team from the IMF visits the country.

The IMF and WBG’s multi-pronged approach to work with borrowers and creditors to improve the recording, monitoring, and transparent reporting of public and private debt obligations is welcomed, as well as efforts to strengthen creditor coordination in debt restructuring and liability management situations.

In addition to the ongoing implementation of the Medium-Term-Debt-Strategy; the formulation of the Planning and Budgeting Bill; and the revision of Public Procurement laws, measures have been instituted that are targeted at ensuring that Zambia’s debt vulnerabilities are timely identified and requisite sustainable financing practices, firmly implemented.

The pledge by the IMF through the IMFC to continue working for a fair and modern international tax system and to tackle sources and channels of money-laundering and other illicit finance will help to strengthen our efforts and assure stakeholders of the efficacy of our reform efforts under the Zambia Revenue Authority, the Financial Intelligence Centre, and the East and Southern Africa Anti-Money Laundering Group.

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The recent admittance of Zambia as a member of the EGMONT GROUP of Financial Intelligence Units, globally, is a positive milestone as it will consolidate the Government’s fight against financial crimes, targeted at ensuring that the country’s fiscal governance systems not only attain global bench-marking, but also enhance information sharing with international institutions entrusted with similar responsibilities.

The Ministry of Finance shares the views of the IMF through the IMFC, that fiscal policy should rebuild buffers; be flexible and growth-friendly; avoid procyclicality; and raise the quality of public investments and workforce skills, while ensuring that public debt is on a sustainable path. In Zambia, the Government is implementing the Medium-Term Debt Strategy in order to drive the country towards debt sustainability while scaling down on administrative parts of the public service, curtailing domestic borrowing, and implementing austerity measures.

It is noted that through steadfast implementation of reform measures in the Economic Stabilisation and Growth Programme – Zambia Plus and other policy instruments; our economic fundamentals are moving in a generally strengthening direction. To ensure sustained stabilisation and growth, the Government will continue to implement sound policies and a resilient monetary system that will ensure stability of exchange rates and contribute to growth of the private sector through strong economic performance.

The Government agrees with the IMFC that advancing financial and structural reforms is a critical element in lifting potential growth and employment and strengthening resilience, while effectively assisting those bearing the cost of adjustment. To ensure this, the Government will remain committed to the ESGP and speed-up the entrenchment of the provisions of the Public Financial Management Act, 2018 and other governance related laws, in public sector management.

The Ministry of Finance reiterated the country’s commitment to the timely, full, and consistent implementation and finalization of the public financial management reforms and affirmed the country’s efforts in strengthening cooperation with our development partners. As an example, an Advisor assigned by the US Treasury Department has been attached to the Ministry of Finance to assist with integrity checks and consistency in financial management and treasury reforms. Another advisor sponsored by the European Union is working in the Budget Office of the Ministry of Finance.

Zambia also welcomes the pledge by the IMF, through the IMFC, to push the agenda for a globally fair and modern international tax system, and where appropriate, to address competition and tax challenges in order to strengthen collaboration and leverage efficiencies and inclusion in financial technology while addressing associated risks, and tackling sources and channels of money laundering and terrorism financing, proliferation financing, corruption, and other illicit finance.

Zambia is looking forward to the implementation of the Bali FINTECH (Financial Technology) AGENDA which was endorsed by

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the Executive Boards of both the IMF and the World Bank Group at the 2018 Annual Meetings and is confident that the Fintech Agenda will offer incredible opportunities for financial inclusion; including through mobile payment systems.

Also welcomed, is the streamlining of the Fintech Agenda into the SMART Zambia Programme to help the country in facilitating inclusive sustainable growth and poverty reduction by strengthening financial development and inclusion for households and firms, as well as improving efficiency and competition in the financial sector. This helps to harness the potential of Fintech to deepen financial markets, enhance responsible access to financial services, facilitate cross-border payments, strengthen remittance systems, and better manage risks associated with use of these technologies in order to reduce the non-performing loans in the financial market from the current 11.9% to less than 10%.

Building human capital demands significant investment and evidence-based policy-making, which will require new and effective revenue mobilization strategies and approaches, including for social protection, health and education systems with national coverage.

The WBG is to provide targeted financing and advice to help the country address these challenges while also building incentives for work. To help prioritize the investment in people, it is expected that the WBG and IMF will provide tailored support and capacity building to increase domestic resource mobilization, combat illicit financial flows, fight against tax avoidance and evasion, encourage investors, and create innovative financing tools for development.

Zambia welcomed the Human Capital Project (HCP) and the launch of the Human Capital Index (HCI), with the supporting program of country engagement as these will provide a platform to support the long-term efforts to invest in national and global health and learning systems, helping prepare for an economic future that will be transformed in profound ways by technological change. It is hoped that the WBG country office in Zambia will support this work.

Government agrees with the World Bank that the private sector is especially critical to creating jobs and well-functioning economies and looks forward to continued efforts by the WBG in operationalizing Maximizing Finance for Development (MFD) programme through the “cascade” approach. The cascade entails the World Bank, IFC, and MIGA working jointly to level the playing field and pursue private sector solutions to help achieve development goals, while reserving public finance for projects that the private sector cannot support.

Zambia commends the IFC for its strategic efforts to create markets; support pioneering investments such as the world-class Scaling-Up Solar Project in the Lusaka South Multi-Facility-Economic-Zone; and, provide opportunities where they are most needed and looks forward to the IFC helping more investments in Zambia to succeed through its due diligence, mobilization, capacity building and advisory services. The MIGA’s contributions to increasing investment in the country through access to longterm financing at lower cost, are commended. It is anticipated that the MIGA will play a greater role in the Maximizing Finance for Development agenda.

The Government reiterated its support for the IDA and acknowledged its central role in achieving the WBG’s twin goals as well as its contribution to the Sustainable Development Goals. The strong progress on IDA-18 implementation including regional programs and the launch of the new Private Sector Window is welcomed and the Government called on the IDA to continue to innovate, focus on development outcomes, and prioritize the IDA18 themes: jobs and economic transformation; gender; climate; fragility, conflict and violence; and governance and institutions.

The Government stands on firm grounds in the belief that Zambia’s prospects are bright and the country has sufficient talents to overcome the tide that is set against the economy.

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In Search of Zambia’s ‘Hidden’ Public Debt Impeccable track record of meeting debt obligations Shebo Nalishebo, Research Fellow, Zipar

What is the true size of Zambia’s public debt stock? That is the question on many people’s lips since the International Monetary Fund (IMF) issued a red flag last year, warning that the country was at high risk of debt distress. Zambia has breached one or more sustainability thresholds, but it does not currently face any repayment difficulties. In its report, the IMF contends that the present value of Zambia’s public and publicly guaranteed external debt as a share of GDP rises gradually from 34.5% in 2017 to 44.3% of GDP in 2020 before gradually falling below the 40% threshold in 2024. The debt-service-to-revenue ratio temporarily breaches the 20% threshold in 2022 and 2024 when Eurobond payments become due. The other debt burden indicators are below their respective thresholds.

The Zambian Government has an impeccable track record of meeting its debt obligations, and Ministry of Finance officials contend a default is out of the question. But you know what they say: there is a first time for everything. Furthermore, an increasing number of analysts believe that the true level of public debt may be higher than what has been officially reported. Several things immediately come to mind at this point with regard to what is perceived as ‘hidden debt’ in Zambia: first, how did we get to this point; second, the scope and definition of public debt; third, inconsistencies in some loan figures; and fourth, the question of timing – at what point does a loan contracted become part of the debt stock? How did we get here?

In a bid to bridge the large infrastructure gap and improve service delivery, excessive spending in the face of relatively low and flat revenues began emerging in 2012, and by 2013 the fiscal deficit on a cash basis reached 5.4% of GDP. Lack of adequate policy response to external and domestic shocks weakened Government revenues and led to significant spending overruns and the fiscal deficit widened to 9.4% of GDP in 2015.

To bridge its increasing and arguably unsustainable spending, Government resorted to massive external borrowing. It tapped into the international capital markets to increase its financing options. Commercial borrowing became a prominent feature of external financing substituting multilateral and bilateral sources.

Further, the liquidity crunch that ensued in the fourth quarter of 2015 following the sharp tightening in monetary policy by Bank of Zambia led to a rapid accumulation of arrears. These developments have resulted in a considerable change in Zambia’s debt structure.

The country has thus been on a steep learning curve, with increasingly more sophisticated debt management involving a shift from concessional to more market-based financing. You now hear mention of ‘restructuring’, ‘refinancing’ and ‘buy-backs’, jargon scarcely understood by people outside the field of finance.

Further, Government has to deal with a considerable amount of arrears, is increasingly involved in transactions of on-lending to subnational entities and extending guarantees of various types

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to other Government institutions, thereby increasing fiscal risks.

Defining ‘public debt’ That Government chooses to report what some may perceive to be ‘convenient truths’ really depends on how the debt is treated. There is no internationally agreed measure of public debt; it can be defined for different types of public institutions (Central Government, General Government or Public Sector) and/or on a cash, accrual or commitment basis. Public debt in Zambia is often reported for the Central Government only, with or without arrears and with or without publicly-guaranteed debt. Based on the official external debt of $9.4Bn, K51.9Bn in Government securities, K13.9Bn in arrears and guarantees of about $2.7Bn, public debt as a percentage of 2018 estimated GDP can plausibly be as low as 53% or as high as 67%, depending on whether or not arrears and guarantees are included. So whatever the true size of the debt, hidden or unhidden, our backs are already against the wall even with the current official estimates of public debt.

With regard to sovereign guarantees, Government can issue a guarantee to institutions specified in the Loans and Guarantees Act (a corporate body established by any written law or one in which Government has shareholding, registered cooperatives and public utilities). Government (the guarantor) records contingent liabilities (or potential liabilities) when the guarantee is issued and it monitors to ensure the institutions are making payments. Government only records it as a liability and assumes the debt obligation of the borrower if that borrower defaults. Further, a loan can be partially or fully guaranteed, making Government liable for only a portion or all of the debt. With regard to arrears, they first have to be reconciled and audited among at least three Government institutions: the budget office, the office of the Accountant General/Controller of Internal Audit and the institution that has defaulted on its payments. Inconsistencies Regarding inconsistencies in debt numbers, consider the greenfield Ndola International Airport. It is unclear if the project cost is $397m, US$522m or $580m - all three figures have been mentioned by senior Government officials, but based on annual eco-

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nomic reports from the Ministry of Finance, the most plausible value is $397m. Differing figures floating around for the same project breeds suspicion. For consistency, Government officials and the Ministry of Finance must confirm loan contraction figures before issuing them.

At what point does a contracted loan become part of the debt stock?

Based on information from the IMF’s 2017 Debt Sustainability Analysis on loans in the pipeline, Government will disburse approximately $3.5Bn in new non-concessional loans over the next five years, on top of $4Bn in already contracted loans, mainly to support capital projects.

We answer this by considering the loans contracted during 20122017 which amounted to $11.2Bn. That works out to an average of $1.8Bn per year. In the same period, the stock of public external debt increased by $6.7Bn (or an average of $1.1Bn per annum). That gives a contracted loan to debt stock ratio of 60%.

This shows that not all contracted loans immediately get into the debt books. Loans for huge capital projects are disbursed at different times of the life of the project as is the case with the Ndola International Airport, in which Government contracted $337.6m for the project in 2016, and $59.6m in 2017.

From the above, it seems far-fetched that Government number crunchers are deliberately hiding debt á la Mozambique. However, the ball is really in Government’s court to be consistent, transparent and provide regular updates, clarity and detail on the debt position. Several measures of debt should be produced, and reconciled, to paint a full picture of public finances. A good starting point is the Government’s most recent debt sustainability analysis, which we are all eagerly and impatiently awaiting. This report will not only show the current state of play but also give us an idea of the medium and long-term outlook. Should Government keep those numbers under wraps, it will only add fuel to the already blazing flames of doubt and mistrust.

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Zambia’s Unfinished Business with the IMF Caesar Cheelo, Senior Research Fellow ZIPAR Following Zambia’s experience of economic malaise in 2015, for nearly two years, the Government negotiated an International Monetary Fund (IMF) loan to support the Economic Stabilization and Growth Programme (ESGP) also known as Zambia Plus.

To date, the negotiation has not been unsuccessful, mainly because the IMF is reluctant to lend support under Zambia’s current fiscal performance conditions.

In 2016, the initial informal talks between the Fund and the authorities stalled as the Fund was hesitant to formalize the engagement while general elections were pending. The uncertainty arising from the political “heat” in the run-up to the election rendered any substantive negotiations potentially futile.

In the first half of 2017, the negotiations seemed promising. The main hiccup was the absence of a home grown economic programme considering that at the time the ESGP was still being drafted. By the time the ESGP was finally launched in September, new information reaching the IMF had set off serious alarm bells inside the Fund. In November, the IMF’s Communications Director Gerry Rice announced that the negotiations had been suspended: “Where we are on Zambia is that discussions on a new arrangement were put on hold in August of this year after the authorities unveiled large borrowing plans that we believe threatened that

sustainability… the discussions will need to progress and provide greater clarity, including on fiscal policy commitments and credible borrowing plans consistent with debt sustainability.”

On 13 July 2018, Rice reiterated that discussions with Zambia remained suspended because the Government’s borrowing plan would compromise the country’s debt sustainability and undermine its macroeconomic stability.

Clearly, the IMF’s biggest worry was the rapidly accumulation of public debt. The debt rose from 19% of GDP in 2010 to 60% by the end of 2016, placing the country at high risk of debt distress.

Nonetheless, the authorities remained resolute about clinching a deal. The 2018 Budget Address emphasized that based on the spending plans presented in the Medium term Expenditure Framework and the Budget, the Government would continue to engage the Fund in October 2017 and beyond, towards securing a support for Zambia Plus. This has pushed many observers and commentators to ask why the fiscal authorities are so insistent on IMF support. Is further debt really justifiable when the country already has a 60% of GDP debt overhang (2016)?

Here are five compelling reasons, which have most likely been on the authorities’ minds as they have pursued the now protracted IMF deal: Affordable Finance: IMF financing would be secured as a concessional zero-interest loan. This will be significantly more affordable than commercial borrowing from domestic and international markets. Domestic borrowing through government se-

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curities was around 14.9% (compound Treasury Bill yield rate) and 18.1% (compound Government bond yield rate) in the first half of 2017. International borrowing of Zambia’s Eurobonds – based on interest rates at which bonds were trading during January to June 2017 – was to 7.0% to 8.3% over January to June 2017 in US dollar terms. Comparatively, the concessional or zero-rated IMF loan would be a much cheaper option than domestic and international borrowing.

Sizable Financing: Zambia would be eligible to about $1.3Bn over a 2-3 year programme period under an IMF supported programme. This is a sizable amount; it would be enough to reduce the debt service burden from 17.4% to 8% of total budgetary expenditure in 2019 and from 13.6% to 4.9% in 2020. This would result in fiscal savings equivalent to K6.5Bn per year.

Technical Assistance on Macroeconomic Management: Because of its mandate to oversee the international monetary system and monitor the economic and financial policies of its 189 member countries including Zambia, the Fund possesses almost unlimited access to fiscal, financial and macroeconomic data in all of its members. Using a pool of highly competent global experts, it is able to engage individual countries and offer credible technical assistance, giving proposals of prior actions or appropriate policy adjustments needed to restore stability and economic growth.

Transparency and Accountability Mechanism: because the IMF is mandated to pry into the financial and macroeconomic affairs of its members, it is able to detect and candidly point out the potential policy and structural risks and realized policy slippages, which adversely affect stability and inclusive growth. In the way, it serves as an effective external accountability mechanism, pushes national authorities to be transparent and accountable for their policy decisions and actions, ultimately promoting fiscal discipline.

Signalling Foreign Investors and Development Partners: it is well known that the international community generally looks to the opinions of the IMF regarding where to invest and where not to. Development partners also use the IMF as their mast when deciding whether it is worthwhile to grant aid or development assistance. IMF endorsement through a loan support to the Zambia Plus programme will positively influence foreign direct and portfolio investment flows and will also encourage foreign aid flows to Zambia, both of which will strengthen the country’s balance of payments position.

From the forgoing, it goes almost without saying that IMF support to Zambia Plus would be good for the country. However, the Government’s business of negotiating with the IMF remains unfinished. Prospects currently seem rather bleak that Zambia will secure the desired deal given the mounting debt overhang and the unrelenting expansionary fiscal policy stance taken by the authorities.

Should Zambia’s fortunes nevertheless change for the better so that an IMF deal is sealed, the authorities will still face the hurdle of stemming the spate of severe fiscal slippages that emerged in 2015-2017. This will be crucial for bringing the mounting debt under control, and harnessing and prudently utilizing the fiscal space anticipated from the IMF support.

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KAPPATA, Stephen Chipango, “UNIP and MMD Government”, 1998, Oil on board, 75 x 97 cm Lechwe Trust

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Regulatory environment in line with international best practices Interbank lending rates have been reduced Sector shows strong resilience during economic challenges Use of mobile payment systems increasing

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FINANCING GROWTH AND DEVELOPMENT

Bank with Us Background: After the liberalisation of the Zambian economy in the early 1990s, the banking sector experienced accelerated growth of new entrants - from five to the present 18 commercial banks as well as an increasing number of Non-Bank Financial Institutions (NBFI). The country’s central bank, the Bank of Zambia (BoZ), oversees the banking sector and reports to the Ministry of Finance, with the Banking and Financial Services Act of 2017 governing the sector. Vast regulatory changes have been implemented so that the sector remains up to date with international best practices. Recently, BoZ has been credited with the major improvements in bank oversight.

The 18 commercial banks are comprised of both international and local banks. By law, all banks that operate in the country need to be incorporated locally, hence there are no branches of foreign financial institutions, only subsidiaries. Of the operating commercial banks, eight are subsidiaries of foreign banks, eight are locally owned private banks and two are partially owned by the Government. In 2018, the composition of Non-Bank Financial Institutions (NBFI) was composed of 81 bureaux de changes, 34 microfinance institutions, 1 savings and credit institution, 8 leasing and finance companies, 1 development finance institution (the Development Bank of Zambia), 1 credit reference bureaux and 3 building societies.

The sector is highly competitive, and diversified product offerings have increased to better satisfy consumers’ needs and gain a greater market share. Businesses’ operations have been

spread across the different sub-sectors (e.g. banking, capital markets, insurance, etc.). However, due to each sub-sector having their own regulator, the regulatory environment is somewhat fragmented.

The Bankers Association of Zambia (BAZ) - an industry body representing the registered commercial banks in Zambia - state that the commercial banking industry’s overall financial performance and conditions have been stable and satisfactory in terms of profitability, lending and capitalisation levels with the quality of total loans and advances being satisfactory. This has been credited to Zambia’s economic diversification agenda with on-going developments in the agriculture, transport and communication, manufacturing and forestry sectors, among others, which have contributed greatly to the financial sector’s stability.

In 2012, the minimum capital requirement that banks must have on hand was increased by the Government. This was to strengthen the balance sheets of commercial banks, which would support the growing economy. The minimum capital requirement for local banks and foreign banks is K104Bn and K520Bn respectively. Prior to this, the minimum capital requirement was K12Bn for all banks. Another purpose of these capital requirements was to boost banks’ lending to the private sector players. With regards to this minimum capital requirement, it appears that the banks seem to be adequately capitalized.

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ANALYSIS

After the recent reduction of interest rates, the sector has resumed growth. A growing trend in the sector is partnerships and syndicated lending between financial service providers. This is whereby institutions form joint ventures to fund large projects that individual institutions would be unable to finance. A sub-sector that is experiencing significant growth is microfinancing.

There are a large number of microfinance service providers and greater regulation of the sub-sector is required to limit default and reckless lending.

Branches: The number of commercial banks’ branches vary according to the different banks, with some having over 60 branches across the country, while others only have a few that are located in major centres. The majority of these branches were in Lusaka and the Copperbelt Province.

Total Assets and Liabilities: The total assets of the commercial banks have seen a steady growth path over the last 10 years.

The loans and advancements were K5.7Bn in December 2007, rising to K10Bn in May 2011 and K20Bn by April 2014. It had a peak of K27.3Bn in November 2015, which decreased and resumed its stable growth path. As of September 2017, the commercial banks’ loans and advancements were K23.5Bn, which peaked again in September 2018 at K29,145,284. According to the BoZ, personal loans (others) and, agriculture, forestry, fishing and hunting had the greatest distribution of loans and advances. The value of these loans and advances’ are displayed below in Table 1.

Payment Systems: The use of electronic payments have increased substantially in the recent past and these types of financial transactions are being encouraged. Electronic payments are in the form of internet banking and mobile transfers. Mobile transfers have been identified as a means to decrease the total of the unbanked population. With strong competition in the banking sector, the sector has seen much innovating to gain customers and creating access to bank products. Agent banking is also increasing in areas where building a traditional bank is unfeasible; an example of a bank agent would be a retail shop.

This has helped increase access to banking services as small amounts of money are generally moved and under normal circumstances, people would feel intimidated to use the bank with such amounts of money.

Laws and Regulations: The sector is well regulated by various laws and regulations, which are discussed below. The Seventh National Development Plan 2017-2021 (7NDP) has specific reference to monetary and financial sector policies. The Government’s policy stance continues to focus on maintaining price and financial system stability, which includes an increase in access to financial services as a means to support economic growth.

The Government’s priority during the 7NDP’s period is to address the cost of finance and improve credit provision to Micro-, Small and Medium-sized Enterprises (MSMEs); this includes mitigating risks. The main critical reform focus in this sector is to harmonise and strengthen various policies and legislation governing the sector. This includes the development of a new policy and strategy on financial inclusion, which will drive the agenda of inclusive and affordable financial services to all Zambians. In this regard, various acts and policies were updated in 2017. In addition, improved access to finance for production and export is one of the strategies in the 7NDP’s stimulation of various economic development initiatives.

The commercial banks’ total core liquid assets at the end of December 2016, 2017 and 2018 were K11.6Bn, K18.0Bn and K18.8Bn respectively; which shows growth in commercial banks’ assets. In terms of statutory reserves, the commercial banks’ actual ratio has remained above the required ratio for the past three years Credit Extension: It has been asserted that the banking sector is stifling the country’s economic development as their investments are concentrated in government securities (considered a safe investment) and very little investment is made in the private sector. The BAZ has refuted this assertion and stated that the sector’s share of investments in the private sector is over 75%, while government securities account for the remainder of the funds, and that the banking sector is dedicated in supporting the private sector’s growth. Delays in payment to contractors and suppliers - by Government bodies - was contributing to an increase in non-performing loans by the private sector. This growth in non-performing loans is above industry norms.

The National Financial Inclusion Strategy (NFIS) is a renewed commitment to financial inclusion in the country and builds on previous efforts and ongoing initiatives by the Government. The vision for financial inclusion in Zambia is to have universal access to, and usage of, a broad range of quality and affordable financial products and services. In achieving this vision, it is expected that all Zambians will attain the full benefits of financial inclusion. This includes individuals being able to use appropriate savings, credit, payment, insurance and investment services to manage their risks, plan for the future and achieve their financial goals; and firms being able to access affordable financing to facilitate innovation and growth, and create employment.

The National Financial Sector Development (FSD) Policy of 2017 was formulated to grow and transform the financial sector.

The Policy aims to have a well-developed and inclusive financial system, which supports efficient resource mobilisation and investment for the sustainable development of the economy. The Policy follows after Zambia’s first and second Financial Sector Development Plans (FSDPs), which ran in two successive five-

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year cycles from 2004 to 2009 and from 2010 to 2015. The FSDPs consist of both a vision and a comprehensive strategy by the Government to address weaknesses in the Zambian financial system by focusing on five main elements; these are:

• Legal reforms and corporate governance;

• Payment systems;

• Market efficiency and contractual savings;

• Financial education; and

• Access to finance and financial markets.

The Banking and Financial Services Act No 7 of 2017 is an “Act to provide for a licensing system for the conduct of banking or financial business and provision of financial services; to provide for the incorporation of standards, principles and concepts of corporate governance in institutional systems and structures of banks and financial institutions; to provide for sound business practices and consumer protection mechanisms; to provide for the regulation and supervision of banking and financial services; to repeal and replace the Banking and Financial Services Act,1994; and to provide for matters connected with, or incidental to, the foregoing.” The revised Act has been formulated to deal with complex developments in the sector, such as the various global bank crises, and incorporate Basel III recommendations. The Act has clearly defined the consequences of non-adherence by Directors, Managers and Senior Officials.

In terms of the BoZ Strategic Plan 2016-2019 in the area of financial stability, the oversight of financial service providers will be through the implementation of Basel III Standards, the establishment of an e-deposit protection scheme and an e-system for electronic monitoring of bureaux de change transactions.

Implementation of the Basel III standards is aimed at strengthening capital requirements and increasing bank liquidity. The BoZ will also formulate and implement a financial stability framework.

These measures are expected to enhance the resilience of the financial system to internal and external economic and financial

shocks. At the start of 2018, banks had to fully comply with International Financing Reporting Standards (IFRS). This specifies how banks should classify and measure financial assets, financial liabilities and some contracts to buy or sell non-financial items. IFRS 9 requires banks to recognise a financial asset or a financial liability in its statement of financial position when it becomes party to the contractual provisions of the instrument. This is aimed at providing clarity and transparency in the banking sector, with banks having to develop plans to ensure that their systems and processes meet the new standards. This new standard allows for the alignment of the management of the business and its reporting. In the past, the focus was on contractual terms and business intentions when reporting on loans. Data and reporting have been the most affected and banks have had to make significant changes to ensure that management can track information and report within the framework of the new requirements. A key change relates to the calculation of impairment, which is an accounting principle that describes a permanent reduction in the value of a company’s assets - normally a fixed asset. The calculations require that management consider and report on future expectations regarding the performance of the bank’s loan book.

This change seems likely to increase the impairment charges in many banks. The standard has also introduced the requirement to consider impairment of unused facilities, overdrafts, credit cards and Government securities based upon expected losses. The new changes in impairments could increase the capital requirement of the banks; although this would make the banks safer, it could lower return on investments.

Moving Forward: The banking sector has remained resilient during economic challenges and the upward adjustment of the minimum capital requirement for commercial banks encountered in the recent past. Banks are continually innovating by creating new products and means of access to such to gain a greater market share, especially with the unbanked. The sector is stable and regulations are up to date with international best practices.

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INTERVIEW

Responsible Lending when Perceived Risk is High Douglas Kamwendo, Managing Director, FINCA Zambia Mukuka Bwalya, Marketing and Customer Experience Manager, FINCA Zambia

BRIG: Please give us some background to FINCA and its operations in Zambia.

Douglas Kamwendo: FINCA Zambia is a subsidiary of FINCA Impact Finance. We strive to be an unconventional community-based financial institution, focusing on bringing low-income individuals into the formal banking sector. Financial inclusion is prime for us. FINCA has evolved over time, but our focus remains on providing impactful and responsible financial services that meet our mission and equally sustain our organisation.

FINCA Impact Finance operates in 20 countries and is a global player. On the African continent, we are present in the DRC, Malawi, Nigeria, Tanzania and Uganda; it is quite a diverse group.

We have been around for over 30 years, setting up in Zambia in 2001 with a single office and have now become a fully-fledged microfinance institution with 14 branches and over 70 third party agents.

BRIG: How do you manage the default rate in the lower end of the market?

Douglas Kamwendo: With over two decades of experience in banking, something I have learnt to appreciate is that responsible lending is important at all levels and that low-income individuals are not uniquely predisposed to default. In fact, some of my biggest default experiences have been with high-income borrowers who have overstretched themselves. For most low-income individuals, they have what I would call classical honour

and there is still a feeling that you pay back as a matter of principle. Therefore, when our clients interact with our value proposition and there is default, it is usually genuine default arising from market dynamics. We practice responsible lending, so we engage with clients to enable us to understand their situation better and to understand what sort of financial services they need. We do not lend for lending’s sake, we want to lend because our customers will invest in profitable assets that can generate revenue.

They use our products for productive purposes.

As a business, we are learning to understand client risk even better; we are investing in technology so that we can get client data more efficiently. We want to accumulate good client data and use it to drive responsible or targeted lending. In the past, with lots of paper, you can’t really look at it all. By using appropriate technologies and analytics, we are able to acquire data digitally and use scoring mechanisms to speed things up, understand risk better and price for it responsibly. Technology is not the end, it is an enabler. The human touch is important because you need to dynamically keep in touch with clients and their economic situation. It is also important from a consumer protection point of view that products are explained to the customer and this is best done in person. Reaching a hundred thousand clients is difficult without technology, but you need a balance between tech and the human touch.

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INTERVIEW

BRIG: Are you in a position to partner with corporates in order to take staff loans out of their hands?

Douglas Kamwendo: Historically, we have concentrated on entrepreneurial schemes, but we are looking to deploy something in the formal sector in the payroll environment, but we want to ensure that we lend in a way that uplifts people. The middle class in laden in debt already so we have to be careful.

Mukuka Bwalya: Market analysis has also shown us that many Zambian employees tend to have a side business and that it might not necessarily grow to the level that they want it to because of restricted income and revenue, extending credit lines to this segment would help them achieve their desired growth.

There are also a number of weekend farmers arising for example, the younger demographics are equally getting excited about it. When you think of the agricultural sector, you tend to assume that you are going to find subsistence farmers or larger commercial farmers but there are also emerging farmers taking it up as a side business, which they would like to grow. We, as such, realize that there is a lot of potential that we can tap into and build on our mission.

With micro-finance, there is a trade-off between the cost of finance and access to finance. Commercial banks may hold onto funds rather than lend to parts of the market where operational costs and perceived risks are higher. FINCA, for example, is more comfortable to take on those risks and price them. If I lend someone $100 and he buys 100 units and sells them for $300, he can repay the loan easily a few days later, even if the rate per annum seems high.

Having said that, we need to continue to bring prices down by focussing on the cost to serve and risk management. Technology is key here and enables us to scale up the business in order to distribute more funds.

Mukuka Bwalya: The cultural narrative has to change in terms of the way we relate to money - to make sure that we can optimise what we have at hand through savings or investments.

Financial literacy is key in helping change attitudes and influence our cultural approach to the relationship that we have with money - in terms of credit and savings.

Douglas Kamwendo: We feel excited with where we are - we serve customers that take risks every day. You should see their resilience. They lose everything in a market fire and have no business, but they do not run away from their credit obligations.

They ask for another K10,000, for example, start again and pay you back.

Mukuka Bwalya: Partnerships definitely come into play here.

Sometimes, due to limited exposure on insurance products, customers are unaware that there are products available on the market to provide cover for property loss or financial risk. It is our duty to ensure that we facilitate access for our clients through partnerships with insurance providers for example; our relationship with ours clients is more than just providing products, but solutions that aptly address their needs.

BRIG: Technology and mobile money. Where do you fit in and how are you using that same technology?

Douglas Kamwendo: That’s the beauty of it. I love it when there are so many players because when the majority of Zambians do well, we do well. I came to Zambia in 2015, just before the market went crazy. Subsequently things have stabilised and the only way to convert that into economic growth is to ensure that most Zambians enter the system and are financially included. There is merit in thinking that we can provide some level of financial services to everyone because everyone can interact with a mobile phone. We have partnered with some players in the market to leverage on their technology and client base. We are able to get detailed data on the performance of individuals regarding their existing products, but we are aware that with such data comes incredible responsibility. Because we understand the clients better, we can be more aggressive with risk taking and propose better solutions. Previously we would leave some deals off the table, but when you are confident, you do not need to. Our backers do not have bottomless pockets, so we need to use technology to drive costs down all the time. Mobile technology provides data opportunities that can enable us to understand customer needs better, provide responsible and appropriate products at better prices, and acceptable risk. All this should bring a revolution to financial inclusion.

BRIG: Is the middle class in Zambia a myth or have you seen it develop?

Douglas Kamwendo: From where we sit, we see it, but we need to do something now so that we do not lose it. We need to ensure that people are not just working to pay back car loans, home loans and credit cards. Since I have been here, I have seen the middle class expanding but we want them to be investing in productive assets.

INVESTORS ROAD MAP | ZAMBIA | 2019

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BANKING

INTERVIEW

Taking Staff Loans off the Books Dr Brian Malambo, Managing Director, Izwe Loans Zambia

BRIG: How do you evaluate the outlook for Zambia’s economy?

Dr Brian Malambo: 2016 was one of the most difficult years in the last decade. We had the elections and a period of very tight liquidity that affected all markets and, particularly, financial institutions in a bad way. We saw the recovery in 2017 and expect things to get even better. 2018 is looking great with the government interventions in terms of reforms; there is fiscal discipline and they are making every effort to ensure that the economy is stable. We are very happy and optimistic about the future.

BRIG: How is Izwe Loans involved in promoting financial inclusion?

Dr Brian Malambo: Izwe Loans is a mass market player, providing loans to salaried employees and have recently launched an SME product. Invoice discounting is our first product we offer to smaller companies, more to be rolled out. We offer personal loans with terms ranging from four to 60 months and from K200 to K25,000. We have close to 60,000 clients on our books, who are spread across the country, and we use automated methods as well as onsite visits to reach them and ensure that those in the far-flung areas of the country are also catered for. In that way we are making sure that as many people in the country as possible have access to our services, thereby promoting financial inclusion.

The IT infrastructure in the countryside is improving and we are able to ride on the mobile service providers’ platforms. There are only isolated cases where connectivity is a challenge because of the coverage of optic fibre. While we have not explored formal partnerships with the mobile service providers, because we are doing well with our own resources and current operations, we remain open to doing so in the future. In terms of our footprint, Izwe Zambia now has nine branches throughout Zambia and an established Head Office in Lusaka. Izwe Africa Holdings has operations in South Africa, Ghana and Kenya with a management office in Mauritius.

BRIG: How would you describe the current competitive landscape of microfinance in Zambia?

Dr Brian Malambo: We have been a player in this sector for 16 years and have seen a major shift in competition, with many new entrants to the market. The microfinance sector has grown to more than thirty-five micro-finance institutions from just a few in 2004. The competition is beneficial - for us and for our customer. Small players that have the intention to grow are sometimes forced into practices that are harmful to the industry and the consumer - they can be tempted to ignore credit rules, also not vetting the customer correctly. If the lender cannot repay the loan, then the non-performing loans increase and affect the entity and trust in the sector.

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BANKING

INTERVIEW

BRIG: What regulatory developments are taking place in the Zambian microfinance sector, and the financial sector in general?

Dr Brian Malambo: Many changes have happened over the years - the Bank and Financial Services Act has been strengthened and directives are being enforced regarding how Micro Finance Institutions (MFIs) conduct their business. Previously, there were institutions that traded without an effective board this has been stopped. The governance issues have been tightened and the Bank of Zambia is doing a fantastic job of enforcing the rules with inspections being conducted; so MFIs have to improve constantly. There have been calls by BoZ and the Government to make sure that pricing is fair and, of course, they set interest rates.

BRIG: What are your impressions of the growth and visibility of the middle class in Zambia?

Dr. Brian Malambo: The growth of the middle class is anchored around the way the economy is functioning and most have formal employment and are able to live above the poverty line. With investment being promoted in mining, agriculture and tourism, we see more formal employment and people being able to expand their businesses beyond the SME stage. With the copper price at these levels, we anticipate the middle class becoming more prominent and visible in the near future.

elsewhere that are not visible on the payslip by interviewing every client. We are aware that they may not disclose all their obligations in order to get a higher loan amount, so we also rely on the Credit Reference Bureau, which has access to asset finance - companies that provide furniture or clothing on credit, all other credit sources are included. We are therefore able to capture all their obligations into our system to ensure that we provide credit responsibly. Similarly, we feed our data into the CRB as well.

BRIG: What are the main reasons that your clients apply for loans?

Dr Brian Malambo: We have a process where we focus on the reason for the loan, not the amount they are borrowing. This is because we have a duty to provide financial advice in addition to credit. A client will ask for an amount that they think they should get, but if one understands the utilisation, then one can attach value to that purpose and you can advise on the correct amount of money that is needed and that is sustainable. Our clients tend to buy houses, plots for gradual construction of houses, education for themselves and their children, agriculture and other entrepreneurial endeavours.

BRIG: Is Izwe positioned to provide services to new investors and existing corporates?

BRIG: Do you see the entrepreneurial utilization growing?

Dr Brian Malambo: There are several companies that have been burdened with staff loans because of the huge interest and administrative cost associated with it. And, as they are not a bank, they cannot charge interest in return. We take these costs off their books at favourable, negotiated rates.

Dr Brian Malambo: Yes, it is improving. Mostly people abuse resources due to being financially unaware. People are, however, becoming more aware and question pricing, fees and are more cautious about the financial requirements than before, and this benefits them as well as the financial institutions. The clients understand the amount that will create value for themselves and they do not want to default because they want to be able to extend their credit when they want to create additional value and they do not want a bad record with the CRB.

Companies are generally not well positioned to assess credit risk, but we follow credit rules and ratios to ensure that staff take home a percentage of their income. We include loans obtained

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BANKING

INTERVIEW

Fifty Years and Counting Henk G. Mulder – CEO, ZANACO BRIG: With your experience from various markets in Europe, Middle East, Asia, South America and Latin America, how do you describe the Zambian financial sector?

Henk Mulder: The country is geographically big with a relatively small population, which means that you need wider presence to be able to reach everyone in the countryside. Zambia has two major sectors, which are mining and agriculture. The rest of the retail market is coming up. You see shopping centres all over and that means there must be a middle class coming up as well.

Another major factor is the massive presence of young people, which is related to what we see in the financial industry. We have around 20 banks, which is a lot for our economy. Besides, we also have telephone companies, and you see that mobile money is developing quickly. Our strategy, as Zanaco, is to digitalize the services for a large number of clients. Our target is to be the top transactional bank by 2020, and we are well on course to achieve that. We want to have further developments in order to help towards a cash-light society, since cashless is probably too much.

BRIG: Zanaco has recently been awarded the title of Best Bank in Zambia at the Euromoney Awards of Excellence and have had a 19% increase in operating incomes. What initiative have been put in place to achieve this?

Henk Mulder: We have had a huge volume of transactions. Our focus was on getting more for our clients in business and transactions. Everything that happens in a bank is a transaction if

you think about it. If we give a loan, that is a debit transaction, if we get a savings account, that is a credit transaction. We made huge investments in the bank’s new operating model had set a solid platform to deliver a superior customer experience, reduce costs, enhance business growth and improve the way the bank conducts business.

BRIG: What are some of the sectors that Zanaco is supporting?

Henk Mulder: As the largest local bank, Zanaco has a mandate to contribute to the economic growth and industrialization of our country, through supporting major economic activities that contribute to the country’s gross domestic product. These cut across mining, energy, agriculture, manufacturing, transport, communication, construction and tourism sectors, among others. In our new strategy, our promise is to facilitate the growth of people, businesses, communities and the economy of the country. Over the past 50 years, we have played a huge role in oiling the engines of the country’s industrial and economic growth in all sectors and at all levels -- micro, small, medium and largescale -- through the provision of innovate but affordable quality products and services. Over the last century, the country has relied on mining to sustain the economy, and our participation in mining has been huge. But the country has been expanding

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BANKING

and strengthening other areas of economic activity to diversify away from mining. So, our support to sectors such as such as agriculture, manufacturing, tourism, and infrastructure development is big.

BRIG: When you say you are also diversifying your support to economic sectors, which sector do you consider as holding the biggest promise for this country, apart from mining?

Henk Mulder: Agriculture is one of the most important sectors in the country. We have a warm heart for the healthy part of agriculture, and we are looking at the whole value chain. We are not just focusing on the primary sector, but also on the offtakes and the processing. The idea, which is essential to the country, is to create more value in the industry. So, we work with the lower level with loans and we also look to expand the sector for the investors coming in. We offer financing of varying terms to clients engaged in the farming of staple as well as cash crops, horticulture, plantations, poultry, animal husbandry, dairy, seeds and warehousing. The bank also finances the supply of a wide range of agri-input products like seeds, fertilizers, pesticides, micro nutrients as well as farming and irrigation equipment. Our support also extends to transportation, storage and processing of food and other agricultural commodities.

BRIG: How is Zanaco empowering women?

Henk Mulder: First, we have to start from within our bank. Our aim is to achieve 50/50 representation of women and men in our management structures. We are close to that in our Management Board at 44%. In the entrepreneurial world, we also

INTERVIEW

want to get women more active. Think about it, women make up 50.5% of the adult population in the urban area of Zambia, yet most of them fall outside the financial inclusion brackets. Out of the financially excluded population, 53% are women. In addition, only one in five women are using banking services compared to three in five for men. We want to be able to facilitate an improvement to these statistics. We have recently affiliated to the Global Banking Alliance for Women, which will enable us create more value propositions that support and empower women.

BRIG: What is Zanaco doing for its 50th anniversary this year?

Henk Mulder: We are turning 50 years in 2019 and our Golden Jubilee is a huge milestone for us. We will certainly not let it go unnoticed. We have lined up a number of interesting activities which will be part of the commemoration for the most part of the year. I can guarantee that this will be an exciting year for us.

BRIG: Where do you see yourselves and the country in the next couple of years?

Henk Mulder: Firstly, we have a goal to become the Top Transactional bank in Zambia by 2020, and that’s what we want to be in the next couple of years. That’s where we see ourselves.

Projections also show that the economic growth of the country will hold steady. We need to ensure that we help create and support more value added industries. We have political stability and we need to sustain that. Power generation has improved quite a lot over the last year and we need to ensure that we diversify to solar and other more sustainable sources of energy.

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ARTICLE

Understanding Customer Needs is the Heartbeat of Banking Kingsley Kaswende, Senior Communication Specialist, Marketing & Communication Department at Zanaco.

Despite increasing competition from telcos, there is little disagreement about the fact that the importance of financial services providers will continue in the future. The models of financial services distribution will inevitably evolve but what will separate great from good, will be the ability of the financial services to understand the customer and deliver their needs to the finest detail.

Customers expect innovative and outstanding service, real-time contextual solutions, products that make a difference to their personal and business lives, and a seamless experience across channels. It is practically difficult to deliver these without getting under the skin of the customer, seeking insights into their needs, behaviors and journeys.

A question that often arises is: based on the data they have about the customer and their banking history, do banks really know their customers to be able to provide good products and services with the best customer experience?

In order to match the right offer and product to the right customer—and to do it in an efficient, straightforward manner—service providers need to employ some sort of segmentation based on various variables. Consumers today often feel oversold with products and services that they don’t really need, which are being thrown at them at every turn. Most of these are aimed at their wants and little attention is paid on their needs.

The businesses that focus on meeting the needs - rather than wants of customers that just fill the gap - will therefore always prevail. To be the partner that adds value, it is critical to under-

stand customers and to look out for their needs. This is where the importance of segmentation and the customer value proposition comes in. By lumping our customers into retail or business customers with generic offerings, it shows that not enough effort is being made to understand customers and their needs.

Over the last two or so years, Zanaco has been engaging its customers to find out what the bank can do that can meet their actual needs and improve their banking experience. As expected, the bank found that customers have divergent needs and cannot, therefore, continue to be served through a generic model.

In a world of fast-changing consumer behaviors and expectations, generic models are quickly becoming obsolete, in ways that are forcing banks to both redefine their priorities and transform their distribution models.

That way, the bank was able to read into, and predict, the customer’s needs going forward. Around mid-2018, Zanaco acted on the findings of this customer engagement and successfully carried out a customer segmentation exercise based on their past transactional behaviour.

Once you understand a customer’s need, the next thing to demonstrate is why your solution is the best, and this is where the customer value proposition (CVP) comes in. Zanaco came up with CVPs, which were not just lists of features, but full-bodied secret sauces that makes the CVPs special and unique.

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BANKING

One of the CVPs Zanaco came up with was Private Banking, an exclusive offer that recognises the amount of effort it takes to build wealth and also offers unique lifestyle privileges to maximise the benefits of banking. It was created in the context of focusing on solving our customers’ needs, the overarching consideration being: “Did I make it simple for the customer in all our interactions?

Among its features are:

• A dedicated Private Banker who serves as

the customer’s single point of contact.

• 24/7 access to your money via our Mobile

Banking App and Internet Banking service.

• Access to our Private Banking Centres with

free Wi-Fi and conference facilities at the

customer’s disposal.

• Enhanced product suite and preferential

pricing on investment, lending products and

trade and forex services.

• Customers are also given a Visa Platinum

Debit Card with embedded lifestyle benefits

that include access to luxury hotels, purchase

protection insurance and medical and legal referrals

• Our customers are also entitled to lifestyle

benefits with member discounts from several alliance partners.

In addition, customers have access to Wealth Management:

• Customers have a Wealth & Investment

Specialists including Portfolio Managers and Stock Brokers.

• They have access to a Financial Planner who

can assist with goal-based financial- and risk

planning (In future, this will include a

Fiduciary Specialist who can assist with Wills

and Trust Drafting, Estate & Trust Administration) The bank has also waived off monthly management fee for credit average balances of K150,000 and above. So, customers enjoy free banking by simply maintaining an average balance of over K150,000.

Customers can also enjoy preferential lending rates lower than the standard rate on personal loans, overdrafts and mortgages.

They also get competitive pricing and rates on tariffs and deposits, upfront interest on Fixed Deposits as well as pre-approved overdrafts.

As digital offerings mature, banks will have to redefine the value proposition according to evolving needs to encompass both digital innovation and traditional values to meet their customers’ needs. Then it will turn attention to the next most critical piece in the communication equation: the message.

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ARTICLE

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PHIRI, Vincentio, “Dazed 1”, 2003, Acrylic on canvas, 109 x 84 cm.

Lechwe Trust

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CAPITAL MARKETS

New listings anticipated State Owned Enterprises to list LuSE investment roadshows Financial Inclusion is a priority

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CAPITAL MARKETS

ANALYSIS

Shares of Wealth Listing State Owned Enterprises

History: Zambia’s stock exchange is known as the Lusaka Stock Exchange or LuSE and is based in the nation’s capital Lusaka. It was established after Zambia’s economic and political liberalization in the early 1990s and began trading on 21 February, 1994. LuSE’s establishment was part of the Government’s economic reforms aimed at the stimulation of the private sector in becoming the driving force of economic growth in the country. LuSE received preparatory technical assistance from the International Finance Corporation and the World Bank preceding its opening. Its establishment was enabled in 1993 when the Securities Act of 1972 was amended. This allowed the establishment of the Securities and Exchange Commission (SEC), which would regulate the Zambian securities market. The amended Act also allowed the Government to divest from staterun companies as they became privatised. The Government’s remaining shares are held in trust on behalf of the citizens of Zambia. The Government supported LuSE with grant funding until 2009. Thereafter, LuSE became dependent on listed companies to generate operational income and its sustainability was dependent upon increasing the amount and size of companies listed on the exchange.

LuSE was set up as a modern stock exchange that is based on the most recent international standards and practices, which include the following:

• Use of a central share depository system;

• Trade-for-trade netting clearing and settle ment process;

• Rolling settlement 3 days after the trade

(T+3);

• Meets G30 recommendations for clearing

and settlements system design and operation; and

• Strong investor protection legislation and centralised market.

LuSE is comprised of stockbroking corporate members and is incorporated as a non-profit limited liability company. Presently, there are six members of the exchange with three firms handling the majority of trades. Beyond its function of supporting and enhancing private sector enterprises, it has a function of enticing foreign portfolio investments into Zambia, and the region, for potentially high-investment returns on an emerging capital market.

Its other function is the facilitation of the Government’s divesture of ownership in parastatals with the objective of creating a broad ownership of these entities by the citizens of Zambia, which is conducted in a fair and transparent process.

When compared to the GDP, the stock exchange has a low market capitalisation ratio. The LuSE private debt market, which consists of corporate bonds and notes issued under a medium-term notes program, is not well developed, with nearly no secondary market trading. Nevertheless, issuance thereof is more common than the equity market.

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CAPITAL MARKETS

ANALYSIS

The LuSE recorded very few new listings since inception but this is set to change. There was one new listing in 2018 - with 24 public limited companies (plc) currently trading - and more are set to follow under the President’s directive to list state-owned enterprises (SOEs) on the Zambian Stock Exchange.

commissions, Zambians in the diaspora are also kept up to date and encouraged to invest. Foreign companies and the diplomatic community in Zambia are also encouraged to invest and list on LuSE.

New Developments: The purpose of the President’s directive to list SOEs is to improve the operations and profitability of these companies, and to help fulfil their role as engines of economic development. In addition, listing of state owned companies will help raise funds for their local and international operations and help local investment yields. It would also relieve pressure on the Government’s operational capital. While some SOEs are prepared for listing, it has been noted that some SOEs are performing poorly and LuSE has constituted a committee to prepare these SOEs for listing. The committee will help them with the listing process, the benefits of listing and obligations that will need to be met. Under this directive, and over the next five years, over 30 more parastatals will be listed on LuSE with the IDC being the majority shareholder and remaining shares being sold to workers, citizens and international investors

The Central Market System and its Benefits: The country’s securities market was designed to be a central market system or ‘unified market’. This is whereby almost all trading is concluded through the stock exchange. This differs to a ‘dual market’ system where only designated stocks are listed and traded on the exchange (sometimes referred to as the organised exchange or exchange market), while the balance is traded as unlisted stocks (characteristically known as traded over-the-counter/OTC and occasionally called a decentralised market). A benefit of Zambia’s central-market design allows unlisted public companies and government bonds to be quoted and traded on LuSe’s second-tier market. Beyond this advantage, it has several others.

All trading activity is directed through one market. This increases liquidity (the capability to transact both quickly and without significantly moving prices) and market depth (the capacity to trade at the current market price); these ultimately determine the success or failure of a market. A central market is an effective method for compensating low volumes and thin trading activity, which is characteristic of newer stock markets. This enhances market liquidity by providing the needed critical mass. This also reduces duplication of efforts and provides maximum transparency of deals in securities. This limits the opportunities for malpractice and enhances price reliability.

Trade: To increase trading activity, the trading rules were reformed by separating the ownership of shares from brokerage.

With this requirement, brokerage companies have to buy trading rights but don’t necessarily have to buy shares. Secondary trading in government bonds is small and consists largely of bilateral trades between banks, with this being reported to LuSE. Furthermore, bonds and commodities’ derivatives exchanges are recent entrants in the capital markets. Between 2011 and 2016, brokers and investment advisers have increased exponentially.

During the same period, assets under fund management, which used collective investment schemes, increased by nearly 300%.

However, the capital markets are largely underdeveloped and characterized by low issuances, low liquidity, low turnover, lack of depth, weakening prices of some stocks and, minimal interest from both potential investors and issuers. Enhancing stock market will be based on robust policies and regulatory frameworks, varied products and services, proficient infrastructure and institutional arrangements, and investor education and, marketing and public awareness, especially among the local population.

Challenges and Opportunities: Zambia’s capital market is often referred to as being too small and underdeveloped to support the desired growth prospects and as a source for businesses’ fund raising. The alternative investment market/second-tier market was introduced as a tool for SMEs to access long-term capital. This initiative has not yet been a success. However, the alternative market has a huge potential for growth as over 60% of the Zambian economy is driven by SMEs. Generally, the Zambian population is barely involved with investing on the stock exchange. While mechanisms exist for greater involvement, awareness and clarity could be preventative factor. LuSE works with education institutions and the Zambia Institute of Policy Analysis and Research to create awareness.

Other forms of awareness creation include radio shows and public awareness campaigns as well as the promotion of listing to SMEs through workshops. LuSE works with the ZDA and the Zambia Chamber of Commerce and Industry to promote LuSE during investment roadshows. Through the embassies and high

Another benefit of LuSE’s centralised structure is from empirical data on the shares’ price formation on the exchange. Stock price movements generally show a pattern with initial high market entry prices, which is followed by a substantial drop in prices; in due time and with increased trading activity, stock prices stabilise.

This is ultimately a display of market transparency, which enhances market efficiency and price formation.

LuSE is self-regulating and any regulatory changes are debated with stakeholders and thereafter approved by the SEC. LuSe’s information systems are connected to global platforms in real time, and local developments are displayed globally, with daily trading information published on LuSE’s website. The LuSE All Share Index (LASI) was introduced in 1997, with a base of 100 points, it has since risen to over K5,200 as of early December 2018.

Incentives: There are several incentives that have been established to aid the rapid development of the country’s capital market. These incentives include:

• No exchange controls;

• No restrictions on shareholding levels;

• No restrictions on foreign ownership;

• No capital gains tax;

• Corporate income tax reduced to 30% for

companies listed on the LuSE; and

• No property transfer tax on listed securities.

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CAPITAL MARKETS

ANALYSIS

Regulations and Pertinent Documents: LuSE’s rules and listing requirements are reinforced by legislation. This was enacted as the Securities Act No 41 of 2016, which repealed and replaced the Securities Act No 38 of 1993. This Act regulates the entire Zambian securities market and is explicitly designed to ensure acceptable investor protection, while supporting the operation of a free, orderly, fair, secure and properly-informed securities market. The Act created and defined a central market in which both unlisted and listed securities could trade on exchange as opposed to the dual market system.

The Act established the SEC as a corporate body. The SEC has powers, under the Act, to regulate and supervise the securities industry in Zambia. The regulatory powers of the SEC have four major requirements:

1.

That any person dealing or advising on

securities must be licenced by the SEC;

2.

That any securities market must be licensed

as a securities exchange by the SEC;

3.

That all securities of a public company,

which are publicly traded, must be

registered by the SEC; and

4.

That collective investment schemes must be

authorised by the Commission.

Under the Act, a Compensation Fund was established and designed to compensate investors who suffer a pecuniary loss caused by the default of a licensed dealer or licensed investment advisor. This mechanism’s purpose is to create investor confidence in the event of default by a dealer or investment advisers.

Without this, investors could lose confidence in the Zambian securities industry. This revised Act has addressed Private Equities, which were not included previously. Institutional funds can now invest in existing, unregulated private equity structures and with protection of their interests. Provision for a Capital Markets Tribunal has also been included in the Act. Beyond the Act that governs the capital markets and security exchange, the National Financial Sector Development Policy (NFSDP) of 2017 is also pertinent to the bigger picture. The broad objective of this policy is to provide “a framework that will lead to the development of a stable, resilient, competitive, innovative and inclusive financial sector that contributes to broadbased wealth creation and sustainable economic development.”

Under the broad objective there are seven more specific objectives; these are:

1.

To develop a competitive and resilient

financial sector;

2.

To develop and maintain an enabling

regulatory environment for the financial sector;

3.

To make the financial sector more inclusive

and deepen the financial markets;

4.

To develop MSMEs and rural finance;

5.

To enhance financial infrastructure in

accordance with international best practices;

6.

To increase financial literacy and strengthen

consumer protection; and

7.

To facilitate effective and sustainable partner

ship in the provision of financial products and services.

Particular measures that are relevant to capital markets have been extracted from the policy’s objectives mentioned above,

with the measures relating to these described below. Measures related to the objective to develop a competitive and resilient financial sector are:

• Build the institutional capacity of financial

sector regulators to carry out assessments

of the development of the financial sector and subsectors;

• Undertake programmes to modernise the

structure, functions, and operations of regulators;

• Promote the development and

implementation of subsector strategic plans;

• Encourage the development of

customer-tailored products and needs;

• Promote the mobilisation of local resources; and

• Promote attractive savings and investment products.

Pertinent measures for the objective to make the financial sector more inclusive and deepen the financial markets are:

• Promote the establishment of

well-developed and diversified financial

products and services, including savings,

credit, transfers, capital markets products for

low-income groups, micro pensions and micro insurance;

• Develop and implement a framework for

SME listing on the stock exchange;

• Promote the diversification of delivery

channels through partnerships and other

market-based synergies; and

• Formulate and implement a national

financial inclusion strategy.

Measures regarding the objective to increase financial literacy and strengthen consumer protection are:

• Develop and implement a new National

Strategy on Financial Education (2018–

2023) that is inclusive of all financial subsectors;

• Develop and implement a framework to

support consumer protection and product

information disclosure; and

• Enhance the supervisory functions of

financial sector regulators.

The Policy’s implementation will be monitored by the Ministry of Finance to guarantee its institutionalisation across the sector.

Stakeholders in the financial sector will help develop indicators to monitor the development of the strategy, with baseline benchmarks agreed upon by other stakeholders. The policy will be in effect for ten years and will be reviewed according to developments in the sector.

With specific reference to the SEC’s mandate, the NFSDP stated that in line with, it “shall be responsible for, but not limited to, development of a regulatory framework for the capital markets that promotes business and protects investors from fraudulent market operations. It shall promote diversification of capital markets products and services, efficient capital markets infrastructure and institutional arrangements, and investor education and public awareness for capital markets products and services.”

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CAPITAL MARKETS

INTERVIEW

New Listings Imminent Priscilla Sampa, Chief Executive Officer, Lusaka Securities Exchange BRIG: How do you evaluate the outlook for Zambia’s economy?

Priscilla Sampa: Growth is still positive, but the delay in concluding discussions with the IMF could impact investor confidence and decisions. Growth possibilities are still there despite this because exports have increased and the copper price is strong. The Government’s emphasis on industrialisation and the implementation of Multi-purpose Facility Economic Zones, we will not be so dependent on raw materials and will add value to them as well and this will help with exports and the current account. The issue of fiscal discipline is being addressed. One cannot expect to see immediate results, but the Trade an Investment Policy that is in the pipeline from the Ministry of Commerce and the Ministry of Foreign Affairs articulating a Diaspora Policy to interest Zambians abroad in investing back at home. Recently we have had inquiries from fund managers such as a Wall Street Private Equity fund wanting to invest in listed securities, so we like to think that the word is getting out through publications like this one, that there are opportunities in the Capital Market here.

BRIG: How is LuSE working with Government?

Priscilla Sampa: Government initiatives such as the National Financial Inclusion Strategy that cascades down to the various financial sectors. We have been involved with this and are working on a product that will bring especially those that are marginalised into Capital Markets. A committee of all the agencies such as PACRA, ZDA, The Development Bank of Zambia, Citizens

Economic Empowerment, ZCCM IH and NAPSA to assist SMEs join the capital markets and raise capital. Through this vehicle, we intend focussing on 20 SMEs with a view to some listing next year. The sectors are diverse with some of the promising prospects being in agriculture, finance, hospitality, retail and a unit trust.

Our project has now moved under the Ministry of Finance under the National Financial Inclusion Strategy and we are then able to promote the concept of a national initiative in terms of venture capital.

BRIG: What is the current focus of LuSE? Priscilla Sampa: Trading bonds is another focus. Most of the African Stock Exchanges are linked to Central Banks or originated from the Central bank, so are still viewed as needing Government assistance. LuSE has never been associated with the Central Bank. Different from even South Africa with its Prudential and Compliance channels under one regulator, we have three regulators, the Central Bank, Pensions and Insurance Authority and the Securities and Exchange Commission. Elsewhere Government Bonds are usually handled by the Central Bank and traded at that level without being cascaded down into Stock Exchanges. For us, the Government has always issued, listed on the market, the Central Bank then issues in the Primary Market,

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then they are traded on the secondary market. Other countries are moving towards this centralised trading of Government Securities, thus allowing those who have not been able to trade in Government bonds to do so, thus encouraging financial inclusion. We are now moving towards the Kenyan model and the issuing of retail bonds to further encourage financial inclusion.

This will allow participants to purchase for example K500 on their mobile phones with little fuss and then get their returns after six months coming straight to their phones. The Ministry of Finance is considering this proposal and how to fund the project.

BRIG: What factors will enable financial inclusion?

Priscilla Sampa: One of the most important aspects that will enable financial inclusion is financial technology as a Capital Market. The technology underlying BitCoin, block chain, is becoming vital. The right regulation is needed, but the technology is vital.

Linkages are important, so we are talking to the World Bank and the African Development Bank with regards to supporting these efforts. That is why the outlook is positive. Our recent challenges in terms of currency depreciation, copper price drop and rapid succession of leadership due to deaths in office have meant a refocus on industrialisation and in particular agriculture and the deployment of technology. In order to promote the advancement of small scale farmers from SME to commercial farming, from a Capital Markets point of view we have partnered with ZAMACE, the Zambia Agricultural Commodities Exchange which is an organised market place where buyers and sellers trade grains such as; Maize, Soya beans, Wheat, Sunflower and Groundnuts. The receipts can be used to borrow from banks.

The Government can assist here in a PPP because silos and warehouses are needed and policy changes are needed to derive the process. Small farming communities need to be able to organise as co-ops so that they can raise money for warehouses and silos. These farmers can become part of a business, rather than subsisting.

Another important policy is to have universities in all the provinces. Previously the idea was to finish schooling, then migrate to

the major cities for a tertiary education. Now students stay within their province and can contribute there. The graduates can join the co-operatives and can help grow them and the co-operatives can raise money through the capital markets instead of obtaining expensive loans from banks. Eventually we want to offer futures contracts and ZAMACE are working on a partnership with the JSE. ZAMACE have a relationship with USAID in order to help farmers improve their methods.

BRIG: Are there areas where transparency can be enhanced?

Priscilla Sampa: Information on mines is very difficult to get despite the Governments Mineral Output Statistical Evaluation System (MOSES), so we are proposing that all mines list and then are subject to the transparent reporting requirements of the Exchange. The mines would have to report openly on their mineral reserves for the next 5 to 10 years. The current reports are not accessible. ZICTA currently requires all new investors to list as a condition for getting the relevant permits. The advantage is that if a company wants to exit, they can do it through the exchange and not just close the operation. Shareholders will also be able to hold the mines accountable for issues such as Environmental, Social and Governance (ESG) reporting.

BRIG: Which listings are in the pipeline?

Priscilla Sampa: We have two new listings that will happen in 2019, namely ZSIC Life Limited and the Zambia Forestry and Forest Industries Corporation. The ZCIS Life Limited was incorporated in April 2008 and licensed in December 2008 by the pensions and insurance Authority as Pension Fund Manager, pension Scheme Administrator and Insurer to transact Long term insurance business. Zambia Forestry and Forest Industries Corporation Limited (ZAFFICO) was incorporated in 1982 for the purpose of developing and maintaining of pine and eucalyptus plantations and for the harvesting and commercial processing of timber to supply timber to the local and foreign market.

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CAPITAL MARKETS

ARTICLE

BRIG Focuses on Zanaco Zambia National Commercial Bank Share Analysis

The Company: Zanaco is celebrating its 50th year of existence this year. Over the last five decades, the bank has been a trusted financial services partner, offering competitive financial and investment services in Zambia. Awarded the Best Bank in Zambia at the 2018 Euromoney Awards for Excellence, Zanaco has ranked among the top four over several years on key metrics such as asset size, profitability and customer base. The bank has 69 branches and agencies, over 200 ATMs and over 2,000 POS machines in all 10 provinces around the country. Zanaco also has the largest customer base in the country with more than 1.2 million customers. Leveraging on its growing agency banking model - Zanaco Xpress - and the development of digital channels, the bank aims at becoming the top transactional bank in Zambia by 2020. Transactional banking offers a lucrative opportunity for the bank’s business growth particularly money transfers and payments. In this regard, the bank has developed a strategic focus on digital banking solutions highlighted by the creation of the Digital Bank. The bank is listed on the Lusaka Securities Exchange following its partial privatization in 2007 when GRZ sold a 49% stake to Rabo Development B.V., a subsidiary of the Cooperatieve Centrale Raiffeisen-Boerenleen Bank (Rabobank) of the Netherlands. Subsequently, Rabo Development sold a 3.41% stake to Lizara Investments Limited, a nominee of the Zambia National Farmers Union (ZNFU), following the Bank’s Initial Public Offering in 2008. In 2016, the Government of the Republic of Zambia (GRZ) transferred its 25% shareholding to the Industrial Development Corporation (IDC), a state-owned enterprise that oversees Government’s commercial

investments. On 30th June 2017, Rabo Development B.V. transferred its 45.59% shareholding to Arise B.V., a leading African Investment Company backed by three reputable cornerstone investors namely Norfund, Rabobank and the Dutch Development Bank (FMO). The relationship with Arise B.V. enables ZANACO to benefit from technical assistance and best practices in various areas of banking.

Performance: In the 2017 financial year, the bank grew its revenue by 18.7% compared to the previous year, the key drivers of this growth being a 26.5% growth in fees and commissions on the back of improved business growth in line with the bank strategy to grow non-funded income, and a 132% growth in investment income from K173 million in 2016 to K401 million in 2017.

Investment Securities balances grew by 302% from K769.7 million to K3,099.7 million funded by the 19% growth in customer deposits. Operating costs grew by 5% from K896 million to K942 million – lower than inflation due to improved cost control, which resulted in Operating Profit Before Tax increasing to K180 million from a loss of K60 million in 2016. During the year, the bank saw improvements in some of its key areas of operation, as staff had embraced the bank’s strategic direction to become the top Transactional and Digital bank. The huge investments in the bank’s new operating model had set a solid platform to deliver a superior customer experience, reduce costs, enhance business growth and improve the way the bank conducts business. The strategic milestones that were on course included technological developments and digitalisation of the bank. The bank launched

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the Zanaco Mobile App and the new Xapit USSD platform aimed at easing access to banking services and improving customer experience. The bank also developed tailor made value propositions following a customer segmentation process, to ensure customers were served with the right products and services that best suit their needs. The bank also optimized its distribution channels to ensure improved access to the bank’s products and services. The bank repositioned Zanaco Xpress as a strategic alternative to the brick and motor distribution network.

Outlook: Zanaco anticipates favourable economic conditions to continue in 2019. Inflation and interest rates are expected to be fairly stable while the Zambian Kwacha is also expected to remain largely stable. The banking industry will continue adjusting to the new regulatory environment following regulatory changes

that saw the promulgation of Prohibition Against Unwarranted Charges and Fees Directives of 2018 into law that prohibits certain bank charges and fees, in September 2018. The measure may have affected some of the banks’ income, but many have responded with innovative and cost efficient solutions. Zanaco will leverage on its digital strategy and grow digital banking solutions. Although the loan book challenges experienced in the industry lately are expected to persist, the loan book is expected to start growing again in view of positive economic developments and the right measures taken. The bank will also continue to be a trusted partner for growth for the communities in which it operates, as it helps in the provision support and capacity building in Financial Education, Digital Literacy, and Education Scholarships for capable underprivileged young students, as well as health, water and sanitation.

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INSURANCE

Low penetration rate offers huge potential for growth Strong focus on enhancing micro-insurance products New insurance bill to be tabled soon

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ANALYSIS

Guarantees Against Risk Ensuring Peace of Mind Introduction: Zambia’s long-term vision - known as Vision 2030, and is the country’s long-term development plan - is for the country to become a prosperous middle-income nation by 2030.

In the medium term and aligned with Vision 2030, the country is currently guided by the Seventh National Development Plan (7NDP) whose theme is “Accelerating development efforts towards the Vision 2030 without leaving anyone behind”. The 7NDP has an integrated (multi-sectoral) development approach that “recognises the multi-faceted and interlinked nature of sustainable development which calls for interventions to be tackled simultaneously through a coordinated approach to implementing development programmes”.

Insurance plays an important role in Zambia’s envisaged inclusive growth as relevant and appropriate insurance is a very effective risk management tool that is available for individuals and households of all income levels and businesses of all sizes. However, in many developing countries - as is the case with Zambia - the insurance penetration rate is very low. Generally, high-income earners are the main users of insurance while low-income households and individuals - who already have high levels of vulnerability to risk - seldom make use of insurance products that could drastically reduce risks to their incomes.

Hence the importance of insurance, and its promotion, within Zambia’s inclusive wealth-generating objectives.

A properly functioning financial sector has been recognised as a facilitator for economic growth and development. A financial

sector that is well-structured and efficient is generally associated with having positive effects across other sectors of the economy. Moreover, financial inclusion has several positive effects on poverty alleviation, the private sector’s development and financial sector stability. It has been found that when vulnerability to economic shocks is reduced, financial inclusion has the ability to be a core driver of poverty alleviation. Inclusive financial systems can provide low-income adults with the tools to borrow, save, make payments and manage risks. This, in turn, facilitates consumption smoothing and lessens the impacts of unexpected reductions in income that are common among those in the informal sector.

Policy and Legislation: The 7NDP has various strategies for the holistic advancement of the country. Greater financial inclusion is one of these strategies, which includes insurance. Another broad aim of the 7NDP is to enhance production and exports.

Of the programs to achieve this, export financing and insurance promotion are pertinent to the insurance industry. Other pertinent documents concerning the insurance sector are the Insurance Act No. 27 of 1997 and its amendments by Act No. 26 of 2005, the National Financial Sector Development Policy (NFSDP) and the National Financial Inclusion Strategy (NFIS). The NFIS defines financial inclusion as the “access to and informed usage of a broad range of quality and affordable savings, credit, payment, insurance, and investment products and services that meet the needs of individuals and businesses.”

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INSURANCE

The NFIS is part of the Government’s ongoing initiatives that build on previous efforts for financial inclusion. The country’s vision of financial inclusion is for Zambians to have universal access to and usage of a broad range of quality and affordable financial products and services, which includes insurance. The vision will conclude when all the country’s citizens can harness the full benefits of financial inclusion, meaning that they will be able to use appropriate savings, credit, payment, insurance and investment services. This will enable individuals to manage risks, plan for the future and achieve their goals and businesses to have access to affordable financing that will facilitate innovation, growth and create employment.

The insurance industry is overseen and regulated by the Pensions and Insurance Authority (PIA). The PIA’s mission is to the conduct of players in the pension and insurance industry through prudential supervision to protect the interests of insurance policyholders and foster the industry’s growth, development and stability. In addition, the PIA conducts consumer awareness and handles consumer complaints. Every year, all insurance players are required by law to be licensed by the PIA before transacting any insurance activities. The purpose of annual renewal is for the Authority to scrutinise the suitability of players, which helps to protect the interests of policyholders and beneficiaries. The PIA advises the public to only deal with licensed insurance players (It is illegal under Section 120 of the Act to insure any assets, liabilities and interests situated in the country with unlicensed insurers). The PIA was warned that it is illegal to establish or operate or manage an insurance entity or to engage in or transact in insurance business without a valid licence as it contravenes Sections 4 to 9 of the Insurance Act No. 27 of 1997 (as amended by Act No. 26 of 2005). Licences are issued by the Registrar of Pensions and Insurance. All licensed entities are required to display their licenses prominently at their places of business.

Besides the Insurance Act, other important documents for insurance industry players are:

•

•

•

•

•

Fit and Proper Test Guidelines for Licensed Entities in The Insurance Sector; Insurance Agents Minimum Requirements; Claims Agents Minimum Requirements; Brokers Minimum Requirements; and Insurance Minimum Licence Requirements.

Insurance Players: In 2019, the PIA has granted 295 licenses (down from 342 in 2018) to insurance players who will be allowed to transact insurance business this year. The number of licensed entities for 2019 are as follows:

• Three Reinsurance Companies;

• Three Reinsurance Brokers;

• 20 General Insurance Companies;

• 10 Long-term Insurance Companies;

• 38 Insurance Brokers;

• 213 Insurance Agents;

• Three Claims Agencies;

• Three Loss Adjusters; and

• Two Risk Surveyors.

Beyond these players, the Insurers Association of Zambia (IAZ) is the member organisation for all insurance and reinsurance companies in the country. IAZ plays a major role in dispersing relevant information to both players and consumers, and holds an

ANALYSIS

annual conference for industry stakeholders. Another organisation in the sector is Financial Sector Deepening Zambia (FSDZ).

FSDZ works closely with key players throughout the economy to enhance the financial health of all Zambians, especially the most excluded and underserved parts of the population. The goal of their insurance work is to help develop a vibrant and inclusive insurance market, which will in turn ensure the availability and access of relevant insurance services for both rural and urban low-income households and individuals. This will reduce low-income households’ and individuals’ vulnerability and enhance their welfare by increasing access to better risk management financial services. Their support framework for inclusive insurance has five main focus areas; these are:

1.

Stakeholder engagement and process coordination;

2.

Capacity building and innovation stimulation;

3.

Building consumer education and protection services;

4.

Research and knowledge management; and

5.

Enabling environment (policy and support services).

In addition, there is the multi-stakeholder Technical Advisory Group on Micro-insurance who are engaging all stakeholders to ensure a comprehensive approach to addressing key market constraints in micro-insurance.

Sector Developments: Zambia is no exception to the trend of low insurance penetration rates in developing countries. Although the sector is small, the insurance industry has grown steadily; today there are around 40 licensed insurers and reinsurers compared to 12 in 2008. The industry also has just under 300 licensed intermediaries and service providers. The industry’s contribution to the national GDP was 1.1% in 2016, up from 0.87% in 2015, which is low in comparison to emerging markets’ average contribution of 3%.

Insurance coverage is skewed towards high-income population segments, however, there is mandatory insurance cover on motor vehicles. A Finscope study in 2015 revealed that only 5.5% of Zambia’s adult population had insurance and pensions, which was only a slight increase from 4.0% found in 2009. As at 30th September 2018, the Gross Written Premium (GWP) for the industry was K739.36 million as compared to K696.09 million over the same period in 2017. Based on GWP, the general insurance market share of industry players was:

• PICZ with 26%;

• Madison General with 16%;

• ZSIC General and Hollard General at 10% each;

• NICO insurance with 9%;

• Goldman with 5%;

• Mayfair and Advantage at 4% each;

• Diamond insurance with 3%;

• Meanwood, Phoenix and African Grey at 2% each; and

• The remaining market share was held by the

rest of the players.

Regarding the long-term insurance market share - in terms of GWP - Sanlam held the largest share with 24%, ZSIC Life had

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16%, SES held 15%, Madison Life and Prudential Life had 14% each, while Liberty Life and Barclays Life had 6% each.

Regarding the overall product mix in 2016, motor insurance businesses had more than 40% of the general insurance business underwritten. Concerning long-term insurance businesses, 62% of the business underwritten were for group life and individual life insurance. Of the population with insurance, 33% had funeral insurance, 25% had medical insurance and 17% had health insurance. These figures show that the country’s population still faces several risks that remain uncovered. Finscope’s 2015 study found that low levels of knowledge, awareness and understanding were the major barriers for people to access insurance.

A new development in the sector was in August 2018 when Stanbic Bank Zambia officially launched its insurance brokerage division - Stanbic Insurance Brokers Zambia (SIBZ) - and became the first bank in the country to receive an insurance brokerage license. SIBZ aims to distribute a competitive range of insurance products from a range of providers. With the bank’s extensive reach and position in the economy, it would be able to facilitate the expansion of insurance services to parts of the country that remain unserved. SIBZ has emphasised that it would not be competition to existing service providers but would be a complimentary service.

Micro-insurance (MI): Low-income households and individuals seldom make use of insurance products that could drastically reduce their high level of vulnerability of risks to their incomes.

Micro-insurance (MI) or inclusive insurance has been found to be an effective tool for reducing this risk. To increase the uptake of insurance products, particularly by low-income households and the informal sector, development of MI has been a priority area. Zambia was among the first African countries to make insurance more inclusive. After a diagnostic study conducted by Cenfri in 2009, a multi-stakeholder technical advisory group to look at the development of Micro-insurance was established.

The group is broadly represented by the AIZ, microfinance providers, the Government, the Pensions and Insurance Authority and donors. The group is in the process of developing a draft regulatory framework with core themes of consumer protection and the code of conduct for micro-insurance agents. The framework has a primary focus on:

• Product features;

• Distribution space (encouraging non-traditional channels);

• Consumer education and protection;

• Training and accreditation; and

• Dealing with aspects of bundled products,

which are not supported in the conventional micro-insurance models.

Beyond the benefits of MI for low-income consumers, MI has been associated with having low margins, which makes direct

sales costly and an unattractive business for brokers. However, by using non-traditional distribution channels, such as mobile network operators, there are new opportunities for the insurance market. In 2011, there were 200,000 MI policyholders, which grew to more than 3 million policyholders by 2015. Micro-insurance contributes about K91 million in GWP to the insurance industry. With insurance products being distributed by mobile network operators, the number of insurers offering MI having increased from five life insurers in 2012 to 11 insurers (including non-life insurers) with nine being very active in MI in 2018.

Micro-insurance product offering is limited to Credit Life, Funeral Insurance, Weather Index, Personal Accident and Hospital Cash Plan. In February 2017, the micro-insurance principles had been formulated and were endorsed by the private sector. The development of micro-insurance regulations has been completed and now awaits enactment of the new Insurance Bill.

Challenges and Future Developments: Consumer awareness about insurance products has been the principal reason cited by individuals who do not have insurance products. This indicates a clear need to educate the population about insurance and efforts are being made in this regard by multiple industry stakeholders.

There is also the necessity to continue to innovate and scale up appropriate insurance products that suit the needs of low-income households and farmers. Product design features need to focus on improving customer experience and convenience (including the claims process) and lowering costs. Recent efforts made in this field are encouraging and need to be expanded. Improved distribution channels and widespread digital transaction accounts will be critical to these efforts.

Another development underway is the lobby by the insurance industry for an updated insurance bill, which will address some of the problems in the market. The Minister of Finance has given assurance to some actors that a new bill will be tabled in parliament. The major gaps in the sector that require a policy response are:

• Market demand for greater transparency;

• Low financial literacy;

• Low capitalisation of industry players;

• An absence of legal provisions on local retention;

• Limited mandatory insurance to cover public-liability risks;

• Low levels of innovation in the design of

products and poor distribution channels; and

• Amendments of insurance regulations to

lower capital requirements for micro-insurers.

The industry’s targets for 2022 states that 10% of adults should have at least one insurance product, while 15% of adults should have at least one non-mandatory insurance product.

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MANUFACTURING & INDUSTRY

Value addition and industrialisation at the centre of Zambia’s development agenda Free Trade Agreements to 25 African markets as well as the US and Europe Expansion of multi-facility economic zones and industrial parks record growth

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Manufacturing Profit A Sector to Make a Mark

Zambia’s Development Agenda: Zambia’s long-term development objective is to achieve economic diversification. The country’s development is currently guided by its medium-term development plan, the Seventh National Development Plan 2017-2021 (7NDP), which guides its public programs and national budgets. In the context of the 7NDP, economic diversification will be achieved through value addition and industrialisation that is based on agriculture, mining and tourism sectors. These sectors were prioritised because of their high growth potential, comparative and competitive advantages, and their potential to create employment. In this context, intra and inter-sector value chain development, and market diversification are being promoted. The success of Zambia’s development agenda will be driven by private sector investment while the Government plays its role in improving the policy and business environment such as in the areas of the financial sector, business regulation, labour market, ICT and trade facilitation. Furthermore, the focus will also be on quality, innovation and local content. To aid in this regard, the Government has undertaken the promotion and facilitation of establishing multi-facility economic zones (MFEZs) and industrial parks - across the country and for different sectors - to help bridge infrastructure gaps while promoting value addition of raw materials.

Chapter 7 - in section 5 of the 7NDP, which details strategic focus areas - discusses economic diversification and job creation with 10 development outcomes with their respective strategies to realise these outcomes as well as associated programs un-

der the different strategies. The role of industrialisation, manufacturing and value addition are associated with realising each of these development outcomes. However, Strategy 1: Promote industrialisation and job creation under Development Outcome 9: Enhanced Decent Job Opportunities in the Economy focuses specifically on the manufacturing sector.

Development Outcome 9’s aim is to enable Micro Small & Medium Enterprises (MSMEs) to increase their productivity and formalise their businesses to enhance employment creation and job opportunities in the economy. To create an enabling policy environment for job creation, the Government will implement the National Employment and Labour Market Policy as well as other policies that will strengthen backward and forward production linkages and improve partnerships and connections between urban and rural areas. It makes specific mention to implementing policies that will promote urban-rural remittances as part of their efforts to improve partnerships.

Under the strategy of promoting industrialisation and job creation, the main focus is on the development of a globally competitive business environment as well as a strong private sector through private sector development (PSD). PSD includes the design and implementation of policies that encourage inclusive growth and economic transformation through investment, increased productivity, business expansion and employment creation. The Government aims to implement reforms that increase the ease of doing business; this includes dealing with

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INDUSTRY

business licensing and regulation, trade logistics and MSME development. The Government also aims to enhance the capacity of the public sector in supporting the private sector’s growth and development.

Programs under this strategy include:

• Implementing reforms for the private sector’s

development and competitiveness;

• Developing productivity and skills;

• Promoting cross sector job creation partnership;

• Developing value-addition and value-chain

diversification;

• Promoting integrated e-services and e-business solutions;

• Developing coordinated innovation and research-ecosystem;

• Promoting access to finance;

• Promoting private sector policy dialogue;

• Developing the public sector’s capacity; and

• Regulatory reform and enhancement.

Annex 1 of the 7NDP details longer term national development projects that will be implemented during the Plan’s term. These are infrastructure that will enable the development agenda and include the development of transport, energy and ICT infrastructure as well as the continued development of multi-facility economic zones (MFEZs). The 7NDP’s Annex 2 highlights areas where the Government will intervene directly and accelerate the rate of job creation. These initiatives have various aspects of value addition. The initiatives are:

• Forestry industry development;

• Furniture industry development;

• Coffee industry development;

• Tea processing industry development;

• Textile industry development;

• Cashew nut industry revival;

• fruit processing industry development;

• Tobacco industry development;

• Construction industry development; and

• Milling industry development.

Investment Incentives: The Government offers a range of incentives for investment in the manufacturing sector. Following the framework of the ZDA Act, investors who invest not less than $500,000 in a MFEZ, an Industrial Park, a Priority Sector (Agriculture, Manufacturing, Tourism, Mining) or invest in a rural enterprise are entitled to the following fiscal incentives:

1.

Zero percent tax rate on dividends for

5 years from first year of commencement of operations;

2.

Zero percent tax rate on profits for 5 years

from the first year of operation. Qualifying

projects need to be carried out in the

manufacturing sector within an Industrial

Park, MFEZ or rural area; and

3.

Zero percent import duty on capital

equipment and machinery for five years.

There are low corporate tax rates for producers of organic or chemical fertilizers (15%) and agro-processing companies (10%). In addition, businesses that import industrial machinery can claim 50% for capital allowance.

ANALYSIS

Duty Free Market Access: Zambia has preferential market access to many key global markets. The country is a member of the Common Market for East and Southern Africa (COMESA) and has access to these markets and is part of the Customs Union and the Free Trade Area of SADC, which gives it access to 25 national markets within Southern and Eastern Africa. With the regional integration agenda under both COMESA and SADC, and the tripartite FTA between the two blocs and the East African Economic Community (EAC), the enhancement of intra-regional trade through intra-industry as well as inter-industry trade is anticipated. Rules of Origin define the conditions for products to qualify for preferential trade in the SADC region. To be considered compliant with the SADC Rules of Origin, products have to be “wholly produced” or “sufficiently processed” in the SADC region. The SADC and COMESA Rules of Origin are product specific and not generic. Zambia is also a beneficiary of the United States’ African Growth Opportunities Act (AGOA) and the EU’s Everything But Arms (EBA) program, which allows easy access to the American and European markets.

Multi-Facility Economic Zones (MFEZs): Zambia’s MFEZs were conceptualised in 2005 to improve Zambia’s industrialisation and attractiveness as an investment destination. In 2007, the Government announced the creation of MFEZs. These would be zones where investors could enjoy waivers on customs duty on imported equipment, excise duty and value added tax, among other concessions. Currently, there are four MFEZ - namely Lumwana, Chambishi, Lusaka East MFEZ and Lusaka South MFEZs - and two Industrial Parks, which are Ndola (Sub-Saharan gemstones exchange) and Roma. Foreign-owned firms have the same investment opportunities as they would in Foreign Trade Zones. In addition, foreign or local investors are able to identify and suggest any other location in the country that would be economical for the development of a multi-facility economic zone. However, the Government has prioritized designated areas in Lusaka, Ndola, Mpulungu, Chembe, Nakonde, Kasumbalesa and Mwinilunga. To qualify to operate in a MFEZ, foreign companies are strongly encouraged to utilise local raw materials and intermediate goods as well as employ locals and engage in technology transfer.

Lusaka South MFEZ has over 2,100 hectares of serviced land available for different forms of development, which includes industrial, commercial and residential developments. The Chambishi MFEZ is being developed by the China Non-Ferrous Metal Mining Company Limited (CNMC) and was one of the first investments resulting from the Forum on China-Africa Cooperation (FOCAC) in 2006. Situated in the Copperbelt, it is fully functional with workshops, offices, meeting rooms, banking services and a hospital. Operational investors are mostly from the mining, copper smelt, equipment assembling, construction, agro processing, and services. Lusaka East MFEZ forms the Zambia-China Economic & Trade Cooperation Zone (ZCCZ). It has companies that are active in the agro-processing, pharmaceutical, beverages, energy and logistics sectors. The Lumwana MFEZ is a 1,300 km² area that focuses on light and heavy industries, which include the manufacturing of explosives and companies involved in agro-processing, horticulture and fisheries, as well as commercial developments.

In Ndola, the Sub Saharan Gemstone Exchange Industrial Park is on a 100-hectare piece of land along the Kabwe-Ndola Road.

The property has previously developed premises that were

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ANALYSIS

owned by Ndola Precious Metals. Infrastructure has been rehabilitated and the Park has attracted a number of enterprises engaged in manufacturing and processing activities. Roma Industrial Park is situated in Lusaka. It has an area of 113 hectare along Zambezi Road after the Roma residential area. CPD Investment Limited, which is owned by the South African company Interspan Sales Corporation, is the main promoter of the Park.

The Industrial Park is focused on light industries, a retail park, an office park and warehousing. It will also promote local business development by being an incubator for Micro Small and Medium Enterprises.

Growth in the Sector: The sector’s growth can be largely attributed to the food processing, textiles, and leather subsectors.

Metals processing is another significant industrial activity, which includes the smelting and refining of copper. Fertilizers, chemicals, explosives, wood products and construction materials also contribute to the list of products manufactured in Zambia. With its attractive incentives and MFEZs, the sector has started attracting significant inflows in FDI. The food and beverage industry is an important sub-sector. Zambia has a relative abundance of agricultural raw materials and a low cost of labour. Thus, the agro-processing industry has a high potential for development and good returns on investment. Consumer spending depends on the economic outlook and a major portion of consumer spending is driven by the wealthiest 20% of the population. The sale of non-alcoholic beverages are projected to grow at a compound annual growth rate (CAGR) of 11% from 2016 to 2021.

Sales of alcoholic drinks is forecasted to grow at a CAGR of 2.7% from 2016 to 2021. Beer consumption is widespread and the local market is dominated by Zambian Breweries Plc with a market share of around 90%. In 2017, the Government reduced the excise duty on clear beer from 60% to 40%, which encourages further investment in the industry.

Regarding cement, Zambia’s construction sector has experienced impressive growth in recent years due to the expansion of the property market, which has seen greater consumption of cement. The cement industry has seen new entrants and productivity increases that has reduced prices and will lead the country to be exporters of cement. Concerning the processing of metals, copper rod and cables manufacturing activities are already being undertaken in Zambia and account for a significant proportion of the country’s non-traditional exports. However, there is room for investment in the manufacturing of copper wire and other copper products, such as copper plate and tubing. The Government supports and encourages the processing of copper rather than exporting raw copper. Currently, the country exports a variety of raw minerals. A number of businesses have benefited from the existing investment opportunity in processing the raw minerals into intermediate and finished engineering products but there is still room for growth. Generally, engineering products have a ready local market from the mines and from the growth of other industries. Manufacturers are addressing local demand by producing window frames, doors, roofing materials, nuts, bolts, and various light engineering products. However, the supply of spare parts for various industrial machines holds massive potential, as these are currently imported.

Of the country’s total exports, manufactured goods account for 25%; these include engineering products, processed and refined foods, chemical and pharmaceutical products, scrap metal and leather products. Zambia’s manufactured products are largely exported to South Africa and Democratic Republic of Congo as

well as other SADC and COMESA countries. China, Belgium, the Netherlands and Switzerland are the largest export partners off the continent.

Initiatives: To piggyback off the mining sector’s economic strength and for the mining sector’s own commercial benefit, supplier development programs are being pushed. These can have long-term significant impact on wealth and job creation and would also benefit the mines commercially. Mopani - in partnership with the Private Enterprise Program Zambia (PEPZ) - is setting up a pilot supplier-development program and aims to work with up to ten local engineering and manufacturing companies to source products they need. Other initiatives from the Zambian Association of Manufacturers include:

• Strengthening business relationships and

linkages between mining houses and manufacturers;

• Engaging mining houses for the

disbursement and release of scrap metals

for further processing by foundries in the region;

• Increasing the procurement of locally

manufactured items of clothing such as work

suits, protective gear, and school uniforms

by various stakeholders;

• Intensifying engagement with the

Government about the increasing costs of production;

• Lobbying for adequate representation of

local products on supermarket shelves; and

• Enhancing sensitisation on the implications

of the continental free trade area on

manufacturers and promoting efforts to

prepare for increased competition.

Challenges: Zambia has only recently attracting investments into industry subsectors other than mining with its investment incentives and large, low cost workforce. However, the sector has several shortcomings such as a lack of advanced technologies, weaker innovation capacity and lower human capital threshold.

The agro-processing sector experiences the greatest challenges in this regard.

In addition, the Government needs to service its international debt, with this, arrears with the private sector have increased and is a challenge for doing business. However, the Minister of Finance stated in the 2019 National Budget speech that this would be rectified. Another challenge is access to domestic credit. New lending to businesses in the first quarter of 2018 saw a significant decline of 3.5% when compared to the growth in lending of 8.3% during the last quarter of 2017. This presents a serious problem for smaller businesses to expand and cover themselves through periods of negative cash flow, and for larger businesses to raise funds for major investment projects. Moreover, subsidies on electricity have been removed and businesses are expected to pay cost reflective tariffs.

However, the growing demand for processed foods and household products gives Zambia an advantage over some of its regional neighbours, which will enable the country to expand its export base; thus making it an attractive investment opportunity.

Incentivising the industrialisation of local manufacturers will lead to greater exports and make Zambia more competitive globally.

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INDUSTRY

Cabinet Approves National Industrial Policy

Promoting the Creation of More Industries

Speaking on the side-lines of the SADC Council of Ministers Conference held in Pretoria, South Africa, Commerce, Trade and Industry Minister Christopher Yaluma confirmed that cabinet has approved the National Industrial Policy in order to promote economic growth for the country through industrialisation. Previously industrial policy issues were covered under the Commercial, Trade and Industrial Policy, which included both trade and industrial development matters. The revised standalone Industrial Policy would allow for emphasis on industrial development and compel industries operating in Zambia to process local raw materials into finished products. The revised policy will help promote the creation of more industries in the country.

Industries across all sectors that were getting raw materials locally will be expected to start adding value to such materials in order for the country to draw tangible maximum benefits from them. The move would help create employment for the local people as well as increase government’s revenue base. Value addition to local raw material will further create business opportunities for local Small and Medium Enterprises through supply of goods and services, hence, helping government achieve its goal of wealth creation for all its people. Processing of raw materials into finished products as expected by the revised policy will help revive the manufacturing industry in Zambia.

The Ministry has also finished reviewing the Trade Policy which has been submitted to Ministries for consultations. He said government was developing the revised and standalone Trade Policy in order to bring it into tandem with among others, the aspirations of the Africa Continental Free Trade Area ACFTA which Zambia is expected to sign once consultation processes were finished. Once the revised trade policy is approved, it would prevent the dumping of goods and services onto the Zambian market from other countries and enable Zambia become an equal trade partner both at regional and continental level.

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ARTICLE

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Agro-processing Sector Growing Fast Chipego Zulu, CEO, Zambia Association of Manufacturers

BRIG: What are the greatest investment opportunities and possibly even the challenges in the manufacturing sector and how can they be exploited or overcome whichever is the case?

Chipego Zulu: We are definitely drawing from the policy direction that has been given in the Seventh National Development Plan and there is a specific focus on value addition underpinning growth in the various sectors. The primary area of interest is the agricultural sector and therefore agro-processing when it comes to value addition. In the past we noted significant growth coming from the agro-processing sector, where it was one of the fastest growing manufacturing sectors in the country. There is still a significant investment that can be made in that particular area, noting that the majority of Zambia’s rural poor are employed or working in the agricultural sector.

In tourism, earlier this year we were discussing the global strategy, and we’re trying to take advantage of the US preferential market and there some of the key products that were highlighted as big wins were under the handicraft sector. So there is an opportunity there to take our arts and culture or woodwork and make them lucrative products to export. This is even beyond AGOA of course and I think people are quite keen on cultural pieces and if you can market it really well, get a significant amount of investment or sales coming in. I think those are some of the key opportunities that we’re seeing, and a focus on SMEs of course is very important at this point.

There is significant opportunity if we invest in value addition in the agricultural sector to create more decent jobs that enhance livelihoods. The primary priority is to add value to agricultural products, however mining is still the mainstay of the economy and there are significant opportunities to enhancing the sectoral linkages between the mining and the manufacturing sector. Our ability to supply some of the inputs into the mining sector would essentially mean that there’ll be more of a trickledown effect to our SMEs and medium-sized firms and there is a possibility for real growth if we’re able to play those business linkages.

We know that the majority of our SMEs opt to remain informal at the moment, so we do need to devise some new strategies to encourage them to formalise. Then to support their growth through advisory services, business development services and the delivery of some of the messages that will help them better manage their business and allow them to graduate into medium and large-scale operations. We have seen the success stories of Trade Kings and Zambeef, they started off quite small, so it’s very possible for Zambian firms to move from SME, right the way to the largest companies in the country and we want to see more of that happening.

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INDUSTRY

In terms of the challenges in the manufacturing sector, these are numerous. There is a need for policy reform, not in one fell swoop, but we do have to reform our policies to make it more attractive for investment in the manufacturing sector. Investment policy should be targeting both local and foreign direct investment. In the past there was a significant focus on foreign direct investment, which is not necessarily a bad thing, but then you also need to invest in local capacity as well or you end up with an imbalance and we need our SMEs to grow. It’s not just the large firms we need to focus on. The first policy that we tend to look at is corporate tax. For instance, if you’re looking at a regional comparison of the levels of corporate tax on the manufacturing sector, Zambia is actually quite uncompetitive Zimbabwe has a different system for firms that are manufacturing for the domestic market. They have a corporate tax of 30% for companies that are not exporting and 20% for those that are, so there is that incentive for people to operate in that sector. If you look at our domestic market here, the agricultural sector is charged a corporate rate of 10% and mining is at 20%.

If these three sectors are considered to be priority sectors, how then is the manufacturing sector not being provided with a similar incentive when it comes to corporate tax? If you reduce corporate tax, firms have more money to reinvest in plant expansion and of course this will lead to employment creation and all of the benefits of value addition. The anomalies in our tax policy when it comes to things happening at the border really have to be taken on a sector-specific basis because each sector has its own individual problems. We therefore continue to lobby on behalf of our members to see how best to promote the growth of the sector. The good part is that the Ministry of Finance is more responsive to our proposals for tax policy relating to manufacturing.

We have an opportunity at the moment to put in place key measures that will help manufacturing become more competitive and access inputs more affordably. Other challenges stem from the past when policy inconsistency had been a major problem. We tend to have had a very short-term perspective when it comes to the policies or the incentives for specific sectors. I am referring specifically about tax policy. For instance, we submit on an annual basis for considerations in the national budget and we could submit something a particular year, it gets considered in the national budget, let’s say a reduction in excise duty for a specific product and it gets reduced. Then the following year it gets increased again in the following budget.

There is that lack of predictability and we spend a lot of time lobbying for the maintenance of policies that are clear wins for the manufacturing sector rather than having them implemented for a period of say, five years and then review the impact annually.

We are spending a lot of energy justifying the maintenance of changes, so some medium to long-term perspectives need to be applied when we are implementing policy.

There is no access to finance and of course with our debt situation, this becomes even more difficult, mostly because of government borrowing more from the domestic market, which tends to crowd out the private sector because the banks want to lend to the government rather than to the private sector that is considered to be more risky. It becomes more problematic because our SMEs cannot access finance or if they can, it is extremely expensive. Government is trying to put in place some measures,

INTERVIEW

monetary policy rate reductions and more recently we saw the commercial banks beginning to respond, but it’s taken a long time. The response is minimal, the interest rates are still very expensive, in excess of 20%, so it is still very expensive to access finance. If we are to see growth from the SME sector specifically, then it becomes problematic, they don’t have alternative sources of finance making it very difficult for them to grow.

There is a skills issue. We don’t have the relevant skills available to support the growth of the manufacturing sector. I think even the technical and vocational training institutions are not meeting the demands of industry. The curricula do not support what industry needs. There is a need to bridge this gap between the vocational schools and the manufacturing sector as well as the education system as a whole. What tends to happen is if we need the expertise, we have to import. You can imagine, if a machine breaks, you have to get someone to come in at additional cost. So there is still much work to be done to address the skills gap in Zambia. It also can not be a blanket solution, it has to be very sector specific in order to get proper results. We are turning out a lot of graduates every year, but then can they actually do the job when they get into the workplace? You are starting from scratch, so it really is a matter of how much industry is willing to spend on further training to narrow the skills gap.

In terms of the cost of energy, which is another issue, there are no indications of a further increment in electricity tariffs, but this doesn’t mean it cannot happen with the move to cost reflective tariffs. Our submission has always been that we don’t mind cost effective tariffs, but the supply must correspond with what they are charging. You cannot charge more and deliver worse service.

On the fuel side of things, there is little transparency and the reasons for increases in prices are not that clear. Our prices increase when the world price increases, but do not drop when they come down. That makes it very difficult to plan and predict costs.

We still have an issue with illicit trade and counterfeit products on the market. We share borders with a number of countries and it is very difficult to manage every part of the border, so a lot of products are getting onto the market without having gone through the relevant customs procedures. When they do come in, they tend to be at a lower price because no border taxes were paid. That makes our products look expensive when in actual fact those products made their way into the market illegally.

Aside from that on the domestic market, people are very industrious and there are some brilliant counterfeit manufacturers out there. And so it’s, you know, this whole aspect of we need to tighten our surveillance. We need to tighten the mechanisms because genuine products need to conform with numerous health and safety regulations making the counterfeit products a danger to the consumer. There is a need for stronger regulations in some sectors, a need for clear standards as well to ensure that products are suitable for public consumption.

When it comes to a Multi-facility Economic Zones, we are seeing an improvement and we currently have six members setting up in Lusaka South. It was very difficult for local firms to actually set up in the zones and Lusaka has done a tremendous job in being able to attract players, but they still need to ensure that these zones become more attractive.

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INTERVIEW

There are issues to do with tenure and leasing period in some cases, the cost of the land itself, and the cost of participating in the MFEZ can be high for a local player. As a result of our submissions, Government continues to review the performance of the multi-facility economic zones to ensure that they are performing to expectation. They obviously presented a great opportunity and if we have consistent power and water supply, then it is obvious that we need to move towards industrial zones. There are the new industrial zones coming up as well, which should cater to some of our SMEs as well, which is absolutely necessary.

I think the zoning system works very well. It will help us with putting, for example, SMEs that manufacture certain type of product into one space, which makes it easier for an association like us to design interventions that work to support the sector. So that is something I think that would be positive if they are well managed and organized from the outset. These zones are being put in play by the Citizens Economic Empowerment Commission and they are purchasing the various tracts of land, not just in Lusaka but in other provinces as well and they are starting to work in terms of setting up the infrastructure. We obviously want to work closely with them because we do not want a scattered approach.

BRIG: How do you, as an association, work with other sectors?

Ms. Chipengo Zulu: I think the change in the national level planning from individual silos towards a multi-sectoral approach makes it a lot easier for us to say we need to integrate as an association. So we start, for example, with the mining sector where in the past we try to roll out an initiative that we call the local content initiative and the idea was business linkages between mining and manufacturing. So there’s a real opportunity there when I talked to various people, various funders, Government itself, even the Chamber of Mines; when you talk about these things, everyone is in agreement. So it’s really now up to us to put down a practical mechanism to enhance the linkages within the sector.

So obviously we want to demonstrate that we do support a local firms, not local traders, local value adders, so that the trickle-down effect is much broader and can be felt by the general

citizenry. So there is scope there. I think when it comes to tourism as a whole, there is a lot of work for us to do, it is really about the collaboration on all levels, collaboration between the government ministries, and there is need for co-ordination there as well. In the past they never really used to talk to each other much. Different Ministries would have different perspectives on the same issues, but now I think people are starting to interact more. Even in the policy-making arena so they have a better understanding of where the Ministry of Commerce is coming from if they are talking about issues to do with manufacturing and tax policy and the Ministry of Finances is better able to understand.

Similarly Tourism and Commerce are not mutually exclusive.

They’re supposed to work together. At those high levels, better coordination between government ministries is happening and the platform that they’re trying to use now with Smart Zambia would help a lot in terms of access to information about what the other ministries are doing and where they can fuse together.

Then on our level -the private sector - there is also a need for coordination. We have what we call the private sector alliance now, but it needs strengthening that needs to be from the leadership.

I am not saying that because ZAM is not the chair, but it needs strengthening and coordination as well because the private sector is essentially mirroring what’s happening with government.

You have the Tourism, the Chamber of Commerce, ourselves, small and medium enterprises, the farmers. If we are all on the same page and we take that to the policy level, then we can see real change beginning to happen. There is a lot of coordination that has to happen at every sector at every level. If we are talking Tourism and we say that we need a better link with the tourism sector, we can come up with a private sector led solution and that’s what we take up and say to government - that is the solution, now make it happen. These are the policies that you need to put in place. So it has to be driven by private sector and so it can only be done if we are coordinated and we need to understand each other better. I think that is the best way to get the linkages going. We can’t necessarily expect government to create linkages for us where they can only facilitate.

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INDUSTRY

INTERVIEW

Competing with the Titans of the Global Industry Lux Subramaniam, Group General Manager, Trade Kings

BRIG: Last year, the Zambian economy showed strong signs of recovery. How do you evaluate the outlook of Zambia’s economy?

Lux Subramaniam: The outlook continues to be positive although there is an over dependency on a single commodity, namely copper, which poses a risk, as the country does not dictate terms of trade of this key export item. However, the presence of favourable factors to anchor long-term growth, namely demographic profile, abundance of natural resources and stable geo-political climate, continue to mitigate the risk of mono-economy dependency.

BRIG: What are the greatest investment opportunities and the biggest challenges in the Manufacturing sector and how can they be overcome?

Lux Subramaniam: The biggest opportunity visible on the horizon is in agriculture processing. Value addition to the basic agricultural raw material is the overall thematic opportunity. For instance, Trade Kings converts maize to maize milk, wheat to biscuits, potatoes to potato crisps, maize to maize snacks sugar to confectionery and beverages, and finally on the other end of the spectrum, iron ore to construction steel products.

The drag on the manufacturing sector, which is endemic to the sub-Saharan region, is a culmination of many factors, some of which are elucidated below:

• Availability of skilled people - right person for

the right job; dearth of vocational institutions,

• Infiltration of cheap products through the

porous borders - a set back to the local industry,

• Infrastructure- road and railway network -

prohibitive freight costs; inaccessibility to

virgin markets and territories through

rail lines to Congo and Angola,

• Promotion of value addition in the agro sector,

• Untapped alternate renewable energy sources, and

• Capital: Access to attractively priced capital.

BRIG: What 3 signs best exemplify your optimism for the Zambian economy?

Lux Subramaniam: The three that standout, indicating a certain level of optimism in the Zambian economy are:

• Consistently better macroeconomic

indicators, like single digit inflation,

• Parity against major trade basket currencies, and

• Commitment to control fiscal deficits.

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BRIG: How successful has Trade Kings been in developing export activities in SADC & COMESA countries and beyond? What are the most recent developments in the company?

Lux Subramaniam: Export market penetration has been through the formal and informal trade channels, to the eight countries, land locking Zambia. Indeed, a geographically-vantaged point. The countries being catered are Tanzania, Democratic Republic of Congo, South Africa, Malawi, Zimbabwe and Mozambique. Botswana and Namibia are in the advanced stages of business deal sign offs. It therefore simply implies that the demand across these countries have been insatiable and ever growing.

Some of the concrete measure on the ground for pan-African expansion are:

• In South Africa, the existing modern manu

facturing facility is being expanded by

adding more innovations in the confectionery sector.

• In Tanzania, the Group is promoting its

existing brands by setting up a robust

distribution network with its target to cater

to the ever-increasing appetite in East Africa.

Operations commenced early in 2017.

• With a view to develop the market terrain in

DRC, a large warehousing operation has

been set up recently, which has now begun

gaining traction in business.

• In Zimbabwe, the state of the art production

facility of detergents has been commissioned

and the finished products are expected to

penetrate the markets shortly. Traditionally,

the Group had a trading hub in Zimbabwe.

The turnover of this endeavour has shown a

consistent upward curve despite the political upheavals.

Some of the significant developments in the company have been the new product launches like hand sanitisers, liquid bleach and bathing soaps in the hygiene care range; “Creamit”, the instant coffee mix and “Twin Cows Milk” in the beverage vertical; and Choco chip biscuits, butter biscuits and oat biscuits in the food vertical. One other significant development is in the steel vertical, wherein the plant has become completely backward integrated. Steel is produced from raw iron ore, the first of its kind in Zambia using a sophisticated value addition process. Converting raw iron ore into “Direct Reduction Iron (DRI)”, which in turn is converted to construction steel products.

BRIG: How can the government and the private sector make Zambia more competitive globally?

Lux Subramaniam: Government can continue to regiment minimum quality standards for consumer products to prevent low quality and sometime fake imports reaching the market. The private sector on the other hand should spend more funding in research and development and consistently improve their existing products or innovate new products, standing tall, eye to eye, competing with the titans of the global industry.

BRIG: How can the multi-sectoral approach to building the Zambian economy be translated into tangible steps of action?

Lux Subramaniam: First and foremost, the sectors have to be clearly identified. Next, precise targets or goals should be chiselled. Today, one of the buzz words in the Zambian Ministry is “Diversification”, which happens to be one of the prime goals.

More needs to be researched on how this can be done more successfully as it still remains to be a magical talisman!

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ENERGY

ZESCO is the dominant force Energy is development a priority sector Nuclear energy MOUs with Russia Mining consumes half current capacity Reducing the use of charcoal

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ANALYSIS

Sustainably Energising Growth and Development Driving Force for Economic Development

Background to the Sector’s Development: Zambia’s longterm development plan’s vision for the energy sector is to achieve universal access to clean, reliable and affordable energy at the lowest total economic, social and environmental cost. As such, Zambia wants to develop this sector into an export-orientated energy industry by increasing the use of renewable-energy sources. According to the Zambia Electricity Supply Corporation Limited (ZESCO) in 2009, electrification in Zambia was very low, with an estimated 22% of the population with direct access to grid electricity, 0.03% with direct access to isolated electricity systems and 77.97% with no access to electricity. By 2013, the electrification rate was estimated at 25%. This sector has been identified as one of the key focus areas for development as it will enable envisioned economic growth across sectors. Up to 2030, the Government plans to increase the country’s power generation capacity by improving existing and building new hydroelectric power stations as well as through other feasible energy sources.

Since the country’s period of nationalisation, ZESCO has been a dominant force in the energy sector. To attract private sector participation, the energy sector was liberalised by an Act of Parliament in 1995. Since then, the Energy Regulation Board (ERB) and the Office for the Promotion of Private Power Investors (OPPPI) were established under the Ministry of Mines, Energy and Water Development. The OPPPI assists in the entry of new suppliers into the electricity market and the ERB regulates operations and pricing, including licensing.

Laws Governing the Sector: The energy sector is governed by the Energy Regulation Act (Act No. 16 of 1995). The Act’s purpose was to “establish an Energy Regulation Board and to define its functions and powers; to provide for the licensing of undertakings for the production of energy or the production or handling of certain fuels; to repeal the National Energy Council Act and the Zambia Electricity Supply Act; and to provide for matters connected with or incidental to the foregoing.” The Electricity Act (Act No. 15 of 1995) was amended in 2003 to improve the operations of the electricity industry. The Act regulates the generation, transmission, distribution and supply of electricity. In 2004, the Rural Electrification Act (No. 20 of 2003) was signed and the Rural Electrification Authority (REA) was established. Its purpose is to hasten the rate of electrification and create conditions for developing rural areas.

Amendments to the ZDA Act have declared energy development a priority sector. This includes electricity (construction and installation of power stations) and fuel (building and installation of processing and refinery plants for bio-fuel, construction of petroleum refineries, construction of pipelines and construction of rural filling stations). The amendments were aimed at reducing the cost of developing power plants and attracting independent power producers as the country has a growing demand for electricity.

Due to this, construction of power plants and their operation qualify for tax concessions stipulated under the ZDA Act. Amendments to the Energy Regulation Act to allow for enhanced supervision and regulation of the energy sector are underway as are

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ENERGY

amendments to the Electricity Act. Among other things, amendments to the Electricity Act will allow for greater participation in the industry.

Electricity Production and Distribution: Electricity has been identified as an important driving force for economic development and the Government is committed to developing and maintaining energy infrastructure and services. Zambia has 2,891.91 MW of installed capacity, with the majority hydro-electrical (it has been calculated that Zambia has the potential to generate 6,000 MW of hydropower). Additional power is expected to be brought online with some large hydroelectric plants in the pipeline. ZESCO generates, transmits, distributes and supplies electricity throughout the country. Its grid is divided into four divisions (North, South, Copperbelt and Lusaka) and 16 regions, and owns most of the country’s transmission system. The Government has identified six areas for mini-grid development (four hydro and two solar). While there is private sector activity in generation, transmission and distribution, the vast majority of electricity is through ZESCO. As such, most opportunities in the sub-sector involve public-private partnerships. Electricity has to be sold to ZESCO for onward distribution and supply, which limits flexibility for investors to adjust domestic consumer tariffs. The ERB commissioned a Cost of Service Study to determine the ZESCO’s costs in generation, transmission, distribution and supply of electricity. The study revealed that all categories of customers’ tariffs were below cost; this study is the basis for future tariff adjustments. However, some players in the mining industry have strongly contested the tariff increases.

Other Players in the Electricity Industry: As mentioned above, ZESCO is the main producer and distributor of electricity in the country. The Copperbelt Energy Corporation (CEC) is another distributor of electricity, which is bought from ZESCO and distributed to the mining industry on the Copperbelt. In the North Western Province, the North Western Energy Corporation Limited (NWEC) distributes electricity for the non-mining load of Lumwana Mine, the town of Lumwana and the surrounding area.

From the start of its operations, NWEC has commissioned new projects to meet the province’s needs of rural electrification. The amount of independent power producers (IPPs) is continually growing. IPPs sell electricity to ZESCO under Power Purchase Agreements. IPPs generate electricity from various sources, including hydropower.

Presently, there is a thermal power plant with two 150 MW turbines that are powered by low-grade coal, a by-product from high-grade coal. There are proven reserves of high-grade and low-grade thermal coal along with the potential of prospecting for coal deposits and coal bed methane. Heavy fuel oils, a by-product from the Indeni Refinery, are also used to produce electricity through a thermal power plant.

There is a 30-year old geothermal power-generation plant with two 120 KW turbines and recent estimates indicated that it could produce up to 2 MW of electricity. There are more than 80 previously-identified hot springs, 35 of which were rated high potential in terms of surface water temperature, flow rate, proximity to power lines, ease of access and relative energy potential. However, geothermal energy has remained largely untapped due to high relative costs.

ANALYSIS

Regarding nuclear, the country has signed four Memoranda of Understandings (MoUs) for 15 years with Russia’s ROSATOM in aid of helping Zambia transform into a hub of nuclear science for peaceful purposes. The MoUs are for training young nuclear energy engineers, equipping personnel for a nuclear power plant, development of a nuclear energy regulator and building a nuclear plant. This is not only aimed at energy production but also the provision of medicinal and agricultural services. Zambia’s media has been requested to aid in demystifying nuclear science as the perception exists that nuclear is dangerous.

Regarding solar, the World Bank, the International Finance Corporation (IFC) and other donor organizations - in conjunction with the country’s IDC - have provided over $2 million for IFC’s Scaling Solar Programme. This was used to finance the establishment and implementation of transparent, competitive bidding processes to attract qualified solar power developers, enhance institutional capacity and help catalyse market growth.

The National Energy Policy has estimated the potential energy output per unit area to be 5.5kWh/m²/day, averaging 2001 to 3000 hours of sunshine per year. Beyond this, there are also companies that supply solar energy systems and small- and large-scale generators.

Electricity Demand: The mining sector accounts for over 50% of electricity consumption. While industries in other sectors’ electricity consumption are relatively low, the demand has continually grown following after economic development in the agriculture, manufacturing, construction, transport and financial sectors.

Domestic use continues to grow and has a large potential for continued growth as a large proportion of the population do not have access to electricity yet. It should be noted that the country is sparsely populated in some areas and large proportions of the population have low incomes, which suggests opportunities in appropriate and affordable technologies to serve these needs as well as mini-grids supplied by small hydro-electrical plants has been suggested.

Regional market demand for electricity is high and neighbouring countries will easily absorb Zambia’s increased electricity generation from investments coming on-line. In the past, South Africa and Mozambique were the largest importers, but with the implementation of the Zambia-Tanzania-Kenya Power Interconnector Project, Zambia will be able to provide electricity to both the Southern African Power Pool and the East African Power Pool, and could import electricity during periods of insufficient power generation.

Petroleum and Other Fuels: There has been a significant increase in the consumption of fuel due to economic growth, which is set to increase further as new investment projects come online. Zambia imports all of its petrol and diesel, which are crucial for the functioning of some economic sectors, particularly agriculture, transport and mining. In the past, crude oil was procured through an international competitive bidding process (the Government disengaged from direct fuel procurement from the first quarter of 2018. This was intended to remove the burden of oil procurement from the National Treasury, create efficiencies and promote greater participation by the private sector) and the spiked crude oil was transported into Zambia via the 1,705 km TAZAMA pipeline, which is jointly owned by the governments of Zambia (67%) and Tanzania (33%). This was refined at the Government-owned Indeni Refinery in Ndola, in the Copper-

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belt Province (the Government is selling some of its shares for re-capitalisation of the plant). The refinery consists of a large reforming unit (214,000 MTS per year), a Hydrotreater for desulphurization of Kerosene and lighter fractions, and a Vacuum Distillation Unit (VDU) for specific technical conditions. This facilitates spike crude processing with the aim of minimizing heavy fuel production. The current capacity of the refinery is 850000 metric tons per year. From the Ndola Fuel Terminal, Oil Marketing Companies (OMCs) take the refined products and distribute these to fuel stations and commercial customers. From the refinery, refined products are transferred via pipelines, into storage facilities at the Ndola Fuel Terminal. From here, OMCs transport fuel to their customers; currently, there are 21 registered OMCs. All OMCs are legally required to have an equivalent of 15 working days of petroleum stocks on hand. However, with their deficit in storage abilities, most OMCs have been unable to meet this requirement. To address this situation, the Government is looking for a strategic partner to construct a 50 million-litre petroleum terminal in Lusaka on a Build Operate and Transfer (BOT) basis.

In terms of biofuel, there are five major businesses involved in its production. The Ministry of Mines, Energy and Water Development had estimated that about 84 million litres of bio-diesel and about 40 million litres of bio-ethanol are required by the country per annum. This is in a country with vast tracts of unproductive land with a suitable climate and adequate water resources that can help meet the country’s fuel needs. The capacity exists and development in this sub-sector has been inclined towards either feedstock production and promotion, or biofuel production.

Currently, marginal quantities of bio-ethanol are produced from molasses, but quantities are insufficient for blending with petrol.

There has been an increase in electricity production from sources like bagasse and ethanol, which are both by-products from sugar production. Jatropha, the main feedstock for biodiesel production, has been encouraged and there is about 6,000 ha of land under production, however, commercialisation of Jatropha is still in its infancy.

Two major exploration programs have been undertaken in the country. Both were terminated before the intersecting any profitable reservoirs. Recently, the Microbial Prospecting for Oil and Gas technique was used in explorations in parts of the

North-Western, Western and Eastern Provinces of Zambia that indicated prospects for oil and gas in the Okavango and North Luangwa basins. The Government has since tendered these oil blocks for commercial prospecting.

Incentives for Investing and Potential Opportunities: As energy development has been declared a priority sector by the Government, the ZDA Act was amended to allow tax concessions on power plant build, expansion or modernisation. The amendments to this Act give fiscal and non-fiscal incentives to investors who invest more than $500,000 in the construction and installation of power stations. Regarding fiscal incentives, there is a 0% tax rate on dividends for the first five years after declaring dividends, 0% tax on profits for the first five years of operation and 0% import duty on capital goods and machinery (including specialized motor vehicles) for the first five years. Concerning non-fiscal incentives, protection against state nationalisation is through investment guarantees and there is free facilitation to help with applications for immigration permits, secondary licenses, land acquisition and utilities. Investments that fall outside of this Act’s determination of priority sectors are also eligible for some incentives. The Government’s move away from subsidising supply to subsidising production has fostered increased investments in the sector and reforms have been clearly directed at increasing power generation.

The investment potential is varied if the different kinds of needs of different proportions of the population and economic sectors.

There is a high demand for electricity both locally and regionally so investment in large-scale electric power plants is definitely an opportunity. One should remember that the country’s main power source is hydroelectricity and the effects of various weather phenomena - such as El Nino and La Nina - have a positive or negative effect on energy production. Different areas of the country, especially those off the grid, have different situational conditions and needs - such as generators, systems to power homes or industry - that offer a variety of business opportunities.

Challenges in the sector include limitations to generation and supply, which includes inadequate transport infrastructure (currently being addressed by the Government) and sparsely-populated areas that make grid connectivity impractical.

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Eu & Germany Give Zambia K333m Grants Supporting Renewable Energy Zambia has received energy sector grants totalling K333m of which K122m is from KFW Development Bank of Germany and K211m from the European Union Sustainable Energy for All Window of the EU-Africa Investment Facility. The funds, meant for the Southern Division of Zesco, are targeted at improving distribution, expanding the connectivity to households, and rehabilitating and reinforcing power infrastructure.

The Zambian Government has signed an agreement for a grant of K112m from KFW Development Bank of Germany.

The agreement was signed in Lusaka by Zambia’s Minister of Finance Margaret Mwanakatwe and KFW Development Bank Principal Project Manager Marco Freitag.

A total of 12,000 household and 200 commercial/public connections will be established during the project, resulting in more than 60,000 people having access to grid-power. The project is for a period of 24-36 months.

Speaking at the event, Head of Development Cooperation at the Germany Embassy in Lusaka Dr. Christophe Fritz outlined the objectives of Germany-Zambia Energy Sector Cooperation as twofold; contributing to achievement of the UNFCCC Paris climate change agreement and Zambia’s ambitious nationally determined contributions, particularly through supporting the expansion of renewable energy; and, improving access to sustainable energy supply for all Zambians.

“Germany welcomes Zambia’s commitment to the UNFCCC Paris agreement and the Africa Renewable Energy Initiative,” Dr. Fritz said.

Head of Cooperation of the EU Delegation to COMESA and Zambia Gianluca Azzoni said the grant contribution of the European Union is in addition to the funds allocated under the EU-Zambia 11th European Development Fund. “We are pleased that additional funding can be mobilised to the benefit of Zambia in a sector that is so crucial for inclusive social and economic development,” said Mr. Azzoni, and he added that, “at least 12,000 new

connections to households and 200 new connections to commercial and public users will be established, resulting in more than 60,000 citizens having access to grid-connected power.”

Meanwhile, Minister of Finance Margaret Mwanakatwe has indicated that through the signing of the agreement, KFW will provide a grant of €18.0 or K211m to finance the sustainable access to electricity in southern division component project, and the EU through KFW, will provide a grant of €10.4m or K122m equivalent, for the implementation of the access component project to be implemented by Zesco.

“The Zambian Government has committed itself to grow and diversify the energy sector by expanding power generation and transmission capabilities as espoused in the Seventh National Development Plan,” reaffirmed the Minister, adding that, “through the expansion of infrastructure and upgrading of technology, the Government will be able to provide clean energy while encouraging growth and preserving the environment.” She further stated that, “through the rehabilitation and reinforcement of the grid, the project will improve security of supply, reduce power losses and enhance energy efficiency,” and that therefore, “more power will be available for distribution and more households and productive users will be connected.”

Mrs. Mwanakatwe stated that under the access component project, funds will be used to connect small businesses and households in areas currently not connected to the national grid but located in the vicinity of the project region. This will be done through a selection of rehabilitation and reinforcement measures which will include works at 12 substations ranging from 132Kv down to 11Kv and several other new transmission lines at voltage levels of 132Kv, 66Kv and 33Kv. “The project will go a long way in reducing the use of energy sources such as charcoal, which are not friendly to our precious environment because of the tree cutting and burning activities involved,” the Minister concluded. www.mof.gov.zm

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PHIRI, Vincentio, “Dazed 1”, 2003, Acrylic on canvas, 109 x 84 cm.

Lechwe Trust

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Zambia is a land-linked country with access to 8 neighbouring countries A country endowed with a beautiful natural environment A liberal economy with little price and exchange controls A population that is young and rapidly growing

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OPENING ROUTES TO OPPORTUNITIES Linking Zambia to the World

Zambia has four main modes of transport. These modes are railway, aviation, road and, to a smaller degree, maritime and inland waterways. Transport should be observed against the background that the country is landlocked. While the country’s aviation system connects the country directly to the whole world, its rail, road and waterway systems connect it to its neighbours to varying degrees. Zambia borders the Democratic Republic of Congo (1930km), Angola (1110km), Malawi (837km), Zimbabwe (797km), Mozambique (419km), Tanzania (338km), Namibia (233km) and Botswana (less than 1km). The various transportation modes that traverse across Zambia and link it to its neighbours, as well as the key airports, are shown in the map below.

The four modes of transport will be described in isolation, and according to their current situation, their envisaged future (as directed by the Seventh National Development Plan 20172021/7NDP, Vision 2030 and national budget) and, the sector’s investment potential and opportunities. From the 7NDP, Development Outcome 6: Improved Transport Systems and Infrastructure, juxtaposed with Development Outcome 5: Improved Access to Domestic, Regional and International Markets’ Strategy 4: Improve Logistics Management are highly relevant to transport.

From the 7NDP’s Development Outcome 5: Improved Access to Domestic, Regional and International Markets’ Strategy 4: Improve Logistics Management, it is planned that the Government, partnering with the private sector, will enable the provision and

improvement of transport infrastructure and the services that support both domestic and international trade. The provision and improvement of transport infrastructure and services include warehouses and storage, laboratory facilities and testing equipment, and ICT infrastructure at the country’s points of entry. This would be achieved through (i) the promotion, establishment and enhancement of Zambia as an inter-country trade centre; and (ii) development of inland ports. From the 7NDP’s Development Outcome 6: Improved Transport Systems and Infrastructure, it is stated that a well-functioning transport system has the prospect of decreasing the overall cost of doing business in the country.

A well-functioning transport system will help contribute towards increased investment across the different economic sectors and thus the realisation of a diversified and resilient economy, which will lead to sustained economic growth and socio-economic transformation.

Furthermore, improved transportation systems and infrastructure are enablers of the efficient movement of goods and people within Zambia. Additionally, since Zambia is landlocked - with eight neighbouring countries - the country needs its transport infrastructure to be in good state for it to link with principal sea ports as well as serving as a centre of trade in the region. As such, the Government is committed to improving the infrastructure of the four different modes of transportation, which will help economic growth and improve the country’s socio-economic opportunities. It is the Government’s view that investments to improve the country’s transport systems and infrastructure will

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enable higher speeds and higher volumes of freight. Additionally, the Government’s aims to develop the related infrastructure, acquire rolling stock and associated equipment and improve the overall management of the railway system. Strategic railway routes that have been identified include:

have wider economic benefits, which include supporting growth and creating jobs, raise the economy’s productive capacity, drive efficiency, boost its international competitiveness and develop Zambia into a ‘land-linked’ country. The vision and strategies, defined within the 7NDP, for the different transportation modes are described in the following sections.

However, there is a large financing gap for infrastructure as public-sector resources and development partners’ funds are limited, and can only cover part of the financing needed for planned infrastructure developments.

With the Government being aware of this situation, it has recognized the necessity to include the private sector’s involvement in financing and supporting public-infrastructure development. This would be in the form of public-private partnerships (PPPs). In order to facilitate PPP projects, the Government introduced the regulatory framework, which is composed of the PPP Policy and Act No. 14 of 2009.

The Railway System: The country’s rail network supports people and goods travelling within Zambia and to other countries.

The rail network is operated by Zambia Railways. Generally, the railways operate below their designed capacity. The railways have struggled to increase volumes up to their designed capacity, which has been attributed to poor track conditions, unavailability of locomotives and wagons, and little operating capital. Rail connects Zambia to the port in Dar es Salaam via the TAZARA rail lines (jointly owned by the Governments of Zambia and Tanzania). Recently, the Chipata-Mchinji railway link has opened.

This links into Malawi’s railway network, which further connects Zambia to northern Mozambique’s railway lines.

Regarding the railway system’s envisaged developments, Zambia intends to enhance and expand the rail network, which would help decrease the load placed on road infrastructure. The aim is to develop rail routes that connect important internal termini and exit points, which is important for facilitating easy access to the rest of the world, enhancing trade in the region and making Zambia a great country for doing business. During this medium-term development plan’s period, the Government has planned for the building of new rail spurs and restoration of present lines.

The focus is to undertake a comprehensive rehabilitation of the Zambia Railways mainline (including lines to the mines) and to revitalise the functioning of the Tanzania-Zambia Railway Authority (TAZARA) so that operational efficiencies are increased, the cost of moving freight is reduced and volumes are increased.

During the 7NDP and towards attaining Vision 2030, the Government will begin building the Chipata-Petauke-Serenje railway line. This will complete linking the existing railway lines in Zambia to the port of Nacala. The Government intends migrating from the existing Cape gauge to Standard gauge; this will

• Chingola to Jimbe (Bordering Angola): This

involves linking the existing line in Chingola

via Solwezi to the border town of Jimbe.

This will enhance transportation of cargo

and passengers to Lobito Bay port in Angola;

• Kafue (Zambia) to Zawi in Zimbabwe: Zam

bia Railway lines will link to Zawi, in

Zimbabwe, and will be the shortest route to

the Port of Beira in Mozambique;

• TAZARA Nseluka to Mpulungu port: This

would link the TAZARA line at Nseluka to the

Mpulungu Port, which will enable imports

and exports - through the Great Lakes

region - to the sea ports on the Indian Ocean;

• Extending the Mchinji/Chipata Railway line

to TAZARA: This would link the Chipa

ta-Mchinji line - through the Petauke District

to the port of Nacala in Mozambique; and

• Linking Zambia and Namibia (Livingstone

to Sesheke): This comprises the partial

restoration of the Mulobezi line and

conducting feasibility studies for building a

spur between Livingstone and Katima Mulilo

via Kazungula, which would connect to the

Namibian Railway System. This link would

form part of the Walvis Bay-Livingstone-Lu saka-Ndola-Lubumbashi Corridor.

Concerning the investment potential and opportunities in the rail sub-sector, the Government’s plan is to promote private investments for rehabilitating and modernising the railway network, building greenfield rail spurs and intra-city transit systems. Opportunities for the private sector are in the migration from the existing Cape gauge to Standard gauge, developing associated infrastructure, supplying rolling stock and supplementary equipment and improving the management of the rail network system.

The Aviation System: Presently, there are four international airports, six secondary airfields and five airstrips that serve international and domestic flights. Zambia’s main airport is the Kenneth Kaunda International Airport, with three smaller airports at Ndola, Livingstone and Mfuwe. There are secondary airfields at Chipata, Kitwe, Kasama, Mongu, Solwezi and Mansa. The construction of the Copperbelt International Airport has begun and is expected to completed by 2020 and will replace the current airport at Ndola. Once completed, the airport will be comprised of a one million capacity terminal, a hotel and business complex, a cargo terminal and fuel farm. There are a number of airlines that connect Zambia to international destinations via Johannesburg, Durban, Cape Town, Addis Ababa, Nairobi and Dubai. There is a local, private airline that has national and regional routes as well as companies that do chartered flights. Recently, an agreement has been reached between Zambia and Ethiopian Airlines to relaunch Zambia’s flag carrier. Zambia has an “open sky policy” and is currently promoting Zambia as an air cargo hub for the Southern African region. Furthermore, the Zambia Airports Corporation is one of the country’s parastatals that is profitable.

The 7NDP’s focus for developing aviation infrastructure and operations is on the construction and upgrading of airport infrastructure with modern equipment and facilities to handle greater volumes of passengers and freight. Against this background, provincial and strategic airports are being upgraded to handle greater volumes. Re-launching the national airline is seen as

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essential for enhancing the country’s economic diversification agenda, especially for exporting the country’s goods.

There are opportunities and investment potential in the aviation sub-sector, especially for achieving the goals of the 7NDP and Vision 2030. The country plans to acquire aircrafts that will serve domestic, regional and inter-continental routes as well as cargo planes to assist in exporting goods such as agricultural produce.

Besides the current development of the Copperbelt International Airport, the Chipata, Kitwe, Kasama, Mongu, Solwezi and Mansa airfields have been identified for redevelopment. This redevelopment and the development of civil aviation’s capacity requires specific expertise. Zambia wants international and known brands at its airports to build confidence with travellers.

The Road System: The country has a classified road network of around 70,000 km of public roads, and is well distributed around the country. There is a heavy reliance on the road network to ship mine inputs and outputs through its eight neighbouring countries. Zambia’s neighbouring countries also have a heavy reliance on the country’s roads to gain access to other African markets.

The Road Development Agency (RDA) is responsible for upgrading, maintaining and constructing public roads. Of the 70,000 km of public roads, the RDA has recognised 40,454 km of this as the Core Road Network (CRN). This has been identified as the minimum road network required to develop the economy; as such, the CRN needs to be kept in an acceptable condition.

The construction and rehabilitation of roads is the third strategy of the 7NDP’s Development Outcome 6. This is to ensure easier and safe travel across the country and to safeguard investments made in road assets. In addition, good road networks help foster trade and development through greater efficiencies in the movement of goods and services by reducing travel times and costs.

Presently, and during the 7NDP’s period, the Government will continue to carry out its key programs in the sub-sector; these key programs are:

• Link Zambia 8000: This started in 2012 and

plans to repair over 8,000 km of roads

across Zambia. This effort will help link

Zambia to South Africa, Zimbabwe, Mozambique, Malawi, Tanzania,

the Democratic Republic of Congo and Namibia;

• Pave Zambia 2000: This was also started in

2012 and plans to pave 2,000 km of urban

roads across the country;

• Feeder Road Rehabilitation: This is a

continuous program for the maintenance of

feeder roads to enable market access for agricultural produce;

• L400: This is to improve 400 km of roads in

and around Lusaka to help ease traffic congestion; and

• C400: This is to improve 400 km of roads in

the Copperbelt Province.

To finance these programmes, the user-pays principle is used to fund the development of road infrastructure. As such, investment opportunities in the road sub-sector include PPPs for financing road construction, developing tolls and collecting road user charges. Quarries need to be developed and road construction machinery and associated inputs need to be acquired; this includes road construction with pavers.

Maritime And Inland Waterways: Zambia’s only harbour is the Port of Mpulungu. This is situated in the northeast of Zambia on the southern tip of Lake Tanganyika. The lake is shared by Burundi, the Democratic Republic of Congo, Tanzania and Zambia.

In addition, there are a number of lakes and waterways - within the country and along its borders - that are used by a variety of vessels for transportation.

Developments for maritime and inland waterways have been envisaged; these include the building and rehabilitation of maritime and inland waterways. The core focus is on the expansion and modernisation of the inland port of Mpulungu so that access to the markets of the Great Lakes Region is increased. There are also plans to develop and rehabilitate canals and harbours that serve rural communities so trade and service delivery can be increased. The 7NDP has planned for feasibility studies on the development of the Kafue River into a navigable channel for transporting bulk goods and for tourism. Associated developments include canal construction and rehabilitation, and upgrading harbour infrastructure. As such, investment opportunities in this sub-sector are in feasibility studies and the development and rehabilitation of canals and harbours. Zambia is a water-rich country and it makes sense to use this resource to gain competitive advantages.

In Conclusion: The transport sector and its four sub-sectors offer a variety of investment and business opportunities. These vary from feasibility studies, supplying equipment and inputs, and manufacturing inputs. Zambia’s Government understands the importance of good transport infrastructure and has created a conducive environment for investment opportunities.

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INTERVIEW

Investing in Zambia Through Thick and Thin Satrajit Chakraborty, Business Head, Tata Zambia Limited

BRIG: Can you give us an overview of Tata Zambia, its medium and long-term visions?

Satrajit Chakraborty: Tata Zambia Limited was incorporated in 1977 and we are very proud to have completed 40 years of operation in Zambia. Zambia is very important to our group because the Tata Group’s African footprint started here. It has been a very successful journey and we are known to be a trusted partner to all of our customers and stakeholders, whether its handholding businesses in their growth trajectory or adding value to those already well-established in the country.

commercial vehicle segments with over 68% share in the new vehicle segments.

Apart from this, the other emerging ranges from Tata Motors like the small commercial vehicles and pick-up segment are becoming a competitive. The core strength of our distribution of commercial vehicles lies in bus, LCV and the medium Commercial vehicle segments along with their services. The Tata Motors business contributes around 80% of total revenues in Zambia.

The Auto Vertical has two legs, consisting of the distribution of commercial vehicles from Tata Motors and under Alliance Motors, which is a subsidiary of Tata Zambia, we distribute Jaguar and Land Rover.

We have set up well established and full house operations in Lusaka and Ndola, with our next initiative being expansion to the rest of the country. We have already set up in Solwezi with a channel partner, along with Chipata and Mkushi as well. The idea is to cover most of the radiuses where commercial vehicles tend to move.

Taj Pamodzi was part of Tata Zambia, but the shareholding has been transferred to Tata International Singapore, within the group.

Tata Motors Zambia started operations and distribution in about 1981, offering commercial vehicles and we are the most successful player in the bus segment and the light and the medium

We are also focusing heavily on opening our spare part retail network. Initially we only had Lusaka and Ndola, but opened fifteen outlets countrywide last year and intend reach a total of fifty by the end of 2019.

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We realised that there is a need to increase our footprint, so we are increasing to a total of six workshops. Most of our vehicles are commercial and expected to earn money, so the owner cannot afford to travel long distances for servicing as it costs them money and downtime.

The second aspect of the retail part market is that many fleet operators have their own workshops. They have their own technical staff who are trained by various OEM’s because they have a mixed fleet. They get light commercial vehicles from Tata and construction equipment from another OEM’s and these are all serviced by their own technicians. As a result, we have a five week training program in India for our customer’s staff. Last year we trained the staff from three of our major key accounts who now can maintain their fleet. Our technical team is there to assist as and when help is required. Our customers and stakeholders are partners in business. We try not to address them as them as customers only because we are not leaving any stone unturned to ensure that we can partner with them to make them more profitable. We believe that once we make our partner more profitable, we will get repeat business and always tend to grow together.

The second entity that we have is the Jaguar / Land Rover business. We started operations in Zambia in 2013. In 2016, the Honorable President of Zambia, Mr. Edgar Chagwa Lungu inaugurated our state of the art showroom on Great East Road.

With over $5m of investments there, we are very hopeful that the niche luxury segment picks up as and when more and more Zambians enter the growth trajectory in business and per capita income. However, the premium segment volumes will usually remain low.

It is a brand worth bragging about, and there definitely is a space for Tata in the premium segment now that the Jaguar Land Rover belongs to Tata Motors globally.

We are very happy since we shifted to the new premises for Alliance Motors in 2016. Business has improved and for the next three to five years we see tremendous potential for that business. Another important aspect that is good for our fellow Zambians is that many premium cars come from South Africa, not specifically Jaguar and all these owners are struggling to get the service they need. Now they have an authorised service centre for the Jaguar Land Rover Brand in Alliance Motors.

While Alliance Motors are selling 5 premium units per month, all the other brands are selling fewer because of the infiltration of second hand vehicles into the market.

That is a point where policy makers need to come into the picture. We are affiliated to the Zambia Chamber of Commerce and Industry where we have a group of all players and we meet frequently and then take up the common matters of interest to take up with the relevant parties. The total new vehicle volume is 300 to 350 vehicles per month and used vehicle figures are five times that. Government has it’s own challenges and cannot change things over night, but when we get the chance, we stress the safety issues around running 20 year old vehicles and used tyres. We are also thankful to RTSA for conducting workshops frequently on the road safety in order to reduce road accidents.

The directive to limit heavy vehicles travelling at night impacted

on time, but nothing is more important than saving lives.

The Tata Consultancy business is purely a project based business and our contract with ZRA is still alive for the next two years with an extension likely in 2019. TCS has experience in other countries such Uganda, Nigeria, Tanzania and Kenya with Tax-online projects.

Tata Zambia Ltd is a subsidiary of Tata International Singapore Ltd. Tata Africa Holdings Ltd in South Africa is the holding company for the remainder of the African countries where we operate. Our strength is in Southern and Eastern Africa with South Africa, Zimbabwe, Mozambique, Zambia, Malawi, Kenya, Uganda, Tanzania, Senegal, Ivory Coast, Ghana and Nigeria.

BRIG: In terms of the decision to stay in Zambia when everybody else was leaving can you tell us a bit about how Tata adapted?

Satrajit Chakraborty: It comes from the origins of the Group.

We never leave any business in any company in the middle. The Groups always has a long-term vision. The 40 years in Zambia have been a roller coaster ride with many companies leaving at one point. More recently from 2013 to early 2017 was a very tough period and like other companies, we also made losses.

Having said that, we always believed in this country. After the general elections last year with the same Government coming in, they have taken steps in the right direction. It takes time for the economic policies to take effect and as a company we have seen the market improving since the middle of 2017. The copper price has stabilized at reasonable levels and the confidence that we have stems from Government’s focus on infrastructure.

We understand that our business is dependent on the core economic indicators in manufacturing, mining and real estate development. If this are moving then we automatically see the benefits because it cannot be done without our vehicles.

One more important aspect for us is that we are the market leader in buses, last selling 130 units in 2017. The Government is an important player here because Government schools are buying busses. It takes a long time to observe all the protocols, but the need has been recognised, particularly for the distant schools. There are over 3000 schools in Zambia, yet hardly 300 have busses, so we have a marketing team that is focused here.

Our other important market is in staff busses, particularly for the mines that are ramping up production again.

To return to the philosophy of our group to stay longer in a country, we are hopeful and confident in the way Government is doing things in the last 10 to 12 months has given lot of confidence to top management. Currency stabilization has been important here. The fluctuation around 2013/14 and then the rapid depreciation made things difficult, so we have been more confident over the past 18 months where the currency has been stable and even the 9 month rolling average is stable.

BRIG: Is the group of your peers that was formed to lobby Government achieving success?

Satrajit Chakraborty: It started somewhere last year and it is better to be represented by an association rather than having individual efforts. Government has been very receptive so far.

There are aspects that need attention. The recent change in

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duty structure has increased the cost of most used vehicles, but in some sectors, it has decreased. The composite duty structure irrespective of the brand or value, duty is now based on tonnage.

It does not take into account the price at which the vehicle is exported. In the premium vehicle segment, duties have reduced, encouraging more of these to be imported. Our request is to review the duty structure on new vehicles as a result of this. With old vehicles, there are aspects of safety and air pollution that are important as other countries have banned those vehicles for those reasons. The biggest market for those vehicles is Africa, so we need limit the age of vehicles on our roads to a maximum age of 8 years, like Kenya, for example. Kenya also has a large focus on assembly of vehicles. A mature market not only promotes sustainable growth of new products, but also of financial institutions to fund capital assets. Balancing these as per

INTERVIEW

micro and macro-economic norms would benefit the consumer and the supplier. A better balance between new and used cars would benefit the country.

In terms of our expansion plans for our network and footprint in Zambia, we are planning to start selling Tata passenger cars towards the beginning of 2019. Tata Motors have launched a number of models in India that are doing very well. They also started successfully exporting to the South Asian countries and we are confident that the trust in the Tata brand in Zambia will result in a successful launch here in the passenger car segment.

The biggest advantages of Tata is the pricing, economy of operation and performance. Our vehicles will be very affordable to Zambians and the Asian customers here that form a large part of our base. By paying a slightly higher cost, our customers will have the pride of owning a new car.

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Ready to Support Used MV Safety Compliance Alex Ehui, Country Chief Executive, Bureau Veritas Zambia

BRIG: Can you tell us a bit more about Bureau Veritas, its vision and history in Zambia?

BRIG: What makes Zambian market attractive to Bureau Veritas as an international investor?

Alex Ehui: Bureau Veritas is a France based company and was created in 1828 and we are the leading testing, inspection and certification company worldwide. We lead in terms of history and we are the biggest employer within the TIC industry, currently employing 80000 permanent staff and contracted employees twice the volume. Bureau Veritas is represented in 140 countries, with 973 laboratories and 300 offices worldwide. The company made its first attempt to enter the Zambian market with a government-driven program in 2012. We established a permanent presence here in 2015 with an aim to provide our services to the general market as well as to the Government of Zambia.

The areas we are active in are mining, agriculture, industry/manufacturing, and we provide asset integrity management, testing equipment and pressure vessels, certification, including ISO, training on safety, quality management systems, environmental studies and we are currently expanding in all the areas of expertise. We have also started vehicle inspection, a similar service to what the government provides but in a private mode, and our target clientele is big companies owning large fleet of vehicles as they try to reduce the risks on the road.

Alex Ehui: We have been here for quite a while so there is definitely business here in Zambia. We only establish in countries where there is a strong need of compliance to international standards. Our company is making a decent profit, we are looking to expand, in terms of market approach and investment which will drive growth in terms of employment.

In many other countries our business is providing conformity assessment to governments but it is not the case in Zambia where we largely provide our services to the private sector. Also, regulations should be firmer for Zambia to keep up sustainability. For example, according to the World Bank, Construction sector is the third largest growing sector in Zambia however it lack strict regulations on the technical requirements. It is very important to understand that countries with loose regulations and problems with verification of conformity become “dumping grounds� where sub-standard items are imported and the end consumer is put at risk.

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INTERVIEW

We, as a company, have expertise in construction. Should it be roads, bridges, buildings, we have the expertise to inspect the technical requirements. There is a loop in the market, a shortfall for us – we would do better if there were regulations. Verification of conformity consists of verifying the quality, the price and the quantity of every item at the point of origin before it reaches the destination port. The advantage with Bureau Veritas is that we are present in most countries so the inspectors can be appointed from anywhere. In Zambia, some sectors are more regulated than the others and it reflects in our volumes as well.

larly check those trucks and not wait for their annual mandatory checks to reduce potential hazards on the roads. In many other countries these inspections are done on behalf of the government by companies like Bureau Veritas. Engaging a third-party inspection ensures independency and quality of service and the work is properly done. The only risk with such independent inspections is the company’s capacity of covering the entire market. From a business perspective, if you want to keep the government happy and the business operational it is important to ensure that you are competent.

For example, inspection of used motor vehicles is one of the core businesses in Ivory Coast, where I am from. And it should be that, the price and, therefore, the VAT payable depends on the inspection company. The variable and final information comes from certified and verified company like BV. If there is a threshold of the technical quality of the vehicles coming in to the country, the barrier will be fixed afterwards. In Ivory Coast, there is a threshold in terms of age, the second one – the vehicle must be tested and vetted by an inspection company before it enters the market and this technical control is key to the acceptance of the vehicle in the country. The value of the vehicle would be determined by an independent technical audit because usually, importers invent prices to pay less taxes. The customs value is determined by the inspection company. If there is a threshold of specific technical quality the barrier would be fixed at that value.

BRIG: How easy is it to hire and retain the right staff in Zambia?

BRIG: Which service segment are you looking to expand in Zambia?

Alex Ehui: We can provide vetting service for heavy vehicles to the third parties. And it is quite interesting if this service is sold to big companies like Total, Lafarge, Zambia Sugar as they have a large fleet and have trucks on the roads. The idea is to regu-

Alex Ehui: Fighting corruption has been a very important point in our code of ethics. Corruption comes with a habit, so we rotate our employees and, thankfully in Zambia we have not come across such problems.

BRIG: How would you rate the outlook for the Zambian economy?

Alex Ehui: A challenge I see is, at the moment, Zambia is spending half of its annual GDP to repay loans and that the loans given out do not move alongside the local currency. This way, one can never catch up with the loan. I would rather prefer that development sources rather internal funded than sourced externally. A country cannot develop if at least 20% of the overall budget is not allocated to development. However, I do expect the mentality to change. Zambia has to review its borrowing policy for the things to change. People are still hesitant to investment. Zambia is already a very competitive market with its low tax rates and its regulations so the market entry is relatively easy.

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Tata Success Story Far More than Quality Busses

Founded by Jamsetji Tata in 1868, the Tata group today is a global $120Bn organization. Headquartered in India, the group operates in more than 100 countries across six continents. Its diverse portfolio includes organizations such as TCS (IT), Tata Motors (commercial and passenger vehicles – Jaguar, Land Rover, Daewoo commercial vehicles), Tata Steel (second largest steel manufacturer globally after Arcelor Mittal), Tata Chemicals, Tata Global Beverages, Indian Hotels to name a few.

Yet, only few know that the Tata Group’s African odyssey began in Lusaka, Zambia from where the company has expanded their footprint in the rest of the region and the continent at large.

The company currently has subsidiaries in 12 African countries South Africa, Zimbabwe, Mozambique, Zambia, Malawi, Kenya, Uganda, Tanzania, Senegal, Ivory Coast, Ghana and Nigeria, with exploration operations in Madagascar, Ethiopia and Morocco.

Syamal Gupta, the former chairman of Tata International recalls that “The greatness of Africa lies as much in the goodness of its people as it does in the splendour of the land that nurtures them.

Far from being the ‘dark continent’, this is a beacon of magnificence that radiates a life-affirming energy, a haven where the bounty of life burns bright in every facet of human endeavour, from the Sahara in the north to the savannahs of the south.”

Blending the many realities of Africa with the idea of helping it

reclaim the vitality that made it the fountainhead of man’s evolution — that’s the grand project occupying the consciousness of many fine minds within and outside the continent. The Tatas were among the earliest Asian companies to do business in Africa. We recognised the immense potential of the region and made it part of the group’s natural expansion into uncharted geographical areas and new markets. This was but part of the globalisation effort that has been an ongoing process since the very inception of the group.

Tata Zambia Limited was incorporated in 1977 and began its operations with the export of Tata Motors’ trucks and buses into Zambia, growing to become the most prominent commercial vehicle player in the market. “The Tata Group has had an emotional tie with Zambia over the years. Our beginnings in Africa began with Zambia. The reason we are here is to touch and feel and look at how we can make a meaningful investment – to fulfil the emotion that some of us have had with Zambia, be a part of the Zambian economy and be involved in its development”, the former chairman of Tata Sons, Ratan Tata was quoted saying during a working visit to Zambia in 2005.

During the early years of the company’s commercial journey, Tata Zambia catered to the public sector entities. It’s largest client at the time was United Bus Company of Zambia (UBZ) and the 713 and 1316 model buses became the mainstay of

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Zambian public transportation. Through partnership agreements with the Kenneth Kaunda’s government Tata served the needs of Zambia Army, Zambia Air Force, Zambia National Service, Zambia Police, and Zambia Correctional Services becoming the market leader in the medium commercial vehicles segment.

As the market developed Tata Zambia further expanded its services to retail consumers, and clients active in trading, mining, transport, hospitality and construction sectors after the economic liberalization of the market in 2011.

It has not been all plain sailing. In the late 1970s, the country was buffeted by a steadily deepening financial crisis. The economy had more than its share of adverse developments to contend with and the resulting political unrest did not help. Tata Zambia started an aggressive diversification into other segments – farming, textiles, agricultural equipment soon after entering the Zambian market. Its textile division -Townap Textiles, was based in Livingstone and made shirts, suits, bed-sheets, towels and other fabrics. The agricultural division, MATCO, set up in 1982, distributed Swaraj tractors from India, and irrigation equipment. Another company, Tata Farms and Foods was established in 1989 and grew field crops – maize and wheat, vegetables and roses on a 500 hectare plot at Ngwerere, near Lusaka. In a disposal of state businesses in the 1980s and 90s Tata acquired a bicycle manufacturer in Chipata which (now defunct) as an assembly operation using components from India, focusing mostly on public tenders. Some of the businesses are now licensed out but Tata Zambia retains a wide portfolio under management.

In 2013, the Zambia Revenue Authority awarded Tata Consultancy Services (TCS) a contract for the modernisation of its domestic tax system. This is TCS’s third revenue and tax system automation project in the African region after a successful implementation for the Uganda Revenue Authority and ongoing implementation for the Kenya Revenue Authority, though it has a track record of more than 20 tax framework implementations in India and the USA. It’s an integrated and multi-tax system covering VAT, income tax, PAYE, presumptive tax, turnover tax, mineral royalty tax, excise, property transfer tax, medical levy and withholding tax. Once operational, this system is expected to transform the service delivery to taxpayers, support the country’s Sixth National Development Plan. It is expected to bring about a higher degree of accountability and transparency to the entire public sector.

ARTICLE

The Tata Motors business contributes around 80% of the company’s total revenues in Zambia through its auto vertical - distribution of commercial vehicles from Tata Motors and, under its subsidiary Alliance Motors, Jaguar and Land Rover. In 2016, the President inaugurated the $5m state- of-the-art showroom on Great East Road in Lusaka which sells about five premium units per month.

Many of the Tata Motors vehicles are currently sold to subcontractors to whom the large mining companies subcontract the work of moving personnel and materials. The vehicles it supplies are ideal for these customers, and another place Tata Zambia really scores is its ability to keep those vehicles on the road and earning.

Another segment gaining wide popularity is the LCV bus amongst schools. Tata Zambia Limited understood the need to transport pupils in the vast network of over 3,000 schools, colleges and universities registered under the Ministries of Education.

Under a first-of-its-kind scheme Tata Zambia Limited offered flexible payments spread across three terms. This way, schools and students would have reliable means of transport and also be able to afford it through termly payments.

The company is constantly widening its dealer network in the country and has opened Tata Authorised Services Stations in Chipata and Solwezi and 12 outlets in its spare parts retail network in addition to maintaining fully equipped warehouses and spares departments staffed by trained technicians at its head office in Lusaka and the branches in the Copperbelt.

Tata Zambia is committed to Zambia and is well poised to help the country address two factors that are becoming more and more critical within the transport sector. These are road safety and the environment. Aged used vehicles currently contribute significantly to the number of accidents on the roads and levels of emissions that are unacceptable in this day and age. The authorities have it in their power to encourage the sale of safer, environmentally friendly and fuel efficient vehicles by reducing import duties on quality new vehicles and to incentivise the assembly of vehicles within Zambia. By encouraging the new passenger and commercial vehicle sectors in this way, the Government will go a long way to increasing road safety, protecting the environment and creating skilled employment.

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MULENGA, Henry, “Lusaka Railway Station”, 1990-95. Mixed media, 103 x95 cm. Donated by Diana Bouchard.

Lechwe Trust

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Aiming to be Top 5 destination by 2030 Domestic tourism to be a focus Investing in MICE facilities Holiday resort development through PPPs Private investment in National Parks

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ANALYSIS

Spectacular Natural Wonders Abound “Scenes so lovely must have been gazed upon by angels in their flight” - David Livingstone

Mosi-Oa-Tunya - The Smoke that Thunders: The Victoria Falls - Mosi-Oa-Tunya as it has been called for centuries in the Tonga language - is the most iconic tourist destination in the country and means “The Smoke That Thunders” as the impact of the falling water is so intense that it creates a cloud of vapour that can rise to over 400 m and can be seen from more than 40 km away. Victoria Falls is located on the Zambezi River and is on the border between Zambia and Zimbabwe. It is considered the largest waterfall in the world, with the combined width of 1,708 m and is 108 m high, which is about twice the height of Niagara Falls. At the river’s peak flow, water flows over the falls at around 550,000 m³/s, in addition to this, the area around the Victoria Falls is rich in biodiversity.

Due to such features, the Victoria Falls has been named as one of the Seven Natural Wonders of the World; furthermore, the Falls have been declared a World Heritage Site for their unique geological and geomorphologic significance. It is located in the south of Zambia alongside the country’s tourist capital of Livingstone. Without taking anything away from the splendour of the Victoria Falls, the rest of Zambia is covered in enchanting tourist sites and natural beauty, which inspired the early European explorer, David Livingstone, to write “Scenes so lovely must have been gazed upon by angels in their flight” about Zambia’s beauty and it is just as amazing for the modern explorer.

Background to Developments in the Sector: The Government has identified tourism, which includes arts and culture, as one of the priority growth sectors for diversifying its economy.

The sector has the potential to be a major contributor to employment generation and wealth creation, especially in the country’s rural areas. The sector also has strong synergies with other sectors of the economy. As an industry, tourism offers great opportunities for a good return on investment in supporting the development of the industry and in tourism operations.

According to Zambia’s Tourism Policy of 2015, the vision for the tourism sector is to “make Zambia an exciting and growing destination that realises its full potential and rewards tourists with unique, authentic and treasured experiences”. By realising this vision, the Government’s objective is to be among the top five tourist destinations of choice in sub-Saharan Africa by 2030.

After the Tourism and Hospitality Act (No. 13 of 2015) was signed into law, the Zambia Tourism Agency was formed and the Tourism Development Fund was implemented. The Fund’s function is to support tourism product development, tourism infrastructure and tourism marketing. This is part of the Government’s strategy to boost tourism, and the Government will work with the private sector to realise an integrated approach to developing the sector so that the sector’s contribution to the economy is enhanced through employment creation and wealth generation. It also

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aims to enhance the country’s capacity to safeguard their wildlife resources. This integrated approach will help ensure that initiatives already under development are completed before new projects begin. An example of such an initiative would be the work being done at Livingstone - to transform the town into a premier conferencing centre in southern Africa - and to now leverage on these infrastructure developments to enhance the sector’s contribution to the country’s economy.

Guiding the above are Vision 2030 and the Seventh National Development Plan (7NDP), which view tourism as an important service sector in Zambia as it is endowed with rich natural heritage and other tourist attractions such as waterfalls, lakes, rivers, gorges and wildlife as well as its rich and diverse cultural heritage.

Challenges that the sector faces include underdeveloped tourism-related infrastructure; limited investment in the tourism sector by both local and foreign investors; limited tourism product offerings’ range and scope; inadequate tourism promotion and marketing; low participation by locals in direct and indirect tourism development; and Zambia being perceived as a high-cost destination.

From the 7NDP, the part most relevant to the tourism sector is Development Outcome 3: A Diversified Tourism Sector. There are several strategies that aid the achievement of this Development Outcome. The first strategy is to enhance tourism-related infrastructure (roads, viewing loops and airstrips) to link major national parks with major destinations and other tourist destinations. This will help prolong the tourism season from seven to 12 months per year. The development of arts and culture infrastructure will also be supported to showcase the country’s unique natural and cultural heritage and to diversify the tourism product.

The second strategy is to promote the diversification of tourism products, which will entail the development and expansion of non-traditional forms of tourism. These forms of tourism include eco- and adventure tourism for young at heart tourists, agro-tourism and mine tourism, cultural and community-based tourism, and other areas of interest. The third strategy is to promote tourism source market segmentation. This involves the country focussing on growing the traditional source markets by increasing market penetration and by exploiting emerging markets to expand the tourist base.

The fourth strategy is to promote domestic tourism. During the 7NDP’s period, the Government will also focus in on tapping into the unexploited potential of domestic tourism to help in the diversification of the tourism sector and the economy. This will be encouraged through a two-tier system in the pricing of accommodation facilities during off-peak tourism seasons whereby locals pay lower rates, and robust marketing campaigns to the country’s citizens to change the mindset of tourism as a luxury to an essential form of relaxation. The fifth and final strategy is the restocking of national parks and programs under this strategy are enhancing wildlife law enforcement, restocking national parks and public-private partnerships for enhancing wildlife protection.

ANALYSIS

Arrivals: Tourists arriving in the country have steadily risen to over 100,000,000 arrivals today, which is expected to double over the next 10 years. Over the next decade, tourist spending is expected to rise to K12.5bn (an increase of 4.0% p.a.). Business tourists constitute around 54% of tourists, followed by holiday/ leisure at 25%. In recent years. The majority (over 75%) of international tourists are from the Southern African region, which is followed by tourists from Europe, Asia, the Americas and Australia at around 10%, 7%, 5% and 1% respectively.

National Parks and Game Reserves: Wildlife protected areas cover about 10% of the country’s total land area. There are 20 national parks, 34 game management areas and an additional 23 million hectares of land designated to the conservation of a wide variety of animals. The Zambia Wildlife Authority is responsible for wildlife management. The major national parks include Kafue National Park, Lusaka National Park, South Luangwa National Park, Mosi-Oa-Tunya Park in Livingstone and Lower Zambezi National Park. The total number of tourist visiting national parks is around 100,000 people p.a.

The wildlife sub-sector is the foundation of the tourism industry and is a leader in employment and foreign-exchange earnings.

While animal numbers have decreased across the countryside, game reserves and parks are well stocked. The South Luangwa National Park - located in the Luangwa Valley in Eastern Zambia - has one of the largest concentrations of wildlife in the world and, probably, the largest diversity of animals and bird life in Africa.

Hunting: Hunting is an important sub-sector in the tourism industry. In January 2013, all hunting was banned because of suspicions of overhunting and corruption within the relevant authorities. The ban was lifted for most animals during 2014 and 2015; this included bans on hunting dangerous game such as lion, leopard, buffalo and elephant. Zambia is renowned in professional hunters’ circles for its diversity of plains game and several unique species of antelope, such as Kafue lechwe, black lechwe and Cookson’s wildebeest. Over the past couple of years, low harvest quotas and tight controls have been placed on the safari activities.

With regards to safari activities, three types of licences are given. These are:

• The Classic Safaris: These safaris have a

minimum duration of 14 days and allow the

hunter to hunt all of the big game;

• The Mini Safaris: These allow the client to

hunt a maximum of five species; and

• The Special Safaris: These licences allow

the hunter to hunt specific species such as Kafue lechwe.

Hotels and Accommodation: Accommodation in Zambia varies according to a traveller’s needs; there are five-star hotels and first-class luxury lodges to rustic bush camps, guesthouses and campsites. The number of rooms available in Zambia is around 45,000, with an average room occupancy rate of around 70% and four days is the average length of stay. Lusaka accounted for over 30% of the total number of rooms, which was followed

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ANALYSIS

by the Southern Province - with the Victoria Falls and tourism capital Livingstone - with around 30% of rooms in the country.

Hotel supply continues to grow (forecasted 13% in 2019) with many prominent hotelier groups either set up in the country or are currently building hotels and scheduled to open soon. Zambia has been ranked as one of the top-ranked countries in Africa for hotel developers and the supply in Zambia is far below the average supply in Southern Africa.

Meetings, Incentives, Conferences and Events (Mice) Sub-Sector: The MICE sub-sector has shown the greatest growth rate in the sector and has the potential to become a hub and choice destination for this industry. This adds a new dimension to the sector as it has the ability to attract many visitors for both business and leisure. Many hoteliers have invested in conference facilities to capture this market segment, which assures high room occupancy rates and increased consumption of food and beverages. Livingstone is the country’s top conference destinations and the Government is in the process of transforming the town into a premier convention location. Livingstone’s airport has recently been upgraded in an effort to gain from its tourism potential. The town has successfully hosted major international events, with more on the calendar.

Cultural Tourism: The country has a culturally-diverse population and offers a rich array of traditional festivities and events.

There are more than 20 officially-recognised annual traditional ceremonies in Zambia, which display different customs, social life, rituals, oral history, material and spiritual culture. These offer

valuable insight into traditional cultures that have been passed down through the generations. These ceremonies have a deep meaning and often involve the transformation from childhood to adulthood. These are mostly harmless initiation ceremonies for girls, while male-circumcision initiation ceremonies are rare and occur in secrecy. Ceremonies that are open to visitors usually signify ancient times, when new kingdoms were founded and are splendid, colourful affairs with much symbolism expressed through dancing and drumming. The Ku’omboka ceremony is the most renowned and is held in March/April by the Lozi people in the Southern Province. It marks the migration from the flooded plains to higher ground at the end of the rainy season. There is a wide range of traditional crafts that range from unique musical instruments to high-quality traditional basketry that are used for an extensive range of activities (carrying and storage, fishing traps, beer strainers, flour sieves, sleeping and eating mats) to a variety of tableware.

Shopping in Zambia: Lusaka has seen the greatest growth in retail space with large shopping complexes dispersed across the city, many of which have undergone major upgrades. These malls play host to a wide variety of shops that range from highend boutiques, restaurants, supermarkets, clothing, jewellery and furniture shops, cinemas, nightclubs, banks, to hotels and service stations. The country’s growing middle class and shoppers from neighbouring countries like Zimbabwe, Malawi, DRC and Tanzania have resulted in greater demand and more investments into the sub-sector.

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Areas of Investment in the Tourism Sector Lodge your Investment License Application Zambia’s tourism sector, which included Arts and Culture is one of the priority sectors for fostering socio-economic development.

Zambia has recognised that Arts and Culture are important products of tourism if well developed and so, as part of Zambia’s tourism diversification programme, the development of these products has been prioritised to diversify away from nature based tourism products. There are two routes to invest in the sector and these include Private Public partnerships (PPPs) and direct private Investment.

Holiday Resort Development through PPPs: Zambia has pristine and unrivalled tourist attractions in different parts of the country. These have remained untapped due to lack of investment in infrastructure such as roads, power supply, extension of airport runway, ICT infrastructure, water reticulation system etc. in the northern part of the country which has been identified for development as a world class tourism resort. An Integrated Development Plan (IDP) has been developed.

The following sites have been identified for PPPs in the Kasaba Bay IDP within the Sumbu National Park on the shores of Lake Tanganyika:

• Mitingolo - 60 Hectares.

• Chilanga - 185 Hectares

• Chitobo - 85 Hectares

• Kapalwe - 66 Hectares

• Crocodile Bay - 130 Hectares

• Muzinga 80 - Hectare Livingstone, in the south of the country, is Zambia’s tourism capital and Government is developing the city further so that it can offer a diversity of tourism sites and products. An IDP was developed and the following PPP sites were identified:

• Dambwa - Dambwa Local Forest, North side

of the International Airport. 1700 Hectares.

• ZAF Chalets - South East of the

International Airport. 45 hectares.

• Hubert Young Drive - Within Mosi-oa-tunya

National Park. 5 hectares.

• Songwe Gorge - North 32 hectares and

South 55 hectares.

• Zain Mast - Along the Kazungula-Sesheki

Road within Livingstone. 215 Hectares.

• Namoonda Village - On the Zambezi River.

19 Hectares.

• Katombora Council Houses - Within Mushek

wa Village on Zambezi River. 18 Hectares.

• Katombora Forest - Adjacent to Royal Chu

undu Lodge on the Zambezi River.

10 Hectares.

Private Investment in the National Parks: Zambia has a number of tourism sites in its Wildlife Protected Areas that need to be developed to international standards in the form of tourism lodges, camps and bush camps. There are therefore several investment sites available in:

• Kafue National Park

• Mosi-oa-tunya National Park

• North Luangwa National Park

• Nsumbu National Park

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KAPPATA, Stephen Chipango, “Country Without Culture is Dead”, 1989 Lechwe Trust

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High-potential land available for development Opportunities across the sector Substantial incentives for investments Aquaculture shows massive potential for growth

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ANALYSIS

Opportunities for Growth A Harvest Waiting to be Reaped

Development Agenda of the Sector: The area of Zambia is 75 million hectares and of this area, 58% or 42 million hectares has been classified as having a medium to high potential for agricultural production. Currently, only around 15% of this land is under cultivation. As such, agriculture has a massive potential for growth. The Seventh National Development Plan 20172021 (7NDP) is Zambia’s medium-term development plan and it guides national budgets and public-sector interventions. In the 7NDP’s Strategic Direction and Focus, Development Outcome 1: A Diversified and Export-Oriented Agriculture Sector focuses on agriculture. There are six strategies for realising this developmental outcome and these are discussed below.

Strategy 1 is to improve production and productivity. Improvements will be undertaken along the whole product value chain from production and productivity to agro-processing and manufacturing at enterprise and sector levels. The increase in production will be achieved through - among others - intensified agricultural mechanisation, increasing the area under cultivation and the number of farmers participating in production, which are to be driven by enhanced extension service delivery and increased private sector participation. There are eight programs under this strategy; these programs are:

• Productivity-enhancing technology development;

• Farm block development (discussed further below);

• Irrigation development;

• Agriculture input supply management

(discussed further below);

• Aquaculture development;

• Research and development promotion

(crops, livestock and fisheries);

• Early warning systems development; and

• Farm power and mechanisation

enhancement.

Strategy 2 is to improve access to finance for production and exports. This strategy focuses on enhancing access to affordable finance for farmers, agri-business MSMEs and exporters of high-value agricultural products. Other interventions include access to finance for auxiliary services to production and exports. A special focus will be on enhancing the capacities of established farmer groups so that they participate in export markets and creating a conducive environment for large exporters of crops, livestock, fish and forestry products to increase their volumes. The programs under this strategy are:

• Development of agricultural finance products;

• Promotion of export financing and insurance;

• Enhancement of product standardisation

and quality assurance; and

• Provision of business development services.

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Strategy 3 is the enhancement of agriculture value chains. Developments in sub-sectors’ value chains will include investment in production, agro-processing and marketing, including export market and distribution mechanisms. Moreover, efforts will be made towards strengthening market linkages between primary production areas and processing centres to reduce costs of final products to enhance competitiveness in domestic and regional markets. Agro-processing parks are to be established, which will support the processing of primary agricultural products into value-added products. These will be augmented by standardisation and quality assurance, modernised agricultural finance and insurance facilities to create a stronger business case for agriculture. The four programs under this strategy are:

• Promotion of agro- and forestry-based

processing and manufacturing;

• Enhancement of product standardisation

and quality assurance;

• Provision of agri-business development services; and

• Promotion of value chain linkages.

Strategy 4 is to promote diversification within the agriculture sector. The focus will be placed on agricultural diversification in crops, fisheries, livestock and forestry products based on the comparative and competitive advantage of each product and agro-ecological zone. Programs to this end are diversification of crop, forestry, fisheries and livestock products along with the development of agricultural cooperatives and farmer groups.

Strategy 5 is the enhancement of investments in agricultural infrastructure. Increased investments in agricultural infrastructure will help create a conducive environment for a flourishing agriculture sector. The aim of this strategy is to enable the sector to produce, process and market its various products competitively in the domestic, regional and international markets. Such infrastructure includes warehousing, storage, breeding centres and irrigation. There are seven programs under this strategy, which are:

• Livestock and fisheries breeding and service centres development;

• Storage facilities development;

• Fisheries support infrastructure

development;

• Rural roads development;

• ICT development;

• Agricultural training institutions development;

• Research and extension infrastructure development.

Strategy 6 is the promotion of small-scale agriculture. While large-scale agriculture can facilitate the connection to downstream activities and agro-industry, and contribute to the response to the growing food demand, small-scale agriculture has greater potential to create jobs and enhance the living conditions of rural communities. This is provided that certain actions are undertaken, which include - among others -addressing risk reduction through improved farming systems, a better market environment, secure land rights and adequate provision of public goods and social protection. Programs under this strategy are the development of farmers’ organisations and the development of rural infrastructure.

ANALYSIS

Prioritised Quick Wins From The 7NDP: Annex II of the 7NDP highlights ten quick wins - within which the Government will intervene directly - for accelerating job creation and economic growth. Of these ten quick-wins, nine are either directly involved with the use of natural resources (i.e. forestry), agricultural production or are linked to the agricultural and forestry value chains.

Each of these quick-wins has a spectrum of business and investment opportunities across the entire value chain. This could be as either a lead player in the initiative, having an industry-supportive role or through the supply of goods or services (including training) towards helping achieve these quick-wins.

The first quick win through strategic interventions is the development of the forestry industry - through public-private partnerships - by developing 50,000 hectares of land in each province for forest plantations during the 7NDP’s period. Moreover, it will support value addition to wood and non-wood forest products, facilitate in the creation of community beekeeping production clusters and promote and undertake applied research on forests, forest products and the environment. The second quick win is the development of the furniture industry, which is further up the value chain of the first quick win, with the timber industry and other furniture auxiliary industries benefitting from stimulative interventions in this sub-sector.

The third quick win is the development of the coffee industry.

The commercialisation of coffee production has a much greater potential than the currently-experienced production and profit levels. There are six strategic interventions, which are to:

1.

Recapitalise and operationalise the Kasama

Coffee Company so it is viable and able to

sustain its operations;

2.

Facilitate the establishment of farm

blocks - with core ventures for the purpose

of bulk coffee production in areas with a suit

able comparative advantage;

3.

Create win-win out-grower scheme

arrangements with small-scale farmers who

would supply coffee to the core ventures;

4.

Facilitate access to affordable financing

mechanisms for both small-scale and large-

scale commercial farmers through PPPs;

5.

Develop a marketing strategy to expand

access to premium niche export markets of

Zambian coffee; and

6.

Invest in productivity improvement through

research and development, extension and technology dissemination.

The next quick win is the development of the tea-processing industry, which has the potential to significantly raise the revenue for the country through foreign exchange earnings. The strategic interventions for this focus area are to:

• Recapitalise and operationalise the

processes of the Kawambwa Tea Company

so that it is viable and able to sustain its operations;

• Facilitate the establishment of

climatically-suitable farm blocks with core

ventures for the purpose of bulk tea production;

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• Create win-win out-grower scheme

arrangements with small-scale farmers that

would supply the core ventures;

• Help facilitate access to affordable financing

mechanisms for both small-scale and large-

scale commercial farmers in PPPs;

• Develop marketing strategies to expand

Zambia’s access to premium niche export markets; and

• Invest in productivity improvement through

research and development, extension and technology dissemination.

Essentially, all players in the coffee and tea value chains would benefit through increased activity in the industry and there would be opportunities for employment creation (especially youth) at every stage of the value chain.

The fifth quick win is the development of the textile industry.

While this initiative is at the top end of the value chain, its development provides a ready market for cotton production - from input suppliers to producers themselves to value addition and sales. The revival of the cashew nut industry is the sixth quick win with the strategic interventions of:

• Supporting small-scale cashew nut farmers

through provision of irrigation infrastructure

for cashew nurseries and clone gardens for effective operations;

• Rejuvenating and establishing cashew

plantations through the engagement of

a core venture enterprise with effective

out-grower scheme arrangements that

would be a win-win for both the core venture

and small-scale farmers established and in operation

• Supporting small-scale cashew nut farmers

through provision of infrastructure for

cashew nut processing and marketing;

• Building the capacity of small-scale farmers

through training and technical support for

growing cashew nuts;

• Facilitating access to affordable financing

mechanisms for both small-scale and large-

scale commercial farmers; and

• Developing a marketing strategy to expand

access of Zambian cashew nuts to premium

niche export markets.

The seventh quick win is the revival and development of the fruit processing industry, the strategic interventions to aid this quick win are to:

• Facilitate the involvement of the private

sector in the processing of fruits, especially

in locations where the fruits are produced;

• Promote and strengthen out-grower scheme

arrangements to encourage the production

of fruits;

• Facilitate access to affordable financing

mechanisms for both small-scale and large-

scale fruit farmers; and

• Facilitate construction of refrigerated fruit storage infrastructure.

The eighth quick win is the development of the tobacco industry, which is a very lucrative investment opportunity because it is 7.5 times more profitable per hectare than maize production and 14 times more profitable than cotton.

Strategic interventions include:

• The establishment of a core venture,

especially in Eastern Province around which

smallholder farmers could produce;

• Facilitating the establishment of tobacco

production clubs or cooperatives in all areas

of the country that have a comparative ad

vantage in growing the crop;

• Providing an enabling policy environment to

facilitate the involvement of the private

sector in the marketing and processing of tobacco;

• Building the capacity of smallholder farmers

to grow tobacco through strengthened

extension services that are focused on this crop;

• Through the Tobacco Board of Zambia,

facilitating the re-introduction of tobacco

auction floors to promote the marketing of the crop;

• Promoting and strengthening out-grower

scheme arrangements to boost production

of the crop;

• Facilitating access to affordable financing

mechanisms for both small-scale and large-

scale commercial farmers; and

• Promoting investment in research and

development to improve yields and increase productivity.

The ninth quick win is the development of the construction industry, which has links with the first quick win - the development of the forestry industry. The tenth quick win is the development of the milling industry. The strategic interventions for this sub-sector are to:

• Strengthen grain production cooperatives for

increased production and productivity;

• Construct milling plants in all major urban

centres throughout the country;

• Construct grain storage facilities in all major

urban centres throughout the country;

• Invest in energy generation - particularly

alternative sources of energy - for

sustainable operation of milling plants;

• Facilitate access to affordable financing - for

the private sector - to set up milling plants

(including small-scale plants) in rural districts;

• Improve the state of feeder roads leading to production areas.

These quick wins offer a variety of investment and business opportunities across the value chains of each sub-sector.

Development of Farm Blocks: To make use of the country’s agricultural potential, the Government has started the farm block development program. These are designated areas in each province that are available for large-scale agribusiness development. The model is based upon a core venture with agro-processing facilities and out-grower schemes with smallscale farmers. Some of these farm blocks have already acquired core investment partners. Some blocks are still greenfield sites with little development, others are considered brownfields as surveying, modelling and physical infrastructure such as roads, electricity and dams have already been constructed. Every year, public resources are set aside in the National Budget for further development of specific farm blocks.

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AGRICULTURE

Incentives for Investing and Investment Opportunities: This sector continues to receive priority attention from the Government as it is seen as a driver of economic diversification and employment creation in rural areas. There are a number of incentives and tax breaks for large-scale farm production. These incentives range from subsidies on establishing the farm to VAT deferment and no import duties on certain inputs to reduced tax rates of 10%. Production loans are available from the various banks in the country. Guarantees and security for investments are set up to increase investor confidence.

As described above, there is a large amount of unutilised arable land, which has the potential to become productive farmland.

There are various incentives in establishing new farmlands.

These include a guaranteed input tax claim for Vatable agricultural businesses for four years before production starts, VAT deferment when importing certain agricultural equipment and machinery, and no import duty on irrigation equipment as well as reduced import duty on other agricultural equipment. In addition, there is a farm improvement allowance of 100% on fencing and wall work and a farm works allowance of 100% for the full cost of clearing vegetation, removing stumps, preventing soil erosion, drilling boreholes, digging wells, aerial and geophysical surveys, and water conservation. Farmers are also given an allowance of K10 million if their farm is occupied by farm workers. Farmers who grow tea, coffee, bananas, citrus trees and other similar crops can claim a development allowance of 10% of their expenditure after the profits of these business entities have been ascertained.

ANALYSIS

(ITCZ), which are characterised by thunderstorms. The ITCZ is north of Zambia during the dry season (winter months) and moves southwards during the summer months. In some years, the ITCZ moves further south, which results in a short-term drought in the north of the country around December. The northern parts of the country experience the highest rainfalls, which decrease towards the south, with the southwest being the driest part of the country. The southwest part of the country is considered semi-arid, although it is situated in the middle Zambezi River valley. The country has numerous lakes and rivers, as well as underground water resources, thus having a high potential for irrigation.

Crop and Horticultural Production: Zambia’s staple food is maize and is the most cultivated crop. Other crops under largescale production are cassava, coffee, cotton, flowers, groundnuts, paprika, rice, sorghum, sunflower seeds, soybeans, sugar cane, tea, tobacco and wheat. The country also produces certified seed exporters on a large scale. The country’s manufacturing sector provides various inputs to the agricultural sector, such as irrigation pipes and woven bags for grains. Regarding professional services, there are private companies that perform soil mapping, testing and sampling as well as leaf analysis. Besides this, the Zambia Agriculture Research Institute performs a research and development role.

Beyond this, the agricultural sector - with its various subsectors - presents a wide variety of opportunities where productive resources are largely underutilised. Regarding production itself whether on designated farm blocks or otherwise - large tracts of agricultural land are available for commercial crop and livestock production. Agricultural inputs and preparatory works offer another vast array of opportunities, especially with input production within the country. Post-harvest activities and value addition to produce offer further opportunities in the sector, including transportation and market broking. Improved financing mechanisms - for both smallholder and large-scale farmers - is an opportunity that has begun to grow.

Livestock Production: Cattle, chickens and pigs are the main types of livestock used in the production of meat and associated animal products. Of Zambia’s landmass, 42% is suitable for livestock production while 12% is suitable for rangeland grazing; the landmass’ potential is far from being adequately utilised. Regarding production, there is widespread prevalence of contagious diseases amongst livestock in parts of Zambia and commercial farmers avoid their herds coming into contact with the potentially disease-carrying stock. This has provided the opportunity for the establishment of animal health and veterinary services to reduce this risk and broaden the area of livestock production. Regarding animal feed, there is a reduced customs duty on pre-mixes and vitamin additives. Farming operations that are far from suppliers often produce their own animal feed on site. This is one reason why vertical integration along the agricultural value chain is important and practised.

Development of Small-Scale Farmers: Various initiatives are underway, which are aimed at increasing this sector’s productivity and improving food security. The core initiative is the Farmer Input Subsidy Program (FISP). The Government uses two methods to distribute inputs to farmers; these are the FISP Electronic Voucher System and the direct supply of inputs to farmers. Other initiatives include increasing the area of smallholder farmers’ lands under irrigation and their level of mechanization, improving the agricultural extension service, improving access to markets, increasing accessibility to financing and credit, increasing the private sector’s involvement and implementing environmentally-sustainable practices. Small-scale farmers are often overlooked, but opportunities exist in supplying inputs and, relevant post-harvest handling and processing technologies along with providing access to credit and markets.

Fisheries and Aquaculture: Regarding capture fisheries, Zambia could sustainably double its production to 150,000 metric tons per year. However, many natural water bodies have been overfished due to inadequate legislation, control and surveillance. This has been exacerbated by climatic variations that have reduced the yields of capture fisheries and have made Zambia continue being a net importer of fish. Over the past decade, the demand for fish products has increased with imports increasing exponentially. In a country that has vast water resources and a high demand for fish products, aquaculture is a great opportunity for investment. Currently, aquaculture contributes less than 15% of the current 70,000 tons of total production of fish products.

While aquaculture is relatively new in the country, it is poised for growth along its value chain and as a means for diversification on the farm.

Climatic Conditions: Zambia’s climate is considered sub-tropical - even though located in a tropical zone - due to its elevation.

The average summer temperature is 30°C while the average winter temperature is 5°C. The country has a wet season from November to April (summer rainfall). Rainfall varies across the country from 500 to 1,400 mm (19.7 to 55.1 inches) per annum and has a dry season during the months of June, July and August. The rains are from the Inter-Tropical Convergence Zone

Labour Resources: Agriculture - and activities related to natural resources - are the largest employer in Zambia. The cost of labour is low and there is a large availability of workers, although the labour force is largely unskilled. The people of Zambia have a friendly disposition and are pleasant to work with.

Markets: Zambia’s local market is relatively small, with most production being exported. The country has a number of standing

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trade agreements that farmers and agribusinesses can and do take advantage of. The main export destinations are countries in Southern and East Africa, followed by the United States and Europe. Export policies are liberalised and export procedures have been simplified and set out. Beyond standard certifications needed for transporting agricultural products across borders, an export permit is required for maize, sorghum, wheat and soya beans. These are staple crops and essential for national food security. Due to long distances to markets, most produce is often processed on the farm or in the immediate vicinity. At the moment, there is a lack of export infrastructure for highly perishable products. This is slowly changing as road infrastructure gets improved and airports get upgraded. In addition, the Zambian Commodity Exchange (ZAMACE) - along with the Johannesburg Stock Exchange (JSE) - has finalised their grain futures’ contracts. These contracts provide a tool for farmers and grain traders to protect themselves against future movement in prices and allow grain traders to provide competitive prices for their clients.

Operational Agri-businesses: The country has several large agribusinesses - some listed on the stock exchange - that have become well established and expanded their operations. Zambeef Products PLC is an example, which has grown from a small beef meat outlet to a multinational company that has fully integrated throughout the value chain and diversified into other agricultural sub-sectors as well as expanded its operations into oth-

er African countries. It is listed on the Lusaka Stock Exchange (LUSE) as well as on the London Stock Exchange’s Alternative Investment Market (AIM). Superior Milling Ltd. is another good example of a successful agribusiness and produces the wellknown Mealile brand of maize products, which is a favourite on the local market because of its quality and low-priced products.

A further example is Zambia Sugar PLC, which has continued to expand its operations and recently doubled its production and exports. It has its own farms as well as a successful out-grower scheme that has enhanced its productivity levels. Although it has been established for a while, Zambia Sugar PLC is a good case study for a successful farm block.

Threats: The Government has put in place various measures to protect the agricultural industry from various threats, although competition and threats to business are ever present in a free market. Identifying these and developing mitigation strategies to reduce risk is essential for success. One of these such threats is the subsidised production of agricultural goods in developed nations and their dumping in developing countries. This oversupply of produce at lower prices leads to local producers being unable to sell their produce. Another challenge is to limit environmental degradation and consumers’ growing awareness of it as well as the increasing demand for transparency along the supply chain.

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AGRICULTURE VIEWPOPINT 115

Food and Nutrition Programmes Hon Michael Katambo - Minister of Agriculture

As the Ministry of Agriculture, we are cognisant of the fact that for nutrition interventions to be successful, we need a multi-sectoral approach. Therefore, our doors are open to players who are willing to work with us to improve nutrition in the country.

Zambia like any other African countries has a high burden of under-nutrition in children under the age of five. Thousands of children and women suffer from one or more forms of malnutrition including low birth weight, wasting, stunting, under-weight and multiple micro-nutrients deficiencies such as Vitamin A, Iron and Zinc deficiencies. In the recent, Zambia Demographic Health Survey of 2013/14, current trends indicate that Zambia is suffering a double burden of malnutrition of both under-nutrition and over-nutrition being on the rise. About 20% of the Zambian women are said to be over-weight.

Under-nutrition is determined by a number of factors which operate at deferent levels. According to the United Nations Children’s Fund (UNICEF) Conceptual Framework for under-nutrition, malnutrition is an outcome of a combination of factors associated with economic, social, cultural, health and environment. Other underlined determinants include food insecurity and inadequate health services. The immediate determinants of malnutrition are mainly inadequate food intake and diseases such as diarrhoea pneumonia, malaria and HIV/AIDS.

It is against this background that the Ministry of Agriculture undertakes programmes and activities to enhance behavioural change towards food consumption patterns and ultimately improves nutrition status among the households. My ministry realises the cross-cutting nature of nutrition and, therefore, collaborates with other ministries such as the Ministry of Health, the National Food and Nutrition Commission, the ministries of Community Development and Social Welfare, General Education, Water, Sanitation and Environmental Protection, Gender, and Fisheries and Livestock to implement the food and nutrition programmes. The ministry disseminates extensive messages with a focus on improving nutrition status among the farming community and the general public. This information is also disseminated through the National Agricultural Information Service (NAIS). Through NAIS, the ministry produces television and radio programmes in different languages on nutrition targeted at farmers and the general public.

The ministry is promoting the production and consumption of diverse foods at household level for improved nutrition. Thus, crop diversification programmes that emphasise the production of nutrients dense crops such as soya beans, groundnuts common beans, orange fleshed, sweet potatoes, fruits and vegetables are being promoted. The emphasis has been on the utilisation of the legumes such as common beans, soya beans, ground-

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nuts, bambara nuts and cowpeas to provide cheaper sources of protein as compared to animal proteins sources that may not be easily accessible and affordable in rural areas. Fruits and vegetables are being promoted to combat micro-nutrients deficiencies in women of productive age and children below the age of two.

The ministry has also developed recipes of traditional food and compiled recipe books that are used as tools for demonstrating the utilisation of locally available foods. Two volumes have been published and disseminated to the communities, camp extension officers and other field workers. In addition, the ministry has developed and distributed to all provinces, a total of 4,000 copies of food and nutrition operational guidelines that are meant to guide food and nutrition officers in the execution of their duties.

The ministry is also promoting bio-fortified crops through the Zambia Agriculture Research Institute (ZARI) in collaboration with partners such as Harvest Plus. Through this collaboration, the ministry has bred and promoted the production and consumption of bio-fortified food crops such as orange maize, iron rich beans, which is mbereshi beans, and orange fleshed sweet potatoes. They are being promoted through field demonstrations and farmer trainings, among others. The objective is to improve the accessibility of the bio-fortified crops as these crops help address micro-nutrient deficiencies.

Another programme that the ministry is undertaking is the promotion of value addition through food processing, preservation and improved storage technologies. The ministry distributed various agro-food processing equipment that includes solar driers, peanut butter making machines, grinders, rice polishing machines, groundnut shellers, peanut roasters and blanchers, among others, to farmer groups in various parts of the country.

This is to enhance the quality of food crops and promote value addition among small scale farmers, thereby improve their incomes. The ministry is also promoting the use of improved storage structures such as metal silos for increased all-year-round food availability.

The Ministry is also implementing the Scale-Up Nutrition and the first 1,000 Most Critical Days Programmes. The first phase of the first 1,000 Most Critical Days Programme was implemented from 2014 to 2017. The objective of the programme is to improve the nutrition status of the Zambian population through the provision of quality nutrition services and increased availability, access and utilisation of quality and safe foods. The role of the ministry is to provide nutrition sensitive agriculture interventions and ultimately improve the diets of target groups. The programme was implemented in seven provinces, namely; Eastern, Muchinga, Northern, Western, North-Western, Central and Luapula.

One of the key outputs of the programme was the introduction of bio-fortified crops, which are nutrient-dense such as orange fleshed maize, orange fleshed sweet potatoes and iron-rich beans in participating households and communities. Currently, preparations for the implementation of phase two of the 1,000 Most Critical Days Programme are on-going and implementation is expected to start before early next year. The programme is supported by a consortium of donors. A total of K21 million has been spent on the programme from 2014 to-date.

The Scaling-Up Nutrition Programme is a manifestation of inter-sectoral coordination among government ministries and co-operating partners. Further, the ministry has also been supporting the School Feeding Programme under the Ministry of General Education with maize from the Food Reserve Agency (FRA).

The Ministry of Agriculture in collaboration with the Central Statistical Office (CSO), Food and Agriculture Organisation (FAO) of the United Nations (UN) and National Food and Nutrition Commission has prepared an updated national food balance sheet to take into account not only grains, but other food crops, livestock products and fish. This is a demonstration of our commitment to ensuring food security and good nutrition for the majority of the Zambian population.

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AGRICULTURE INTERVIEW 117

Providing Sustainable Solutions for Zambia Dr Akintayo Adisa, Managing Director: BASF Zambia

BRIG: Last year, the Zambian economy showed strong signs of recovery. How do you evaluate the outlook for Zambia’s economy?

Dr Akintayo Adisa: The outlook of Zambia’s economy is positive. Economists have forecast that Zambia’s Gross Domestic Product (GDP) growth rate will steadily increase, with an average growth of 1,2% predicted year-on-year from 2017.

Zambia was recently one of the world’s fastest growing economies, with exceptional growth rates until 2014. Realizing the importance of diversification, the country has an opportunity to experience high-levels of growth again. BASF has a very real opportunity to positively contribute towards Zambia’s economy through offering solutions to the agriculture, mining and construction sectors.

BRIG: How is BASF contributing to the Zambian economy and can you give us a short overview of the company’s activities and vision?

Dr Akintayo Adisa: BASF is present in over 84 different industries around the globe. In Africa, BASF operates in 10 focus countries with ten production sites and employs over a thousand employees.

As BASF, we combine economic success, social responsibility

and environmental protection through science and innovation and we support our customers in nearly every industry in meeting the current and future needs of society.

In Zambia today, BASF is currently providing solutions for industries such as agriculture, mining and construction.

For Agriculture, we offer solutions in the form of herbicides, fungicides and inoculants which contribute towards food security by improving farm yields with a focus on both small holder and commercial farmers. BASF also offers insecticide treated malaria nets for the prevention of malaria.

For Mining, our solutions which are used in the extraction of copper from its ore ensure that mines get an increased return on their investments by providing faster extraction rates and high concentration of extracted metal.

For Construction, our solutions, are used in various stages of the construction process from admixtures added to the concrete mix to water-proofing agents which ensure that water damage to infrastructure is prevented. We also have solutions for concrete repair and flooring solutions for factories, warehouses and food

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facilities, all of which are contributing to production and storage of goods and services in the Zambian economy.

Through increased business development, BASF is also looking to introduce its products into various other industries in Zambia. These industries include consumer industries such as foam making where the chemical raw material used in the production of mattresses is produced by BASF. In the home care industry, BASF also produces raw materials used in the manufacture of detergents and dishwashing products and is working with local manufacturers in this area.

Our product portfolio also includes vitamins for food fortification as well as enzymes and additives which are used in the production of animal feed. BASF also has within its portfolio catalysts, solvents and additives used in the petrochemical refinery for the conversion of crude to petroleum products.

We are already intricately involved in the Zambian economy and are excited about exploring future growth and investment opportunities.

BRIG: How can the government and the private sector make Zambia more competitive globally?

Dr Akintayo Adisa: When an investor looks at any country, one of the most important things is the ease of doing business. The government needs to continue to provide a conducive environment for business to take place.

With regards to the private sector, Zambia should not be seen as a “land-locked” but rather as a “land-linked” country and a gateway to the Southern Africa region. With the population and market within this region, Zambia must be viewed as a stable base for operating in these Southern African markets. BASF has been operating in Zambia for the last five years and serves customers in Zimbabwe, Mozambique, Malawi, Namibia, Angola, DRC. BRIG: Interestingly, many international companies choose Zambia as their seat in the region. Why did BASF make this decision?

Dr Akintayo Adisa: Zambia offers us stability, connectiveness and a sustained positive economic outlook as well as growing infrastructure development, investment into agriculture and a growing middle class. All these factors coupled with a stable base from where to access the Southern African region from, have contributed to the decision for BASF to set up an office here.

BRIG: How can the multi-sector approach to building Zambian economy be translated into tangible steps of action?

Dr Akintayo Adisa: I think that with any initiative in developing the economy, localization must be placed at the center, because with localization comes value creation. Localization and local value-add need to be the focus of policies of the current government and the various sectors which it has identified to develop.

Areas of focus could include mining and agriculture, where Zambia exports unprocessed products where little to no value has been added locally.

I firmly believe that increasing the amount of local value-add will generate more jobs, stimulate other industries and contribute to

the economy. I am glad to see the establishment of the staple crop processing zones in Zambia. BASF, is already looking into how we can help improve and support such initiatives by bringing on board various solutions which we have within the agricultural value chain. Some of these include food additives, flooring, packaging solutions and cold-chain solutions.

BRIG: We have covered a few general questions about the economy and would like to know more about you and your journey to be the head of operations for BASF in Zambia?

Dr Akintayo Adisa: I was born in Nigeria, but I spent close to half of my life in the UK where I was studying and working. I obtained an MBA and a PhD in Chemistry from the University of Manchester and I have over a decade-long experience working in the chemical industry. I started my career working with DuPont and this experience gave me great insights into the chemical industry and the various value chains associated with it.

In 2013 I returned to Nigeria and joined BASF at a very crucial time when BASF was expanding its presence on the African continent by setting up offices in each of the country clusters – North, East, West and Southern Africa respectively. In the new BASF West Africa establishment, I was responsible for market development and generating intelligence and go-to-market strategies for various BASF business units. This led to a sizeable investment in Nigeria which include a local production plant as well as technology labs in Nigeria.

In 2017, I was appointed as Managing Director of BASF Zambia and Business Development Manager for Southern Africa.

BRIG: We love the aspect of the intra-Africa mobility for you as a young professional. Do you see it increasing on the continent?

Dr Akintayo Adisa: When you look at the world today it’s increasingly globalized where teams work virtually, thus creating opportunities to exist across various geographies and, in my opinion, if you really want to develop yourself as a person and improve your value proposition, you must be willing to be mobile.

Having the expertise is one thing, but then you also must realize that this expertise is required in various regions. If you look at the way BASF is set up, you will see that we have expertise covering different regions, like the sub-Saharan region, and we are able to export and deploy these experts across the region to deliver customer solutions where required.

BRIG: What are the challenges in your career path? What has been the most difficult thing?

Dr Akintayo Adisa: If I reflect and look at the challenges on my journey to leadership, the first thing I needed to realize was that before you can lead people, you have to lead yourself – know yourself, your leadership style, know how to fine-tune it to lead different people in order to achieve results. Often, it all comes down to having soft skills that relate to communication, empathy and how to inspire others. It has been challenging to comprehend these aptitudes and of course, to continuously work on developing yourself and others to achieve the required results.

Africa has a very traditional, top-down leadership style, but we must realize that empathy is key. You need to be able to win the hearts of the people you are managing, you need to understand what drives them, what their needs are and explicitly communi-

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cate your vision to them. By fulfilling these, you will be able to have a team that supports and understands your vision. I find that the journey becomes a lot easier when the vision is shared.

BRIG: Where do you want to see BASF Zambia and what are your medium term prospects?

Dr Akintayo Adisa: During my tenure here, I would like to improve BASF’s brand footprint and expand it across various industries – agriculture, mining, construction, home and personal care, oil and gas and the food industry. I would like our products and solutions to touch the lives of millions of Zambians every day, and for BASF to become an immediate reference of quality and service delivery to potential customers.

Another goal I would like us to achieve is to reverse the process of exporting raw materials and importing finished goods. BASF can help Africa localize manufacturing and provide local solutions to add more value. This will be achieved by creating value chain integration of many industries present in Africa through reduced reliance on importation of finished products and increased local processing. Through the use of our technological know-how, we can assist our customers to achieve increased local processing and by so doing contribute to increased value creation.

BRIG: Do you foresee establishing local manufacturing operations here in Zambia?

Dr Akintayo Adisa: The possibility of further growth in Zambia is certainly a possibility which cannot be ruled out. As with every process, this starts with understanding the market and its potential and, by doing this, we can put together a business case to support possible further investment. The first step is to look introspectively into the market. We can allocate resources specifically for business development purposes and identifying opportunities which we can then present to the board.

BRIG: How can African countries build more intra-Africa synergies?

Dr Akintayo Adisa: There is a lot of discussion happening in our countries. The first step would be to understand the value and expertise each country has and the comparative advantage they may enjoy with the idea that cooperation and trade with others will ultimately improve the economic conditions in all countries.

We need to trade more with each other and make it easier to do so by eliminating barriers to free trade.

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MWAMBA, Lutanda, “Preparing a Field”, 1989. Linocut Print, 30 x 40 cm Lechwe Trust

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MINING

Rare 5,655 carat (1.13 kg) Inkalamu emerald auctioned Mining central to the Zambian economy Increasing pressure for downstream beneficiation Oil blocks tendered for prospecting

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MINING

ANALYSIS

Diversified Geological Wealth Exploring a New Tax Regime History of the Mining Sector: Commercial mining in Zambia has a history of around a century. Copper is the main product mined and it has been the foundation of the economy and leader in foreign direct investments and earnings. The international copper price has played a pivotal role in the social and economic development of Zambia. While the country’s vision is to have a well-diversified economy to minimise price shocks, copper is still the greatest contributor to the country’s earnings.

second greatest in Africa following its neighbour the Democratic Republic of Congo. While copper has been the leader in the sector, the country’s endowment of mineral resources is vast; its mineral wealth includes other metals, gemstones and industrial, energy, agricultural and building minerals. While the mining of metallic minerals dominates the sector, the full potential of metallic minerals and other identified mineral deposits has not been realised and there are great opportunities for exploration.

Commercial mining started under Cecil Rhodes’ British East India Company in British colonial rule, and the sector has seen multiple reforms. Four years after Zambia’s 1964 independence, the Government nationalised the country’s resources. This period of nationalisation coincided with a major slump in copper prices. Since the country’s economy was heavily reliant on copper, the economy collapsed. In 1990, to fund social development - and under pressure from the IMF for economic reforms - parastatals started becoming privatised and the privatisation of the mining parastatal was completed in the early 2000s. During the 2000s, metal prices soared after increases in demand. There was great interest from mining houses and many major commitments were made. This resulted in the record peak production of over 700,000 tons, which surpassed the 1970’s record.

While global commodity prices have weakened, investments in the sector have continued. In 2003, a new record of 800,000 tons of production was set. Over a million tons of production is forecast as newly commissioned projects come online. Zambia is rated as the world’s seventh greatest copper producer and the

National Development Agenda for the Sector: Zambia’s Seventh National Development Plan 2017-2021 (7NDP) - aligned to realise Zambia’s long-term plan Vision 2030 - guides the country’s development agenda and national budgets. Under the 7NDP’s Strategic Direction and Focus, Development Outcome 2: A Diversified and Export-Oriented Mining Sector is applicable to the sector. Since copper - and its international price - plays such a dominant role in the economy, the 7NDP’s emphasis is on the diversification of the sector. This will broaden the range of minerals mined, covers the non-traditional mining of gemstones, gold and industrial minerals, and the promotion of value addition to mining products. This includes energy and material efficiency strategies to increase productivity and reduce environmental pollution. A program will be established - financed by the Environmental Protection Fund - and invested in productive jobs for environmental restoration, especially reforestation. In addition, iron ore mining will be increased to support the growth of the newly established Kafue Iron and Steel Multi-facility Economic Zone.

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The first strategy is to promote the exploitation of gemstones and industrial minerals. The focus here will be on increasing exploration, mining, processing and promoting the use of industrial minerals and gemstone products, and increasing their contribution to the growth of other sectors. An emphasis will also be placed on enhancing the capacities of small-scale miners to increase their production of gemstones and industrial minerals.

The Government - to help facilitate development - will strengthen policy implementation and regulatory enforcement while not stifling the exploration of new mineral deposits. Programs under this strategy include:

• Generation and provision of geological information;

• Development of mineral processing technology;

• Empowerment of small-scale miners;

• Enforcement of the small-scale mines regulatory framework;

• Development of market linkages;

• Strategic environmental assessment and

risk management; and

• Promotion of mineral exploration.

The second strategy is to promote local and foreign participation in mining value chains and industrialisation. This strategy aims to enhance capacities for participating in mining value chains that have high potential for economic growth and poverty reduction. Furthermore, efforts will be made towards facilitating mining-based value addition and industrialisation that supports the development of manufacturing industries that produce inputs for other sectors, such that they contribute to the growth of other sectors. Programs under this strategy are:

• Capacity development;

• Policy and regulatory framework review and enhancement;

• Access to finance promotion;

• Mining value-chain development;

• Research, innovation and technology promotion; and

• Investment Promotion.

The third strategy is to promote petroleum and gas exploration.

This strategy aims to facilitate the establishment and capacity development of relevant institutions to monitor and regulate petroleum exploration. Additionally, a governance framework for the sub-sector will be established to attract investment and ensure efficient, safe and environmentally-friendly petroleum exploration. Programs aligned with this strategy are:

• The review and enhancement of the policy

and regulatory framework;

• Capacity development;

• The generation and provision of geological

and geophysical information; and

• Environmental management.

The fourth strategy is to promote small-scale mining. As part of the diversification agenda within the mining sector, the Government’s focus will be on building the productive capacity of artisanal and small-scale miners involved in the exploration of gemstones and industrial minerals. Additionally, artisanal and small-scale miners will be formalised. Programs to this effect are:

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ANALYSIS

The empowerment of small-scale miners; The promotion of small-scale miners access to finance; Strengthening occupational health and safety, and protecting the environment; Developing small-scale mining skills; and The promotion of partnerships between small-scale miners and investors.

There has a strong push by some government officials for increased downstream beneficiation for the creation of finished products and greater employment opportunities. Downstream beneficiation is undertaken to various degrees when feasible.

Upstream and sidestream beneficiation has been lobbied as an alternative for employment creation; this comprises the creation of industries supplying the mines as well as other service industries.

Governance of the Sector: The Ministry of Mines, Energy and Water Development governs the sector according to the Laws of Zambia. Different types of mining and prospecting licences exist and each requires specific documentation or data, have different places of application, the validity of licences, maximum surface area and rights granted. Open-cast and underground mining have different tax regimes as well as different incentives according to the type of mineral and operation. The Zambia Development Agency Act governs the different incentives available to investments made into the sector. Beyond this, a new mining tax regime has been introduced in 2019, which mining houses believe will make some of them unprofitable and representations to this effect are been made to Government.

Industry Bodies and Sources of Information: The Zambian Development Agency is the principal source of guidance with investing in Zambia. The Chamber of Mines of Zambia is the leading industry body. The Chamber’s objective is “for the purposes of promoting the interests of its members, and encouraging, protecting and fostering the Mining Industry of Zambia and doing everything necessary and advisable for the advancement/ achievement of those objectives.” The Chamber operates the industry website - Mining for Zambia - that is “aimed at promoting a better understanding of the Zambian mining industry. It highlights key industry issues, and shares information about mining and its contribution to the economy and society.” another publication that covers sectorial developments and leading players in the industry is the Zambian Mining Magazine.

Zambia’s Geology: The country’s considerable mineral deposits and exploration potential is because of its extremely diverse geological terrains and its unique geographic location. The country’s wealth of minerals follows the geological evolution of tectono-thermal events between the massive Kasai Craton (to the west), the Zimbabwe-Kaapvaal Craton (to the South) and the Tanzania Craton (to the North). There were inter-cratonic dislocations and these buttressed against stable blocks. There are four main geological formations, which are the Congo Basin, Forest Sandstone, Karoo Supergroup and Katanga Supergroup.

The latter has made the greatest contribution to Zambia’s metallic mineral wealth. While around 80% of the country is mapped, a significant part is unpublished. This included reconnaissance mapping of the north-eastern and western parts of the country.

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Regional maps are on a scale of 1:50,000 and are published on a scale of 1:100,000 on quarter degree sheets with an accompanying report. With regards to quarter degree sheets, there are around 260 quarter degree sheets; around 60 cover the Kalahari of Western Zambia, another 100 have been published and are of the solid geology and over 60% have been mapped at a scale of 1:100,000. Some reconnaissance maps at a scale of 1:250,000 are available. A unique geological map exists, is at a scale of 1:1,000,000 and is divided into four separate sheets for ease of use. Tenements map that show the locations of exploration and mining licences are available for prospective investors and interested parties at the Geological Survey Department within the Ministry of Mines, Energy and Water Development.

There are orthomagmatic nickel occurrences in the Basement sequences to the east and south of Lusaka and sediment-hosted Nickel deposits in Mwashia and Mine Series rocks of north-western Zambia that are associated with gabbroic intrusions and often show signs of hydrothermal enrichment. Minor Platinum group elements are produced as a by-product of copper refinement as well as from the Munali deposit south of Lusaka.

The Kabwe deposit in central Zambia has been mined for Carbonate-hosted Zn-Pb ore, which averages around 25% Zn and 15% Pb in 11 Mt. In the same stratigraphic position lie Cu-Pb-Zn deposits in Basement and Muva sequences in the south-east of Zambia. Occurrences of carbonate-hosted Zn-Pb mineralisation in Lower Roan limestone have been recorded.

Metallic Minerals: This group of minerals consists of Copper and Cobalt, Gold, Iron Ore, Manganese, Nickel and Platinum group elements, and Zinc and Lead. In terms of Copper and Cobalt, the copper-cobalt mineralisation is widespread and strata-bound within arenites, shales and carbonate rocks of the lower-Katanga Mine Series Group. Deposits have been identified in the thrust zones of north-western Zambia (zones of detachment between Basement and Katanga sequences) and in western and central Zambia (shearing and intrusion emplacement - through the lower Katanga succession - have created a considerable number of lode, stock work, breccias and skarn deposits). Other types of deposit can be found in the disseminated copper mineralisation in the granites and aplites as well as the copper-bearing stratiform sulphides. Over a billion tons of copper-cobalt ore has been extracted from the mines on the Copperbelt and conservative estimates recognise the potential of an additional two billion tons of economic yield.

With regards to Gold, over 300 Gold occurrences have been recorded, however, the majority have only been prospects. The greatest historical productions have been at Dunrobin (990kg) and Matala (225kg), Jessie (390kg) and Sasare (390kg). Most of these deposits are of lode-type that are associated with the Mwembeshi Shear Zone and related syntectonic intrusions. At major thrust zones - close to the base of the Katanga succession - gold mineralisation, in conjunction with copper and uranium has been significantly recorded.

Iron ore has provisional estimations of more than 900 Mt with an iron content of over 50%; certain individual deposits have been estimated to be up to 200 Mt in size. These occur primarily as sedimentary ironstones in the lower-Katanga Mine Series successions. In western Zambia, there are small, high-grade skarn and replacement deposits that are associated with Pan-African felsic and mafic intrusions through the lower Katanga succession. Manganese occurrences are numerous but are mostly small and occur as tabular, stratiform and exhalative deposits, generally within Basement and Muva sequences as well as supergene enrichments that either cap low-grade sedimentary accumulations or are concentrated within sub-vertical fractures with limited vertical extent. This sub-sector is generally characterised of private companies and small-scale miners, with the majority of operations centralised around the town of Mansa in the north of Zambia.

Gemstones: In terms of diamonds, alluvial diamonds have been found throughout parts of northeastern and western Zambia. Kimberlite and lamproite intrusions exist around the western flank of the Luangwa River and in southern Zambia. However, no diamond-bearing diatremes have been discovered. With regards to emeralds, the country’s Ndola region supplies roughly 20% of global production, which are prized for their deep green colour. In late 2018, the Inkalamu emerald gained international attention when it went on auction - it was an exceptionally rare 5,655 carat (1.13 kg) emerald. Other gemstones mined are aquamarine, tourmaline and amethyst.

Industrial Minerals: Zambia has a wide array of industrial minerals. These are anticipated to support the growth of the agricultural, manufacturing and mining sectors. These minerals are apatite (a source of phosphate), asbestos, barite, dimension stone, feldspars, fluorite, graphite, gypsum, kyanite, limestone and dolomite (previously identified as suitable for agricultural and cement use), silica sand (high-quality glass sand is presently being mined) and talc. There are large amounts of ball clay and brick clay deposits but these have seldom undergone bench and firing tests. However, brick clays are used at an artisanal level throughout Zambia.

Energy Minerals: These minerals consist of uranium, coal and hydrocarbons (oil and gas). Regarding uranium, three significant types of uranium occurrence have been recorded. Large exploration activities are underway in southern Zambia and in the Siavonga area of the Gwembe valley. In terms of coal, there are large coal reserves and it has been mined since 1967 in southern Zambia’s Maamba mine. Regarding hydrocarbons, two major exploration programs were undertaken between 1986 and 1991 within the Luangwa Rift Valley, of which one was terminated before intersecting favourable reservoir horizons. The potential for oil generation is present within the Karoo-age graben in both the Luangwa and mid-Zambezi valleys. Recent exploration work - using the Microbial Prospecting for Oil and Gas technique - showed that the Okavango and North Luangwa basins have the potential for exploration. The Government has tendered oil blocks for prospecting.

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INTERVIEW

Zambian Emeralds in High Global Demand Raj Sharma, Managing Director, Jewel of Africa BRIG: What is the current state of Gemstone Mining in Zambia?

Raj Sharma: Let’s start by looking at Zambia as a whole.

I think it’s a very blessed country and has huge potential in mining of all kinds. Obviously, we’re very well known for our copper and cobalt content in Zambia, but we have huge potential in the gemstone sector. When we talk about the gemstone mining sector, there have been a very few companies that have actually come in and mined. Obviously, the big example in the gemstone sector would be Gemfields who own 75% of the Kagem mine, which is the largest emerald mine in the world. They are the heroes in the sector. They have done extremely well in gemstone mining and have removed the negative connotation from the gemstone industry, making it very positive worldwide. With responsible sourcing, their community works and their global advertising, they have really put Zambia on the map in the gemstone sector. They are doing very well with their Montepuez ruby mine in Mozambique as well. Apart from them, we have Grizzly Mining, which is another big player and right now I think they have brought in some more investors and they changed name.

If I’m not mistaken, to Gem-Canton, so I think that’s a big thing.

But apart from those two, there are very few, other than maybe the smaller ventures on the emerald side.

Emeralds exist in the Copperbelt area just around Ndola and Kitwe, and Ndola rural but you access it from Kitwe, and then we have gemstones all over Zambia. There are amethysts in the Southern Province and Gemfields has got one mine and there are also probably 50 to 60 small-scale miners. We have

tourmalines and aquamarines in the eastern part of this country.

Nobody is conducting formal mining so you have many artisanal miners all over the country, no real formal mining. Aquamarines centre on Mwumba and we have other precious minerals all over this country with nobody really mining them. So to answer your question, huge potential not exploited - in my opinion - by 1%.

BRIG: Why is that?

Raj Sharma: Gemstone mining in itself is difficult to fund by conventional financing methods. The reason for this is intrinsically that the very nature of how gemstones occur is that they are in veins. It is not currently possible to quantify how much of a deposit you actually have, even if there was a way to say you know this is X number. If there was a way to go into an emerald mine and determine the quantity of emeralds, you still cannot determine the quality and therefore the value accurately.

It is difficult to fund because, unlike copper or cobalt or other industrial minerals, you can’t go in and say I have 5 million metric tons of this quantity at the current prices you making $5Bn, I need $1Bn to develop it. The maths there is clear, while in gemstone mining it is not. Investors have been, traditionally, people who have their own money. There are not many who have been willing to do that up to now, because Zambia has not been that far up the investor scale.

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The government is doing a lot of work to put Zambia on the world map and show the world that it’s a great and stable destination for investment, so hopefully more investors will get involved in gemstone mining.

BRIG: The recently auctioned emerald from Kagem has proved that the Zambian gemstone industry has a potential to earn foreign exchange. What then is the outlook for Zambian emeralds in the global markets?

BRIG: How can the industry develop, ensuring that it is done in a sustainable manner?

Raj Sharma: Zambian emeralds, through a lot of hard work done mainly by Gemfields, and I suppose Jewel of Africa can take a little bit of credit, in sensitizing the world to Zambian emeralds. In fact, Rashmi Sharma, my sister and one of the partners here, was recently one of the keynote speakers at the Hong Kong Guild at the gem show last month and statistics are showing that demand for the Zambian emerald is higher than any other emerald. I think we’re getting 43% of the overall demand.

Kagem already produces 30 to 40% of the world’s emeralds. So the outlook is getting better.

Raj Sharma: I think every big miner is doing their part in uplifting the communities. So everybody is trying in their little ways. As I said, there isn’t enough mining going on in the gemstone sector for you to see a very big significant improvement in community development. I mean, if there’s only three people, they can only do so much. I know Gemfields has built schools, hospitals, clinics and they’ve got out-grower schemes for farmers to feed their workforce as well as develop the community. I know Grizzly’s is doing some amazing community work as well. The answer is more investment.

BRIG: Are you satisfied with the current transparency in the sector?

Raj Sharma: In a sense, we are we talking about the age old question that people have been saying that billions of dollars of gemstones are illegally exported out of Zambia. I doubt very much it still happens, if it ever did. You know I wasn’t a big proponent of that theory because there are not that many miners. So the ones that you have for example, Gemfields and Grizzly, auction all their production in the open and everybody gets to see the transactions. There may be a bit of leakage from artisanal miners, but the volumes are relatively insignificant. Zambia has got good principles. You have to get your goods valued at Geological Survey and you have to go to the Revenue Authority to get export papers. Downstream in manufacturing, there is no reason to smuggle jewellery out of the country because it is zero rated anyway for export and you want your money here to carry on operations. We export to clients worldwide and this is the only place we do it from. We are lobbying government to make the process of exporting easier because currently the gemstone sector is - from a legislative point of view - lumped together with traditional mining, so we fall under the same complex rules.

There are very strict rules on how to export, which we feel should be delinked from mining. For example, copper production is monitored throughout the export process: where it ends up, how the money is transferred, and so on. All that requires a lot of paperwork and costs involved. We are lobbying government to change that for the jewellery-manufacturing sector because it’s very different. On our website, you can order a $20 pair of silver earrings with an African tourism motif. For us to export it, we still need to go the Geological Survey, get it valued because it’s considered a mineral export although it isn’t. So it’s a mineral export. You go to the Ministry of Mines, you go to ZRA and then you give it to the courier and then you need to get proof of delivery documents at the destination, bring them back for your VAT rule 18 to apply. It gets complicated and it’s stifling that side of our growth for the moment, so we would like to be delinked from the traditional mines. You can imagine that the scenario is very different for a $20 pair of earrings and a $2m shipment of copper.

The same rules should really not apply.

I believe that the Zambian Emerald is one of the finest in the world due to its innate characteristics. It’s a stronger crystallization, less brittle, better clarity and better colour, so we get larger cleaner stones of good colour. Also, the stones we use are untreated, so the customers get a natural product that is not oiled or coloured. The fractures are not filled in and the natural stone commands a higher value.

Without a doubt, Zambian minerals’ demand is growing and if we can do this with two or three real big miners, I can imagine what it will be if we had twenty. Jewel of Africa is vertically integrated. Starting from the top, we have seven retail outlets. We’re manufacturing all our own jewellery. We’re cutting and polishing our gemstones and we are also mining now, we have a couple of mines that will start producing soon. It’s very capital intensive and you can’t do everything yourself. When we get the right partners and start producing, it will help us in our quest to get the Zambian emerald to the end user with final proof of provenance giving them the knowledge that they have a product that was mined, cut and manufactured responsibly. Proof of provenance will be a big determinant of how luxury buyers will spend their money in the future.

Not only do customers want to buy a nice piece of jewellery, they want to know that their money is being well spent in the right places. It’s very well and easy to just say “Made in Zambia” but with the Internet, with social media, people want to see the entire chain. So, we hopefully will work with them and as we’ve been doing. We are partnering with the Gübelin Gem Lab to use their DNA impregnation technology and block chain process to trace every emerald from the piece of jewellery right back to where and when the gemstone was mined. This will be a great source of pride and confidence to the end buyer.

BRIG: How can this market share of 30 to 40% be raised to actually take the market share from Colombian emeralds?

Raj Sharma: It’s not just about marketing emeralds. We need to market Zambia as well. So country and product awareness because when you put our emeralds side by side with other emeralds, demand for Zambian emeralds will increase.

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Zambian Emeralds Conquer the World Market Gemstones from the Southern African country second only to Colombia

Zambian emeralds are becoming increasingly more visible on the world stage. As the price of the gem has steadily climbed with a yearly 10% increase in price per carat, more investors are looking at an opportunity to benefit from the abundance of gemstones in Zambia.

Historically, local artisan miners were the main source of emeralds before giving way to commercial drillers opening wider opportunities to manufacture and market the precious stones to global buyers.

The Southern African country is endowed with emeralds, diamonds, aquamarines, citrines, amethysts, and tourmalines.

In 2016, Zambia produced 74.7 metric tonnes of emerald and green beryl, and accounted for 43% of the global emerald supply. Yet, the country’s mineral wealth is largely unexplored and could hold keys to unlocking additional economic development opportunities in the mining sector and earn more foreign exchange for Zambia.

Recently, production of the May birthstone in this part of the world has picked up in pace dramatically as jewellers and consumers alike discover the inherent and distinct beauty of this Zambia’s bluish-green emeralds, which are said by many to rival Colombian emeralds’ distinct deep green in eye appeal.

The stones from Zambia are distinct in their colouration. These stones are said to carry colour throughout whereas those from Colombia tend to have a clear core. In addition, Zambian stones tend to be a little less brittle and porous than emeralds mined in other parts of the world, making them a touch stronger naturally.

As the popularity of Zambian emeralds rise, this country is now second only to Colombia in production of these precious stones.

Jewel of Africa, a local jewellery manufacturer, is actively engaging the global community in its efforts to market the Zambian previous stones offerings. Established over twenty-five years ago as a family business, the exclusive jeweller nowadays is a modern vertically-integrated manufacturer with mining, manufacturing and retail operations.

In November 2017, Jewel of Africa became the first-ever Zambian buyer of the emeralds from the Kagem mine. Lufwanyama’s Kagem mine is the world’s single-largest producing emerald mine and is owned 75 % by London-based Gemfields in partnership with the Zambian government. The landmark purchase by the Zambian jewellers creates a fully Zambian value chain, from the Kagem mine in Lufwanyama, to cutting, polishing and crafting of top-end jewellery.

The auction was home to a few things avant-garde. A unique high-technology emerald tagging system invented by Swiss gemstone testing laboratory Gübelin Gem Lab was applied for

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the first time commercially. It uses customised synthetic DNAbased nano-particles that are infused into the rough emerald crystals and enabled traceability of emeralds back to the mine of origin, the date of mining and any other data requested.

Jewel of Africa - to raise awareness of some of the best emeralds in the world - has established a sister company in the United States, which also organizes a high-profile gemstone exhibition every year in collaboration with the Zambian diplomatic mission in Washington, D.C.

Reaching the US market has been an important milestone for the company and it aspires, through the preferential access to the US customers enabled by African Growth and Opportunity act (AGOA) to boost the recognisability of Zambian stones.

The AGOA was signed into law on May 18, 2000 and offers tangible incentives for African countries to continue their efforts to open their economies and build free markets. AGOA substantially expands preferential access for imports from beneficiary sub-Saharan African countries.

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ARTICLE

Miners and Government Need to Dig Deep Win – Win is the Essential Outcome In the months since the Budget proposals were announced, Zambia’s mining companies have conducted a thorough impact assessment of the new taxation changes and engaged policy makers on alternative measures that take account of the government’s short-term fiscal needs.

The potential consequences are grave and the new President of the Zambia Chamber of Mines, Goodwell Mateyo indicated that to manage the impact, the industry will collectively have to scale back operations, and reduce capital expenditure by more than $500m over the next three years. This reduction in capital and flat export earnings, means that the Kwacha could become more volatile and susceptible to external shocks. Furthermore, the impact on operations is likely to lead to some 21,000 mining jobs being put at risk. The projected impact is both a looming human tragedy, and an economic catastrophe for Zambia. He remained hopeful that the outcomes of their representations to the Ministry of Finance would avert these outcomes. During December, individual mines announced their intended work force reductions, some directly attributing them to the tax changes and others citing operational reasons.

The Zambia Chamber of mines published a report in November where its position is outlined. They point out that a forward-looking tax regime would encourage continued investment and not discourage it.

Mining companies need to make the best possible return on their investment over the life of the mine and governments look to maximise tax revenue over the same period. Balancing these competing interests can turn potential adversaries into partners.

A mine will outlive several changes of government, so a tax regime should encourage investment over the long term. Continuity in production is responsible for a stable stream of tax revenue as opposed to the actual tax rate. This long-term outlook can be at odds in developing countries when immediate revenue needs of governments arise.

To construct even a neutral mining tax regime, one needs to understand the four stages of mining. It is a high risk, capital-intensive sector with long lead times to profitability.

Exploration is a high-risk phase with no income and can end right there, so the tax authorities could exempt explorers from most taxes in order to incentivize exploration to ensure a future mining pipeline. By allowing losses to be carried forward to offset against profits in production, firms will be encouraged to continue to mine development where the high costs are incurred. There is still no revenue while imported expensive capital equipment and infrastructure is being built. To encourage development, tax authorities could keep import duties and VAT low, and allow mines to write off capital costs fully and as quickly as possible once production begins.

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Ultimately, production is the only phase during which revenue is generated and profits can be earned. During the production phase that tax authorities can capture reliable revenue streams from diverse forms of royalties, duties and taxes while the mines continue to invest in replacement equipment, expansion and modernisation in order keep production at optimal levels. To maintain these levels, the tax regime should encourage mines to continue investing. Mechanisms would include allowing for interest payments on debt capital to be offset against tax and allowing any losses to be carried over to a future year. Finally, during closure and rehabilitation the mine earns no income but incurs substantial costs to rehabilitate the area. Here, tax-deductibility for these costs would encourage mines to set aside funds during the production phase.

The potential revenue streams from the mining sector include: VAT, export / import duties, payroll taxes, but the two main streams are royalties on production and taxing profits. The huge capital investment required for new mines means it can take many years after production before profits for tax-paying purposes are achieved. The capital invested in a new mine has occurred during exploration and construction while the tax relief comes during production. Governments generate revenue during the early stages of a mine through royalty payments or in Zambia, Minerals Royalty Tax (MRT) which is levied on revenue, not profit. A royalty payment is not a tax but, because it is one of many potential sources of Government revenue, royalties are part of a nation’s wider minerals taxation policy.

MRT is payable from day one of operations and generates an immediate revenue stream for the Government well before a mine is profitable, it is simple to calculate and administer, and is payable monthly. Royalties do not take the circumstances of individual mines into account. As MRT is based on production, it does not consider costs which will vary between mines and even a mine making a loss will pay the same MRT and may even have to borrow money to make the payments. Where a royalty rate that is too high can lead to the underutilization of a nation’s resources because it can make more sense to just leave the ore in the ground.

The combination of a royalty and a profit-based tax results in a regular flow of tax revenue for governments over the entire life of a mine with profit tax eventually taking over from MRT. Royalties are a cost to the business and are therefore deductible against profit tax world-wide. In its 2019 Budget proposals, the Government intends to depart from this clear principle. It will be the only mining jurisdiction to do so. This means mines will be taxed at the price of copper per ton rather than the amount they received after MRT. This is double taxation.

The ZCM contends that where a government is concerned about tax evasion or citizens are concerned about how taxes have been spent; the answer is to improve oversight and capacity, and to focus on transparency initiatives–not to revise the taxation regime. The latter merely increases the burden on responsible investors, whilst doing nothing to prevent wrongdoing.

Past concerns over reporting irregularities should be assuaged by the considerable improvement over recent years in government’s capacity to monitor minerals production and reporting.

This has been achieved with the assistance of the Mineral Val-

ue Chain Monitoring Project (Zambia Revenue Authority), and the Minerals Production Monitoring Support Programme (Ministry of Mines and Mineral Development). According to the latter, anomalies in reporting and copper production are now down to a few percentage points.

Setting the right level of MRT is important so that the revenue generated is optimised over the stages of mining. Initially, set too low and insufficient revenue is generated, set too high and new investment is stifled. For producing operations, excessive rates delay profitability and in all cases decreases the overall return on investment. This discourages further investment, and this ends the tax revenue that the government had envisaged.

Because capital is mobile, it is important to compare the intended mining tax regime with those of other mineral producing countries. While political stability, infrastructure, ease of doing business are all important, a country should aim to be in the middle band when in terms of taxation rates. Too high and investors do not get their fair share and too low, the country loses out.

In late November 2018, the Zambia Chamber of Mines commissioned an international accountancy and advisory firm to conduct a benchmarking analysis that compared Zambia’s current and 2019 proposed mining taxation regimes against those applicable in other mining countries. The results are revealing.

Zambia’s royalty regime (as of November 2018) In February 2016, Parliament approved a price-based royalty regime, varying between 4-6%. This change was welcomed by the industry because it acknowledged that royalties were a heavy burden to bear when prices are low. And as prices rose, as they have now, so did the rate payable. At current prices, mines are paying the maximum of 6%. As seen from Figure 1, the 2016 royalty regime was on average comparable with other jurisdictions, even though corporate income tax remained relatively high.

The proposed changes set out in the 2019 Budget speech of 28 September will increase royalty rates to 5.5-7.5%, with a new 10% rate if the copper price exceeds $7,500 per ton. However, in the Bill that went before Parliament in late November, these provisions were amended slightly, to 8.5% above $7,500 and 10% above $9,000. The government wants to increase revenues from the mining industry. However, a review of the Budget by multinational professional services firm PwC, warns: “on account of the inherent uncertainties in the sector, there is a risk that these changes may not deliver the desired outcomes”.

According to the above-mentioned benchmarking analysis, this represents a 25-37.5% increase to royalties, placing Zambia at the highest end when compared to other countries. The non-deductibility proposal and the new 10% rate make Zambia an outlier, as does the proposal to move to a non-refundable sales tax, in replacement of VAT. But that is not all. One must consider the inter-relation of measures, and the compound effect of all these measures. The rises across many tax measures, places Zambia in the most extreme light when looked at overall. If these changes are enacted Zambia will by a comfortable margin have the highest tax burden of all the mining countries sampled. The effective tax rate–the average rate at which pre-tax profits will be taxed–varies be-

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MINING

tween 86.3 and 105%, depending on the copper price. This could cause the extraordinary situation where a profitable mine would be obliged to pay more in tax than the profit it had made.

No business can, or will, continue to operate under those circumstances.

The proposal to make royalties non-deductible against profit tax, referred to earlier in this report, makes a substantial difference to the overall tax burden, where the two scenarios – allowing the deduction, and non-deductibility–are compared. For those mines that are loss-making, this makes little difference; the simple increase in royalties hurts.

According to PwC, “a key criteria for attracting investment in the mining sector is stability of the mining tax regime. However, over the last several years, Zambia has seen several significant

ARTICLE

changes to the mining tax regime. These further changes are likely to dampen investment appetite in the Zambian mining sector”. This is in stark contrast to other mining jurisdictions, most notably Peru and Chile which adjusted taxes incrementally, and with a long lead time (over five years), allowing the sector to manage these changes.

PwC concludes in the review: “considering that there hasn’t been significant private sector exploration for new green-field mines over the last 7 years, coupled with the relatively frequent changes to the mining tax regime in Zambia, there is a risk that performance of the sector may be challenged in the medium to long term”. This is a serious concern since the performance of the sector is not only tied to tax income but also to Zambia’s employment levels and general economic activity.

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William Bwalya Miko, “Market Place”, 1998, Acrylic on canvas, 101.5 x 128cm cm Lechwe Trust

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CONSTRUCTION Major construction projects across different sectors Massive housing backlog offers enormous opportunity Vast PPP opportunities underway and coming online Cement manufacturing booming Timber shortfall offers opportunity

Real Estate Highly competitive retail sub-sector Hospitality sub-sector is highly profitable with room for growth Severe housing deficit at lower end of the market Educational and medical facilities experiencing growth bubble

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CONSTRUCTION ANALYSIS

Constructing the Nation Infrastructure Development Core to Zambia’s Growth Plans

Design of Zambia’s Development: Vision 2030 (the long-term development plan) and the Seventh National Development Plan (7NDP) - the country’s medium-term development plan - guide Zambia’s development. As such, the Government has pledged major investments in infrastructure to support the investments made and growth across the different economic centres as well as to increase employment in this sector. In addition, the country has experienced a rapid rate of urbanisation with almost half the population living in urban areas. While large urban populations have advantages to help steer national socio-economic transformation, the rapid rate of urbanisation has created a massive backlog of urban infrastructure that supports social and economic opportunities.

Throughout the 7NDP document, one can find the construction of infrastructure that will help stimulate the economic growth of a specific sector. With the Government’s focus on private business development and public-private partnerships (PPPs), there is a vast array of business and investment opportunities across the sector’s different sub-sectors. The 7NDP’s Annex II details quick wins, which with the Government will give greater attention to, for the creation of employment opportunities. The ninth quick win is the development of the construction industry, which will help improve the state of Zambia’s infrastructure, absorb youths into gainful employment and reduce poverty. This focus within the construction industry will be on projects that are labour intensive and create jobs throughout the value chain.

This quick win has five strategic interventions, which are to:

1.

Select roads to be worked on in urban

centres of all the ten provinces;

2.

Expedite the process of selection of district

centres, designing of drawings for

infrastructure and contract award in newly established districts;

3.

Mobilise and allocate resources for infrastructure development;

4.

Promote access to finance for local

contractors to invest in equipment and machinery; and

5.

Strengthen the National Council for

Construction to enhance the skills

development of local contractors.

The expected outcomes from these interventions include:

• The Government mobilising resources for

the construction of roads under Pave

Zambia 2000, with the subsequent awarding

and construction of selected roads in all urban centres;

• The Government mobilising resources for

the construction of office blocks and housing

units across the country, with a special focus

on all new districts;

• The Government - in collaboration with

cooperating partners - facilitating the

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CONSTRUCTION ANALYSIS 135

acquisition of affordable finance for local

contractors to procure equipment and machinery;

• The transfer of technical skills to local

contractors through the National Council for Construction;

• Increased employment opportunities for

locals throughout the value chain;

• The transfer of technical skills and

knowledge to locals - making them

employable in subsequent works in their areas; and

• The reduction of poverty levels.

The sector has been a key indicator of economic health and it is an important catalyst for economic growth and a driver of the economy. Over the past 10 years, the construction sector has grown by over 10%. The country has received major foreign direct investments into the sector and many public-private partnerships - for the development of infrastructure across different sectors - are currently underway or are in the pipeline. This growth seems unlikely to slow down, as there is a massive backlog in supplying housing units.

Facts and Figures: The construction sector is driven by the demand from the mining sector, infrastructure development, retail centres and the development of offices and residential buildings.

Construction is the largest industrial sector in Zambia and comprises over a quarter of the GDP and has had a growth rate of over 10%. However, Fitch Solutions has predicted that the value of the construction industry will contract - in real terms - by 2.3% in 2019 and the rating agency has forecast an average growth rate of 3.4% year-on-year for the sector. The forecasted downturn is due to growing fiscal pressures and a rising risk of debt distress over the medium term. This could lead to limitations on the availability of funding support, which could result in construction projects facing either delays, suspensions or cancellations.

of work to be done. Affordability and access to land are the main challenges facing the lower end of the housing sub-sector. In the same light, there has been a shortage at the higher end of the market, which has been met with the development of mixed-use developments (a mix of residential, commercial and light industrial development) and modern, cluster-style gated communities.

Tourism: Zambia is expecting an annual increase in foreign tourists of around 4% over the next ten years and the private sector is gearing up for them with the construction of hotels, guest houses, apartments, lodges and conference centres. The Government is playing its part in stimulating the tourism industry by upgrading and expanding aviation infrastructure as well as major roadworks.

Building Materials: One of the key long-term impediments in the sector has been the affordability of building materials. However, the past few years have seen major investments in cement manufacturing plants, which has led to the price of cement dropping down from K90 to K55. This investment is to meet the Government’s planned infrastructure build as well as for the export market as the output capacity could exceed local demand.

In terms of steel, the country is well resourced in iron ore but the local steel industry has - over the past few years - experienced lower demand due to the import of cheaper steel products. However, to aid in the country’s industrialisation, the Government has made calls for locally-produced steel products to be procured for all public-invested projects.

Cement blocks are readily available as is their raw materials such as cement, stone, sand and crusher dust - there is a multitude of input suppliers. Smaller-scale producers generally supply the lower to middle end of the housing market and their prices are lower as is their quality. Medium to large-scale block producers supply better quality blocks to the upmarket segment of the housing market as well as private and government construction projects.

Construction Demand Drivers: Due to the diversity of required infrastructure, there are many drivers of demand from across the different sectors. For example, under the remit of the Ministry of Local Government & Housing, the Department of Housing Development is busy building 4,000 houses for public service workers and the Zambian Road Development Agency is promoting large-scale roadworks across the country. In addition, private clients develop large-scale industrial and extraction facilities are also drivers of demand.

Building timber is readily available, however, the sector’s demand outstrips the local supply by around 170,000 m³. With the construction boom underway, the demand is ever increasing and the insufficient supply is a constraint to growth that has resulted in the cost of timber rising. It is legally required that all timber must be harvested from government timber forest plantations. There are around 600 micro, small and medium-sized saw millers, which are organised under two major associations.

These associations are the Copperbelt Sawmillers and the Timber Growers’ Association (COSTIGA) and Zambia National Association of Sawmillers (ZNAS) and saw millers are required to register with the Patents and Company Registration Agency (PACRA) if they are to be issued standing trees to harvest. The majority of plantations are within the Copperbelt province and are managed by the Zambia Forestry and Forest Industries Corporation Limited (ZAFFICO). ZAFFICO issues saw millers with permits, regulates the quota size and price. This quota system favours micro- and small-scale saw millers, which restricts businesses in the industry to grow.

Housing: Like other developing countries, Zambia has struggled with the provision of affordable housing, especially with the rapid rate of urbanisation and population growth. While efforts have been made to reduce the housing deficit, there is still a lot

Main Players: As mentioned previously, building contractors are required to be registered with the National Council of Construction (NCC) if they want to be awarded public construction contracts. Public construction contracts are generally large in

Nevertheless, there are many construction companies in the country as well as professional services - such as contractors and architects - and building equipment and supplies. However, foreign-owned construction companies are generally awarded the Government’s large-scale projects, while local construction companies are generally awarded small to medium-sized construction, maintenance and renovation projects. The Government is the principal client to the majority of the building contractors registered with the National Council of Construction (NCC).

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CONSTRUCTION ANALYSIS

scope and projects involve, for example, transport infrastructure, medical centres and hospitals, schools, administrative buildings and various housing developments.

Foreign-owned construction companies are generally awarded and perform the Government’s large-scale construction projects.

This is due to their ability to submit comprehensive tenders, their technical capacities, the financial instruments that fund start-up works, the acquisition of large-scale machinery and, at times, finance for the project.

Once-off residential construction projects generally see most private clients obtaining services from informal or non-registered contractors. This type of construction project is owner driven and the client purchases the necessary building supplies and materials, with the contractor supplying technical services and labour.

Residential property developers and commercial developers

make use of well-established and reputable contractors. In this regard, the developers would contract a full service that includes both labour and supply of the required materials.

Building Upwards: The industry is expected to grow, driven by investments in residential, commercial and office space, and the implementation of PPPs and large-scale, publicly-funded infrastructure. The growth of disposable income of the budding middle class is boosting the construction of residential buildings across the country. The Link 8000 roadworks, the construction of hydropower plants and the major upgrades at the Kenneth Kaunda International Airport as well as the construction of the new greenfield airport in Ndola and other aviation upgrades lead the Government-commissioned infrastructure development, which in turn, stimulates residential, commercial, and industrial facilities, which further supports the growing demand.

REIZ PLC is a property development and management company listed on the Lusaka Securities Exchange (LuSE) since 1996 with a rich history in Zambia going back as far as the 1920s.

REIZ offers quality accommodation solutions in Retail, Industrial, Commercial and Residential sectors.

Some of the properties in our portfolio include: 1. Central Park (Commercial) – Cairo Road 2. Arcades Shopping Centre (Retail) – Great East Road 3. Counting House Square (Commercial) – Thabo Mbeki Road 4. Abacus Square (Commercial) – Thabo Mbeki Road 5. Eureka Park (Industrial) – Kafue Road 6. Southview Park (Residential) – Kafue Road 7. Prospect Hill (Commercial) – Nyerere Road REIZ provides unique accessible and transparent investment opportunities for the discerning investors in the real estate industry through the Securities Exchange. Since listing, REIZ shareholders have beneted from signicant share price appreciation in addition to consistent receipt of dividends.

Email: info@reiz.co.zm; arcades@reiz.co.zm Telephone: +260 211 227 684-9 +260 211 256729 Mobile: +260 962 938155 Website: www.reiz.co.zm www.arcades.co.zm

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CONSTRUCTION

ARTICLE

Ministry of Housing and Infrastructure Development Financial and Economic Aspects of the New Kenneth Kaunda International Airport.

Government engaged China Jiangxi Corporation for International and Technical Co-operation Zambia Limited to design and construct the new airport infrastructure. The contract came into force on 10th March, 2015 while construction began on 21st April 2015.

Out of the total loan amount of $360million, over $250m (including $108m which is advance payment) has been spent on various project items. Amounts disbursed to each of the major sub-contractors are $99,659 to ZESCO; $13,228 to Zamtel and 267,853 to Nei Investments Ltd.

China Jiangxi was given the responsibility to produce the layout designs for the airport facilities which include the presidential pavilion, new passenger terminal, commercial complex, airport shopping mall, office park, new warehousing facilities and the rehabilitation and conversion of the existing terminal into a new terminal to cater for domestic flights.

With regard to the terms of the loan the maturity period for the loan facility is 240 months or 20 years with a grace period of 84 months or 7 years while the loan is expected to be repaid within a period of 13 years. Further, the applicable interest rate on the loan is 2% per annum while the rate applicable for the management fee is 0.25%. Lastly, the rate applicable for the commitment fee is also 0.25% per annum.

It is important to highlight the key facilities that will come with the new airport so as to contextualise the total contract sum of $360m for the design and construction of the new airport facilities. The funds were provided by the Exim Bank of China through established procedures.

Because of the huge task at hand, the main contractors sought the services of other contractors to assist in the execution of the work. The sub-contractors on the project are the following: Lusaka Water and Sewerage Company Limited; Zulu Development Consultants Limited; ZESCO; Asphalt Roads Zambia Limited; Zamtel; Department of Water Affairs; Gauff Ingenieure; Redland Technologies Limited; Davis & Shirtliff Limited; Electrotec Engineering Limited; China ADB; Hunan Zhongda Designing Institute Company Limited; Hangzhou Jinhui Steel Structure Test Project Company Limited; China Airport Construction Group Corporation of CACC; and Nei investments limited.

As construction progresses in the of the various facilities under the airport, Zambia Airports Corporation Limited will contract the services of third party private entities to manage and operate facilities such as kitchens, hotels and other commercial spaces.

This project is one among many that is contributing and will continue to contribute to employment creation during and after construction. As of end of January 2018, the total number of Zambian employees on the project was 1,185. After construction, similar levels of full time employment will be created to support the operations of the many facilities. As evidenced by experiences in other airports in the region, this important national asset will be a hive of economic activity.

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CONSTRUCTION

ARTICLE

Therefore, in addition to the direct and indirect jobs to be created across the supply chain, the following are the anticipated benefits that will accrue to our economy once construction is completed:

• Increased revenue and commercial viability

of the Zambia Airports Corporation Ltd with

brighter prospects for growth;

• Contribution to human resource capacity

development through learning by

participation of the many of our young

Zambians involved in the construction process;

• Raising the profile of our aviation sector and airport standards;

• Promoting Zambia as a tourist destination

and the growth of local tourism enterprises

through increased international and

domestic tourist arrivals; and contribution to

the viability and prospects of the soon to be

introduced national airline.

This project is of significant importance to the Zambian Economy in many respects because the economic, commercial and social benefits far outweigh the cost of investing in the project. It is one of the projects that is poised to provide impetus towards industrialisation and transformation of Zambia into a transport hub in the region and beyond.

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REAL ESTATE

ANALYSIS

Room for Growth High Demand for Quality Across the Sector

The Zambian real estate industry holds a high level of confidence, which is underpinned by steady economic growth, political stability and an increasing rate of urbanisation. There is an increase in growth across all the sub-sectors: residential, office, retail, industrial and hospitality. To enhance the security of tenure, the Ministry of Lands and Natural Resources is issuing certificates of title throughout Zambia. Substantial infrastructure development - both new and refurbishments - are happening across the cities and towns of Zambia. In addition, more locations for development are being opened with this infrastructure development.

velopments - both private and PPP - have created new affluent suburban areas. Some of these include mixed-development projects that are comprised of hotels, homes and shopping malls as well as other amenities such as schools, police stations, hospitals and recreational areas. The high demand for more modern homes has seen a decline in demand for older houses in prime areas with a subsequent reduction in selling price. Rentals in the upmarket segment have decreased with the abovementioned increase in supply. However, rentals in the middle segment of the market have remained steady with high demand and consistent supply; rentals range between K5,000 to K10,000.

Both local and regional investors have generated substantial growth in real estate investment. Real estate prices have continued to rise, which have been fuelled by the growing middle-class, high demand for residential and retail space, better macro-economic environment and the relative stability of the local currency. There have been numerous notable real estate transactions over the past few years with companies such as Mara Delta, SA Corporate, Quantum Global, African Life, FQML and Primetime growing their property portfolios. While major developments are being undertaken, opportunities across the country abound, which could offer excellent returns if they are well researched and suit the needs of a particular area.

Due to high-interest rates, self-build projects dominate the housing supply in the sub-sector. The housing challenge in the country is most pronounced among low-income groups. At the lower end of the market - due to the rapid rate of urbanisation - Zambia is struggling with a 1.5 million housing deficit, which is expected to rise to 3.3 million units by 2030. Currently, Zambia’s housing stock is at 2.5 million units with a production rate of 73,000 units per annum. To address this end of the market’s housing deficit, 222,000 new housing units need to be built every year. It has been said that of the 73,000 housing units developed each year, only 40% meet the minimum requirements for health and sanitation in compliance with the Zambian Public Health Act.

Residential: Market activity in the residential market varies across the different cities and towns and their respective neighbourhoods. The recent past has seen a high demand for modern, upmarket homes and was met with a number of new de-

The general housing deficit supplies the opportunity for investment and the opportunities to exploit this by developing low, medium and high-cost residential units. Furthermore, the Government - through Statutory Instrument No. 17 of the ZDA Act - has

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REAL ESTATE

prioritized housing unit development in the Economic Zones and has provided incentives for their development.

Another recent development is the construction of a new satellite town outside of Lusaka at Nkwashi. This was previously a ranch and small-scale coffee farm that had access to Lusaka via a dirt road that took two hours’ drive. After a highway was developed to Nkwashi, travelling to Lusaka now takes 30 minutes, which has opened up the area’s potential for development. Developments in the new town include a university, schools, hospital, public parks, lakes, shopping mall, recreational areas, a business park and 9,460 residential stands (of which many stands have already been bought). It is the first of its kind and one of the largest developments in Africa.

Office: Lusaka is the commercial centre of the country and has the highest office demand. Businesses in the financial and communication sectors are the primary drivers of demand. In previous studies on the operating environment and the ease and speed of acquiring office space in Africa, Zambia has always been a top performer due to its more developed property markets, the ease of securing property and its political and economic stability. The copper price and economic growth have an effect on the demand for office space with downturns in the economy reducing the demand for office space. With better economic growth forecast, there is a rise in demand for office space. However, there is an increasing supply of Grade A space, which has pushed rental prices downwards and provided greater choice for tenants. In order to secure tenants, landlords have been forced to offer incentives, shorter leases, reduced floor sizes and lower rentals.

Due to the high competition in the market, aggressive negotiations on better terms seem likely in order to relocate tenants from their existing space into new locations. In order to attract tenants, landlords will have to offer offices with good fit out and space planning, quality finishes, adequate parking and green building solutions as well as close proximity to recreational facilities - such as retail, food and fitness - for the occupants. With occupiers having such a great choice of options, such specifications are very important for office space occupancy and long-term returns. Beyond this, there is a growing demand for incubator office space (50,200 m²) from start-up companies, businesses experiencing growth and tenants relocating from residential properties that they use as offices.

In terms of prime locations, the emerging Great East Road/ Thabo Mbeki Road node in the immediate vicinity of the East Park Mall and Arcades Shopping Centre is one of the busiest office areas. However, office users are increasingly developing negative opinions towards this area due to traffic delays, difficult access and insufficient parking; there is a relatively high rate of vacancies in this area. Further west in the city, the area around the ZEP-RE Business Park and Kabulonga and Longacres malls have become an area of prime office space with most office space full. The area has easy access with a good transport network in the area and retail facilities. Prime office space rents out at around $20/m²/month and the value of its yield are around 10%.

ANALYSIS

Retail: Zambia has one of the highest formal retail penetration rates in Africa. The majority (over 90%) of modern shopping malls are in Lusaka and the Copperbelt’s towns and are comprised of over 300,000 m² of retail space. Development of retail space is continuing to flourish with the focus on developing smaller retail centres in the country’s expanding towns as well as the smaller nodes around Lusaka. Recently opened malls in Zambia’s smaller urban centres have shown a strong demand from both retailers and shoppers alike. The country’s quickly developing property market has proven to be a resilient and low-risk investment destination and the completion for retailers and customers is expected to grow as new entrants enter the market. Within the context described above, Zambia’s commercial real estate has seen an influx of foreign direct investment from South African and sub-Saharan countries in establishing shopping malls as well as a number of multinational tenants with dollar-underpinned leases.

Industrial: The industrial and logistics sub-sector of the property market has consistently performed well and there is a high demand for warehouse space following the growth of the retail and agricultural sectors, among others. There is an increasing demand for sophisticated logistics properties as both local and international businesses expand their operations in the country. This will see a shift from existing industrial areas to newer, modern industrial hubs being developed. However, there is still a high demand for warehousing facilities with lower quality specifications. Matching this high demand for warehouses has been the equal supply of facilities for rent and this is a variety of options - prime, secondary and tertiary warehouses as well as smaller floor spaces (around 400 m²) are available - for discerning occupants. The rental price for prime warehouses ranges between $5-6/m². In addition, there are a number of industrial parks in various stages of development across the country.

Hospitality: The country is one of the top destinations in Africa for hotel developers. Hotel values have experienced strong growth and have yielded a higher than average return on investments when compared to the average property investment. This sub-sector has experienced growth of over 6% per annum over the past few years and this seems set to continue. At over 120 branded bedrooms per million of the population, Zambia is well below the Southern African average of 350 bedrooms/million when the country has the potential of 365/million.

Institutional: A small niche that has seen much development in the real estate sector is that of educational and medical facilities. There has been a number of new institutions built as well as the expansion of existing facilities. This has had a knock on effect with the development of hostels and other types of student accommodation.

Investment: With the increasing development of commercial property, the start of an investment market has begun and it is an attractive opportunity for investors. However, there are factors inhibiting the sector from quicker growth and attracting more investors. These include the time and costs in obtaining approval from the Competition and Consumer Protection Commission and VAT on the sale of commercial property. Beyond this, the market is stable and worth looking into.

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CONSTRUCTION INTERVIEW

Access to International Finance an Advantage for Local Companies

Sydney Popota, CEO, REIZ BRIG: How do you evaluate the outlook of Zambia’s economy?

Sydney Popota: I think last year, the Zambian economy got on a path of recovery from the previous challenges faced. The inflation rate reduced from as high as 22% in 2016 to just 6.1% end of the year 2017 marking a great retraction. The electricity outages have eased and the copper prices have rebounded closing to over $7,000 per ton. The exchange rate has remained stable averaging 9.66 to the USD last year. 2017 showed very positive signs from what Zambia was experiencing three years ago. The beginning of the year saw a good rainfall, positively affecting the agriculture sector and energy generation. The prospects for 2018 are even better. We have started the year well so far – the copper prices are high on the London Metal Exchange, so the overall trends are showing that the economy is posed to continue to improve.

There is a lot of activity in the Construction sector currently.

Many residential properties are transforming into office buildings and smaller shopping complexes are changing into malls. I see this trend continuing in the medium term. There is pressure on the developers because the economy is not yet able to absorb the supply that is being put on the market. It is a market where there is a lot of bargaining power in the hands of the tenants.

Yes, at the moment, the supply has outstripped the demand, however, I do not see the developers relenting on the development drive and that is the way it should be, really. One should not forecast on the immediate circumstances, but should look to the

long-term future and have faith in the economy. The government continues working towards a conducive environment to enable businesses to thrive. So, with that faith in the economy one does not wait for the circumstances to be exceptionally good with high employment levels and great liquidity to start working on real estate developments. It would be too late. As a developer, we want to be well established when the economy starts giving us the long-term rewards on investment. Here at REIZ, we have a structured Strategic Plan 2017-2021, focused on growth and we want to double the size of this company by the end of the current strategic window. The economy will catch up with us.

BRIG: Which subsectors are you focusing on?

Sydney Popota: At REIZ, we are currently exposed to three sectors – we have commercial office properties like the Central Park on Cairo road, Abacus Square and Counting House Square on Thabo Mbeki among others; we are active in the retail space sub-sector with the Arcades shopping centre; and we have gained small exposure in the industrial and logistics real estate sub-sectors. At our company, as indicated in the five-year strategic plan, we want to achieve growth through diversification. Firstly, geographical diversification – we want to stretch our tentacles away from Lusaka to other provinces, especially the Copperbelt and the Northwest Provinces. Secondly, sectorial diversification – we want to venture into residential properties and we want to increase our exposure to the industrial properties sector. There is still room for growth in targeted developments, like building a full-fledged industrial plant for tenants, thereby

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CONSTRUCTION INTERVIEW

achieving the return on investment through owning the infrastructure while the tenant focuses on business operation of the infrastructure. The opportunity lies in creating strategic partnerships with manufacturing companies, schools, universities. I also see growth potential in the hospitality sector, through targeted developments and strategic partnerships where someone with the skill and resources focus on delivering their services, while developers cater for their development/infrastructural needs.

Such collaboration is where the developments will come from. Instead of merely looking for the tenants for the shops and offices, we should look for entities keen on operating other specialised businesses. However, such partnerships should be structured in a mutually beneficial way with guarantees from both sides with long enough tenures and safeguard mechanisms. As developers, we are willing to help them and we want these opportunities, and we need operators who are honest and willing to commit.

Such partnerships between the developer and the operator also directly facilitate access to finance as the development risk is taken out of the equation for both parties.

There are also opportunities in mixed-use developments, such as when residential developments are complimented by a shopping complex, a school or offices, resulting in an all-inclusive kind of development. In certain jurisdictions, there are opportunities for lifestyle developments that promote healthy living in communal living spaces, closer to where people live.

BRIG: How would you rate the quality of subcontractors?

Sydney Popota: The country has qualified personnel in different fields related to the construction sector. As per a local requirement, if you want to bring in an architect from outside the country, they ought to come on a joint venture basis with a local practitioner. For the Arcades shopping mall, we opened our tender to both local and international architects. A local architect won the tender, coming on board with a superior new aesthetic feel and look, an increased gross lettable area and increased foot traffic.

We have faith in the local professionals. There is a very attractive and rich pool from which to choose from when you need civil and structural engineers, quantity surveyors, electrical and mechanical engineers. Certain off takers are not comfortable to work with a local professional team exclusively, so they would bring in an international players who would then form JVs with local firms.

There are no challenges in sourcing subcontractors. My opinion is that the transfer of skills has happened globally.

BRIG: Do you have any comments regarding access to capital for real estate developments?

Sydney Popota: The competition in the Zambian real estate sector is driven by the cost of capital. If one only accesses finance locally, they will most likely be developing at a high cost.

There is a certain level of a minimum cost that one has to endure. Internationally-sourced capital has lower rates of interest, so developers with access to international finance have an advantage.

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Top Ten Percent are Under-geared Diego Casilli, CEO, Napoli Property Ltd.

BRIG: Please tell us about Napoli Property and its future vision?

Diego Casilli: Napoli Property is a property management company with a very specific role from letting/rental to the actual daily management of our tenants. We are involved from the beginning of the supply chain to its end.

This home-grown company was developed to manage our own properties. All the properties are indirectly owned by the shareholders – some active and some not. It is a cutting-edge model abroad, as the company itself does not actually own property but it manages it from start to finish.

We only serve our own properties. The intention in the future would be to look at managing third party properties. However, I do foresee a conflict of interest as we are one of the major players in the market and it would be something we would have to find a solution to. We have a natural growth of adding on several projects every year. The development side is a separate vehicle where we fully develop our own properties.

Essentially, we are quite closed in our approach – we build our own products and our skillset is targeted at growing our own model. Our focus is on an inward growth model for our own portfolio - from the construction to the development and management of property.

BRIG: What are the most prominent challenges and opportunities in the Zambian construction and real estate sector?

Diego Casilli: There are a number of good quality contractors in Zambia and the landscape is rather competitive. The contracting quality is good, so when we subcontract we tend to give work to several parties rather than one - to create more economic activity.

There is a lot of real estate stock in the market, so the rentals are competitive. However, the main area of concern is no longer in the capacity but the viability to build. The cost of construction and the actual rental rates are imperative. If you get that wrong, you’ll find yourself in a very uncomfortable situation.

When it comes to limitations and challenges, I would say that over taxation is problematic.

BRIG: Are you planning more expansion at East Park Mall?

Diego Casilli: We are expanding as we speak - there is more construction taking place - it is a project that we created in 2015 but we only managed to fund it this year. It’s been a longer than anticipated gestation. To put things very simplistically, the finance availability has not been great from 2016 to 2017. There was a general slowdown by the banks and their appetite for construction. Retail, in general, was hit hard by the fact that there was concern in the market. I think the banks also had their separate reasons for concern. There are varying qualities of retail centres

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CONSTRUCTION INTERVIEW

operating today. One must understand that building a centre is not hard, it is the management of the centre that is the difficult part. The gold star should go to the management team. We have done an incredible job and we pride ourselves that we have an operation that is globally competitive. I also prefer a more personalized approach to funding. If not, you are risking penalizing everybody.

Certainly, because of our in-house ownership there is that personal touch, which is hard to quantify in terms of value. However, its value lies in the fact that people within the model are, in a sense, house-proud.

BRIG: What can be done to stimulate cooperation between government and the private sector in the real estate sector?

Diego Casilli: Firstly, there’s a need to re-address tax. With the current turnover tax, we have no ability to plan write-off expenses. There’s no room for anything other than one tax, which is based on turnover. I find the corporate tax very harsh - we are currently the most taxed sector. If you take 10% off the top line revenue of any company - I doubt there’s anybody else in the country paying that bottom line effect. And furthermore, we also must pay VAT on rentals. So essentially, one can look at the ZRA today as a partner of 26% of the revenue generation of any property model in Zambia. It is a huge piece of the pie, so there is no doubt that with the market being squeezed more and more by supply, that it is going to make a lot of properties borderline profitable, if not loss-making, and therefore undermine the value of property. Now, with the surplus supply, we would like to see more companies establishing in Zambia: more head offices, more employed people. Currently though, I do not see a booming economy coming to salvage the property market. The market players, we feel it. With this situation comes a very frugal approach to operational management and all you can play with is operational costs. We estimate that some of the properties in the market, if you had to value them correctly and take their current returns, would yield calculated returns below one percent on the dollar. That’s not a great indicator of a healthy sector.

BRIG: Are there any further retail real estate opportunities in Lusaka?

Diego Casilli: Lusaka is a growing city and, as such, it obviously needs a lot of infrastructure to be built due to the traffic flow. There are many bottlenecks that negatively impact mobility, many single lane roads in high-density traffic areas. We’re exploring the idea of putting in the extra lanes that are desperately needed in many of these roads to improve the flow of traffic.

However, this forces centres to be created in certain areas of the city because it takes too long to get from one point to another.

It comes at a huge cost to the economy as people are slowed down when they should be at work creating value. With more growth planned, especially as Lusaka is the fastest growing and the most affluent city in Zambia, there will be a need for more strategically located centres.

There is also a need to look at the rest of the population. The residential real estate sector has slowed down due to several

factors. Firstly, there are less expatriates in the market and this market has always been based around expatriates - thus we see a reduction in demand. That, coupled with a lot of product that has been built, points out that we have surpassed the demand high point.

Zambia has a growing middle class and this disposable income is coming around. There’s no doubt that the Zambian population, especially the top 10%, is under-geared. I think there’s a huge opportunity for the financial sector to address that and to create more liquidity. Only a sliver, perhaps 1%, of the market is bonded. Unfortunately, the banks haven’t come into the housing market to facilitate the bonds. If they did, it would create bonds with longer tenures, with inferior interest rates, even if one had to crystallise them in a foreign hard currency. The predictability of some of these rentals would then become far easier. The problem we have is that the actual bond market is reserved for very small loans with interest rates that are not always attractive.

If one looks at the kwacha interest rates on a housing model, it becomes quite onerous too. The limitation is that you can’t have a dollarized transaction even if that would mean lower interest rates. Unfortunately, this model has risks and there is no other way. The currency rates in this country have been steady. Some devaluation can occur, however, it could be controlled and predictable. Zambia doesn’t have any forward cover instruments, which is something that, perhaps, should be introduced. The forward cover and the instruments that go with it are an absolute requirement for the financial sector and we need to bring it into the market for predictability reasons.

BRIG: What regulatory measures are being taken to ensure the quality of property development in Zambia?

Diego Casilli: The current controls by the Construction Bureau are sustainable. We don’t have a lot of issues with the quality.

People are constructing high quality buildings because there are strong controls and the consultants that are required to sign off the projects take their role seriously. The average building in this community does not go over three stories so it doesn’t require a huge amount of concern.

BRIG: How can the multi-sectoral approach to building the Zambian economy be translated into tangible steps of action?

Diego Casilli: Real estate is not a productive sector of its own accord but rather a consequence of a lot of other sectors doing well.

If we had to make a business plan for our economy, we’d have to start thinking very carefully about what can be done here competitively. Firstly, in the region and secondly, globally. Unfortunately - being a landlocked country - it’s very hard to bring raw material from the coast all the way inland and send it back to that same port to distribute to the world - it is going to be a tall order.

If you look at it from a regional perspective, Zambia has got a fair amount of manufacturing but more can be done. It’s a difficult sector. It’s very difficult to add value and to stay within the

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competitive cost of other products coming from the coastal market. It is also difficult to compete with markets that are far larger than us, where our economy of scale doesn’t compare. The low hanging fruit, from my perspective, is tourism. However, some changes in the tactical policy need to be made - that allow more entrants to the market and bring down the cost of tourism. Zambia has got a very good tourist product but it’s expensive and our regional neighbours, who are very competitive in tourism and operate in dollars, already have an economy of scale model.

To compete against such markets we have to liberate and deregulate what we can to bring the costs down. We should be promoting tourism as much as possible because it is a simple policy decision and has huge potential for job creation. If you look at

statistics, for example in Rome, there are four million tourists and four million inhabitants at the same point in time. Volume should be the route to take.

Secondly, I’m a firm believer in Zambia’s mineral wealth - that is not necessarily copper or cobalt. There are many small-scale mining opportunities that need to be assisted.

If we want to compete, we have to have something that somebody else wants. There are many things investors are looking for - labour efficiency and cost of energy, to name a few. More competitive energy rates could be a pull to relocate factories to the continent or to the country. We must create some form of competitive advantage.

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ICT

Recognised as the catalyst for economic growth Connectivity increasing and charges decreasing Growing use of ICT-related equipment and infrastructure Opportunities for growth across the sector

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ANALYSIS

CREATING CONNECTIONS, ACCESSING INFORMATION Driving Economic Development

Background and Development Agenda: The Government’s Seventh National Development Plan 2017-2021 (7NDP) sees Information and Communication Technology (ICT) as a facilitator of socio-economic development because of access to information, boosts competitiveness and enables good governance. This is aligned with Zambia’s long-term plan - Vision 2030 - for the sector, which is to become an “information and knowledge-based society by 2030”. This is to be realised through increases in connectivity to fibre optic and similar high-capacity transmission networks, access and use of mobile phones, and access to ICT services such as the internet.

The ICT regulatory body for regulating the ICT sector in Zambia is the Zambia Information and Communications Technology Authority (ZICTA), which is under the jurisdiction of the Ministry of Transport, Works, Supply and Communications. ZICTA’s mandate is derived from the following Acts:

• Postal Services Act No. 22 of 2009;

• Electronic Communications and

Transactions Act No. 21 of 2009; and

• Information and Communication Technology

(ICT) Act No. 15 of 2009.

In 2001, SIM card registration became mandatory and at the end of January 2004, ZICTA disconnected all SIM cards that were unregistered. The Zambian Government is pushing for the mandatory registration of all ICT service providers with the ICT Society of Zambia. This registry would be a showcase of service

providers, their availability for a specific task, their necessary skills and their capability.

Beyond this, the Government is committed to the SMART Zambia Master Plan. This project’s objective is to transform Zambia through ICT development and the successful use of e-government services. The SMART Zambia Institute (SZI), which is in the Office of the President, is the lead agent. The first phase of the SMART Zambia project is complete. This phase was to establish the National Data Centre (ZNDC), which was built to a Tier III standard. This facility can safely store information for both the Government and private institutions. The ZNDC is consists of three data centres in two cities for security and continuity of government services and data, has cloud solution with services such as government and enterprise cloud hosting, and has Huawei energy solutions to ensure safe operation in the ZNBC equipment rooms.

Currently, the second phase of the program is underway. This phase involves building a national broadband network and e-government platforms, which will benefit 17 cities. This entails laying 9,050 km of fibre optic cable across the ten provinces and connecting 10,000 businesses and public-sector organizations and 200,000 urban households to the ZNDC. The second phase also involves the erection of the communication towers in mostly underserved and unserved areas to reach 100% network coverage across the country. The first phase of the communication towers project has seen 204 more towers erected. The second

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ICT

phase is now underway and will see 1009 more towers erected in the next few years; the second phase is around the halfway mark at this stage. The ultimate objective of this is to stimulate “informatisation” - for the general public to access SMART national government applications as well as stimulating e-commerce in the country. The positive effects of already-implemented e-government platforms are evident.

From the 7NDP, Development Outcome 8: Enhanced Information and Communication Technology is applicable to the sector and its development. There are three strategies - with their respective programs - to realise this outcome. The first is to strengthen the legal framework of ICT. The Government will implement the appropriate laws, policies and regulations to support the provision of electronic services. This includes promoting the private sector’s and citizens’ confidence and participation in ICT use. This will be attained through reviewing policies and legal, institutional and regulatory frameworks and their enhancement.

The second strategy is improving ICT infrastructure for service delivery. To do this, there is a need to invest in and upgrade telecommunications networks, data centres and access devices through the SMART Zambia Master Plan. By improving ICT infrastructure, the flow of information within and between government institutions, enterprises and citizens will improve, which will help bring about social and economic benefits. Programs to assist this strategy include common ICT infrastructure development, the establishment of an ICT innovation park and the expansion of broadband infrastructure.

The third strategy is to provide electronic public services. This requires a change in the mode of delivering public services from traditional face-to-face interaction to online channels. This would ensure businesses and citizens can access services remotely and at any time. The Government plans to up-skill public service workers ICT skills and hastens the mainstreaming of ICT education in school curricula. As such the three programs aligned with this strategy are:

1.

Electronic services deployment;

2.

ICT skills in public and private institutions scaling-up; and

3.

ICT in Zambian schools mainstreaming.

Connectivity and Infrastructure Development: The national fibre backbone is operated by the Zambia Telecommunications Company Limited (Zamtel), the Zambia Electricity Supply Corporation Ltd. (ZESCO) and the Copperbelt Energy Corporation (CEC). Zamtel operates the fibre-optic connection to two international submarine cables (the West Africa Cable System/WACS and South Atlantic 3/Sat-3), which it leases access to MTN and Airtel. MTN is also connected to the Eastern Africa Submarine Cable System (EASCS). A study from the UN’s International Telecommunication Union said that the gateway to international internet in the country is fully liberalized and competitive. Three mobile phone operators service around 13 million phone subscribers; namely MTN Zambia, Airtel Zambia and Zamtel with the number of subscribers being around 6 million, 5 million and 2 million respectively. The Government approved the introduction of a converged licensing framework, which opened up the telecommunications market beyond the current three mobile operators. The country’s fourth operator, Uzi Zambia Limited, has now been awarded its licence.

ANALYSIS

In the first quarter of 2018, there were 16 internet-service providers (ISPs) who supply both wireless and Fibre to the Premises (FttP); the services and speed of the different ISPs differ, and one should research which ISP offers the best service. Zambia upgrades its infrastructure every three to five years, while service providers continuously roll out new products to increase speed and lower data costs as competition in the sub-sector is strong. Major urban areas are well connected while the sparsely populated rural areas generally have poor connectivity; this will change over the following few years as more communication towers are erected. There have been large investments in building data infrastructure across the country by both the public and private sectors. The penetration rate of fixed-line telephony is low and upgrades from copper cables to fibre optics is underway. Zamtel owns the majority of this infrastructure and their network of suppliers has grown as has the requests for public-private partnerships, which help with capacity expansion.

The necessary skills and equipment are always needed in the assistance of such expansion.

There are over 13 million mobile telephone subscribers with a penetration rate of over 80%; subscribers have increased by over a million in the past decade - an increase of 5.75%. With the increase in subscribers has come an increase in mobile cellular coverage, upgraded mobile networks and the continued rollout of broadband internet services, which has resulted in the steady rise of access to the Internet and its use.

Challenges in the Sector: There are three core challenges in Zambia’s ICT sector. Firstly, weak supportive legal and institutional frameworks for developing and using ICT. Secondly, poor connectivity because of insufficient and fragmented ICT infrastructure. Thirdly, human resources are insufficiently trained in the ICT field, especially in the public sector. Rectifying these problems is the focus of the three above-mentioned strategies for the development of ICT in the country. Beyond these core challenges, there are other challenges that face the sector. Internet services - especially reliable fibre-optic connectivity - are relatively more expensive than in comparable countries. This is because the country is landlocked, a large capital outlay was needed to connect to the submarine cables by running fibre-optic cables through neighbouring countries to reach Zambia. The same applies to providing data services to unserved communities across the sparsely-populated rural areas of the country.

The growth of the ICT sector in the country could be limited by the high cost of data services. However, prices are decreasing due to strong competition in the sector.

Most ICT equipment and software is imported into Zambia and increases in foreign exchange rates can increase the cost of acquiring equipment. Infrastructure vandalism occurs, which results in services being disrupted during repairs and high maintenance costs; these are ultimately passed on to the consumer. Power shortages - with subsequent power cuts - do occur, which require backup power supplies for continuous service and protection of computer equipment. Moreover, there are insufficient public funds to offer appropriate ICT education at primary schools, especially in rural areas. Like the rest of the world, Zambia is not exempt from hacking and cyber-related crime.

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ANALYSIS

Growth: Regardless of these challenges, the ICT sector continues to grow across its different sub-sectors. It is well understood that ICT infrastructure needs to be of international standards for the success of the sector and its synergies with other sectors.

With the Government using ICT as a driver of economic development and with their plans of digitization and use of e-platforms for access to public services and promoting the use such technologies to SMEs and integration of them into their operations (this market segment represents the majority of the economically-active population), businesses in the sector are benefiting greatly.

Since the industry is relatively young, it provides good prospects for growth. Many businesses in the country are still not yet computerized, but this is changing. As such, the increase in demand for ICT equipment is a good business opportunity. Mergers and partnerships are quite common in the sector as existing and new companies increase their operations and services. Moreover, with Zambia’s geopolitical location and stable political environment, many multinational companies use the country as their base before expanding into the less-stable neighbouring countries.

Growth and Investment Potential within the Sector: Most business activities are concentrated in urban areas and have the best ICT infrastructure. Although the industry is small, ICT-related businesses (both local and multinational companies) offer the full spectrum of services and products in the country; these services are offered countrywide. The country is seeing the development of diverse ICT infrastructure as an increasing number of service providers are enhancing connectivity and lowering costs to gain a larger share of the market. Regarding the import of equipment, the Government has been pre-emptive in motivating growth in the sector by decreasing import duties to reduce costs.

There is an increasing demand for ICT equipment as the country embraces the information age.

With Zambians’ levels of education increasing, as well as the rate

of computerization within the private and public sectors, there is high growth potential for the provision of training in proficient IT skills. While public and private institutions fill this need and conduct the necessary education, they continue expanding - as well as new entrants - with the adoption of ICT increasing. With greater ICT adoption and the enhanced ability of the population, access to online learning platforms are beginning to take off.

Cloud computing has taken off and it has been recognised as one of the service segments of the sector with a fast growth rate. This type of data management is often easier and more cost-effective for SMEs as the cloud’s services are considerably cheaper than investing in major servers and software on their premises; although demand for servers and software in Zambia is there. With centralised databases being developed, data storage will migrate to these data centres. In addition, cloud computing services will help improve the public and private sectors’ ICT security.

With the growing use of ICT equipment, there is a growing market for backup power supplies (during times of power shortages) and cyber-security systems. There is a great need for better e-security and education about e-security as unsecured e-mail servers are often used, which could threaten the protection of classified information.

Business Process Outsourcing (BPO) services - for example, call centres and customer service in general - has started to take off and will continue to see positive growth. To Zambia’s advantage, Zambians’ accents are fairly neutral, it requires little training and can serve people around the globe. This is still fairly new in Zambia and allows customers, in conjunction with mobile payment solutions, to do a range of activities over the phone. Mobile payment solutions are also on the rise (mobile money, e-banking, e-vouchers). Overall, the sector is growing in all directions and, offers an exciting and profitable investment opportunity.

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27/09/2018 16:53

ICT

VIEWPOINT

Electronic and Social Media Platforms Hon. Brian Mushimba - Minister of Transport and Communication

Zambia is part of the global community where the use of information and communication technologies (ICTs) is growing and impacting on the commercial and social fabric of communities.

The availability and penetration of e-platforms for business and social interactions has to a great extent, changed and continues to do so, our social attitudes, community values between individuals and also changing our workplaces and workplace interactions. Social and electronic media platforms also continue to provide opportunities for all our citizens, increasing access to services and providing for instant collaboration with various stakeholders. However, the social media platforms, like all media platforms, have both positive and negative aspects that can be attributed to individuals and organisations.

The Patriotic Front (PF) Government under the leadership of His Excellency, Mr Edgar Chagwa Lungu is fully cognisant that Zambians have the constitutional freedom to hold, receive, or disseminate their views be it in support or contrary through social and electronic media platforms of their choice on any subject of public interest including the country’s governance and politics in a responsible manner. Some of these platforms include websites and mobile applications that allow our people to share content quickly, efficiently and in real time.

To buttress the point on how impactful ICTs have become, allow me to share some statistics in the sector. As at the end of

2017, the total number of mobile telephone subscribers stood at almost 14 million, representing a penetration rate of 82%. This represented a 12% growth from the previous year. The sector has also been recording a significant increase in the usage of mobile internet with 8 million active internet users in the first quarter of 2018 representing a 47% internet penetration and a 16% growth from the year for the same period. The mobile internet usage has been boosted with the increased investment in the telecoms infrastructure by both the Government and private sector. In addition, a national ICT household survey conducted by the Zambia Information and Communications Technology Authority (ZICTA) in 2015 found that about 65% of households in the country have access to mobile phones determined by at least one member of the household owning a mobile phone. Further, about 51% of the people aged ten and above in Zambia are active users of mobile phones. It was further found that about 14% of these individuals have smart phones and that about 71% of the smart phone use owners use the devices to access OverThe-Top (OTT) applications such as WhatsApp, Facebook, Facebook Messenger, Viber, Skype and Twitter.

That number of Zambians with smart phones is accounting for the over 2 million people in our country who are active on social media platforms today. As the ministry responsible for communications, we wish to see this number grow as it encourages connectedness, social and commercial interactions and allows inno-

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vative individuals and businesses to thrive with increased access to their customer base at affordable rates. This is the desire of the Government. The investment into the sector I have spoken about both from the Government and from the private sector is a resounding testament that the intention of the Government is to encourage the uptake of thee-platforms to aggressively support the digital transformation that brings more efficiency in serving citizens, that allows innovation to take foothold and cultivate new interest and generate solutions to our challenges to the digital platforms. We want as many Zambians as possible to embrace the digital transformation to get onto social media and e-platforms, and for them to use these platforms productively.

Sadly, we have taken note that some consumers within the Zambian ICT ecosystem are showing a lack of social media and digital etiquette and are using the advancements in information technology to harm others. I want to emphasise that this is a very small group of people and as Government, we do not want this group or we will not allow this group to grow. Many people are utilising e-platforms and social media networks productively such as to catch up with friends, endorse or market their businesses or access valid news faster. However, this small group is notoriously using the platforms to steal identities, spread false news or fake news, cyber buying, transmit pornographic images, perpetrate hate speech and plainly abuse other consumers online. Avid users of ICTs who include our children and young adults have become primarily vulnerable to such vices. As citizens, as leaders, this, we must not stand by and watch, or allow it to continue and pollute our young ones. We have a duty to defend the defenceless.

Furthermore, we have observed that increasingly, social media in Zambia has become a catalyst for the detachment of members of the Zambian society from our cultural norms. Prior to the proliferation of social media, people in Zambia behaved and communicated within acceptable and expected cultural boundaries. Zambian children were respectful and everyone played a role in promoting social rules and social cohesion. Unfortunately, the emerging Zambian digital culture is foreign and places the nation’s cultural, social and economic well-being at risk.

I have spoken about the incidents of impersonations from a small group of people. They are insulting everyone on social media and other platforms. They are also falsely accusing and or defrauding people on social media platforms. This has reached a level of concern by the Government. Most users of the internet in Zambia can testify to the offensive or inciting nature of some messages or some digital content found in our digital eco-system. Many of you Hon. Members and Ministers just like other law abiding citizens are present victims of criminal elements on the e-platforms and social media. Many of you have fake online footprints created by these individuals with intention to dupe people and steal their hard-earned money purporting to be you.

Many of you are subjects of false reports and news items online bent on nothing but to tarnish your good names and spoil your good images.

nomically damaging, if not adequately addressed. As the internet use expands and develops, many dangers are developing right along with it. These dangers that I have spoken about such as cyber bullying, unsolicited contact, insults, aggressive behaviour, pointed abuse and pornography among others cannot and should not be allowed to become the norm. As earlier alluded to, these dangers place a tremendous risk on the moral and economic fibre of the Zambian society and it must be fought.

The Zambia Information and Communications Technology Authority (ZICTA) in collaboration with the Zambia Police Service has, in the recent past, recorded an upswing in the number of cases known as affinity fraud cases. These are cases in which unsuspecting members of the public are duped into believing that they are communicating with someone in a position of authority or a politician on Facebook, such as a minister and they are being offered assistance in getting employment, loans, contracts or scholarships. To date, a total of thirty four cases have been flagged with over 627 victims. Over K600,000 has been stolen from victims with the majority of the money being sent outside the country through commercial banks.

It is clear that a lot of unsuspecting members of the public are falling prey to these scammers using social media platforms such as Facebook. The scammers are stealing small amounts of money from a large number of people and when added up, these amounts are becoming significant. The scammers are taking advantage of the gullibility of many members of the public who are experiencing the internet and social media and electronic platforms (ePlatforms) for the first time.

The Government is highly, and rightfully so, concerned with these illegal and harmful activities in cyber-space and will endeavour to put in place measures and interventions that cut across the breadth and depth of the sector to address behavioural and technical matters that are negatively impacting the Zambian digital culture and digital transformation.

Among the interventions by the Government, to foster national economic growth by promoting a safe and secure ICT sector in Zambia are:

• Development and Implementation of the

Child Online Protection (COP) Strategy. The

COP Strategy is being developed by the

Ministry of Transport and Communications.

The COP Strategy will provide for an

appropriate social, technical, legal and

capacity building framework to address

online risks against children and young

adults. The Strategy will build collaborative

synergies among key national, regional and

international stakeholders to create an

enabling environment for child welfare and

development in the digital age;

The desire of Government is to see that the use of social media and other electronic platforms remain consistent with our national values. The levels of cybercrime and the improper use of social media are growing and may soon reach epidemic levels, the consequences which could be socially, culturally and eco-

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•

Development of Appropriate Legislation. My ministry is proposing to enact three pieces of legislation which include the Cyber Security and Cyber Crime Act, the Data Protection Act and the Electronic Transactions and Electronic Commerce Bill that will promote responsible use of digital platforms and safe guard users of these platforms that include social media from unscrupulous users that mean to harm them; and

• Capacity Building for Law Enforcement

Agencies. We are of the view that an

important mitigation measure of cyber

security and abuse is through the

enhancement of technical capacity building

in our law enforcement agencies and the

judicial systems. This Government is ad dressing that.

VIEWPOINT

I wish to reiterate that the same way we have laws in the physical space, where we have existed since time immemorial, laws that define, guide and create boundaries of acceptability in terms of our interactions as human beings with clear consequences if one goes beyond acceptable limits, this must also apply to the new cyber world we have now entered. It is the Government’s intention that the measures being taken, including the proposed enactment of the ICT Bills will ensure the safeguarding of Zambia’s cyber space for everyone and promote the responsible use of electronic platforms for improved economic performance for our country. The enforcement of these Bills will lower online risks.

Those that have been engaging in these unsavoury behaviours online must get worried and scared because the Government will not sit back and watch them ravage and with impunity, take advantage of our people, especially our unsuspecting children.

I urge parliamentarians and the nation at large, to support these interventions by the Government because they are well meaning.

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ARTICLE

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Africa’s cloud pioneers: One of the first areas of focus for Liquid Telecom’s new Go Cloud Programme is data science. Liquid Telecom has recently partnered with insight2impact (i2i) to pro-

vide free high-speed internet access and cloud-based services at its DataHack for Financial Inclusion (DataHack4FI) competition. The competition brings together some of the brightest and most innovative minds from across the continent to harness the power of data science to develop new evidence-based solutions to improve financial inclusion. Now in its second year, the competition has already produced some compelling solutions to African problems and has resulted in three start-ups successfully attracting seed funding from investors. The overall winner of the 2016 competition was Kenya-based Mobiticket, which aims to digitise the informal transport system in Kenya by enabling vehicle operators to receive cashless payments. Other examples of innovation included an app that provides financial management and accounting for small and medium-sized businesses in Uganda, and a Facebook-bot that links Zambian students with student-friendly insurance products. With support from Liquid Telecom, the 2018 i2i DataHack4FI innovation competition aims to attract a greater level of investment in start-ups, while collaborating further with Africa’s financial service providers and the Fintech community.

Access to critical IT infrastructure: Data science requires analysing and processing large volumes of data making it a natural fit for the power and scale of cloud. At the 2018 i2idatahack competitions in Uganda, Kenya, Tanzania, Zambia and Rwanda, free credits for Microsoft Azure will be made available by Liquid Telecom to participating teams, enabling them to access critical development tools that can be used for data science driven applications and hosting. Liquid Telecom experts will also be on-hand to advise entrants on how to make best use of Liquid Telecom products and services to develop and host their products. “One of the major challenges facing any start-up in Africa today is access to the critical IT infrastructure needed to support, grow and nurture their ideas,” says Nkosi Ncube, Head of i2i’s Application Lab. “With Liquid Telecom’s high-speed connectivity and cloud-based services, entrants in the 2018 i2i DataHack4FI innovation competition will more easily be able to take advantage of the opportunities presented by new data, and develop solutions that bridge the gap with the informal economies across Africa.”

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INTERVIEW

Leveraging a Converged Licensing Regime Samson Longwe, Managing Director, Hai Telecom BRIG: How do you evaluate the outlook of Zambia’s economy and how well has HAI performed over the last year?

Samson Longwe: Hai is currently going through an expansion in the retail segment. We are still fairly new in the retail sector but we don’t consider ourselves infants either. We entered the retail market three years ago, initially through the “fibre to the home” service in selected areas in Lusaka. Now, we have introduced our service across the country using wireless technology. The trending wireless technology right now is LTE and that’s what we are offering. In 2017, we opened ten operations in all the provincial capitals. In 2018, we opened yet another 19 branches extending our network reach to about 30 districts, effectively contributing to increasing the country’s internet access by taking service to underserved or unserved areas. Depending on the success following the initial roll out, we should be able to service the remaining districts in the country. The company is growing, and the staff numbers are increasing. We have recently recruited new employees bringing the total number of staff to 140. Our expansion has a positive trajectory and the subscriber numbers are also growing. Our vision is to grow from the current 20,000 LTE subscribers to 40,000 over the next 12 months. HAI Telecom continues to offer reliable service to about 50% of Zambia’s large corporate entities. We have consolidated the company’s market share and are continuing to penetrate various sectors where we have been showing a rather weak penetration – agriculture and tourism. Most of those sectors tend to be in areas away from the cosmopolitan locations where most of the fibre infrastructure is located. Nonetheless, we have deployed reliable VSat technology to provide access to customers away from the major economic corridors. We see an overwhelming uptake of

services in the farming and tourism communities of Mkushi and Livingstone because of the emerging requirement to digitise operations in the agriculture and hospitality industries. When people come to Africa, their expectations of a service are, at best, mediocre. However, tourists from developed countries are often amazed by our service as the speed we offer is on par with that of the developed world. The LTE retail services are based on shared platforms with CEC Liquid Telecom, a related company, so we are able to offer huge bandwidth capacity.

BRIG: How easy was it to fulfil your Human Resources needs?

Samson Longwe: As an IT company, we are using social media to advertise the available vacancies. Because of its reach as a platform, we receive an overwhelming number of applications.

Because most of HAI Telecom’s recent growth has happened in the retail sector, we need volumes to be viable as a business.

We had to be cautious and decide between hiring already qualified staff or choose to engage lowly qualified employees and invest in training and equip them with the desired level of skills.

The labour market is quite saturated here in Zambia. Our observation with retail is that if one employs university graduates, the retention rates are low, as these employees will demand more perks. However, if the company hires high-school and college graduates and commits to training them, the retention rates have tended to be much higher.

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BRIG: How do you evaluate the outlook for the Zambian economy and how well has it performed over the last year?

BRIG: How can the multi-sectoral approach to building the economy be translated into tangible steps of action?

Samson Longwe: In recent years, Zambia’s GDP has been growing at an average rate of 3.5% to 4% per annum. However, being a developing nation, there are many opportunities for growth and therefore we foresee a lot more growth for our sector and particularly our company. Consequently, as a company at expansion stage, we have set for ourselves an ambitious target to grow by about 40%.

Samson Longwe: The Zambian government has placed a focus on diversification, away from the mono-economy, and the two major alternatives named have been agriculture and tourism. The government has implemented the farmer input support programme where they are committed to providing seed and a certain amount of fertilizer to farmers. One challenge, in my opinion, is that it appears that the programme does not sufficiently build sustainable capacity for small-scale farmers. Further, how the product gets to the market and its pricing mechanisms tend to perpetuate the circle of dependence by most small-scale farmers. Nonetheless, government is promoting diversification into other forms of agriculture, such as aquaculture. There seems to be some structured effort from the government to proactively promote the program. In terms of tourism, plans to commercialise the sector have been put in place. Programs to open new tourism circuits and, modernisation of airports and development of aerodromes point to the fact.

We believe this ambition is feasible, basically because we are living in the ICT era. In addition to the increased uptake of ICTs by the private sector, there are programs spearheaded by the government focusing on increased digitization. Many government entities provide e-services, for example, e-company registration, digitisation of tax collection, among other areas. Further government initiatives, some already implemented and yet other still at policy level, have shown an earnest desire to build smarter cities. The financial sector has pioneered the digitization program with the introduction of online banking services while other private sector firms have used the same mainly for their ERP programmes. Such opportunities stimulate the demand for ICT services and, as a company, Hai Telecom is able to leverage these opportunities to offer service to the users.

BRIG: How would you describe the competitive landscape in the ICT industry?

BRIG: Is the growing middle class a reality in Zambia?

Samson Longwe: Our subsector is extremely competitive.

Zambia has about 20 registered Internet service providers. And in addition, mobile network operators are also competing in the same space. In order to further stimulate growth of the sector, last year ZICTA, the sector regulator, introduced a new licencing framework with a view to removing some restrictions so that licences are no longer associated with technologies. We now have a converged licensing regime, which is similar to a unified license regime where any service provider, provided that they have a proven capacity, is able to offer their service across the market. With that, the level of competition is envisaged to grow.

For example, a traditional ISP can offer voice services now, previously reserved for mobile service operators - Zamtel, Airtel and MTN - and we are looking into ways of leveraging this opportunity.

Samson Longwe: Not too long ago, we were a polarized society with extremely poor masses and extremely rich elite. Nowadays, Zambia has a growing middle-class community with more disposable income, which is great for the economy. One way I see the middle class participate more actively in the economy is through the stock market. Individually, they would not have adequate resources for a sizeable investment, but pooled together, their resources could have a significant implication. Many have undertaken to participate in the construction of residences motivated by the desire to own property on one hand and shortage of housing units on the other and this has been giving rise to the construction sector.

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Vision 2030 driving 7NDP PPP – service and training opportunities Malaria to be eradicated Health system decentralizing Pharmaceutical manufacturing opportunities

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ANALYSIS

Equitable Access to Quality Health Care Increasing Productivity through Health Goals

Background to the Sector’s Development: Zambia’s longterm development plan - Vision 2030 - and the Seventh National Development Plan 2017 - 2021 (7NDP), which is the country’s medium-term development plan, guide development and public expenditure. With regards to health, Vision 2030’s objective is to have equitable access to quality health care by all by 2030.

The fifth part of the 7NDP details the strategic areas of the Plan and these relate to the health sector. The second (poverty and vulnerability reduction) and third (reducing developmental inequalities) strategic areas partly relate to the health sector.

In terms of reducing poverty and vulnerability, inadequate infrastructure such as hospitals and limited access to health services have been identified as binding constraints to this strategic area. As such, the second strategy under this strategic area is to improve coverage of and access to social assistance programs such as health services as well as the introduction of a national health insurance scheme. Regarding the reduction of developmental inequalities, this strategic area focuses on expanding the availability of social services - such as access to health services - in rural areas.

While these two strategic areas partly refer to the health sector, the fourth strategic area refers directly to the development of the sector. The fourth strategic area is enhancing human development, which relates directly to the health sector with the first development outcome being improved health and health-related services. Vision 2030 and the 7NDP recognise that healthy cit-

izens are critical for achieving the nation’s long-term vision. As such, health is a top priority in the 7NDP and is regarded as a key economic investment area for Zambia’s socio-economic development agenda. To achieve this strategy and enhance the citizens’ wellbeing, emphasis is being placed on strengthening health systems and services using the primary health care approach. The health service model is being re-engineered to emphasise, in this particular order: health promotion, disease prevention and, curative and rehabilitative services in close-toclient settings. Therefore, the emphasis of health services will be on community-based preventative health services rather than curative services.

During the 7NDP’s period, efforts will be made on reducing the prevalence and impact of communicable diseases such as HIV/ AIDS, tuberculosis and malaria as well as addressing the emergence of non-communicable diseases such as cancer, diabetes, hypertension, cardiovascular and mental illness. To achieve this, the focus of investments will be on strengthening health promotion programs and ensuring the availability of all critical health system inputs, such as adequate medical personnel, equipment, infrastructure and medical supplies. In conjunction with strengthening health services, there will be strong inter-sectoral actions to address the determinants of health, such as water and sanitation, nutrition, education, household income, housing and road infrastructure. There are five strategies for the improvement of health and health-related services. These are:

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•

•

•

•

•

Strengthen public health programs; Expand capacity to increase access to quality health care; Enhance food security and nutrition; Promote private sector participation in health care delivery; and Accelerate human resource outputs, recruitment and retention.

As mentioned above, the first strategy is the strengthening of public health programs. Programs to achieve this strategy include:

• Health education promotion

• School health promotion;

• Maternal child health care and family planning promotion;

• Infectious diseases immunisation;

• Epidemic preparedness and control enhancement;

• Nutrition promotion;

• Physical exercise promotion;

• Legal and regulatory framework review and enhancement; and

• Public health research promotion.

The second strategy, expanding capacity to increase access to quality health care, has the following programs:

• Infrastructure, equipment and transport improvement;

• Medical commodities supply improvement;

• Health care financing improvement; and

• Health service delivery enhancement.

The third strategy is to enhance food security and nutrition. The programs to achieve this strategy are:

• Supplementary and school feeding enhancement;

• Micro-nutrients fortification and

supplementation;

• Nutritious foods and household food security promotion;

• Food and nutrition legislation reforms;

• Research and development promotion;

• Food and nutrition research promotion;

• Health and nutrition advocacy; and

• Nutrition information system development.

The fourth strategy is to promote private sector participation in health care delivery. This will be implemented in the medium to long-term to augment existing efforts in the delivery of health services but with greater emphasis placed on the provision of medical training and highly specialised medical services, which will help reduce the costs of sending patients abroad for treatment.

Programs under this strategy are:

• PPP service provision promotion; and

• PPP medical training promotion.

The last strategy under this development initiative is to accelerate human resource outputs, recruitment and retention. Programs to realise this strategy are:

• Health workforce capacity development;

• Health workforce recruitment and retention enhancement;

ANALYSIS

• Health workforce deployment improvement; and

• Health workforce competence and quality assurance enhancement.

Health Sector’s Strategic Programmed Approach: Health has been prioritized by the Government as a key economic sector for investment in order to attain the status of being a prosperous middle-income country by 2030. The National Health Strategic Plan 2017-2021 (NHSP) is rooted in the National Transformation Agenda, where the importance of the Health sector in improving national productivity, is recognised. Rising productivity enhances economic growth and so Universal Health Coverage is the ultimate goal of the HHSP. The focus for the NHSP is on attaining Universal Health Coverage using primary health care and key to this is the strengthening of the health system across care, promotive, preventive, curative, rehabilitative and palliative health services. The mainstays of investment in a functional health care system are service delivery, human resources, health management information, research, medical products, vaccines, supplies, health infrastructure, equipment, transport, financing, leadership, and governance. The NHSP model includes underlying socio-economic factors that impact health behaviours. The socio-economic determinants model understands that poor social and economic factors impact an individual’s health continually during their lifetime. The NHSP is available at: http://www.moh.gov.zm/docs/ZambiaNHSP.pdf UHC and SDG 2030 Goals: In their 2018 Fact Sheet, the WHO African Health Observatory has assessed Zambia’s progress towards meeting these goals: Maternal mortality: Reduce the global maternal mortality ratio to less than 70 per 100,000 live births. Here it is possible to meet the goal, but it is unlikely because the trend during the period is toward a good decline, but the pace is not enough to meet the SDG target of 70, to do so would need an annual reduction 7.8%. The predicted 2030 ratio is 125.6 from a base of 224. In support of reducing maternal mortality, the goal of At current rates, births attended by skilled health personnel (%) has shown a steady increase, the goal of 90% will only be met at an annual increase of 2.5%. It is expected to reach 75.8%.

Newborn and Child mortality: End preventable deaths of newborns and children under 5 years of age to below 25 per 1000 live births and to reduce neonatal mortality to as low as 12 per live births. While Zambia may miss the targets, she is on track to significant reductions namely from 66.1 to 27.2 under 5’s mortality and from 23.4 to 15 neonatal deaths. In support of these goals, 100% of Infants receiving three doses of hepatitis B vaccines will be met at an annual increase of 0.7%.

Communicable diseases: End the epidemics of AIDS, tuberculosis, malaria and neglected tropical diseases and combat hepatitis, water-borne diseases and other communicable diseases.

• The ART coverage goal is 90% and Zambia

is expected to reach 100% by 2030.

• The Malaria Incidence rate per 1 000

population at risk is unlikely to reach the tar

get of 19 off a base of 191 at current rates,

but aggressive measures being put in place

by MOH should beat the 15.4% annual

reduction needed, in fact, the country has a

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ANALYSIS

E-Health Strategy: The Ministry of Health released its E-Health Strategy in July 2017 and subsequently launched the electronic health (e-health) paperless services in September 2018. These electronic services will enable the hospital to attend to patients quickly from registration, through consultation and treatment to Non-communicable diseases and mental health: Reduce by the pharmacy. Patients are given a smart card at registration one-third premature mortality from non-communicable diseases removing the need for files to be transferred between departthrough prevention and treatment and promote mental health ments. Health staff access the patient’s details directly from the system using their security login protocols so that patient data and well-being. remains confidential as opposed to manual files that were not

• The probability of dying from CVD, cancer, always secure.

diabetes or CRD between ages 30 and 70

comes off a base of 17.2% and will reach As testament to the importance of Health in the Smart Zambia

16.24% by 2030 unless there is an eGovernment initiative, this was the first such roll-out. It is a

achievable annual reduction of 2.7% to phased approach with the pilot having been implemented in 24

reach the goal of 11.47%

• Suicide mortality rate per 100 000 population clinics in Livingstone, the new Chipata District Hospital and the

is on track to reach 3.06, well below the 5.76 Arthur Davison Children Hospital in Ndola. Surveys have also been completed in 44 clinics of Chipata City which will lead to target. their connection to the paperless SMART Zambia link. On comRoad traffic injuries: Halve the number of deaths and injuries pletion of all these pilots, lessons learnt will be implemented in from road traffic accidents. At the current annual rate of reduc- the roll-out to all provincial and district hospitals. tion of 4.7%, Zambia is expected to meet the target of 12.35 from the base of 24.70.

Health Indicators: Zambia still has a high disease burden deSexual and reproductive health: Ensure universal access to spite the positive improvements in health indicators recently. sexual and reproductive health-care services, including for fam- The Institute for Health Metrics and Evaluation (IHME) lists HIV/ ily planning, information and education, and the integration of AIDS, neonatal disorders, lower respiratory infections, TB and diarrheal diseases as the leading causes of death. On the othreproductive health into national strategies and programmes. er hand, the main causes of disability are HIV/AIDS, headache

• The measure here is the adolescent birth disorders, lower back pain, depressive disorders and dietary iron

rate per 1000 women aged 15–19 years is deficiency. When one looks at the risk factors for both death and

based at 141.0 and is only likely to reach disability, these are malnutrition, unsafe sex, water and sanita

116.2 by 2030. tion, air pollution and alcohol use.

• The Proportion of married or in-union

women of reproductive age who have their

need for family planning satisfied with

modern methods needs to increase annually According to the World Bank Group statistics in 2018, commu

at a rate of 3.5% in order to achieve the goal nicable diseases still accounted for 60.6% of deaths, compared to 29.2% attributed to non-communicable diseases (NCDs) and of 100%.

10.2% to injuries. Occurrences of communicable diseases are Universal health coverage: The UHC Service coverage index in decline due to the prioritisation of measures against TB, mais currently at 56% and the goal of 100% is achievable particu- laria and HIV/AIDS. Despite improved access to basic health larly with the planned implementation of the National Health In- care in rural areas and the introduction of better monitoring mechanisms, the burden of NCDs in Zambia remains high. A surance Scheme. commensurate focus on non-communicable diseases such as National and global health risks: Strengthen capacity for early chronic respiratory diseases, sickle cell anaemia, cancer, CVDs warning, risk reduction and management of national and global is needed. health risks. For Compliance with international health regulations, Zambia’s index is at 92 and the target of 100 is projected According to the Central Statistical Office, the projected life expectancy at birth in 2018 was 54.6 years, with males and feby 2030. males expecting to live to 52.2 years and 56.9 years respectiveMortality from environmental pollution: Substantially reduce ly. As shown in Table 1, the life expectancy has risen over the the number of deaths and illnesses from hazardous chemicals past five years, and the rural population has a slightly higher life expectancy. and air, water and soil pollution and contamination.

• Mortality rate attributed to household and

ambient air pollution per 100,000

population). With a base of 64.1, at current

rates, the goal can be met.

•

separate goal of eliminating malaria by 2021.

TB Incidence rate per 100,000 population is on a base of 391 and to get to the target of 75 would need an annual reduction of 11%.

Mortality rate attributed to exposure to unsafe WASH services per 100.000 population. From the base of 24.5 by 2016 it had risen to 34.9 and is currently on track to reach 18.3 which would not be a significant reduction. The impact of current water and sewage projects could we be substantial.

Mortality rate from unintentional poisoning per 100,000 population is low, based at 3.1 and already reduced to 2.9 making the achievement of the target achievable.

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Health Providers: The public sector provides care to 90% of patients, with the three other players, namely faith-based (notfor-profit) providers, the mines, and private (for-profit) providers caring for the balance. The Government is responsible for overall coordination and management, policy formulation, strategic planning and resource mobilisation. Historical under-investment in public health care services and a rapidly rising population spread over a vast geographic area have affected service provision and quality in Zambia, with many rural areas being severely underserved. The sector faces a range of challenges, although investment programs from both the public and private sectors are addressing many of them.

Financing: The WHO Global Health Expenditure Database was updated at the end of 2018 and includes statistics to 2016.

Zambia’s Current Health Expenditure as a % of GDP has remained constant since 2010 at around 4%. Domestic General Government Health Expenditure as a % of General Government Expenditure had risen during this period from 5 to 7%, however subsequently in 2019, health received a share of 9.3% of the National Budget, marginally down from 9.5% in 2018.

While spending is a function of GDP fluctuations, Current Health Expenditure per capita in Purchasing Power Parity (NCU per Int$) has increased since 2010 from $119 to $175. The focus on Primary health care is evident as it accounted for 80% of Current Health Expenditure in 2016.

Infrastructure Development: Positive strides have been made in infrastructure upgrades and construction. As of December 2016, 275 out of 650 health posts were built and are now operational. Construction on the remaining posts was expected to start by the end of 2018 and be completed within 18 months.

Furthermore, Matero and Chilenje Health Facilities have been upgraded. The University Teaching Hospital (UTH) and provincial hospitals have undergone modernisation with the installation of CT scans and mammography equipment. Intensive care units (ICUs) in some selected general hospitals had also been installed. The construction of the National Health Training Institute - with a 3,000-student capacity is 95% complete with enrolment expected in the first quarter of 2019. The construction of a 240 in-patient bed capacity, at the Cancer Disease Hospital (CDH), was completed and is operational. The Endoscopy Centre at the Levy Mwanawasa Teaching Hospital has been launched with support from the Government of China previously these services have been restricted to those that can afford to pay for them in private hospitals. Apart from the centralized Chainama Hills Mental Hospital, Government has extended mental health services to all provincial hospitals. In 2016, the University Teaching Hospital, UTH was unbundled in order to modernise its services and bring about efficiency in its operations. Five different specialised hospitals within UTH have been established and these are Cancer Diseases Hospital, Paediatric, Adult Hospital, Eye Hospital, Women and New Born Hospital. The Coptic Hospital Zambia is now the largest Mission Hospital in Zambia since the occupation of its brand new multi-story facility in Lusaka.

Non-Communicable Diseases: The burden of NCDs in Zambia is significant, however, there have been no national representative population-based studies to determine that burden exactly.

A limited 2018 study showed that the prevalence of hypertension in rural Zambians was double (46.9%) that of urban Zambians (22.9%) in the Western Province. The Ministry of Health by including NCD medicines on the essential medicine list for Zambia has made progress in ensuring the availability of medicines and

ANALYSIS

medicinal supplies for the management and control of NCDs. The Cancer Diseases Hospital has been expanded and cervical cancer screening programs have been established. The Ministry of Health has previously initiated the Human Papilloma Virus vaccination programme and commissioned the cardiac catheterisation laboratory.

If the goals of the 7NDP are to be met, low levels of public awareness and the inadequate human, financial and material resources for NCD prevention and control, coupled with inadequate NCD diagnostic capacity, will have to be addressed as is intended by that plan.

Communicable Diseases: Over the past decade, Zambia has seen positive developments in its efforts to combat the three main infectious diseases: malaria, HIV/AIDS, and TB. With regards to malaria, the Government has made eliminating malaria by 2021 one of the foremost national health priorities. Malaria is still among the top ten causes of morbidity and is the most widespread cause of mortality in health institutions, however, statistics show notable improvements in the reduction of malaria admissions and deaths. The number of malaria incidents has notably reduced from 407 cases per 1,000 in 2014 to 336 cases per 1,000 in 2017. The transmission is prevented through primary vector control methods: the use of long-lasting insecticide-treated nets and indoor residual spraying complemented by larval source management. Progress has been made to increase the coverage of primary malaria interventions. In 20172018, the National Malaria Elimination Program (NMEP), with support from partners including PMI, the Global Fund and the Against Malaria Foundation (AMF), conducted a country-wide mass Insecticide-Treated mosquito Net (ITN) distribution campaign. Over 9 million ITNs were distributed during the campaign, resulting in ITN household ownership of more than 70% in all provinces other than Copperbelt. In 2019, PMI will support the introduction of a community-based distribution channel. However, the nets are often used for fishing rather than protection at night. Access to malaria diagnosis and treatment also increased, particularly at community level, with 25% of the Zambian population accessing the services through community health workers.

The efforts to fight malaria received nearly $60m in 2015, with the biggest contributions coming from the Government of Zambia and USAID/PMI. HIV/AIDS: According to the UNAIDS 2018 Global Report, Eastern and Southern Africa remain the region most affected by the HIV epidemic, accounting for 45% of the world’s HIV infections and 53% of people living with HIV globally. Strong shared responsibility between the region’s governments, civil society, international donors and the research community is delivering steep declines in HIV infections and AIDS-related mortality.

There has been a gradual and continuous decline in the prevalence since the end of the 1990s and the country has made significant strides in scaling up high-impact HIV preventive interventions. As a result HIV incidence per 1000 population that was 6.11 in 2005 and has declined to 3.6 in 2017. New HIV infections also dropped from 64,000 in 2005 to 48,000 in 2017 and 1.3 million people living with HIV in 2005 has increased by 15% to 1.5 million in 2017. The biggest challenge facing those living with HIV is the stigma. While there is adequate information about HIV, little has been achieved in terms of changing attitudes and to tackle the ignorance. As Zambia is a profoundly Christian nation and religious as a whole, abstinence.is promoted over condom use with sex outside of marriage and homosexuality are taboo, the latter also being illegal.

Although success has been achieved in combatting TB, it remains one of the main non-pneumonia respiratory infections and a major health problem in Zambia, keeping it among the

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highest TB-burdened countries in Africa. Over the last decade, TB incidence has fallen by 40% (from 650/100,000 population in 2003 to 376/100,000 population in 2016) in large part due to the increased investment in TB diagnosis and treatment and stronger TB/HIV collaboration, including the scale-up of antiretroviral therapy in the general population. Overall about 39% of TB cases go undetected, underscoring the need to significantly improve TB case finding, especially at community and health facility level. The extent of multidrug-resistant TB remains unknown and largely unaddressed. The Ministry of Health has committed to eradicating TB by 2035 and as such the Zambia National Health Strategic Plan 2017-2021 has a goal to reduce the number of TB deaths by 40% by 2021 to that end.

Universal Health Coverage: Zambia - through its WHO office - joined the Universal Health Insurance Partnership in 2016.

Hence, the Government has worked towards providing Universal Health Coverage (UHC) so that everyone has access to quality health care without having to face financial hardship.

The National Health Insurance Bill became law on 9 April 2018 and the National Health Insurance Scheme was established to provide universal access to quality insured health care services.

Every citizen or established resident who is above 18 must register as a member of the scheme, whether unemployed or in employment. Zambia did not have a standalone policy on health insurance and there was no explicit reference to health insurance in the current law. Now the law provides for the establishment of the National Health Insurance Management Authority (NSHIMA). To function properly as intended, levels of income and the percentage of the population employed in the formal sector of the economy must grow or the government must create a fund to cover the unemployed and those in the lower income brackets. Even though Zambia has been providing basic health care services free of charge at the primary health care level, capacity constraints meant that adequate health services have not been reaching those most in need. Current projects are aimed at addressing this shortfall in achieving the goals of the International Health Partnership Private Medical Insurance: Private medical insurance accounts for under 2% of health sector financing with 90% of PMI premiums being covered by corporate health plans and some of the larger companies offer medical cover as part of their employee benefits packages. The challenges that licenced medical insures face include:

• direct payment of medical bills by employers

• private hospital health plans

• employer-based health

• loss-leading products that give private

insurers access to more profitable financial products.

Close to 90% of Zambians have never heard of health insurance and its benefits and this inhibits financial inclusion. For those who can afford it, there is access to advanced paramedics, ambulance and air ambulance facilities along with insurance to cover the cost. Lusaka is just over 1,000km away from Johannesburg by aircraft and the patient has a choice of required medical attention in the case of evacuation.

Human Resources: The shortage of skilled healthcare professionals remains high, and cuts across a wide spectrum of health professionals - clinicians, nurses, pharmacy technologists, laboratory technologists, radiographers, physiotherapists, and environmental health technologists.so a critical priority of the Ministry of Health remains an appropriately trained, skilled and motivated workforce despite considerable improvements in human resource performance over the past six years. Both public and private training institutions have been opened to address this and there is an opportunity for more such investment. The 2019 budget aligns with Governments stated intention to continue investing in the health sector to improve health service delivery countrywide by ensuring the availability of adequate skilled human resources. Between 2016 and 2018, over 15,000 core health workers were recruited against the 30,000 target by 2021.

During 2019, the recruitment of frontline health staff will continue in order to operationalize the newly constructed health facilities.

Additionally, 215 doctors out of a target of 500 are undergoing specialized training and specialized training for nurses in areas such as oncology, public health, and trauma and emergency has also commenced.

Pharmaceuticals: The pharmaceutical sector is under the authority of the Pharmaceutical Regulatory Authority (PRA), which is a semi-autonomous public board created under the National Drug Policy and is in charge of registration and regulation, procurement and distribution of drugs, financial management, as well as issues concerning quality control of drugs and rational use of medicines The warehousing and distribution of medicines at the central level are undertaken by three types of central medical stores:

• Medical Store Limited, acting as a parastatal

agency for the public system;

• Churches Health Association of Zambia

Medical Store, which mainly delivers to

other facilities and might facilitate

procurement for other NGOs or CPs;

• Private pharmacy wholesalers which provide

the private market with drugs and medical products.

Most producers of medicines circulating on the Zambian drug markets are foreign producers. To receive the market authorization, they must all comply with any one of the following set of regulation: the WHO certification, the certification standards of the country of origin of the drugs and/or re-testing by the Zambia Food and Drug Laboratory. Medicines produced by local manufacturers must be certified by the Zambia Food and Drugs Laboratory before being introduced on the market.

Zambia currently manufactures 30% of the drugs on the Essential Medicine List locally and the aim is to significantly increase this, so with only seven local producers and around 30 pharmaceutical trading companies, the sector is poised to expand.

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VIEWPOINT

Malaria Elimination Agenda Hon. Chitalu Chilufya - Minister of Health In Zambia, our long term development aspirations are guided by our Vision 2030 in which we aspire to become a middle income, prosperous country by then. To attain this, we have pitched health as a key economic investment to produce a healthy citizenly from where a healthy workforce will drive our socioeconomic agenda.

key economic investment and our National Health Strategic Plan 2017 to 2021, while focusing on universal health coverage, has legacy goals that we have identified and among the highest of which is malaria elimination. There is evidence that exist in various parts of the world and also some parts of the country that malaria can be eliminated.

We cannot speak about a healthy nation without talking about our health profile as we have public health challenges that continue to claim lives. They have reduced productivity and have deprived government of the resources that are required in all sectors. Malaria is one such public health challenge, so in our quest to produce a healthy nation, we are investing in health systems that will deliver Universal Health Coverage using the integrated community based primary health care approach.

Malaria elimination is now part of our Universal Health Coverage agenda and will only be attained if we intervene across the continuum of care. We need to craft messages that will empower people under the Health Promotion Pillar and ensure that they are able to take responsible decisions to prevent contact with the vector. We therefore need to invest in high impact diseases preventive measures.

We need to observe certain broad principles and recognise that Malaria will only be eliminated with community involvement. There is a need for increased domestic funding and there is a need to implement integrated vector control measures that must be carried out to scale. We must build coalitions with partners that promote the common aspiration of our people and we need to emphasise the need for cross boarder collaboration.

In terms of integrated vector control, we have decided to conduct IRS in all parts of the country. In the past we use to have partial spraying in certain parts of the country. In the malaria elimination agenda, we are targeting 100% of all structures and are targeting the use of highly efficacious chemicals such as DDT. We are distributing long lasting mosquito nets and are targeting every bed in every household. Since last year, we have distributed 10 million mosquito nets.

Universal Health Coverage in Zambia has to include the malaria elimination agenda and are resolute that our people will only be wealthy if they are healthy. We are determined as a government to invest in the health of our people as a

We have invested in community-based interventions by introducing community-based surveillance, community-based case management and using community health workers to carry out this work. We are strengthening case

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management at facility level and have also escalated our intermediate presumptive treatment program by increasing the number of times we give fancida to our pregnant women. As part of our vector control measures, apart from use of long lasting ITNs and IRS, we are also embarking on larval source control. It must be emphasised that in places like Southern Province in Zambia, were we have carried out these interventions to scale and added mass drug administration we have seen evidence of malaria elimination.

By carrying out these interventions countrywide, we are confident that the malaria elimination agenda can be achieved. The political will has been exhibited and the President of the Country himself launched the malaria elimination agenda, clearly outlining the intended interventions.

Domestic financing has been increased by 300% from $8m in 2015 to $25m in 2017 so that we can also expand the malaria elimination program. More officials are being appointed at the centre and at district level for targeted programs

and budgets have been shifted more from central level to implementation level at districts.

Partnerships with stakeholders play a key role in building the coalition for malaria elimination. The Global Fund, US Government, the RKI, Chinese Government and Melinda Gates have worked with us in furthering the malaria elimination agenda.

There is enough evidence that malaria elimination is possible. All we need to do is to agree that too many people have died from malaria, and must have the political will to build a strong coalition, leverage resources and make sure that all interventions are carried out to scale by giving ourselves ambitious malaria elimination targets.

It is important to note that eliminating malaria will improve productivity with fewer man hours being lost through absenteeism and fewer funerals. When productivity improves, one is addressing the National Development Program.

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Increasing demand for post-primary education facilities and teaching materials Competitive private tertiary education sub-sector High market demand for a skilled workforce

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Enhancing Human Development with Relevant Skills Increasing Private Sector Involvement

Development Agenda of the Sector: With Zambia’s aim of diversifying the economy and developing a knowledge economy, education is one of the primary determinants of its success. In addition, one of the binding constraints to the nation’s development and economic diversification is inadequate skills and innovation. To rectify this constraint - and the second development outcome from the Seventh National Development Plan’s focus on enhancing human development - is improved education and skills development. In this regard, there are five strategies to help improve the country’s education and skills development.

The first strategy is to enhance access to quality, equitable and inclusive education. There are five programs under the first strategy. These programs are:

• Developing infrastructure;

• Improving teacher training, recruitment and deployment;

• Enhancing equity and inclusive education;

• Improving youth and adult literacy expansion

• Improving policy coordination, planning and information management.

The second strategy is to enhance access to skills training. Programs aimed to achieve this strategy include:

• The establishment of centres of excellence;

• The operationalisation of trades training institutions;

• The rehabilitation and construction of training institutions;

• • •

The promotion of alternative training modes; Continuous professional development; and Promotion of inclusive vocational training.

The third strategy is to enhance private sector participation in the delivery of education and training at all levels. Programs to this end include:

• Promoting the participation of the private

sector in education;

• Promoting the participation of the private

sector in skills development;

• Promoting the participation of the private

sector in youth and adult education; and

• Implementing the PPP Skills Development

Fund.

The fourth strategy is the continuous review of the curriculum to enhance the relevance of the education system for the labour market. This will focus on important contemporary global market skills needs such as science, mathematics, technology, innovation, entrepreneurship and strategic leadership training.

Programs to achieve this strategy are:

• Development of curriculum and materials;

• Provision of pre-service and in-service teacher training;

• Enhancing curriculum assessment and evaluation;

• Enhancing the monitoring of standards;

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• •

Standardisation of curriculum framework; Provision of training equipment.

The fifth strategy is to enhance the role of science, technology and innovation to increase productivity, innovation and competitiveness in the economy. Research and innovation can drive the creation of new products and new ways of producing existing products efficiently. Programs to meet the strategy are:

• Developing human capital in science and technology;

• Developing science and technology infra structure;

• Financing science, technology and innovation (STI);

• Enhancing STI quality assurance; and

• Enhancing STI coordination.

Education System: The Zambian education system has three levels: primary school (grades 1 to 7), junior secondary school (grades 8 and 9) and upper secondary school (grades 10 to 12).

English is the medium of instruction in public schools and students are required to learn an additional local language, which is conditional on their school’s district. A school year runs from January to December and consists of 3 terms. While grades 1 to 7 is tuition free at public schools, parents are expected to buy school uniforms and learning material.

There are private schools that are independent of the Government, with the admissions procedures, curricula and language of instruction being more flexible. Private schools often have a Christian missionary background with a specific denomination. The country also has several Islamic schools. Corporate businesses and communities manage some private schools.

These corporate business-owned schools are often situated in the mining areas of the country and many follow the northern hemisphere school year with midyear commencement. Private schools follow either the national curriculum or American, British or International Baccalaureate school systems. These private schools generally offer a high standard of education with topclass learning facilities. The tuition fees at the affluent private schools can be expensive and unaffordable for many Zambians.

In May 2015, the country signed the Incheon Declaration, which makes education compulsory for the first nine years.

Public Funding: Over the last decade, public education expenditure has risen steadily and has been between 15.3% and 20.5% of total government expenditure. The education sector received an allocation of 15.3% of the overall national budget in 2019, slightly lower than the share recorded in preceding years.

The social sector (environmental protection, housing and community amenities, water supply and sanitation, health, recreation, culture and religion, and education) accounted for 31.8% of the total budget in 2018 with education representing the biggest portion of the social sector allocation at 50.6%. In 2019, the social sector was allocated 31% of the total budget with education receiving the lion’s share of 49.4% of the social sector allocation.

Due to the Government’s policies of prioritizing primary education for all children, this sub-sector received the largest share of the general education budget when compared to secondary education, higher education and early childhood education.

While the intentions behind tuition-free primary education are

ANALYSIS

noble, faults exist within the free primary education policy. It has been found that some schools continue to collect various fees from students, which hinders students from poorer households accessing education. Due to the remoteness of some primary schools, implementation of primary school grants has been challenging.

Challenges within the Sector: Due to Zambia’s conducive economic policies, the country has experienced improvements across almost all economic sectors including education. However, multiple challenges persist in the education sector. These challenges include the inefficient and ineffective use of resources, a high rate of teacher absenteeism, low-quality education and, insufficient teaching and learning materials. In addition, despite receiving a large share of the national budget, studies have found the quality of education is not up to scratch when compared to other lower-middle-income countries, and the quality has dropped slightly in recent years.

There has been a low rate of progression from primary education to secondary education and thus to tertiary education, which has been attributed to the majority of public resources being distributed towards primary education. The Government of Zambia’s efforts to increase the rate of progression from primary to secondary education has started yielding results with more students completing their primary education and enrolling for secondary education. The rate of progression from junior secondary school to upper secondary school has also increased.

However, the capacity of secondary education schools cannot absorb all the students that complete their primary education.

In this regard, the 2019 national budget reiterated the government’s commitment to continue upgrading, constructing and rehabilitating facilities at all levels of education. There is a program to upgrade 500 existing basic schools to secondary schools over the next three years in an effort to increase enrolments at the secondary-education level. In addition, the Government has launched the Zambia Education Enhancement Project, which plans to construct 82 high schools across the country.

The majority of secondary schools charge tuition fees, which has led to further challenges. There is a disparity in school resources between relatively rich and relatively poor schools. This has been exasperated by the non-provision of pro-poor targeted school grants and government scholarships to wealthier schools. This has resulted in fewer resources allocated to the poorer schools and a better quality of education in wealthier schools.

Another challenge is that the majority of public education spending is allocated toward personnel remunerations. As such, little of the budget is left to acquire teaching aids and learning materials, which contributes to the low quality of education. To rectify this, the 2019 budget states that major programs will be geared towards pre- and in-service training of teachers, provision of teaching and learning materials and ongoing recruitment of teachers. The Government will also prioritise the redeployment of serving teachers to underserved areas with the right mix of subjects that include science, mathematics and information and communication technology. In addition, curriculum improvement - in accordance with the current market needs and trends - will be conducted.

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Technical Education, Vocational and Entrepreneurship Training (TEVET): Since technical skills are vital for building the country and its economic development, the TEVET sub-sector is seen as crucial in this regard. The Ministry of Higher Education has adjusted its focus from not only providing technical education and vocational training but has included entrepreneurial training to increase graduates’ employment opportunities and have the skills to run their own businesses. In Zambia, there is the perception that technical education is a low-value education option, which is a challenge, as there is a shortage of skilled workers. To rectify this, the Government introduced a two-tier system at secondary education schools. The first tier is for students who follow a purely academic path while the second tier is for those who pursue a technical path. In grades 8 to 10, students in the technical tier undertake technical subjects - in addition to academic classes - to acquire market-oriented skills from an early age.

The second tier initiative started as a pilot program and is now being expanded with an increasing range of vocational examinations being offered at secondary education level. To boost skills development and bridge the gap between the needs of industry and the training offered in the country, international development partners - like the government of China - and the private sector are contributing towards enhancing technical education and vocational training.

Higher Education: The Higher Education Authority of Zambia governs the registration of higher education institutions (HEIs) to ensure that education offerings are not of poor quality. At the end of 2018, there were six public HEIs and 60 private HEIs, which are officially registered and recognised. In the past five years, the higher education sub-sector has seen an influx of private HEIs that are supplying the population’s demand for high-quality education. These universities and colleges offer a wide spectrum of programs and courses that span across sectors - from medicine to tourism - and have become more innovative and adaptive in this highly-competitive market as well as to address the shortages of specific skills in the labour market.

There has been an increase in international partnerships between HEIs in Zambia and international universities and research centres, which has helped improve the standards of education offered and has helped ensure that the degrees awarded

by Zambian universities are accepted and recognized globally.

These international partnerships offer great educational investment opportunities for both local and foreign institutions. It is expected that more universities will enter the sub-sector with both contact and distance education programs.

About half of the public universities’ budgets are from government grants, with the other half raised through tuition fees, commercial and research activities, and other fees. Challenges within the public higher education system include poor resource management and lack of fairness in accessing government funding among students. In 2004, the Government introduced a loan scheme, as a form of bursary, which proved to be inefficient as study loans were not recovered until 2017 when the system was rectified. It has been recommended that public universities should be given more academic and financial autonomy, which will improve the quality of education. It was also recommended - to improve university management - that performance-based funding be introduced. Beyond this, public universities have begun raising revenues through their own research and business activities, commercialising certain service units and capitalising on their land resources through real estate development.

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Status of the Nuclear Science and Technology Programme in Zambia

Hon. Nkandu Luo - Minister of Higher Education

The word ‘nuclear’ generally arouses negative reactions and feelings in many people. Surprisingly, even the most enlightened of people in Zambia view nuclear science and technology as something ‘dangerous’ and usually associate with atrocities and environmental disasters. When asked about their feelings on nuclear science, many Zambians respond in the negative, as most of them only associate nuclear science to the catastrophic effects of ‘Fukushima, Hiroshima and Nagasaki’.

These prejudices and negative sentiments are, in most cases, based on unsubstantiated perceptions, lack of knowledge, and in some cases, deliberate political sectional and economic interests. These sentiments associated with the safety of nuclear science and technology are almost always not supported by any empirical knowledge or data.

Although empirical data shows that nuclear energy is the safest, most reliable and one of the cleanest energy sources in the world, most people still view it as something inherently dangerous. For this reason, it is critical for the nuclear science and technology programme in Zambia to address and allay the negative perceptions of nuclear science and technology in the country.

The Patriotic Front (PF) Government in its party manifesto states: “ … in the next five years, the PF Government shall promote investments in alternative energy sources such as thermal, electricity generation from coal as well as nuclear reactors.”

It is in this context that His Excellency the President of this Republic of Zambia, Mr Edgar Chagwa Lungu, during his Inaugural Address, announced that Zambia would pursue nuclear technology and its application as part of a diversified and sustainable energy mix to power her economy.

In keeping with the patriotic Front (PF) Manifesto, the basis upon which the Government was ushered into office, the Government is embarking on a nuclear science and technology programme.

Zambia and many other countries in the sub-region recently suffered critical and painful power deficits arising from low water levels in our natural water bodies caused by the el-Niño. The power deficit arose because of the lack of investment and alternative energy sources as well lack of foresight to prevent future crises.

In order to avert future energy crisis, Zambia needs to actively move away from reliance on natural phenomena to assure sustainable economic development. Whilst Zambia must invest in other sources of energy, generations such as solar, geothermal, wind and coal nuclear energy must as a matter of priority, be included in energy mix to ensure sustainable and reliable off the grid energy.

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Nuclear power has many advantages as compared to the conventional hydro or coal power plants. For instance, although initial capital injection into nuclear power plant is relatively high, the operational costs are sufficiently low. On average, a nuclear plant has a life span of five to eight years implying a longer cost recovery period and making it possible to have cheap electricity at approximately $0.04 per kilowatt. Further, nuclear power plants can produce electricity consistently even in cases of variation in weather patterns and drought. Thus, coupled with the abundant reserves of uranium in Zambia, this means there is a security and sustainability of nuclear fuel.

In addition, nuclear science and technology also supports a large number of high paying jobs thereby, contributing greatly to the tax base of this country. Most importantly, nuclear energy is environmentally friendly because there is virtually no greenhouse gas emission.

It is worth noting that apart from the eventual electricity generation, nuclear technology offers Zambia a unique and exciting opportunity to begin to actualise the ‘Smart Zambia’ mantra by using nuclear science and technology in the non-power sectors in areas such as medicine, agriculture and the industry.

Nuclear science has also enabled the health sector to save many lives at the Cancer Disease Hospital. Through the science, national food security is assured through enhanced selflife for agricultural products. However, all this has been achieved through the importation of isotopes nuclear materials. Therefore, Zambia stands to gain by having its own nuclear science programme as it will not have to wait for imported isotopes to treat a cancer patient at University Teaching Hospital (UTH), who has been long waiting for chemotherapy treatment for months. It will also not have power outages as a result of insufficient water levels in its water bodies. Furthermore, the country can avoid food shortages through the promotion of high yielding and drought resistant varieties as well as an improvement in the self-life of the agro-products.

Studies have reviewed that with the current rate of economic growth and the national rate of population growth, the demand for electricity is estimated to rise by 4.5% per annum. On the supply side, it is estimated that the growth is around 3.9% annum. It is, therefore, estimated that demand for electricity will sharply outstrip production by 2030 thereby posing a threat to sustainable economic growth.

In order to sustain economic growth and the industrialisation agenda, there is a need for a long-term plan to establish a viable environment-friendly and efficient source of energy in Zambia.

Therefore, the nuclear option does not only offer the ideal source of power, but also provides other industrial and medical appliances, which will support the ambitious and well-coordinated industrialisation and economic diversification agenda of the PF Government.

Because of these of these reasons, Zambia is moving in the direction of developing its capacity to eventually operate a nuclear power plant of, at least, 2,000 Mw within the next five years. The capacity building process for the nuclear power plant also ensures that the capacity in other nuclear science-related fields, such as health and agriculture, are also built. The Nuclear, Science and Technology Programme is envisaged to be undertaken over a time horizon between ten to fifteen years. This programme is not about populist, rhetoric nor is it about scoring political points. It is meant to cater for the needs of the future.

The Nuclear Science and Technology Programme is aimed at creating synergies, capacity as well as ensuring that Zambia benefits from the peaceful uses of nuclear science and technology in the future.

The Nuclear Science and Technology Project in Zambia is, therefore, a clear demonstration of the foresight of the PF Government, as it aims at securing Zambia’s economic development by putting science, technology and innovation at the centre of its future economy. This project is progressing and will place the country ahead of its neighbours in the region and also enable the country to realise its vision 2030 through a clean and sustainable energy regime.

The decision to pursue nuclear power and its application came after consultation and research regarding the benefits, safety and security of nuclear technology for both power generation and associated industrial applications. This Nuclear Science and Technology Programme will be undertaken in two main phases. The phased- approached is appropriate because nuclear technology requires a well-developed human resource and regulatory base to ensure safety and security. This approach is also in line with the International Atomic Energy Agency (IAEA) recommendations. The IAEA is a United Nations agency tasked with co-ordinating and overseeing the safe and peaceful use of nuclear science and Zambia is working closely with it.

To underscore the importance of this programme to the agency and for the country, the Director-General of the IAEA visited Zambia last month both as a show of support of the agency for our programme, but also to ensure that we are in compliance with all regulations and prerequisites to commence the programme.

Under Phase I, the Russian Government will support Zambia to adequately prepare for management and utilisation of the nuclear facilities by embarking on training and skills development in the field of nuclear energy. They will assist Zambia to develop an integrated human resource plan for personnel and development of a Nuclear Policy.

A secretariat has been established to drive the nuclear science and technology under the Ministry of Higher Education. The Secretariat has since developed a draft policy, which will soon be subjected to scrutiny by stakeholders to enhance capacity at the Radiation Protection Authority.

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This will be important because the current regulatory regime of the Radiation Protection Authority (RPA) is not adequate for the heightened nuclear and radiation activities to come.

To ensure that all key stakeholders and the country at large understand and buy into the project, the first phase will involve enhanced public awareness. Many of our people may have read in the newspapers on the sensitisation meeting held by the nuclear secretariat in Chongwe, Lusaka Province. I wish to report that this was part of the programme conducted by the secretariat to sensitise people about the nuclear programme. This programme is targeted firstly at the hon. Ministers in Government and then it will progressively move to other stakeholders such as hon.

Members of Parliament, civil society and the general population.

The first phase will culminate into Zambia constructing a centre for nuclear science and technology to facilitate the development of local regulations and management capacity. The choice of the location has been necessitated by the fact that the National Institute for Scientific and Industrial Research (NISIR) has been undertaking nuclear research for many years. Furthermore, this site is appropriate because of the supporting infrastructure needed such as proximity to the airport and University of Zambia (UNZA) and availability of the cancer hospital for utilisation of the isotopes from the nuclear centre.

The establishment of the Centre for Nuclear Science and Technology will be useful for training of personnel for nuclear programmes. It is also important to note that there will be other resultant benefits such as increased foreign exchange earnings, creation of employment opportunities, gaining access to international markets for Zambia’s agricultural products and increased competitiveness and viability of Zambian industries. The centre will be able to conduct the following industrial applications:

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• Isotope production for cancer diagnosis and treatment;

• Trace element analysis for determination of

mineral contents in ores such as copper that

will support the mining industry;

• Distillation column scanning to stop shut

downs at the Indeni Refinery and stabilised

fuel supply and subsequent fuel prices;

• Material coloration of gemstones such as emeralds;

• Processing of medical products like needles,

surgical implants and theatre kits sterilisation;

• Reduction on post-harvest losses by

increasing the shelf life of agricultural products.

It is envisaged that the first phase of Zambia’s nuclear science and technology will set the stage for the eventual operationalisation of the second stage, which will involve establishment of the first ever nuclear plant in Zambia. During the second phase of the nuclear science and technology programme, Zambia intends to build a nuclear power plant to produce at least 2,000 MW. The power plant will be critical to ensuring supply of sufficient electricity to power the economy for over five decades.

No country in the world has ever achieved real and sustainable development without putting science and technology research and development at the core of its development agenda. In this regard, the establishment of the institutional framework for nuclear science and technology to guide the implementation of the nuclear programme in Zambia is an equivocal effort and expression of Zambia’s desire, foresight and seriousness to put science, technology, research and development at the centre of analysis and the country’s development agenda for decades to come.

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Zambia Must Become an Education Hub Ajay Poddar, Deputy Vice Chancellor, Texila American University, Zambia

BRIG: Can you give us an overview of Texila American University Zambia, its medium and long-term vision?

Ajay Poddar: Texila group started in 2008 in Guyana, South America where the first campus of Texila University was established as Texila American University for the first time, and been in operation for the last eight years, with the first six batches of graduates, which have already been recruited in various countries. Since then, we have opened campus in Fujairah, about 100 km from Dubai, UAE where we are providing degree programmes in collaboration with other universities.

We opened our campus in Zambia in 2015 and have since registered with the Zambia Higher Education Authority and completed the market research, feasibility studies and licencing. Texila American University Zambia started its admissions in 2017 with the first batch of students starting in March 2017 with a foundation programme for Medicine with 14 or so students. Now, merely a year later, we have 150 students on the campus and around 400 students in DBLP (Distance/Blended Learning Programmes) mode and we have all the necessary approvals and licenses to provide quality education in Zambia.

Our future plans include introducing programmes in Pharmacy studies and Nursing. We have also identified a strong need for an Engineering programme in Zambia as many school leavers go abroad to complete their studies and we would like to provide them with an opportunity to study the programme here at a reduced cost. Our plan is to start accepting Engineering students in about two years down the line.

Texila American University has a state-of-the-art campus here in Zambia, with fully equipped laboratories on campus as opposed to the other universities relying on the facilities of the University of Zambia. 90% of our service delivery is through technology – we have technology enabled classrooms, regular video lectures, webinars, seminars, collaboration sessions on the web, and all our examinations are done online. We have around 16 international faculty members trained from American, Europe and Asia.

BRIG: What percentage of your students come from abroad?

Ajay Poddar: Nearly 60% of our on-campus students come from abroad, from 15 countries as far as Nicaragua, India and China, in addition to a few other African countries. We sense an opportunity for Zambia to become an educational hub, as it has all the facilities and availability of the resources to become an internationally-recognized player in the education sector in the SADC region. We have been experiencing a very positive environment in attracting international students due to the liberal policy of the Immigration department. We are working closely with the government to enable foreign students to pursue their education here. Texila American University is working to provide the most conducive environment for our students – we strongly encourage them to stay at our own hostel on the university premises and, as a university policy, we insist them to stay at the university accommodation for the first six months while the incumbents get acquainted with the environment.

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BRIG: How does the university collaborate with the private sector to ensure that the country’s human capital needs are met?

Ajay Poddar: This has now become a necessity for every university to collaborate with peers in the sector - not to become isolated. We are an institutional member of Zambia Chamber of Commerce and Industry (ZACCI) and actively participate in the deliberations and conferences. This give us an insight to the country’s human capital requirement and we work accordingly to meet the industry requirement.

Also we have strong ties with DEASA – Distance Education Association of Southern Africa in which we are a member of.

We also collaborate with the International Council of Distance Education and have various memberships from other regional education organizations.

As to the ties with the medical industry – it is a requirement in our medical learning programmes to spend two years at a medical facility as part of our clinical rotation, once the students have completed their three years of learning on the campus. It is mandatory and, without this exposure to the practicalities of the education, accreditation is not possible. We have established relationships with eight hospitals in Zambia, South Africa and other countries.

We are also starting a programme in Nursing to address the pressing need for quality nursing staff in the country. Quality education is what separates Texila American University from its peers in Zambia and in the region, and our growing number of international students is a testimony to that.

BRIG: Do you think that there is still room for growth when it comes to quality education here in Zambia.

Ajay Poddar: I think there are still a lot of opportunities here in Zambia for providing high quality education. Around 150 Zambian students go to India every year for higher education and, similarly, students from the neighbouring countries because of the gap that exists in quality education regionally. There are many universities established in Zambia but one has to strongly evaluate the quality they are providing. It needs to be narrowed and universities separated from mere educational institutions.

Why is Texila American University investing so much? We see this as a tangible opportunity. Next year, we are opening a brandnew campus around six times bigger than the existing one.

Our university is also reaching out to students in Livingstone, Ndola, and Chingola through direct marketing, social media, and churches so that each and every person has the information of what we are offering.

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Investing in Human Capital Long Term National Benefits Accrue Moono Sindowe, Head Human Resources, Hai

The basic factors of production, outside of entrepreneurship, constitute; land, labour, and capital. Land being the physical resource used to produce goods or services, labour is the human manpower that transforms the resource into consumer products/ services and capital is the money used to purchase both. Within all this is the important economic concept of developing human labour, which is commonly referred to as human capital investment.

Human capital investment is simply the development of employees’ skills and knowledge by the organization or firm which employs them. The firm invests in an employee’s training to improve business operations and increase overall employee efficiency and productivity. This is done using education and training. Education involves exposing employees to structured programmes offered by colleges or universities to develop an employee’s technical skills. On the other hand, training can be accessed either internal or external to the firm. Internally, it is mostly conducted by supervisors working on the job with employees, showing them how to complete specific functions. Externally, training has become a service offered to organizations who have identified specific skill gaps in their labour resources.

Hai Telecommunications Limited (Hai) has programmes that seek to continuously invest in the training of its human capital.

As a service provider in a competitive business environment, Hai places being customer-centric as a priority agenda. We have realized that in order to offer satisfactory service to our esteemed customers while assuring value generation for the firm, we must first and foremost become a learning organization that also invests in its resources, including human capital. Given the nature of our industry, Telecommunications and services provided, we mostly interface with customers on a daily basis. Therefore, the need for a company-wide campaign on customer service train-

ing cannot be overemphasized. Consequently, customer service training programmes have and continue to be provided to the company’s Direct Sales Agents (DSA) or foot soldiers as a stepping stone since most staff in this category have often joined the organization with minimal qualifications, mostly having entered the firm either as secondary school leavers or fresh college graduates. In this connection, Hai has given such staff opportunities of raising funds needed for furtherance of their education.

As Hai grows in the retail sector, it has been our objective to expose all staff to customer service training as we have realized that being customer focused is vital to sustainable service delivery. We have also introduced in-house training programs that focus on product knowledge, again it’s not only the sales team who should be conversant with the company’s products but the entire organization. On the other hand, with other technical areas of the business the company ensures to recruit appropriately qualified staff with requisite knowledge about the industry.

Another area where we give back to society is with regard to our Internship program. This is another form of training that we offer to students from tertiary learning institutions when on vacation.

The programme has also served as a nursery for possible recruitment of college/university graduates who show passion for the sector. Through this programme we are investing in individuals who may not necessary work for Hai but we are providing opportunity to equip them with experience that industry often demands of them. We believe that investing in individuals will make a positive difference and contribute to the economy of the country. Although, investment in Human Capital, may be costly the benefits to the individual, employer and the community are long lasting. Using education and training to improve human labour helps companies create a competitive advantage, empower employees and change communities.

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Focus on Texila American University Attracting Students from around Africa

Texila American University, part of the Texila Group, is an internationally renowned university operating in Guyana and Fujairah apart from Zambia. Texila American University Group manages diverse educational ventures with a single-point objective, which is to fulfil the aspirations of the Global Student Community & Working Professionals by adopting global benchmark of excellence.

Texila American University Limited (TAU-L), Hong Kong, is the Holding Company for Educational Ventures in Guyana, Zambia, UAE, USA, Ghana and India.

Texila American University Group (TAU) is a student-focused university offering over 150 academic programs across different verticals catering to the students of more than 70 countries.

The diverse range of academic programs gives the university a distinctive edge over other urban public research universities.

To accommodate students with varied learning preferences, the university offers Campus based, Postgraduate Medicine and Distance & Blended Learning modes. The academic programs are backed by qualified and eminent faculties who are adept at handling internationally recognized health science programs.

TAU Group leads the pack in many countries for accommodating students from diverse backgrounds and nurturing them to successfully accomplish their goals.

Investment in Zambia: TAU have already invested $1.35m in the Tertiary Industry and the investment is likely to increase. The university has planned to invest close to $10m in the next 3 to 5 years to bring quality education into Zambia.

At TAU, Zambia their goal is to be a permanent long-lasting investor in the Zambian education sector. They have stood to demonstrate and deliver uncompromised quality education for

the Zambians. They envisage to bring in state of art educational equipment and infrastructure, beyond what they have already, to a tune of $5m in the next 5 years. Registration status: As testimony of their goodwill they have developed a closer working relationship with the Zambian government through the Higher Education Authority and Health Professions of Zambia, and further to that signing of Memorandum of Understanding with local Public Universities such as the University of Zambia for Academic Collaboration and with Public Hospitals for Clinical Placements. Recently, they donated four cadaver freezer boxes for the School of Anatomy, School of Medicine and University of Zambia. They have also been registered by Higher Education Authority of Zambia and our programs are accredited by Higher Education Authority and approved by Health Professions Council of Zambia.

Programs Offered: At the Zambia campus, the following programs are offered: Health Professions Foundation, Bachelor in Medicine, Bachelor in Surgery (MBChB), Bachelors in Business Administration, Bachelors in Education, Bachelors in Information Technology, Masters in Public Health, Masters in Business Administration(proposed), Bachelors in Pharmacy (proposed), Bachelors in Nursing (proposed), Doctoral Program in Management(proposed) Supporting Lusaka as International Education Hub: With a strong Admission Policy and Procedures, which are ISO certified, they admit students into after rigorous verification process.

This stringent policy ensures only the right candidates with the right aspirations are admitted. As a result of this, they have students interested in joining their programs from across Africa.

The inflow of crucial foreign exchange also contributes to the development of Zambia. Zambia has embarked on its economic

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stabilisation journey, which definitely includes education tourism.

Zambia, with its strong and steady economy, stable political environment and progressive education policy has the potential to attract foreign students to pursue higher education in public and private universities.

Academic Excellence: They have pursued the path of innovation in the domain of education which has resulted in breakthrough in the field of Education ushering in newly developed competitive professional courses at affordable cost. Their significant presence in Zambia has augmented professional degree courses in the medical faculty, Information Technology, Business administration and Master’s degree in Public health. The mentioned program have been approved and accredited by Health Profession Council of Zambia and Higher Education Authority of Zambia. This would enhance the professional potential of the Zambians and thus promote skill empowerment and reduce on invisible import of expatriates in the long run.

Salient Features of the Campus:

• An International and Industry Standard

Curriculum that is globally recognized and

respected and meets global demands for skills training.

• Advanced ICT enabled services like CRM,

ERP, LMS, teamwork, etc.

• Great number of learned and experienced

faculty with international exposure.

• Campus as an education base for international students.

• Wi-fi Campus with Smart Classrooms.

• Online teaching – learning facilities (LMS-Moodle).

• Course contents are accessible across

gadgets – mobile, laptops/tablets etc.

• State-of-the-art research laboratories for

medical and natural sciences.

• State-of-the-art student supportive services

well stocked library, e-library, scientific

journals, reprographic facility etc.

• Environmental, fire & health safety facilities.

• Separate hostel accommodation for boys and girls.

• RALO – Reflective Assessment of Learning Outcome Unique Teaching Pedagogy at Texila: A unique proprietary Model is utilised in the Distance Learning Program. It includes course materials uploaded in our exclusive learning platform, video lectures, E-resource, Open source ware, Podcast & Forum discussion. Students also receive constant faculty support throughout the course.

Through the model, students will get intense and continuous faculty support; Modular based curriculum, which focuses on the core; Competency and skills; PPT for every sub topic will be developed by the faculty members; 24X7 days support provided by the Student Coordinator; Participation in fora; Continuous and weekly assessments; Easy assessment mechanism and continuous feedback from the faculty members; Completion of a block in 8 weeks.

Technology in Teaching: Learning Management System (LMS).

Texila provides the E-learning students with world’s first and topmost learning management system, which helps them to easily find their modules and task appointed. This platform is easily accessible and user-friendly, as students will be mostly learning through this tool. Resources available in this tool will be practical and technically gives the students to approach this world with a different perspective. This mode is taking this age to another level of the facet in education. LMS that Texila offers is adaptable in any form of platforms whether it is Mobiles, Tablets or desktops such as Mac, PC, iPhone, iPad & Androids.

Flip Classroom Model. Texila provides learning content on the online platform where students have access to videos, lectures and lecture notes. This helps the student to come prepared for the class, where discussions takes place instead of instructional sessions.

Texila University understands the need to equip students with outstanding knowledge and competence to take on the professional reins in today’s demanding knowledge economy. As the opportunities and challenges are global, Texila has made a series of initiatives to help students update themselves on the industry trends and best practices across the globe in their respective disciplines of choice.

E-conference, in simple terms, is a gathering that takes place over an electronic medium rather than in the traditional face-toface manner. With the latest technologies evolving in the world, a number of things have become convenient for people. The Conference is hosted online and participants present their research findings from across the globe without the necessity to move out of the confines of their home/office.

E-Journals: Texila International Journal (TIJ) is a venture that was launched in 2012 by Texila American University (TAU) to overcome the barriers in the easy and fast access of research data. The goal of this initiative is to go beyond borders in the field of academic research. It is an open-access platform for scholars & scientists to register their research work & gain fame.

Texila Connect: An online platform for the latest news on medicine and education from across the world. This helps students to keep themselves abreast on the latest happenings in the world of medicine and education across the world.

Texila Digipedia: A learning hub for students to satisfy their thirst for knowledge and urge. Our huge database is filled with information, which can easily help in your academic brilliance.

So just login and surf through the waves of knowledge. At Texila Digipedia, we are very well aware of the ultimate goal and objective that a student and researcher have. It is to create new knowledge. Therefore, we embrace the entire lifecycle of knowledge creation like collecting, exploring, sharing, publishing, and saving data for usage by future scholars.

Texila Knowledge Talk Series: Texila Knowledge Talk Series is a platform to bring academician & professionals under one roof every month to share their expertise and ideas to the target audience. This series will focus to utilize and bring together the Academician, Scientist, Professionals & Industrialist to contribute to a sustainable future, initiating a dialogue enabling mutual exchange of knowledge. This group of professionals will work for a common cause of enlightening the knowledge base of people

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from related fields and, encourage and assist the professionals engaged in the above fields to maintain the integrity and competence of the profession and foster a sense of partnership between the professionals, engaged in these fields.

Contribution towards development of Higher Education: With the ever-growing demand for education against the few learning institutions to offer higher learning, our presence makes a big difference in the Zambian Tertiary Industry as it is highly beneficial as we would strategically develop higher learning in a dynamic way. It is a significant investment of both capital and skills in Zambia that would translate into quality education with lower fees that would reach out to lower income groups.

The International brand tag that Texila American University carries has attracted lot of students from foreign countries. Currently we have students from across 11 countries. These students are required to pay their tuition fees in US dollars. Their fees payment is an inflow of foreign exchange into the country supporting the growth of Zambian economy. “It is our learnings that Zambia can bloom into an international hub for quality education if right kind of skills are made available.”

Zambia a Hub for Quality International Education: Under the current political leadership, the country has affirmed its commitment to fostering private sector development and attracting

ARTICLE

foreign direct investment (FDI). The government has promised to continue its efforts to implement programs and initiatives directed at attaining inclusive growth and job creation, pay particular attention to macroeconomic stability, diversification of the economy, support to small and medium enterprises (SMEs), engagement with cooperating partners, and promotion of investment. We strongly believe in these government policies and the leadership and have committed ourselves in FDIs. With the stable and peaceful political environment relative to other countries in the region, Zambia is an attraction for International students to pursue their tertiary education. The strong educational policies and student friendly immigration laws helps foster the education sector. The growth potential for the education sector is highly encouraging.

Expansion: Texila American University is planning to introduce more programs that are in need for the development of Zambia.

As part of the expansion plans, TAU’s projected investment of $5m in Zambia as part of infrastructure expansion, program expansion, etc. during the next five years.

Progressively, they would like to play an active role in the African leaders’ vision of One Africa One Nation. In the education sector, liberal movement of genuine students across national boundaries would positively support the vision.

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Maxwell Mwanza, “Returning Heart of Father, What Every Child Needs,” 2017, Acrylic on canvas, 60 x 45 cm Lechwe Trust

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STARTING A BUSINESS IN ZAMBIA

Name registration Company registration Trademark protection Tax and pension

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ANALYSIS

Starting a Business in Zambia A Practical Guide to Procedures

Starting a business in Zambia is relatively easy and the requirements are generally not that onerous. Some of the procedures are as fast as anywhere in the world such as Company and Tax registration. In most cases it would however be advisable to engage experts who have the staff to tackle all of them simultaneously or at least in immediate sequence.

PACRA: The Patents and Companies Registration Agency (PACRA) is a semi-autonomous executive agency of the Zambian Ministry of Commerce, Trade and Industry. Its principal functions are to operate a legal system for registration and protection of commercial and industrial property and to serve as a legal depository of the information tendered for registration. It comprises two core departments - Industrial Property and Commercial.

The very first step before the statutory registrations can start is to get approval for the name of the company. PACRA is responsible for vetting proposed names and their guidelines are there to protect existing companies and ensure that no misleading descriptions are used.

Name Registration: Name Clearance can processed at any PACRA office or on the website www.online@pacra.org.zm and an application for approval of a name can be made in writing on Business Form III – Application for Business Name Registration which can be downloaded from www.pacra.org.zm. If one goes in person with the form, it is possible to process the application immediately and get written confirmation. Online, does work, but

if the officer concerned has queries, then the process can become protracted.

A maximum of three names can be proposed. The names will be considered in the order of listing. If the first choice is turned down the second or third name may be considered. Once the name is accepted, it is automatically reserved for a period of 30 days.

After 30 days the name clearance expires.

The name of the business must be in line with your principal nature of business. For instance, if the main line of business is offering security services, you cannot call the business ‘Non Such Restaurants’. This will be misleading.

Do not choose a name that is confusingly similar to what already exists or the same as a well-known company. The words “wellknown name” mean a name associated generally by the public with a company, whether within or outside the Republic, and in respect of which confusion is likely to arise if registered. If you are opening a Company with a name linked to one of the shareholders such as Ohio Business Machines Ltd, you will need to take written permission on an OBM Ltd letterhead and a copy of their Company registration which will make the decision in your favour easier.

Do not choose offensive or undesirable names. This means that a name should not be in form of an insult as this is against public policy

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ANALYSIS

Do not choose deceptive or misleading names. For instance, if you are just starting your small business, you will not be allowed to use words such as ‘international’, ‘Countrywide’ or ‘Worldwide’ because these words suggest that you have a big multinational company which could be misleading to the general public.

At the time of formation, each member must sign a declaration of guarantee, specifying the amount he undertakes to contribute if the company is wound up. And in case it winds up and the assets are insufficient to cover its liabilities, the liability of its members is limited to the amount so guaranteed.

The name that you choose should convey the expertise, value and uniqueness of the goods and service you will be offering to the general public. For instance if you company is called Tigwirizane Best Advertisers, it means that you must be the best indeed in the business of advertising. If not, your company name could be said to be deceptive to the general public.

Unlimited Company: An Unlimited Company is one that has a share capital but whose members have unlimited liability for the company’s debts and liabilities. In other words, whatever is incurred by the company is also deemed to have been incurred by the members.

Choose a name that is informative such that the public should be able to know your line of business just by glancing at your business name.

Company Registration: There are broadly two (2) types of companies in Zambia, namely: 1. Private Limited Companies; and, 2. Public Limited Companies (PLC).

Private Limited Company: This is a registered company formed and owned by individuals other than the Public. Its name will always end with the word “Limited”. The minimum number of Directors and Shareholders required for a private company is two (2) of which 50% must have residential status in Zambia as opposed to having to be Zambian Citizens. There is also need for at least two separate shareholders which can be individuals or companies, all of which can be based outside Zambia.

The following are the types of private limited companies that can be incorporated: 1. Company limited by Shares; 2. Company limited by Guarantee; and 3. Unlimited Company.

Private Company Limited by shares: Companies limited by shares have a share capital and are formed or incorporated for purposes of carrying on business to derive a profit. Currently, the minimum required authorised capital for a private company other than banks, insurance and other financial institution, is K15,000.

A Private Limited Company may not have more than fifty (50) shareholders. It nevertheless may have the capacity to enter into any type of legal activities as long as its articles do not restrict it.

As stated above, this type of company is prohibited from making any invitation to the public to purchase its shares or debentures.

And in case it winds up and its assets are insufficient to cover its liabilities, the liability of its shareholders is limited to the amount left unpaid on their shares.

Company limited by Guarantee: A company limited by guarantee does not have a share capital and is not permitted to carry on business for the purpose of making a profit for its members or for anyone concerned in its promotion or management. These are normally formed in order to help the community benefit from a certain project. Mostly, these are organisations such as churches, foundations, trusts etc.

In terms of membership, it equally may not have more than fifty (50) shareholders. There are exceptions, however.

Public Limited Company: A Public Limited Company states in its articles of association that it is a” Public Limited Company”.

Its name always ends with the words “Public Limited Company” mostly abbreviated as “PLC”. It has a share capital and its authorised minimum capital is K1m. It has the capacity of entering into any business activity unless restricted by its articles.

This type of Company can invite the public to buy its shares. It can therefore list its shares on the Stock Exchange.

If it winds up and its assets are not sufficient to cover its liabilities, the liability of the shareholders is limited to the amount left unpaid on their shares.

Company Forms: There are some important requirements that come to light when one begins to complete the forms and dependant on where the required documentation is located, non-procedural internal delays can occur. They must be typewritten and if the officer finds an error, you will be requested have a typewriter XXXXXXXXXXX out the error and then type in the correction. This can be done quickly and cheaply at nearby business centres. These are the forms and their main requirements: Form 1: Public Limited Company, Form 2: Private Company Limited by shares, Form 3: Company Limited by Guarantee, Form 4: Unlimited Company These forms vary by type of registration, but all need the specific company details as well as those of the first directors, company secretary and shareholders. Certified Passport copies as well as corporate registrations of shareholding companies need to be attached. The type, number and value of shares by shareholder need to be declared.

Form 5: Public Limited Company, Private Company Limited by shares, Unlimited Company, Company Limited by Guarantee This is consent to be a first director or company secretary and full personal details are needed. All directors can sign on the one form or multiple forms can be submitted.

Form 11: Public Limited Company, Private Company Limited by shares, Unlimited Company, Company Limited by Guarantee A declaration of compliance with the requirements of the Company Act in terms of the formation of a company by a legal practitioner, company secretary or first director before a commissioner of oaths.

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ANALYSIS

Articles of Association: Public Limited Company, Private Company Limited by shares, Unlimited Company, Company Limited

by Guarantee. PACRA provides standard articles of association that can be used or the subscribers can submit their own. It does need some reformatting and a spell check, but there are no material errors and they can be used as is.

Submission: Once all the forms are complete, duly signed and witnessed, make at least one copy of each and submit two files, one original and one copy. It is advisable to submit a number of bound Articles of Association as PACRA will stamp all documents in the copies file and return them to the company. Once the officer has checked the documents and there are no errors, they will capture the information immediately into the system, give you a reference and you can pay the registration fees immediately. The Certificate of Registration can be processed within an hour if there is a need for it for example to open banks accounts with onsite desks of banks like Investrust.

Trademark Protection: Even though Zambia is a member of ARIPO, the trademark aspects have not yet been domesticated (the Banjul Protocol) under the ARIPO Protocol. Trademarks should therefore be registered with PACRA for them to be officially recognized and protected.

It is a requirement that a legal practitioner files on behalf of the applicant and in order to proceed, they will require the following:

• the sample logo of the trademark to be registered;

• a description of the goods or services the

trademark will be used on to enable them

to identify the class(es) under which the

trademark application should be made in

accordance with the law in Zambia; and

• the full name and address of the trademark

applicant to enable them to complete an

“authorization of agent form – TM form 1” for your execution.

With the above details, they will be able to advise the registration fees payable at PACRA.

The total fee quoted would then cover the register of a trademark in Zambia, where the following steps must be undertaken:

• an application to register a trademark and

logo will have to be made and a sample of

the actual trademark and logo will be affixed

to the application form. A certificate of

lodgment of the application form will be

issued by PACRA approximately one month

after receiving the application;

• PACRA will then go through its database

to ensure that a similar trademark and logo

has not already been registered and this

process takes approximately one month;

• once PACRA has ensured that a similar

trademark and logo has not already been

registered, an advert will have to be placed in

the Trademarks Journal for a period of two months; and

•

if there is no opposition to the registration of the trademark and logo after the two month period that the advert has run in the Trademarks Journal, then PACRA will proceed with the registration.

Zambia Revenue Authority: Zambia’s tax regime has a number of aspects that may not be familiar to many outside investors and it is advisable appoint specialists to ensure that the endeavour remains compliant. It all starts with registering for a TPIN is an acronym for Taxpayer Identification Number and all relevant tax categories are then associated with that number.

Registration is electronic and relatively easy. The form is downloaded from the ZRA website and one selects all the relevant categories from Turnover tax, Withholding tax, PAYE, Property Transfer Tax, Presumptive Tax, Income Tax, Mineral Royalty, Medical Levy, VAT Excise and Base Tax. Goods and Services Tax (GST) will replace VAT in 2019. It is best to register for those categories that are immediately relevant. You can always add others later. If not there is an option to submit nil returns.

Depending of the categories indicated, there will be additional forms to download and complete. By the end of the submission process, you will have a TPIN and secure access to your account. You will also get an Acknowledgement of Receipt which allows you to track the progress of the submission. If you are concerned about a delay, you can email, call or visit ZRA. In each case the officer concerned is likely to be highly responsive in dealing with any unnecessary delay. Once registered, your next submission deadline is likely to be the 14th of the next month. It may be a Nil Report, but if late, penalties will start accruing. One can apply formally for Penalties to be waived and each case is judged on its merits. To prevent this, it is advisable to select a specialist until your finance team is fully in place.

Making payments is now electronic and the process is far simpler than before. You register for electronic payment so that when you upload the return and select electronic payment, you are directed to your own banks portal and are able to make the payment immediately with minimal duplication of information.

NAPSA: A company should register with NAPSA immediately it starts its operations and can do so even if it does not have any employees in which case, no returns are submitted. As soon as they employ, they should register the employee.

Everyone in any form of employment including foreigners that is of age 16 to 55; both ages inclusive is covered, subject to exemptions under the NPS Act. Foreigners have register as members and to have contributions deducted and paid to NAPSA on their behalf; unless they have diplomatic status or if they work for a company that has the status of an International Organization.

NAPSA is mandated by the NAPSA Act to prosecute defaulting employers.

The National Pension Scheme is contributory; meaning that workers covered by the scheme are supposed to make monthly contributions through their employers in order to garner rights that entitle them to benefits provided by the scheme.

Presently the monthly contribution rate is pegged at 10% of a worker’s gross monthly earnings subject to the prevailing contribution ceiling in the calendar year in which the worker earned

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the income. The employer and employee each contribute 5% of the gross monthly earnings. The contribution ceiling is revised annually and the revision takes effect from January of each year.

The following constitute gross earnings for NAPSA purposes: basic salary, leave pay, commuted days, overtime, bonus and all allowances (house, transport, uniform etc.) The employer is however, mandated to deduct only half of the worker’s monthly payable contribution from the employee’s earnings and then add an equal portion.

Employers are also required to remit workers’ monthly contributions within 10 days of the end of the calendar month to which the earnings relate. i.e. contributions for salaries earned in the month of July should be paid by 10th The due date is the end of each month; the extra 10 days are just a grace period. Any contribution including underpayment that is not paid within 10 days of the end of the calendar month to which it relates attracts a penalty equal to 20% cumulative for each month or part thereof the contribution remains unpaid.

Alongside the payment of contributions, employers are mandated to provide monthly returns that reflect the workers’ full names, social security number, national registration card number, gross earnings and the respective employee and employer contribution. Failure by an employer to submit monthly returns reflecting the above details result in delays in posting contributions to members’ accounts including possible posting of contributions to incorrect members’ accounts.

The ideal and acceptable mode of filing returns is the electronic format. This format has the following benefits: Better Record Management – ease filing & retrieval of data, error free assess-

ANALYSIS

ments, faster and error free crediting of members’ accounts and quicker processing cycle for Benefits.

The ultimate effect of submission of poor monthly returns by employers is that it renders the Authority’s desire to process claims within a reasonable time frame unattainable.

The Authority has principally two payment channels through which employers can remit contributions to the scheme. The first channel is the Over the Counter (OTC), where employers have to physically visit a NAPSA office to make payment. The second channel is the Electronic payment option. Under this option, employers can either send a hardcopy instruction to their bank or initiate the payment from their Bank internet payment platform.

The Authority is further in the process of enhancing the electronic payment channel in order to integrate the payment of contributions with monthly returns submission. It is hoped that the new payment channel will address the current challenge of poor information provision by employers through the automation of data validation before the system accepts the payment for contribution.

In order to improve the quality of contribution data the Authority holds for each contributor, workers are encouraged to regularly check the status of their contributions by visiting a NAPSA office or checking via the NAPSA online platform via the website napsa.co.zm or using mobile phone by either downloading the smartphone app or dialling *677#.

It is further an employee’s obligation to report any errors on the statements in order to ensure that when they becomes eligible for a benefit, their claim is not only settled in good time but that the correct amount is paid.

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VIEWPOINT

WORLD INVESTMENT FORUM – ZDA PARTICIPATION Matongo Matamwandi, ZDA, Director Investments

The United Nations Conference on Trade and Development World Investment Forum is the global platform for investment and development to devise strategies and solutions for global investment and development challenges. It facilitates multi-stakeholder collective action to stimulate investment in development and offers a unique opportunity to influence investment-related policymaking, shape the global investment environment, and to network with global leaders in business and politics. This year’s forum was held from 22nd to 26th October, 2018 in Geneva Switzerland under the theme “Investing in sustainable development”.

tives were given an opportunity to make presentations and after the 7 selected countries had made their presentations.

The objective of this year’s forum was to devise strategies to mobilise private investment and channel its contribution to the achievement of the sustainable Development Goals (SDGs).

Farm Block Concept: The Government of the Republic of Zambia identified Agriculture as the Engine to Economic development as well as the Main stay of the Economy. To this effect in 2002 GRZ embarked on development and commercialization of agriculture land as the Farm Block Development Programme (FBDP). This programme entailed availing land for large scale agribusiness investment for the private sector. One Farm Block was targeted for development in each Province with a total catchment area for each Farm Block of 100, 000 hectares.

Zambia participated in this year’s Forum and the delegation led Mrs. Kayula Siame, Permanent Secretary, Ministry of Commerce, Trade and Industry, comprised officials from both public and private sectors.

Talking Business Africa Forum: This was an interactive session between selected African governments and the Business.

It provided a platform to showcase investment opportunities in these African countries, but at the same time provide an opportunity to Investors to explore new investment horizons and interact with high-level country representatives. Countries representa-

There was a question and answer session and the vast majority of those questions were directed to me as the Zambian representative as I had made a presentation on Investment opportunities in Zambia, with a focus on Farm Blocks and Multi Facility Economic Zones as a vehicle for industrialisation and Job creation.

The key objectives of Government in the creation of the Farm Blocks include the following:

• To commercialize agricultural land and

therefore exploit its full potential in order to

attain economic diversification and growth.

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•

•

To enhance food and Nutrition security through production of adequate food for the nation and for export.

To open up undeveloped rural areas, reduce poverty through Job creation and minimize rural to urban migration.

With the foregoing, Government’s objective to commercialize agricultural land and exploit its full potential to attain economic diversification and growth, enhance food and Nutrition security through production of adequate food for the nation and for export and also to open up undeveloped rural areas, reduce poverty through Job creation and minimize rural to urban migration will be successfully achieved within a specified time frame. Further, once implemented, the recommendation will also positively contribute to the attainment of the vision 2030.

Multi Facility Economic Zones (Mfez): The MFEZ/Industrial Parks is simply an investment platform which can be created by a Developer or Manager who can either be government or the private sector. The developer so named should have provided a Master Plan or Feasibility study with details of the MFEZ/Industrial Park such as land use, infrastructure available and type of industries that would be targeted for the MFEZ. An important requirement to qualify an area as MFEZ is that it should be in a position to provide backbone infrastructure such as electricity, paved roads, water & sewerage facilities and telecommunications facilities to support manufacturing activities.

The investors eligible to operate from an MFEZ/Industrial Park are mainly those investors undertaking manufacturing or any value adding activities like processing, reengineering etc. subject to meeting a minimum investment threshold of US$500,000.

The objective of setting up MFEZ or Industrial Parks is to encourage value addition and ultimately accelerate industrialization in designated areas. The advantages of investing in these zones being, firstly, Zones are strategically located for business and secondly, investors have the benefit and of finding ready-made infrastructure to enable them immediately commence operations. Additionally, the Developer and manufacturing investor will both access the following incentives: Accelerated depreciation for capital expenditures plus Zero percent duty on imported capital goods in the first 5 years of their investment.

In concluding the presentation, I appealed to investors to consider sustainable investment as it is the only investment that involves local business people and results in partnerships and joint ventures with locals. Western countries need to see investment in value addition in Africa instead of importation of raw materials as a long-term solution to mass migration because people are always attracted to development. Economic development for Africa would mean less movement of immigrants to go and look for jobs in the West.

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Procedures & Guidelines for Certificate of Registration/ MFEZ Permit

Matongo Matamwandi, ZDA, Director Investments Application for Certificate of Registration: The Zambia Development Agency (ZDA) Act No. 11 of 2006 offers a wide range of incentives in the form of exemptions & concessions for companies investing in a priority sector or product as per ZDA Act. Anyone wishing to apply for Certificate of Registration must submit the following documents:

• Completed formal application form

obtainable from the Zambia Development

Agency offices; Application forms that are

incorrectly filled, incomplete or altered will

CANNOT be processed.

• Copy of certificate of Incorporation;

• Copy of certificate of Share Capital;

• Copy of an official list of shareholders and/or directors;

• Business plan and/or feasibility study;

• Verifiable evidence of project finance; bank

statements (in English), loans, credit

facilities, verifiable invoices and bill of lading

for equipment & machinery etc

• Brief resumes/CVs for shareholders and/or directors;

• Certified Identity cards of shareholders and/ or directors

• Non-refundable application processing fee

of K2,133 (Cash or Managers’ Cheque).

• License fee of K12,783 (Cash or Managers’

Cheque). This is payable on collection of the

certificate of registration.

Qualifying Thresholds: The Act provides for investment thresholds that have to be met to qualify for fiscal and non-fiscal incentives. Projects that qualify may be new or existing ones undergoing expansion or modernization.

Fiscal Incentives: Investors who invest not less than $500,000 are entitled to the following fiscal incentives: Manufacturing: Manufacturing incentives only apply to activities located in a Multi-facility Economic Zone (MFEZ), an industrial park or a rural area and these are:

• Accelerated depreciation on capital

equipment and machinery (fixed assets)

• Zero percent import duty rate on capital

equipment and machinery for five years.

Priority Sectors: Investors who invest not less than $500,000 in a priority sector are entitled to Zero percent import duty rate on capital equipment and machinery for five years. The priority sectors are listed below: Construction and Establishment of Infrastructure, Excluding Renovation, Expansion and Refurbishment o Education: Construction of education and

skills training institutions o Health: Construction of health centers’ as

defined under the Health Professions Act 2009.

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o Tourism: Construction and establishment of

hotels, convention centres, exhibition

centres, museums, theme parks, art

galleries and theatres as well as the

construction and establishment of a large

retail complex containing a variety of ten

or more stores, restaurants or other

business establishments housed in a series

of connected or adjacent buildings or in a

single large building. o Housing: Development of fifty (50) or more

houses erected or maintained under one

management or control on land developed

specifically for the citing of such houses

in accordance with a comprehensive plan

which provides for the laying out of roads

and the furnishing and availability of services

essential or ancillary to the use of such

building as houses; o Agriculture: construction of crop and grain storage facilities.

Energy and Water Development: o Power: Building, installation of power stations o Fuel: Building and installation of processing

and refinery plants for bio-fuel. Construction

of petroleum refineries, pipelines and rural

filling stations. o Water Supply: Depots, dams, irrigation

canals and water and sewerage treatment plants.

Non-fiscal incentives: Investors who invest an amount not less than $250,000 in any sector or product under the Act is entitled to non-fiscal incentives which are Investment guarantees and protection against state nationalization and free facilitation for application of immigration permits, secondary licenses, land acquisition and utilities. The Certificate of Registration is valid for ten (10) years from the date of issue. The investor may apply for renewal of the Certificate of Registration before the date of its expiry.

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Secondary Licenses: Listed below are examples of secondary licenses that a company might require:

• Environmental Impact Assessment (EIA).

All investment projects require either a

project brief or a full Environmental Impact

Assessment (EIA) that is done by the

Zambia Environmental Management Authority (ZEMA)

• Telecommunication License. Projects in

telecommunication such as mobile cellular

companies, internet service providers

(ISPs), etc. require a telecommunication

license obtained from Zambia Information

Communications and Technology Authority

of Zambia (ZICTA)

• Tourism Licenses. Hotels, Safaris hunting/

walks, Tour Guides, Casinos, Restaurants,

Night clubs, projects operating in

national parks and Game Management

Areas (GMAs), etc. require licenses and

permits from Zambia National Tourist Board

(ZNTB), Zambia Wildlife Authority (ZAWA)

and Local Municipalities

• Financial and non-financial Institutions such

as Banks and Bureaus require approval

from Bank of Zambia.

• Insurance companies and insurance brokers

require authority from the Pensions and

Insurance Authority (PIA) or Securities Ex

change Commission (SEC).

• Medical projects such as clinics, surgeries,

dispensaries and drug companies require

approval from the Pharmaceutical regulatory Authority (PRA)

• Stock brokers have to be registered with

the Securities and Exchange Commission (SEC).

• Manufacturing projects require a

manufacturer’s license from local municipalities.

Zambia Development Agency Investments Unit Privatization House

Nasser Road, LUSAKA Tel: +260 1 220177 Email: info@zda.org.zm

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MIYOBA, Caroline, “Freedom of the Press...............”, Lechwe Trust

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Simplifying the tax code Mining taxes consultation VAT being replaced Transfer pricing under focus

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ANALYSIS

How Companies are Taxed in Zambia A Guide to the Tax Framework

The theme for the 2019 National Budget is “Delivering Fiscal Consolidation for sustainable and Inclusive Growth” and to this end this budget includes the amendment of the Republican Constitution; expansion of health and education facilities; improved road infrastructure and the provision of social safety nets for the most vulnerable.

Fiscal Policy: Government has continued to implement measures that aim to simplify the tax system and make it fairer in order to expand the tax base and increase compliance and has altered tax rates in order to optimise revenue collection. This will be through continued modernisation and automation of revenue collection processes coupled with an upscale in tax payer education and services. Tax incentives are being rationalised.

Corporate Company Taxes: Corporate Income Tax is governed

by Chapter 323 of the laws of Zambia. Generally corporate income tax rate in Zambia is 35% aside farming that is at 10%, Public benefit organisation at 15% as well as 15% on non-traditional exports. Income earned by companies in the first year of listing on the Lusaka stock exchange qualifies for a 2% discount on the applicable company tax rate in the particular sector.

However, companies with more than 1/3 of their shareholding in the hands of Indigenous Zambians qualify for a 7% discount.

Interest deductions exceeding 30% of a company’s earnings before Interest, Tax, Depreciation and Amortisation (EBITDA) will not qualify for deduction for purposes of Corporate Income Tax.

The corporate income tax rate has been reduced from 35% to 15% for companies engaged in value adding activities relating to copper cathodes.

Mining Tax: Mining still remains the most important contributor to the country’s GDP and forex as most of the countries forex is from exportation of copper. The focus in the mining sector is broadening the tax base and enhancement of mineral production to include non-traditional minerals, such as gemstones and industrial minerals among others. Government will also strengthen the regulatory framework and enforcement in the sector to curb avoidance in payment of taxes and levies. Government will continue with the geological mapping programme for the remaining 40% of the country. Government will also continue to support artisanal and small scale miners through the Development Mineral Capacity Building Programme. Further, promotion of downstream value chains will be emphasised. The Mines and Minerals Development Act will be amended to include an obligation by anyone in possession of minerals to account for mineral royalty tax, where it has not been accounted for. Currently, only persons who are not in possession of a mining license are mandated to account for mineral royalty where it has not been accounted for.

Mineral royalty will be non-deductible for corporate income tax purposes. Mineral royalty a final tax. Mineral royalty rates will be increased by 1.5% across all levels and a fourth mineral royalty tax bracket will be introduced on which 10% mineral royalty will apply when the copper price exceeds USD 7,500 per ton.

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Tourism: Zero rated for VAT - tourist packages and other tourist services. No import VAT on all goods temporarily imported into the country by foreign tourists. Refund to non-resident tourists and visitors i.e. shouldn’t hold a Zambia passport. Any company operating in the tourism and hospitality industries to issue invoices using Electronic Fiscal Devices.

Electricity Generation: Zambia is a land-linked country with many water bodies that are a source of hydro-electricity generation, due to an increase in consumption of power in the region; Zambia has been an exporter of electricity in the region. The government would like to get more investors in this sector, as a result electricity tariffs were increased as well as better tax incentives introduced in this industry.

Capital Allowances: A tax depreciation on fixed assets at prescribed rates, these are provided for in the Income tax act. Below are rates on qualifying expenditure:

ANALYSIS

Common Deductibles: All expenses incurred wholly and exclusively for business purposes by a company are tax deductible. They must be revenue and not capital in nature and realised. Further, Losses & expenditure must be offset against the same source income.

o Benefits which cannot be converted into

money or money’s worth are taxable on the company.

o Leasing; these are amounts which cannot

be converted into money’s worth. Any other

lease which is convertible into money’s

worth is taxable under PAYE.

o Motor vehicles to employees on a person

al-to-holder basis, the benefit to be disal

lowed in the employer’s tax computation

depends on the engine capacity of the vehicle.

o Expenses incurred on entertainment,

hospitality and gifts are generally not allowable.

Other Incomes: These are taxed separately, this includes interest Income, dividends, income from letting of property if that is not the main course of business, royalties etc.

Income Tax Returns: This is a ZRA post registration requirement. ZRA operates a self-assessment system were a tax payer estimate there taxable profit/loss. Every company and individual has a Tax Payer Identification number (TPIN) as a unique number for tax purposes. The return must include: Tax computation and audited financial statements, shareholders, directors, place of board meetings held and proof of payment of taxes. Huge tax payments may be liquidated through a time to pay agreement (TPA) and settled over a longer period of time. Penalties for late submission of a return are K600 per month/part thereof and 5% for late payment of tax due per month. The return should be filed 6 months after the fiscal year end.

The 10% initial allowance is only granted in the first year that an item is put to use. Furthermore, capital allowances are granted every year based on the item category and the rate prescribed in that year, this is on a straight line basis. In the case of disposal of assets, a balancing charge is a means of making sure too much tax relief on the cost of an asset is not claimed. It will increase the amount of profit on which tax is paid. A balancing charge is the opposite of a capital allowance, which reduces the amount of profit on which tax is paid.

Provisional Tax: A provisional estimate of tax payable for the year and is deducted against the final tax payable. The law requires that at least two thirds of the tax liability is paid in provisional taxes. In the event that taxes are underpaid, an under-estimation penalty of twenty-five percent (25%) of the tax which has been underpaid is charged.

Tax Losses: Losses are carried forward for a period of 5 years to be offset against future taxable profits for non-mining companies. The diversification of the economy and the need for private participation in certain industries like electricity generation, the period to carry forward tax losses is 10 years.

Skills Development Levy (Sdl): This provides for the imposition, payment and collection of SDL at a rate of 0.5% of gross emoluments; and to provide for matters connected with, or incidental to, the foregoing. This is liable on the employer and not the employee.

Value Added Tax (Vat): The 16% on goods and services; the tax is Bourne by the final consumer. A company may claim VAT incurred in purchases within 3 months of the invoice being issued. VAT will be replaced with Goods and Services Tax (GST) during the year.

Goods And Services Tax (Gst): The reintroduction of GST is expected to be effective from 1 April 2019. As a result, the Value Added Tax Act will need to a GST Act. The Government believes that the non-refundable GST will be simpler to administer. ZRA will finalise audits of outstanding VAT refunds and will settle refund claims which have already been verified. All unpaid VAT and outstanding assessments will be collected. In order to implement the non-refundable Sales tax, the Government has proposed the introduction of an exempt list of major inputs for the manufacturing sector to cushion the local companies. Zambian businesses have been requested to submit a comprehensive list

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ANALYSIS

of major production inputs through the ministry of commerce, trade and industry for consideration by the tax review committee under the ministry of Finance.

K3,000) to 80,000,000 million penalty units (i.e. K24,000,000).

Transfer pricing assessments may be raised for a period exceeding 6 years but not exceeding 10 years.

Export of Goods: These are generally zero rated for VAT purposes and purchases directly incurred may be recovered as input VAT. A 15% export duty on precious metals including gold, precious stones and gemstones has been introduced.

Personal Income Tax: Individuals and sole traders are liable for personal tax. Each individual must also submit a return. This return should disclose all income earned i.e. dividends, rental income and other income earned in a year and tax payable if any. For an individual to be taxed they must be resident in Zambia. Zambia uses a source based system of taxation. All income earned by an individual globally as a result of work carried out in Zambia should be taxed regardless of where/how they receive the payment. An individual may not be taxed in Zambia if they are in country less than 183 days in a charge year i.e. the individual is not resident in Zambia. Under the PAYE system, the obligation is on the employer to withhold taxes from the employee’s emoluments and pay these to ZRA. This is graduated at 0%, 25%, 30% and 37.5%. Cash benefits paid in the form of allowances are taxable on the employee under PAYE and these include Education, Housing/Settling allowance, Entertainment allowance, Transport/fuel, Commuted car allowance, Electricity, telephone and water bills, Allowances paid in recognition of an employee’s professional qualifications, club membership fees. The following expenses are exempt from tax: Ex – Gratia Payments, Medical & Funeral Expenses, Sitting Allowances for Councillors, Labour Day Awards, Pension Benefits and Gratuity.

Customs & Excise Duty: Duty drawback is an export program that enables local manufacturers to get back any taxes incurred on goods produced for export. In order not to impede exports, Zambia has duty drawback schemes. It is possible to manufacture in a bonded warehouse. The duty draw back system avoids double taxation. The scheme benefits exporters by reducing the export price thereby increasing the competitiveness of local products on the local market. This scheme gives investors a very enabling environment that would avoid over-taxing. This encourages manufacturing companies to invest in the country as most taxes incurred on import of most raw materials are refunded on export.

Capital Gains Tax: There is currently no capital gains tax in Zambia. Therefore, any gain in an investment is fully enjoyed by the investor.

Property Transfer Tax (PTT): Any transfer of immovable assets attracts PTT; this includes transfer of intellectual property, Land, mining rights/ interest in mining rights as well as shares at a favourable rate of 5% and 10% for mining rights. This is a final tax.

Issuance of new shares does not attract any tax.

Withholding Tax (WHT): Zambia is not an island in trade, therefore there has been an increase in double taxation treaties (DTT) with various countries, and currently Zambia has DTT’s with 22 countries. These treaties help reduce WHT tax rates for transactions like Dividends, Interest payments, management fees, commissions, if no treaty is in place the rate for WHT is mostly 20%. Withholding Tax (WHT) on dividends, interest, and branch profit remittances to non-residents has been revised from 15% to 20%.

Transfer Pricing Regulations: It is international practice that related parties are treated the same as unrelated partied i.e. transactions must be at arm’s length to avoid profit shifting. In Zambia disclosure of related parties has always been required.

All companies whose turnover exceeds K20 million or US$ 2million should have transfer pricing documentation in place. ZRA audit function will work to address base erosion and profit shifting (BEPS). The penalty for non-compliance with the transfer pricing regulations has been revised from 10,000 penalty units (i.e.

National Pension Scheme Authority (Napsa): This is a compulsory national social security scheme even for expatriates and casual workers. The employer and employee are each required to contribute 5% of the gross emoluments on a monthly basis.

Late contributions to NAPSA attract a penalty of 20% per month.

There is a contribution ceiling that is revised annually.

Workers Compensation Control Fund: It is compensation that an employer is obliged by law to pay to workers or their families, when such workers are injured or killed as a result of an accident arising in the course of their employment; or when they suffer from certain scheduled diseases caused by the workers’ particular trade or occupation. Companies with more than 5 employees should be registered for this scheme and pay at rates according to industry.

Registration of Companies Requirements: The minimum share capital requirement with the company registrar is K 15,000. Company Secretary and a minimum of two Directors, 50% must be resident.

Other Matters: Most capital equipment attracts customs duty of 0 to 5% on imports. Manufacturing activities in a Multi-facility zone, rural area or Industrial park are highly incentivised.

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Visualising Sales Tax Florence Banda-Muleya, Research Fellow II - Public Finance, ZIPAR Mbewe Kalikeka, Associate Researcher- Public Finance, ZIPAR

As dust settles from the bombshell of reintroducing Sales Tax in the 2019 Budget, the scale of its implementation challenge becomes clearer. Brought to light by increased debate over the pros and cons of Sales Tax, the Government’s selling point of simplicity of administration is certainly not convincing enough.

Our view leans towards making VAT more efficient, however, the policy decision for Sales Tax has been taken. Thus this article serves to visualise how best Sales Tax can be implemented in Zambia.

No clear-cut description has been given of what form Sales Tax will take, neither has a departure from the VAT targeted amount been announced. Surprisingly, the reintroduction of Sales Tax has happened at a point when VAT is out-performing other taxes and is currently the biggest source of revenue for the Government. The authorities’ withdrawal of VAT stems from the fact that the tax-type has not been without challenges. Until 2016, Zambia’s VAT history was poor with the tax recording negative intakes in certain years.

Tables only turned with the introduction of various VAT administrative strategies in 2017, including the appointment of withholding agents, the introduction of electronic fiscal devices and the establishment of pre-refund audit requirements. VAT collections rose from 3.7% of GDP in 2016 to 5.8% in 2017, and by midyear 2018, about three quarters of the annual VAT target was collected.

However, this VAT performance was not a true reflection of collections, as the pre-refund audits led to backlogs in VAT repayments. Indeed, the Zambia Revenue Authority (ZRA) has lamented that they have been struggling with VAT refunds, requiring an approximate K800m every month.

Sales Tax resolves the VAT refund challenge, because while VAT is charged at all levels of production with resellers paying tax to the vendor and reclaiming VAT paid on business inputs, Sales Tax is applicable to only final consumption sales at each level and not on goods to be used in production.

Thus, Sales Tax can be considered less complex for Government’s revenue collection. Herein lies the attraction: with only a single collection point, at retail stage, all tax collected is non-refundable, settling the refund challenge. Moreover, VAT and Sales Tax can supposedly yield equal amounts of revenue for the Government.

Though resolving the refund issue, Sales Tax suffers other setbacks that may end up reducing revenues. We highlight these key issues worth the Government’s consideration in Sales Tax design.

First, by disposition, Sales Tax does not have the sort of self-enforcing mechanism exhibited in VAT, where purchasers help enforce VAT as they insist on correct invoices from suppliers to claim input VAT. Thus, compliance levels under a Sales Tax are fragile. With taxes collected only at final point, the Government

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remains at the mercy of retailers who are responsible for remitting the tax collected from the consumer to the authorities.

Retailers may not remit the full amount of the tax since there is no third party to confirm with, or may choose to not charge the tax entirely because of its tediousness, or in a bid to boost their sales. Withholding agents and fiscal devices can remedy this evasion, but will require more enforcement vigour.

Second, Sales Tax can lead to cascading or the “tax on tax” effect, stemming from the tax burden falling on production inputs, which VAT avoids through refunds. Failure to address this ‘tax on tax effect’ can result in sellers passing on the tax cost accrued, to consumers. This may lead to economy-wide inflationary pressures and jeopardise the macroeconomic objective of keeping inflation within 6 to 8%.

Additionally, price increases will impact industry’s costs of production, and in turn result into slower economic activity (maybe below the 4% growth target) hence lower revenues. Mitigating cascading will require a lower Sales Tax rate, combined with use of resale and exemption certificates.

Third, and perhaps most importantly, Sales Tax is traditionally charged on goods not services. The Government has not explained how services will be taxed under the new system which can erode the tax base further. Will it be a sales and services tax?

Finally, transition to Sales Tax poses challenges. The Government will face system changes, will need to train staff and agents and confront other administrative costs in a short time period. Malaysia, which switched to Sales Tax on 1st of September 2018, estimated these requirements to cost $6Bn, about 2% of GDP in lost revenue. With fiscal consolidation steering up through perceived increased revenue mobilisation, the Government needs to create a provision for more implementation time and lost tax revenue.

So, while Sales Tax presents an opportunity, it also poses risks to revenue which must be mitigated. We urge the Ministry of Finance and ZRA to work with ZIPAR and other stakeholders to think through the design of compliance systems, how to reduce the cascading effect through resale and exemption certificates, consider what tax can be applied sustainably for services and review the transition period.

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Transfer Pricing Regulations Keeping Commercial Transactions at Arm’s Length Katrina Mabika, BDO, Director, Tax Advisory Services On 6 April 2018, the Zambian Government through the Ministry of Finance (MOF) released the Income Tax (Transfer Pricing) (Amendment) Regulations 2018 which are regulations meant to govern transactions between related parties.

The new regulations are aimed at ensuring that commercial transactions between related parties are carried out at arm’s length (i.e. terms that would apply if the parties were un-related).

These regulations affect transactions between related Zambian companies as well as transactions between Zambian companies and their counterparts in a Multinational Enterprise (MNE).

What is required of taxpayers under the new Regulations?

The new regulations provide that persons engaging in related party transactions are required to prepare contemporaneous transfer pricing documentation (in the form and manner prescribed in the regulations) that demonstrates that the company’s transactions with its related parties are being carried out at arm’s length. The maintenance of such records must be on an annual basis and must be provided to the Zambia Revenue Authority (ZRA) within 30 days of request failure to which penalties will apply.

What are the highlights of the Regulations?

We summarise below a few of the key issues in the new regulations:

• Zambian companies that are not part of a

MNE Group and have turnover below K20m

are exempt from the requirement to prepare

transfer pricing documentation. However,

such companies should still subject to all

other transfer pricing regulations.

• The documentation must be

contemporaneous (i.e. generated at the time

when a person is developing or

implementing a transaction with a related

party) and must be prepared by the due

date of the annual income tax return (i.e. 21 June).

• Low Value Adding (LVA) group services will

be considered to be arm’s length if the mark

up charged by group companies to Zambian

subsidiaries is not more than 5% of the cost.

• LVA group services are defined as group

services that no group entity provides to

third parties, create no intangibles nor

involve the assumption or creation of signifi cant risks.

• Prescriptive guidance on the information

expected to be included in a transfer pricing document.

Non-compliance with the Transfer Pricing Regulations attracts a K24m penalty. It is therefore important that taxpayers prepare transfer pricing documentation that effectively demonstrates that their related party transactions are being conducted at arm’s length.

If you need help with developing transfer pricing documentation that is fully compliant with the provisions of the transfer pricing regulations and need support during an audit by the ZRA feel free to contact the authors Katrina Mabika, katrina.mabika@ bdo.co.zm, +260 211 250222.

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William Bwalya Miko, “Market Place”, 1998, Acrylic on canvas, 101.5 x 128cm cm Lechwe Trust

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English common law and customary law Source-based system of taxation VAT is being replaced No exchange controls

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Legally Speaking Legal Aspects of Doing Business

Judicial System: The Zambian Constitution was established in 1991, and major amendments came into force in early 2016.

The Constitution is the supreme law of the nation, and all other written or customary law is subject to its provisions. The rights contained in the Bill of Rights in the Constitution are universal rights, and apply to all persons equally.

The judicial system is based on English common law and customary law. Several High Courts administer Common Law and they have authority to hear criminal and civil cases and appeals from lower courts. Local courts, where hearings are in public, mainly administer customary law, notably cases relating to marriage, property, and inheritance.

Under the constitution, the Supreme Court is the highest court and serves as the final court of appeal. The Chief Justice and other eight judges are appointed by the President. The independence of the judiciary has been respected by the government.

Definition of Foreign Corporation: The Companies Act defines a foreign company as a body corporate formed outside Zambia that is registered in Zambia under the Act. However, a foreign corporation does not necessarily have to be registered in Zambia in order to undertake once off business transactions in the country. In practice, companies incorporated or formed outside Zambia may do business in Zambia remotely, that is, without any presence or form of registration in Zambia. However,

the law requires a foreign company to apply for registration as a foreign company within 28 days of setting up or acquiring a place of business in Zambia.

Definition of Doing Business in Zambia: A person may do business in Zambia by formally establishing one of the enterprises listed below, or informally without one. Generally, doing business can be said to refer to undertaking commercial activities in Zambia for profit and it gives rise to registration, licensing and taxation consequences. These requirements may differ depending on the particular economic sector that the business is engaged in. For instance, the licensing regime applicable to the mining sector differs from that of the energy sector.

Forms of Enterprise: The following forms of enterprise may be established under statute and common law for purposes of doing business.

Statute

• Company limited by shares;

• Company limited by guarantee;

• Branch of a foreign company;

• Unlimited liability company;

• Statutory corporations;

• Sole proprietors trading under Business Names;

• Societies generally; and

• Co-operative societies.

Common Law

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• Agencies, licensees and distributors; • Partnerships; • Trusts; and • Franchises.

Source Based System of Taxation: Zambia principally operates a source-based system of taxation, and any income which is deemed to be from a source within Zambia will fall within the scope of taxation in Zambia. Generally, income will be deemed to arise from a source in Zambia if the capital or skills used to generate the income are employed in Zambia.

The instances when income will be deemed to be from a source in Zambia principally include the following:

• when skills, labor and capital used to earn

the income are employed in Zambia;

• when an agreement for the sale of goods is

executed in Zambia;

• when the income earned arises from

employment exercised or duties performed

in Zambia; or

• when the income arises from the carrying on

of business in Zambia.

In addition to the source of income, the permanent establishment (“PE”) rules may be used to determine whether a business which has a source of income in Zambia will be liable to income tax on the profits derived from the PE. The definition of PE includes a branch, office, workshop and place of extraction or exploitation of natural resources.

The tax residence of a person widens the scope of taxation.

Where a person is resident in Zambia then, in addition to business income, such person will also be liable to Zambian income tax on interest and dividend income from a source outside the Republic.

An individual is regarded as being resident in Zambia if he is present in Zambia with the intent of establishing his residence in Zambia. Further, an individual is regarded as being resident in Zambia if he has resided in Zambia at one time or several times for one hundred and eighty-three days in a year.

A company is resident in Zambia if it is incorporated or formed under the laws of Zambia. A company may also be regarded as being resident in Zambia if its central management and control is based in Zambia.

Taxable Income: A company’s or a branch’s taxable income is based on its financial statements prepared for an accounting period as adjusted for tax purposes. Any expenditure other than expenditure of a capital nature which is incurred wholly and exclusively for the purposes of the business in the relevant accounting period is generally deductible.

Corporate Income Tax: Generally, there is no distinction between the treatment of companies and branches for income tax purposes. They are both subject to a corporate income tax rate of 35%. However, depending on the nature of the entity or its business activities, this rate may vary. For instance, public limited companies listed on the Lusaka Stock Exchange enjoy a preferential tax regime, and mining companies are subject to an income tax rate of 30%. Further, although electronic com-

ANALYSIS

munication businesses pay income tax at a rate of 35% for the first K250m that they earn, income tax is payable at a rate of 40% for taxable income that they earn above K250m. Agriculture and Agro-processing are taxed at 10%, Export of non-traditional products and Production of organic fertilizer and chemical manufacture of fertilizer at 15%.

Value Added Tax (Sales Tax): Value Added Tax (“VAT”) is currently payable at a standard rate of 16%. However, certain supplies are zero rated or exempt from VAT. For example the supply of certain food and agriculture products including uncooked, frozen or dried fish and fresh edible fruits and vegetables are exempt from VAT; and the export of goods from Zambia may be exempt from VAT if the relevant documentation is provided.

It is noteworthy that the importation of services into Zambia is subject to Reverse VAT (“RVAT”). RVAT is a transfer of liability to account for and pay VAT on imported services from the person making the supply (“the supplier”) to the person receiving the supply (“the recipient”). Where VAT reverse charge is levied, the importer has no input VAT claim unless the service provider appoints a tax agent.

NB: Goods and Services tax (GST) is slated to replace VAT during 2019, however no specifics are available prior to going to print. Please refer to the ZRA website for updates in this regard.

Withholding Tax: Generally, dividends and interest payments are subject to withholding tax at a rate of 15%. However, the rate of withholding tax is 0% for dividends paid to individuals by a company listed on the Lusaka Stock Exchange. Further, management or consultancy fees and royalties paid to residents and non-residents are subject to withholding tax rates of 15% and 20% respectively. Further, the withholding tax rate for rental payments from a source within Zambia is 10%.

Although a tax treaty may reduce the above rates, this is subject to the issuance of a Limited Deduction Direction by the Zambia Revenue Authority. Zambia has double tax treaties with Botswana, Canada, China, Denmark, Finland, France, Germany, India, Ireland, Italy, Japan, Kenya, Mauritius, Netherlands, Norway, Seychelles, South Africa, Sweden, Switzerland, Tanzania, Uganda, the United Kingdom, Yugoslavia, and Zimbabwe.

Mineral Royalty: The mineral royalty rate ranges between 4% and 6% and it takes account of the prevailing copper price. The following mineral royalty rates apply where the base metal produced or recoverable under a license is not copper:

• 5% of the norm value of the base metals

produced or recoverable under the licence;

• 5% of the gross value of the energy and

industrial minerals produced or recoverable

under the licence;

• 6% the gross value of the gemstones

produced or recoverable under the licence; and

• 6% of the norm value of precious metals

produced or recoverable under the licence.

The following mineral royalty rates apply where the base metal produced or recoverable under license is copper:

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•

•

•

ANALYSIS

4% of the norm value when the norm price of copper is less than $4,500 per ton; 5% of the norm value, when the norm price of copper is $4,500 per ton or greater but less than $6,000 per ton; and 6% of the norm value, when the norm price of copper is $6,000 per ton or greater.

In 2019 mineral royalties rates for copper are to increase by 1.5% at all levels of the sliding scale, and an additional tier is proposed where a mineral royalty rate of 10% will be payable where copper prices rise beyond $7,500 per metric ton. Mineral royalty on cobalt will increase from 5% to 8%. Additionally, mineral royalty tax will no longer be deductible as a cost for purposes of determining the taxable income. An import duty of 5% on copper and cobalt concentrates is to be introduced. An export duty of 15% is to be introduced on precious metals including gold, precious stones and gemstones. Whilst the majority of the mining sector will face an additional burden, companies that use the copper cathodes to add value will see a reduction in corporate income tax rate from 35% to 15% in order to encourage value addition and creation of employment.

Paye: The threshold for Pay As You Earn is K3,300 per month.

Under the PAYE regime, a personal income is taxed as follows: First K 3,300 @ 0% K0 Next K 800 @ 25% K200 Next K 2,100 @ 30% K630 Balance @ 37.5% Establishing Local Representative Offices, Subsidiaries: The incorporation of a company, or the registration of a foreign company or a business name, is effected through the Companies Registry at the Patents and Companies Registration Agency (“PACRA”).

A company incorporated in Zambia is liable to tax on interest and dividends from foreign sources, as well as on all income arising in Zambia. A branch, like a company, is also liable to tax on all its Zambian sourced income, and on foreign interest and foreign dividends received by the branch.

Regarding statutory and accounting obligations, a foreign branch is treated as if it were an independent resident company. It is required to maintain all books of accounts locally, and it is also required to prepare and file accounts which should be audited. A foreign branch is also required to submit annual tax returns and computations based on its audited financial statements.

From a tax perspective, a branch and a company are also treated similarly. The same applies regarding the repatriation of profits. Although a branch, unlike a company, does not pay dividends, it is subject to withholding tax at a rate of 15% on the repatriation of surplus funds. This is the same rate at which dividends are taxed.

Regarding the establishment of local representative offices, both branches and companies require a registered address. In addition branches require a documentary agent in Zambia. Although there is no requirement for a branch or a company to have employees in Zambia, a branch must have one local director and

more than half of the directors of a company should be resident in Zambia. Further, although a company should have a company secretary, a branch need not have one.

Licensing Requirements: The operation of certain businesses may require licenses and/or permits from one or more regulatory authorities depending on the particular economic sector in which the business operates. Economic sectors in Zambia include mining, agribusiness, energy, tourism, telecommunications, infrastructure financial services and professional services.

Generally, establishing a business in Zambia involves the following licensing/permitting issues:

• reserving a unique business name at the

Patents and Companies Registration Agency (“PACRA”);

• opening a bank account;

• registering the company at PACRA;

• registering for taxes with the ZRA,

including Value Added Tax (“VAT”)/ Sales

Tax and Pay As You Earn (“PAYE”)

registration, and obtaining a tax payer’s

identification number;

• registering with the National Pension

Scheme Authority for employee social security purposes;

• registering the business with the Workers

Compensation Control Board;

• obtaining a sector specific licence if the

business will operated in an economic

sector subject to mandatory licensing requirements and

• obtaining a trading license and a fire

certificate from the local council.

Competition and Consumer Protection: Mergers and acquisitions are governed by the Competition and Consumer Protection Act where a merger is defined as occurring “where an enterprise, directly or indirectly, acquires or establishes, direct or indirect, control over the whole or part of the business of another enterprise, or when two or more enterprises mutually agree to adopt arrangements for common ownership or control over the whole or part of their respective businesses”. The Competition and Consumer Protection Commission (CCPC) is responsible for conducting merger regulation.

The thresholds for notification and provide that the notification threshold applies to the combined turnover or assets, whichever is higher, in Zambia of the merging parties. The combined assets or turnover, whichever is higher, must be “at least fifty million fee units” at K0.30 per unit which is equivalent to K15,000,000, in the latest financial year for which figures are available. An enterprise that comes within the control of a foreign enterprise will be subject to notification and review where the operation has an effect on competition in Zambia.

The Competition Act deals with matters of abuse of dominance, and other anti-competitive conduct. It was enacted to safeguard and promote competition in Zambia and protect consumers against unfair trade practices.

The Competition and Consumer Protection Commission regulates compliance with the provisions of the Act and has in place a complaints mechanism through which consumers and busi-

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LEGAL

ness entities can report any acts that may be in contravention or violation of its provisions. The Competition Act requires that the CCPC establish a prima facie case of the alleged conduct before formally charging the party considered to be in breach.

Where a party is aggrieved with the decision of the CCPC, an appeal can be brought before the Competition and Consumer Protection Tribunal.

Joint Ventures: Joint ventures are formed pursuant to a Joint Venture Agreement (“JVA”) which sets out the terms of the joint venture relationship. It is possible to establish an unincorporated joint venture or an incorporated joint venture in which case the parties to the JVA may decide to form a joint venture company.

A joint venture may constitute a notifiable merger. The Competition Act in relation to mergers provides that a merger is a transaction between two or more independent parties in which the parties agree to adopt arrangements for the common ownership or control over the whole or part of their respective businesses.

This acquired interest may be through an agreement to work together in a joint venture, and it may prevent the ability of a party to make independent business decisions on its operations.

Therefore, if companies seek to form a joint venture the approval of the Competition Commission may have to be obtained.

Where the acquired interest does not materially influence the decisions of the acquired party and the joint venture is created to merely support the business of the parties, this is less likely to give rise to a notifiable merger.

Public Private Partnerships: PPPs are governed by the Public Private Partnerships Act. Which was enacted to promote and facilitate the implementation of privately financed infrastructure projects and effective delivery of social services by enhancing transparency, fairness and long-term sustainability, and removing undesirable restrictions on private sector participation in the provision of social sector services and the development and operation of public infrastructure.

The PPP Unit is responsible for ensuring the proper implementation, management, enforcement and monitoring of any agreement and the reporting by a concessionaire on an agreement, and for the implementation of the PPP Act. The functions of the PPP Unit are under the supervision and control of the Ministry of Finance.

Flow Of Capital: There are no exchange controls applicable.

The exchange rates are determined entirely by market forces of supply and demand for foreign currency and there are no restrictions on externalizing profits, dividends or royalties. However, certain over the counter cash dealings in foreign exchange are limited in amount per transaction per day. There are also limits on local currency electronic funds transfers (“EFTs”) that can be undertaken at a time. However, these limitations do not apply to foreign currency EFTs. Transaction Thresholds: The Financial Intelligence Centre Regulations prescribe thresholds for specific transactions in the normal course of business specifically in relation to customer due diligence.

• Individuals: $5,000 or the Kwacha equivalent.

• Corporate entities or legal arrangement:

$10,000 or the Kwacha equivalent.

ANALYSIS

Flow of Goods And Services: Zambia’s main export commodities include copper, cobalt, agricultural products such as tobacco, fresh flowers, and cotton, electricity, and hardwood. Its main imports include capital goods, chemical products, crude oil, fertilizers, petroleum products and raw materials.

Generally, goods and services are allowed to flow freely in and out of the country subject to payment of taxes. However certain sector specific restrictions may be imposed from time to time.

For example, in the interest of food security, a ban on maize exports may be imposed, maize being the country’s stable food; and, in an effort to curb deforestation, the government may introduce export bans on timber species.

Real Estate: For foreign entities to hold interests in land in Zambia, under Zambian law, they can only own do so if they are registered in Zambia under the Companies Act and 75% of the shareholding is held by Zambian citizens.

The exception to this provision provides that land will be alienated to a non-Zambian if they are an investor within the meaning of the Zambia Development Agency Act which also states that, where a company holds an investment licence issued by the ZDA, the company can own property relating to its operations irrespective of its shareholding if it has an investment licence.

Employment: Employers needing to employ foreign employees are required to apply for employment permits for them from the Immigration Department. Such permits are usually issued for an initial period of two years with provision for subsequent extensions or renewals for up to a period of five years. Additionally, the ZDA Act provides that a foreign entity that holds an investment licence and invests a minimum of $250,000 and employs a minimum of 200 employees shall be entitled to work permits for up to five expatriate employees and a self-employment permit.

Investment Participation with Local Entities: The ZDA Act and its provisions applies to foreign companies wishing to invest in Zambia and it does not require that members or directors of the foreign entity applying for an investment registration be Zambian or all be Zambian residents in order to be granted the licence.

Under the Companies Act all companies must have at least 50% of their directors resident in Zambia. The appointment of a company secretary is restricted to legal practitioners, chartered accountants and members of the Chartered Institute of Secretaries.

Security Interests: Such interests over movable and immovable assets, are recognised in Zambia and can be registered. A pledge of shares can secure shares in a company, a mortgage can secure immovable property, floating charges can secure stock and specific charges can secure moveable property such as equipment and machinery by way of specific charge. With project finance transactions, security interests can be secured through the assignment of the project company’s interest in the project contracts.

The Companies Act contains provisions relating to trustees for debenture holders and recognizes the concept of trust and also

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ANALYSIS

the role of a Security Trustee where the appointment of a Security Trustee is a matter of contract.

A Security Trustee will usually be appointed from among the syndicate participants in a syndicated lending and will hold the security for the loan on behalf of the participating lenders.

Intellectual Property: There are numerous protections under the law in terms of intellectual property rights. These include The Industrial Designs Act provides for protection and utilization of designs, the rights of proprietors of registered designs and for the restriction, publication and communication of registered designs.

The Copyright and Performance Rights Act protects against the infringement of copyrights and performance rights, while the Patents Act protects patents against infringement or violations through the Patents Office where all patents are registered.

The Trade Marks Act protects trademarks against infringement or violations, where and further provides for the registration of trade marks in Zambia through the Trade Marks Office that was established under the Act.

Other legislation include the Merchandise Marks Act and the Plant Breeders Rights Protection Act.

Dispute Resolution: Zambia has ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards as transposed into Zambian legislation by the Arbitration Act and the Investments Disputes Convention Act provides the domestic legislation to recognize awards under the ICSID Convention. A number of regional protocols, in respect of the SADC and the COMESA investment agreements have also been signed.

The enforcement of foreign judgments is recognised under the Foreign Judgments Act which provides for the enforcement in Zambia of judgments given in foreign countries which accord reciprocal treatment to judgments given in Zambia and further for facilitating the enforcement in foreign countries of judgments given in Zambia. Before a foreign judgment can be recognised and registered in Zambia, it has to meet several conditions such as the foreign court must have jurisdiction, reciprocity between the countries, the judgement must be final, conclusive and enforceable and it should not be time barred.

In relation to arbitral awards, arbitration is highly encouraged by the courts in Zambia, with courts now more inclined to allow the parties to pursue a non-litigious route by settling disputes through mediation and arbitration.

The Arbitration Act governs arbitration in Zambia where the role of the courts in arbitral proceedings has been set out as supervisory. The Act empowers a party to arbitral proceedings to apply for interim measures as sets out the nature of interim reliefs that can be granted. The High Court of Zambia is the only court where a party can apply for interim relief in arbitral proceedings.

Where an agreement or contract has an arbitral clause, the High Court has no jurisdiction to determine the same and such matter will always be referred to arbitration for resolution.

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Mwamba Mulangala, Lechwe Trust

ART

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ARTICLE

“Confidence 6” by eMDee

“Yellow Series 4” by David Daut Makala

Whoman Exhibition Realities faced by Zambian Women

“Whoman”, the exhibition took place during December 2018 at Circus Zambia in Kabulonga, Lusaka and attracted significant visitors. It was subtitled: The Identity of Women under Zambia’s Cultures and Societal Norms. This was portrayed from a man’s viewpoint and observations of one Zambian man and one European man. They highlighted many aspects of the life of a Zambian woman, not by giving their opinions, but by raising topics such as girls’ initiation, lobola, shipikisha and gender-based violence.

David Daut Makala has exhibited over 20 times locally and internationally and was featured as one of forty extraordinary people in the 2015 edition of the Zambian publication “Extraordinary” photographed by Gareth Bentley and written by Johan Rahm.

He has artworks chosen for three major collections in Zambia: Lechwe Trust Collection; Chaminuka Collection and the Chikwanda Collection.

www.daviddaut.net eMDee is a self-taught artist who mostly makes prints. He held his first and very successful exhibition in 2018, together with David Makala and as a result now features in private collections. www.instagram.com/emdee_art_works_lusaka/

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ART

ARTICLE

Lechwe Trust A Charitable Trust for the Visual Arts in Zambia The Lechwe Trust is a charitable trust formed in Zambia in 1986.

Its founding members were Cynthia Zukas MBE, the late Bente Lorenz and the late Henry Tayali. The Aims and Objectives of Lechwe Trust are to promote and encourage the visual arts in Zambia and provide assistance and encouragement to Zambian artists to further their artistic education by:

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promoting artistic knowledge and an arts training programme in Zambia providing scholarships in Zambia and abroad for talented Zambian artists purchasing or commissioning works of art to be displayed in public places supporting and encouraging individuals/ groups to work toward the promotion of the visual arts in Zambia and the preservation and display of the material culture of Zambia; “the visual arts” include painting, drawing, sculpture, ceramics, contemporary and traditional crafts promoting and financing exhibitions in Zambia and the sub-region and abroad

Some of the organizations they have supported include: Mpapa Gallery, Zintu Arts and Cras Foundation, Evelyn Hone College of Applied Arts and Commerce, Zambian Open University, Zambia National Visual Arts Council, Choma Museum, Lusaka National Museum, Copperbelt National Museum, Mbile and Insaka International Artists Workshops. Today, the Lechwe Trust owns one of the most comprehensive collections of contemporary Zambian art. The collection was started in 1987 to secure exceptional art pieces from leaving the country and now holds close to 400 paintings, drawings, prints, ceramics, wood and stone sculptures. It is a fine example of the development of art year by year from before independence right up to today.

The collection is housed in a purpose built facility, the Lechwe Trust Art Gallery that is in The Galley Office Park, Lagos Road, Rhodes Park, Lusaka. It was made possible with support from the Aylmer May Cemetery Restoration Trust.

BRIG would like to acknowledge the contribution of works from the Lechwe Trust Collection used with their kind permission in this book. In particular William Bwalya Miko for his selection and curatorship of the images and Nicholas Mukupa for provision of high-quality photographs of the works.

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“Yellow Series - 2” by David Daut Makala

“Portrait of my Niece - 2” by David Daut Makala

“Hair - 3” by eMDee

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“Wife - 8” - by eMDee

“Stare 2” - by eMDee

“Paid by 2” by David Daut Makala

“The Dancers” by David Daut Makala

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