ZAMBIA Investment Guide
Openness to Foreign Investment
Subsequent to the conclusion of the privatization of its vast copper mining
business, Zambia has now opened the doors for foreign
investment and donor cash injections that could put the country back on the
path of economic recovery. International organizations, however, have made not
so strident indications that they would like to see greater advances in the
areas of human rights and corruption as significant loans are disbursed.
Nonetheless, the completion of the privatization of the state's largest copper
mine is a strong statement by the authorities that they remain committed to
reforming the economy. The giant Zambia Consolidated Copper Mines (ZCCM) parastatal
was dissolved after its main assets - the Nchanga, Konkola, and Nampundwe mines
- were sold to South African mining company Anglo American Plc. The remaining
assets of ZCCM were sold to a consortium comprising of Canada's First Quantum Minerals Limited and Swiss trader Glencore
International AG. What is left of ZCCM has been transformed to a holding
company, under the name ZCCM Investment Holding PLC. ZCCM has interests in many
industries, including a 10 percent stake in Mopani Copper Mines and 20 percent
in Konkola Copper Mines PLC.
In the last thirty years, copper production has been declining steadily from a
1973 high of 700,000 tons to a 1999 low of 250,000 tons. This decline can
mostly be attributed to poor management and the lack of investment into ZCCM by
the state. The efforts to keep ZCCM afloat cost the Zambia Government sorely
needed donor funds and inhibited multilateral and bilateral support. The return
of efficient management to the copper mines coupled with new and replacement
investment is likely to reverse the downward trend in production and exports.
The privatization of parastatals has also meant that creditors are more willing
to follow through with debt forgiveness proposals. Debt cancellation is
continuing under the terms of the 1999 agreement with the Paris Club of creditors
in which 67 percent of the US$1 billion debt affected (incurred before 1983) is
to be written off. Under the IMF and World Bank's Heavily Indebted Poor
Countries initiative, Zambia is expected to receive approval for the
relief by the middle of 2001. Zambia's total external debt is US$6.5 billion.
The commitment of the Zambian authorities to immerse further in the global
market economy is underscored by the recent instability in neighboring
countries. Zambian officials, despite pressures against it, have affirmed on
many occasions their firm commitment to peace and economic stability.
The political and economic conditions in neighboring Zimbabwe should have generally negative effects on the Zambian economy since
virtually all road and rail transport is routed through Zimbabwe. However, due to the limited amount of capital
transactions between the two countries, fund markets should emerge unscathed.
Agriculture is one sector which may benefit from the problems in Zimbabwe. The Zambia National Farmer's Union (ZNFU) has
reported that about three dozen Zimbabwean commercial farmers have purchased
land in Zambia, and many more have enquired about
shifting their base in the wake of the threatened displacement. In Zambia, where land possession is not an emotive issue,
large tracts of arable soil remain virgin. In addition, Zambia's investor-friendly laws allow the Government to
offer land for free or at a minimal fee to investors who are committed to
develop the country's long-neglected agriculture industry Financial analysts
that specialize in the Sub-Saharan region rate Zambia in the top seven destinations for foreign direct investment.
Currency Conversion and Transfer Policies
Zambia has removed all restrictions on
conversions of kwacha into foreign currencies, and all restrictions on
transferring money into or out of the country. Foreign exchange is freely
available at market determined rates.
Expropriation and Compensation
Investments may only be expropriated by an act of Parliament relating to the
specific property expropriated. The law states compensation must be at a fair
market value. The method for determining fair market value is ill-defined.
Land, which is held under 99-year lease, may revert" to the Government if
it is ruled to be undeveloped. So far, no privately held land has
reverted," but it has occurred for parastatal and university lands.
Dispute Settlement
There have been relatively few investment disputes since the MMD Government
took office in 1991. The investment code provides that disputants first resort
to internal dispute settlement and, failing that, then the parties may go to
international arbitration. The state recognizes international arbitration as
binding. Zambia is not a member of the International Center for the Settlement of Investment Disputes
(ICSID - the Washington Convention).
The courts in Zambia are reasonably independent, but
contractual and property rights are weak. U.S. companies have been successful in getting court rulings enforcing their
contracts, even against parastatal companies. There is no bankruptcy law in Zambia. Secured interests in property are possible and
recognized, but fairly rare. There is no system of recording these interests.
Performance Requirements and Incentives
There are no requirements for local content, equity, financing, employment or
technology transfer. The Investment Act provides general incentives for
investments in rural enterprises, farming, and non-mineral exports. Companies
listed on the Lusaka Stock Exchange also qualify for reduced corporate income
tax.
There are currently no areas designated as free trade zones or free ports.
There is legal provision, however, for the establishment of free trade zones or
manufacturing in bond.
Private Ownership Rights
There is a right of private ownership of business
enterprises. There are no business ventures reserved solely for the Government.
Private entities may freely establish and dispose of interests in business
enterprises, but Investment Board approval is required to transfer an investment
license for a given enterprise to a new owner.
Protection of Property Rights
Enforcement of property rights in general is weak in Zambia. Planned legal reforms include the strengthening of commercial law and
property rights.
Transparency of Regulatory System
Current business laws are outdated and some modern business practices are not
covered under current law. Tax laws have improved, but enforcement concentrates
on the formal sector, while a large informal sector goes untaxed
Political Violence
There have been no recent instances of politically motivated damage of projects
or installations. Civil disturbances are rare in Zambian and will likely remain
so. Unrest in countries bordering Zambia have caused
refugee influxes in the past, and contributed to crime near the borders.
Corruption and Crime
Zambia has established an Anti-Corruption
Commission, but there is little track record as yet. Laws and penalties exist
for efficient enforcement. Governmental corruption is a continuing problem,
particularly in procurement and contract tendering. It is not illegal or
unusual for Government officials to win Government contracts.
Labor
There is an abundance of unskilled labor, and adequate semi-skilled labor.
Skilled and professional workers are in short supply. The Government adheres
closely to ILO conventions. Labor-management relations vary by sector. Strikes
are not uncommon in the public sector, or parastatal industries, particularly
related to delayed payment of wages
International Investment Agreements
There are no known bilateral investment treaties.
Foreign Trade Zones
There are no free trade zones.
Taxation
The general corporate profit tax rate is 35 percent, with a special rate of 30
percent for companies listed on the Lusaka Stock Exchange, and 15 percent on
profits from agricultural activities and non-traditional exports. Banks with
profits exceeding 100 million kwacha are subject to a 45 percent tax on
profits.
Stock Market
In 1994, Zambia's Lusaka Stock Exchange opened. By the end
of the 1990s, Zambia's market listed eight companies. With the
increase of privatization of state enterprises over the next couple of years,
the number of securities is expected to increase.
For more information in the Lusaka Stock Exchange, see: http://www.luse.co.zm/
Sources: International Monetary Fund (Country Watch): http://www.imf.org