Socio demographics Analysis

The population of Zambia stands at 11 million (UN, 2005) and increasing at the rate of 1.7% annually. The Capital city is Lusaka (population 3.5). It has an area of 752,614 sq km (290,586 sq miles). Rate of unemployment is estimated at 50% of the population but decreasing.

Development is concentrated at the railway line and hence the population too. Illiteracy levels stand at 19.4% (male 13.2%, female 25.2%).

Access to water and sewerage services is estimated at 50% of the population. There are 111 airports, of which only 10 are paved. Paved roads cover 20, 100 km while unpaved roads are 71,300 km. The railway line is 2,100 km long. Life expectancy is at 38 years (men), 37 years (women) (UN). GNI per capita is US $490 (World Bank, 2006).

Customers & Stakeholders Analysis

Biggest customer is the Mining companies- mainly owned by Australians

Others
i. Water authorities
ii. Local Authorities
iii. Road development authority

Economic Analysis

Zambian government has enjoyed good foreign trade relation especially within SADC. Its GDP Per Capital is about $500. In 2006, agriculture accounted for 20% of the GDP while industry and services accounted for 30% and 50% respectively.

A buoyant copper sector and strong growth in tourism and construction underpinned moderate growth in 2005. GDP growth of 4.5 per cent was, however, slower than expected, reflecting the drought experienced in many parts of the country, the high price of imported oil and fuel shortages, and a non expansionary fiscal policy. In 2006, GDP grew by 5.8%.

inflation is reducing and averages 7-10%. Interest rates are reducing too and currently range at 18-19%. Stable fuel supplies, better rainfall and continuing investment in mining are expected to boost growth to 5 and 5.5 per cent in 2007. Mining is rebounding with 6 mines with output of 18 million tonnes of copper per year.


Achieving broad-based growth is a major challenge, since mining generates few spill-over effects for the rest of the economy, while about 70 per cent of the population still lives below the poverty line.

In 2004, the authorities undertook a major fiscal consolidation effort and began reforms to improve public administration and expenditure management. This contributed to achievement of the Heavily Indebted Poor Countries (HIPC) Initiative completion point in April 2005 which triggered the cancellation of $3.9 billion of external debt.

Restored donor confidence translated into larger flows of aid and an increase in the proportion provided in the form of direct budgetary support. Improved fundamentals, coupled with high world copper prices, led to a surge in capital inflows and foreign reserves and an appreciation of the kwacha.

At the end of 2005, the authorities finalised the fifth National Development Plan which succeeds the Transitional Development Plan in shaping governments priorities to sustain and broaden the economic gains achieved in the last four years. Rural infrastructure, agricultural development and measures to combat the HIV/AIDS pandemic constitute the core of the plan. Currently there is a railway line project in progress linking the copper belt and North -Western Province.

Although growth is expected to be driven mainly by mining and construction, investment in rural infrastructure and support to labour-intensive sectors, such as agriculture and manufacturing, are seen as essential to increasing employment and reducing poverty. There is big potential for agriculture in Central and Southern Provinces.

In line with the fiscal consolidation efforts undertaken in 2004, estimations for 2005 indicated that budgetary performance was broadly on track, thanks to the combined effect of reduced debt service following achievement of the HIPC completion point and lower government borrowing, which declined from 5.2 per cent of GDP in 2003 to an estimated 1.9 per cent in 2005. In addition, the government engaged in important efforts to limit public expenditure.

Nevertheless, thanks to increased donor support and careful control of expenditure, the overall budget deficit is estimated to have decreased to 2.3 per cent of GDP in 2005, from 2.8 per cent in 2004. Zambia remains highly dependent on donors' assistance which finances some 30 per cent of the government budget.

The commitment to maintain fiscal discipline and improve budget execution (which is estimated to have increased to 70 per cent in 2005 from 40 per cent in 2004) has brought renewed credibility to the government. This has led to new donor pledges to increase aid volumes (complementing resources released by debt relief), improve their predictability and provide a greater proportion in the form of direct budgetary support.

The trade balance is expected to slightly deteriorate in 2007.

The stock market is currently not very strong and does not offer any bright prospects.

Corruption is fairly prevalent but its reducing with more awareness by the public especially because of a vigilant media keen on reporting any forms of corruption.

Environmental Analysis

The environment regulatory authority (ECZ) is quite strict and has a legal framework on environment. There is more awareness on conservation with strict enforcement.


Political Analysis

Zambia's political situation has been stable since the Movement for Multiparty Democracy (MMD) came to power in 1991. The MMD has promoted a transition from the centrally planned economy which had been in place since independence in 1964 to a market oriented one. The first MMD government, led by President Frederick Chiluba, launched comprehensive economic reforms but was accused of widespread corruption and political interference in economic activity.

In 2001, after a failed attempt to change the constitution to allow a third mandate for the president, the chosen MMD candidate, Levy Patrick Mwanawasa, won a closely contested election and put the fight against corruption at the heart of his political programme. He won re- election in the latest general elections in September 2006.

Politics however are not necessary kind to investors. The government has a preference to Chinese contractors. There are also uncertainties on changes in government policy in the future. It is also affected by instability in neighbouring countries, the DRC and Zimbabwe.

On a positive note, donor relations are good and with regional integration – (Comesa and SADC) getting work permits will become easier.


Technical Analysis

Has good potential for skilled labour. It has adequate technical training Institutions-two universities ,one on the Copper belt and the other in Lusaka.

Industry Analysis

Copper export volume should continue to grow strongly at about 8 per cent but lower international prices are expected to lead to a more moderate increase in value. Furthermore, imports will rise by an estimated 12 per cent, reflecting investment in mining and infrastructure rehabilitation-related expenditures.

The prospects for non-metal exports are less clear cut. The sector is likely to suffer somewhat from the appreciation of the kwacha. Although a stronger currency could drive down the price of imported inputs, the net effect will also depend on the relative import content of the various sub-sectors. Besides currency considerations, other obstacles remain to the expansion of non-metal exports and improvement of their international competitiveness.

Mining and quarrying output increased by 5 per cent in the first two quarters of 2005 compared with the same period of 2004, mainly reflecting positive growth in stone quarrying and coal mining. Buoyant demand and record-high prices boosted investment and production in the copper sector, continuing the 2004 trend.

However, copper production suffered from oil shortages, strikes at Konkola Copper Mine (KCM), the largest copper producer, and floods at Mopani Copper Mines (MCM), the second largest.

Preliminary figures indicate that copper production increased by only 5 per cent in 2005 against 12 per cent in 2004. This contributed to the slowdown in the sector's growth, from 13.9 per cent in 2004 to 2.8 per cent in 2005. Production shortfalls at the biggest mines are expected to be offset by reinvestment in the Copperbelt mines and new production from two mines opened in 2005.

Kansanshi, owned by First Quantum Minerals (Canada), is expected to produce 91 000 tonnes, while Luanshya, owned by J&W Investments (Switzerland), set a target of 50 000 tonnes for 2005, and plans to expand it to 67 000 tonnes in 2006. Total copper production is expected to increase to about 600 000 tonnes in 2006.

The process of commercialisation of the Zambia Electricity Supply Corporation (ZESCO) is underway, with the appointment of a new Board of Directors, dominated by private sector representatives.

Considerable investment has been secured, moreover, for expanding power generation capacity. ZESCO has signed a memorandum of understanding with Farab International of Iran for building a 120 megawatt hydroelectric power plant on the Kafue River and with Sinohydro of China for an even bigger power plant at the Lower Kafue Gorge (600 megawatt).

Zambia is a landlocked country, which shares borders with eight countries and therefore constitutes a potential regional hub with, notably, the north-south transport corridor, linking DRC with South Africa and Tanzania and improved transport links with Angola.

However, the current network is not designed to take advantage of the strategic location of the country in the sub-region. In addition, internal connectivity is hampered by the presence of several water crossings, long distances and low population densities.

Poor infrastructure entails high transport costs (estimated to account for 60-70 per cent of the cost of production of many goods), limits the development of markets, reduces mobility and exacerbates the consequences of food crises. Road accidents and associated deaths, injuries and property damage impose an additional heavy toll on the country and its people.

The transport network in Zambia includes all four modes of transportation: rail, road, civil aviation, and inland water transport. Historically, the physical transport infrastructure was developed to link Lusaka and the Copperbelt with the main north-south routes.

Out of a total road network of 67 671 km, only 37 000 km are gazetted, of which 18 per cent are paved, 23 per cent are gravelled and 59 per cent are dirt roads. The bulk of the formal road network was constructed during the first decade after independence and, owing to the lack of adequate maintenance through to the mid- 1990s, it has gradually deteriorated.

In particular, the quality of paved roads has been severely affected by systematic overloading of trucks and poor drainage, resulting in widespread potholes. The quality and practicability of dirt roads is vulnerable to weather conditions, holding back the further development of commercial agriculture, which in fact remains concentrated around Lusaka.

Institutional and resource constraints combine to explain Zambia's poor road maintenance track record. They include blurred responsibilities among road management agencies, a poor regulatory framework which negatively affects private contractors and limited and erratic budgetary transfers to the appropriate local authorities.

A 15 per cent levy on fuel constitutes the chief source of financing of the Road Fund. Rail and road mobilise about three-quarters of total goods trade, with approximately 2.2 million tones transported by road as compared to 400 000 tonnes by rail.

In this context, improvement of road transport features prominently in the government's strategy for enhancing economic growth. In order to provide a coherent policy framework to the transport sector, the government approved a transport policy in 2002 and launched a strategic plan for the period 2003-07. Road infrastructure programmes initially focused on the rehabilitation of trunk and district roads linking Lusaka with Coppermines.

The strategy has increasingly shifted towards rehabilitation of rural and feeder roads in order to facilitate access to markets for agricultural products and to tourist areas, as well as to completion of transport corridors to neighbouring countries.

There are also plans to open new alternative railway routes to the sea and, notably, to such ports as Lobito Bay (Angola), Walvis Bay (Namibia), Beira and Nacala (Mozambique).

The governance structure of the sector has also been reformed. With a view to clarifying the management and financing of the core network, three road agencies, namely, the National Road Development Agency (NRDA), the National Road Fund Agency (NRFA), and the Road Transport and Safety Agency (RTSA), have been created and became operational in 2005.

Under the new configuration, NRDA is responsible for planning, procurement, supervision and monitoring the whole road network and for centralising functions which were previously split up between various line ministries. Similarly, the NRFA co-ordinates all resources for the road sector, including government and donor funding and user charges.

Accordingly, the fuel levy for routine maintenance is now channelled directly to the NRFA, avoiding the slippage and erratic fund flows caused by its previous inclusion in the overall government budget.

The RTSA is responsible for transport licensing, traffic safety and axle load control. In tandem with institutional reforms, substantial donor support has been granted to the Road Sector Investment Programme (ROADSIP I) since 1997.

During the implementation of its first phase, completed in 2003, progress was made in rehabilitating urban, trunk, main and district roads, while the rehabilitation of feeder roads fell far short of the target, largely because of erratic government funding and the inadequate capacity of local authorities to execute rehabilitation works.

The government is currently undertaking the second phase of the programme. The 10-year ROADSIP II (2004-2013), which represents spending totaling $1.6 billion, has four main objectives: to bring the core road network (40 113 km of which over half are classified as trunk, main and district roads and the remainder as feeder, urban and parks roads) into serviceable condition; to strengthen the technical and managerial capacity of the new road authorities; to create employment opportunities in the road sector; to improve road safety and environmental management in the road sector through the establishment of procedures and guidelines.

Against a background of progressive phasing-out of donor support for road maintenance and expansion – it is expected to end altogether in 2013, the government is preparing a financial strategy to generate adequate revenues for the NRFA through the adjustment of the fuel levy and the introduction of additional user charges.

In addition, the authorities are working on ways to attract private sector participation in road construction through public-private partnerships (PPP). So far, private sector interest has been weak, discouraged by an inadequate regulatory framework.

In early 2005, a process was begun to establish a policy with clear guidelines for investors, to review and strengthen the legal framework, and to increase the capacity of both public and private players in managing and administering PPPs in transport infrastructure, drawing on the successful experience of neighbouring South Africa and Tanzania.

In parallel, the National Council for Construction is promoting certification for contractors and an action plan to strengthen the local road construction industry. The introduction of toll roads is considered a long-term option since such a step would need to comply with the SADC stipulation that an alternative road be provided free of charge.

The railway network is in very poor condition as a result of inadequate investment and weak management. The network consists of Zambia Railways Limited (ZRL) and the Tanzania-Zambia Railway system (TAZARA). ZRL has a 1 266 km single track network which runs from the border with Zimbabwe at Livingstone to the border with DRC, with branch lines to the Copperbelt.

The 20- year concession to manage ZRL, granted in 2003 to New Limpopo Bridge Projects Investments (NLPI) and Spoornet, highlights significant problems related to the inadequacy of the regulatory framework. In particular, experts suggest that the level of investment stipulated in the agreement is too low for a railway line of this magnitude, while only 65 per cent of the concession fees owed to the government have been paid by the concessionaires, who cite a change in circumstances.

Despite a reduction in the number of derailments from 400 per year to 200 (the regionally accepted level is 20), the level of maintenance remains very poor and rail volumes declined by 7 per cent in one year, with most of this decline reflecting a shift to road transport.

There are numerous opportunities for Spencon to explore in Zambia. There are projects coming up in water and sanitation spearheaded by National Water and Sanitation Council (NWASCO and the Sanitation Act). There are also power transmission facilities - to Lumwana – Kansanshi and Kansanshi to Mwinilunga to be built and maintained. Mining still offers big opportunities here (Lumwana Mining Company and Abdon Mining Company). Manufacturing and tourism are up and there is an airport in Livingstone to be built. Donors are also funding improvement of education facilities in the country and in agriculture there are 2 new sugar factories to be built.