doing business in zambia a unique flavour
TRANSCRIPT
Doing Business in ZambiaA unique flavour
March 2013
2
Table of contents
1. Forward 1
2. Introduction 3
3. High-level overview of Zambia 5
Introduction 5
Political and judicial environment 7
Economic environment 8
- Overview 8
- Mining 13
- Agriculture 16
- Energy 20
- Financial services 24
- Tourism 30
- Transport 32
- Telecommunications 34
Stock exchange 37
4. General business regulations 39
Company registration 39
ZDA Investment license 42
Exchange Controls 42
Employment permit 43
Temporary employment permit 43
Sector specific permits 44
Minimum wages and conditions
of employment 46
Social security 46
Mergers and acquisitions 47
Accounting and auditing 48
3Doing Business in Zambia – A unique flavour
5. Taxation 50
Introduction 50
Tax administration 50
PAYE 51
Company Tax 52
WHT 55
Capital Gains Tax 55
VAT 56
Customs & Exercise 57
PTT 58
Investment incentives 59
Company vs. Branch 62
6. About Deloitte 63
The global firm 63
Deloitte in Zambia 64
7. Key Deloitte contacts 65
8. Glossary of terms 66
1
1. Forward
I am delighted to present the first edition of Doing Business in Zambia, which I trust will be handy for businesses and individuals seeking an understanding of the Zambian business environment.
Zambian’s economic performance over the past decade has been impressive, driven by:
• Improved macro-economic management. This has resulted in general economic stability in contrast to pre 2000 years of significant foreign exchange rate volatility, high inflation, rapid currency depreciation and high interest rates.
• Low debt levels. In 2005, Zambia qualified for significant debt relief under the World Bank’s Highly Indebted Poor Countries (“HIPC”) debt relief initiative. This has provided the country a major impetus for sustained economic growth. GDP now stands at approximately US$20 billion, nearly double what it was in the mid-2000’s.
• A resurgence of the mining industry, propelled by increased global demand for metals, particularly in China. The outlook for mining looks bright, with sector growth expected to accelerate over the next three to four years. Based on current pipeline of major investments, Zambia’s copper output may almost double by 2016.
Zambia has undergone an unprecedented period of robust economic growth over the past several years, a trend which appears set to continue
Chisanga Chungu
Managing [email protected]
2Doing Business in Zambia – A unique flavour
Looking to the future, I see Zambia’s economic outlook as promising. According to the Economist Intelligence Unit (“EIU”), Zambia’s economic growth trajectory is expected to continue at a robust annual rate of about 7% over the period 2013 to 2016. The one significant bottleneck to Zambia’s future economic growth is the relatively underdeveloped infrastructure particularly in the power and transport sectors. Recognising this challenge, the Zambian Government has embarked on a significant 5 year investment program, which should assist un-lock Zambia’s economic growth potential:
• Based on current planned projects, Zambia’s power generation capacity could increase to approximately 4,700 MW over the next 5 years, from the current c.1,800MW.
• Road infrastructure is projected to improve significantly as a five-year US$5.6 billion project to upgrade approximately 8,000km of road network (20% of the country’s road network) is implemented, under the Link Zambia 8,000 Programme.
As I present our first edition of this booklet, I thank all the Deloitte profes-sionals who have worked tirelessly and taken time to share their insights.
3
2. Introduction
Purpose of booklet
The primary purpose of this booklet is to provide potential investors, businesses and interested individuals with information fundamental to doing business in Zambia. The information we present in this booklet is intended to be a guide and accordingly, is not exhaustive.
Readers are strongly advised to seek professional advice prior to relying on any information contained herein. To contact Deloitte in Zambia please refer to the Contacts section of this booklet. For information on how Deloitte can assist you in Zambia including details of our core service offerings, please refer to the About
Deloitte section of this booklet.Finally, this booklet is necessarily based on conditions existing at the date of publication and will continuously evolve as changes occur in the Zambian economic and regulatory environment.
This booklet is aimed at providing information relevant to Doing Business in Zambia to potential investors, businesses and other interested individuals
4Doing Business in Zambia – A unique flavour
Zambia - Key statistics
Population (millions): 13.6 millionLand mass: 752,614 sq. kmNumber of neighboring countries: 8No. of ethnic groups: 72Year attained independence: 1964Business language: EnglishPrimary exports: Copper & CobaltCapital City: LusakaCurrency: KwachaTime zone: GMT + 2
Zambia is a landlocked country in the Southern Africa sub-region. It is bordered by Tanzania in the North East, Malawi in the East, Mozambique in the South-East, Zimbabwe in the South, Botswana and Namibia in the South-West, Angola in the West and the Democratic Republic of Congo in the North.
It is estimated that approximately 40% of the water resources in Central and Southern Africa are found in Zambia, which gives the country immense irrigation and hydro-power potential.
Zambia’s climate is characterised by three distinct seasons: cool and dry from May to August, hot and dry from September to November and hot and wet from December to April. Average monthly temperatures remain above 20°C for most of the year.
Located in Southern Africa, Zambia is a landlocked country covering a landmass of approximately 750,000 sq. km, with a population of some 13.6 million people
5
3. High-level overview of Zambia
Introduction
Zambia was a former colony of Great Britain and attained political independence on 24 October 1964. Zambia’s population is estimated at 13.6 million, with approximately 46% of the population representing an active and productive workforce, aged between 15 and 64 years.
The population comprises approximately 72 Bantu-speaking ethnic groups. Almost 90% of Zambians belong to one of nine main ethno-linguistic groups namely; Nyanja-Chewa, Bemba, Tonga, Tumbuka, Lunda, Luvale, Kaonda, Nkoya and Lozi. English remains the official business language for the country.
Zambia’s key export products are copper and cobalt. However the country also has a number of non traditional exports including, sugar and sugar confectionaries, dairy products, bird’s eggs and natural honey.
Zambia has significant world class tourism attractions including the Victoria Falls to the South and 19 national game parks strewn around the country.
Zambia’s population is estimated at 13.6 million and comprises approximately 72 Bantu-speaking ethnic groups
Financial
Advisory
Consulting
Audit
Tax
Clients
Zambia
6Doing Business in Zambia – A unique flavour
Zambia’s economy has experienced strong growth in recent years, with real GDP growth of more than 6% per year for the past five years. Privatization of government-owned copper mines in the late 1990s relieved the Government from sustaining mammoth losses generated by the industry and greatly increased copper mining output and profitability to spur economic growth. In 2005, Zambia qualified for debt relief under the Highly Indebted Poor Country Initiative, consisting of approximately US$6 billion in debt relief. Nevertheless, poverty remains a significant problem in Zambia with approximately 60% of the population below the poverty line, despite a stronger economy. However, the medium-term economic outlook appears favourable, with inflation projected to remain in single digits. The current inflation rate is estimated at 6%.
The Zambian economy has historically been based on the copper mining industry. However, the Zambian Government is undertaking economic diversification to reduce the economy’s reliance on the copper mining industry and exploit other components of Zambia’s rich resource base by promoting agriculture, tourism, gemstone mining, and hydro-power. In 2012, the Government raised USD750 million via a Eurobond issue to cover a funding gap for infrastructure projects. The infrastructure investment is expected to boost growth by up to two (2%) percentage points per annum.
The Zambian Government recently took advantage of the current low level of inflation and relatively stable economy to rebase the Zambian currency by dividing every denomination by 1,000, effective 1 January 2013.
The Zambian Government is undertaking economic diversification to exploit other components of the country’s rich minerals resource base
7
The Political and Judicial Environment
Political Overview
System of Government Republic, Universal Suffrage
No. of parliamentary seats 158, with 8 members appointed by the President
Date of last Presidential election September 2011
Year of next election 2016
Name of current ruling party Patriotic Front
Duration of Presidential term 5 years
Current Head of State Mr. Michael Chilufya Sata
Main opposition parties Movement for Multi Party Democracy United Party for National Development
System of governance and arms of Government
• Zambia is a multi-party democratic country, with three separate arms of Government namely, the Executive, Legislature and the Judiciary.
• The Executive is headed by the President, who has the prerogative to appoint a Vice President.
• Both the President, who must belong to a registered political party, and members of Parliament are elected via national elections.
• The President is elected by popular vote for a five-year term. Presidents are eligible for a maximum of 2 five year terms.
• Cabinet Ministers are appointed by the President from the pool of both elected and nominated members of Parliament.
• Parliament is headed by a Speaker and comprises 150 elected and up to 8 members nominated by the President.
• The Zambian legal system is based on English common law and customary law principles.
• The Supreme Court is the highest court of appeal and is headed by the Chief Justice. The justices are appointed by the President.
Zambia operates a multi-party democratic system, with Presidential and Parliamentary elections held every five years
8Doing Business in Zambia – A unique flavour
Recent historical economic trends
Indicator 2008 2009 2010 2011 2012
Nominal GDP (US$ m) 14 705 13 398 16 855 19 742 20 939
GDP per capita (US$ at PPP)
1 408 1 479 1 540 1 643 1 737
Population (m) 12,2 12,5 13,0 13,3 13,6
Forex rate (ZMK: US$) 4 832 4 641 4 796 5 117 5 089
External debt stock (US$ m)
2 975 3 039 3 689 4 619 5 442
The Economic Environment - Overview
Recent trends in economic performance
• Since 2004, Zambia has undergone improved macro-economic stability in contrast to previous years of significant foreign exchange rate volatility, high inflation, rapid currency depreciation, and high interest rates.
• In 2005, Zambia qualified for significant debt relief under the World Bank’s Highly Indebted Poor Countries debt relief initiative. The Highly Indebted Poor Countries relief has provided Zambia with a major impetus for sustained economic growth. GDP now stands at US$20 billion, nearly double what it was in the mid 2000s.
Zambia’s GDP now stands at US$20 billion, nearly double what it was in the mid 2000s
02468
101214161820
2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
30
35
40
20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
Historical GDP/inflation movement (%)
Inflation Real GDP Grow
Source: Bank of Zambia
Source: EIU, Deloitte analysis
9
• Despite the recent adverse global economic conditions, Zambia has continued to experience strong output performance. In 2011, GDP grew by 6.8%. GDP growth has continued to remain resilient with a growth of 7% forecast for 2012.
• Inflation has declined significantly from c.18% in the mid-2000’s to c.6% in 2012.
• Further, Zambia’s exchange rate has remained relatively stable over recent years, with the currency depreciating by less than c.7% between 2008 and 2012.
• This low level of inflation and relatively stable exchange rate provided the country’s Central Bank,
BOZ, an opportune time to rebase the Zambian currency by dividing every denomination by 1,000, effective 1 January 2013.
• In September 2012, Zambia had a successful maiden entry into the international bond market through the US$750 million bond issuance with a coupon of 5.375%, one of the lowest prices ever for an inaugural issue by a Sub-Sahara African country. The bond issue was 15 times over subscribed.
• In order not to undermine long-term debt sustainability, the Government proposes to apply the bond proceeds primarily on energy and transport infrastructure as summarised in the table opposite.
Application of proceeds from the US$750m issue
Project US$ million
Energy (generation and transmission) 255.0
Transport (road and rail) 430.0
Human capital and access to finance 49.0
Fees and transaction costs 1.4
Discount premium 14.6
Total 750.0
Source: 2013 Zambia Budget speech
Despite unfavourable global economic conditions, the Zambian economy has remained resilient, with annual GDP growth of 7% for 2012
10Doing Business in Zambia – A unique flavour
Economic outlook
• According to the EIU, Zambia’s economic growth trajectory is expected to continue at a robust annual rate c.7% over the period 2013 to 2016. The growth will be led by increasing investments in mining, agriculture, power and construction:
- Growth in mining is expected to accelerate in 2014-15 as investments at the Kansanshi, Lumwana and Konkola mines, as well as First Quantum’s new Trident mine, approach completion.
- Agricultural production, especially of the country’s staple food, maize, looks set to be strong in 2012-13 supported by Government’s continued efforts to assist the sector yield results.
- Based on current planned projects, Zambia’s power generation capacity may increase to c. 4,700 MW over the next 5 years, from the current c.1,800MW.
- Road infrastructure is projected to improve significantly as a five-year US$5.6 billion project to upgrade approximately 8,000km of road network (20% of the country’s road network) is implemented, under the Link Zambia 8,000 Programme.
- Construction growth will be driven mainly by planned investments in mining, power and the road network.
Zambia’s economic outlook appears bright, on the back of increasing investments in various core sectors of the economy
Economic forecasts
Indicator 2012 2013f 2014f 2015f 2016f
Nominal GDP (US$ m) 20,939 21,528 23,713 30.1 31.9
GDP per capita (US$ at PPP)
1 ,737 1 ,859 2,014 2,087 2,164
Population (m) 13.6 13.9 14.2 15.2 15.7
Forex rate (ZMK: US$) 5 ,089 5 ,712 5,787 5,756 6,135
External debt stock (US$ m)
5 ,442 5 ,995 6,601 n/a n/a
n/a: data not available Source: EIU, Deloitte analysis
11
• The Kwacha’s value is expected to be supported by robust growth in copper production levels over the period to 2016, significant Foreign Direct Investment (“FDI”) and public borrowing (e.g. the successful bond issue of US$750 million in September 2012).
• Inflation which averaged 8.3% in 2011, is forecast to decline further, averaging c.6.4% over the period 2013 to 2016
Inflation is projected to average c.6.4% between 2013 and 2016, down from 8.3% in 2011 0
2468
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2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
30
35
40
20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
Forecast GDP / Inflation movement (%)
Inflation
Source: EIU, Deloitte analysis
Real GDP Grow
12Doing Business in Zambia – A unique flavour
The Zambian Government aims to create some one million jobs over the five-year period to 2017, underpinned by the National Strategy for Industrialisation and Job Creation
• As part of the newly formulated National Strategy for Industrialisation and Job Creation, the Government has identified four priority areas of focus for growth and job creation; namely, Agriculture, Tourism, Infrastructure and Manufacturing. Under this initiative, the Government aims to create approximately one million new jobs over the next five years.
Jobs to be created over five-year period to 2017
Sector No. of new jobs over 5 year period
Agriculture 255.0
Tourism 300,000
Infrastructure (energy & transport) 110,000
Manufacturing 90,000
Tourism 300,000
Total 1,050,000
Source: 2013 Zambia Budget speech
13
The mining sector is the cornerstone of Zambia’s economy, with copper and cobalt being the main metals mined
The Economic Environment - Mining
Overview
• Zambia has a vast endowment of metals, gemstones, industrial minerals and potential energy resources including coal, hydrocarbons, and more recently, uranium.
• Zambia is one of the world’s largest producers of copper and cobalt. It also has considerable reserves of selenium and silver, in addition to minor quantities of gold.
• The outlook for mining looks bright, with sector growth expected to accelerate over the next three to four years. Based on current pipeline of major investments, Zambia’s copper output could almost double by 2016.
• On the pricing side, although copper prices weakened somewhat in 2012, most forecasts indicate that copper prices will remain robust over the medium term, driven by demand in China.
Historical copper exports and prices
Historical cobalt exports and prices
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5
10
15
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25
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20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
02468
101214161820
2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
30
35
40
20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
Copper exports (MT)
Cobalt exports (MT)
Source: 2008 to 2012 Budget speeches, BOZ, CSO reports, Deloitte analysis
Average copper price (US$/MT)
Average cobalt price (US$/lb)
14Doing Business in Zambia – A unique flavour
With a number of significant projects currently underway, the outlook for Zambia’s mining industry appears bright
Zambia: Key copper mining companies
Entity Ownership Mine name / location
Annual 2011 production (MT ‘000)
Konkola Copper Mines Plc Vedanta Resources Plc (51%)
Zambia Copper Investments (28.4%)
ZCCM Investment Holdings Plc (“ZCCM-IH”) (20.6%)
Konkola
Nchanga
Napundwe
166
Kansanshi Mining Plc First Quantum Minerals Ltd (80%)
ZCCM-IH (20%)
Kansanshi
Sentinel
230
Mopani Copper Mines Plc Glencore International Plc (73.1%)
First Quantum Minerals Ltd (16.9%)
ZCCM-IH (10%)
Nkana, Mufulira 250
Lumwana Mining Corporation
Barrick Gold Corporation (100%) Solwezi 146
NFC Africa Mining Plc China Non Ferrous Metals Mining Group Limited (85%)
ZCCM-IH (15%)
Chambeshi 90
Source: Respective company websites, Deloitte research
15
Key players in Zambia’s mining sector
• Historically, the copper mines in Zambia were owned by the state-controlled Zambia Consolidated Copper Mines Limited (“ZCCM”).
• By the early 2000’s, the Government had privatised the state-owned copper mines in an attempt to return the industry to profitability and to boost economic growth.
• Zambia’s mining sector is currently dominated by entities owned by multina-
tionals, as depicted in the table opposite.
Future outlook
• There are a number of significant projects currently underway, which are expected to transform the copper mining landscape in Zambia:
- Konkola Copper Mines, owned by London listed Vendeta, is investing US$180million at Nchanga, which is expected to breath an additional 25 years of life in the mine.
- Canadian-owned First Quantum’s Sentinel project is expected to initially produce 150,000 MT of copper per annum, subsequently rising to 300,000 MT of copper per annum. The capital cost is expected to be in the region of US $1 billion.
- Swiss-owned Mopani (Glencore) is projecting an additional 150,000 tonnes per annum and has finalised a feasibility study on a new project to invest an additional US$1.5 billion in Zambia.
• The above projects, coupled with other on-going investments in the sector, could nearly double Zambia’s copper output to c.1.6 million tonnes by 2016.
Based on current pipeline of major investment, Zambia’s copper output may almost double by 2016
16Doing Business in Zambia – A unique flavour
The Economic Environment - Agriculture
Introduction
• Zambia’s agricultural sector accounts for 21% of GDP, with the balance coming from industry (35%) and services (44%).
• It is estimated that the agricultural sector employs about 70% of the population.
• The sector has immense potential to drive economic growth, given the country’s vast expanses of arable land and free flowing easily accessible water supplies:
- Zambia has approximately 752,000 sq.km of landmass of which 58% is arable. Yet only 15% of its of arable land is currently used for farming.
- Small scale farmers supply about 70% of national crop output, despite limited access to finance.
Key crops produced
• Zambia’s primary agricultural output crop is maize, the country’s staple. This is partly driven by:
- Generous guaranteed minimum prices; and
- Provision of subsidised inputs to small and medium scale producers.
• Agricultural experts state that crop yield rates are currently low compared to global standards.
Zambia’s agricultural sector, which is dominated by maize, accounts for a fifth of national GDP
02468
101214161820
2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
30
35
40
20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
Agriculture
Source: EIU
Industry
Services
Zambia: GDP contribution by sector
Zambia’s top five crops by production (MT ‘000)
Crop 2009 / 2010
2010 / 2011
% change
Maize 2 795 3 020 8%
Wheat 172 237 38%
Sweet potatoes 253 147 -42%
Groundnuts 165 139 -16%
Soya beans 112 116 4%
Source: Ministry of Agriculture & Livestock statistics
Note: In addition to the above, sugar is another key agricultural output for Zambia. Production is dominated by Zambia Sugar Plc, which accounts for over 90% of the country’s output. c.55% of sugar production is exported, 10%, to the EU. Annual sugar output is estimated at 450,000 tonnes.
17
• Government has embarked on a number of initiatives to improve yields, including:
- Investment in training of small scale famers;
- Investment in research and development; and
- Promotion of local production of key inputs such as fertilisers and seeds.
A number of initiatives are being implemented to improve yields
02468
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2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
30
35
40
20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
Zambia’s top five crops by production (MT)
18Doing Business in Zambia – A unique flavour
Key players in Zambia’s agricultural sector
• Key players include:
The Ministry of Agriculture & Livestock: Sets policies and provides farmer input support.
- Food Reserve Agency: Responsible for crop marketing and food storage.
- Commercial farmers: There are various commercial farms in the country including:
- Mpongwe Farms, a division of Zambeef which produces over 50,000 tonnes of crop (wheat, maize, soya) ; and
- Zambia Sugar Plc, the country’s largest sugar producer with a milling capacity of 450,000 tons per annum.
- Small-scale farmers i.e. those with less than two hectares of land: The are fragmented and currently account for c.70% of national crop output.
- Various associations: These aim to protect the interest of their
members and include the Zambia National Famer Union and Zambia Coffee Growers Association.
Zambia’s top 5 crops yield rates (MT per Ha)
Crop 2009 / 2010
2010 / 2011
% change
Maize 2.25 2.23 -1%
Wheat 6.33 6.31 0%
Sweet potatoes 3.57 3.23 -10%
Groundnuts 0.61 0.62 2%
Soya beans 1.80 1.90 6%
Source: Ministry of Agriculture & Livestock statistics
Zambia’s agricultural sector has a number of players including the Ministry of Agriculture and the Food Reserve Agency
19
Zambia’s agricultural regions
Province Annual rainfall Suitable crop / activity
Southern and parts of Eastern and Western
Less than 800 mm
Maize, cotton, sesame, millet, sorghum, groundnuts, beef, dairy
Lusaka, Central, Southern and Eastern
800 mm to 1,000 mm
Maize, cotton, soya beans, wheat, beef, dairy, vegetables, tobacco
Western 800 mm to 1,000 mm
Maize, rice, cashew nuts, cassava, millet, vegetables, timber, beef, dairy, poultry, fish
Northern, Luapula, Copperbelt, North-Western
1,000 mm to 1,500 mm
Maize, pineapples, millet, rice, sorghum, coffee, beans, sugarcane, cassava, groundnuts and fish farming
Source: Ministry of Agriculture & Livestock website
The Zambian Government recognises the agricultural sector’s significant potential and has implemented targeted incentives to support growth
Government incentives
• The Government is keen to support growth in the agricultural sector given its immense potential to alleviate poverty. 52% of the approximately one million jobs that the Government targets to create over the next five years, are in the agricultural sector.
• Promoting agriculture is one of the Governments key strategies to diversify the economy from over reliance on mining. Agriculture related incentives include:
- Agricultural activities currently enjoy concessionary corporation tax rates of 10% compared to the standard rates of 30% – 35%;
- Dividends from agricultural activities are exempt from WHT for the first 5 years; and
- Designated farm blocks have been set up that can be accessed by both local and international investors. These are pre surveyed blocks for agro purposes where Government is providing/installing basic infrastructure such as roads, schools, health facilities, dams, and electricity.
• A number of crops have been prioritized for investment including coffee, cotton, tobacco, sugarcane, pineapples, floricultural and horticultural crops.
20Doing Business in Zambia – A unique flavour
Zambia’s power output is dominated by hydro primarily generated by the state owned ZESCO
Power generation capacity
Power station Current capacity (MW)
Projected capacity by 2018 (MW)
Estimated completion date
Type
Kafue Gorge 990 990 Existing Hydro
Kariba North Bank 720 720 Existing Hydro
Victoria Falls 108 108 Existing Hydro
LHPC 55 300 2018 Hydro
CEC 80 880 2018 Gas/Hydro
Other ZESCO small hydros
24 68 2018 Hydro
Kafue Gorge Lower _ 750 2017 Hydro
Kariba North Bank Extension
_ 360 2013 Hydro
Itezhi-Tezhi _ 120 2015 Hydro
Ndola Energy Company
_ 100 2013 HFO
Maamba 300 2015 Coal
Total 1,869 4,696
Source: ZESCO, Maamba, CEC websites & other Deloitte research sources
The Economic Environment - Energy
21
Overview
• Zambia has abundant hydroelectric resources and has historically met most of its electricity needs from its own hydroelectric stations, which are operated by the state-owned ZESCO Liimited (“ZESCO”).
• Hydro power accounts for 99% of electricity production with the major sources being Kafue Gorge, Kariba North Bank and Victoria Falls power stations.
• Zambia’s mining sector is the single largest power consumer of power taking up over 50% of Zambia’s total power output.
• Zambia was a large regional electricity exporter, but in November 2005 ZESCO was forced to suspend exports, as generation capacity fell owing to the start of rehabilitation work on the country’s ageing main hydroe-lectric power stations.
• The fall in generation was so steep that electricity had to be imported from South Africa and the DRC. Matters were worsened in 2007 when South Africa suspended its own power exports as the region fell victim to widespread power shortages.
Projected power capacity
• Zambia’s current installed hydro-power capacity is less than 2000MW, while resource potential stands at an estimated 6000MW.
• Based on projects currently in the pipeline, Zambia’s power generation capacity could increase to c. 4,700 MW over the next five years. This excludes the Batoka Gorge project in respect of which the Zambezi River Authority (“ZRA”) has recently invited Expressions of Interest to perform a feasibility study and environmental and social impact assessments. Should Batoka go ahead, it will be a 1,600-MW hydroelectric project and is expected to take seven to eight years from date of construction. Output will be shared equally between Zambia and Zimbabwe.
• ZESCO has recently announced that it intends to raise up to ZMK10 trillion (US$2 billion) through a mixture of different type financing instruments to support various hydro power generation projects in the country.
Based on current planned projects, Zambia’s power generation capacity is to increase by two and a half times over the next five years, from the current c.1,800MW
22Doing Business in Zambia – A unique flavour
Key players in Zambia’s electricity sector
• The key players in Zambia’s electricity industry include:
- ZESCO: A vertically integrated generation, transmission, distri-bution state utility which currently accounts for 99% of the country’s electricity generation capacity. The company produces the bulk of its power from three main hydro power plants, namely Kariba North bank, Kafue Gorge and Victoria Falls power stations. In addition, ZESCO generates limited amounts of power from mini hydro power stations including Chishimba, Lusiwasi and Shiwang’andu.
- CEC: A LuSE listed company that was created following the privati-sation of ZCCM power division in 1997. Currently, CEC’s principal assets comprises transmission and distribution assets in the Copper belt region of Zambia. It is estimated that the company purchases 55% of the power generated by ZESCO, which it supplies to the mines. As part of its growth strategy, CEC has recently announced that it would be partnering with a Nigerian investment bank to develop
the Kabompo gorge hydro-power project in northwestern Zambia (34MW) and five Luapula river hydro power projects with an estimated combined capacity of 800MW.
- LHPC: A privately owned independent power producer created following the privatisation of ZCCM. The Company has an installed capacity of 55MW and currently sells all its power to ZESCO under a power purchase agreement. LHPC’s vision is to grow generation capacity to more than 300MW by 2018.
- ERB: The regulating body of Zambia’s energy sector, including
power.
The electricity supply industry primarily comprises the vertically integrated state utility, ZESCO, and an energy service company CEC that purchases power from ZESCO and supplies it to the mines
23
Other key energy sources
• Apart from electricity, Zambia’s other key energy sources comprise:
• Petroleum: Zambia imports all of its petroleum needs primarily via a 1,700km pipeline which runs from Dar es Salaam to Ndola, in the country’s Copperbelt Province. The country has one petroleum refinery plant with a design capacity of 800,000 tonnes per annum
• Coal: proven coal deposits are estimated at over 30 million tonnes. Maamba Collieries Limited is the largest coal mining company in Zambia and it is in the process of investing in a coal based 300MW power generation plant at an estimated capital outlay of approxi-mately US$750 Million.
Zambia’s other key energy sources comprise petroleum and coal
24Doing Business in Zambia – A unique flavour
The Economic Environment - Financial Services
Overview
• Pre-2006, the banking system was small and under-developed. However, over the past few years a number of new banks have entered the market including:
- Access Bank of Nigeria;
- Ecobank from West Africa
- First National Bank of South Africa
- United Bank of Africa of Nigeria; and
- Rabo Bank of Netherlands who have acquired 49% of Zambia National Commercial Bank.
• Improvements in the financial services regulatory framework coupled with improved macro-economic stability have had a positive impact on Zambia’s financial system over the recent past.
• Among the group of seven foreign banks, three large banks (Barclays, Standard Chartered and Stanbic Bank), play a dominant role in Zambia’s financial system.
• Currently, there are 33 micro-financial institutions in Zambia excluding leasing, building societies and bureau de change, which all fall under the non-bank financial institutions category. Non-bank financial institutions refers to institutions or persons authorised by law or the Bank of Zambia to engage in banking business not involving the receipt of money on current account subject to withdrawal by cheque.
There have been a number of new entrants into Zambia’s banking sector over the past few years, following improvements in the financial services regulatory framework macro-economic management
25
Barclays, Finance Bank and ZANACO, have the widest branch network in Zambia
Branch network for commercial banks
Registered Bank Number of branches
AB Bank 1
Access Bank Zambia 5
African Banking Corporation 6
Bank of China 2
Barclays Bank Zambia 55
Cavmont Capital 16
Citibank Zambia 2
Ecobank Zambia 5
Finance Bank Zambia 51
First National Bank Zambia 9
First Alliance Bank 5
Indo-Zambia Bank 18
International Commercial Bank 2
Intermarket Banking Corporation 7
Investrust Bank 19
Stanbic Bank Zambia 19
Standard Chartered Bank 20
United Bank for Africa Zambia 4
Zambia National Commercial Bank 59
Source: Bank of Zambia
26Doing Business in Zambia – A unique flavour
The total number of banks has increased from 10 in 1990 to 18 in 2012
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2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
30
35
40
20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
02468
101214161820
2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
30
35
40
20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
Number of Banks: 1990 - 2012
Loans and advances historical development
Source: Bank of Zambia 2011 annual report
Source: Bank of Zambia
27
Regulation
• Zambia’s financial system is regulated by the BOZ, whose stated mission is “ to achieve and maintain price and financial systems stability for balanced macroeconomic development”.
• The BOZ draws its authority from the Bank of Zambia Act, of 1996.
• As the country’s Central Bank, the BOZ’s primary functions include:
- Licensing, supervision and regulation of the activities of banks and financial institutions;
- Issuance of notes and coins and regulation of all currency related matters;
- Supporting the efficient operation of the exchange system; and
- Acting as adviser to the Government on matters relating to economic and monetary management.
New capital adequacy framework
• The BOZ issued a new capital adequacy framework in January 2012. Prior to January 2012, the minimum capital requirement for commercial banks operating in Zambia was ZMK12 billion (US$2.4 million). The new capitalisation requirement are linked to the shareholding structure as follows:
- For foreign-owned banks the minimum requirement is now ZMK520 billion (US$104 million); and
- For local banks , a lower threshold of ZMK104 billion (US$20 million)
• A foreign owned bank refers to a bank with more than 49% of its equity by foreign entities.
02468
101214161820
2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
30
35
40
20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
2011 Loans and advances by sector
Personal Loans
Agriculture
Manufacturing
Wholesale & Retail Trade
Transport, Storage & Comms
Financial Services
Others
Source: BOZ 2011 annual report
The responsibility to regulate Zambia’s financial system lies with the BOZ, as provided under the Bank of Zambia Act, of 1996
28Doing Business in Zambia – A unique flavour
Currency rebasing
• On 23 January 2012, GRZ gave approval to BOZ’s recommendation to rebase the Zambian Kwacha, effective 1 January 2013.
• The rebasing involved dividing Zambia’s currency, the Kwacha, by one thousand (1,000). To illustrate, ZMK50,000 became ZMW50 following the rebasing exercise.
• The key drivers for implementing the rebasement are as follows:
- To facilitate easier business transactions: Use of smaller units simplifies accounting and reduces the risk of errors arising from data input and time spent reviewing such financial data.
- To increase confidence levels in the Zambian currency: People tend to have less confidence in currencies with numerous zeros.
- To reduce the costs associated with adapting standard accounting packages: Most accounting packages are developed in countries where currencies have significantly fewer zero’s compared to Zambia. Accordingly, Zambian entities purchasing these accounting packages, are required to customize them by increasing the field size to accommodate multiple zeros, at a cost.
- To encourage an efficient payment system: The adoption of a rebased currency will enable easier use of vending machines, car park meters and other related technologies. In addition it will avoid the need to carry large sums of money for transactions.
- To facilitate the introduction of coins: The rebasing of the currency will enable the BOZ to re-introduce the use of coins, which are signifi-cantly more durable compared to notes.
• The currency rebasing transition period will run from 1 January to 30 June 2013. During this period both the new and old currencies will circulate simultaneously. Further, both currencies will be used for the purchase of goods and services.
• During the period 1 January 2013 to 30 June 2013, an interim symbol (“KR”) will be used to denote prices in the new currency while the current symbol (K) will denote prices in the old currency. Post-30 June 2013, the interim symbol (KR) will cease to be used.
• The simultaneous circulation of currencies will cease on 1 July 2013 and effective this date the old currency will no longer be accepted for the purchase of goods and services.
Effective 1 January 2013, Zambia rebased its currency, an initiative expected to bring several benefits to individuals, organisations and the country as a whole
29
Zambia’s insurance industry comprises several private players in addition to the state-owned ZISC
The insurance industry
• The Pensions and Insurance Authority (“PIA”) is the regulatory and supervisory authority for the pensions and insurance industry in Zambia. The PIA was created by the Pension Scheme Regulation Act no. 28 of 1996 and the Insurance Act No. 27 of 1997.
• The PIA’s stated mission is “to regulate the conduct of the pensions and insurance industry through prudential supervision in order to protect the interest of pension scheme members and insurance policyholders and to foster the industry’s growth, development and stability.”
• Zambia’s insurance industry is relatively small and comprises the state owned Zambia State Insurance Corporation (“ZISC”) and several private sector players including Madison, African Life and PICZ.
02468
101214161820
2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
30
35
40
20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
02468
101214161820
2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
30
35
40
20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
General insurance top players by gross premiums
Life insurance top players by gross premiums
ZISC
ZISC
Madison
PICZ
Aflife
ZIGI
Madison
PICZ
NICO
Goldman
ZIGI
Source: BOZ 2011 annual report
30Doing Business in Zambia – A unique flavour
General insurance top players by gross premiums The Economic Environment - Tourism
• Tourism is becoming an increasingly important foreign exchange earner, although it currently contributes only around 5% of Zambia’s GDP.
• Growth in the sector is seen by the Government as having great potential for diversifying the Zambian economy.
• The principal challenges that have limited Zambia’s tourism potential have included the relatively underde-veloped infrastructure, as well as, inadequate supply of competitive accommodation.
• The Government is attempting to remedy this and the prospects are improving. As part of the recently announced 2013 Budget, the Government has unveiled plans to create 300,000 jobs in tourism over the next five years. In addition, Zambia’s tourism sector has benefited from the political challenges in neighbouring Zimbabwe.
• Most tourists are keen to see the Victoria Falls, which is located on the border between Zambia and Zimbabwe. New hotels in Zambia are cashing in on the influx, and this is raising revenue collection and creating new jobs.
• In addition to the Victoria Falls, Zambia is home to 19 national game parks and 34 game management areas covering 22.4m hectares.
• Tourism will receive a boost in 2013 from the UN World Tourism Organisation Conference, with visitor numbers expected to increase significantly.
There is significant growth potential in Zambia’s tourism industry. The Zambian Government aims to create some 300,000 jobs in tourism over the five-year period to 2017
31
Zambia tourism sector snap shot
Key highlights
Travel and Tourism as a % of GDP 5.5%
Government 2013 tourism expenditure allocation ZMK21.1 billion
Revenue from international tourists (2010) US$125 million
Targeted revenue from international tourists (2015) US$550 million
Visitor arrivals (2011) 910,000
Visitor arrivals (2015) 4000,000
Targeted new jobs in tourism over next four years to 2017 300,000
Targeted Travel and Tourism as a % of GDP (2015) 8.0%
02468
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2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
30
35
40
20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
Zambia’s visitor arrivals
Sources: EIU, “Zambia Country Report” (2008); World Travel and Tourism Council, “Travel & Tourism Economic Impact (2009), Tourism ministry website
Zambia is aiming to grow the number of tourist arrivals to 4 million by 2015, which compares with just under 1 million in 2011
32Doing Business in Zambia – A unique flavour
The Economic Environment - Transport
Overview
• Zambia is a landlocked country with several natural lakes and rivers. Imports, exports and local commerce are significantly dependent on road and air transport to facilitate trade. Zambia’s lakes, rivers and canals present significant potential for development of transport infrastructure that can enhance and facilitate trade with neighbouring countries.
• In 2012, the GRZ issued a US$750 million bond from the international capital market. 57% of the proceeds of the bond has been allocated to investment in the transport sector. Furthermore, customs duties have been eliminated for importation of locomotives, carriages, rail traffic control equipment, canoes, cruise and ferry boats, dredgers, pontoons, motor cycles and new motor vehicles for certain tourism enterprises.
• Approximately 14% of the 2013 national expenditure budget is earmarked for investment in the transport sector, amounting to ZMW 3.4 million.
• A five-year plan to enhance the existing road network by 8,000 kilometers is in the offing. The GRZ announcement to increase investment in rail will decongest existing roads and reduce road maintenance costs.
• As shown below, diesel and petrol prices have fluctuated significantly in recent years, accentuated by uncertainty in global commodity markets.
Zambia’s transport sector is expected to receive a major boost over the next five years driven by major planned investment in road and rail infrastructure
33
Key players
• The key players in Zambia’s transport industry include:
- Road Development Agency (“RDA”): Responsible for the care, maintenance and construction of public roads in Zambia.
- National Council for Construction (“NCC”): Administration and registration of road contractors.
- Ministry of Communications and Transport: Formulation and adminis-tration of transport sector policies.
- Road Traffic and Safety Agency (“RTSA”): Implementation of policy on road transport, traffic management and road safety.
- Zambia Railways and Tanzania Zambia Railway (“TAZARA”): Railway operators.
Zambia’s transport sector comprises several players including RDA and RSTA
02468
101214161820
2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
30
35
40
20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
Average retail pump price pr litre (ZMW)
Source: Energy Regulation Board website
34Doing Business in Zambia – A unique flavour
02468
101214161820
2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
30
35
40
20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
The Economic Environment - Telecomms
Regulation
• The Zambia Information and Communications Technology Authority (“ZICTA”) is an ICT Regulatory body responsible for regulating the Information and Communications Technologies (“ICT”) Sector in Zambia.
• ZICTA’s stated visions is: “To be the catalyst of a better Zambia transformed through the use of ICTs in all sectors of the economy”.
• ZICTA derives its mandate from the three Acts, the Postal Services Act No. 22 of 2009, Electronic Communications and Transactions Act No. 21 and the Information and Communications Technologies (ICT) Act No. 15 of 2009 to regulate ICTs, postal and courier services in Zambia.
Zambia’s ICT sector is regulated by ZICTA
Average retail pump price pr litre (ZMW)
Market share of mobile market based on subscription
Sources: ZICTA website 3 February 2013
MTN
ZAMTEL
Airtel
35
02468
101214161820
2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
30
35
40
20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
Mobile voice market: subscription & penetration levels
Sources: ZICTA website 3 February 2013
Subcribers (‘000)
Penetration levels
Mobile phone sector
• The mobile phone sector has boomed in recent years, with competition between the three providers, the state-owned ZAMTEL and the privately owned MTN and Airtel Zambia resulting in major improvements in coverage and quality together with significantly lower prices.
• The country’s telecommunications market is dominated by mobile network operator Bharti Airtel which
has a market share around 52%, with MTN and ZAMTEL in second and third place respectively.
• All operators have intensified efforts to cover rural areas, and nearly all ten provinces can now be reached by mobile phones on one of the networks.
• The Government of Zambia has recently confirmed it intends to license a fourth mobile network operator in the near future and aims for the new player to be in place before the end of 2013.
Increasing competition in the Zambian telecommunications sectors has led to lower price tariffs, and increased investments
36Doing Business in Zambia – A unique flavour
02468
101214161820
2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
30
35
40
20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
Fixed telephony
• The fixed line telephone sector is a monopoly controlled by the state-owned ZAMTEL.
• As depicted opposite, the number of fixed lines in the country is low, with the number of lines at less than 100,000.
• Penetration levels are less than 1%.
Internet sector
• Zambia has recently gained access to international submarine fiber optic cables for the first time, which has already led to some significant retail price reduction for broadband services.
• Third generation (3G) mobile broadband services were launched in early 2011 and national fiber networks are being rolled out by a number of different companies. Several ISPs have rolled out W/MAX wireless broadband networks.
• These developments are set to increase broadband penetration significantly in the coming years.
Mobile voice market: subscription & penetration levels
Africonnect
ZAMTEL
ZAMNET
Other
Sources: ZICTA website 3 February 2013
02468
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2004 2005 2006 2007 2008 2009 2010 2011 2012
0
5
10
15
20
25
30
35
40
20-nál több 11-206-103-51-2
4,0
4,5
5,0
5,5
6,0
6,5
7,0
7,5
8,0
8,5
9,0
2013f 2014f 2015f 2016f
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
-
100 000
200 000
300 000
400 000
500 000
600 000
700 000
800 000
2008 2009 2010 2011 2012e
2008 2009 2010 2011 2012e
US$
/ M
T MT
MT
-
10
20
30
40
50
60
-
1 000
2 000
3 000
4 000
5 000
6 000
7 000
US$
/ lb
21%
35%
44%
-
500
1 000
1 500
2 000
2 500
3 000
3 500
Maize Wheat Sweet Groundnuts Soya beans potatoes
2009 / 2010 2010 / 2011
10
12
18 1816
14 1413
1618
1990 1992 1994 1996 1998 2000 2002 2004 2010 20120
5
10
15
20
‐
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2012
ZMK 'b
29%
18%
12%
10%
5%
5%
20%
22%
25%36%
9%
4% 4%
29%
46%
16%
9%1%
33%
15%
52%
0%
10%
20%
30%
40%
50%
60%
70%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2003 2004 2005 2006 2007 2008 2009 2010 2011
21%
61%
10%
8%
0.0%
0.2%
0.4%
0.6%
0.8%
1.0%
1.2%
-
20
40
60
80
100
120
140
2003 2004 2005 2006 2007 2008 2009 2010 2011
2004 2005 2006 2007 2008 2009 2010 2011
1 000 000
800 000
600 000
400 000
200 000
0
2007 2008 2009 2010 2011 2012
Unleaded petrol
Diesel
9.00
8.50
8.00
7.50
7.00
6.50
5.50
5.00
6.00
Market share of internet subscription
Zambia’s fixed line sector is controlled by state owned ZAMTEL
37
The Stock Exchange
• The Lusaka Stock Exchange (“LuSE”) was established in 1994 as a modern stock exchange based on the most current international standards and practices. These include:
- Use of a central share depository system.
- Trade-for-trade netting clearing and settlement process.
- Rolling settlement three days after the trade (T+3).
• The primary objectives of LuSE include:
- To enable local businesses raise longer term capital.
- Citizenship empowerment through shares ownership.
- To attract foreign direct investment (FDI).
- To enable companies achieve wider share ownership and good
corporate governance.
• There are currently 21 listed companies on LuSE. Ten of these were triggered by Zambia’s privatisation process in the 1990’s / early 2000’s.
• Notably Shoprite, which should benefit from rising consumer demand in the country, represents over half of LuSE market capitalisation making it by far the largest company on this basis, driven by the dual listing of its holding company on the LuSE and the Johannesburg Stock Exchange.
• Overall supervision of the Zambian capital market including licensing and registration falls under the ambit of the Securities and Exchange Commission (“SEC”), which was established in 1993.
The Lusaka Stock Exchange was opened in 1994 and currently has 21 listed companies
38Doing Business in Zambia – A unique flavour
The total market capitalization of LuSE is aproximately US$9.5 billion
Lusaka Stock Exchange (LuSE) – Key stats
Crop
Date opened 21 February 1994
Main stock index LuSE All Share Index
Total number of listed entities 21
Total market capitalisation ZMK49,364 billion (US$9.5billion)
Most liquid sectors Banking
Top 5 listed companies by market capitalisation
Shoprite Holdings Limited (US$5,900 million)
Celtel Zambia Plc (US$722 million)
Lafarge Cement Zambia Plc (US$316 million)
Zambia Breweries Plc (US$285 million)
ZCCM IH Plc (US$220million)
Source: LuSE website monthly flash reports
39
Company registration
• The registration of companies is governed by the Companies Act, 1994 and is done at the Patents and Companies Registration Office (“PACRA”). Registering a company typically takes between three to five working days.
• The process starts with completing a Name Clearance Form requesting for a particular proposed name to be cleared.
• There is no law that requires foreign companies to partner with locals, as is the case in other jurisdictions.
• There are broadly two types of companies that can be incorporated in Zambia, namely:
- Private Limited Companies; and
- Public Limited Companies (“PLCs”).
Private Limited Companies
• The following are the types of Private Limited Companies that can be incorporated:
1. Company Limited by Shares: This is a company incorporated for purposes of carrying on business driven by a profit. Currently, the minimum required authorised capital for a private company other than banks, insurance and other financial institution, is ZMK5 million. 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. This type of company is however prohibited from making any invitation to the public to purchase its shares or debentures. In the event that 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 registration is governed by the Companies Act, 1994
4. General business regulations
40Doing Business in Zambia – A unique flavour
2. Company Limited by Guarantee: A Company Limited by Guarantee does not have 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. This type of company is normally formed in order to help the community benefit from a certain project. Typically, these are organisations such as churches, foundations and trusts. At the time of formation, each member must sign a declaration of guarantee, specifying the amount that the member 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.
3. Unlimited Company: An Unlimited Company is one that has share capital but whose members have unlimited liability for the company’s debts and other liabilities. In other words, whatever is incurred by the company, is also deemed to have been incurred by the members. An Unlimited Company may not have more than fifty (50) shareholders.
These are three types of Private Limited Companies that can be incorporated; namely: Company Limited by Shares, Company Limited by Guarantee and an Unlimited Company
41
Public Limited Company
• A Public Limited Company is required to have an authorised minimum share capital capital of ZMK50 million. It has the capacity of entering into any business activity unless restricted by its articles of association. Its name always ends with the words “Public Limited Company” frequently abbreviated to “PLC”. The articles of association are required to specifically state that the company is a” Public Limited Company”.
• A PLC can invite the public to buy its shares and accordingly it can 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 registration documentation requirements
• To register a company, the following documents are required to be submitted together with the application for incorporation:
- Proposed Articles of Association of the company – These are regulations that govern the relationship between the company and its members;
- A signed consent from each person named in the application as a director or secretary of the company;
- A declaration of guarantee by each subscriber if the Company is to be limited by guarantee; and
- A statutory declaration that the requirements of the Companies Act have been complied with.
Eligibility to incorporate a company in Zambia
• Any two (2) or more persons associated for any legal purpose may form an incorporated company by subscribing their names to an application for incorporation and lodging it with the Registrar.
• The following are not eligible to subscribe to an application for incorporation:
- Persons under eighteen years of age;
- An undischarged bankrupt person; and
- Anyone who is of unsound mind and has been declared so by the court or a court of competent jurisdiction of another country.
Registration of a company involves the submission of an application for incorporation, together with a number of supporting documents
42Doing Business in Zambia – A unique flavour
The ZDA & investment licenses
• The Zambia Development Agency (“ZDA”) is responsible for fostering economic growth and development in Zambia through promoting trade and investment and has the challenge to develop an internationally competitive Zambian economy through innovations that promotes high skills, productive investment and increased trade.
• To be eligible for an investment license application, investors must invest not less than US$500,000 in Zambia. Investment licenses attract various tax benefits as discussed in the Taxation section under “Investment incentives”.
• All applications for investment licences must be submitted to the ZDA and must submit the following documents:
- Copy of Certificate of Incorporation, issued by the Registrar of Companies;
- Certificate of Share capital;
- Official list of shareholders / directors;
- Proof of finance (certificate of deposit at bank or latest bank statement); and
- Detailed business plan.
- Proof of having secured a place / land to operate from (Lease Agreements or Title Deed or Letter of Offer)
• Applications for an investment licence in some sectors of the economy require proof that application for subsidiary permits from relevant institutions or ministries have been lodged.
Exchange Controls
• Exchange control regulations were abolished in Zambia, effective 29 January 1994. As a result, no restrictions are imposed on the import or export of capital. Repatriation payments can be made in any currency. Both residents and non-residents can hold bank accounts in any currency.
The ZDA is responsible for fostering economic growth and development in Zambia through promoting trade and investment
43
Employment permit
Public Limited Company
• An employment permit allows an individual to reside, enter and re-enter Zambia while in employment during the validity of the permit.
• Employment permits are issued by the Department of Immigration to foreigners working in Zambia. Zambian law requires that applicants secure their employment permits while outside the country. However, Government employees, volunteers, missionaries and investors may apply for their permits whilst in the country.
• Work permits are issued within about a month, but it may take signifi-cantly longer depending on specific circumstances.
Application steps
• In order to obtain a Zambian employment permit, the following information is required to be submitted to the Department of Immigration:
- A duly completed employment permit application form;
- Two recent passport size photographs;
- Police clearance certificate from applicant’s country of permanent residence proving that applicant has no previous criminal record;
- Certified photocopies of professional certificates;
- Copy of letter of offer of employment/contract; and
- Certified photocopies of the passport.
Temporary employment permit
Overview
• This permit is issued to any business visitor intending to remain in Zambia for a period exceeding thirty (30) days. The period granted shall not exceed six (6)months in any period of twelve (12) months.
Application steps
• Applying for temporary employment permit involves submission of the following information:
- A duly completed employment permit application form;
- Two recent passport size photographs;
- Certified photocopies of current passport; and
- Covering letter to the Director General of Immigration from the employer indicating the nature of work the applicant intends to undertake in Zambia.
Any non- Zambian individual who resides, enters and re-enters Zambia for purposes of employment must obtain an employment permit
44Doing Business in Zambia – A unique flavour
Sector specific permits
• Energy sector: The Energy Regulation Board is the primary regulatory board in the energy sector and has overall responsibility for issuing energy licenses. Energy license applications are required to be supported by:
- A five - year business plan;
- Latest audited financial statements;
- Details of subsequent significant capital outflows including major decommissioning costs; and
- Estimates of net annual cash flows.
• Financial sector: The Bank of Zambia, as Zambia’s Central Bank and agency for executing Government’s monetary policy, is responsible for issuance of banking licences. Key information
requirements from applicants of a banking licence include:
- Minimum capital requirement of ZMK520 billion (US$104m) for foreign owned banks or ZMK104 billion (US$20 million) for a local bank;
- Complete questionnaire for principal managers and directors;
- Disclosure of any criminal record for all principal managers and directors;
- Business plan with three-year financial projections (profit & loss account, cash flow and balance sheet);
- Curriculum vitae for all principal managers and shareholders;
- Copy of the company’s Certificate of Incorporation;
- Copy of the company’s Articles of Association; and
- Approval by the home country supervisors (usually another Central Bank), if the applicants are foreign registered financial institutions
Operating in certain sectors requires specific permits to be obtained from relevant regulatory bodies
45
• Mining sector: The Ministry of Mines and Mineral Resources is responsible for the issuance of permits and licences relating to investment in the mining sector. The licences and permits issued include:
- Large-scale mining licence;
- Small-scale mining licence;
- Prospecting permit; and
- Gemstone licence and sales certificate.
• Applications for the mining sector permits and licences must be supported by the following documents, as appropriate:
- Topographical maps of the area;
- Certificate of incorporation and Articles of Association;
- Photocopies of passports of directors and shareholders;
- Bank statements and reference letters from applicants’ bank;
- Programme of operations and estimated costs; and
- Statement of mineral deposit in the mining area.
• Telecommunications sector: Telecommunication service licenses are provided in three distinct categories, under ZICTA’s mandate:
- Type A: Licenses that require service providers to install, own and operate public switched telephone network (“PSTN”) infrastructure e.g. network facilities for basic local or national long distance services.
- Type B: Licenses that do not require ownership of public networked telephone facilities in order to provide services e.g. Internet Service Providers (“ISPs*).
- Type C: Licenses that require ownership of infrastructure facilities for cellular mobile services.
• The application procedure, involves:
- Submission of a duly completed application form to ZICTA;
- Evaluation of the application form by ZICTA;
- If approved, ZICTA subjects the application to comments from the public and other interested parties where necessary;
- For successful applications, a license is issued following payment of the appropriate license fee; and
- Unsuccessful applicants may appeal against the decision of the Authority to the Minister of Communications and Transport.
Operating in certain sectors requires specific permits to be obtained from relevant regulatory bodies
46Doing Business in Zambia – A unique flavour
• Tourism sector: Investment projects that have to be located in a Game Management Area will require a permit issued by the Zambia Wildlife Authority (“ZAWA”). Applications for the permit should be supported by the following documents:
- Project proposal;
- List of Shareholders;
- Information on promoters’ business experience;
- Recommendation letter from the District council;
- Letter of Consent from the chief (Game Management Areas fall under traditional land which is under the jurisdiction of the local chief);
- Project proposal; and
- Building drawings.
Minimum wages and conditions of employment
• The Minimum Wages and Conditions
of Employment Act Cap 276 enables
the Government to determine minimum
conditions of employment for various
categories of employees including
general workers, drivers and clerks.
Social security
• Zambia’s public pension scheme is administered by the National Pension Scheme Authority (“NAPSA”). Membership to NAPSA is compulsory for all regularly employed persons. The scheme is financed by both the employer and employee contri-butions at the rate of 5% each, subject to a ceiling determined annually.
Operating in certain sectors requires specific permits to be obtained from relevant regulatory bodies.
47
Mergers and acquisitions
• Mergers and acquisitions in Zambia are governed, from an approval perspective, by the Competition and Consumer Protection Act, 2010 (the “Act”), which is administered by the Competition and Consumer Protection Commission (the “Commission”).
• Section 24 of the Act defines a merger transaction as 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.
• Section 24 of the Act further states that a merger could occur where an enterprise purchases shares or leases assets in, or acquires an interest in, any shares or assets belonging to another enterprise or where a joint venture occurs between two or more independent enterprises.
• Section 26 of the Act states that parties to a merger transaction that meets the threshold for authori-zation of a proposed merger shall apply to the Competition and Consumer Protection Commission (the “Commission”) for authorization of the proposed merger.
• The quantum of the Threshold is stipulated in Part V Section 8 (1) of Statutory Instrument No. 97 of 2011, which states: A merger transaction shall require authorisation by the Commission where the combined turnover and assets, whichever is higher, in Zambia of the merging parties, is at least fifty million fee units in their latest financial year, for which figures are available. Currently one fee unit is equivalent to ZMK180.
• Section 28 gives reference to negative clearance and mandates that parties to a transaction seeking clarification as to whether the proposed merger requires the authorisation of the Commission under this law may apply to the Commission for negative clearance.
Mergers and acquisitions that meet certain criteria require pre-approval by the Competition and Consumer Protection Commission
48Doing Business in Zambia – A unique flavour
Accounting and auditing
• The accounting profession in Zambia is regulated by the Accountants’ Act of 2008 through the Zambia Institute of Chartered Accountants (“ZICA” or the “Institute”).
• ZICA provides standards for public practice and accountancy education in Zambia. All individuals who wish to practice as public accountants or auditors are required to apply for a practicing certificate with ZICA.
• ZICA is a member of the International Federation of Accountants (“IFAC”). IFAC is a global organization committed to protecting the public interest by supporting the development of all sectors of the accountancy profession around the world.
• All members of ZICA, including those holding a certificate of public practice are mandated to undertake activities to further Continuing Professional Development (”CPD”) in order to remain competent and relevant to the accounting profession. CPD is the continuous maintenance, development and enhancement of the professional and personal knowledge and skills which members of ZICA require throughout their careers in accounting.
• The Accountants’ Act of 2008 states
that a practicing certificate will be
awarded once an individual has been
a member of ZICA continuously for
a period not less than 12 months; and
before or after, or partly before or partly
after admission to membership of ZICA,
he/she has completed a period, being
not less than 30 months of approved
accountancy experience under
supervision of an approved principal in
the office of a public accountant.
• The experience should be:
- Of a wider and deeper nature than that required for ZICA Membership;
- Gained in four of the following areas: accounting, auditing, taxation, incomplete records, computer systems and operations, and sources of finance;
- Reviewed by an approved principal; and
- Confirmed by a supervising principal.
Zambia’s accounting profession is regulated by the Accountants’ Act of 2008 through the Zambia Institute of Chartered Accountants
49
Accounting standards
• The local accounting framework is the International Financial Reporting Standards (“IFRS”). The Companies Act 1994 (as amended) also provides for company accounting regulations. Entities are required to use one of three tiers for financial reporting purposes as shown below:
Auditors and audited financial statements
• All audits in Zambia are required to be conducted in terms of International Standards on Auditing (“ISA”). Only registered public accountants and auditors who are chartered accountants are permitted to carry out statutory external audits.
• .An external audit is a statutory requirement for all companies with limited liability. All companies must lodge an annual return with the Registrar of companies accompanied by an audit report .
• Companies whose annual financial statements are audited are required to submit audited accounts to the ZRA when filing their income tax returns.
Zambia’s accounting profession is regulated by the Accountants’ Act of 2008 through the Zambia Institute of Chartered Accountants
Type of entity Financial reporting framework
Listed companies, public interest entities and Government-owned enterprises
Full IFRS
Economically significant companies – companies that are not public companies or quoted on the stock exchange with turnover greater than ZMW 20 million
IFRS for SMEs or Full IFRS at the Company’s discretion
Micro and small entities – defined as entities with turnover less than ZMW 20 million.
Zambian Financial Reporting Standard for micro and small entities
50Doing Business in Zambia – A unique flavour
Introduction
• This information is based on existing tax legislation and the 2013 Budget Address delivered by the Minister of Finance, Honourable Alexander Bwalya Chikwanda, MP, to National Assembly on 12 October 2012.
Tax administration
• Zambia operates a source-based system of taxation. Every person receiving income from a source within or deemed to be within Zambia, will be liable to income tax in Zambia on that income. The concept of residence is of secondary importance in that it only extends the tax net to cover interest and dividend income received from a foreign-source by Zambian residents.
• The tax system is administered by the Zambian Revenue Authority (“ZRA”), an agency established in 1994. Where disputes arise between taxpayers and the ZRA under the Income Tax Act, Value Added Tax (“VAT”) Act and the Customs and Excise Act, the aggrieved party has a right of appeal to the Revenue Appeals Tribunal (“RAT”), a statutory body that hears and determines the settlement of tax cases. A party dissatisfied with the decision of the RAT can appeal to the High Court of Zambia.
• The tax year for both individuals and companies currently runs from 1 January to 31 December.
• Income tax is divided into PAYE, Tax on Self-employed Individuals and Company Tax. A 3% income tax on all commercial imports was introduced from 1 April 2007. The Minister, however, has the authority to determine when this
tax will not be applicable.
Zambia operates a source-based system of taxation whereby every person receiving income from a source within or deemed to be within Zambia, is liable to income tax in Zambia on that income
5. Taxation
51
Pay As You Earn (PAYE)
Overview
• PAYE is collected at source from individuals in gainful employment. The employer deducts the tax from the employee’s salary or wages and is required to remit it to the ZRA by the 14th of the month following the month of deduction.
• The Government has again maintained the graduated four-band system for taxing income from employment but the PAYE exempt threshold has been increased from ZMK24 million per month to ZMK26.4 million per month.
Non-residents
• The rates opposite are also applicable to non-residents in respect of employment and business income earned in Zambia. In addition, certain payments made to non-residents are subject to WHT.
Tax on self-employed Individuals
• This tax is levied on business profits of individuals running business ventures as sole proprietors, or partners in a partnership, at the graduated PAYE rates.
• For individuals earning both business income and emoluments, business income that has been taxed under turnover tax is (as from 1 April 2007) no longer added to emoluments that are subject to PAYE but remains under the turnover tax system. The tax treatment for income that exceeds the annual threshold is not clear.
PAYE is collected at source from individuals in gainful employment
2013 PAYE regime
PAYE Rates for Individuals: From 1 January 2013
Annual Taxable Income as exceeds But does not exceed Rate
ZMK ZMK %
0 26 400 000 0 %
26 400 000 36 000 000 25%
36 000 000 70 800 000 30%
70 800 000+ 35%
52Doing Business in Zambia – A unique flavour
Company tax
Overview
• Company tax is levied on business profits of incorporated companies and branches of foreign companies. Taxpayers are required to compute taxable income on an actual basis by reference to the charge year.
• A company that has an accounting year-end other than 31 December, can apply to the ZRA to base its tax return on the accounting year-end. The final tax returns are due by 30 June following the end of the respective charge year.
• New listings on the LuSE attract a 2% discount on the above income tax rate applicable and a further 5% discount where Zambians hold at least 33% of the shares.
• Zambian transfer pricing rules require that transactions between associated persons be on arm’s length terms. The tax authorities can replace “actual conditions” with “arm’s length conditions” for commercial or financial transactions between associated persons.
• Where companies operate in the priority sectors under the Zambia Development Agency Act, they are allowed the following:
- Exemption from income tax for five years from the first year that taxable profits are made, 50% in years six to eight and then 25% in years nine to ten.
- Dividends will be exempt from tax for a period of five years from date of commencement of operations.
- Capital expenditure on the improvement or upgrading of infrastructure will qualify for an improvement allowance of 100% of such expenditure.
Company tax is levied on business profits of incorporated companies and branches of foreign companies
53
2013 Income tax rates for companies
Income Tax Rates : January 2013 to December 2013
Rate of Tax
Basic rate 35%
Companies listed on the LuSE (year of listing) 2% less than the sector rate
Banks 35%
Mobile telecommunications operators - First K250 million profit 35%
- Balance of profit 40%
Charitable organisations - Income from commercial activities 15%
Farmers, exporters of non-traditional products, producers of chemical fertilisers
10%
Manufacturers and others 35%
Rural enterprises 30%
Businesses with turnover up to K200 million, excluding consultancy (“Presumptive Tax”)
3%
Companies listed on the LuSE attract a 2% reduction on the relevant sector, company tax rate
54Doing Business in Zambia – A unique flavour
Mining tax regime
• The regime for the taxation of mining companies is as follows:
- A basic rate of 30% (other companies remain at 35%).
- Variable profit tax of up to 15% on taxable income that is above 8% of gross income.
- A mineral royalty rate on base metals at 6% on gross value.
- The Government has proposed to increase the WHT rate from 15% to 20% on payments of management or consultancy fees and royalties to non-resident contractors with effect from 1 January 2013.
- WHT on dividends at 0%.
- Capital expenditure deductions: forming equipment, plant, machinery and other capital expenditure will be claimed at the rate of 25% per annum, from the year that the asset is brought into use (previously given at 100% of capital expenditure incurred).
- A reference price is applied for the purposes of assessing mineral royalties and any transaction for the sale of base metals, gemstones or precious metals between related or associated parties. The reference price is to be based on the London Metal Exchange or other commodity exchange prices.
- Cash accounting basis for VAT.
- Transfer pricing law will be enhanced to specifically apply to related party borrowings by mining companies in addition to the existing thin capitali-sation rules (effective from 1 January 2012).
Mining companies are taxed at a reduced rate of 30%, which compares with 35% from other companies
55
2013 WHT
WHT rates
Residents Non-residents
Commission paid to non-employees
15% 15%
Dividends, royalties, rental income, management and consulting fees
15% 15%
Entertainers and sportspersons
_ 15%
Interest 15% 15%
Non-resident contractors _ 15%
WHTs
• Certain payments to residents and non-residents, whether individual or corporate, are subject to WHT.
Capital Gains Tax (CGT)
• There is no CGT in Zambia. However, where an asset is sold in respect of which capital allowances have been or could have been claimed, the excess of the proceeds from the asset over the tax written-down value is treated as a balancing charge which is combined with the entity’s taxable income. In each instance, the balancing charge is restricted to the allowances previously claimed.
• For mining companies, the Government has proposed to introduce PPT at 10% on the transfer or sale of a mining right granted under the Mines and Minerals Development Act, 1994 (effective 1 January 2013).
Whilst there is no CGT in Zambia, when an asset is sold, the excess of the proceeds from the asset over the tax written down value is treated as a balancing charge which is combined with the entity’s taxable income
56Doing Business in Zambia – A unique flavour
VAT
• The VAT registration threshold has been increased from K200 million to K800 million per annum effective 1 January 2013. Therefore, Companies and individuals dealing in taxable supplies and with a turnover exceeding ZMK800 million per annum are required to register for VAT. Registered suppliers should submit returns to the ZRA for each calendar month within 21 days of the end of the month and account for the excess of output over input VAT.
• The standard rate for VAT is 16%. VAT registration is voluntary for businesses with an annual taxable turnover below ZMKK800 million.
• VAT registered suppliers with an annual taxable turnover of ZMK1 billion and above are required to submit input tax schedules electronically and in the approved manner.
• Supplies of goods and services are taxable at standard rate, zero-rated or exempt. Input tax paid on purchases to produce exempt supplies is not recoverable.
• VAT exemptions include infant formula, health, education, domestic house rentals, water, transport, financial and insurance services, conveyancing services, funeral services, statutory fees and insurance brokering.
• Proposed changes to take effect from 1 January 2013 include:
- The VAT registration threshold is increased from ZMK200 million to K800 million per annum;
- Goods supplied to, or imported by, businesses operating in an MFEZ or industrial park have been standard rated.
The standard rate for VAT is 16%. VAT registration is voluntary for businesses with an annual taxable turnover below K800 million
57
Customs and Excise
• The importation of goods into Zambia is subject to import or customs duty. All goods are categorised as to whether they are raw materials, intermediate or finished goods, and taxed at rates in the range 0% to 25% on cost, insurance and freight value (or value for duty purposes).
• Excise duties are levied on specific classes of goods manufactured in, or imported into, the country by reference to value using pre-determined rates contained in the Harmonised Commodity Description and Coding System plus the customs duty payable on those goods. From 1 January 2011, a 10% excise duty on plastic bags was introduced.
• Proposed changes to take effect from 1 January 2013 include:
- The customs duty rate on flat-rolled products of iron or non-alloy steel not clad, plated or coated, used in the manufacture of roofing sheets has been increased from 0% to 15 percent;
- Customs duty on flat rolled products of iron or non-alloy steel, clad, plated or coated excluding those coated with tin and lead, has been increased from 0% to 25%t;
- Customs duty on importation of multiple or cabled yarn (knitting wools) of synthetic staple fibers has been increased from 0% to 15 percent; and
- Duty has been removed on wide range of medical, mechanical and electrical tools, plant, machinery and equipment.
Customs duty is levied on goods imported into Zambia at rates ranging from 0% to 25%
58Doing Business in Zambia – A unique flavour
PTT
• PTT is charged at 5% on the realised value of the property being transferred. It is payable by the transferor. Property includes any land (including any buildings, structures, or other improvements thereon) and any share issued by a company in Zambia that is not listed on the LuSE.
• The realised value is the price at which the shares or land could, at the time of transfer, reasonably have been sold on the open market. There is a discretionary exemption for transfers of property within the same group of companies, provided the transferee is a company resident in Zambia and the transfer is for the purposes of effecting internal group reorganisation.
• Effective 1 January 2013, the Government has proposed to introduce Property PPT at 10% on the transfer or sale of a mining right granted under the Mines and Minerals Development Act, 1994.
Transfer of property attracts PTT at a rate of 5% of the realised value of the property being transferred
59
Investment Incentives
Agriculture
• Income taxed at a reduced rate of 15% (10% from 1 April 2012) (except for cotton lint - the income tax rate on profits from export of cotton lint is 35%).
• Dividends paid out of farming exempt from tax for the first five years of the distributing company commencing farming.
• VAT deferment on importation of some agricultural equipment and machinery.
• No import duty on irrigation equipment and reduced duty rates on imports of other farming equipment.
• Reduced customs duty at 5% on premixes, being vitamin additives for animal feed.
• Company income tax rate applicable to the manufacture of organic fertiliser has been reduced from 35 percent to15 percent(effective 1 January 2013).
Manufacturing
• Refund of Zambian VAT on export of Zambian products by non-resident businesses under the Commercial Exporters Scheme.
• Guaranteed input tax claim for two years prior to commencement of production.
• Income from chemical manufacturing of fertilizers is taxed at a reduced rate of 15%.
• Import duty on certain textile machinery has been reduced to 0% and all woven fabrics of polyester imported for further processing, all imported sewing threads and grey fabric has duty reduced to 0%.
• Import duty on PVC lining and eyelets used in the manufacture of shoes has been reduced to 5%.
• Import duty on semi-refined wax and cerechlor used in the manufacturing of paint, and on tapioca starch with dextrose powder which is used in the manufacture of biscuits, has been reduced 15%.
Agricultural activities are taxed at a reduced rate of 15%
60Doing Business in Zambia – A unique flavour
Tourism
• Zero-rate of VAT on tour packages throughout Zambia.
• Zero-rate of VAT on other tourist services provided to foreign tourists other than those included in tour packages.
• Refund of VAT for non-resident tourists and visitors on selected goods.
• No import VAT on all goods temporarily imported into the country by foreign tourists.
• Inadequate infrastructure, service delivery and limited marketing activities addressed by the development of Kasaba Bay, Livingstone and Mfuwe tourist areas and future refund of certain expenses incurred in showing movies that promote the country.
• In order to leverage the maximum benefit from hosting the 2013 United Nations World Tourism Organisation Conference, Government proposes to suspend duty up to 31 December 2013 on the following goods:
- New motor vehicles for tourism enterprise that offer transport services.
- New articles and equipment needed to furnish or refurbish accommodation and catering facilities for businesses licensed as tourism enterprises.
General incentives
• Import VAT relief for VAT registered businesses on imports of eligible capital goods (i.e. VAT Deferment).
• Zero rate of VAT on export of taxable products.
• Guarantee of VAT refund within 30 days of lodgment of adequately supported claims within 30 days of submission of the claim.
• Relief of VAT on transfer of business as a going concern.
• Equal treatment of services for VAT irrespective of domicile of supplier (i.e. reverse VAT).
• Cash accounting for VAT for members of the Association of Building and Civil Engineering Contractors.
• Guaranteed VAT input tax claim for three months prior to VAT registration for businesses that have already commenced trading.
• Reintroduction of voluntary registration for compliant businesses whose turnover is below ZMK800 per annum subject to conditions stated above.
• Registered businesses allowed to re-claim 20% of input VAT paid on petrol.
• Exemption of interest component of finance leases from VAT.
• Reduction of VAT rate for investors in manufacturing, agriculture, commercial banking and insurance operating in tax-free zones.
Tourism attracts various incentives including zero import VAT on all goods temporarily imported into the country by foreign tourists
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Concessions for companies operating under the Zambian Development Agency (ZDA) Act
• Profits made in designated zones are 100% exempt from income tax for five years from the date when the approved investment commences operations, 50% in years six to eight, 25% in years nine to 10 and then 0% thereafter.
• 0% tax on dividends for five years from the date when the approved investment commences operations.
• 0% import duty rate on raw materials, capital goods and machinery (including trucks and specialised motor vehicles) for five years.
• Deferment of VAT on machinery and equipment (including trucks and specialised motor vehicles).
• Further concessions for developers and investors in the MFEZ and industrial parks (introduced last year) include:
- Removal of WHT on management fees, consultancy fees, and interest re-payments to foreign contractors.
- Zero-rating of supplies to developers of MFEZ and industrial parks.
- Foreign suppliers to MFEZ and industrial parks exempt from reverse VAT charge.
- Exemption from customs duty of equipment and machinery imported for the development of MFEZ and industrial parks.
Qualifying companies operating under the Zambian Development Agency (ZDA) Act attract various investment incentives
62Doing Business in Zambia – A unique flavour
Company vs. Branch
• For most practical tax purposes a registered branch and a resident company are treated similarly in that the same rates of tax apply to effectively the same quantum of profit.
• However, there is an important difference between a company and a branch which arises on the repatriation of profits. In the absence of a favourable double taxation agreement the payment of dividends by a subsidiary would be subject to deduction of withholding tax, currently at a rate of 15%.
• This would give an effective tax rate of 44.75% (being 35% company income tax and 15% withholding tax) on any profits repatriated outside the Republic. By contrast, a branch can repatriate its profits with no tax withholding, giving an effective Zambian tax rate of 35%.
• Additionally, a company requires the appointment of at least two directors, whereas a branch requires only one. For both a company and a branch, more than 50% of the directors must be resident in Zambia.
Dividends paid by a Zambian Company are subject to a 15% WHT which, however, does not apply on repatriation of profits made by a branch to its Head Office. This makes operating a Branch more attractive from a tax perspective
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Deloitte is a global professional services provider, with a strong presence in Zambia
6. About Deloitte Financial
Advisory
Consulting
Audit
Tax
Clients
AmericasUS$13.0 billion72,850 people
EMEAUS$ 10.0 billion62,700 people
Zambia2 Cities> 100 people
Asia PacificUS$ 3.6 billion34,000 people
LusakaKitwe
The global firm
Over 152 countries
Aggregate global revenues of US$ 31.3 billion
Approximately 195,000 people globally
Two main offices in Zambia
Professionals working across
Audit, Tax, Financial Advisory
Services and Consulting
64Doing Business in Zambia – A unique flavour
Deloitte Zambia offers world class professional services via 4 core service line...
Deloitte in Zambia
FinancialAdvisory
Consulting
Audit
Tax
Clients
• Financial statement audits
• Accounting advisory
• Assurance services
• Business Tax
• Indirect Tax
• International Tax
• Transfer Pricing
• Human Capital
• Strategy & Operations
• Technology
• Ad hoc consulting
• Corporate Finance Advisory
• M&A Transactions Services
• Forensic investigations
• Restructuring Services
• Valuation Services
Deloitte Zambia’s depth of capability is impressive, but what differentiates us is a consistent ability to integrate service capability with deep industry sector insights.
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7. Contacts
Chisanga ChunguChief Executive Officer
Office: LusakaEmail: [email protected]: +260 211 228677
Alice Jere TemboAudit
Office: LusakaEmail: [email protected]: +260 211 228677
Fellystons NchimunyaAudit
Office: KitweEmail: [email protected] Tel: +260 212 222688
Humphrey MulengaFinancial Advisory Services & Consulting
Office: LusakaEmail: [email protected]: +260 211 222036
Victor MuhundikaTax
Office: LusakaEmail: [email protected]: +260 211 228677
66Doing Business in Zambia – A unique flavour
8. Glossary of Terms
BOZ Bank of Zambia c. Circa (approximately)CEC Copperbelt Energy Corporation PLCDRC Democratic Republic of CongoEBZ Export Board of Zambia EIU Economist Intelligence UnitERB Energy Regulation BoardFDI Foreign Direct Investment GDP Gross Domestic ProductGRZ Government of the Republic of ZambiaHFO Heavy Fuel OilIFAC International Federation of Accountants KCM Konkola Copper Mines PlcLHPC Lunsemfwa Hydro Power Company LimitedMaamba Maamba Collieries LimitedMP Member of ParliamentNAPSA National Pension Scheme Authority PACRA Patents and Companies Registration Office PAYE Pay As You EarnPIA Pensions and Insurance Authority PICZ Professional Insurance Corporation Zambia LimitedPPT Property Transfer Tax SEDB Small Enterprises Development Board Telecomms TelecommunicationsUN United NationsUSD United States DollarVAT Value Added TaxWT Withholding TaxZAWA Zambia Wildlife Authority ZCCM Zambia Consolidated Copper Mines LimitedZCCM-IH ZCCM Investment Holdings PlcZEPZA Zambia Export Processing Zones Authority ZESCO ZESCO LimitedZIC Zambia Investment Centre ZICA Zambia Institute of Chartered AccountantsZICTA Zambia Information and Communications Technology AuthorityZMK Old Kwacha, pre -1 January 2013ZMW The new re-based Kwacha, effective 1 January 2013ZPA Zambia Privatisation Agency ZRA Zambia Revenue AuthorityZSIC Zambia State Insurance Corporation Limited
Deloitte provides audit, tax, consulting, and financial advisory service to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte’s more than approximately 195,000 professionals are committed to becoming the standard of excellence.
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© 2013 Deloitte & Touche