MSc, ACCA, Bsc, Adv. Dip, CAT

INVESTMENT ANALYSIS IN

ZAMBIA

The Republic Zambia is a landlocked country in Southern Africa. Neighboringthe Democratic Republic of the Congo to the north, Tanzania to the north-east, Malawi to the east, Mozambique, Zimbabwe, Botswana and Namibia tothe south, and Angola to the west.

The capital city is Lusaka, in the south-central part of Zambia.

Zambia has a total population estimated at 15.5 million people.

It has a total area of 752 618 square kilometres, of which 9 220 km² are water.

Zambia’s economy is fairly open to foreign and private investment. It isconsidered as one of the most attractive destinations in the Africancontinent for investment because of its peace and stable government.

In 2010, the World Bank named Zambia one of the world's fastesteconomically reformed countries. The Common Market for Eastern andSouthern Africa (COMESA) is headquartered in Lusaka.

After the 1990s, the government has taken proactive initiatives to createa favorable business climate.

According to the World Economic Forum, Zambia ranks 112 out of 133in the Global Competitiveness Report. The country ranks 99 out of 180on the Transparency International on Corruption Perceptions Index.

Zambia has also been ranked the 127th safest investment destination inthe world by the Euromoney Country Risk rankings.

The Zambian government committed in creating a businessenvironment which is profitable to the investors and makes Zambia thebest destination for investment among its neighboring countries.

Zambia predominantly exhibits signs of a developing economicstructure. This is also evident in the sector-wise GDP composition.The service sector employs 9% of the total work force but contributes49.5% of the GDP.

However High dependence on copper production and agriculturaloutput makes the Zambian economy vulnerable to regularfluctuations. The lack of economic diversity and huge foreigninvestment in other sectors serves to intensify this factor.

Industries use 6% of the labor force but contribute 31.3% to theannual GDP. The industrial sector is the mainstay of Zambia'seconomic structure. The country has experienced rapid growth in therecent years, maintaining the real GDP growth at 6% per year from2005 to 2008

However, the biggest drawback is that the agricultural sectoremploys 85% of the population, while it contributes only 19.2%, so atransition from the primary to tertiary sector is required.

Zambia’s Investment Environment and Opportunities falls into five major Categories:

I. Agriculture

II. Manufacturing

III. Mining

IV. Energy

V. Tourism

Agriculture Current Situation:

Zambia possesses huge amount of potential in the agriculture sector.

Well gifted with good soil and an area of 60 million hectares arable landout of which only 15% is in use.

Large amount of surface and underground water, good climate conditionsappropriate for the cultivation of a wide variety of crops like corn ormaize, wheat, soya, bean, coffee, cotton, tobacco, sugar, paprika etc.

Agriculture Investment Opportunity:

Enormous potential to become a major grower and exporter ofagricultural and horticultural produce. An abundance of quality land,water and ideal climate all suited to an amazing range of agriculturalproducts. Only 15% of Zambia 60 million hectares of arable land is undercultivation.

Government Support:

The Zambian government is aiming to enhance this sector by allocatingvast tracks of land near the rail and road networks to prospective foreigninvestors, and Special incentives are offered to commercial farmers.

Current Situation:

Zambia’s current base in the manufacturing sector comprises ofcompanies into:

Food processing,

Beverages,

Textiles,

Leisure and sporting equipment.

The production of fertilizers, chemicals, explosives, cement, tobaccoproducts and textiles.

The main activities include the smelting and refining of copper andother metals and metal products, including petroleum refining.

Investment Opportunity:

This sector possesses all the vital required elements such as raw materials, labor force, abundant land and a good banking and financial system.

There is exemption on customs duty tax on the importation of most capital machinery and equipment used for manufacturing while many other incentives exist for the sector, especially for the Mining Industry.

Opportunities for investment exist, particularly in agro-processing, wood and leather products.

Profitable avenues are also in food processing and textile production and mineral products and vehicle parts and assembly.

Government Support:

To help realize this potential Government established a Duty Drawback Scheme (DDS) under which manufacturers producing export goods are entitled to claim a refund for duty paid on raw materials used in the production process. More recently, the Government enacted the Export Processing Zones Act.

Zambia has vast amount of wealth in minerals which provides a lot ofopportunities for potential investors. The list of investment opportunities inthis sector include:

Precious metal-gold; silver; selenium;

The platinoid group - iron, tin, nickel and manganese;

Agro-minerals-rock phosphate and igneous phosphate suitable forconversion to fertilizer, peat, limestone;

Reclaiming of copper from slug tailing dumps;

Gemstones-emerald, amethyst, aquamarine, tourmaline; and

Other deposits-talc, fluorpar, graphite, barytes and clays.

The 1995 Mines and Minerals Act provide exemption from import duty andVAT on all machinery and equipment, including specialised motor vehiclesrequired for prospecting or mining activities.

Current Situation:

The economy of Zambia has grown rapidly in the past 5 years but onthe other hand it has also experienced a power deficit.

Potential investors are invited to invest in power generation projects.Many opportunities exist in electricity generation and transmissionprojects.

Zambia is pursuing the development of transmission inter-connectorswith neighboring countries. One such project is the Zambia-Tanzania-Kenya power inter-connector.

Other investment opportunities in electricity transmission includeZambia-Malawi inter-connec0tor, Zambia-DRC inter-connector, Solwezi-Kolwezi inter-connector and upgrading of large and small hydroprojects.

Investment Opportunity:

Investment opportunities include the following:

Development of Itezhi-Tezhi Hydro Electric Project; Kafue Gorge LowerHydro-Electric Project; Zambia-Tanzania Interconnector; and Zambia-Namibia Interconnector.

The exploration potential for hydrocarbons (oil and gas) is another areathat has not been fully tapped. The hydrocarbon source rocks are provenand are preserved in all basinal areas of Zambia.

Government Support:

Such investments are supported by the National Energy Policy. TheGovernment of Zambia encourages active participation from prospectiveinvestors with modern technological expertise.

VICTORIA FALLS ZAMBIA

There are 19 National Parks, 23 Game Reserve Management Areas, and 23million hectares of land devoted to the conservation of a spectacular varietyof animals.

Wildlife such as Elephant, Leopard, Lion, Cheetah, Rhinoceros, Zebra, Giraffe,Hippopotamus, Crocodile, Buffalo, Impala, Antelope, Baboon and a host ofsmaller creatures as well as over 700 species of Birds can be seen.

Tourism Investment Opportunity:

Untapped tourism opportunities exist in Zambia.

Specific areas of potential investment in this sector include:

Game ranching;

Provision of accommodation (i.e. high quality five and four star hotels,Lodges and Camp sites near the popular tourist areas);

Transport service - Investment potential exists in air charters in form ofhelicopters and/or small planes to service game areas;

Adventure holiday packages;

Organized tours;

Out door sports facilities (golf courses and stadia).

Overall, foreign investors will face fewer risks from a trade andinvestment perspective in Zambia.

Economic risk which do pose threats are the subdued Zambianeconomic environment due to fluctuating global copper prices, and anunderdeveloped power generation infrastructure which leads tomassive load shedding.

Crime and Security Risk is the second lowest area of risk in theOperational Risk environment for investors and businesses in Zambia.

The main security risks to businesses in Zambia emanate from pettytheft crimes and the costs associated with protecting property andpersonnel.

Road and rail are the most widely used transport modes, however thequality of transport infrastructure remains weak and high reliance onregional ports raises trade costs and delays due to congestion and poorinternational connectivity.

Zambia has the following direct taxes: CompanyIncome Tax, Personal Income Tax, Withholding Tax,Presumptive Tax and Property Transfer Tax.

Company Income Tax

The general rate is 35% for both resident and non-resident companies.For companies involved in agriculture, manufacture of chemical fertilizerand non-traditional exports, the rate is 15% while that for mining is 30%and 40% on bank profits above K250 million KWACHA.

Personal Income Tax

All individuals are liable to tax on personal income after deductingpersonal relief at a graduated rate from 0% for incomes of K6 million perAnnum and below. The rest at rates of 25%, 30% and 35%.

Presumptive Tax

The rate of 3% is charged on business income for small scale businessesbelow a turnover threshold of K200 million KWACHA per annum.

Property Transfer Tax

This is charged at the rate of 3% of the open market value realised fromthe sale of any land and building and shares issued by a companyincorporated in Zambia.

Withholding Tax

Withholding tax of 20% on rental charges, dividends, interest payments,royalties, commissions, management and consultancy fees and paymentsto subcontractors. Payments made to non-residents are also subject towithholding tax at 20% in all cases except where there is a doubletaxation agreement in effect

Zambia also charges Indirect taxes: Import Duty, Excise Duty and VAT(Value Added Tax). VAT rate is at 16%, with some items being exemptedor zero-rated

WHY YOU SHOULD INVEST IN ZAMBIA ?

Investment policy

Zambia offers a strong policy environment for investors. This includes noexchange control, no capital gains tax and a fairly good legal systemwhich protects property rights. Zambia has an investment guaranteeregime backed by the World Bank and is a member of the InternationalConvention on the Settlement of Investment Disputes.

Energy

The government aims to increase reliance on the private sector, in orderto boost Zambia’s struggling energy supply. Six new power plants arecurrently at various stages of development. Collectively, they will add1730mw to the grid, mostly by private producers. Total generation in thecountry will almost triple, though most are several years fromcompletion.

Manufacturing

Despite being hit by a power crisis; the manufacturing industry has grownover the past three years. Much manufacturing relies on the Africa Growthand Opportunity Act’s (Agoa) provision of duty free access to the USmarket.

There is a strong state incentive campaign to promote new investment,including zero corporate tax and import duties for the first five years ofprofitable operation (if located in certain zones).

Construction

In recent years, construction has also been successful. It has been thefastest growing GDP sector over the past two years. Demand has beenserviced by various firms. Chinese constructors have taken on some of thebiggest infrastructure projects.

Copper

Zambia has a huge resource of copper. It’s the largest copper producer in Zambia and the eighth largest in the world. Canadian miner First Quantum Minerals is expected to double output at its Kalumbila mine. Glencore is due to bring a shaft online at its Mopani mine.

Gemstones

Copper isn't Zambia's sole industry.

Zambia is the world’s second-largest supplier of emeralds and the country's rich with cobalt, manganese, gold and uranium.

Several government incentives aim to attract new investors to the sector. Recently, Chinese mining companies have been quick to move into Zambia, along with several Chinese metal suppliers.

Infrastructure

For the past four years, Zambia's government has invested extensively in it's infrastructure, thus increasing potential for increased logistics performance.

Retail

Shopping malls in the capital city Lusaka reflect a growing consumer sector, with approximately 1.5 million people forming an urban retail market (out of a population of 15 million).

Thank You For Your Time

Any Questions?

For Further Enquiries You Can Contact Me on:

PHILLIP MUTAMBO

Mobile/ WeChat +86 13077962923

Email: phillipmutambo@ymail.com or

phillipmutambo@gmail.com

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