Zambia - Economy

About two-thirds of Zambians live in poverty. Per capita annual incomes are well below their levels at independence and, at $1,500, place the country among the world's poorest nations. Social indicators continue to decline, particularly in measurements of life expectancy at birth (about 39 years) and maternal mortality (101 per 1,000 live births). The country's rate of economic growth cannot support rapid population growth or the strain which HIV/AIDS-related issues (i.e., rising medical costs, decline in worker productivity) place on government resources. Zambia is also one of Sub-Saharan Africa's most highly urbanized countries. Over one-third of the country's 12.9 million people are concentrated in a few urban zones strung along the major transportation corridors, while rural areas are underpopulated. Unemployment and underemployment are serious problems.

as a result of Zambia's business environment reforms, the country is now ranked 8th in Africa, 5th in the Southern African Development Community (SADC) and 4th in the Common Market for Eastern and Southern Africa (COMASA) in terms of the ease of doing business. Furthermore, Zambia is ranked the 8th most competitive country in Africa on the Global Competitiveness Index. Recently, Zambia was ranked 7th by Forbes as the best country for doing business among 54 African countries.

The economy of newly-independent Zambia was overly reliant on a single export, copper. The negative effect of the fall in copper prices in the 1970s and 1980s was exacerbated by the centralised economic policy pursued by UNIP, and its failure to develop other sectors of the economy, particularly agriculture. Disenchantment with UNIP's mismanagement of the economy contributed greatly to the party’s electoral defeat in 1991.

The MMD government pursued liberal economic policies, and although their effectiveness has been bedevilled by mismanagement and corruption, the decade since 1995 has seen sustained economic growth unmatched since the 1960s. Zambia recorded positive growth in GDP from 1999 to 2007 with growth accelerating to 5.2% in 2005, 5.8% in 2006 and 6% in 2007. The fastest growing sectors were mining, energy (particularly hydroelectric power generation), construction and tourism.

HIV/AIDS is the nation's greatest challenge, with 14.3% prevalence among the adult population. HIV/AIDS will continue to ravage Zambian economic, political, cultural, and social development for the foreseeable future.

Once a middle-income country, Zambia began to slide into poverty in the 1970s when copper prices declined on world markets. The socialist government made up for falling revenue by increasing borrowing. After democratic multi-party elections, the Chiluba government (1991-2001) came to power in November 1991 committed to an economic reform program. The government was successful in some areas, such as privatization of most of the parastatals, maintenance of positive real interest rates, the elimination of exchange controls, and endorsement of free market principles. Corruption grew dramatically under the Chiluba government. Zambia has yet to address effectively issues such as reducing the size of the public sector and improving Zambia's social sector delivery systems.

For 30 years, copper production declined steadily from a 1973 high of 700,000 metric tons to a 2000 low of 226,192 metric tons. The decline was the result of poor management of state-owned mines and lack of investment. With the privatization of the mines in April 2000, the downward trend in production and exports was reversed as a result of investments in plant rehabilitation, expansion, increased exploration, and high copper prices on the international market. Copper production rose to 535,000 metric tons in 2007, but slumping copper prices in late 2008 put significant pressure on the mining companies and government revenue. Zambia experienced positive economic growth for the eleventh consecutive year in 2009, with a real growth rate of 4.3% (as projected by the government). The rate of inflation dropped from 30% in 2000 to single-digit inflation of 8.9% by December 2007 due to fiscal and monetary discipline and the growth of the domestic food supply. Year-on-year inflation rose above 14% in 2009, due to rising fuel and food prices.

In April 2005, the International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) provided Zambia significant debt service relief and debt forgiveness under the Heavily Indebted Poor Countries (HIPC) initiative. Zambia was the 17th country to reach the HIPC completion point and has benefited from approximately U.S. $6 billion in debt relief. In July 2005, the G-8 agreed on a proposal to cancel 100% of outstanding debt of eligible HIPC countries to the IMF, African Development Fund, and IDA. Zambia is among the beneficiaries of this additional multilateral debt relief. Zambia also completed a Poverty Reduction and Growth Facility (PRGF) arrangement with the IMF for the period 2008-2011. The Zambian Government is pursuing an economic diversification program to reduce the economy's reliance on the copper industry. This initiative seeks to exploit other components of Zambia's rich resource base by promoting agriculture, tourism, gemstone mining, and hydropower. The government is also seeking to create an environment that encourages entrepreneurship and private-sector led growth.

Zambia's economy has weathered the effects of the global economic crisis and a subsequent fall in world copper prices. High inflation, currency volatility, rising unemployment, and restricted access to capital dampened Zambia’s economic performance in early 2009; however, copper prices have nearly returned to more stable, profit-yielding levels.