The U.S. Department of State’s Investment Climate Statements (ICS) provide information on the business climates of more than 170 economies and are prepared by economic officers stationed in embassies and posts around the world. They analyze a variety of economies that are or could be markets for U.S. businesses. The Investment Climate Statements are also references for working with partner governments to create enabling business environments that are not only economically sound, but address issues of labor, human rights, responsible business conduct, and steps taken to combat corruption. The reports cover topics including Openness to Investment, Legal and Regulatory Systems, Protection of Real and Intellectual Property Rights, Financial Sector, State-Owned Enterprises, Responsible Business Conduct, and Corruption.
These statements highlight persistent barriers to further U.S. investment. Addressing these barriers would expand high-quality, private sector-led investment in infrastructure, further women’s economic empowerment, and facilitate a healthy business environment for the digital economy.
Executive Summary
Zambia is a landlocked country in southern Africa that shares a border with eight countries: Angola, Democratic Republic of the Congo, Tanzania, Malawi, Mozambique, Zimbabwe, Botswana, and Namibia. It has an estimated population of 17.86 million, GDP of $19.3 billion and GDP per capita of USD $1,086.
Zambia has been in a financial and economic crisis since at least 2020, when the country became the world’s first COVID-era default after Zambia missed a payment on $3 billion of outstanding Eurobonds. The Zambian economy contracted in 2020 by 3.0 percent and grew by a meager 1.0 percent in 2021. The IMF forecasts 2022 real GDP growth of only 1.1 percent. Zambia’s debt overhang remains a severe inhibitor of economic growth, effectively eliminating the government’s access to international capital markets and forcing it to finance a persistent budget deficit through domestic borrowing, which crowds out private sector access to capital and limits growth.
Despite broad economic reforms and debt relief under the World Bank’s Highly Indebted Poor Countries (HIPC) initiative in the early 2000s, Zambia has generally struggled to meet its full economic potential. A decade of democratic and economic backsliding under former President Edgar Lungu and the Patriotic Front resulted in widespread use of corruption and economic rent-seeking that has further damaged Zambia’s reputation as an investment destination. Cumbersome administrative procedures and unpredictable legal and regulatory changes continue to inhibit Zambia’s immense potential for private sector investment, compounded by insufficient transparency in government contracting, ongoing lack of reliable electricity, and a high cost of doing business due to poor infrastructure, high cost of capital, and the lack of skilled labor.
President Hakainde Hichilema achieved a resounding victory at the polls in August 2021 on a platform of democratic and economic reform and renewal. By December 2021, Zambia achieved staff-level agreement with the IMF on a $1.4 billion Extended Credit Facility that is expected to anchor macroeconomic and fiscal reforms and restore investor confidence. With the appointment of respected economists and technocrats to lead the Ministry of Finance and the central bank, the Hichilema administration has made significant strides reducing inflation, which has dropped from nearly 25.0 percent in July 2021 to 13.1 by the end of March 2022. The Hichilema administration is currently seeking debt restructuring under the auspices of the G-20 Common Framework, which would provide the basis for IMF board approval of Zambia’s Extended Credit Facility. A successful businessman and investor in his own right, President Hichilema has pledged to tackle fiscal and regulatory reforms aimed at strengthening Zambia’s investment climate.
Zambia remains highly dependent on its mining and extractives industry. It is Africa’s second-largest producer of copper and is an important source of several other critical minerals, including nickel and cobalt. According to the Extractives Industries Transparency Initiative, mining products accounted for 77 percent of Zambia’s total export earnings and 28 percent of government revenues in 2019. Investment in the mining sector fell substantially during the Lungu era due to multiple changes to Zambia’s minerals tax regime and an unstable regulatory environment. The Hichilema administration in its maiden budget introduced a key reform to Zambia’s minerals tax policy that is expected to attract new investment in the sector. The agriculture, healthcare, energy, financial services, and ICT sectors all offer potentially attractive opportunities for expanded U.S. trade and investment.
The U.S. Embassy works closely with the American Chamber of Commerce of Zambia (AmCham) to support its American and Zambian members seeking to increase two-way trade. Agriculture and mining remain headlining sectors for the Zambian economy. U.S. firms are present and are exploring new projects in tourism, power generation, agriculture, and services.
To access the full ICS for Zambia, please visit the U.S. Department of Department of State’s Investment Climate Statement website.