Learn about barriers to market entry and local requirements, i.e., things to be aware of when entering the market for this country.
The Zambian economy is heavily dependent on copper mining and rain-fed agricultural production, which expose the economy to external vulnerabilities such as variances in global copper prices and increasingly erratic seasonal weather patterns. According to the Extractives Industries Transparency Initiative (EITI), mining contributes 77 percent of Zambia’s total export value and nearly 28 percent of government revenues. Zambia has a relatively small domestic market that is spread geographically across a country slightly larger than the state of Texas. A landlocked country, Zambia also faces some of the highest transportation costs in the Southern Africa region.
The Zambian government’s massive debt load has become a major weight on the economy as a whole. Unable to access international financial markets due to default, the Zambian government relies heavily on domestic debt sales to finance its operations, which has pushed up interest rates and crowded out private sector access to credit. In addition to the formal loans on its balance sheet, the Zambian government and parastatal companies have accumulated billions of dollars in arrears to domestic suppliers, which has in turn prompted widespread layoffs and forced companies to forego capital planning and expenditures. The Zambian government in December 2021 secured staff-level agreement with the IMF on a $1.4 billion rescue package that is expected to include significant macroeconomic reforms targeting costly energy and agricultural subsidies. Zambia is one of three countries to receive debt treatment under the G-20 Common Framework, which is being used to restructure Zambia’s extensive bilateral debts and which is a prerequisite for IMF board approval on the rescue package. Zambia’s bilateral creditors held their first joint meeting in June 2022 under the auspices of the Paris Club.
Other key challenges include policy inconsistency, pervasive corruption, and low labor productivity. For example, the EITI notes that Zambia’s minerals tax regime has changed 10 times in 16 years – an issue that mining companies say disincentivizes investment and exploration. In addition, Zambia ranked 117 out of 180 countries in Transparency International’s 2021 Corruption Perceptions Index, falling four places since the survey’s inception in 2012. Despite low nominal wages, actual labor costs in Zambia are considered high for the region as a result of low productivity, stringent labor laws, generous benefits for formalized employees, and training costs due to the shortage of skilled labor.
While improvements have been made at key border crossings, including the opening of integrated customs services at the Zambia-Zimbabwe border at Chirundu, the DRC-Zambia border at Kasumbalesa, the Zambia-Namibia border at Katimamulilo, the Zambia-Botswana border at Kazungula, the Zambia-Tanzania border at Nakonde, the Zambia-Malawi border at Mwami, and the Zambia-Mozambique border at Chanida, the cross-border movement of goods remains low. This, combined with insufficiently developed and maintained network of primary, secondary, and tertiary roads, creates steep transportation costs. Under the previous administration, government policies with respect to business and trade changed often and without prior stakeholder consultation. Market-distorting subsidies and ad hoc changes to trade policy in the agriculture sector inhibit greater involvement by and growth of private enterprises in the sector.
COVID-19 remains an ongoing challenge for the Zambian economy, crippling the country’s vital tourism industry in 2020 and 2021.