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Zambia Economy

27 January 2010
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The extraction of copper in Zambia is the most important economic activity, but the international economic crisis has also damaged this sector.

The Zambian government is deploying strategies to diversify the economy by promoting agriculture, tourism, mining of precious stones and hydropower.

The country's economy showed a robust macroeconomic growth, recording an average growth of real GDP of 4.9% between 2000 and 2008, after having marked a peak of 6.3% in 2007. This growth was driven by significant activity in mining, construction, telecommunications and tourism.

Like many other developing countries exporting raw minerals, Zambia has not been spared from the effects due to the economic crisis the international financial architecture. The copper price has sharply declined, however, in the last months of 2009, it seems that the country has passed the point of turning negative economic cycle.

Although the cultivated area is significantly reduced (7% of the territory), a large proportion of the population in agriculture. Dominated by traditional crops, especially cereals (millet and sorghum), cassava, some horticultural products, systems practice, however unproductive.

Common commercial products are cotton, peanuts, sugarcane, tobacco, although in complex commercial agriculture in Zambia is not very developed.

Most of Zambia's population lives on agriculture, with limited returns. Maize is the dominant crop, while in recent years the fastest growth was recorded in the production of tobacco, soybeans, vegetables and fresh flowers.

Forests provide good quantities of precious wood (teak, mahogany).

Low breeding is practiced, mostly cattle, but is widespread freshwater fishing activity.

The medium-term economic policy of Zambia and 'based on the "Fifth National Development Plan (FNDP), launched in July 2006 which contains an economic development strategy for the years 2006-2010, aims to achieve three main objectives:

1) To accelerate economic growth in relation to the reduction of poverty levels;
2) To achieve financial stability and currency;
3) To achieve a sustainable balance of payments position and foreign debt;
4) To create an economic environment conducive to private sector development.

Commercial opportunities can be identified in the field of provision of fertilizers, chemicals, agricultural machinery and light industrial tools.

The Zambian government plans to relaunch the sector through the creation of a Society of Agricultural Development with the aim of financing the reclamation of wasteland. Musokotwane Minister of Finance announced the grant to local and foreign investors than 200,000 hectares of farmland to increase maize production to be allocated to the export.

The Government has also announced its intention to issue invitations to tender to carry out oil exploration in the Northwest Region (on the border with Angola), in which soil samples sent to European laboratories confirmed the presence of oil.

At the same time under the new law promulgated presidential exploration and production of oil. This law will provide for the granting of exploration licenses, which will then become licensed production, if the same be able to find substantial reserves, which would allow a commercial production.

The law also provides that the holder of a permit oil exploration can begin his research within ninety days and will have a maximum of two years to begin production.

Foreign companies, however, must commit to educate and employ personnel Zambian and must comply with strict regulations regarding the environment and standards of health and public safety. It will also set up a National Oil Company Zambian.

It has already been created but a Technical Committee for oil exploration with the task of supervising the issuance of licenses.

The Industry of Zambia is predominantly the mining one. Particularly developed is the metallurgical sector. There are many facilities for refining copper. In Ndola an important oil refinery operates and are in various cities are present textile, cement, mechanical, chemical, food and tobacco factories.

The main resource of Zambia comes from underground and copper in particular, extracted in Copper Belt (geographical continuation of the Shaba). In addition to copper are mined zinc, lead, tin, and the refining of copper provides as by gold, silver and cobalt. Significant reserves of iron are not fully exploited.

In recent years, there was boom of the services sector, driven by increased demand from the mining, transport and telecommunications, together with the rapid growth of tourist flows.

The economic expansion is sustained by the mining sector of the copper, thanks to high world prices, which in turn has produced a stimulus to other sectors of the economy, particularly as construction, leading, in recent years, a substantial expansion induced by the increasing demand of residential buildings and civil works for modernization and infrastructural facilities in the country yet.

An important contribution to growth has come from the infrastructure investments financed by donor countries and strong growth in transport and telecommunications.

We talk about the development of three areas in particular: transport and telecommunications, construction and social services.

In the case of transport, the biggest contribution and 'derived from the road transport sector, intensification of public investment for rehabilitation and maintenance of roads.

In the nineties, the country has opened its doors to foreign investment, reduced government intervention in business, has privatized most public enterprises and eliminated many market distortions.

The active promotion of foreign investment is governed by the "Zambia Development Agency Act, law passed in May 2006 and entered into force on 1 January 2007, which established the" Zambia Development Agency (ZDA).

As provided in the ZDA Act, foreigners are allowed to invest in Zambia in every activity available to the private sector, the only options are precluded the production of weapons, substances that are harmful or dangerous and printing of money and sensitive documents.

Once the registration of the company at the "Patents and Companies Registration Office, the investor, after payment of a fee of 1,280,000 Kwacha, must submit, among
others, the ZDA following documents:

a) Certificate of registration of companies;
b) Plan of division of shares;
c) List of shareholders and directors of the company;
d) Business Plan (Business Plan / Feasibility Study Society);
e) Financial security (bank certificate or equivalent document).

An investment committee evaluates requests and issues an opinion within 14 days.

Following the approval by the ZDA, before revoking the license, the investor must pay an additional fee of 7,670,000 Kwacha.

If an investor makes a capital of not less than $ 500,000 investing in a sector or a production that the government's key is entitled to a number of benefits, including exemption from payment of customs duties for imports of machinery and equipment necessary for the company.

The corporate tax is also calculated on 50% of corporate profits and dividends are exempt from taxation. The same benefits are intended for rural businesses. Specific and additional incentives may be decided by the Ministry of Finance in the case of investments exceeding 10 million U.S. dollars.

An investor who makes a minimum capital of 250,000 U.S. dollars and employs a minimum of 200 persons entitled to a self employment permit or a residency permit and have the opportunity to obtain work permits for five expatriate employees.

The license, permit and registration certificate valid for 10 years, after which you can apply for renewal for another 10 years.

An investor who is unable to make the investment for which he has obtained a license must notify within thirty days stating the reasons for the ZDA.

Currently there are no restrictions on repatriation of profits on investment, even if the new Minister of Finance recently announced that it intended to reform legislation, raising some concern among international donors.

In response to the strong devaluation of the kwacha in 2001, the Bank of Zambia has introduced foreign exchange controls that only in July 2003 have been permanently removed, following pressure from the IMF.

Investments can be expropriated with compensation only for parliamentary act at market prices and convertible currency.

The legal protection of contractual obligations and property rights is weak and characterized by long decision times.

In Zambia there is no law on bankruptcy.

The tax system is composed of: individual and enterprise taxes, income tax, import tariffs, excise and value added tax (VAT). Zambia Revenue Authority manages the administration of the tax system.

'S corporate tax rate is fixed and is equal to 35%, replacing an old program under which ranged from 15% to 35%. Dividends are taxed at 15%, but those received by agricultural activities are exempt from taxes for the first five years. The withholding taxes are 15% on income from dividends and rent. There is also a tax on royalty and fee mineral property transfer.

Income taxes include a tax of 1% on wages and salaries of employees, after a deduction of 300,000 Kwacha (about $ 66.55) and a property tax 1.015%.

The individual income is taxed under a progressive program with four bands: 0% for the first 600,000 Kwacha (about $ 133) annual income, 10% on next 600,000 Kwacha, 20% on next 600,000 Kwacha and 30% l 'annual income increase of over 1,800,000 Kwacha (about $ 400).

A value added tax (VAT) at a standard rate of 20%, has replaced sales tax in 1995. The standard rate was subsequently reduced to 17.5%.

Items exempted from VAT are the insurance operations, mosquito nets and insecticides.

Mozambique has signed agreements with Italy to avoid double taxation.

Zambia has signed with the IMF in June 2008, an agreement for the grant of a three-year program of economic reforms under the Poverty Reduction and Growth Facility (PRGF) amounting to 79.2 million dollars, support the economic policies of the country, aimed at alleviating poverty and supporting growth, maintaining prudence in fiscal policy, pursuing structural reforms that would allow the process of economic conditions and preserving macroeconomic stability and sustainability of external debt.

Zambia and 'member of COMESA (Common Market for Eastern and Southern Africa) in October 2000, concluded an agreement for the creation of a free trade area, and the SADC (South African Development Community). Also part of the Cotonou Agreement between ACP countries and the European Union.

In recent years, intensified economic ties between Zambia and China through a series of agreements on cooperation and investment, particularly in the mining sector.

Despite the advance of the processes of trade liberalization, Zambia remains a relatively protected. However, considerable progress has been made in recent years to increase the degree of market opening in line with progress of regional integration processes.

Most of the products entry is placed at three price categories: 5% duty is applied to key raw materials and property funds, 15% for intermediate products and 25% for final products.

Protective tariffs are applied instead on specific products such as vegetable oils and soaps.

For imports, in general, in Zambia are not required licenses. However, certification must be produced for the importation of meat, plants, food and drugs, weapons and ammunition.

Export licenses are required for foreign sales of fertilizers, weapons, live animals, artifacts of historical significance and hunting trophies.

Customs exemptions exist for pharmaceuticals, medical equipment and veterinary chemicals in bulk, fertilizers and other agricultural products.

Zambia recognizes private property and industry one.

Specifically, there are three types of property: lands of the government, the common lands which  can be sold and the lands of the headman.



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