ZAMBIA

Republic of Zambia

COUNTRY OVERVIEW

LOCATION AND SIZE.

A landlocked state located in southern Africa, east of Angola, Zambia has an area of 752,614 square kilometers (290,584 square miles) and a total land boundary of 5,664 kilometers (3,520 miles). Comparatively, Zambia is slightly larger than Texas. Zambia's capital city, Lusaka, is located in the southern center of the country's territory.

POPULATION.

The United Nations Economic Commission for Africa estimated Zambia's population at 9,133,000 in 2000, a notable rise from the 1995 level of 8,081,000. In 2000 the birth rate stood at 41.9 births per 1,000 population while the death rate was 22.08 deaths per 1,000. With similar annual growth rates, the population will stand at 13,201,000 in 2015 and 21,965,000 in 2050. Zambians of African descent constitute 98.2 percent of the population, and 1.1 percent are European. In 1998, 39 percent of Zambians lived in urban habitats—one of the highest levels of urbanization in Africa.

The HIV/AIDS epidemic is a considerable problem in Zambia with 19 percent of the working age population infected. It is estimated that 99,000 Zambians died from AIDS in 1999 whilst those with HIV infection who were still alive at the end of 1999 numbered 870,000. These deaths and levels of infection are not only important in themselves but have extremely negative social and economic costs. The drawn-out nature of death from AIDS means that many of the population (predominantly women) who could be productively employed have to provide long-term care for the dying. In addition, by 1999 the cumulative number of orphans created since the epidemic began in the mid-1980s reached 650,000. This raises the problem of the development and guidance of Zambia's children.

CRIME.

It is important to note that Zambia is a key transhipment point for the global illegal drug trade. A significant quantity of heroin and cocaine bound for Europe and for distribution throughout the rest of Southern Africa passes through Zambia. This illicit trade is supported by the fact that Zambia is a regional money-laundering center that acts as an excellent facility for those dealing in drugs to disguise the illegal source of their profits.

DEBT.

External debt is a huge drain on Zambia's economy. Due to government subsidies of parastatals and investment in public health and education, by 1980 Zambia was one of sub-Saharan Africa's most indebted countries; it owed $3.261 billion. By 1997, the national debt had risen to $6.758 billion. This increased indebtedness was predominantly caused by an annual average government deficit of 10.72 percent of GDP between 1989 and 1998. Although the national balance of payments had been improving over the latter half of the 1990s, by 2000 the government remained fully dependent upon external aid in order to function.

THE FIRST REPUBLIC.

The First Republic (1964-1972) was formed at independence in 1964. In multiparty elections in 1964 the United National Independence Party (UNIP) defeated its main rival, the African National Congress (ANC). The socialist-"humanist" orientation of the government (led by President Kenneth Kaunda) was bolstered by a large revenue supplied by high international copper prices, which allowed the opening of health and education services to the black population. The UNIP could boast a considerable success; by 1972 Zambia's hospitals had grown by 50 percent and health clinics doubled, whilst the availability of education services also dramatically increased. In order to administer the growing public sector the civil service expanded dramatically and acted as a mechanism for the UNIP ruling elite to award the party faithful. Due to the lack of a significant business sector, civil servants became the nation's upper class.

THE SECOND REPUBLIC.

The Second Republic (1972-1990) was established in 1972. Known as the "one party-participatory democracy," it was a one-party state ruled by the UNIP. All other political parties were banned, and Kaunda's dominant role in the UNIP and the government assured him an uncontested rule. However, the Second Republic ran into serious difficulties due to corruption within the civil service, government, and parastatal sector, and declining government revenue caused by the falling price of copper. The government began to borrow heavily to support the vast state expenditure and the country became highly indebted.

Discontent grew throughout the country over the 1980s because of rapidly declining incomes and rising prices, partly caused by an IMF economic liberalization program (which was subsequently dropped in 1987). The culmination of worker militancy, student protests, and growing opposition within the ruling class was the formation of the Movement for Multi-Party Democracy (MMD) led by Frederick Chiluba (a key trade union figure). Mounting economic crisis and political pressure led Kaunda to sign a new constitution in 1990, putting an end to one-party rule.

THE THIRD REPUBLIC.

The Third Republic adopted a multi-party parliamentary democracy. Peaceful presidential and parliamentary elections were held in 1991 wherein Chiluba received 76 percent of votes cast. After this defeat Kaunda stepped down from office and ended his 27 years of leading the country. Relatively free and fair elections were held again in 1996 and the MMD won a landslide victory for the second time. In 2001, the MMD continued to pursue free market economic reform. The global dominance of free market capitalism since the 1990s and, perhaps, the success of the pro-business MMD has led the UNIP to drop its socialist orientation and adopt "capitalism with a social conscience."

The Zambia Revenue Authority (ZRA) was set up in 1994 to increase government revenue—which had been historically low—and to reduce the economy's growing dependence on external aid, which is essential in supporting Zambia's most basic necessities. The ZRA had reported considerable success in its role. For example, value-added tax (VAT) was introduced in 1995 and by the turn of the century it constituted 20 percent of all tax revenue. In order to provide increased incentives for domestic and international business the levels of these various revenue-collecting mechanisms had been progressively reduced in the 1990s. Nonetheless, even in light of these pro-business tax reductions, ZRA revenue collections still grew from K421 billion in 1994 to K954 billion in 1997.

COTTON.

Cotton is one of Zambia's most important cash crops. Although it is partly produced on large commercial farms by expatriates and some African commercial farmers, like most of Zambia's cash crops, the vast bulk of cotton output comes from small subsistence farmers. Even though the price of cotton plummeted between 1998-1999, export earnings from this crop rose from US$22.8 million to US$41.4 million, partly due to companies holding back 1998 stocks in the hope that prices would rise. The production of cotton also supports Zambia's large domestic textile industry.

Another key cash crop is tobacco. In 1998 Zambia exported US$9.5 million of tobacco, an impressive rise from the 1988 level of US$3.8 million. However, like most primary commodities, tobacco exports are subject to the continuing change and instability of international market prices. In 1960 1 metric ton of tobacco fetched US$8,391; by 1999 this had fallen to US$2,922. Also of note is the farming of coffee. In 1999 coffee provided US$8.7 million in exports; these earnings would have been higher if the world market leader, Brazil, had not almost doubled its normal output.

SUGAR.

Sugar is a dominant agricultural export, accounting for 70 percent of all export earnings in the processed food sub-sector in 1999 (other key goods in this sub-sector are stock feeds, marigold meal, mealie-meal, and wheat flour). Sugar exports have increasingly benefitted from initiatives by the European Union which, under the Lome Convention, agreed to buy 13,000 metric tons from the Zambia Sugar Company in 2000. However, processed food exports suffered a decline from the 1998 level of US$49.4 million to US$33 million in 1999. This is because of serious instability in the Democratic Republic of the Congo which was the recipient of roughly 40 percent of Zambia's processed food exports.

A recent agricultural development of huge significance is the production of floricultural goods (mainly cut flowers). Despite low prices at Dutch auctions in 1999 (the Netherlands is the key trading point for flowers in Europe), Zambia's floricultural products fetched US$42.8 million in export earnings. In addition, in 1999 horticultural production (mainly fruit and vegetables) earned US$23.8 million. However, there appears to be a certain imbalance here as Zambia exports vast amounts of fruit and vegetables whilst remaining a net importer of food for domestic consumption.

The major food crops produced in Zambia for domestic consumption are cassava, maize, and wheat. Maize used to be one of the most important food goods in Zambia with 1,845,000 metric tons being produced in 1989, but by 1998 this had declined to 650,000 tons. However, over the same ten-year period the consistent growth of cassava production (from 290,000 tons to 817,000 tons) and of wheat (from 10,000 tons to 70,000 tons) partly canceled out the decrease of maize output. Nonetheless, the total domestic production of these 3 basic food crops was 608,000 tons less in 1998 than in 1989. This decline of domestic food production often means that Zambians have to pay more for their essential nutritional requirements with a negative knock-on effect on the standard of living.

INDUSTRY

MINING.

National copper and cobalt reserves are by far the most important factor in Zambia's national economy. Zambia is the world's fourth largest producer of copper and, due to the ongoing civil war in the cobalt-rich Democratic Republic of the Congo, it has been the leading producer of cobalt in the late 1990s. In 1996 total copper exports amounted to US$568 million and cobalt exports US$193 million.

Copper is subject to the constant fluctuation and uncertainty of international market prices. In 1960 the price for a metric ton of copper was US$3,271; at its height in 1970 it was US$5,629. Yet from the mid-1970s onwards it consistently declined to only US$1,519 by 1999. For example, even though Zambia produced 12,700 tons more copper in 1993 than in 1988, it received US$219.4 million less in export receipts. But, in total, copper production has steadily declined from a 1970 high of 700,000 metric tons to only 250,000 tons in 1999. More importantly, it is estimated that, at the ongoing level of production, the nation's economically viable copper reserves will be exhausted by 2010.

By 2000 the giant parastatal mining company, Zambia Consolidated Copper Mines (ZCCM), had been fully privatized. The private sector successors (principally the mining giants Anglo America, Avmin, and the Glen-core/First Quantum consortium) had begun to invest hundreds of millions of dollars in Zambia's mines. In combination with the fact that Zambia has the largest non-exploited underground copper reserve in the world, private sector investment means that the mining sector may continue to provide considerable export earnings to the national economy well into the 21st century.

In the 1960s and 1970s Zambia also mined and refined a significant amount of lead and zinc. The high point for the production of these minerals was in 1974 when 27,000 tons of lead and 58,000 tons of zinc were produced; however, by 1993 these levels had dropped dramatically to 3,000 tons and 5,000 tons, respectively. Yet, lead and zinc in combination with gold, silver, and platinum provided US$12.3 million in export earnings in 1998. (In 1999 this fell to only US$3.3 million, but this was due to the modernization and rehabilitation of mines.) The export of gemstones has grown in importance and provided US$13.8 million of exports in 1999 to the main market of East Asia.

MANUFACTURING.

Unusual for an economy in sub-Saharan Africa, Zambia exports more manufactured goods than it imports—with US$180 million exported in 1997 and US$116 million imported (although as a whole the economy generally remains in deficit). The principal manufacturing exports are textiles, engineering products, and building materials.

Zambia's textile industry is considered to have vast competitive potential in the region due to relatively cheap labor costs and a high level of domestic cotton production. But the dumping (the sale of a good on a foreign market at a price below marginal cost) of foreign textiles on the Zambian market by regional competitors has negated the growth of domestic textile production. Zambia's export earnings from textile products (80 percent of which is cotton yarn) declined from US$42.4 million in 1998 to US$37 million in 1999. This is principally due to a fall in the price of cotton yarn over this period as the quantity of exports remained stable. The principal destinations for textile products were the EU countries, which consumed 80 percent, and regional African countries with 15 percent.

In 1999, the main engineering products manufactured in Zambia were copper rods (73.4 percent), electrical cables (13.7 percent), and copper wire (11.2 percent). The export of these engineering products declined by 26.7 percent between 1998 and 1999 to US$23.2 million. This is mainly because of a fall in international demand due to the slow recovery of the industrialized economies in East Asia after the 1996-97 world financial crisis. Similarly, the export of building manufactures (such as cement and roofing sheets) declined in 1999 to US$10.2 million. Again, this was due to the ongoing civil war in the Democratic Republic of the Congo, traditionally the main destination of these goods.

SERVICES

TOURISM.

Zambia has a great deal to offer adventurous tourists. It provides a sample of relatively "untouched" Africa with authentically wild national parks, stunning scenery, and the Victoria Falls and Zambezi River (2 of Southern Africa's main tourist spots), which it shares with Zimbabwe.

Zambia's tourism sector has benefitted from the serious social and political instability in neighboring Zimbabwe (which was traditionally a preferred destination). As a consequence, and also due to considerable public and private investment in tourist facilities, the level of tourists visiting Zambia rose from 87,000 in 1980 to 362,000 in 1998. This created an increase in tourism receipts from US$20 million to US$75 million, although it should be noted that Zambian nationals vacationing abroad spent US$59 million in 1998.

FINANCIAL SERVICES.

In the 1960s the Zambian government nationalized several non-bank financial institutions (such as insurance companies) and set up the Zambia National Commercial Bank to compete with existing private commercial banks. But due to political interference and the inefficient allocation of loans, this system of public banking was unsuccessful. With the aim of improving efficiency in the banking sector through the discipline of free market competition, Zambia liberalized interest rates between 1992 and 1995. This created a considerable amount of financial turmoil and instability. In 1995, Zambia's third largest bank, Meridien Bank, collapsed along with 2 other local banks. In addition, due to a new regulation requiring banks to have at least US$140 million in working capital, and because of the insufficient experience of domestic banks in operating in a liberalized economy, 5 other banks had their licenses withdrawn by the Bank of Zambia (the central bank) by 1998.

Despite free market reform, by the late 1990s there was still considerable evidence of political leaders and their allies defaulting on loans and interfering in the affairs of Zambia's banks. In addition, not only has new regulation and economic liberalization failed to significantly increase confidence in the banking sector (which remains fragile as 30 percent of total loans are non-performing), the Economist Intelligence Unit maintained in 1997 that "too many banks [are] chasing the little profit available." This has led to the increased domestic dominance of huge multinational banks such as Barclays and Citibank, thereby displacing less powerful national banks such as the National Savings and Credit Bank of Zambia and the publicly owned Zambia National Commercial Bank.

DEPENDENCIES

Zambia has no territories or colonies.

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—Liam Campling

CAPITAL:

Lusaka.

MONETARY UNIT:

Zambian kwacha (K). One Zambian kwacha is equal to 100 ngwee. Coin denominations include 1, 2, 5, 10, 20, and 50 ngwee and notes include 1, 2, 5, 10, 20, 50, 100, and 500 kwacha.

CHIEF EXPORTS:

Copper, cobalt, lead, and zinc.

CHIEF IMPORTS:

Crude oil, manufactured goods, machinery, transport equipment, and foodstuffs.

GROSS DOMESTIC PRODUCT:

US$3.325 billion (1999). [CIA World Factbook estimates GDP at purchasing power parity at US$8.5 billion (1999 est.).]

BALANCE OF TRADE:

Exports: US$1.057 billion (1998). Imports: US$1.140 billion (1998). [CIA World Factbook reports exports to be US$900 million (f.o.b., 1999 est.) and imports to be US$1.15 billion (f.o.b., 1999 est.).]

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