By Chisengele Chibuta – PMRC Researcher

The African Continental Free Trade Area (AfCFTA) is a flagship project of the African Union’s Agenda 2063, which is a blueprint for attaining inclusive and sustainable development across the continent over the next 50 years. The AfCFTA aims to boost Intra-African trade by providing a comprehensive and mutually beneficial trade agreements among the member states, covering trade in goods and services, investment, intellectual property rights and competition policy. The private sector will play a pivotal role in boosting intra-African trade through the AfCFTA. 

According to the Trade Law Centre, in Africa, the private sector accounts for 80% of total production, 66% of investment, 75% of credit and employs 90% of the working-age population. In addition, 90% of the firms within the African private sector are Small and Medium Enterprises (SMEs). This is also the case for Zambia where Micro, Small and Medium-sized Enterprises (MSMEs) employ the majority of the country’s workforce 

The private sector is the engine for innovation, investment, job creation, poverty alleviation and sustainable economic growth for any economy. However, the sector’s participation in cross-border trade is often hindered by tariff and non-tariff barriers (including complex customs and trade procedures), high transportation costs and a lack of access to information. These are some of the issues that the AfCFTA will seek to address. It will progressively remove tariffs on 90 % of goods (with 10% of sensitive items to be phased in later) as well as resolve the challenges of multiple and overlapping memberships, both of which will make it easier for businesses to trade across the continent. The AfCFTA is also expected to enhance competitiveness of local enterprises and promote industrial development. None of this will be possible, however, unless the legal instruments of the Agreement are fully implemented. These legal instruments represent an opportunity to establish strong governance structures as well as a stable and predictable business climate when trading or investing across borders. 

The AfCFTA will need to build on the work done by various Regional Economic Communities (RECs) as it relates to private sector participation. For example, the Southern African Development Community (SADC) Secretariat Directorates, with support from various committees, have established consultative mechanisms with the private sector on various topics, including infrastructure development, food security, customs and mining. Additionally, SADC has the Support to Industrialisation and the Productive Sectors (SIPS) programme, which is supported by the European Union and the German Federal Ministry for Economic Cooperation and Development to facilitate the expansion of regional value chains and promote dialogue between the private and public sectors. Such mechanisms and programmes must be infused into the AfCFTA negotiations and implementation of the Agreement. SADC represents just one of at least 8 RECs found across the continent, all of which have approached private sector participation differently. The progress that has been made in these RECs in terms of private sector participation is the key building block for greater private sector participation in the AfCFTA.  

To further achieve success in the implementation of the AfCFTA, it will be important for the Zambian Government to actively engage the private sector at all levels because it is a key stakeholder in the Agreement. To date, there has been limited direct involvement of the private sector in the negotiations of the AfCFTA, which demonstrates the importance of such engagements. To this end, it is commendable that Zambia’s Minister of Commerce and Trade, Mr Chipoka Mulenga recently stated that the private sector will be briefed on the provisions of the agreement and engaged as the negotiations proceed. This will further need to include the likely impacts of the Agreement on the sector as a result of the increase in competition that will come with open borders. 

The AfCFTA will not achieve any success without the involvement of the private sector. It is therefore critical that they receive the necessary support in order for them to have a major developmental impact in Zambia and Africa at large. 

Equitable access to and ownership of land is cardinal in fostering socio-economic development that results in empowerment for all citizens. However, key sections of society such as women, youth and persons with disabilities have continued to face barriers in the acquisition and ownership of land. This is partly attributed to social practices and beliefs as well as the lack of economic inclusion, which have excluded certain sections of society from owning land by virtue of their socio-economic status, physical ability and gender.

The United Nations Charter of 1945 which Zambia is a signatory to, recognises human rights and economic and social development as closely interrelated. The Charter acknowledges the implications of insecure land tenure on people’s livelihoods, dignity and survival. Hence, there is need for changes in societal norms to ensure that vulnerable groups have unrestricted access to land, secure land rights and are empowered to make their own decisions about land use.

Given the dual nature of Zambia’s land tenure, women, youth and persons with disabilities tend to hold land on customary tenure because it is cheaper and relatively easier to access than state land. However, the lack of security of land due to inadequate documentation to claim ownership has made it easier for people to be displaced. Recognising this challenge, Government has been rolling out a National Land Titling Programme in order to secure land ownership rights to land holders. However, there is an urgent need to amend the 1995 Lands Act in order to guarantee customary land rights.

As a fulfillment to Government’s commitment to uphold human rights, the 2021 National Lands Policy was instituted to address the various challenges related to access and control over land and its resources with special recognition to women, youth and persons with disabilities. This is especially important since securing land rights reduces their vulnerability through increased individual agency and socio-economic status.

Several policy measures have been put in place in order to allow for equitable land distribution. These include; facilitating the ownership of land by Zambian citizens in order to promote decent livelihoods and socio-economic development, regulating the land ownership of non-Zambians in order to facilitate reasonable access to land, achieving a gender sensitive and youth friendly land sector which is inclusive of persons living with disabilities and other socially marginalized groups, strengthening the land allocation mechanisms in order to improve security of tenure, among others.

Additionally, land distribution quotas have been effected in order to improve access and ownership of the resource. Government has revised land distribution quotas to 50% of available land for alienation being reserved for women and 20% for the youth and Persons with Disabilities. This pronouncement is also in line with promoting gender equality and socio-economic inclusion of women, the youth and persons with disabilities as envisaged in the National Gender Policy, National Youth Policy and National Disability Policy. It has also aided in uplifting livelihoods and enhancing greater participation of all citizens in national development.

Furthermore, Government’s revision of the contractual age for youths to own land from 21 to 18 years will make land more accessible to young people and enable them to contribute to the growth of the economy by venturing in agricultural and entrepreneurial activities. This affirmative step will empower women, youths and persons with disabilities through ownership of assets, which can be used as collateral to obtain financing from formal financial lending institutions such as banks. These policy measures need to be implemented effectively in order to enhance access and ownership of land to key groups and other marginalised persons in line with Government’s aspirations of promoting gender equality, inclusivity as well as equitable distribution of the country’s resources.

  By Alice Pearce- Senior Researcher

Public Financial Management

Government has identified public financial management as key to meeting its development agenda. In the 2022 budget focus, will be on strengthening national planning, internal controls and audit, resource mobilization, procurement as well as transparency in debt contraction and management, among other areas.

In the 2022 budget, Government has outlined its desire to expand the coverage of the Financial Management System to the district level and develop a standardized Local Authorities Financial Management Information System framework. PMRC commends this action because it will strengthen the financial governance of the Constituency Development Fund (CDF). This will serve to allay fears about abuse of the CDF.

Regarding public procurement, Government is committed to procuring goods and services at “the right price, of the right quality and delivered on time”. To this end, Government will endeavor to strictly adhere to the provisions of the Public Procurement Act No.8 of 2020 and ensure that all public investment projects are appraised. PMRC is of the view that gaps still remain in Zambia’s procurement legal frameworks, procedures and practices, which have previously resulted in abuses and significant losses in Government finances. Therefore, there is need for reforms to be undertaken in the procurement process in order to match Government’s commitment to undertake better procurement.

Debt Management

Zambia’s total debt as at September 2021 stood at US$26.96 billion, up 32% from December 2020 which is unsustainable. Government will spend K51.3 billion on servicing external debt and K27.3 billion on domestic debt, or K78.7 billion altogether. This represents 45.5% of the 2022 budget. Given the high debt servicing obligations, Government has had very limited resources to spend on programmes that contribute to economic growth and poverty reduction.

In November 2020, Zambia became the first nation in Africa to default on its debt during the COVID-19 pandemic. This happened when the country failed to make a US$42.5 million Eurobond repayment. The depreciation of the Kwacha against other currencies has contributed to higher debt service than planned.

Currently there are two important short-term measures of achieving debt sustainability which include a support programme from the International Monetary Fund (IMF) and the signing of the Debt Service Suspension Initiative (DSSI) with the Paris Club and G20 creditor countries and Intesa Sanpaolo. The IMF deal would allow Government to renegotiate its repayment terms with creditors under the Common Framework for debt treatment beyond the Debt Service Suspension Initiative, freeing up resources for development.

Going forward, Government will also endeavour not to contract further external non-concessional loans except for refinancing existing debt, while domestic borrowing will be restricted to scheduled auctions in preference to private placements. Concessional debt with a longer repayment period and lower interest will also be explored. With regards to strengthening the legal framework governing debt management and contraction, Government intends to repeal and replace the current Loans and Guarantees Act with a new Loans, Grants and Guarantees (Authorisation) Bill. PMRC commends Government on this move as the enactment and effective implementation of this Bill will enhance transparency in public debt management and loan contraction.

Fiscal Policy

Government’s fiscal policy agenda for the year 2022 is to progressively reduce fiscal deficits to sustainable levels while supporting growth that generates jobs and poverty reduction. To achieve this, the Government intends to employ a combination of revenue mobilization, administrative reforms and expenditure rationalization measures.

Revenue Mobilization

In the medium- term, the target is to increase domestic revenue to at least 21.0 percent of GDP. And to achieve this, Government will streamline the tax system and place a high priority on fair and equitable taxation as well as establish a stable and predictable tax policy environment.

Further, the Government will rationalise the mining tax system to attract investment which will in turn increase production and also address base erosion and profit shifting to boost domestic revenues.

Administrative Reforms

Government intends to take advantage of the Information and Communications Technology (ICT) for revenue collection and intends to connect an additional 100 public services to the Government Service Bus and Payment Gateway (BPG). This will bring the total number of services to 330 by the end of 2022. Further, the Zambia Revenue Authority systems will be interfaced with the Government Service Bus and other systems to improve on regulatory compliance and seal revenue leakages.

Expenditure Rationalization

To rationalize expenditure, Government plans to reduce areas of wastage of resources in the budget and channel them to other needy areas that will improve the livelihoods of the people. The migration of beneficiaries under the Farmer Input Support Programme to the cheaper comprehensive agriculture support programme is an example of such a measure.

To further reduce expenditure on goods and services, the Government will strictly enforce the provisions of Public Procurement Act No.8 of 2020. This is to ensure that the procurement of public goods, works and services are done at the right price in accordance with the quarterly market price index published by the Zambia Public Procurement Authority.

Strategies on Dismantling of Domestic Arrears

Government has accumulated significant domestic arrears over the past years. This has been attributed to revenue shortfalls, financing challenges and weaknesses in commitment control systems (Economic Recovery Programme 2020-2023).  The result of this is that domestic arrears have risen from about K641.2 million at the end of 2014 to K46.9 billion as at end- June 2021. The bulk of the arrears are to road contractors, suppliers of goods and services, Value Added Tax refunds and personnel related emoluments to public service workers.

Domestic arrears have led to a tightening of financial conditions, constrained the growth of private sector credit and contributed to a rise in non-performing loans which pose a threat to the stability of the financial system. The 2019 IMF Regional Economic Outlook for Sub-Saharan Africa suggests that as a result of payment delays, Government suppliers or State Owned Enterprises (SOEs) may withhold their tax payments until arrears are settled. If suppliers withhold tax payments, this lowers Government’s revenue which can result in inadequate public service provision and ultimately poor social outcomes. Additionally, SOEs may respond to the accumulation arrears by charging higher prices to compensate for delayed payments, thus delaying the supply of inputs for Government projects if they are financially constrained. This could further lead to the reduction in the size of their workforce, resulting in higher unemployment levels.

To curtail the accumulation of arrears and dismantle the stock, Government developed an arrears dismantling strategy. The key measures in the strategy include increased budgetary provisions, debt and/or cheque swaps, as well as debt refinancing and restructuring. Government plans to liquidate a substantial amount of domestic arrears over a period of five years.  However, there is a need to give a more comprehensive explanation of the principles and prioritization criteria that will be used to determine how arrears are liquidated. This may prove especially beneficial to suppliers who lack understanding about prioritization criteria on payments of suppliers. In terms of halting the accumulation of new arrears, it will be especially important to restrict the commencement of new capital projects and major equipment procurements. This action will have the dual benefit of ensuring that all on-going projects are completed and that domestic arrears are either accumulated at a slower pace or not at all.

Monetary Sector

Government through the Bank of Zambia intends to maintain a flexible exchange rate regime. To this effect, measures that support the stability of the exchange rate will be promoted. The measures include:

  • Stepping up the accumulation of international reserves to create a buffer to cushion the economy against external shocks, limiting it to at least 3 months of import cover.
  • Fast-tracking the diversification of exports through an export-led industrialization and promote a viable foreign direct investment.
  • Attain a real GDP growth rate of at least 3.5 percent.
  • Reduce inflation to single digits by end 2022 and within the target band of 6-8 percent by mid-2023. This will result in the lowering the cost of living for the Zambians by reducing the current high level of inflation.
  • Increase domestic revenue to not less than 21.0 percent of GDP.
  • Reduce the fiscal deficit to no more than 6.7 percent of GDP; and limit domestic borrowing to no more than 5.2 percent of GDP.
  • Further, implementation of monetary policy will continue to rely on the forward-looking framework anchored on the Monetary Policy Rate. This will take into account subdued economic activity and existing vulnerabilities in the financial system.

Decentralisation

The concept of decentralization in Zambia is not a new phenomenon, it dates back to the 1960’s with development and implementation of various pieces of legislation but the actual take-off for decentralization in Zambia was in 2013 when the country launched the 2013 Decentralization Policy. The main aim of the Decentralization Policy is to promote people’s participation in democratic governance at the local level. It is important to note that not all functions would be transferred to the lower levels and councils, but that Central Government shall retain some core functions over essential national matters.

Focusing on Decentralisation Policy Implementation progress, it was noted that: The transfer of functions from Central Government to councils commenced in January 2015 and, apart from devolving functions, the Cabinet Circular also mandated councils to create “Ward Development Committees (WDCs)” as the fourth tier of Government as required in the Revised National Decentralisation Policy (R-NDP) then.  In view of this, the National Planning and Budgetary Policy states that districts will be required to submit District Development Plans (DDP), which will be forwarded to the province and feed into the Provincial Development Plan (PDP). The province will then send the PDP to the Ministry of Finance and this was actualised in 2017, Central Government devolved functions to the local Authorities, recruited more human resource to build capacity and created more districts to ensure development is within the reach for people countrywide.

The final process of decentralization in Zambia over the last few years and what many proponents of decentralization have been advocating for the devolution of resources/fiscal decentralization to the local authorities. This form of decentralisation relates to power sharing for decisions relating to fiscal resources and revenue generating powers (Wunsch & Olowu, 1995). In many cases, fiscal decentralisation is the key to attaining the full benefits of overall decentralisation objectives. Despite the various prerequisites for success, (capacity of human resource and others) it has been argued to be a very effective form of decentralisation, as evidently seen in the case of Bolivia, where fiscal decentralisation led to Government being more responsive to the needs of the poor to promote more spending on social services, education and training, (Fauget .2003).   

Fiscal devolution is applied through financial mechanisms such as Constituency Development Funds (CDF). CDF refers to a policy tool and development initiative whereby public money is dedicated to benefit specific political subdivision (Center for International Development 2009). Central Government delegates and allocates funds through Local Government, which has influence over various stakeholders represented by area Members of Parliament (MP’s) and Ward Councillors.

Therefore, the 2022 budget has actualised the final process of decentralization by ensuring resources through CDF are increased from K1.6 million per constituency to K25.6 million to enable communities identify their development priorities, make budgets and undertake development programs according to their development needs. The budget has devolved functions to the local authorities that used to be performed by Central Government these include among other functions, construction of primary school classrooms, desks, clinics, local courts, small bridges and canals, community boreholes, dip tanks and small dams. Further the increased CDF will include empowerment programs for local communities that were previously done through respective ministries as well as bursaries and skills development programmes.

While the decentralization of resources to local authorities is commendable, there are a number of measures that need to be put in place for the country to attain development in all parts of the country other than those suggested in the budget and these include:

  • Strengthening accountability mechanisms to prevent corruption and misappropriation of funds as fiscal decentralisation is being implemented.
  • Further, steps to enhance service delivery by sub-national authorities need to focus more sharply on coherent policies targeted towards outcomes hence the need for introduction of key performance indicators for all constituencies arising from their individual development plans.
  • There is need for full participation of the private sector in the development committees to ensure that the choice of development projects meet value-for-money criterion.
  • Continuous capacity building for local authorities in financial management and M&E for local communities to track development and demand for accountability and transparency in the use of CDF.
  • Ensure adherence to financial management systems by the local authorities such as the Procurement Act 2020 and the Financial Management Act, 2018.

Public Private Partnership

Infrastructure development remains a very important component and bedrock for sustainable national development. Over the last 10 years, Government undertook various infrastructure projects which has contributed to the current debt stock.

With more demand for quality infrastructure critical for the survival and growth of the manufacturing sector, it is important that the country is land linked in its quest to become a sustainable transport hub within the implementation of the Continental Free Trade Agreement (CFTA) in order to increase the volume of manufactured goods and services for Zambia.  Several infrastructure projects ought to be undertaken at a huge cost and the ingredient to this requirement is the key to ensure that alternative financing is sourced, so as to provide some relief for the national treasury.

PMRC has therefore been advocating for Public Private Partnerships (PPPs) as a viable avenue through which Government can continue to engage with the private sector in delivering various infrastructural needs in all sectors. Going forward, the proposal by the budget to repeal and replace the Public Private Partnership Act no.14 of 2009 is commendable as this will enable Government address all challenges and bottlenecks that exist in the implementation of this Act.

Recommendations

  • Increased CDF should be supported by strengthened systems on procurement and planning for district committees. Review of the systems should be expedited before funds are released, to minimize the possibility of misappropriation.
  • Expedite public service reforms to address unwarranted political interference in oversight institutions so that they can efficiently and effectively perform their mandates.

Media Reforms

Government’s commitment to ensuring communication and free expression through the media is commended, as a means of providing checks and balances. The importance of universal access to information cannot, therefore, be over-emphasised; particularly so with the endeavour to ensure that development is taken to the people at constituency level. Information sharing and dissemination will be vital for the success of the development agenda.  The intention to install communications towers and promote ICT for business is thus commended.  To cure the ills that have plagued the media, Government will need to expedite consultations for an inclusive piece of legislation to provide for freedom of information, in furtherance of civil liberties on freedom of expression.

Climate change adaptation and mitigation is among the key areas of focus for the 2022 budget to improve environmental sustainability. This is in line with Government’s emphasis on ‘greening’ the economy, and entails that all environmental activities that are scheduled for 2022 should be executed in a manner that is climate-friendly.

The budget allocates just under K972 million to this sector, an increase of approximately 1.7% from the 2021 budget. The 2022 budget proposes reviewing the fee structure of environmental impact assessments in a manner that gives Government proper control of the process but also does not discourage investors from pursuing various development projects.

Government seeks to improve climate change financing in order to manage Zambia’s climate risks. This will be done through Green Bonds, Carbon Trading and Legislation for a Climate Change Fund.

Furthermore, the private sector needs to be encouraged to participate in climate change financing ventures. Some of the primary strategies that can be used to achieve this include; increasing the awareness on the negative impacts of climate change and the need for a response to it, utilising of public-private partnerships in national climate change efforts and, lastly, engage the private sector to develop products and services that will reduce the costs and impacts of climate change.

A well-functioning transport system has the potential to reduce the overall cost of doing business in the country and to increase efficiency in the movement of goods and people within Zambia. Furthermore, the Country’s central location places it in a key position to become a transportation hub.

The 2022 budget recognizes road, rail, air and maritime infrastructure as key drivers of economic activity as well as trade and investment within Zambia, across the region and beyond. As a way of improving the transport sector the following will be addressed in the 2022 budget:

  • Maintenance and rehabilitation  a total of 4,300km of rural feeder roads. Special emphasis will be placed on rehabilitating roads with economic significance such as the Lusaka-Ndola, Chinsali-Nakonde and Kazungula-Sesheke roads.
  • In terms of air transport, focus will be on the completion of Kasama and Mbala airports. The maintenance and rehabilitation of provincial airports are expected to facilitate transport for cargo and passengers and therefore contribute to the growth of Zambia’s tourism sector.
  • In view of its current fiscal constraints, Government will aggressively pursue Public Private Partnerships (PPPs) in order to maintain, rehabilitate and construct infrastructure related to the transport sector. The Public Private Partnership Act No. 14 of 2009 will be repealed and replaced by a new act.

Government seeks to shift resources to higher productivity lines. The energy sector is key to the economic transformation agenda. Challenges have been identified in the sector, particularly in relation to electricity and petroleum. Electricity tariffs are not cost reflective and this has contributed to low private sector involvement. In relation to petroleum, procurement of petroleum products is fraught with inefficiency and uneconomical prices.

Government has proposed implementation of a Renewable Energy Investment Plan through which it expects to improve the current energy mix. Zambia has been struggling to generate enough electricity to meet the growing demand as the country develops. Diversification of power sources is now unavoidable as electricity supply is still vulnerable to seasonal rain patterns that are largely influenced by climate change. Further, Government’s fiscal position is shaky in view of the high debt levels and by implication this means that there can be no immediate investment in improving capacity.

PMRC has previously made the case for independent power producers in the energy sector in a research report on Independent Power Producers (IPP) and Power Sector Reform (2018), wherein the following proposals were made:

  • A nuanced approach to power sector reform, following re-assessment of proposed reforms.
  • A hybrid model should be adopted with public and private actors co-existing in generation.
  • Attention should be paid to the technical characteristics of the system, institutional capacity and transaction costs of the reforms.
  • Reform in the sector is a political process where public acceptance is extremely important along with the need to create new benefits that can be used to compensate groups or institutions that will lose from the proposed reforms.
  • We need to focus on the conditions needed for increased investment in the power sector.
  • Zambia is facing two challenges: structural capacity deficit and high electricity tariffs.  Because electricity prices have been increasing with tariff reforms, to maintain tariff reform a benefit in terms of greater reliability is needed.
  • For both these reasons, an increase in capacity, especially non-hydro capacity is the next obvious step for reform.  With limited access to resources for investment by the State, this means greater involvement of IPPs.
  • Reforms will need to address the complex procurement processes and an underperforming regulator – In its publication ‘Energy Roadmap: Delivering Zambia’s Energy Needs’ PMRC recommended institutional changes to the planning and procurement capacities in the energy sector.

The manufacturing sector has played a key role in the realization of Zambia’s economic growth and development as well as the country’s industrialization agenda. The contribution of Zambia’s manufacturing sector to GDP remained stable over the period 2015-2019 with an average of about 7.9%. The high cost of doing business, an unstable macroeconomic environment and the COVID-19 pandemic resulted in the shrinking of the manufacturing sector by 4.6% in the second quarter of 2020. The sector requires urgent attention and stimulation.

Government recognizes that the manufacturing sector will play a key role in job creation and economic growth. In the 2022 budget, Government will support value addition of products from the agriculture, forestry and mining sectors. Further growth in the sector will be promoted by facilitating trade and investment as well as increasing the competitiveness of Zambian products.

Related to the manufacturing sector, Government proposes to suspend corporate income tax for persons carrying on the business of manufacturing ceramic products for the charge years 2022 and 2023 in order to facilitate the entry of new players into the industry.

To promote manufacturing through Multi-Facility Economic Zones and Industrial Parks, Government proposes the following:

  • Reduction in the investment threshold for a Zambian citizen to qualify for tax incentives under the Zambia Development Agency Act No.11 of 2006 to US$50,000 from US$500,000 for those intending to operate in a multi facility economic zone or industrial park.
  • Introduce zero percent tax for a period of 10 years from first year of commencement of works in a Multi Facility Economic Zone or Industrial Park, on dividends declared on profits made on exports by companies operating in these economic zones.
  • Introduce zero percent tax for a period of 10 years from first year of commencement of works in a Multi Facility Economic Zone or Industrial Park, on profits made on exports by companies operating in these economic zones. For years 11 to 13 only 50% of profits should be taxed and 75% of profits for years 14 and 15.

PMRC welcomes these policy decisions as they could attract more local investors to move their operations to any of the MFEZs across the country. Ultimately, they will encourage further participation in the manufacturing sector and contribute to Zambia’s economic growth.

The manufacturing sector has played a key role in the realization of Zambia’s economic growth and development as well as the country’s industrialization agenda. The contribution of Zambia’s manufacturing sector to GDP remained stable over the period 2015-2019 with an average of about 7.9%. The high cost of doing business, an unstable macroeconomic environment and the COVID-19 pandemic resulted in the shrinking of the manufacturing sector by 4.6% in the second quarter of 2020. The sector requires urgent attention and stimulation.

Government recognizes that the manufacturing sector will play a key role in job creation and economic growth. In the 2022 budget, Government will support value addition of products from the agriculture, forestry and mining sectors. Further growth in the sector will be promoted by facilitating trade and investment as well as increasing the competitiveness of Zambian products.

Related to the manufacturing sector, Government proposes to suspend corporate income tax for persons carrying on the business of manufacturing ceramic products for the charge years 2022 and 2023 in order to facilitate the entry of new players into the industry.

To promote manufacturing through Multi-Facility Economic Zones and Industrial Parks, Government proposes the following:

  • Reduction in the investment threshold for a Zambian citizen to qualify for tax incentives under the Zambia Development Agency Act No.11 of 2006 to US$50,000 from US$500,000 for those intending to operate in a multi facility economic zone or industrial park.
  • Introduce zero percent tax for a period of 10 years from first year of commencement of works in a Multi Facility Economic Zone or Industrial Park, on dividends declared on profits made on exports by companies operating in these economic zones.
  • Introduce zero percent tax for a period of 10 years from first year of commencement of works in a Multi Facility Economic Zone or Industrial Park, on profits made on exports by companies operating in these economic zones. For years 11 to 13 only 50% of profits should be taxed and 75% of profits for years 14 and 15.

PMRC welcomes these policy decisions as they could attract more local investors to move their operations to any of the MFEZs across the country. Ultimately, they will encourage further participation in the manufacturing sector and contribute to Zambia’s economic growth.

The budget emphasises on the need to increase output through the increase in production capacity and entry of new mining companies in the sector. Mining has been the main driver of the Zambian economy contributing about 12% towards the Gross Domestic Product (GDP), and generating most of the foreign earnings, foreign direct investments as well as considerable amount of the Government revenue through mining royalties and VAT. Notably, the mining sector remains critical to the Zambian economy as it is the main contributor to foreign exchange earnings and is poised to grow even further due to industry demand for electric cars. Increasing copper outputs from the current 800,000 to 3million metric tonnes in a decade is paramount and entails producing more by existing mining companies and establishment of new mining corporations. To attract more investments Government will promote diversification and value addition not limited to copper but gemstones, manganese and high value minerals like gold.

Government will promote the growth of small- scale mining to address illegal mining, by formalizing operations of artisanal miners through formation of cooperatives especially for the youth and women. The cooperatives will be equipped with skills and knowledge to enhance their productivity, as well as training in safe mining practices.

These interventions will not only address illegal mining practices but also create employment. In addition, Government will undertake comprehensive audits of the mining licences issued that will help develop and implement reforms to enable Zambians participate in their own right or in partnership with foreign investors.

Recommendations

  • To enhance the mining contribution, economic growth and job creation, PMRC notes that there is need for mineral diversification to develop, capture and formalise activities in the manganese, gold, silver and gemstones (amethyst, aquamarine, emerald and tourmaline) industry in order to broaden the tax base and help contribute effectively to the growth of the economy.

Zambia’s tourism sector boasts of a wealth of natural assets such as waterfalls, lakes, rivers and diverse wildlife species. The sector is an important contributor to the country’s economic development through; job creation, foreign exchange earnings, contributions to Gross Domestic Product (GDP) and other economic facets.

Some of the challenges that have continued to impact the sector include the lack of a comprehensive national tourism plan and Zambia being perceived as a high-cost destination and recently the negative impacts of the COVID-19 pandemic. The 2022 budget has placed a strong focus on this sector as necessary to aid with the revamping the economy and creating employment opportunities, especially for the youth.

Growth in this sector slowed down in the second quarter of 2021 to 3.4% from 4.8% recorded in the first quarter of 2021. Government has thus extended current relief measures (15% Corporate Income Tax Rate) from December 2021 up to December of 2022.  Furthermore, there has been an abatement on all VISA fees by 50%. These measures, despite costing the treasury money in the short term, are aimed at boosting the sector in the medium to long term. This is a positive step that will ensure Zambia is a more attractive destination for international tourists.

Other measures that Government will take include:

  • Extending the waiver of customs duty on safari game viewing vehicles, tourist buses and coaches to 31st December, 2023 for selected tourism enterprises.
  • Maintaining a stable economic landscape to reduce the cost of doing business, including streamlining license acquisition, easing tax compliance, visa processing and exemptions ,and improving connectivity.
  • Putting in place a robust tourism marketing to incorporate all tourism products including traditional ceremonies, visual arts, culture, heritage sites and others.
  • Promoting tourism diversification to other places and products in the country.

These measures are commendable and are likely to promote a lengthier duration of stay for international tourists which has seen a reduction from an average of 6 days in 2013 to approximately 4.7 days in 2018. Government also needs to demonstrate political will to put in place a single licensing system which, despite being mentioned in successive budgets but yet to be implemented.

Lastly, packages that promote domestic tourism could also prove an important source of revenue for the sector, especially in the midst of the COVID-19 pandemic.