Climate change continues to pose a significant challenge to Zambia’s economic recovery, having cost the country an estimated 0.4% (US$13.8 billion) in GDP growth between 2007 and 2016.

It is projected that over the next 10-20 years, losses in key sectors such as agriculturee, will reach approximately US$2.2-3.1 billion, largely due to waterlogged fields, water shortages, destruction of crops, and a high incidence of crop and livestock diseases. In the energy sector, poor rainfall during the 2015/2016 season led to a 600MW decline in the country’s hydropower generation. Other sectors that have been affected by climate change include; manufacturing, health and water.

In order to manage these effects, the Zambian Government through its National Policy on Climate Change, has started to mainstream adaptation and mitigation measures across all policy and programme interventions to re-build the resilience of the economy. However, there are various challenges to the effective implementation of the climate change policy due to the following;

Firstly, there is an inadequate capacity in the development of bankable climate change adaptation/mitigation proposals. Additionally, Zambia has very little proper and concise domestic financing to implement climate change related projects. Another challenge that is faced is the lack of strong partnerships between the Government and the private sector on climate change related projects. Moreover, there is a need for more extensive data collection on climate change impacts in Zambia, such as on biodiversity and ecological systems. Lastly, there needs to be greater emphasis placed on the publicising of climate change related issues to allow the general citizenry to prepare for climate change shocks. Practices such as the cutting of trees for charcoal making and mass land clearing for agriculture must be avoided or done with the utmost caution. However, this can only be achieved by increasing the common citizens awareness levels on the deleterious effects of these practices to the environment.

In order to address the challenges being faced in the implementation of the Climate Change Policy, Government through the Economic Recovery Programme (ERP) intends to enhance climate change mainstreaming across all policy and programme interventions to foster resilience in the Zambian economy. Particular attention will be directed to climate sensitive sectors such as agriculture, water and energy.

The ERP recommends the following if some of these challenges are to be addressed:

There is a need for a stronger commitment by Zambia to both short- and long-term projects that will enable adaptation/mitigation. It is recognized that this can be a very expensive exercise and thus, what tends to happen is that Government funding for climate related issues is usually restricted to merely being reactive (emergency response when floods or droughts occur for example). Additionally, it is imperative that stakeholder’s capacity is enhanced to allow for bankable project proposal development to enable a pipeline of project proposals for submission to multilateral climate funds. Furthermore, there is also a need to enhance domestic resource mobilization for the implementation of climate action: instruments that could be utilized as green bonds. Another recommendation is that Government is urged to establish and strengthen partnerships with the private sector in climate change programmes/projects; as well as promote private sector participation to enhance financing for climate action. Zambia also needs to further build capacity to produce climate change related data, as well as improve existing information systems to better collect data on climate change impacts on biodiversity, ecological systems, and green house gases emissions (GHG). Lastly, systems need to be put in place that effectively raise awareness on climate change, and its potential impacts on social and economic development, livelihoods and ecosystems.

The manufacturing sector has been pivotal in the realization of Zambia’s economic growth and development and it continues to play a significant role in the country’s industrialization agenda. The manufacturing sector’s value added as a percentage of Gross Domestic Product (GDP) has steadily grown from about 7.6% in 2010 to 8.1% of the GDP in 2018 and has remained stable over the period 2015-2019 with an average growth of about 7.9%. However, the sector’s performance continues to be hampered by the high cost of doing business and an unstable macroeconomic environment. These challenges have been exacerbated by the COVID-19 pandemic, which resulted in the shrinking of the manufacturing sector by 4.6% in the second quarter of 2020. Recognising the important role that the sector plays in the Zambian economy, Government has therefore included specific measures in the Economic Recovery Plan (ERP) to revive growth in the sector and promote stability. One such measure in the ERP is export promotion.

Under export promotion in the ERP, one key action will be to “aggressively pursue export market opportunities through investment promotion missions” in the African Continental Free Trade Area (AfCFTA), which Zambia ratified on 5^th February 2020. The 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 Agreement has been signed by member states of the African Union, bringing together 1.2 billion people with a combined GDP of more than US$3 trillion. This large market offers an opportunity for the country to develop and expand its manufacturing sector, which will result in increased job creation, foreign exchange, industrialization and economic growth.

While Zambia’s manufacturing sector is still in its developmental stage, it is important that necessary pre-conditions are put in place that will ensure the country reaps benefits from the AfCFTA market. Firstly, the Government is urged to focus its efforts on raising awareness about how the Agreement can benefit Zambian manufacturers as well as what risks come with it. The manufacturing sector needs to be prepared for the increase in competition that will arise once tariffs are removed and trade under the AfCFTA begins. This kind of support would ensure that Zambian manufacturers are not crowded out by firms from countries with larger economies such as South Africa and Nigeria. Support must especially be provided for small scale producers in order to avoid crowding out in a market run by the private sector. This support can take the form of enhanced technical, managerial and financial skills to meet industry standards. The Government may assist in investment of these attributes.

Secondly, Zambia should focus on building its manufacturing sector. Presently, the primary industry remains the most important one, with agriculture and mining making the most significant contributions to GDP. The implication of a small manufacturing sector for the AfCFTA is that there will be low trade in finished goods which will limit the scope for intra-regional trade. Given the size of Zambia’s agricultural sector, a focus on value addition such as agro-processing could kick start the emergence of a vibrant manufacturing sector. The planned establishment of various fruit processing plants (such as Kalene Hills Fruit Company Limited in North-Western Province and the Eastern Tropical Fruits Company in Eastern Province) will be vital in this regard as they will assist in promoting linkages between agriculture and manufacturing, and consequently promote agricultural exports.

In the last year, the Zambian economy fell into a deep slump, largely aggravated by the COVID-19 pandemic. Real GDP fell by approximately 4.9% in 2020, after growing by at least 4 % in 2018 and 1.9% in 2019. This sharp contraction in output has been the consequence of an unprecedented decline in key sectors of the economy. Manufacturing output plunged drastically due to the disruption of supply chains, whereas the service and tourism sectors saw a sharp drop in private consumption and investment as a result of the stringent measures taken to contain the COVID–19 pandemic. Mining output, which declined initially due to falling global demand for copper, is recovering amidst production disruptions in South America and the surge in demand occurring in the electric car industry. Sustained commodity price increases beyond the current forecast could lead to further economic contraction. Even before the pandemic, the economy was experiencing serious macroeconomic challenges, such as high inflation, continuous widening fiscal deficits, unsustainable debt levels, low international reserves, and tight liquidity conditions. Price levels and the financial sector have not stabilized, despite Government efforts to deploy monetary easing in 2019 and 2020.

Government in its bid to realise Zambia’s potential to be a prosperous middle-income country by 2030 aims to focus on selected key sectors of the economy to drive forward the economic transformation agenda anchored on the Economic Transformation Programme, which will be the overarching framework used to implement various interventions in different sectors of the economy. The following are four key sectors that Government intends to use to spur the transformation of the country’s economy.

Agriculture

Agriculture plays an important role in the Zambian economy, contributing about 20 percent to the Gross Domestic Product (GDP) and approximately 12 per cent to the national export earnings. Over 60 per cent of the population derives its livelihood from agriculture, and yet despite this, the sector’s potential has not been exploited fully, chiefly because of dilapidated agricultural support infrastructure; inadequate delivery of extension services; and natural disasters such as drought and floods due to climate change.

Government envisages increasing agriculture’s contribution to economic growth by not only increasing production for food security but also boosting agro-processing and manufacturing for both domestic and export markets. To achieve this agenda, the following areas will be prioritized:

Agricultural Productivity – Agricultural productivity in Zambia significantly falls short of the minimum required thresholds to deliver profitability for farmers, food security, nutritional needs, job creation and poverty reduction. This low productivity is attributed to the use of inefficient production techniques and inadequate access to agricultural inputs, among other factors. Government will improve agricultural productivity to meet household and national food security en route to becoming the regional breadbasket.

Agricultural Extension Services – Government recognises that the provision of agricultural extension services and access to appropriate technology is an integral part of the agrarian revolution. In particular, Government will pursue an extension strategy that will not only ensure national food security but will also improve rural livelihoods.

Market Access – Farmers have been heavily constrained by limited access to markets, mainly because of poor infrastructure such as roads in rural areas, inadequate availability and supply of agricultural information, and insufficient access to financing. A key focus will be placed on connecting the farmer to upstream domestic and international markets with the view to increasing the farmer’s share in final products.

Agri-business Development – This will involve value addition in the entire value chain system, from providing inputs to farmers to connecting with consumers, as well as marketing and distribution. Government will rebrand the agriculture sector as an attractive, commercially viable and modernised occupation, especially among the youth who generally consider farming to be arduous and an occupation for older people.

Tourism

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. As a major Foreign Exchange (FOREX) earner. Zambia’s tourism industry contributed 7% of GDP (USD 1,701 million) and 7.2% of total employment (469 thousand jobs), whereas international visitors spent USD 849 million, representing 10% of Zambia’s total exports in 2019 (Tabetando, 2020).

Despite its economic contribution, an array of challenges have continued to impact the sector, from the lack of a comprehensive national tourism plan; underdeveloped tourism-related infrastructure; limited investment in the sector by both local and foreign investors; limited tourism product range and scope; inadequate tourism promotion and marketing; low participation by locals in direct and indirect tourism development, Zambia being perceived as a high-cost destination – and recently the negative impacts of the COVID-19 pandemic.

The Government seeks to remedy some of these challenges by revamping the sector to increase its contribution to GDP and employment. To achieve this, strict adherence and implementation ought to be done with the following measures;

• 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 products.
• Protecting and making Zambia a haven for wildlife by tightening regulations for the licensing of hunting and control of the processing, sell, import and export of wild animals and trophies.

As the country embarks on an economic transformation agenda, there is a need to extensively rebrand and market the sector both internationally and locally to revive it and maximise its vast natural resources benefits.

Manufacturing

Traditionally, the manufacturing sector has played a key role in helping developing countries facilitate industrialization as well as realise economic growth and development. The contribution of Zambia’s manufacturing sector to GDP remained stable over the period 2015-2019 with an average of about 7.9%. However, the sector’s performance has been hampered by the high cost of doing business and an unstable macroeconomic environment. These challenges were exacerbated by the COVID-19 pandemic, which resulted in the shrinking of the manufacturing sector by 4.6% in the second quarter of 2020 (Zambia Statistics, 2020).

To address these challenges and considering the strategic importance of the manufacturing sector to job creation and economic growth, Government intends to put in place an under-structure that facilitates the growth of this sector by not less than 15 per cent by 2026 and to at least 25 per cent by 2031. Some of the measures to be put in place by Government to facilitate growth include:

• Fiscal discipline and minimize borrowing in the local market so as not to crowd out the private sector;
• Improve regulatory frameworks and remove administrative barriers to business entry and operations and facilitate the development of high growth sectors;
• Create an enabling macroeconomic environment, strengthen the public agencies that support private sector development and enhance public-private dialogue;
• Also, Government will dialogue with all key stakeholders in addressing the various challenges affecting the growth of the manufacturing industry in the country;
• Furthermore, Government will develop targeted policy incentives that attract large capital inflows with required Zambia equity participation; and lastly,
• Foster policy linkages with education to build a skilled labour market which attracts capital into target industries.

Mining

Zambia possesses one of the world’s highest grades of copper deposits and is ranked the seventh largest copper producer in the world. Mining contributes over 70 per cent of the country’s foreign export earnings. Zambia also produces about 20 per cent of the world’s emeralds. The mining sector is governed and regulated by the Mines and Minerals Development Act No. 11 of 2015, which covers types of mining rights, acquisition of mining rights, rights/obligations conferred on the mining right holder, transferability of mining rights, safety, health and environment requirements, and provides for the environmental protection fund, mineral royalties, fees, and export of minerals.

The main challenges this sector faces are:

• The lack of local participation in this industry,
• A lack of transparency and accountability regarding revenue management, and;
• Uncertainties about energy supply and property rights.

As a result, the country has not managed to fully pass on the benefits of its mineral wealth to the Zambian population. The Government now seeks to redress this by:

• Undertaking a major mining sector policy reform including tax policy and administration reforms that will bring various stakeholders on board to design a sound policy and administration system, with broad policy consideration that will stand the test of time.
• Enhancing monitoring and oversight mechanisms and technologies to reliably ascertain the volume and content of mining output for taxation purposes to ensure Zambians receive their fair share.
• Promoting diversification both within the copper sub-sector through the extension of the copper value chain, and from copper to other minerals by promoting exploration and processing of gemstones and industrial minerals.
• Promoting small-scale mining as it has closer links with the local economy, generates more local jobs and supports the retention of earnings within the country.
• Working with communities and investors to ensure that the development agreements entered into with Government balance the provision of incentives with concerns of the communities such as environmental impact and labour issues.

Government is urged to take into consideration all the aforementioned measures, in order to facilitate even more investments – as well as an increase in production from the current levels to a more sustained output that will benefit both the country and the sectors’ investors, which consequently will grow and stabilize the economy.

Agriculture and agribusiness play an important role in the Zambian economy, contributing around 20 percent of Gross Domestic Product (GDP) in recent years and about 12 percent of national export earnings. Agriculture employs nearly 70 percent of the labor force and remains the main source of income and employment for most of the people living in rural areas. It is for this reason that the Government has over years endeavored to invest in the agricultural sector through various initiatives such as the Farmer Input Support Program (FISP), reducing customs duty on agricultural equipment and the encouragement of private sector involvement.

The Enabling Business of Agriculture (EBA) report measures how regulation affects the livelihood of domestic farmers. It helps policy makers assess the regulatory environment in agriculture by examining whether Government-designed regulations and processes either facilitate or hinder agricultural activities of domestic farmers. The 2019 EBA report indicators show that Zambia is ranked number 3 out of 28 countries in Sub Saharan Africa in design and implementation regulations as well as processes that promote an enabling environment for farmers to thrive.   

The EBA report has eight quantitative indicators which include; supplying seed, registering fertilizer, securing water, registering machinery, sustaining livestock, protecting plant health, trading food, and accessing finance. The report shows that Zambia scored well in five of these indicators, which included; the availability of seed, access to fertilizer, availability of water resources, plant protection and access to finance.

There has been an improvement in the use of improved seed by farmers for the period 2002 to 2019. Particularly for maize, there has been substantial improvement by households using the improved maize seed from 54% to 70%.  This improvement is attributed partly to the liberalization of the seed subsector. The private sector plays a major role in seed production and exports. Zambia is one of the largest seed exporters in Africa; aside from the domestic market, it exported a recorded total of 17,891 tons of certified seed to other African countries in 2011. Other reasons for the improvement in the use of improved seed use include; research, breeding, production, marketing and extension services, which have positively influenced the adoption of improved seed among smallholder farmers. In addition, the traditional FISP has contributed to this increase, especially that hybrid maize seed is part of the FISP package. Further, the Governments’ Food Security Pack (FSP), which distributes free hybrid maize seed to vulnerable households, may have partly accounted for this increase in the use of improved seed.

In recent years, the agricultural sector has witnessed increased trends in the use of fertilizer by farmers. This increase in the use of fertilizer is as a result of increased Government funding towards FISP, which stands at 61% of the fertilizer financing in the country. Secondly, there has been an increase in the commercial farm sector over the years, which in turn entails more use of fertilizer in crops such as wheat, soybean, sugar, barley, and maize production as drivers of increased demand for their product.

Zambia and Kenya are two of the three countries that received a maximum score on securing water as they have put in place sufficient regulation for water management. The creation of the Ministry of Water, Sanitation and Environmental Protection is an effort in the right direction in ensuring the protection and use of water resources as well as investment in water infrastructure.

Despite the tight fiscal space from the ongoing debt repayments, the Government has continued to fund the agricultural sector. In the 2021 national budget, there was a 6.7% increase in the budget allocation towards the agricultural sector. The private sector has played a minimal role in financing the agricultural sector in form of loans for greenfield investments, as majority of the lending goes toward financing big commercial farms.   Access to finance for small-scale farmers recently improved with recent initiatives by Zambia National Commercial Bank’s Lima Credit in collaboration with the Zambia National Farmers’ Union (ZNFU). The scheme enables groups of small-scale farmers to receive a seasonal credit for maize. Loan funds are disbursed in kind through input suppliers, who deliver the inputs to the District Farmers Association for onward distribution to each farmer group, in which the group members are jointly liable for repayment.

The report also indicates some areas of improvement such as the use of farm machinery, plant protection and food trading. These areas are very critical for a successful agricultural sector as such there is need for Government to expedite the establishment of the tractor assembly in order to improve the use of farm machinery, especially by small-scale farmers. The improvement in plant protection is essential, as the country grapples with the effects of climate change which has brought about new pests and insects that are destroying crops. This, therefore, calls for increased funding towards research and development in the sector which will capacitate the research institutions to carry out research and experiments in a timely manner. Lastly, the aspect of food trading is important as the country strives to grow the contribution of the sector to the national GDP. Improvements in food trading include among others, ready markets for agricultural products, food storage, packaging and branding and proper handling of crops after harvest. These aspects of the agricultural sector require improved investment in infrastructure such as roads, agro-processing machines in convenient locations and proper storage facilities.

Therefore, Government is urged to continue providing a conducive environment for increased private sector investment within the sector. There is also need for increased funding towards research and development as well as extension services, to enable the country to score in all the indicators of the EBA report.