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Why Invest in Zambia?

Macroeconomic Objectives

The overall aim of the country’s Transitional National Development Plan (TNDP)/Poverty Reduction Strategy Paper (PRSP) for the period 2002 – 2005 is to reverse Zambia’s deteriorating social economic conditions and attain sustainable economic growth; create employment and ultimately reduce the country’s poverty headcount. In this regard, Government has adopted a multi-sectoral approach in which, agriculture, tourism, manufacturing and mining sectors serve as the engines of growth.

Medium term macroeconomic indicative targets

  • Achieve annual GDP growth rates of between 4% and 5% per year
  • Improve the country’s external sector’s viability
  • Bring end-year inflation down to single digits
  • Run a balanced budget by 2005
  • Improve human capital development
  • Reduce poverty levels from 73% in 1998 to 65% by 2004 with rural poverty reduced form 83% to 75% and urban poverty from 56% to 50%. These social sector targets are consistent with the Millennium Development Goals.

Policies to achieve macroeconomic objectives

  • Economic diversification
  • Appropriate fiscal and monetary policies
  • Key structural reforms include privatization of state owned enterprises

Macroeconomic objectives in 2002

Governments macroeconomic objectives in 2002 were aimed at sustaining the positive economic growth recorded in 2001 by:

  • Achieving at least 3.7% growth in real GDP
  • Reducing end-year annual inflation to 16.0%
  • Limiting the budget deficit to 3.0%

Gross Domestic Product

  • In 2002, the national output increased for the fourth consecutive year not withstanding adverse weather conditions and low metal prices. Real GDP grew by 3.0% compared with 4.9% in 2001. The growth in real GDP was mainly attributed to favourable economic performance in mining and quarrying, construction, wholesale and retail trade, and manufacturing sectors. Increased economic activities in the mining sector were despite the uncertainties occasioned by the withdrawal of Anglo-American Corporation (AAC) from Konkola Copper Mines (KCM) and the fall in metal prices.
  • However, The protracted dry spells, experienced in 2001/2002 agricultural season adversely affected the agricultural sector, which declined by 4.1%. Growth of the national output was also constrained by the electricity, gas and water sector, which declined by 3.2%.
  • In 2003, real GDP growth rate is projected at 4.5% premised on the recovery in the agriculture sector and improved mineral prices


  • Annual overall inflation was recorded at 26.7% at end-2002 compared to the 18.7% registered at end-2001. This outturn was largely on account of food inflation, which rose significantly due to the decline in agricultural output occasioned by adverse weather. This led to a low supply of the staple food and the consequent rise in prices. In 2003, end-year annual overall inflation is projected at 8.0%.

Interest Rates

  • Yield rates on government securities exhibited a downward trend as reflected by the decline in the weighted average Treasury bill yield rate, which decreased by 16.5 percentage points to 31.7% at end-2002 from 48.2% in 2001. Similarly, the weighted average bond yield rate declined by 9.4 percentage points to 45.0% in 2002 compared with 54.4% in 2001.
  • Although remaining high in absolute terms, commercial banks’ weighted lending base rates declined to 42.4%n in 2002 from 46.7% in 2001. Similarly, the average savings rate for amounts above K100,000 and the 30-day deposit rate for amounts above K20 million declined to 8.1% and 19.5% in 2002 from 8.7% and 19.8% in 2001, respectively.

Exchange Rates

  • The exchange rate policy in 2002 was focused on achieving a stable and competitive exchange rate. To this end, the exchange rate continued to be market determined.
  • During 2002, the Kwacha depreciated against major foreign currencies mainly on account of excess demand for foreign exchange occasioned by the need to import maize following food shortfalls due to adverse weather. The commercial banks’ monthly average selling rate of the Kwacha against the US dollar depreciated by 24.5% to K4,797.41 compared with an appreciation of 7.6%in 2001.
  • The Real Effective exchange rate (REER) index depreciated by 36.9% to 113.0 in December 2002 from 82.5 in December 2001 largely due to the weakening of Kwacha against major trading partners currencies.

Budget Performance

  • On the fiscal side, the domestic budget deficit declined to 4.1% of the GDP from 4.7% in 2001. The improvement was principally on account of an improvement in tax revenues owing to enhanced tax collection measures and improved compliance. Similarly, the overall budget deficit decreased to 6.4% of GDP in 2002 from 8.0% in 2001 largely due to an increase in grants.

Balance of Payments

  • External sector estimates, indicate that the overall balance of payments (BoP) position narrowed by US $15.0 million to negative US $382.0 million at end-2002 from negative US $397.0 million at end-2001. This was on account of an improvement in both the capital and financial account and the current account. The capital and financial account balance increased by US $163 million to US $603 million reflecting an increase in project assistance grants. The current account balance narrowed by US $81.0 million to negative US $649.0 million. The current account balance improvement stemmed from the lower deficit on the merchandise trade balance, which narrowed by US $78.0 million to negative US $284.0 million.
  • The narrowing of the trade balance was largely on account of increased non-traditional exports (NTEs) coupled with a decrease in merchandise imports.
  • Estimates indicate that the stock of external debt fell by 2.4% to US $7,116.4 million in 2002. The decrease in the debt stock was due to principal loan repayments and debt relief under the Enhanced Heavily Indebted Poor Countries (HIPC) initiative. Reduction of the external debt burden to sustainable levels remains a major challenge. To this end, the country is expected to reach the Completion Point under the Enhanced HIPC Initiative in 2003 at which time maximum debt relief will be received from both the multilateral and bilateral creditors.

Financial Sector (Banks)

  • At end-2002, the structure of the banking industry consisted of the Bank of Zambia and 14 commercial banks. Of the operating banks, 8 were foreign owned, 4 owned by local private investors, and the Zambian Government owned 1, while 1 was a joint venture between the Zambian Government and the Indian Government.
  • The overall performance of the banks was satisfactory in 2002, as all banks were adequately capitalised and showed strong performance in asset quality, earnings and liquidity. Further, Zambia participated in the Financial Sector Assessment Programme (FSAP) of the International Monetary Fund and the World Bank. The assessment observed that most of the country’s prudential standards, and loan classification and provisioning rules were broadly appropriate and in line with international best practice.

Financial Sector (Capital Markets)

  • During 2002, performance on the Lusaka Stock Exchange (LuSE) was varied. While market capitalization, rose to K1,060.6 billion in 2002 from K966.1 billion in 2001, market capitalization measured in US dollars declined by 0.8% to US $246 million in 2002. The decline in market capitalization was attributed to the unstable macroeconomic environment especially the depreciation of the exchange rate.
  • Turnover, number and volume of trades also declined. The turnover declined sharply to K10.9 billion in 2002 from K155.4 billion in 2001 owing to less activity as the number of trades on the LuSE fell to 1,565 in 2002 from 2,141 the previous year. Similarly, the volume of shares fell to 82.8 million in 2002 from 9,753.7 million in 2001.
  • Indications are that performance of LuSE in 2003 will be better with new listings expected.

Macroeconomic Indicative Targets in 2003

  • Real GDP growth rate of 4.5%
  • Average end-year inflation of 8.0%
  • Money supply growth (M3) 6.6%
  • Domestic budget deficit of 1.3% of GDP

The above information was compiled and is copyright of the Bank of Zambia

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