Zambia Economic Outlook
- While Zambia’s real GDP growth remains robust, it decreased to 6.5% in 2013 in large part due to a poor agriculture harvest. Investments in mining continue to drive other sectors, especially construction, transport and energy. In the medium term, growth is projected to increase to 7.1% in 2014 and 7.4% in 2015, while inflation is expected to fall below the 2013 level.
- Zambia has continued to strengthen governance and democratic processes, with government institutions developing and reinforcing transparency and accountability efforts.
- Despite robust economic performance, poverty remains high at over 60%, but there have been improvements in urban areas. Increasing youth employment remains one of the biggest challenges.
Zambia’s economic growth in real terms decreased to 6.5% in 2013, mainly due to a fall in agricultural output, particularly maize and cotton. The growth in real GDP was largely driven by manufacturing, mining, construction, transport, communications and the public sector. Copper remains the country’s mainstay, contributing about 70.0% to export earnings. However, over the last few years non-traditional exports have grown substantially. Economic performance in the medium term is expected to remain strong. Real GDP growth is projected to increase to 7.1% and 7.4% in 2014 and 2015, respectively. Infrastructure investment, especially in mining, power generation and roads, with the Link 8000 project, will ensure that growth remains robust.
The main areas of policy focus are creating employment opportunities for the majority of Zambians (especially the youth), improving accountability and strengthening the fight against corruption. The government plans to create 200 000 decent jobs per year. The government will also focus on strengthening fiscal management in an effort to narrow the fiscal deficit, which doubled in 2013 due to expansion of infrastructure spending and an increase in public sector wages. The coming years will require a concerted effort to broaden the tax base and expand the pallet of potential taxes to generate additional government revenues, as well as streamline expenditures, focusing less on recurrent spending and more on priority areas. Private sector competitiveness needs to be strengthened given the pressure on demand for higher wages, especially for skilled labour, which is in short supply.
Manufacturing accounted for about one-tenth of GDP in 2013. The country is landlocked and is constrained by high costs of transport, which add up to 40% of the cost of the final product. The extractive industry is the main exporter in the country and has potential for upstream value chain development. Competitiveness of downstream activities may be constrained given the distance from the main markets for copper products. Food and beverages account for more than two-thirds of manufacturing value added. A growing market in the Katanga province in the south of the Democratic Republic of Congo (DRC) fuelled by mining activity offers opportunities for Zambian firms and farmers. Another potential consumer market is South Kivu, also in the DRC, which is accessible from Mpulungu Port on Lake Tanganyika.