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Formerly known as Northern Rhodesia, and renamed to Zambia in 1964 with independence from the United Kingdom, Zambia today is less corrupt and better managed than many other African countries. Significant change has engulfed Zambia from the distrastrous socialist policies of the 1970's and 1980's where nothing functioned or worked. As a landlocked nation, Zambia relies heavily on its natural resources for income particularly copper/cobalt. From 1970 to year 2000, Zambia was in steady decline as incomes contracted while its mining industry declined with lower production. Many challenges lie ahead for its 10 million citizens as 85 percent of the population currently lives below the poverty line. Zambia however has great economic potential as it has many positive attributes going its way. For example, the legal system is sound based upon English common law, for the most part its citizens are fairly well educated with relatively high literacy rates, Zambia's telecommunication system is one of the best in the region with Internet and an effective telephone service. It is important to state that during the 1960's, Zambia was one of Africa's best performing states with most promise. Will Zambia return to this level of success as a society?

POLITICS: multi-party democracy. President Levy Mwanawasa in power since January 2002, Zambia's third President representing the Movement of Multiparty Democracy (MMD) vows to fight corruption. Next elections are scheduled for 2006. By year 1991, a final end to one party rule arrived. The 1996 election was scarred, the 2001 election was hampered by difficulties. Zambia today is a growing democracy as the political environment has stabilized although the opposition is fragmented consisting of 10 political parties.

ECONOMY: from year 1974, Zambia's economy turned south with the corresponding decline in world copper prices, the government then borrowed aggressively to maintain a standard of living that the country could not afford resulting in a delayed crash of the economy. Essentially Zambia was buying time on a credit card during the 1970's and early 1980's. During the 1990's under the political leadership of former President Chiluba, Zambia changed course and shifted to a market-based economy from the inefficient socialist policies with the removal of subsidies, tariffs, etc. It was a difficult transition as by the end of the 1990's, the economy contracted by 25 percent compared to the start of the decade as industry privatization took hold. Zambia today is the world's largest producer of cobalt, rich in mineral assets including zinc & gold, mining accounts for 75 percent of the foreign exchange earnings for Zambia. Copper mining alone is an important lifeline to Zambia's economy as it respresents 55 percent of export earnings. The upside is that much of this great mineral wealth in Zambia is yet to be explored and exploited. In addition to mining, Zambia has great potential with its agriculture and tourism industry. Within tourism, there are 19 national parks, 34 game management areas, 23 million hectares devoted to the conservation of wild game and of course, Zambia's spectacular Victoria Falls (one of the 7 wonders of the world).

The government has set goals for Zambia's economic perfomance, this includes GDP growth targets of 4 to 5 percent annually, bringing poverty down to the 65 percent level by 2004 and maintaining inflation in the single digits. The Zambian economy on the whole is still a weak economy as it is marred with a large foreign debt, a large current account deficit and dependent upon foreign aid. The future may look a little brighter with higher metal prices thus providing an incentive for foreign conglomerates to invest in Zambia's mining development. At present, Zambia's copper industry is only at 30 percent of peak production, great room to increase this output if world prices co-operate. The business environment is positive with pro-business laws coupled with few regulations for this open market economy.

Economic Statistics
GDP using purchasing power parity is at $8.5 billion USD (2001) with corresponding GDP/Capita at $870 USD (2001). GDP as measured by market prices is much lower at $3 billion USD. GDP growth is estimated at 4.5 percent for 2003 due to higher metal prices and improved agriculture output, year 2002 came in at 3 percent, 2001 fell 8.4 percent as GDP growth averaged negative 1.6 percent from 1997-01. Year-end 2003 inflation is forecasted to drop to 8 to 10 percent from year-end 2002 inflation at 26.7 percent, year 2001 at 21.5 percent, year 2000 at 30 percent. External debt (2002) is at $7.1 billion USD. Year 2002 overall balance of payments improved to negative $382 million USD due to better results in the capital & financial account showing a surplus of $603 million USD (2002) partially attributed to remittances and grants. However, the current account was in a large deficit position shortfall at $649 million USD or upwards of 18 percent of GDP excluding grants and this figure was at 20.2 percent for 2001. Agriculture represents 20 percent of GDP but employs 70 percent of labour. Unemployment is high. Major Zambian export markets include UK, South Africa and Switzerland while South Africa is an large import market supplier.

POSITIVE: world copper prices are rising in 2003 up to the 80 US cent level from a low 63 US cents in January 1999, energy consumption and production is close to balance as Zambia is a net oil importer but exporter of electricity via coal & hydro, Zambia is eligible for World Bank Assistance and debt relief. CONCERN: infrastructure, food deficit position due to increment weather and drought, year 2002-03 maize shortfall of 600,000 metric tons although donations are expected from the international community to help cover this food shortfall, weather patterns influencing food production, brain drain of well educated professionals including medical doctors.

BANKING SYSTEM: well developed with foreign bank presence including America's Citibank and UK's Barclays. Zambians of Indian heritage control the banking/commerce of Zambia. Current 91 day Zambian T-Bill rate is at 32.8 percent for July 2003. December 2002 gross international reserves are at $226 million USD which is very low. Interest rates in 2001 were at 55 percent, 2002 at 45 percent, T-Bill rates at 31.7 percent for year-end 2002. Previously during 2001, the Bank of Zambia had interest rates at 60 percent.

REGIONAL: Congo - DRC, Zimbabwe, Angola, Botswana, Tanzania
Conflict is ripe in the region including the 29-year civil war in Angola, a civil war Congo -DRC that has ravaged the nation for years along with an economic & social implosion currently underway in Zimbabwe. Over 200,000 refugees have fled the fighting from Angola and Congo - DRC and have moved into Zambia. Economically, Zambia will be a growing supplier of electrical energy to regional economies as Zambia is currently researching development into increasing energy output from solar methods in addition to looking at producing ethanol from sugar cane as an alternate to transport fuel.

KNOWLEDGE: the AIDS epidemic of which the Zambian military has been severely weakened by the AIDS plague. With AIDS now, Zambian life expectancy is forecasted to drop to 34 years from the current 37 years. At present, 20 percent of Zambian adults are infected with HIV, many others are infected with cholera, malaria and tuberculosis as they too are also on the increase. Zambian kids in orphanages now represent upwards of 15 percent of the total for children. This is a great cost to Zambia society, medical, etc. Infant mortality is at a very high rate now with AIDS in addition to food shortages where 50 percent of the kids under age 5 suffer from malnutrition and/or stunted growth.

ISO Symbol 'ZWK', Zambian kwacha. At time of review on July 10, 2003, the kwacha had an exchange value of 4775 to the US-dollar ('USD'). The kwacha floats as the currency value is determined by market forces. During year 2002, the kwacha depreciated by 24.5 percent versus the USD. Over the last 3 years, currency volatility to the kwacha was noticed with both wild swings in valuation due to the authorities changing bank cash reserve requirements that were adjusted up and down. In year 2000 alone, the kwacha fell 40 percent. The economic reforms during the 1990's included freeing the exchange rate which resulted in a large devaluation in the kwacha during this time.

CURRENCY HISTORY: the kwacha broke its link to the British pound in 1971 after it replaced the pound itself in 1968 at a then exchange rate of 1.40 USD to 1 kwacha. Following USD devaluation in February 1973, the official rate for the kwacha was set at 1.55 USD to 1 ZWK. Historical exchange valuations for the kwacha include: June 2003 at 4790 ZWK to 1 USD, February 2003 at 4954, November 2002 at 4085, October 2001 at 3738, April 2001 at 3030, January 2001 at 4314, June 2000 at 3011, January 2000 at 2750, October 1998 at 2030, April 1998 at 1770, January 1998 at 1467, August 1997 at 1319, Nov. 1996 at 1275, 1995 at 857, 1994 at 670, year 1993 at 453.

CURRENCY FORECAST: further depreciation expected against the USD although the pace will slow as the USD is expected to continue its decline coupled with higher capital inflows for Zambia with improved metal prices going forward. The national debt is unlikely to be repaid. Over the long term, increased mining production from higher metal prices will help capital inflows but mining is a very capital intensive industry as it takes years to put mines into production although capital projects will help create jobs. For example, it is estimated that it will take $1 billion USD to modernize Zambia Consolidated Copper Mines (ZCCM). Although global mining group Anglo American announced their withdrawal from copper investments in late 2002 from Zambia at a cost of $350 million USD, BI.C believes others will fill the market void particularly with copper now trading at over 80 US cents/lb. The economy is still fragile with large fiscal deficits as public finances remain in disarray coupled with the national AIDS tragedy which is going to be a great cost to Zambia. The kwacha remains as a soft currency backed by very low official reserve coverage and thus warrants a higher risk ranking although some good things appear to be on the horizon for Zambia.
UPDATED: July 10, 2003

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