ECONOMY
Economy—overview: Despite progress in privatization and budgetary reform, Zambia's economy has a long way to go. Inflation, while slowing somewhat, continues to be a major concern to the CHILUBA government. Zambia's copper mining sector, which accounts for over 80% of the nation's foreign currency intake, is struggling. Production rates are down as are world copper prices. Aid cuts by Zambia's donors, arising out of concern for the November 1996 flawed election, also have damaged Zambia's economic prospects. Urged by the World Bank, Zambia has embarked on a privatization program which is to include the all-important copper industry. Until a deal on the copper sector is concluded, perhaps by mid-1999, economic prospects will remain clouded.

GDP: purchasing power parity—$8.3 billion (1998 est.)

GDP—real growth rate: -2% (1998 est.)

GDP—per capita: purchasing power parity—$880 (1998 est.)

GDP—composition by sector:
agriculture: 23%
industry: 40%
services: 37% (1997 est.)

Population below poverty line: 86% (1993 est.)

Household income or consumption by percentage share:
lowest 10%: 1.5%
highest 10%: 31.3% (1993)

Inflation rate (consumer prices): 43.9% (1996)

Labor force: 3.4 million

Labor force—by occupation: agriculture 85%, mining, manufacturing, and construction 6%, transport and services 9%

Unemployment rate: 22% (1991)

Budget:
revenues: $888 million
expenditures: $835 million, including capital expenditures of $110 million (1995 est.)

Industries: copper mining and processing, construction, foodstuffs, beverages, chemicals, textiles, fertilizer

Industrial production growth rate: 3.5% (1996)

Electricity—production: 7.84 billion kWh (1996)

Electricity—production by source:
fossil fuel: 0.51%
hydro: 99.49%
nuclear: 0%
other: 0% (1996)

Electricity—consumption: 6.393 billion kWh (1996)

Electricity—exports: 1.47 billion kWh (1996)

Electricity—imports: 23 million kWh (1996)

Agriculture—products: corn, sorghum, rice, peanuts, sunflower seed, tobacco, cotton, sugarcane, cassava (tapioca); cattle, goats, pigs, poultry, beef, pork, poultry meat, milk, eggs, hides

Exports: $905 million (f.o.b., 1998 est.)

Exports—commodities: copper, cobalt, zinc, lead, tobacco

Exports—partners: Japan, South Africa, US, Saudi Arabia, India, Thailand, Malaysia (1997)

Imports: $1.1 billion (f.o.b., 1998 est.)

Imports—commodities: machinery, transportation equipment, foodstuffs, fuels, petroleum products, electricity, fertilizer

Imports—partners: South Africa 48%, Saudi Arabia, UK, Zimbabwe (1997)

Debt—external: $7.1 billion (1997 est.)

Economic aid—recipient: $1.991 billion (1995)

Currency: 1 Zambian kwacha (ZK) = 100 ngwee

Exchange rates: Zambian kwacha (ZK) per US$1—1,428 (October 1998), 1,333.81 (1997), 1,203.71 (1996), 857.23 (1995), 669.37 (1994)

Fiscal year: calendar year Zambia is one of Sub-Saharan Africa's most highly urbanized countries. About one-half of the country's 9.1 million people are concentrated in a few urban zones strung along the major transportation corridors, while rural areas are underpopulated. Unemployment and underemployment are serious. Per capita annual incomes are currently at about one-half their levels at independence, and at $350, place the country among the world's poorer nations. Social indicators continue to decline, particularly in measurements of life expectancy at birth and maternal and infant mortality. The high population growth rate of 3.2% per annum makes it difficult for per capita income to increase. The country's rate of economic growth can support neither rapid population growth, nor the debilitating effects on maternal and child health resulting from it.

Agriculture provides the main livelihood for half of Zambia's population. Maize (corn) is the principal cash crop as well as the staple food. Other important crops include soybeans, cotton, sugar, sunflower seeds, wheat, sorghum, millet, cassava, tobacco and various vegetable and fruit crops. Zambia has the potential for significantly increasing its agricultural output; currently, only 20% of its arable land is cultivated. In the past, the agriculture sector suffered from low producer prices, difficulties in availability and distribution of credit and inputs, and the shortage of foreign exchange.

The Zambian economy has historically been based on the copper-mining industry, which has accounted for a significant portion of the gross domestic product (GDP), from one-third to one-half of government revenues and more than 90% of Zambia's foreign-exchange earnings. Due to a decline in world copper prices starting in the mid-1970s, lack of investment to increase productivity and output, naturalization and mismanagement, and limited technical expertise, the copper-mining base of the economy has eroded over time. Average annual output was nearly 700,000 tons in the early 1970s. This dropped to just over 300,000 tons in 1995.

After independence in 1964, and particularly beginning in the 1970s, Zambia relied heavily on socialist-style planning and administrative controls to manage its economy; on the public sector--especially parastatal enterprises--to undertake investment and generate economic growth and employment; and on international borrowing to finance public sector investments and to support levels of consumption that proved to be unsustainable. As a result, in late 1991, the Zambian economy faced many problems: basic goods and services were in short supply; the money supply was growing rapidly because of the manner in which the government's domestic debt was financed; military expenditures were rising while social sector expenditures were declining; tax compliance was low, the budget deficit was large and increasing; many parastatal companies were heavily indebted and suffered crippling losses; private investment had collapsed; business and consumer confidence had eroded; external debt was not being services; a parallel market in foreign exchange was flourishing; asset holders were transferring their capital out of the country and switching to foreign currency for local transactions; the country's physical infrastructure was rapidly deteriorating; and Zambia had neither food reserves nor the financial resources to deal with natural disasters and emergencies.

The present Chiluba government came to power after democratic, multi-party elections in November 1991, committed to an economic recovery program which included restoring Zambia's economic growth prospects by stabilizing the economy, moving toward external viability, promoting the private sector based on free market principles, delinking government from business activities more efficiently carried out by the private sector, a sharp reduction in the size of the public sector through a comprehensive program of privatization and parastatal reform, and reversing the decline in Zambia's social sector's delivery systems and infrastructure. Since these economic reforms began, Zambia has suffered droughts (three years out of the five) and falling copper production combined with the recurrent episodes of macroeconomic instability, these conditions have meant that the improvements in economic incentives have yet to result in economic growth, in fact, real GDP in 1995 was lower than it was in 1991. Nonetheless, positive effects are emerging.

The inflation rate has declined sharply, from triple-digit rates for several years up to 1992, to an average rate of 38% since mid-1993.

The allocation of financial resources has been improved through the maintenance of positive real interest rates and through the sharp reduction in the spread between lending and deposit rates through reductions in reserve requirements.

Non-traditional exports have risen by 100% since 1992.

Maize planting has declined in favor of more drought-resistant staples and commercial crops.

While high interest rates and the instability of the kwacha have inhibited strong growth in new investment, the elimination of exchange controls means that developing foreign exchange-based activities, such as tourism, have accelerated.

Substantial privatization of state-owned enterprises has taken place mainly reflecting direct foreign investment.

The domestic fiscal deficit was about 7% of GDP in 1991; in 1995, the domestic budget was nearly in balance, and domestic arrears were cleared as well.

The strengthening of the fiscal position was accomplished by a reduction in domestic expenditures from 25% of GDP in 1991 to a 1995 level of less than 18%. The main cuts were in subsidies and agricultural expenditure, but other current and capital expenditures also decreased.

The ratio of revenue to GDP stands at 19%, despite lower mining revenues; establishment of an independent revenue authority and the introduction of a value-added tax (VAT) are strengthening revenue performance.
The Zambian Government has implemented far-reaching market-oriented reforms. To begin with, the government has liberalized markets, and almost all prices are now market-determined. In particular, the government freed all agricultural prices and has steadily reduced its role in maize and fertilizer marketing. In 1991, virtually all marketed maize was handled by the government, whereas now nearly all marketing is carried out by the private sector, to the benefit of both producers and consumers. The same is true in the milling sector. The government has undertaken a privatization and parastatal reform program to reduce its direct role in commercial activities.

With donor assistance, and when the budget allows, rehabilitation of the country's infrastructure has become a renewed priority. Some roads are being repaired, some schools and hospitals are being refurbished and resupplied, water systems are being upgraded, and the telecommunications system is being readied for privatization. There has been far-reaching liberalization of financial markets. In 1992, interest rates were decontrolled and the kwatcha allowed to float. A treasury bill auction was introduced in 1993. Reform of the banking sector began in 1992, and weak commercial banks have been allowed to fail. Market-oriented methods of implementing monetary policy--where the central bank influences the supply of money and the price and availability of credit--were introduced in 1993 and are being developed further. Fiscal policy has been strengthened with the aim of enhancing efficiency and bringing more macroeconomic stability. Zambia is moving toward a more outward, export-oriented trade policy. All domestic and external trade, except petroleum products, has been left to the private sector, resulting in a greatly improved availability of consumer and producer products in the market. However, despite these reforms, the response of output to date has been uneven.

During the early 1990s, reacting to positive political developments in South Africa and Namibia, Zambia relaxed its restrictions on using South African ports. A new transportation route opened up through Namibia to Walvis Bay, which is of growing importance for Zambia's external trade. Zambia also is participating with its neighboring countries, under the aegis of the Southern African Development Community (SADC), in its efforts to strengthen, restructure, refurbish, rehabilitate, and improve the transportation infrastructure of Southern and Eastern Africa so as to reduce the region's economic dependence on the vulnerability of events in South Africa.