Zambia: Economy

Zambia's economy weathered the effects of the global economic crisis and a subsequent fall in world copper prices. In early 2009, high inflation, currency volatility, rising unemployment, and restricted access to capital dampened Zambia’s economic performance. Although poverty continues to be a significant problem in Zambia, its economy has stabilized, attaining single-digit inflation in 2009-2010, real GDP growth, decreasing interest rates, and increasing levels of trade.

Zambia experienced positive economic growth for the 12th consecutive year in 2010, with a real growth rate of 6.8% (as projected by the government). The rate of inflation dropped from 30% in 2000 to single-digit inflation of 7.9% by December 2010 due to fiscal and monetary discipline and the growth of the domestic food supply. Much of the economy's growth is due to foreign investment in Zambia's mining sector and higher copper prices on the world market, which have rebounded and returned to more stable, profit-yielding levels. The Zambian Government is pursuing an economic diversification program to reduce the economy's reliance on the copper industry. This initiative seeks to exploit other components of Zambia's rich resource base by promoting agriculture, tourism, gemstone mining, and hydropower. The government is also seeking to create an environment that encourages entrepreneurship and private-sector led growth. Zambia has yet to address effectively issues such as reducing the size of the public sector and improving Zambia's social sector delivery systems.

HIV/AIDS is the nation's greatest challenge, with 14.3% prevalence among the adult population. HIV/AIDS will continue to ravage Zambian economic, political, cultural, and social development for the foreseeable future. About 80% of Zambians live in poverty, of whom 63% live on less then $1.25 per day. The per capita annual income is $1,461, well below the level at independence. Although the 2011 World Bank Report reclassified Zambia as a middle- income nation, social indicators continue to worsen, particularly the maternal mortality rate (591 per 1,000 live births). The country's rate of economic growth cannot support rapid population growth or the strain which HIV/AIDS-related issues (i.e., rising medical costs, decline in worker productivity) place on government resources. Zambia is also one of Sub-Saharan Africa's most highly urbanized countries. Over one-third of the country's 13 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 problems.

Zambia began to slide into poverty in the 1970s when the price of copper, Zambia's principal export, suffered a severe decline worldwide. The socialist government made up for falling revenue by increasing borrowing, turning to foreign and international lenders for relief. But as copper prices remained depressed, it became increasingly difficult for Zambia to service its growing debt. After democratic multi-party elections, the Chiluba government (1991-2001) came to power in November 1991 committed to an economic reform program to liberalize the economy and privatize industry. The government was successful in some areas, such as privatization of most of the parastatals, maintenance of positive real interest rates, the elimination of exchange controls, and endorsement of free market principles. Corruption grew dramatically under the Chiluba government.

Zambia's copper production had declined steadily for 30 years, from 700,000 metric tons in 1973 to 226,192 metric tons in 2000. The decline was the result of poor management of state-owned mines and lack of investment. With the privatization of the mines in April 2000, the downward trend in production and exports was reversed as a result of investments in plant rehabilitation, expansion, increased exploration, and high copper prices on the international market. Copper production rose to 720,000 metric tons in 2010.

By the mid-1990s, despite some limited debt relief, Zambia's per capita foreign debt remained among the highest in the world. In April 2005, the International Monetary Fund (IMF) and the World Bank's International Development Association (IDA) provided Zambia significant debt service relief and debt forgiveness under the Heavily Indebted Poor Countries (HIPC) initiative. Zambia was the 17th country to reach the HIPC completion point and benefited from approximately U.S. $6 billion in debt relief. In July 2005, the G-8 agreed on a proposal to cancel 100% of outstanding debt of eligible HIPC countries to the IMF, African Development Fund, and IDA. Zambia is among the beneficiaries of this additional multilateral debt relief. Zambia also completed a Poverty Reduction and Growth Facility (PRGF) arrangement with the IMF for the period 2008-2011.

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