Little, aside from the quality of its mineral resources, is known of Zambia, a large southern African country famous for its copper, cobalt and array of gemstones. When the Zambian economy opened up in the 1990s, the mining sector became its backbone. As the world’s seventh largest producer of copper and the second largest producer of cobalt, according to United Nations Conference on Trade and Development (Unctad) estimates, these two metals are the two main contributors to the country’s GDP and export earnings.

“Mining contributes more than 60% of Zambia’s foreign exchange earnings,” says Wylbur Simuusa, Zambia's minister of mines and natural resources, in an interview with fDiMagazine. Indeed metals have been the leading FDI sector in the country, accounting for 35% of all projects between January 2003 and December 2011, according to greenfield investment monitor fDiMarkets. During that period, Zambia received 119 investment projects, with an average project size of $138m. In 2011, Zambia experienced its best year yet for FDI, with a 93% growth in the number of projects and a total of $2.4bn invested.


Economic paradox

The African Economic Outlook report produced by the UN, the UN Development Programme, the African Development Bank and the Organisation for Economic Co-operation and Development predicts that the growth rate of Zambia's mining sector will increase from 7.5% in 2011 to 8.5% in 2012. With the completion of expansion projects in the sector, including one by Konkola Copper Mines and another by the Lumwana Mining Company, Unctad estimates that output in 2012 will reach an unprecedented 750,000 tonnes, levels unseen since the early 1970s. With copper prices currently at a three-year high, the mining sector is poised for further growth in 2012.

“When looking at production, metal prices are good and a lot of FDI is flowing in due to the interest expressed by large multinational firms,” says Mr Simuusa. “The outlook is bright. There are continued investments and about five major operations coming on stream, and this year I am expecting a bigger production in excess of 800,000 tonnes of metal. Going forward, we have projected that output will reach 1 million tonnes over the next two years. That could make Zambia the largest producer of copper in Africa, and among one of the largest in the world.”

Despite achieving financial success in its mining sector, Unctad included Zambia on its 2011 Least Developed Countries list. Defined as having a low income, low human capital and high economic vulnerability, Zambia seems trapped in the archetypal mould of a resource-rich country that is unable to realise sustained and inclusive economic growth.

“We are ranked among the poorest nations in the world, as more than 70% of Zambians live on less than $1 a day,” says Mr Simuusa. “We have a weakening kwacha – its strength against the dollar is currently about 5000 kwacha to $1. There is this paradox of being very richly endowed with mineral resources and yet ranked among the poorest in the world. The challenge right now is to grow the economy to where the mineral resources benefit the local people.”

Delivering on diversification

The Zambian government has publicised its focus on diversifying the country's economy to reduce its dependence on foreign exchange earnings and income on copper, and it appears to have made some notable strides. The African Economic Outlook found that agriculture is performing well. After growing by 7.6% in 2010, growth was projected to grow, albeit at a lower rate, by 3.2% and 4.6% in 2011 and 2012, respectively, following the government’s Fertilizer Input Support Programme.

The manufacturing sector will also be a significant contributor to Zambia’s economic prospects. Data from fDiMarkets shows that between 2003 and 2011, it was the leading business activity in Zambia, accounting for 38% of all inward FDI projects.

“Zambia right now is very open to FDI,” says Mr Simuusa. “The government identified that the quickest way to derive economic benefits would be to attract FDI. While the biggest current investments are in mining, the other areas that the government is trying to attract investment in are agriculture, real estate and tourism. As for incentives, we do not have any foreign exchange controls, so [companies] can do whatever they want with their foreign exchange with no questions asked. Moreover, the ministry of commerce offers several incentives ranging from capital allowances to tax breaks.”

With an expected GDP growth rate of 6.7% this year, Zambia appears intent on sustaining this performance. It remains yet to be seen whether it will make the full transition from former economic backwater to middle-income country in the near future.