A textbook blind run


HIGH RISK for entreprise

  • Economic risk

  • Business environment risk

  • Political risk

  • Commercial risk

  • Financing risk

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GDP USD 25.7bn
Population 16.5mn
Form of state Republic
President Edgar Lungu
Next elections 2021, General election
  • The government already heeds advice on increasing investment and diversifying the economy
  • Sizable land and water resources should help to develop agriculture and increase productivity
  • Business climate should be improved, but is already good enough to attract new foreign investment
  • Succeeds in funding increasing financing needs despite the failure to reach an agreement with the IMF
  • Political risk: threats to foreign interests in the country, particularly in the highly strategic mining sector
  • High reliance on copper exports (69% of total)
  • Capital stock (110% of GDP) too low to spur higher growth rates on the long-run
  • Fiscal deficit and difficulty to raise higher fiscal revenues
  • Debt had increased: higher debt allows lower flexibility to finance massive infrastructure projects with debt. Lack of transparency has raised the issue of hidden debt

Slippery slope

Zambia is the 6th largest copper exporter in the world with 3.3% of the global market. As a result the country was hit by the metal price crisis, when overconsumption in China has put the sector under scrutiny. Yet evidence of oversupply is less striking than for other commodities (iron ore, steel). Thus, while Zambia experiences vulnerabilities, these are less extreme than for some oil or iron ore exporters.

Overall balances deteriorated. The current account moved from surplus (5.4% in 2012) to a sustainable deficit (-3.5% in 2017). This reversal was driven by an increasing fiscal deficit (-8% of GDP), a major issue given fiscal revenues amount to 15% of GDP. As a result of rising deficits, debt deteriorated despite low initial levels (public debt was 64% of GDP, and external debt 42% of GDP in 2017).

However, the recent policy orientation deteriorated further. The investment to GDP ratio increased to 44% with almost now visible impact on growth (+3.7% in 2018). The fiscal deficit increased markedly to -10% of GDP in 2018. This structural and rising fiscal deficit implied a steady increase of debt levels (public debt is at 71% of GDP and external debt at 45% of GDP in 2018). Rising debt also implied a deterioration of liquidity indicators, particularly foreign reserves at 2 months of import cover. Uncertainty on hidden debts had also detrimental consequences on confidence, triggering a sudden surge of spreads on the sovereign debt market.

Too much debt

Zambia has started to invest in diversifying its economy. The business climate is not all bad, as the country ranks 87 out of 190 in the 2019 World Bank Doing Business survey. But the capital stock stands at 110% of GDP, the same as it was in 1993, and investors are still reluctant to fund much-needed infrastructure, with FDI for infrastructure accounting for only about 20% of total FDI inflows.

Agriculture is a case in point. Only 25% of Zambia’s immense land resources (42 bn hectares) are used. The country controls 40% of central and southern African water resources. Improved power generation and irrigation are crucial to modernize agriculture, but Zambia is still heavily exposed to drought, as shown by the impact of very low rains in 2019H1. Poor political stability add to the concerns, preventing much-needed progresses.

The Zambian outlook has progressively darkened. Like other frontier economies, the country attracted foreign investors eager to benefit from the yields offered. However, high debt levels, threats to foreign interests in the mining sector (Vedanta) and the low likelihood of a bailout program hurt investor confidence and credit spreads increased to about 1600 bps in the secondary market. The resulting -32% depreciation of the ZMK should now weigh on the inflation outlook (+10% in 2019), and add to negative pressures on the growth outlook (+1.5% in 2019).

Political risks are weighing on the outlook

The political system evolved from a one-party state to a multiparty system in the nineties. After that, the results of presidential elections were regularly contested, e.g. in 1996, or in 2006. The Patriotic Front won the Presidential election in 2011, ending two decades of the Movement for Multi-Party Democracy in office. However, this did not give political stability to the country. In 2015, the election of the current President E. Lungu with a narrow margin ahead of the opposition leader H. Hichilema was heavily contested. The arrest of H. Hichilema in April 2017 resulted in massive demonstrations and a state of emergency was proclaimed in July 2017. Uncertainties over  the possibility of E. Lungu seeking a new term in 2021 add to political risks.

Other concerns include threats to foreign presence in the mining sector and the fact that fiscal slippage was used to increase population support, but was financed through rising debt (particularly to China).

Trade structure by destination/origin

(% of total)

Exports Rank Imports
Switzerland 40%
34% South Africa
China 19%
14% D.R.Congo
D.R.Congo 7%
8% Kuwait
South Africa 6%
8% China
Singapore 6%
5% U.A.E.

Trade structure by product

(% of total)

Exports Rank Exports
Non-ferrous metals 69%
15% Petroleum, petroleum products and related materials
Non metallic mineral manufactures 4%
12% Metalliferous ores and metal scrap
Tobacco and tobacco manufactures 3%
7% Specialised machinery
Cereals and cereal preparations 3%
7% Road vehicles
Sugar, sugar preparations and honey 2%
6% Other industrial machinery and parts

  • Low

  • Medium

  • Sensitive

  • High

  • Payments

  • Court proceedings

  • Insolvency proceedings


Contact Euler Hermes

Economic Research Team

Stéphane Colliac

Senior Economist for France and Africa

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