Foreign direct investment (FDI) in Zambia

FDI in Figures

According to UNCTAD's 2021 World Investment Report, FDI flows into Zambia declined from USD 548 million in 2019 to USD 234 million in 2020, following the global economic crisis triggered by the Covid-19 pandemic. In the same year, the total stock of FDI was estimated at USD 19.4 billion. FDI remains dominated by large mining investments from Canada, Australia, United Kingdom, China and the United States, in addition to large infrastructure and other projects performed almost entirely by Chinese companies. Zambia's infrastructure, whose poor quality is a barrier to investment, should be strengthened by investments in the road network, railways and the construction of power plants. In 2021, a USD 11 billion standard gauge railway project was announced in Zambia, involving US capital, which would expand essential transport links with the outside world.

As the country largely depends on the mining sector, the government is seeking to diversify the economy and to become less dependent towards copper. To this extent, several tax incentives are granted to foreign investors (for more info, consult the Investment Guide to Zambia by the Zambia Development Agency, ZDA). Generally, Zambian law does not restrict foreign investors in any sector of the economy, although there are some limitations (especially regarding land ownership, as there is no private land in the country, and specific sectors of national interest). However, the increase in taxes on mining companies, the uncertainties concerning the tax framework (a revision of the mining code is underway), the high level of rates Interest and the disputed judicial liquidation of the Konkola mine could create an economic climate unfavorable to foreign investors in the years to come. The regulatory environment does not favour entrepreneurial activity, the requirements for commercial licenses being long and costly, and the application of regulations not being uniform. In addition, the protection of property rights and the enforcement of contracts are still weak by international standards. Zambia nevertheless ranks 85th out of 190 countries in the last Doing Business report, published by the World Bank in 2020, which indicates a two-place hike compared to the previous edition.

What to consider if you invest in Zambia

Strong Points

• The Zambian Development Agency (ZDA) provides a variety of incentives for foreign direct investment
• Zambia has one of the most open trade environments in Africa and is a member of the Southern Africa Development Community (SADC) and the Common Markets for Eastern and Southern Africa (COMESA)
• Businesses in Zambia benefit from one of the lowest profit taxes in the region
• Increasing regional cooperation through multilateral organisations, including SADC and the African Union should continue to reduce the likelihood of interstate conflict

Weak Points

• Investments under USD10 million are not eligible for certain tax breaks and incentives
• Weaknesses in public finances and government expenditure act as a barrier to investment
• High levels of trade bureaucracy add significantly to shipping lead times to and from Zambia, hindering trade competitiveness
• Amendments to the Companies Act could see minimum quotas for domestic investment imposed in some industries in the future
• Corruption is still a worrying issue

Government Measures to Motivate or Restrict FDI

Some of the government incentives to FDI are:

• Dividends paid out on farming profits are exempt for the first five years of activity
• Initial allowance of 10% on capital expenditure incurred on the construction or improvement of an industrial building is deductible
• Foreign exchange losses of a capital nature incurred on borrowings used for the building and construction of an industrial or commercial building are tax deductible
• Income earned by companies in the first year of listing on the Lusaka stock exchange qualifies for a 2% discount on the applicable company tax rate in the particular sector. However, companies with more than 1/3 of their shareholding in the hands of Zambians qualify for a 7% discount
• Implements, machinery and plant used for farming, manufacturing or tourism qualify for wear and tear allowance of 50% of the cost per year in the first two years of activity.

Investors who invest at least USD250,000 in any sector or product not provided for as a priority sector or product, is entitled to non-fiscal incentives such as investment guarantees and protection against state nationalization and protection against non-commercial risks (Zambia is a signatory of Multilateral Investment Guarantee Agency).

For more info, consult the Investment Guide to Zambia by the ZDA.