Foreign direct investment (FDI) in Zambia

FDI in Figures

According to UNCTAD's World Investment Report 2024, FDI flows into Zambia rose to USD 108 million in 2023, compared to a negative inflow of USD 65 million one year earlier but still way lower than the 2019-21 average (USD 500 million). At the end of the same period, the total stock of FDI was estimated at USD 15.49 billion, around 54.5% of the country’s GDP. FDI remains dominated by large mining investments from Canada, Australia, the United Kingdom, China, and the United States, in addition to large infrastructure and other projects performed almost entirely by Chinese companies. The Zambia Development Agency (ZDA) has announced committed investments totalling USD 18.74 billion across multiple sectors in 2024, with USD 9.83 billion already realised. The mining sector led with over USD 5 billion in investments, including major projects such as Barrick Gold's USD 2 billion investment to transform the Lumwana Mine into a 'super-pit,' and First Quantum Minerals' USD 1.3 billion expansion of the Kansanshi Mine. Additionally, China's JCHX Mining invested USD 300 million in the Lubambe Copper Mine, and Sinomine Resource Group committed USD 600 million to the Kitumba Mine. In the energy sector, projects like the USD 65 million Choma Solar Power Station and the USD 53 million Itimpi Solar Power Station were launched to address electricity shortages. Furthermore, the U.S.-backed USD 10 billion Lobito Corridor Railway project aims to improve regional transport.

As the country largely depends on the mining sector, the government is seeking to diversify the economy and become less dependent on copper. To this extent, several tax incentives are granted to foreign investors (for more info, consult the Zambia Development Agency website). Moreover, the Zambia Development Agency (ZDA) unveiled its strategic plan for 2022-2026 on October 20th, 2023, with the goal of stimulating economic growth by attracting a total of USD 36 billion in FDI and Local Direct Investment (LDI). This plan is designed to align the agency with the economic transformation objectives outlined in the Eighth National Development Plan (8NDP), which serves as a cornerstone for achieving Vision 2030. This vision aims to elevate Zambia into an industrialized, upper-middle-income nation by 2030. 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, uncertainties concerning the tax framework (a revision of the mining code is underway), the high level of interest rates, and the disputed judicial liquidation of the Konkola mine could create an economic climate unfavourable to foreign investors in the years to come (however, after a protracted legal battle, Vedanta regained control of the mine in 2024 by paying approximately USD 246 million to creditors). 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. On 16 April 2024, Zambia passed Act No. 3 of 2024, the Investment, Trade and Business Development (Amendment) Act, aimed at improving the country's investment climate. The amendment enhances tax incentives, simplifies business setup procedures, and offers increased support for investors in key sectors like agriculture, energy, and mining. This move is part of Zambia's efforts to attract more domestic and foreign investment to drive economic growth. Zambia ranks 116th among the 133 economies on the Global Innovation Index 2024 and 142nd out of 184 countries on the latest Index of Economic Freedom.

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.