ECONOMIC TRADE & INVESTMENT

INVESTMENT CLIMATE


REASONS TO INVEST IN ZAMBIA

Zambia is a multi-party democracy and provides a market-oriented liberalized economic environment in a strife-free, multicultural society. The Zambian Government welcomes investors across sectors and the laws relating to investment have provided for incentives aimed specifically at increased levels of investment and international trade, as well as increased domestic economic growth. The country's central location in the region, as well as a combination of the following key strengths makes it an ideal investment location.

  • Abundance of natural resources and manpower, which are highly under-utilized.
  • Political Stability since attaining independence in 1964
  • Abolition of Controls on: prices, interest rates, foreign exchange rates, free repatriation of debt repayments
  • 100% repatriation of net profits
  • Guarantees and Security to investors with legislated rights to full and market value compensation
  • Duty Free Access to Regional, wider African and the USA markets under SADC, COMESA/FTA and AGOA (African Growth and Opportunity Act) respectively
  • Banking, Financial, Legal and Insurance services of international standard as well as a Stock Exchange
  • Double Taxation Agreements with a number of European, North American, African and Asian countries
  • Good place to work and live – sub-tropical climate and vegetation with plenty of water, Friendly people, mostly English speaking, with high literacy rate. Educational establishments to University level. Strong religious values. Open-air lifestyle with nature reserves, game parks, rivers, lakes and waterfalls.
  • Thriving Private Sector – Government has successfully privatized most of the previously state owned enterprises, thus encouraging an entrepreneurial culture.

INVESTMENT INCENTIVES
The Zambia Development Agency (ZDA) Act of 2006 offers a wide range of incentives in the form of allowances, exemptions & concessions for companies. The Act provides for investment thresholds that investors have to meet to qualify for fiscal and non-fiscal incentives.

There are five categories of investors who can be considered under the ZDA Act.

  1. The first is that of investors who invest not less than US$ 10 million in an identified sector or product. This category of investors is entitled to negotiation with the government for additional incentives other than what they might already qualify for under the ZDA act.

  2. The second category is that of investors who invest not less than US$500,000 in the Multi Facility Economic Zones (MFEZ) and /or in a sector or product provided for as a priority sector or product under the ZDA Act. This category, in addition to being entitled to the general incentives, is entitled to the following incentives:
    • Zero percent tax rate on dividends for 5 years from year of first declaration of dividends.
    • Zero percent tax on profits for 5 years from the first year profits are made. for year 6 to 8, only 50 percent of profits are taxable and years 9 & 10, only 75 percent of profits are taxable.
    • Zero percent import duty rate on raw materials, capital goods, machinery including trucks and specialized motor vehicles for five years.
    • Deferment of VAT on machinery and equipment including trucks and specialized motor vehicles.

  3. The third category of investors relates to investors who are designated as micro or small enterprises under the ZDA Act. Like the second category, this category is also, in addition to the applicable general incentives, entitled to the following incentives:
    • For an enterprise in an urban area the income shall be exempt from tax for the first three (3) years.
    • For an enterprise in a rural area the income shall be exempt from tax for the first five (5) years.

  4. The fourth category is that of investors who invest less than US$500,000 in a sector or product provided for as a priority sector or product under the ZDA Act. This category is only entitled to general incentives.

  5. The fifth and last category is that of investors who invest any amount in a sector or product not provided for as a priority sector or product under the Act. This category of investors is also only entitled to general incentives provided under the various pieces of legislation. General Incentives are incentives available to investors investing in various sectors of the economy. These incentives are provided for under the pieces of legislation falling under the Zambia Revenue Authority, namely: the Customs and Excise Act, Income Tax Act and Value Added Tax Act.

INVESTMENT CLIMATE
Zambia’s transition from one-party socialist to multi-party democracy government in 1991 was accompanied by fundamental economic reforms aimed at establishing a liberalized market economy.

The Government embarked on a drastic change on economic reforms whose immediate priority was stabilizing major macroeconomic indicators that would serve as the basis for sustained economic growth.

The major elements of economic reforms that were implemented include:

  • Abolition of price controls,
  • Removal of foreign exchange and bank interest rates controls,
  • Repatriation of 100% of after-tax profits,
  • Privatization of state-owned enterprises (SOEs) through the Zambia Privatization Agency (ZPA),
  • Promotion and facilitation of both local and foreign direct investment through the Zambia development Agency (ZDA),
  • Development of capital markets through the Lusaka Stock Exchange (LuSE).

INCENTIVES UNDER ZDA ACT
Anyone investing in a rural enterprise, a minimum of $500,000 in a priority sector or $10,000,000 in a non-priority sector will be entitled to special incentives under the Zambia Development Agency. The ZDA act provides for both fiscal incentives and non-fiscal incentives.

Fiscal Incentives  

  • Company tax will be charged on 50% of the profits earned for a period of 5 years starting with the first year of profitability
  • Dividends shall be exempted from tax for 5 years from the year of first declaration
  • Capital expenditure on improvement or for the upgrading of infrastructure shall qualify for improvement allowance of 100% of such expenditure
  • Suspended customs duty to zero for 5 years on machinery and equipment.

Non fiscal Incentives

The non-fiscal incentives as provided for by the ZDA Act include:

  • Investment guarantees and protection against state nationalization;
  • Free facilitation for immigration permits for both investors and up to five of their technical experts;
  • Free facilitation for application of secondary licenses;
  • Free facilitation for application of land;
  • Free facilitation for application of utilities, etc.

PRIORITY SECTORS
In its quest to encourage investments in specific sectors the Zambia Development Agency has set up priority sectors listed below:

  • Floriculture
  • Horticulture
  • Processed foods
  • Beverages and Stimulants
  • Production and the processing of the following products in the textiles sector:
    - Cotton
    - Cotton yarn
    - Fabric
    - Garments
  • Manufacturing of the following engineering products:
    - Copper products
    - Iron ore and steel
    - Cobalt
  • Other engineering products
    - Beneficiation of phosphates and any other related material into fertilizer
    - Beneficiation of rock materials into cement
    - Production and processing of raw timber into wood products
  • Production and processing of the following products in the leather sector:
    - cattle hides
    - crust leather
    - leather products
    - Building of mini-hydro power stations
    - Education and skills training

COMPANY FORMATION
Those incorporated outside Zambia but have established business in Zambia must lodge with Registrar of Companies the following:

  • List of Directors
  • Articles of Association
  • Name of Representative in Zambia
  • Comply with Companies Act, 1994
  • Branches of foreign companies
  • There are no requirement for local share holding

APPLYING FOR AN INVESTMENT CERTIFICATE

  • Certificate of Incorporation
  • Investment Requirement of US$250,000 (for Self Employment Permit purposes) and US$500,000 in a priority sector (for Special Incentives purposes)
  • Completed Official Application Form
  • Processing Fee of K 1,280,000 inclusive of VAT
  • Investment Certificate Fee of K7, 670,000 inclusive of VAT. This is only payable upon approval of application
  • Certificate of Incorporation
  • Certificate of Share Capital
  • Official List of Directors/Shareholders
  • Business Plan/Feasibility Study
  • Proof of Finance (bank statements, loan or credit facilities, machinery and equipment)
  • Experience Reference Letters for the Shareholders

SECONDARY LICENCES
To get an investment licence most companies will need to obtain a secondary licence

  • Applications in the Tourism Sector need a letter of Authority from the Ministry of Tourism and/or the Zambia Wildlife Authority (ZAWA)
  • Applications in the Timber/Wood Processing Industry must be accompanied by a Forestry Concession from the Department of Forestry
  • Applications in the Health Sector require a letter of Authority from the Central Board of Health
  • Professional and Academic qualifications of the Shareholders
  • Applications in the Education Sector must be accompanied by a Letter of Authority from the Ministry of Education
  • Applications in the Telecommunications Sector require a Letter of Authority from the Communications Authority
  • A Letter of Authority from the Ministry of Communications and Transport must accompany applications in the Transport Sector

LAND ACQUISITION
An investment certificate allows an investor to own and buy land in the company name.

There are two types of tenure in Zambia: leasehold and customary tenure. Zambia has no freehold system of land tenure. Leasehold tenure runs for 99 years and is renewable for a further period of 99 years.

Land situated in a customary area can be converted to leasehold tenure. This enables land to be used as collateral. A non-Zambian can acquire land under the following conditions:

  • If he or she has permanent residence in Zambia.
  • Is an investor within the meaning of the ZDA.
  • Registers a company under the Companies Act, with not less than 75% Zambian shareholding.
  • Under a short-term tenancy of not more than 14 years.
  • Has a concession or right under the National Parks and Wildlife Act.

INVESTMENT OPPORTUNITIES IN THE AGRICULTURE SECTOR
Government has identified farming blocks in each of the nine provinces. There is potential for growing of crops like maize, sugar, cotton, rice and coffee. Other areas include production of high value crops like tobacco and paprika. Opportunities also exist in horticulture and floriculture.

TOURISM INVESTMENT OPPORTUNITIES

  • There are several untapped natural sites scattered in the provinces. The Kafue National Park, Luangwa and Lower Zambezi offer abundant investment potential.

  • Zambia boasts of one of the largest concentrations of game in Africa and has a rich and colourful cultural heritage.

  • Numerous opportunities exist for investment in hotels, motels, lodges and support services within urban areas.

  • Further opportunities exist to invest in lodges, camp-sites, house boats, and support services in areas within various game reserves across the country.

  • Further opportunities exist to invest in lodges, campsites, houseboats, and support services in areas within various game reserves across the country.

OPPORTUNITIES IN THE MINING SECTOR
The emphasis of government is to add value to our natural resources. Zambia is known to have significant reserves of base metals, precious and semi-precious stones, energy minerals, and industrial minerals. It is also government’s desire to see the minerals industry develop beyond extraction and move into processing as well, thereby enhancing value-addition.

Opportunities for the exploitation of other minerals have been identified. These include gold and gemstones like emeralds, aquamarine, topaz, opal, agate and amethysts. Diamond reserves have also been identified.


INVESTMENT OPPORTUNITIES IN THE MANUFACTURING SECTOR
The following sub-sectors continue to offer tremendous investment opportunities:

  • Agro-processing
  • Textiles
  • Leather

Other areas of manufacturing include the production of plastic products, pharmaceuticals, electrical components, cement, paint, packaging products, paper products, wood processing, and furniture production.

OPPORTUNITIES IN THE ENERGY SECTOR
Zambia offers abundant investment opportunities for hydroelectric power generation, supply and distribution. Electricity generation in Zambia is nearly 100% hydro with an estimated potential of 4,000 MW. The total installed capacity is 1,760 MW out of which 1,670 MW is hydropower and 90MW is thermal.


Source of the above document is the Zambia Investor's Guide Handbook - February 2009 from the Zambia Development Agency website.