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1、Zambia:Zambia:Country Private Sector DiagnosticDECEMBER 2024Public Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedPublic Disclosure AuthorizedThe private sector is the engine of long-term economic growth and a vital catalyst for global social and economic development.Wh

2、en functioning well,the private sector promotes innovation and entrepreneurship,improves access to and the quality of economic opportunities,and supports the sustainable use of natural resources.In developing economies,the private sector creates most jobs,generates tax revenue,and accounts for signi

3、ficant investment.The revised Country Private Sector Diagnostic(CPSD)reports seek to unlock private sectorled growth and investment.Prepared jointly by the institutions of the World Bank Group,each report discusses the overall business environment within a country and provides an analysis of specifi

4、c sectors in which private sector investment could accelerate growth,if appropriate policy and regulatory issues are addressed.Designed from the perspective of an investor or entrepreneur,this new generation of reports seeks to identify untapped private investment opportunities and the barriers that

5、 stand in the way(earlier reports can be found here).The sector opportunities are chosen based on their potential to spur private investment,create jobs,generate domestic revenue,and foster sustainable,inclusive growth,in response to targeted policy action.The report aims to help country policymaker

6、s prioritize the most impactful actions that can boost private sector growth,while delivering on broader development goals.The CPSD is one of the World Bank Groups core country diagnostics produced to guide the design and implementation of public and private investment projects,budget support operat

7、ions,advisory services,and other analytical work.It is intended to be of interest to domestic and foreign business investors,government officials,World Bank Group staff and management,civil society,and other development partners.About the Country Private Sector Diagnostic Zambia:Zambia:Country Priva

8、te Sector DiagnosticCountry Private Sector DiagnosticDECEMBER 2024iiZambiaCountry Private Sector DiagnosticContentsContentsAcknowledgments iiiExecutive Summary iv1 Country Context and Business Environment 11.1 Economic and Fiscal Context 31.2 Financing for Investment 41.3 Investment and Business Cli

9、mate 81.4 Institutional Underpinnings for Private Sector Development 91.5 Looking Ahead 102 Sector Investment Opportunities 113 Mining of Copper and Other Energy Transition Minerals 183.1 Sector Context and Opportunity 193.2 Constraints and Recommendation for Private Investment 224 Solar Power 284.1

10、 Sector Context and Opportunity 294.2 Constraints and Recommendations for Private Investment 335 Maize,Wheat,Soya 355.1 Sector Context and Opportunity 365.2 Constraints and Recommendations for Private Investment 446 Tourism 496.1 Sector Context and Opportunity 506.1.1 Conference and Business Tourism

11、 546.1.2 Nature-Based Tourism(NBT)556.2 Constraints and Recommendations for Private Investment 57Appendix A:Estimates of Potential Increases in Private Investment and Employment 61Abbreviations and Acronyms 67Notes 69References 78iiiThe Zambia Country Private Sector Diagnostic was prepared by staff

12、from across the World Bank Group.The core team was co-led by Ernesto Lopez Cordova and Bushra Ghulam Mohammad,and included Soujanya Krishna Chodavarapu,Miles McKenna,Nisachol Mekharat,Peter Nuamah,and Santiago Marron Ruiz.The extended team included Senait Mekete Ayele,David Harrison,Natsuko Toba,and

13、 Jessica Charles Wade.Adama Badji and Gebisa Katambo Nyirenda Chisanga provided able administrative support to the team.Brian Beary and Charles Cao helped with efficient fact checking and editing.Erik Churchill,Monica De Leon,and Irina Sarchenko supported with the design and editing of the report.Th

14、e report was conducted under the guidance and supervision of Alwaleed Alatabani,Jeffrey Allen Chelsky,and Paramita Dasgupta,and the guidance of directors Nathan M.Belete,Paolo Mauro,Mary Porter Peschka,and Hassan Zaman.The work was performed under the overall direction of Victoria Kwakwa(Regional Vi

15、ce President,Sub-Saharan Africa,IBRD),Susan Lund(Vice President,Economics and Private Sector Development,IFC),and Sergio Pimenta(Regional Vice President,Africa,IFC).Peer reviewers at different stages in the preparation of the report were Gokhan Akinci,Kobina Egyir Daniel,Tilana de Meillon,Martin Lok

16、anc,Silvia Mauri,Philippe Olivier,Pierre A.Pozzo di Borgo,Ganesh Rasagam,Philip Schuler.Technical consulting services were provided by:Artios Global,Levin Sources,Cresco Group,Stephane Barbeau,Brian G.Mtonya,Eva Jhala,Lance Simwanza,Brian Mulenga,Auckland Kuteya Namubi,Ferdi Meyer,Divan van der West

17、huizen,Roseta Mwape Chabala,Elita Mwenda,Coillard Hamusimbi,and Martin M.Liywalii.The team is grateful for generous guidance and feedback from many other colleagues across the World Bank group,including(in alphabetical order):Patrick Thaddayos Balla,Soumya Banerjee,Bill Battaile,Francis Chibwe,Amit

18、Dar,Stephan Dreyhaupt,Roger Yannick Endom,Achim Fock,Pooja Goel,Georges Houngbonon,Ankur Huria,Roumeen Islam,Santosh Ram Joshi,Shaun Mann,Silvia Mauri,Denis Medvedev,Madalo Minofu,Andrew Abduel Mnzava,Moritz Nikolaus Nebe,Zeinab Partow,Ronald Rateiwa,Albert Pijuan Sala,and Nimarjit Singh.The team al

19、so thanks other World Bank Group staff who provided documents and information and participated in various meetings.The team is also grateful to government officials,private sector representatives,development partners,and other stakeholders who provided valuable insights that helped improve the quali

20、ty of the report.AcknowledgmentsAcknowledgmentsivZambiaCountry Private Sector DiagnosticZambias economy is emerging from a debt crisis and has successfully negotiated a debt restructuring with creditors and an International Monetary Fund(IMF)program.1 Following several years of anemic growth,rising

21、poverty,and declining foreign direct investment,the government has taken important measures to restore macroeconomic stability and foster economic growth.Promoting private investment is at the forefront of the governments strategy,as net foreign direct investment(FDI)inflows declined from an average

22、 of 5.5 percent of gross domestic product(GDP)during 20102019 to 1.0 percent of GDP in 2020(figure ES.1).2 Interest from foreign investors has begun to resurface.FDI is projected to reach 3.9 percent of GDP in 2024,and foreign investment announcements amounted to$1.7 billion in 2022 and$1.4 billion

23、in 2023.3 During the past decade,the majority of FDI has been in metals mining,followed by building materials and renewable energy.This report highlights that,with reforms,significant profitable investment opportunities are available for businesses,which would contribute to better jobs and higher in

24、comes for Zambias population.To keep the analysis focused and manageable,the report delves into four specific sectors:mining,solar power,agribusiness and tourism.Implementing key actions in these sectors could attract up to$21 billion in cumulative new investment between 2025 and 2030,or close to 50

25、 percent above current trends.4 Up to roughly 80,000 additional formal jobs could be created directlyequivalent to more than 10 percent of formal jobs in 2022.In an upside scenario,as many as 220,000 additional jobs could also be created indirectly in the rest of the economy(with greater uncertainty

26、 in the estimates,especially for the indirect impact of mining investments on employment).5The selected sectors analyzed in this report suffer from common constraints that affect the economy at large and that the Government of Zambia will need to address to fully realize the potential of the private

27、 sector.6 In order to grow and become more productive,private firms need more predictable policy,simpler regulations,fewer barriers to private sector entry,fewer market distortions,and less corruption.They also require smart Executive SummaryZambia is endowed with a wealth of mineral reserves,abunda

28、nt arable farmland,renewable energy sources,diverse wildlife,political stability,and a young population.The country is well-positioned to draw significant private investment,which could help it achieve its development aspirations.vExecutive Summaryinvestments to build the countrys transportation inf

29、rastructure,and to expand power generation and transmission to provide reliable,affordable electricity.Skills shortages and skills gaps act as a constraint to growth across economic sectors.7 Moreover,Zambia will also need to address environmental and social concerns associated with the clear-cuttin

30、g of forests,loss of biodiversity,land degradation,community displacement,and child labor.But each sector also faces its own specific obstacles,and many of these could be addressed in the short-to medium-term.Below is a breakdown of those challenges and recommendations for overcoming them.A fuller d

31、iscussion is included in the body of this report.Figure ES.1 Interest from foreign investors is resurfacingFDI announcements and actual net FDI inflows,20132024Sources:FDI announcement data from fDi Markets,Financial Times Ltd.Net FDI inflows from Macro Poverty Outlook Dataset,World Bank.Note:FDI=fo

32、reign direct investment.FDI announcements deflated using US GDP deflator from IMF World Economic Outlook(October 2024)data.2024 announcements cover the JanuaryJune period only and added up to$541.0 million(2023 prices).During the first half of 2023,announcements reached$539.7 million.Metals($,millio

33、ns)Renewable energy($,millions)Communications($,millions)Building materials($,millions)Food and beverages($,millions)Other sectors($,millions)Net FDI inflows(%of GDP),RHS$,millions(2023 prices)%of GDP05001,0001,5002,0002,5003,0003,5004,0002013201420152016201720182019202020212022202320242024681012viZ

34、ambiaCountry Private Sector DiagnosticMining of Copper and Other Energy Transition Minerals(Manganese,Nickel)Zambia is Africas second-largest copper producer and ranks ninth globally,but production has declined in recent years.In contrast,production of other minerals that are in high demand globally

35、 for the energy transition,including manganese and nickel,have steadily grown.Although still at relatively low levels,production of these has increased nearly fourfold and threefold,respectively,since 2020.8 Zambian mines are overall cost competitive,with average operational cash costs in line with

36、the global average(figure ES.2).Mining is important for the Zambian economy,and accounts for approximately 15 percent of GDP,70 percent of export earnings,9 and 44 percent of government revenues(largely through mining royalties and corporate income taxes).10 The mining sector,currently dominated by

37、foreign firms,11 has traditionally been a major source of inward foreign direct investment,focused on extraction and early-stage refinement.While Zambia has potential to expand downstream activities over the medium term,the report focuses on extraction and assesses opportunities to increase private

38、investments within the near term.Figure ES.2 Production costs of some Zambian mines are below global benchmarksCash cost for copper production,2024(cents per pound,2023$)Source:S&P Capital IQ Pro,2024.Note:“Cash cost”reflects short-run production costs and excludes sustaining capital and other amort

39、ized expenses.Kansanchi,Lumwana,Sentinel,and Chamibishi accounted for 73 percent of copper production in Zambia in 2023.Treatment,refiningand shipmentReagentsLaborRoyaltyEnergyOther onsite050100150200250Lumwana232Zambia(average)230World(average)200Sentinel(Trident)197Chambishi162Kansanshi244ZAMBIAN

40、MINESviiExecutive SummarySince 2022,several international mining companies have announced new investments in Zambia,including$1.25 billion for the Kanshanshi copper mine and$2 billion for expansion at the Lumwana copper mine.This is a significant scale-up from$400 million in FDI announced between 20

41、1519.12Although the current administration has set high ambitions for the mining sector,the legacy of previous governments,which had pursued nationalizations,13 still weighs on investor confidence.14 The countrys policy environment has also been a source of uncertainty.The mining tax regime has been

42、 modified 11 times in the past 19 years,making companies reluctant to make long term commitments in the sector.Lengthy,complex,and unclear licensing processes15 and a lack of transparent stakeholder engagement have eroded investor trust and given rise to community grievances.Meanwhile,Zambias geolog

43、ical mapping dates from the 1970s and covers only about 55 percent of the country.Inadequate energy and transportation infrastructure has also hampered exploration and production.Attracting new investments while retaining existing ones requires tackling several policy issues:ensuring a stable and pr

44、edictable policy environment,including with the recently proposed legislative bills and sector strategy;16 allowing access to prospective areas for exploration through licensing transparency and tenure security,regulated by the Minerals Commission;improving infrastructure access,particularly to reli

45、able and cost-effective energy;and providing more stringent and effective safeguards to avoid environmental damage and associated reputational risk to investors.With reforms to improve the security of tenure,licensing,and access to better geological data,among others,our analysis suggests that coppe

46、r production could reach a maximum of 1.5 million MT by 2030,from 0.7 million metric tons(MT)in 2023.Correspondingly,total new private investment in the mining sector could range from$6 billion to$18 billion by 2030,potentially creating between 10,000 and 40,000 new jobs in the sector,plus additiona

47、l indirect jobs in the rest of the economy ranging between 60,000 and 180,000.17 Solar PowerRoughly 90 percent of Zambias electricity generation comes from hydropower but increased domestic demand from the energy-intensive mining sector(which consumes around 50 percent of electricity)and residential

48、 consumption(nearly 30 percent of energy demand)is straining existing sources.Ever more frequent droughts and climate-related shocks have made the hydropower supply less reliable,as evidenced by rolling black-outs and load-shedding.Electricity is the second most frequently reported constraint to the

49、 business environment in Zambia,with 21 percent of firms citing access to electricity as a major constraint to their operations.18viiiZambiaCountry Private Sector DiagnosticTotal electricity demand is expected to grow 150 percent by 2030 from its 2020 level,according to government projections,reachi

50、ng 41,925 gigawatt-hour(GWh).19 Fewer than half of all households have access to electricity.20 Moreover,realizing the potential growth in the mining sector will require significant new electricity generation.Demand is likely to grow as incomes rise in Zambia and neighboring countries,and as new min

51、ing investments come to fruition.Zambia could emerge as a regional power provider;Zambias electricity exports grew from$87 million in 2019 to$397 million in 2023.21Solar photovoltaic(PV)power has emerged as a cost-effective option to expand electricity generation in Zambia.22 Independent solar power

52、 producers(IPPs)could feed into the grid operated by state-owned utility ZESCO,sell directly to mining companies through bilateral contracts,or power distributed“mini-grids”that serve provincial towns and villages.Recent announcements by investors include a signed$2 billion agreement with ZESCO to d

53、evelop 2 gigawatts(GW)of solar projects,and an April 2024 Purchase Power Agreement between an IPP and ZESCO to supply 1 GW of solar energy.23 Nevertheless,past experience suggests that ZESCOs weak financial position would continue to affect its ability as an effective offtaker for solar IPPs.Unlocki

54、ng the full potential of solar investment will require addressing lack of regulatory clarity and transparency that limit IPP access to the transmission and distribution grids24 and investor concerns about the creditworthiness of ZESCO as the main power offtaker.There is also a perception that ZESCOs

55、 procurement processes lack transparency and that rules governing transmission charges are unclear.The existing transmission infrastructure has limited capacity to handle large-scale renewable energy projects,particularly intermittent renewable energy sources like solar and wind which can affect gri

56、d stability and reliability.Given ZESCOs scarce financial resources,the introduction of independent private transmission(IPT)operators would allow to extend the grid.25 With appropriate reformsimproving the governance of the electricity sector,establishing clear and consistent regulations and proced

57、ures that govern how the electricity market operates,unbundling ZESCO and thus having transparent network charges,and enhancing ZESCOs financial standingprivate investment in solar power could meet much of the projected increase in energy demand,particularly from the mining sector,allowing electrici

58、ty producers to sell directly to individual companies more easily.The recent publication of rules on open access to the grid are a step in the right direction,although their implementation is at an early stage.This report estimates total new private investment in additional solar generation capacity

59、 could range between$0.4 billion and$1.1 billion by 2030,or an increase between 375 megawatt(MW)and 1,125 MW,compared to 123 MW in installed solar generation capacity in 2023 if appropriate reforms are implemented.In addition to meeting future demand and reducing reliance on hydropower,investments i

60、n solar generation would create between 3,000 and 8,000 direct and indirect jobs in the formal sector.ixExecutive SummaryMaize,Soya,WheatWith good climatic conditions and only a third of available arable land under cultivation,Zambia offers large opportunities for agribusiness to expand sustainably,

61、particularly for maize,soya,and wheat production.The country has transformed into a net exporter,significantly contributing to regional food security and the supply of raw materials for downstream sectors such as processed food and poultry.Investment decisions will be driven by strong market fundame

62、ntals,led by low production costs and growing demand from domestic and regional markets that could attract significant investment.Annual domestic demand for maize,for example,is projected to rise from 3.2 million metric tons(MT)in 2024 to over 4 million MT by 2030.Meanwhile,regional exports of maize

63、 and value-added maize products,such as ground flour and animal feed,could double to 1.5 million MT,driven by demand in the Democratic Republic of Congo,Malawi,and Zimbabwe.Similarly,demand for edible oils on the local market will require 200,000 MT of soya beans per year by 2030,more than three-tim

64、es current production.Zambia is home to roughly 1,300 large commercial farmsmany boasting world-class yields and strong profit margins(figure ES.3).Some of these farms specialize in producing wheat,making Zambia the only country in the region producing an annual surplus.Gross margins on a hectare of

65、 wheat are more than four times that of a hectare of maize and three times that of soya.These margins could increase an additional 70 percent by 2030 with the reforms described below.Attracting more private investment into agribusiness will require addressing market-distorting government interventio

66、ns and unpredictable trade policy,such as export bans on major commodities like soya beans and maize.The governments development strategy has long been driven by food security concerns and public programs to support the countrys high number of smallholder and subsistence farmers.The Farmer Input Sup

67、port Program(FISP),which provides subsidized fertilizer and seed,and the Food Reserve Agency(FRA),which buys and sells commodities from these farmers,have commendable objectives.However,they have not significantly improved productivity,farmers incomes,or long-term food security.These two programs ac

68、count for almost all public funding to support sector development.26 Resources could be reallocated to more efficient and impactful uses.Limited infrastructure is also holding back agricultural investment.The country needs better roads for market access,better water infrastructure to facilitate inve

69、stment in irrigation and to boost climate resilience,and more electricity to power mechanization.Access to finance is a problem for farmers,particularly smaller farms.Farming is typically a low-margin,high-risk endeavor,meaning that current high interest rates make financing investment in productivi

70、ty or expansion out of reach for most farmers.Other xZambiaCountry Private Sector Diagnosticlong-standing problems,such as deforestation,encroachment,and corruption,can also make or break an investment decision.To facilitate private investment,Zambia could reallocate resources from inefficient marke

71、t interventions into more productive public investment in roads and irrigation infrastructure.Carrying out planned improvements to the FISP,for example,would raise the efficiency of the program,reduce fiscal costs,and boost productivity,while ensuring better targeting and equity in the provision of

72、services and support to small farmers.Improving land-use planning and simplifying land acquisition could facilitate investment in expansion of productive farms.Tackling these impediments will help to realize the governments objective to garner investor interest in its Farm Blocks initiative.This rep

73、ort estimates that potential private investment in the sector could range from$0.3 billion to$1.5 billion,cumulative,by 2030,with associated job creation,directly and indirectly,in the range of 20,000 to 60,000.Figure ES.3 Large commercial irrigated farms boast world-class yieldsZambian yields per c

74、rop parators,2022(metric tons per hectare)Source:BFAP,IAPRI,FAO,and World Bank Group calculations.10.0 5.8 MAIZEGlobalSouthern Africa regionZambiaZambian commercial irrigated farms0246810 5.0 2.4 SOYAGlobalSouthern Africa regionZambiaZambian commercial irrigated farms0246810 2.6 1.2 1.2 4.0 WHEATGlo

75、balSouthern Africa regionZambiaZambian commercial irrigated farms0246810 2.6 3.6 6.9 7.4 xiExecutive SummaryTourismWith rich nature and wildlife assets,diverse cultural heritage,and relative political stability,Zambia presents strong potential for tourism.Zambia is home to Victoria Falls,wildlife re

76、serves,and multiple national parks.Protected areas,such as Lower Zambezi and South Luangwa National Parks,are well suited for private investment in eco-friendly accommodations,which could create better-paid jobs in the formal sector and diversify revenue streams.Business and conference tourism could

77、 attract private investment and grow in Lusaka and Livingstone.Zambias tourism sector is recovering to pre-pandemic levels.Investment fell from an average of$297 million per year before COVID(20132019),to$181 million in 20202023.In 2023,travel and tourism employed almost 450,000 people representing

78、6.7 percent of total jobs in the country.Zambias tourism sector trails that of some of its neighbors:the sector represents 12.1 percent of GDP in Botswana and 9.5 percent in Tanzania,but only 6.2 percent in Zambia.Income generated per international visitor to the country falls short of the regional

79、average(figure ES.4).Zambia ranked 104th overall in the 2024 World Economic Forum Travel and Tourism Development Index.Key areas for improvement include Information and Communications Technology(ICT)readiness and air transport infrastructure and connectivity.Poaching,wildlife-community conflicts,and

80、 unplanned development in protected areas also pose problems.Despite a challenging business environment,the 2023 Zambia Tourism Investor Appetite Assessment found that 85 percent of survey respondents planned to expand their businesses within one to five years(World Bank 2023b).Further,the Africa Ho

81、spitality Confidence Index 2024,which surveyed over 500 tourism businesses in Africa,including Zambia,shows 80 percent of respondents having confidence in the short-,medium-and long-term prospects of the sector,driven by increased tourism,business travel,and“bleisure”(business and leisure)travel.Nat

82、ure-based and conference tourism are especially promising,based on comparisons with regional peers.However,conference tourism in the main hubs of Lusaka and Livingstone has been hampered by inadequate facilities,whereas nature-based tourism is affected by deficiencies in natural asset planning,fores

83、try and wildlife management and control.While nature-based tourism including eco-tourism is typically more up-market,such activities not only support potential for increased job creation and upskilling,but also sustainable growth and development.To unlock tourisms full potential,the government must

84、improve the allocation of tourism-related licenses;streamline regulation and processes to open,expand,and even operate a business;and establish a Convention Bureau to promote conference tourism.Better management of protected areas to mitigate poaching and support conservation could also attract inve

85、stors.xiiZambiaCountry Private Sector DiagnosticThis report conservatively estimates that private investment in new hotels alone could range between$35 million and$100 million by 2030(cumulative).Correspondingly,total employment creationencompassing both direct jobs in the construction of new hotels

86、,as well as indirect jobs in the rest of the economywould range between 2,000 and 6,000 jobs.Additional investments and employment in the sector,beyond hotels and accommodations,would also expand,as demand rises for other products and services aimed at foreign visitorsrestaurants,tour and transporta

87、tion services,and local handicrafts.The Path AheadThere is growing optimism about Zambias macroeconomic future,as the country works to restore fiscal stability and address the structural factors that led to the 2020 sovereign debt default.All this gives Zambia an opportunity to promote more diversif

88、ied and sustainable private sectorled growth.Removing regulatory barriers,limiting public corruption,lifting market-distorting subsidies and investing in roads,airports,internet and power infrastructure can help Zambia make the most of it.Source:Staff calculations with data from United Nations Touri

89、sm and World Travel and Tourism Council(WTTC).Figure ES.4 Reforms could reduce the gap in tourism income between Zambia and its neighborsContribution of travel and tourism to GDP per international visitor,pre-COVID,2019($)01,0002,0003,0004,0005,0006,000Regional averageTanzaniaKenyaSouth AfricaBotswa

90、naZambiaNamibiaRwandaZimbabwe5,1983,6503,4701,4171,0009075242,2451,793xiiiExecutive SummaryTable ES.1 Summary of recommendationsSectorRecommended actionsMining of Copper and Other Energy Transition Minerals(manganese,nickel)Rationale Scale up copper,manganese,nickel production to contribute to energ

91、y transition technologies and stimulate economic recovery.Promote investments in solar photovoltaic(PV)power generation to meet production needs.Increase fiscal revenues and foreign exchange reserves.Constraints Uncertainty in tax regime,and frequent policy changes.Insufficient information and trans

92、parency on geological prospects and licensing.Access to prospective exploration areas tied up through the cadaster inefficiencies.Weak and inconsistent application of environmental,social,and governance(ESG)standards.Clarify in the 2023 Mining Regulation Commission Bill issues of security of tenure,

93、rights and obligations.Review the adequacy of 2024 Local Content Regulations,“free carry”and production sharing in Critical Minerals Strategy.Digitize and disseminate geological survey data and collect new geodata.Create criteria to qualify future issuance of licenses and tenement to entities with t

94、echnical and financial capability to advance exploration programs,regulated via Minerals Commission.Upgrade to fully digital mining cadaster management system.Standardize exploration license to 10 years,remove limits to per-company number of licenses,introduce non-exclusive reconnaissance license.Fo

95、rmalize ESG and social license to operate criteria into law and regulate performance via Minerals Commission.Solar PowerRationale Diversify from increasingly variable hydropower.Guarantee electricity supply to mining and meet rising demand in the rest of the economy.Position Zambia as regional elect

96、ricity supplier.Constraints Ineffective stewardship of the electricity sectorunclear regulation,insufficiently transparent processes,and inadequate institutional capabilitiesundermines investor confidence.Macroeconomic uncertainty and ZESCOs fragile creditworthiness without cost-reflective pricing.U

97、pdate the Integrated Energy Resource Plan with realistic demand forecast assumptions through 2040,to better inform private investment decisions in the sector.Implement clear and consistent market rules,including regarding unbundled network charges,included in the recently enacted grid code,to operat

98、ionalize open access to the grid regulations and foster greater IPP participation in generation activities.ZESCO to adopt separate accounting for generation,transmission,and distribution,to improve transparency,financial management,and regulatory compliance,and to enhance private participation in tr

99、ansmission activities(e.g.,via Independent Power Transmission arrangements and tenders to develop priority transmission corridors).(Table continues next page)xivZambiaCountry Private Sector DiagnosticSectorRecommended actionsMaize,Soya,WheatRationale Increase productivity and create jobs in rural ar

100、eas.Improve food security and boost climate resilient agriculture.Constraints Inefficient agricultural subsidies.Difficultly acquiring large tracks of land.Government commodity trading distorts prices.Export bans and permit processes disrupt trade.Reduce the scope and better target the Farmer Input

101、Support Program(FISP),and complete the transition from direct input supply to e-voucher system.Update and revise Lands Act to simplify land acquisition,provide for ease of customary land conversion,and introduce integrated land use planning.Implement Agriculture Marketing Bill to establish private s

102、ector rights to market access and the Agricultural Marketing Council for improved stakeholder consultation.Narrow the mandate of the Food Reserve Agency(FRA)to allow for greater private sector participation in the market,specifically as it pertains to purchasing,storage,and sales of physical stock.T

103、ourismRationale Job creation in the formal sector.Protection of natural assets(wildlife,forests).Constraints Excessive licensing and regulatory burden.Concession framework has insufficient transparency and lacks flexibility.Ineffective management of protected areas.Lack of coordination among stakeho

104、lders makes tourism promotion ineffective.Reduce the number of tourism related licenses required and move submission and processing of tourism required licenses to government e-business online platform.Establish Convention Bureau to promote Zambia as a business and conference destination and to coor

105、dinate stakeholders.Issue a statutory instrument on revised concession framework as part of new Wildlife Bill to be passed in 2024.Issue a statutory instrument to enable the private sector to manage wildlife areas(e.g.,Collaborative Management Partnership agreements).Note:Each chapter includes speci

106、fics on the above constraints and recommendations.Table ES.1 Summary of recommendations(continued)1 Country Context Country Context and Business and Business EnvironmentEnvironment2ZambiaCountry Private Sector DiagnosticZambia is endowed with vast arable land,a young and growing population,diverse m

107、inerals,rich wildlife,and a location bordering eight nations.With the right policy environment,the country can attract significant private investment to support sustainable growth and raise living standards.This report discusses investor potential in four sectors and identifies key policy actions th

108、at can help realize that potential.Zambia is emerging from a fiscal crisis and a retrenchment in foreign investment that culminated in a 2020 sovereign debt default.The country has made significant progress in implementing an agreement with its creditors but still needs to address many of the struct

109、ural issues that contributed to the unsustainable accumulation of debt in the first place.This presents Zambia with a rare opportunity to shift towards more diversified and sustainable private sectorled growth.The current administration is taking steps to enact fiscal and structural reforms to resto

110、re macroeconomic stability,support a more open and competitive private sector,increase pro-poor spending,and reinvigorate growth.If recommended reforms are implemented,net foreign investment could be up to$4 billion annually,significantly exceeding its historical share of GDP.This report identifies

111、significant potential to attract additional private investment in support of job creation and economic growth if Zambia takes targeted actions to alleviate long-standing and sector-specific barriers to development.1 Country Context Country Context and Business and Business EnvironmentEnvironment31 C

112、ountry Context and Business Environment1.1 Economic and Fiscal ContextEconomic and Fiscal ContextZambia saw remarkable economic growth in the 2000s,spurred on by surging copper prices and large-scale debt relief under the Heavily Indebted Poor Countries Initiative.The country embarked on large publi

113、c investments(mostly in infrastructure)for which it borrowed heavily,as well as new tax exemptions and tax expenditures.These policies did not generate new economic activity and government revenue to offset their cost,however.Despite significant public investment,per-capita income growth in the deca

114、de leading up to the COVID-19 pandemic was anemic.Debt sustainability,which began to deteriorate in 2011,worsened as a result of shocks from the pandemic and Russias invasion of Ukraine,leading to the 2020 default and the IMFs intervention.Today,Zambias per-capita income is significantly below compa

115、rator countries(figure 1.1).Poverty has increased and afflicts almost two thirds of all Zambians,especially in rural areas.27 Agriculture,which employs most of the labor force(mostly on low-yield smallholder farms),is undiversified and has low productivity.On the positive side,Zambias resource endow

116、ments offer scope for attracting private investment.The country stands to gain from regional integration,especially once the Africa Continental Free Trade Agreement is implemented,facilitating expansion and diversification of exports.However,Zambias economy remains heavily dependent on mining(accoun

117、ting for 70 percent of foreign exchange,30 percent of government revenue and almost 80 percent of exports)which makes it vulnerable to shifts in global commodity prices.Likewise,exports remain concentrated in copper(figure 1.2).Source:World Bank,World Development Indicators.Figure 1.1 Zambias income

118、 per capita has lagged its peersGDP per capita,Zambia and peer countries,19922022(constant 2015$)BotswanaZimbabweKenyaEgypt,Arab Rep.ZambiaSri Lanka6,657.61,345.81,754.64,088.91,308.13,988.101,0002,0003,0004,0005,0006,0007,0001992202219922022199220221992202219922022199220224ZambiaCountry Private Sec

119、tor Diagnostic1.2 Financing for InvestmentFinancing for InvestmentReflecting an erosion of confidence in the management of economic resources as the debt burden mounted,foreign direct investment as a share of GDP declined sharply toward the the end of the last decade(figure 1.3 and table 1.1).From 2

120、013 to 2023,the majority of FDI went to metals mining,followed by building materials and renewable energy(figure 1.4).However,net foreign investment inflows declined from the 2010s average of 5.5 percent of GDP to a mere 1.0 percent of GDP in 2020.The decline was partly explained by a fall in invest

121、ment in copper mining,which resulted from lower global copper prices,frequent policy changes,and legal disputes that created uncertainty among investors.Moreover,uncertainty around the debt restructuring process led to a drop in investor demand for domestic government securities.Interest from foreig

122、n investors has begun to resurface,however.Foreign investment announcements28 reached$1.7 billion and$1.4 billion in 2022 and 2023,respectively,and FDI in 2024 is projected to reach 3.9 percent of GDP.Source:Atlas of Economic Complexity,Harvard Growth Lab.Note:Total exports of goods and services rea

123、ched$10.6 billion in 2021.Copper includes SITC codes 6821 and 2871;Ferro-alloys refers to SITC code 6716.Figure 1.2 Zambias export basket is highly concentratedShare of total exports of goods and services,2021(%)020406080100Copper67%Gold6%Precious andsemi-precious stones2%Travel and tourism4%Ferro-a

124、lloys1%Other goods andservices20%51 Country Context and Business EnvironmentTable 1.1 Macroeconomic indicatorsZambia201019(average)20202021202220232024(projected)GDP($,billions)24.218.222.129.128.225.9Real GDP growth(%)4.92.86.25.25.42.0PPP GDP per capita(constant 2021 international$)3,5573,4153,527

125、3,6113,719Investment(%of GDP)31.931.630.127.126.524.2Inflation(%,period average)8.815.722.111.010.915.0Fiscal balance(%of GDP)5.913.88.17.86.56.1Public debt(%of GDP)47.7140.0111.099.5127.3Current account balance(%of GDP)1.011.811.93.81.90.0Gross reserves($,billions)2.41.22.83.13.33.3Total reserves(i

126、n months of imports)3.32.54.43.23.84.2FDI net inflows(%of GDP)5.01.03.10.60.13.9Sources:World Bank,Macro Poverty Outlook database(October 2024);PPP GDP per capita is from World Development Indicators(WDI);fiscal balance and public debt data from IMF World Economic Outlook database(April 2024).Note:F

127、DI=foreign direct investment.Population(2023):20.6 million.Source:World Bank Macro Poverty Outlook database(October 2024).Figure 1.3 FDI declined steadily over the last decade Net FDI inflows,20002023 and 2024 projection(%of GDP)3.9%20246812102010201520002005202020243.4%6ZambiaCountry Private Sector

128、 DiagnosticDomestic firms have limited access to financing.International investors typically access financing from international sourcesespecially for mining or other export-oriented sectors where exchange rate risks are limited.But most domestic businesses rely on bank financing,and credit to the p

129、rivate sector falls short of regional comparators(tables 1.2 and 1.3).Domestic capital markets are in their infancy,with minimal issuance to date of corporate debt or equities,and they will take time to develop.Source:fDi Markets,Financial Times Ltd.Note:FDI data cover cross border investment in a n

130、ew physical project or expansion of an existing investment(both opened and announced investments).Joint ventures are only included where they lead to a new physical operation.Mergers&acquisitions(M&A)and other equity investments are not tracked.Figure 1.4 Foreign investor interest is concentrated in

131、 a few sectorsShare of cumulative FDI announcements,20132023(%)020406080100Food and beveragesMetals26%9%21%Building materials11%Renewable energy11%Communications22%Other sectors71 Country Context and Business EnvironmentTable 1.3 Access to international financingInternational corporate bond issuance

132、s(%of GDP)FDI flows(%of GDP)2022*5Y average10Y average2021*5Y average10Y averageZambia0.00.21.63.90.73.4RELEVANT COMPARATORSSub-Saharan Africa1.21.51.53.43.74.5Low-income countries1.00.91.13.13.34.5Emerging markets and developing economies1.52.72.63.23.53.9IDA countries1.02.02.43.74.14.4Source:Inter

133、national Finance Corporation.Note:IDA=International Development Agency.International corporate bond issuances(%of GDP)are below all comparator averages.FDI flows(%of GDP)are below all comparator averages.*Latest data.Table 1.2 Access to domestic financingDomestic credit to private sector(%of GDP)Ban

134、k credit penetration(%of GDP)Stock market2022*5Y average10Y average2022*5Y average10Y averageAverage no.of firmsStock market capitalization to GDP(%)Zambia12.714.015.310.011.011.923.0RELEVANT COMPARATORSSub-Saharan Africa21.822.222.120.420.320.175.157.0Low-income countries14.514.113.714.313.813.423.

135、0Emerging markets and developing economies40.141.640.137.338.637.4404.568.6IDA countries27.626.825.726.525.824.8141.015.7Source:International Finance Corporation.Note:IDA=International Development Agency.Domestic credit to private sector(%of GDP)is below all comparator averages.Bank credit penetrati

136、on(%of GDP)has fallen and is below that of all peer groups averages.*Latest data.8ZambiaCountry Private Sector Diagnostic1.3 Investment and Business Climate Investment and Business Climate Zambian firms point to unaffordable and limited financing,frequent policy changes that create uncertainty for f

137、irms and investors,an unreliable power supply,and pervasive corruption as the most pressing constraints to operating a business(figure 1.5),according to the most recent World Bank Enterprise Survey(2019).Barriers to accessing land are considered a deterrent to investment in agriculture,mining,and to

138、urism.Climate change has made drought more frequent and severe,29 impacting hydroelectricity generation(the major power source),disrupting business activity,and contributing to widespread crop failures and threats to food security.30State-Owned Enterprises(SOEs)exert a major influence in the energy,

139、mining,agriculture,banking,and communications sectors.SOEs are present in only 10 percent of sectors,a fraction lower than in most other countries in Sub-Saharan Africa,but the state has minority participation in 4 out of 10 sectors.31 The government is the sole owner of 25 parastatals through the I

140、ndustrial Development Corporation(IDC)portfolio,in which the IDC holds 60.7 percent to 100 percent of shares.32 Zambia Electricity Supply Source:World Bank,Enterprise Surveys.Figure 1.5 Access to finance,electricity,and corruption are major business obstaclesShare of firms that identify each factor

141、as the main business constraint(%)05101520253035Access to financeZambiaSub-Saharan Africa3121188843321ElectricityPractices of the informal sectorCorruptionTax ratesCustoms and trade regulationsPolitical instabilityTax administrationAccess to landLabor regulations91 Country Context and Business Envir

142、onmentCorporation Limited(ZESCO),for instance,has a significant impact on the energy sector and market competition in Zambia where its role in electricity generation,transmission,and distribution undermines competition in the energy market.Other major SOEs with a distorting effect on market discipli

143、ne include Zambia Telecommunications Company Limited(ZAMTEL),Zambia National Commercial Bank(ZANACO)and Zambia Consolidated Copper Mines(ZCCM).SOE guaranteed external debt was$1.6 billion,equivalent to 7.0 percent of GDP,at the end of 2023.33 Few Zambian parastatals pay dividends,suggesting relative

144、ly weak financial performance.34 and 35 1.4 Institutional Underpinnings for Private Sector DevelopmentInstitutional Underpinnings for Private Sector DevelopmentThe private sector in Zambia needs to contend with a legacy of weak institutions,corruption,poor policy predictability and weak governance.3

145、6 According to a summary measure across various sources,Zambia ranks in the lowest third of countries in terms of public policy effectiveness,regulatory quality,rule of law,and perceived corruption,all of which affect the efficient functioning of markets and firms(figure 1.6).37 Source:Kaufmann and

146、Kraay(2023).Note:For each governance dimension,the length of the axis reflects the percentile rank of a country relative to all other countries in the world.Government effectiveness:Quality of public services,quality of the civil service and degree of its independence from political pressures,qualit

147、y of policy formulation and implementation,and credibility of the governments commitment to such policies.Regulatory quality:Ability of the government to formulate and implement sound policies and regulations that permit and promote private sector development.Rule of law is the extent to which agent

148、s have confidence in and abide by the rules of society,as well as the quality of contract enforcement,property rights,the police,the courts,and the likelihood of crime and violence.Control of corruption refers to the extent to which public power is exercised for private gain,including both petty and

149、 grand forms of corruption,as well as“capture”of the state by elites and private interests.Structural peers consist of Angola,Botswana,Tanzania,and Zimbabwe;aspirational peers encompass Mauritius,the Philippines,Peru,and Thailand.Figure 1.6 Zambia lags country peers in several institutional dimensio

150、nsWorldwide Governance Indicators,Zambia vs.structural and aspirational peers,20222030405060Government efectivenessRegulatory qualityRule of lawControl of corruption27.832.133.134.4ZambiaStructural peersAspirational peers10ZambiaCountry Private Sector DiagnosticAgainst the backdrop of weak instituti

151、ons,new investments can exacerbate environmental,social and governance risks.Investments in mining,solar energy,agribusiness,tourism,if not well managed can negatively affect local communities,biodiversity,and natural resources including water.In some sectors such as agriculture and mining,child lab

152、or is widespread.38 The expansion of cultivated areas,mineral extraction,and associated water use may also affect biodiversity conservation and sustainable natural resource management.However,some activities(e.g.,ecotourism)can make preserving the countrys natural assets more attractive.Moreover,exp

153、anding power generation can improve access to basic services.Likewise,expanded agricultural production supports food security.1.5 Looking AheadLooking AheadFostering private investment will require public policy actions in several areas.Sector analysis in the following chapters reinforces the case f

154、or boosting access to reliable and cost-effective power,strengthening property rights over land,and reducing barriers to affordable financing.Likewise,regulatory and policy predictability needs to be enhanced,including to safeguard the environment and local communities.Addressing these constraints w

155、ill help Zambian firms realize profitable private investment opportunities,create jobs,generate domestic revenue to finance growth-enhancing spending,and boost inclusive and sustainable economic growth.2 Sector Investment Sector Investment OpportunitiesOpportunities12ZambiaCountry Private Sector Dia

156、gnosticThis Country Private Sector Diagnostic identifies policy actions that are needed to attract private capital to specific sectors and promote social and economic development in Zambia at large.A business environment conducive to private investment rests on foundations that benefit all sectors o

157、f the economy,but policy actions that are cross-cutting in nature often have a disproportionate impact on specific sectors.Moreover,specific industries and economic activities often face unique obstacles that keep private investors at bay.Therefore,while acknowledging the need to enhance the investm

158、ent climate in the economy as a whole,the report focuses on particular sectors and economic activities with investment opportunities that could underpin the countrys development.Although every effort was made to analyze available and newly collected information,sectoral analyses were undertaken agai

159、nst the backdrop of significant data limitations,which constrain analysis of demand,supply,costs,and economic impact.2 Sector Investment Sector Investment OpportunitiesOpportunities132 Sector Investment OpportunitiesThe report examines four sectors39 with the potential to attract private investment

160、and usher in developmental benefits:mining of copper and other critical minerals;renewable energy,with a focus on utility-scale solar generation;agribusiness,with an emphasis on the grain value chain(maize,wheat,soy);and business and nature-based tourism.40 The selection of sectors followed a rigoro

161、us process that included desk research,data analysis,internal consultations with World Bank Group experts,and in-country consultations.The process applied the following selection criteria:1 Potential to attract private capital for profitable investment in the next three to five years if constraints

162、are mitigated.2 Potential development impact,assessed by sector contributions to GDP,job creation,exports,diversification,and sustainability,among other factors.3 Feasibility of removing key constraints over the near term,taking into account the political,economic,and institutional context.Sector se

163、lection is not intended to be exhaustive.Entrepreneurs may well identify further profitable opportunities in other sectors.The focus here is on sectors where an identified constraint to private investment can feasibly be addressed by public policies.The recommended actions to ease the identified con

164、straints are not necessarily sufficient on their own.Rather,these are prioritized in the report as concrete,observable actions to be taken in the near term for meaningful impact.Their ultimate results for investment and job creation will require complementary reforms and capacity building,in some ca

165、ses extending beyond the next few years.Abundant mineral resources,along with anticipated growth in demand for energy transition minerals,have sparked investor interest in the mining sector.Revitalizing investment in mining would support economic activity beyond the sector,aiding the countrys macroe

166、conomic recovery through improved fiscal revenues and greater foreign exchange reserves.The alignment of investor interest and government priorities enhances the prospects for implementing reforms to facilitate mining investment.Investing in renewable energy,particularly solar generation,would benef

167、it from increased mining activity and rising electricity demand in Zambia and in neighboring countries.In addition,solar power would decrease the countrys reliance on hydropower,which has been disrupted by climatic shocks in recent years.The government acknowledges the vital role of solar energy,ech

168、oed by private stakeholders,especially mines,who emphasize the need for reliable electricity access.Agribusiness has drawn investor interest due to the countrys abundant arable land and potential access to regional markets.Domestic and regional demand for 14ZambiaCountry Private Sector DiagnosticTab

169、le 2.1 Sector selection criteriaSectorsPotential to attract investmentDevelopment impact potentialFeasibility of removing constraintsMining:Copper and other energy-transition mineralsAbundant mineral endowmentsRising global demand for energy transition minerals Expressed investor interest:FDI inflow

170、s are resuming.Established mining companies announced multi-billion investment plans in 2023 Bolstering economic recovery and investment in other sectors(e.g.,renewable energy).Improved fiscal revenues and foreign exchange reserves.Propping up energy transition in the region.Government commitment to

171、 expand copper extraction substantially.Renewable Energy:Utility-scale solar generationRising demand,both domestically and in neighboring countries.High level of private sector interest to develop IPPs.Multiple deals in pipeline.Diversify from increasingly variable hydropower.Guarantee supply to the

172、 mining sector and the broader economy.Position Zambia as regional electricity supplier.Willingness of government to institute reforms in the sector(e.g.,open access to the grid).Vision 2030 aspires for universal electricity access.Agribusiness:Grains value chain(maize,soya,wheat)Large tracts of ara

173、ble land,generally good access to water,and mostly good weather conditions.Technologically advanced farms are profitable and at the global frontier of productivity.Multiple private players shared detailed investment plans during consultation.Increase productivity and create jobs in rural areas.Impro

174、ve food security and boost climate resilience.Increase exports and foreign exchange reserves.Improve climate resilience.Willingness among government to support private players in agribusiness.Strong political presence of large players.Tourism:Conference and business(MICE)and Nature-based segmentsNat

175、ural and cultural endowments.Expressed interest from domestic and international investors.Job creation in the formal sector.Protection of natural assets(wildlife,forests).Increased service exports.Contribution to GDP and foreign exchange.Stable political environment.Business regulation is improving.

176、Prioritized in 8th NDP.152 Sector Investment Opportunitiesagricultural products is expected to continue growing.A more productive agricultural sector would help create better jobs,reinforce food security,and boost climate resilience.The governments interest in attracting private investors to the agr

177、icultural sector bodes well for the feasibility of reforms in the sector.Zambia boasts abundant natural and wildlife resources,a vibrant cultural heritage,and a stable political environment,making it a prime candidate for investing in the tourism sector.The sector has the capacity to create employme

178、nt opportunities and attract foreign capital,as highlighted in the 8th National Development Plan(NDP).Nature-based tourism and conference and business tourism41 show significant potential when compared to other countries in the region.The four sectors can attract additional private investment in res

179、ponse to actions by the public sector to alleviate identified constraints.For each sector,table 2.2 presents rough,scenario-based estimates of additional private investment and other impacts that could be unlocked through the recommended actions.These estimates are based on simplifying assumptions a

180、nd subject to great uncertainty.Private investment can engender synergies or positive spillovers across the selected sectors and beyond.Expanding mining activities would generate additional demand for solar energy.Conversely,the prospective availability of reliable energy sources can reassure invest

181、ors in the mining and other sectors.Raising agricultural productivity can help address food insecurity and improve standards of living in rural areas.Creating better-paid jobs,for example,in high-end nature-based and conference tourism,can smooth the transition to a more modern economy with a higher

182、 share of formal employment.16ZambiaCountry Private Sector DiagnosticTable 2.2 Potential increases in private investment and jobs,by sector*Potential cumulative investment and jobs created by 2030ApproachAssumptionsMining of copper and other energy transition minerals(manganese,nickel)Potential inve

183、stment:$6 billion to$18 billionPotential jobs:80,000 to 230,000 jobs(of which:10,00040,000 direct jobs;and 60,000180,000 indirect jobs)Estimated mining output in 2030,and corresponding capital investment,if a conducive business environment is in place.Estimates for indirect effects in mining are esp

184、ecially tentative.Maximum level of mining output by 2030:1.5 million metric tons,from its current level of 700,000 metric tons.$30,000 investment needed to produce an additional 1 metric ton of copper.Maximum investment consistent with the increase of 800,000 metric tons in output equal to$24 billio

185、n.Low and high estimates correspond to investment consistent with 25%and 75%of the maximum feasible mining output,respectively.Solar powerPotential investment:$0.4 billion to$1.1 billionPotential jobs:3,000 to 8,000Estimated investment in solar generation facilities that would be expected by 2030,ba

186、sed on historical performance.Expansion in solar installed capacity of 1,500 megawatt over the 202430.Required investment of$1 million per additional megawatt of installed capacity,or$1.5 billion total.Low and high estimates:25%and 75%of potential investment in solar generation.Agriculture:maize,soy

187、a,wheatPotential investment:$0.3 billion to$1.5 billion Potential jobs:20,000 to 60,000Modeled output to 2030,and corresponding capital investment required to meet projections,if driven by private investment into larger,more productive commercial farming operations.Increase in yields will be driven

188、by large commercial farms with capacity to invest in inputs,machinery,and irrigation for higher yields.Maize output to reach 4.3 million metric tons per annum by 2030,and continued increase in production of soya and wheat,with weather patterns returning to“normal”long-term trends,entering La Nia.Low

189、 and high estimates:$3,000 per hectare and$10,000 per hectare for land clearing and installation of irrigation to deliver the expected increase in production of all three crops.(Table continues next page)172 Sector Investment OpportunitiesPotential cumulative investment and jobs created by 2030Appro

190、achAssumptionsTourismPotential investment:$35 million to$100 milllionPotential jobs:2,000 to 6,000Estimated the number of hotels that would need to be built by 2030 to accommodate the increased number of international visitors that would occur if the sectors contribution to GDP were to reach the lev

191、el of regional peers.70%of new international tourists will use existing accommodation.Estimates based on data collected from sector participants for market structure and cost of construction for hotels of different sizes.Low and high estimates:25%and 75%of the maximum potential investments that are

192、estimated to occur for tourism GDP per international tourist to reach the 2023 level of its regional peers average by 2030.Note:Job creation estimates include both direct jobs,those created in the corresponding sector,and indirect jobs,those created in the rest of the economy.*See appendix A for det

193、ails.Table 2.2 Potential increases in private investment and jobs,by sector(continued)3 Mining of Copper Mining of Copper and Other Energy and Other Energy Transition MineralsTransition MineralsAT A GLANCE Copper mining has been the cornerstone of Zambias economy and can be profitably expanded,conta

194、ining environmental damage,ensuring local communities benefit,and giving Zambias treasury a fair share to finance public services.Large reserves of other minerals such as manganese and nickelglobally in high demand and critical for the green transitionoffer further opportunities for gains and divers

195、ification.To unlock these opportunities,geological mapping of prospective areas needs to be completed,and investors need to be reassured by a clear,stable,and transparently implemented regulatory and tax framework.Transport and power infrastructure investments are critical to enable mining of severa

196、l energy transition minerals.193.1 Sector Context and OpportunitySector Context and OpportunityMining,particularly copper,has been the backbone of the Zambian economy.The country is Africas second largest copper producer and ranks ninth globally.Mining accounts for approximately 15 percent of GDP,70

197、 percent of export earnings,and 44 percent of government revenues(largely through mining royalties and corporate income taxes).Zambia exported 0.7 million metric tons(MT)in 2023,accounting for 4 percent of global production.42 International mining firms produce over 75 percent of the countrys copper

198、.43 Zambia boasts high-grade copper deposits compared with other mining markets(average grade ore of 23 percent compared with a global average of 0.8 percent),providing a boost to firms profit margins.44 Zambian mines are overall cost competitive,with average cash cost in line with the global averag

199、e(figure 3.1).Although the sector accounts for only 2 percent of total employment,its employees earn well above the national average and thus contribute significantly to domestic consumption.45Spillovers to the broader economy have been limited,however.Mining has been low value-add and participation

200、 of domestic firms in mining-related activities marginal.Despite numerous initiatives to strengthen linkages between miners and local suppliers,46 domestic firms lack access to affordable financing and face competition from duty exempt foreign imports as well as foreign firms in in Zambias Multi Fac

201、ility Economic Zones.The report focuses on extraction and presents policy recommendations to increase private 3 Mining of Copper Mining of Copper and Other Energy and Other Energy Transition MineralsTransition Minerals20ZambiaCountry Private Sector Diagnosticinvestments within the near term,although

202、 Zambia has potential to expand on downstream activities over the medium to long-term.Zambias sizable reserves of other critical minerals for the transition to clean energy create potential opportunities for diversification and growth in the medium and long run.Beyond copper,Zambias production of ma

203、nganese and nickel has steadily increased in recent years(table 3.1).47 Since 2022,several international mining companies have announced new investments in Zambia,including$1.25 billion expansion of the Kanshanshi copper mine,and$2 billion expansion at the Lumwana copper mine.This is a significant r

204、amp-up from only$400 million of FDI announcements between 201519.48 New market entrants are growing in prominence,particularly in exploration through use of the latest A.I.technologies.New investments have been recently undertaken by companies from a wide range of countries,consistent with Zambias r

205、ise in attractiveness in this sector.49 Copper and energy transition mineral resources offer private investment opportunities across the value-chain.The government commissioned a pre-feasibility study in December 2023 on the lithium-battery value chain to determine how it can Source:S&P Capital IQ P

206、ro,2024.Note:“Cash cost”reflects short-run production costs and excludes sustaining capital and other amortized expenses.Kansanchi,Lumwana,Sentinel,and Chamibishi accounted for 73 percent of copper production in Zambia in 2023.Figure 3.1 Zambian mines cost structure can be lower than their global pe

207、ersCash cost for copper production,2024(cents per pound,2023$)Treatment,refiningand shipmentReagentsLaborRoyaltyEnergyOther onsite050100150200250Lumwana232Zambia(average)230World(average)200Sentinel(Trident)197Chambishi162Kansanshi244ZAMBIAN MINES213 Mining of Copper and Other Energy Transition Mine

208、ralsfacilitate and support private investors move up the value-chain from mineral extraction battery grade refining and processing cathode active mass and components electrodes manufacturing and cell assembly battery pack and module.50 It is generally recognized that such a move would require resour

209、ces and expertise,and that it would likely take many years.51 However,near-term opportunities exist in manufacturing of copper rods for the wire and cable industry and copper tubes for durable consumer goods.Realizing the announced investments and attracting additional private capital in value-added

210、 activities will require tackling the constraints identified in the following section.The energy transition and the pursuit of critical minerals have raised interest in Zambia from many stakeholdersprivate companies and government-related entities alike.A stable policy environment that is consistent

211、 and competitive for investors is necessary to realize the expressed interest by national and international partners in this congested space.Balancing the volume and complexity of incoming project deals and project execution may prove to be challenging given Zambias limited institutional and technic

212、al capacity.Table 3.1 Zambia critical mineral reserves,productionCommodityReserves in contained metal(million metric tons,last available)Production(metric tons)201820192020202120222023Copper64.0868,908789,942837,996803,747763,550698,566Manganesen.a.4,44815,90446,515132,241158,675171,066Nickel0.54871

213、,1103,2263,8344,0597,980Sources:Reserves from US Geological Survey;production from Zambia Ministry of Finance and National Planning Annual Economic Reports and consultation with the Presidential Delivery Unit.Note:A mineral resource is one of the first stages of defining mineable deposits,which mean

214、s that through sampling and other data geologists have found that there is something there that could possibly be mined or there is reasonable prospects for economic extraction.As a subset of these,a mineral reserve is what happens when enough studying and testing(with at least one preliminary feasi

215、bility study)has been done to determine that the mineral resource or part of the resource is reasonably economical to mine.Reserves will need to meet not only the requirements of geological certainty and economic viability but also accessibility based on legal permission to extract the mineral.Also,

216、reserves are dynamic,which means they may be reduced as ore is mined and(or)the feasibility of extraction diminishes,or more commonly,they may continue to increase as additional deposits(known or recently discovered)are developed,or currently exploited deposits are more thoroughly explored or new te

217、chnology or economic variables improve their economic feasibility.22ZambiaCountry Private Sector Diagnostic3.2 Constraints and Recommendation for Private InvestmentConstraints and Recommendation for Private InvestmentCONSTRAINT 1.Unclear and frequent policy changes with limited engagement with priva

218、te-sector stakeholders.A central policy issue for the government has been the level of state intervention needed to stimulate copper production.The overall design of Zambias fiscal regime alone is not a deterrent for investment,as Zambias statutory average effective tax rate on copper projects is lo

219、w to moderate relative to its peers(Bauer,2024).However,frequent policy changes can engender uncertainty for investors and risk creating perceptions of“resource nationalism.”The mining tax regime underwent 11 significant modifications in the past 19 years.52 The benefits from refining tax regimes ne

220、ed to be weighed against the costs of insufficient predictability.53 Likewise,weak transparency and insufficient engagement of stakeholders erode investor trust.This is most evident through the current Minerals Regulation Commission Bill,Local Content Regulations54 and the 2024 Critical Minerals(CM)

221、Strategy which are under review,but with little consultation with the industry.In June 2024 the Zambian Cabinet announced the establishment of a special purpose vehicle(SPV)to facilitate a minimum of 30 percent production sharing55 with little industry engagement.Policies that reduce investor certai

222、nty around the terms or duration of their investments into Zambia could quickly dissuade capital inflows.RECOMMENDATION 1A.A stable and predictable policy environment would attract new investments and retain existing ones.In the Commission Bill,clarifying(i)the lack of security tenure;(ii)definition

223、 of rights and obligations for both mining and non-mining rights holders;and(iii)the governments right to act in the public interest is imperative as it ranks high on decision criteria for investors.In the CM Strategy,review the adequacy of the proposed 1530 percent free carry rights56 and 30 percen

224、t production sharing mechanism in new greenfield exploration because it can be perceived by investors as signaling resource nationalism,thereby lowering investors confidence and negatively impacting future investment projects.The move towards Production Sharing Contracts(PSCs)through the new SPV als

225、o requires careful consideration.PSCs,though common in the petroleum sector,are absent in the mining industry,which is traditionally structured around royalties.Retaining cost competitiveness in PSC-based structures requires significant government resources with respect to oversight of the joint ven

226、ture,and in audit functions to ensure that costs of production being declared,including a fair return to capital,are accurate and that the amount of production share at any given point is correctly determined.Given that this is proposed in addition to applying the existing fiscal regime,it is crucia

227、l for the government to achieve sustainable revenue streams without jeopardizing investor confidence and private investments.233 Mining of Copper and Other Energy Transition MineralsRECOMMENDATION 1B.Zambia should also formalize a forum for policymaking discussions to improve accountability and enga

228、gement.In addition,policy making process needs to be evidence based and ensure that the regulatory impact assessment is done.This could be done by creating a technical advisory body and identifying relevant private sector stakeholders to be consulted on major regulations changes under consideration.

229、This taskforce could include organizations such as the Public Private Dialogue Forum(PPDF),the Zambia Chamber of Commerce and Industry(ZACCI)task force on Mining,and the Zambia Extractive Industries Transparency Initiative(ZEITI).CONSTRAINT 2.Limited geological data.Only 55 percent of the country ha

230、s been geologically mapped and the data is of low quality and outdated as the last airborne geophysical coverage on a national scale was done in the early 1970s.As a result,few large-scale mines have been developed in recent years.57 Analogue data has been digitized to produce an image of Zambias gr

231、oss geological architecture,however,the data has little benefit to investors as the granularity of information is not sufficient to allow firms to identify targets for further exploration investment.In August 2024,Zambia launched a nationwide high resolution aerial geophysical survey,which is expect

232、ed to pave the way for targeted exploration of mineral resources.RECOMMENDATION 2.Provide more comprehensive,up to date and publicly available geological information as well as conducting environmental sensitivity mapping could unlock Zambias resource potential.The Commission Bill should include a n

233、on-exclusive reconnaissance license to allow companies to collect geodata through remote sensing over large areas without the need to enter memoranda of understanding(MOUs)with the government,but with the requirement to submit the data to the government in a specified format which could be released

234、to the public after a brief period of confidentiality.This would ensure that the development of the mining sector isnt dependent on government spending on geological surveys.CONSTRAINT 3.Zambias mining licensing regime is opaque and results in delays that discourage further investments.Investors are

235、 faced with complex licensing and permitting frameworks,which involve interactions with multiple agencies and stakeholders.58 The licensing system also encourages hoarding and speculative behavior,according to the IMF(2023)Governance Diagnostic.59 For instance,the Ministry of Mines and Mineral Devel

236、opment(MMMD)does not regularly exercise its authority to cancel or suspend licenses that do not meet their workplan,limit number of exploration licenses that can be issued to“single entity”and has unclear definition of what is deemed a“single entity.”These inefficiencies lead to limited mining activ

237、ity,and hold back the discovery of new deposits,as well as new investment and production.6024ZambiaCountry Private Sector DiagnosticMany countries offer large-area authorizations allowing the license holder to gather so-called”reconnaissance,”that is,information useful to identify specific areas for

238、 more intensive follow-up.In Zambia,however,the collection of geological data over large areas is reserved to the state,unless under an MOU with the private sector.RECOMMENDATION 3A.The government should simplify licensing and permitting frameworks and speed up review and decision-making via amendme

239、nts to the draft Commission Bill,including requirements to:Actively consult communities,including gaining free prior informed consent(FPIC),before approval of new projects.Conduct environment and social impact assessments(ESIAs)consistent with international standards,prior to the approval of any lar

240、ge new mining license.Clarify the role of traditional chiefs in awarding mining licenses on customary-held land.RECOMMENDATION 3B.Licenses,underpinned by certainty of tenure,should be administered through a fully digital cadaster system to mitigate issues including encroachment and speculative hoard

241、ing.The cadaster system should be managed by MMMD and regulated by the Minerals Commission,and all workflows in the cadastre should be codified and provide specific(and limited)permissions to Mining Cadastre Office Officers based on their official roles,with unique login IDs.To receive a license,any

242、 exploration company should be technically competent,well-financed,and able to convert early-stage prospecting into projects with credible feasibility studies.Reports submitted to the cadaster should be digitalized and submitted through the portal which will track the timely delivery of reports and

243、payments.RECOMMENDATION 3C.Zambia should also standardize the concession period for exploration to 10 years in line with international standards,remove limits to the number of licenses companies can hold,accelerate a“clean up”of the cadaster,and only grant licenses and tenements to entities with tec

244、hnical and financial know-how of geological work.This will help shape the market and weed out speculators and corruption.CONSTRAINT 4.Current gaps in power and transport infrastructure reduce investment attractiveness and limit current and future production capacity.Unreliable and costly power hinde

245、rs productionmining uses more than half of generated power.Although Zambia has improved its road networks over the years,moving bulk cargo by road has been both costly and damaging for the roads.Recent announcements to revitalize railway corridors,if implemented,would help address key transport bott

246、lenecks.253 Mining of Copper and Other Energy Transition MineralsClimate shocks,sovereign risk ratings,and low institutional project management capacity exacerbate these issues and augment costs for firms.The large-scale infrastructure development currently planned within Zambia is unlikely to be la

247、rge and fast enough for the industry.Thus,mining companies are engaging directly with independent power producers(IPPs)to develop alternative supply during the current drought.61 RECOMMENDATION 4A.Review the adopted Public Partnerships Act of February 2024 to ensure it reflects international best pr

248、actices for procurement,selection and negotiation with a private developer.RECOMMENDATION 4B.Improve government capacity to prepare power supply and transmission projects.Put in place better coordination between the government and the private sector to ensure project success(see the discussion on so

249、lar power in the next chapter).RISKS TO BE MANAGED.Environmental management and compliance have been lacking.Although Zambia has an environmental regulatory framework to manage pollution risks(for example,water and air pollution,acid mine drainage,and soil degradation),enforcement has been limited.R

250、ecent class actions against Vedanta(2015)and by the Kabwe community against Anglo American on lead pollution(2023)exemplify these shortcomings.Zambian legislation requires mining companies to conduct Environment and Social Impact Assessments.However,insufficient consultation and inadequate data shar

251、ing have been an underlying cause of community grievances.62 Moreover,community rights violations stem from a lack of explicit requirements around community FPIC in Zambian law.Similarly,Zambia Environmental Management Agency(ZEMA)and the Mines Safety Department have limited financial and technical

252、capacity to meet international standards.The gradual transition to mandatory ESG reporting standards such as the European Unions Corporate Sustainability Due Diligence Directive will require Zambian producers to comply or face challenges in remaining integrated with global supply chains.Furthermore,

253、regulatory hurdles block full compliance with requirements to contribute to the Environmental Protection Fund(EPF).63 Cash contributions to EPF curtail investment by firms as it ties up their funds which could be used for growth.Therefore,companies prefer a cash-and-guarantee mix.Zambian law require

254、s the guarantee to be from a Zambian bank,but these do not have the balance sheets to guarantee such amounts,and using their balance sheets could crowd out opportunities for other lending.These risks can be mitigated by establishing a semi-autonomous Minerals Commission,including a Mining Appeals Tr

255、ibunal,to strengthen regulation,compliance,and enforcement,while avoiding political interference.The function of 26ZambiaCountry Private Sector Diagnosticombudsman could be part of the Mineral Commission Bill(for example,following Perus experience)to make it more responsive when institutions or regu

256、lations are violating firms or peoples rights.Zambia could also formalize ESG and social license to operate criteria into law and regulate performance via the Minerals Commission through industry reporting standards.This would help keep track of where minerals are coming from and improve community c

257、onsultation to get Free and Prior Informed Consent(FPIC)and ESIA before licenses are approved.Licenses would include clear roles for traditional leaders.Table 3.2 Priority policy recommendations for increasing private investment in miningConstraintsRecommended actionsUnpredictable policy changes und

258、ermine investment attractiveness and diminish mining sector competitiveness.Clarify in 2023 Mining Regulation Commission Bill issues relating to security of tenure,rights and obligations.Reassess 2024 Local Content Regulations and in Critical Minerals Strategy,the“free carry”and the proposal to capt

259、ure additional benefits through a minimum of 30%production through new mining special purpose vehicle(SPV).Fund establishment of a regulatory bodyMinerals Commissionto strengthen audit/compliance capabilities with placement of impartial technical mentors and provision of inception budgets.Responsibl

260、e government entities:Ministry of Mines and Mineral Development(MMMD),Ministry of Commerce,Trade,and Industry(MCTI),Minerals Commission,Zambia Chamber of Commerce and Industry,Zambia Development Agency(ZDA),Zambia Revenue Authority(ZRA),Industrial Development Corporation(IDC).Poor and inconsistent a

261、pplication of ESG standards exposes producers and buyers to reputational and due diligence risk and disincentivizes investment.Land-related laws are not harmonized across ministries.Formalize ESG-social license to operate criteria into law and regulate performance via Mineral Commission by adopting

262、industry reporting standards,better tracing mineral provenance and improving community consultation to gain Free Prior and Informed Consent(FPIC)and ESIA prior to the approval of licenses,with a clarified role for traditional leaders in the award.Remove constraints to the operationalization of the E

263、nvironmental Protection Fund(for mine closure)and link compliance with the fund to any direct or indirect license transfers.Responsible government entities:MMMD,Zambia Environmental Management Agency(ZEMA),Department of Geological Survey(GSD),Minerals Commission,and ZDA/ZRA.(Table continues next pag

264、e)273 Mining of Copper and Other Energy Transition MineralsConstraintsRecommended actionsAbsence of reliable,high-resolution geological survey data.Licenses bought for prospecting/speculation,over existing license areas.Digitize current Geological Survey Data records and collect new geodata and envi

265、ronmental sensitivity mapping and disseminate to garner interest from exploration.Upgrade to a digitally driven cadastre management system managed by MMMD and regulated by Minerals Commission.Standardize exploration rights concession periods to 10 years in line with international standards.Remove li

266、mits to number of licenses companies can hold.Accelerate a“clean up”of the cadastre and create criteria to qualify future issuance of licenses and tenement to entities capable of financing geological work to shape the market and weed out speculators and corruption.Introduce a non-exclusive reconnais

267、sance license to allow companies to collect geodata through remote sensing over large areas without the need to enter MOUs with the government,but with the requirement to submit the data to government in specified format which could be released to the public after a brief period of confidentiality.R

268、esponsible government entities:GSD,MMMD,Minerals Commission.Table 3.2 Priority policy recommendations for increasing private investment in mining(continued)4 Solar Power Solar Power AT A GLANCE Zambias energy generation is almost entirely from hydropower,but with rising incomes domestic demand is al

269、ready outstripping this source.Increasingly frequent,climate-change-related droughts are making diversification a priority.Solar power is the least-cost power generation source and a good complement for hydro.Bordering on several growing economies,Zambia has potential to increase energy exports to t

270、he region by expanding solar power generation.Investor confidence would be supported by clear and stable regulations,and transparent procurement processes.State-owned electricity company ZESCOs financial viability needs to be addressed,including by setting tariffs that are cost-reflective,to make it

271、 a credible offtaker.294.1 Sector Context and OpportunitySector Context and OpportunityGrowing demand for electricity,both domestically and in the region,necessitates further investments in Zambias energy sector.Currently,only 48 percent of households64 have access to electricity and residential dem

272、and is expected to increase as incomes rise.Official projections in the Integrated Resource Plan for the Power Sector in Zambia(IRP)65 foresee rapid energy demand growth in the next decade and beyond(table 4.1).Such projections are a“best-case scenario”based on optimistic assumptions about economic

273、prospects and the pace of electrification in agriculture(Ministry of Energy of Zambia,2023).They also include a favorable scenario for the mining sector.Even with lower energy demand growth,however,hydropower would struggle to keep pace,because it already falls short of domestic demand.Neighboring c

274、ountries will be an additional source of demand growth,giving Zambia the chance to capitalize on its geographical location to serve as an electricity hub for the region.Zambia is a member of the Southern Africa Power Pool(SAPP),alongside 11 other countries in the region which absorb most of Zambias

275、electricity exports.66 These rose to$397 million in 2023 from$87 million in 2019.Growing incomes and expanded electrification in SAPP countries will translate into greater electricity consumption,boosting the market for Zambias exports(table 4.1).67 Transmission interconnector projects underway in t

276、he SAPP regionsuch as the Tanzania-Zambia Transmission 4 Solar PowerSolar Power30ZambiaCountry Private Sector DiagnosticInterconnector and the Zambia-Mozambique Interconnection projectswill facilitate Zambias access to regional electricity markets.Although the power generation segment is currently c

277、oncentrated,open access to the grid for independent power producers would attract private investors.ZESCO,the public power company,is the dominant player,with a share of 81 percent,followed by Maamba Collieries Limited(MCL)with an industry share of 7.9 percent.With the commissioning of 94 MW of sola

278、r generation and the existing gas turbine alternators(GTAs),Copperbelt Electric Company(CEC)comes in third with a share of just over 3 percent.The participation of private independent power producers(IPPs)in the power sector would be enhanced once an open access framework is fully put in placeinclud

279、ing unbundled network tariffs,clear and consistent market rules,and revisions to grid codeallowing IPPs to use transmission and distribution infrastructure on a non-discriminatory basis.That would allow IPPs to engage in power trading with private offtakers,without ZESCO acting as the sole offtaker.

280、Solar photovoltaic(PV)power is emerging as the most cost-effective source of generation.Solar installations are the least costly and have the shortest lead times among power generation sources(table 4.2).For example,relative to coal generation projects,solar generation installations are less costly(

281、$1.01 million per MW versus$1.07 million)and have a significantly shorter lead time(2 years vs.5 years).As is well known,Table 4.1 Zambias energy market investment outlook:energy demand,20202050(GWh)Consumption sectors2020Projections2026203020402050Agriculture2522609,51916,10224,869Mining6,5699,7471

282、3,12714,85315,009Residential4,6185,6056,7048,64711,535Other sectors4,0364,6768,19511,31215,575Exports1,2102,6284,3808,7608,760Total demand16,68522,91641,92559,67475,748Source:Ministry of Energy of Zambia(2023).Energy Regulation Board(ERB)of Zambia(2024);Deutsche Gesellschaft fr Internationale Zusamm

283、enarbeit(GIZ)GmbH(2023);Mubanga(2009),and Lunsemfwa Hydro Power Company Limited,https:/.zm/about/.314 Solar Powercompared with coal,solar does not generate greenhouse gas emissions,nor does it harm the local population with pollutants,such as sulfur dioxide,nitrogen oxides,particulates,mercury,lead

284、and other heavy metals.68 Furthermore,solar PV generation is a good complement to hydro,whose level of output does not depend on the time of day or the weather.With growing demand and changing climatic conditions,Zambia will need to shift from its traditional reliance on hydroelectric power to a mor

285、e diversified generation mix.At present,hydropower generation,which represents 82 percent of the total,usually exceeds demand in normal rainfall seasons.However,supply constraints caused by seasonal fluctuations have often resulted in winter load shedding.The severe drought that affected the country

286、 during the 20232024 summer season underscores the need for Zambia to seek additional power sources.Large-scale solar PV plants in Zambia will complement existing and future hydropower plants by conserving water in the countrys main reservoirs during periods of sunlight and utilizing this banked ene

287、rgy when solar PV power generation is unavailable or insufficient,with potential future large-scale battery energy storage system(BESS)additions.Table 4.2 Zambias energy market investment outlook:investment profile for on-grid generation expansion for 20232030(2021$prices)Investment by generation te

288、chnologyCapital cost($,millions per MW)Construction lead time(years)Installed capacity(MW)Investment($,millions)June 20232030(projection)Hydro storage002,5582,5580Hydro(run-of-river)1.2835892,7942,827Thermal-steam 1.0754351,035643Solar PV1.0121232,0831,970Wind1.29301,1921,534Geothermal1.60403048Biom

289、ass0.6340321202Total3,70510,0137,224Source:Ministry of Energy of Zambia(2023).Energy Regulation Board(ERB)of Zambia(2024);Deutsche Gesellschaft fr Internationale Zusammenarbeit(GIZ)GmbH(2023);Mubanga(2009),and Lunsemfwa Hydro Power Company Limited,https:/.zm/about/.Note:Overnight cost,expressed in b

290、ase-year dollars and as such does not include escalation during construction or interest during construction.32ZambiaCountry Private Sector DiagnosticUnder a more conservative scenario for growth in energy markets than that used in the IRP,investments in solar generation on the order of$1.5 billion

291、would seem feasible.A scenario prepared for this report suggests that 1,500 MW of installed capacity could be added in the form of solar generation by 2030(compared to the 2023 total of about 3,705 MW from all sources;table 4.2).This would be equivalent to investments on the order of$1.5 billion,alt

292、hough subject to high uncertainty.Such scenario is based on conservative assumptions that consider historical performance and capacity installation trends;sector-specific growth projections;project lead times for different technologies,including installation and commissioning periods;seasonal variat

293、ions in electricity generation across different technologies;technology-specific factors(e.g.,prioritization of sustainable and lower-emission technologies while constraining the growth of coal generation due to its adverse environmental impacts),among others.The scenario was informed by stakeholder

294、 consultations(IPPs,government officials,and industry experts).The electricity sector suffers from inadequate transmission and distribution infrastructure that constrain embedding renewable energy into the Zambian grid.Transferring electricity generated from distant renewable energy sites(such as so

295、lar or wind farms)to load centers or urban areas can be challenging as transmission lines and substations are already operating at or near their maximum capacity.In addition,grid stability and reliability are often an issue.Thus,introducing intermittent renewable energy sources like solar and wind c

296、an affect grid stability and reliability,especially if the grid is not equipped with sufficient balancing mechanisms(such as energy storage or flexible generation capacity)to manage fluctuations in supply and demand.Electricity sector reform has progressed slowly without consistent political support

297、.In 2019,the government approved new policies and a revised Electricity Law but the envisaged increase in private sector participation has yet to materialize,except for small import deals organized by traders.Although the eventual resolution of Zambias debt renegotiation would be viewed favorably by

298、 investors,ZESCOs weak financial position would continue to affect its ability as an effective offtaker for solar IPPs.Implementing the agreed revision in ZESCO retail tariffs for the period 20232027 would improve its financial situation.Zambias macroeconomic uncertainties have discouraged investmen

299、ts in the energy sector.For instance,projects under the Scaling Solar and the Global Energy Transfer Feed-in Tariffs programs,in which ZESCO would have been the offtaker,were suspended or delayed because ZESCOs financial position required stringent payment security mechanisms and credit enhancements

300、.In addition,lack of an effective Kwacha-US dollar hedging mechanism and rising US dollar funding costs negatively affect investment in solar projects.Increased access to long-term finance and new currency hedging instruments to facilitate investment in solar generation projects could help.334 Solar

301、 Power4.2 Constraints and Recommendations for Private Investment Constraints and Recommendations for Private Investment CONSTRAINT 1.Ineffective stewardship of the electricity sectorunclear regulation,insufficiently transparent processes,and inadequate institutional capabilitiesundermines investor c

302、onfidence.As discussed,the current Integrated Resource Plan(IRP)2023 displays ambitious timelines and projected power installations,premised on optimistic assumptions,such as the rapid financing and commissioning of new coal-fired power stations.However,the absence of more realistic projections affe

303、cts the ability to plan investment projects in the energy sector.Investors may also be deterred by the lack of transparent processes to award contracts and standardized rules applicable to all independent power producers.ZESCOs recent announcements of Memoranda of Understanding(MoUs)with internation

304、al developers have yielded few instances of financial closure.Furthermore,the perception that ZESCO allocates projects to a predetermined list of awardees,before procurement processes commence,generates mistrust among investors.Access to the public grid by IPPs is also affected by the absence of rul

305、es to govern the sector,including transparent unbundled transmission and distribution charges.The government announced a new market design early May 2024,but it was not published.In July 2024,the government published open access regulations that could be considered a first step.There remain pending

306、reforms to have separate accounting for each of ZESCOs businesses,new unbundled published network tariffs,the development of market rules,revisions to the grid code,among others.Many of these reforms are to be led by the regulator.RECOMMENDATION 1A.Update official forecasts in the Integrated Resourc

307、es Plan(IRP)2023,based on more conservative and realistic assumptions,so that the IRP serves as a credible guide for sectoral policy and private investment decisions.RECOMMENDATION 1B.Separate accounting of ZESCOs generation,transmission,and distribution activities,to improve transparency,financial

308、management,and regulatory compliance.RECOMMENDATION 1C.Establish transparent rules on open access to the transmission grid to streamline project development and competition,reducing reliance on individual agreements with ZESCO.The implementation of open access regulation published in July 2024 is at

309、 an early stage.There is a need to implement the rules,tariffs and guidelines envisioned by the regulation.69 That would streamline project development and competition,reducing reliance on individual agreements with ZESCO for access to the grid.Bilateral contracts between IPPs and customers could be

310、 executed independently under open access,further enhancing transparency and encouraging increased project 34ZambiaCountry Private Sector Diagnosticdevelopment while driving down tariffs.It is likely that ZESCO,or potentially an unbundled ZESCO distribution entity or a future transmission system ope

311、rator,akin to South Africas recently established National Transmission Company,also would also need to procure additional energy from various technologies through competitive tender processes.Moreover,leveraging access to the Southern African Power Pool(SAPP)as an avenue to sell energy on a short-te

312、rm basis would de-risk renewable energy projects by connecting them to a larger market.Specific and concrete recommendations can be adopted in the near term to attract private investment into utility-scale solar generation(table 4.3).Nevertheless,sustained political will and a broader set of complem

313、entary actions will be needed for several years to achieve solar powers full potential.This includes reforms to ZESCO including addressing its precarious financial situation and the larger macroeconomic challenges.There is also a need for training to raise the capacity of the Energy Regulation Board

314、(ERB)and its staff,in particular in the area of market rules and unbundled tariffs,and in the alignment with international norms and Southern Africa Power Pool rules.Table 4.3 Priority policy recommendations for increasing private investment in solar powerConstraintsRecommended actionsThe current In

315、tegrated Resources Plan(IRP 2023)is overly optimistic.Perception that certain IPPs have been“pre awarded”potential ZESCO tenders(public announcements of signed MOUs)discourages interest from a wider pool of potential investors.Need for implementation of the open access regulation.Specifically:Future

316、 market design Development of market rules Linkage to SAPP Unbundling of network tariffs Revised grid code(including rules to connect to the grid)Update the existing IRP and supporting documentation based on realistic demand forecast assumptions to 2040.Adoption by ZESCO of separate accounting for g

317、eneration,transmission,and distribution businesses,to improve transparency,financial management,and regulatory compliance.Adoption and implementation of market rules,unbundled network charges,and revisions to the grid code to operationalize open access to the grid to foster greater IPP participation

318、 in generation:including transmission charges(wheeling tariffs),unbundling of tariffs,balancing agreement for the complement of energy activities.Responsible government entities:Ministry of Energy,Ministry of Finance,ZESCO and ERB.5 Maize,Wheat,SoyaMaize,Wheat,SoyaAT A GLANCE Domestic and regional d

319、emand for agricultural products will be strong for years to come.Beyond maizethe traditional staplewheat and soy offer opportunities for profitability and diversification.Agri-climatic conditions are ideal,and Zambias most advanced farms are profitable and at the global frontier of productivity,wher

320、eas myriad small,household-level farms with little access to finance and other inputs operate at subsistence levels.Large tracts of arable land are potentially available through government initiatives.Reforming agricultural subsidies,dismantling export bans,and deepening access to finance would corr

321、ect market distortions and channel investment to the sector.36ZambiaCountry Private Sector Diagnostic5.1 Sector Context and OpportunitySector Context and OpportunityWith ample fertile land,favorable agri-climatic conditions,and strong demand,Zambia has potentially profitable opportunities for expand

322、ing production through private investment.Facilitating greater private investment can be achieved by improving access to new tracts of land to establish large commercial farms with irrigated,year-round crop production.For the agriculture sector to have a transformative impact on the economy and deli

323、ver more and better jobs for Zambians,attracting greater private investment will be critical.More than 2.3 million households rely on agriculture for their livelihoods,providing 22 percent of jobs nationwide and more than 50 percent in rural areas.Most of these jobs are seasonal,temporary,and inform

324、al;in 2022,just under 10 percent were formal.70 Another 2 million Zambians classified as outside of the labor force rely on farming or fishing for subsistence.Indeed,most Zambian households farm to feed themselves and only sell products when they have an available surplus.Maize,as the countrys prima

325、ry source of nutrition,is grown by more than 98 percent of smallholder farming households.The wider agribusiness sector contributes roughly 6 percent to Zambias annual GDP through production,processing,and manufacturing.The primary agricultural exports are tobacco and sugar,followed by maize flour,s

326、oya oilcake,and soya beans,5 Maize,Wheat,Maize,Wheat,SoyaSoya374 Maize,Wheat,Soyacontributing a significant source of foreign currency.Maize and maize seed have also been significant exports at times but are often limited by export restrictions and policy uncertainty.The bulk of agricultural exports

327、 are to neighboring countries,especially the Democratic Republic of Congo,although some products,like tobacco and coffee,reach European markets.Farming can be a highly profitable venture in Zambia,but not all farmers have the necessary means to develop a successful commercial operation.Zambia is hom

328、e to roughly 1,300 large commercial farming operationssome boasting world-class yields,driving strong profit margins.These large commercial farms(LCFs)produce for both the domestic market and exports.With modern irrigation and access to financing,these farms are more productive and more resilient to

329、 weather and economic shocks.In contrast,the overwhelming majority of small-scale farms(SSFs)are not profitable and remain vulnerable to shocks.More than 90 percent of farms are smaller than 2 hectares.With limited land and few means to increase productivity,most farmers live below the poverty line.

330、Based on data from the World Banks 2024 Country Economic Memorandum(World Bank,2024a),at current prices and productivity levels,a married Zambian farmer would need 7.5ha to produce enough maize for the couple to live above the$1.90/day poverty line.Developing large farming projects in Zambia is also

331、 capital intensive,and accessing finance is often prohibitive for the private sector.Less than 3 percent of Zambian farmers borrow money from a commercial bank to finance capital improvements for productivity and expansion.71 Commercial credit to the sector has been declining,accounting for less tha

332、n 10 percent of total credit in 2023with only 1 percent going to small and medium-sized agribusinesses.New government initiatives like the Sustainable Agriculture Financing Facility(SAFF),introduced in 2023 and supported by the Zambia Credit Guarantee Scheme,have shown promising initial results.72 A

333、lignment and coordination of financial support schemes will need to continuean objective of the Comprehensive Agricultural Transformation Support Program(CATSP)73 officially adopted in 2024,to further support the National Agricultural Policy 20122030 and to advance objectives last outlined in the National Agriculture Investment Plan 20142018.Although investment in crop productionespecially greenfi