Zambia WT/TPR/S/106
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IV.  trade policies by sector

(1)  Overview

  1. The Zambian economy has traditionally been dominated by the mining and quarrying sector, centred around copper. Difficulties in the sector have led to the improvement of incentives for investors and have caused Zambia to realize the necessity of diversification. This necessity was confirmed in the 2001 decision by the Anglo-American Corporation (the major asset owner in the sector following privatization) not to provide additional funding to the Konkola Copper Mines. Faced with the continued decline in copper production, and noting that its efforts have fallen short of the annual growth target of 20% for non-traditional exports, the Government took steps in its 2002Budget Speech to enhance measures aimed at diversifying its economy away from copper.
  2. Full implementation of the 2001 Export Processing Zone Act is expected to promote investment in export-oriented manufacturing companies. The manufacturing sector is still dominated by small-scale industries producing for the domestic market. The ongoing tariff rationalization is intended to contain production costs and the need for duty concessions. However, for sectoral integration purposes, the eligibility of inputs for tariff reduction is carefully analysed.
  3. Zambia has a large potential in agriculture. However, financial constraints have delayed the development of this sector, which still shows the lowest productivity in the economy. Cultivation is based on traditional methods, hoe in particular, and the sector is dominated by rain-fed activities. Therefore, performance is subject to weather conditions. In forestry, the ban of log exports on environmental grounds seems inconsistent with the relatively high customs tariffs imposed on imports of forestry products. Agriculture is promoted on food security and poverty-reducing grounds, and as a non-traditional sector.
  4. In terms of contribution to real GDP, services constitute Zambia's largest sector. Renewed attention is being shown to tourism and transportation services. Awareness of the importance of telecommunications services to other economic activities led to the adoption of a Telecommunications Act in 1994. However, the restructuring of Zamtel, the State-owned de facto monopoly supplier of fixed telephone services, has not yet taken hold. Under the General Agreement on Trade in Services (GATS), Zambia bound, without limitation, measures affecting consumption abroad, cross-border supply, and commercial presence for a limited range of services. Moreover, GATS-based initiatives are under consideration within SADC to liberalize regional trade in services.

(2)  Agriculture and Related Activities

(i)  Main features

  1. Zambia normally has a good climate, abundant arable land and labour, and good water resources. Between November and April, Zambia receives good rainfall, which ranges from 650 mm in the southern part of the country to 1,800 mm in the north. The rainfall pattern provides the country with three agro-ecological regions, which are suited to the production of a wide range of crops, livestock, and fish.[1]
  2. Currently, only 14% of the total arable land of 42 million hectares is used for agricultural production. The underground water, rivers, dambos, and lakes provide the country with significant irrigation potential of 500,000 hectares, of which only 65,000 hectares (13%) is developed. The sector continues to rely on rain-fed activities and therefore, Zambia sometimes experiences weather-induced variations in production.
  3. Zambian agriculture has three broad categories of farmers: small-scale, medium, and large-scale. Small-scale farmers are generally subsistence producers of staple foods with occasional marketable surplus. Medium-scale farmers produce maize and a few other cash crops for the market. Large-scale farmers produce various crops for the local and export markets (Table IV.1).

Table IV.1

Characterization of Zambian Agriculture, 1999

Characteristics / Small scale / Emergent / Medium scale / Large scale /
Number of farmers / 459,000 / 119,200 / 25,230 / 740
Area per holding (hectares) / 0.5-9.0 / 10-20 / 20-60 / >60
Crops grown / Food crops / Food/Cash crops / Food/Cash crops / Cash crops
Production focus / Subsistence / Commercial/ Subsistence / Commercial/ Subsistence / Commercial

Source: Information provided by the Zambian authorities.

  1. Zambia produces a variety of crops. The dominant food crop is maize; other food crops include wheat, rice, sorghum, millet, cassava, groundnuts, soyabeans, and mixed beans. The main cash crops are: floricultural and horticultural products, coffee, cotton, tobacco, sugar, sunflowers paprika, and fresh vegetables. The under-developed livestock, fisheries and forestry sub-sectors have shown little improvement since 1996. Cattle remains the most important livestock activity in Zambia. Small ruminants, pigs, and poultry are also kept.
  2. Agriculture, livestock, fisheries and forestry account for about 17% of real GDP and some 39% of earnings of non-traditional exports. Small-scale farmers hold nearly two thirds of agricultural land and a large share of the national herd; they rely largely on hoe cultivation and generally lack access to irrigation. Export crops are mainly grown by emergent, large- and medium-scale farmers, who are also maize producers and use modern methods. Some commercial farmers are involved in fishing activities, however this remains mainly in the hands of artisanal fishermen.
  3. The major concern is that the number of households in the small-scale category has been increasing while the numbers of medium- and large-scale farmers have remained unchanged.[2] This indicates that agricultural policies have not been effective in increasing the number of farmers in the medium and large-scale categories. The full exploitation of Zambia's under-utilized resources should offer the country many alternatives for diversifying the economy away from mineral production (copper and cobalt in particular) and increasing agricultural production, thereby contributing to poverty reduction and national economic growth.
  4. The problem of HIV/AIDS is rapidly becoming a major constraint to the agriculture sector. The disease has a negative impact on agricultural production in that it debilitates productive labour. The Government is trying to address this problem through preventative efforts and other approaches, including animal draught power and conservation farming. [3]
  5. Zambia's agriculture remains highly vulnerable to unfavourable weather conditions, and it has been severely affected by drought in recent years, most recently in 2002. A major effort has been made to build up the livestock herd (also frequently affected by diseases), a significant proportion of which died during previous droughts. Unfortunately, poor road infrastructure, limited credit facilities for small-scale farmers, high nominal interest rates, and the narrow range of export crops continue to affect agricultural performance.

(ii)  Policy developments

  1. In early 2002, Zambia reviewed developments in its economy and noted the failure of its agricultural policy to enhance food security on a sustained basis. This was attributed to inability to harness abundant water, arable land, and human resources. Agriculture is now considered as the prime engine for achieving broad-based economic growth and poverty reduction.[4]
  2. The draft National Agricultural Policy (2001-2010) continues the Government's previous emphasis on liberalizing the agriculture sector and promoting private-sector participation in production, marketing, input supply, and credit.[5] However, as the vast majority of smallholder farmers are poor and need credit for their development, the Government decided to provide credit directly primarily for the purchase of fertilizer. The programme is not yet in place, but its goal will be to encourage small-scale farmers to become medium-scale producers.
  3. Between 1996 and 2001, the development of the agriculture sector was coordinated through the Agricultural Sector Investment Programme (ASIP). While ASIP provided a foundation for the development of the sector, goals were not met, due largely to an unfavourable macroeconomic environment, inadequate resources, poor agriculture infrastructure, and slow private-sector response. In sum, in spite of the huge potential and past interventions, the agriculture sector has not been making a significant contribution to poverty reduction and overall growth of the economy. As part of the government's Poverty Reduction Strategy Paper (PRSP), it was determined that, to meet the target of reducing poverty to 50% of the population in 2004 (from 72.9% in 1998), major attention would be given to agriculture. The result was the creation of an Agriculture Commercialisation Programme (ACP).[6]
  4. The ACP is to focus on increasing income generation through farming and to target government efforts on farmers aspiring to commercialize their activities. The key operational principles for ACP will include a special focus on market linkages and commercialization as well as building a culture of business entrepreneurship and ethics among players in the sector. The main target group is commercially oriented farmers, particularly small-scale farmers.

17.  As part of its Poverty Reduction Strategy exercise, the Government intends to place agriculture as the leading sector for food security, economic growth, and poverty alleviation. In so doing, the Government has slightly revised the objectives of the agricultural policy in place in 1996. The current objectives are to: (a) ensure national and household food security through dependable annual production of adequate supplies of basic foodstuffs at competitive costs; (b)contribute to sustainable industrial development by providing locally produced agri-based raw materials; (c)increase agricultural exports, thereby enhancing the sector's contribution to the balance of payments; (d) generate income and employment through increased agricultural production and productivity; and (e) ensure that the existing agricultural resource base is maintained and improved upon.

18.  In recent years, to achieve its agricultural objectives, the Government has relied on the private sector, mainly large-scale commercial farmers. For this, it is seeking to attract additional investment in agri-processing and in commercial farming. Incentives available for agriculture include: duty-free imports of agriculture machinery for investment certificate holders; in rural areas, an enterprise holding an investment certificate pays one seventh of the normal 35% corporate income tax in its first five years of operation; 15% income tax on export earnings; dividends payable to farmers are tax exempt for the first five years of operation; 15% income tax on farming profits; capital expenditure on farm improvements qualify for an allowance of 20% per annum for each of the first five years; customs duty on agricultural inputs such as bovine semen, animal embryos, and fish has been eliminated; customs duty on greenhouse plastic sheeting, tubes, and hollow profiles has been reduced from 25% to 15%; customs duty on the medium used for growing roses has been removed; customs duty on cold-room equipment has been reduced from 25% to 15%; full allowance for outlay on land development, conservation, and other costs; "substantial" rate of depreciation to allow farm machinery to be rapidly written off against tax; and "special development allowances" for growing certain crops such as tea, coffee, bananas, and citrus fruit.

19.  The PRSP process has focussed on the need to pay closer attention to the vast majority of farmers, who are small-scale producers. This process identified shortcomings in the agricultural liberalization programme in operation since 1989, which has removed quantitative restrictions on imports, eliminated subsidies and monopoly marketing boards for both agricultural inputs and products, and deregulated prices. However, little was done to help the private sector fill the vacuum left by the boards. Three main areas of policy weaknesses and constraints have been identified: the rapid pace of policy reform without transitional measures to mitigate the change; inadequate resource allocation for agricultural services; and unclear and inconsistent policy statements from politicians.[7]

  1. There has been some improvement in promoting private-sector participation in agriculture and improved private/public-sector partnership. The main remaining problems include: poor infrastructure, such as roads, bridges, and lack of storage facilities; lack of or poor access to credible marketing institutions; inadequate credit facilities; low priority given to agriculture as reflected in budgetary allocation to this sector; low output and high input prices; poorly implemented agricultural policies; macroeconomic instabilities, reflected in high inflation and high interest rates; and poorly remunerated staff and lack of incentives for field staff.

21.  The drought situation in 2002 reached crisis proportions, with the Government declaring a national food disaster in May. Domestic stocks were expected to be depleted by September. This clearly indicates the failure of previous efforts to protect against such a situation.

22.  Tariffs remain the main trade policy instrument in the sector. The maximum tariff rate of 25% applies to some 60% of the tariff lines in the sector (up from 56% in 1996); for instance, imports of tobacco and logging products. Food, excluding cereals, is subject to relatively high rates of 15% or 25% (ChartIV.1). The average applied rate for agriculture (Major Division 1 of ISIC Revision 2) is 18.7% (up from 18.2% in 1996), with a standard deviation of 9.4%; the overall average rate is 13.4%. Like other WTO Members, Zambia has bound all its tariff lines in agriculture; a ceiling binding of 125% is applicable to about 97% of lines (ChapterIII(2)(iii)(a)).

23.  An import permit is required for agricultural products; according to the authorities, this measure is for sanitary and phytosanitary reasons and for statistical purposes. An export permit is also required. Exports of certain logs are banned. The Minister of Agriculture and Cooperatives has the authority to issue a Statutory Instrument to restrict the export of grain and grain products. This might be done if there are national food shortages. Currently, an export ban applies to maize, millet, sorghum, and related brans.

(iii)  Policy by key product category

(a)  Maize and other food crops
  1. Maize, as a staple food crop in Zambia, has historically occupied more than 60% of the cultivated area. However, this proportion has fallen in recent years due to government efforts to encourage crop diversification, a decline in profitability, and poor weather.[8] Like most other crops, its yields are traditionally low, and fluctuate from year to year (TableIV.2). Maize has received most of the benefits of agricultural research. Small-scale farmers account for a large share of the crop, but they generally lack irrigation capability, so the production is largely rain-fed. This makes the country extremely vulnerable to swings in rainfall, such as the heavy rainfall in 2001 and drought during2002. In 2002, as a result of the serious food shortage, the Government is planning to encourage large-scale farmers to produce maize under irrigation in order to increase local production.

Table IV.2

Production of selected crops, 1998-01

(Kg.)

/ 1998/99 / 1999/2000 / 2000/01 /
White maize / 9,471,944 / 10,795,713 / 8,909,740
Tobacco, Virginia / 2,168,623 / 3,416,295 / 5,640,350
Tobacco burley / 3,762,081 / 3,195,973 / 4,196,332
Groundnuts / 566,278 / 674,369 / 665,637
Sunflower / 134,960 / 161,483 / 383,512
Wheat / 769,183 / 830,000 / 1,245,400
Paddy rice / 183,753 / 110,891 / 81,838
Soybeans / 296,701 / 252,991 / 47,208
Seed cotton / 58,515,354 / 56,757,677 / 49,497,996
Mixed beans / 183,245 / 163,427 / 237,216
Sorghum / 283,262 / 297,788 / 336,052
Millet / 773,528 / 479,563 / 551,182
Sugar cane / .. / 1,621,000 / ..

.. Not available.