Update – Struggle of the Zambian economy

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In 2013, we observed that Zambia had a prolonged period of growth. The upgrade to a lower-middle income country provided the Zambian government as well as national and foreign investors with new opportunities. In 2015, we can find a similar but a slightly more worrying situation. While sitting in a minibus through Lusaka city, I can observe that the economic development has manifested itself into an increasing number of large shopping malls and new constructions. Despite the completion of parts of the Japanese Inner-Ring Road project in 2014, that should decrease the traffic in town, the traffic jams in the city centre did not decrease. They rather increased, since more people are getting new cars. From this point of view, it is surprising that the Zambian economy is not performing as in the earlier years of the 2010s. Currently, the economy struggles due to three main reasons: Firstly, the copper price  declines continuously due to global developments. This means that the turnover is much lower, which also affects mining-related industries. While services and construction sector remain growing, the agricultural sector struggles due to a dry season this year.

Secondly, the local currency Kwacha is highly related to the US$ and was strongly devalued in the last couple of months. Now, one dollar is 12.5 Kwacha; previously it was one dollar to 7 Kwacha. This means a high increase in commodity prices, as Zambia is an import-oriented economy, which had already effects on the middle and lower classes as they struggle to pay their bills.

The third problem is that Zambia has an electricity shortage that was recently framed as a national emergency. Around 700 megawatts capacity is missing. The state-owned company ZESCO already works with load shedding plans in whole Zambia. In practice, this means that the electricity is cut off in order to save electricity between 8 and 14h per day. In consequence, people are complaining daily that the situation gets worse and that one has to adjust daily life around it. This impacts not only households, but also companies, in particular small and medium enterprises, that cannot afford other sources of power generation. This has a huge impact on the industrial development and production. The limited rain also affects the power generation, as they produce hydropower with the Kariba Dam. Currently, ZESCO runs several projects of constructing new power generations. Some are in cooperation with the Indian company Tata Power or the Chinese company Sinohydro. With Tata for instance, Zesco connected the parliament with solar energy. As Zambia focuses on hydropower generation since decades, new renewable energy resources are also explored now. While wind power is not an option, the solar energy is a further option that is followed by German, Chinese and American companies. However, private investments in power generation is limited due to the low and risky turnover as the ZESCO tariffs are very low in comparison to the region and global.

What does this tell us for the further economic development of Zambia? This recent shift suggests that we have to rethink the previous perception that Zambia could turn to be a new regional economic force. These shifts need to be addressed, however, I do not have a recipe for solving the economic problems per se, as some are globally interrelated as the copper price and the currency devaluation. A first important step would be to solve the power deficit and to increase the capacity of power generation as soon as possible. In this context, a focus on more renewable energy is important and to have an inclusive participatory energy transition in order to avoid further decline of jobs and growth as well as an increase of currency devaluation. Important turning points could be the national election next year – the campaigns have already started – as well as making the energy sector attractive for further investments.

This blog entry is a result of the field trip for the research project "GLOCALPOWER - governing renewable energy transitions“ based at University of Kassel.




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