Why Zambia is a good destination for agri investment

Investing in Africa has its benefits and its challenges. We have a substantial amount of land and water but we lack infrastructure and the technology to produce the right quantities and quality of the product. Honourable Sebastian Kopulande, CEO, Zambian International Trade and Investment Centre (ZITIC) who is also a Member of Parliament in Zambia, sees this as an opportunity.

“The world will always be looking for investment, there will always be demand for food and this demand has to be satisfied one way or another. If Africa gets the opportunity to do that, it will become the place where the world shall be fed from.”

Kopulande has been working in Government for close to 24 years. He has been involved in policy reform since 1991, focusing on economic liberalisation in Zambia which occurred when Zambia changed from a communist economy to a liberalised economy. Last year Kopulande was elected to Parliament and is now a member of parliament for Chembe constituency in Luapula province in the northern part of the country.

“The Zambian economy is as liberal an economy as any in the world – if not better – and that includes the US. I say this because you can come to the country, establish your company and run it without government interference, as long as you abide by the existing tax, labour and other laws.

Zambia has been known as a copper mining country in the past and recently it has focused increasingly on diversifying its economy. A year ago the President announced that we would transform Zambia from a mining to an agricultural country. Zambia has a landmass of 752,000km2 with 60% being arable land. Currently only 14% of that land (about 3,000km2) is currently under cultivation. This translates to a massive investment potential in Zambia’s agricultural industry,” Kopulande says.

Kopulande says in the 2017 national budget the Minister of Finance introduced major policy pronouncements to drive the country towards agricultural diversification. These include:

  • The removal of all customs duties for all irrigation equipment (formally these duties sat at 25%);
  • The removal of all customs duties for all agricultural equipment (formally these duties too sat at 25%);
  • Increased capital allowances for all agricultural equipment from 50% to 100%. This means that all investment into your farm are 100% tax deductible.

Zambia is part of SADC and COMESA and are essentially servicing the same market as the other countries. However Kopulande points out some differences.

  • Zambia is a politically stable country, since its independence 52 years ago it has been a very peaceful country;
  • It has a hard-working people;
  • I has a literacy rate of about 86%;
  • It has some of the continent’s most liberal, business-friendly policies;
  • The exchange policies are very liberal;
  • Zambia has invested heavily into its infrastructure, particularly the communication infrastructure and roads;
  • Zambia is the headquarters for COMESA;
  • Zambia’s central geographical position gives it access to a market of around 450 million people.

“Fundamentally our exchange rate is market determined by what is going on in the rest of the world. The important thing is that an equilibrium can be found that is sustainable and maintained to allow the corporate world to plan. Even though you can maintain an artificial exchange rate by administrative interventions and manipulations which will keep an exchange rate stable, that is not sustainable and that does not make you a stable economy,” Kopulande says. “I do not believe that the best cover against exchange risk is to ‘Dollarize’ the whole world. I think it’s important for countries to maintain their currencies. What matters is the stability of those currencies.”

As far as tax goes, Kopulande says agriculture is the main focus of Zambia, therefore agricultural equipment is now duty-free, and irrigation equipment can now come into Zambia duty-free. “It was subject to 25% duties, but it is now, as of 2017, duty-free.”

“In terms of land availability, we do have land tenure systems in Zambia. We have the state land and the land under customary tenure. The land under state tenure is the land which you get a title deed for. However, once you have identified the piece of land anywhere in Zambia under customary tenure and the Chief grants you the right to that land, he gives you a letter to take to the Ministry of Lands where that land gets converted to state land and you get a title deed. The tenure for the title deed is 99 years – renewable. (The assumption is that your heirs will take over the land and renew your title deed.)”

“We have 10 provinces in Zambia and the government is setting up farming blocs or agricultural zones of at least 100,000 hectares per province. In total that is 1 million hectares across the country. In my constituency where I was elected we have been working with the authorities there to put together a minimum of 50,000 hectares as available land for farming. That land is immediately available for your investment and you have the right to own land as an investor in Zambia. As an individual, if you are not a Zambian citizen you cannot own land in Zambia. However, if you come to Zambia and register a company, that company is a Zambian company and therefore a citizen of Zambia – and as such it can own land. “

“For us, your right to property is enshrined in the constitution of the republic. That includes your right to land. Nobody, not even the state, has the right to take away that land. The circumstances in which the State can take away your land are defined: they can only take away your land when you act as a threat to National Security, however the state first has to come to Parliament and seek parliamentary approval to take that land away. This has never happened before, and the process is rather cumbersome.”

Kopulande says standard corporate tax is 35%, but corporate tax for agriculture is 15%. This is to ensure that there is sufficient capital to re-invest in agricultural activities by the farmer. The Zambian government has realised that it cannot permanently depend on imported equipment.

“We have introduced the number of measures including multi-facility economic zones. These multi-facility economic zones are – simply put – special economic zones. This policy gives massive incentives to companies that invest in the special economic zones.”

Some of these incentives include:

  • Capital equipment is duty-free,
  • Raw material Imports of come in duty-free
  • 0% corporate tax for the first 5 years, in the next 2 years you pay 50% on your declared profits, in year 8 and 9 you pay 75% and after that you graduate to the full corporate tax.

So incentives have been given for the production of capital goods as well as intermediate goods to support industrialisation, which is the second drive that the Zambian government is pushing in terms of economic diversification.

Kopulande says return on investment in the western world sits at a 2% – 3%. In Africa the average return on investment are 29% plus and it is not unusual to see these numbers sitting in the 30% and 40% regions

“Your cost of labour is much lower in Africa – Zambia in particular. Zambia has much of the water resources in Southern Africa (in the SADC region) and the government has also begun building dams as a part of agricultural infrastructure to make irrigation easier. It is in the next year’s budget that government will build dams to promote that which will work with other policies outlined, to make your agro venture more profitable. You are definitely better off producing in Africa and exporting to the rest of the world.”

“We in Africa need to make sure that what needs to get done – gets done. At the end of the day we share a common destiny and we cannot run away from that. We are united in history and collaboration is something we need to achieve going forward,” Kopulande concludes.

Kristy Jooste