Zambia looks to 'land farm' model to realise agricultural potential

Zambia is aiming to attract foreign investors to the country through each of its 10 provinces putting aside separate 100,000-hectare ‘land blocks’ for large-scale agribusiness and agriculture infrastructure development. 

The landlocked country in south-central Africa has a total area of 752,000 square kilometres, making it bigger than France. About 43 million hectares, or 58% of the land, is classified by the government as having medium to high potential for agricultural production; however, only 14% is being used. 

A value proposition

“One of the government’s key goals is economic diversification through agriculture,” says Matango Matamwandi, director-general at Zambia Development Agency (ZDA), the country’s investment promotion agency (IPA). “We are encouraging farmers to move up the value-added chain with the help of foreign investment. For example, we would like to see sugar mills attached to sugar plantations, or in the case of coffee plantations, we would like to see facilities built to produce consumable coffee. 

“Investors can buy land on a 99-year lease; they do not have to have local shareholders. Foreign investors are able to repatriate 100% of their profits, as long as they have paid their local taxes and met their local obligations. Very few African countries allow investors to repatriate all their profits.” 

The ‘land bank’ model is anchored around one large-scale farm of 10,000 hectares, with agro-processing facilities (known as the core venture), complemented by commercial farms of 1000 hectares to 5000 hectares and small holdings of 30 hectares to 300 hectares. Out-grower schemes for smallholder farmers are an integral part of the model, enabling them to benefit from technological transfer and to have access to ready foreign markets.

The programme is expected to lead to greater agricultural generation, so that enough produce is available for export throughout the year. Seven investors have already pledged almost K1bn ($74m) to develop blocks in Copperbelt, Northern, Luapula and North-Western provinces.

For example, Chinese construction company China Railway Seventh Group plans to invest K390m to develop infrastructure at Kalungwishi farm block in Northern province. It aims to transform the 200,000-hectare area into a model of inclusive agricultural growth. 

Local focus

Every province in Zambia has also set up its own IPA, which arranges investment expos and forums throughout the year. The most proactive provinces include Central, Copperbelt, Northern and Southern. The forums create an opportunity for big investors and local SMEs to establish links in a range of industries, including agriculture and agro-processing, tourism, infrastructure development and energy.

ZDA says regional expos are effective tools for highlighting investment opportunities that are region specific and that miss the glare of the national institutions that promote investment from a national perspective.

Zambia – which has a $27bn economy with a total population of 18.3 million – witnessed stunning economic growth of 7.7% a year between 2003 and 2012 but it has declined to 3.95% a year during the past five years, according to the IMF. Mining has been one of the main motors of economic expansion in the country but the economy has suffered since the drop in commodity prices. 

Zambia possesses the world’s highest grade copper deposits and, at 800,000 tonnes a year, is ranked the seventh largest copper producer globally. The mineral contributes to more than 70% of the country’s foreign export earnings. Zambia is also the world’s sixth largest producer of cobalt and produces 20% of the world’s emeralds. 

Since the privatisation of the mining industry in the 1990s, FDI in the sector has totalled more than $8bn. Opportunities exist in exploration, mining services, water management, engineering, construction and environmental services. 

Treasure hoard

Zambia is home to other precious metals such as gold, silver, gemstones (amethysts, aquamarine, emeralds and tourmaline), coal and industrial minerals. Immense potential exists for both extraction and value-added industries.

“I think the country still has a great deal of potential in mining,” says Henk Mulder, CEO at Zanaco, one of the country’s biggest commercial banks. “But mining really is a long-term business; investors think on a 50- to 60-year basis. Furthermore, it is important that Zambia starts to diversify its economy and actually make something from copper rather than only export it in its raw form.”

However, the government sent shockwaves through the mining industry in May 2019 with its decision to liquidate Konkola Copper Mines, a large mine majority owned by Vedanta Resources, a UK-based mining company. It accused the company of breaching its operating licence. 

Furthermore, at the start of 2019, the government hiked the royalties that copper miners have to pay by 1.5 percentage points across the board. Depending on the copper price, the royalties now range from 5.5% to 10% compared with 4% to 6% previously. It is the 10th tax change miners have faced in 16 years. The government also plans to replace value added tax with a non-refundable sales tax within the next few months. 

Raising revenue

Zambia has run up large foreign debts during the past few years and economists say the government is being forced to look at new ways to raise tax revenue. The total debt-to-GDP ratio is now up to 75% and debt servicing is gobbling up a whopping 40% of the government’s revenue.  

“The risk of a debt crisis is growing,” says John Ashbourne, Africa economist at Capital Economics, a London-based economics consultancy. “Foreign exchange reserves are dwindling and are now only just larger than the government’s foreign debt payments due this year. Avoiding this outcome will probably require an IMF-sponsored deal, which would force painful fiscal tightening and could involve a restructuring of existing debts.”

Mr Matamwandi says the government took on large debts to finance infrastructure projects but the country will reap the benefits in the long term. He adds that political stability is one of Zambia's most attractive factors for foreign investors. “The country has not had a war or large-scale civil strife since independence in 1964. Zambia has eight neighbouring countries and has been the most stable of all of them,” he says.