Zambia

GENERAL INFORMATION

Being Africa’s second-largest copper producer, high commodity prices have driven a decade of strong economic growth However, a recent slump in copper prices has been damaging and made the Kwacha one of the world’s worst-performing currencies in 2014.

Despite the slow growth in the copper industry, growth was recorded in the other sectors of Zambia such as agriculture and manufacturing. The increase in economic activity over the years has had an impact on the demand for power, which is growing at an average of about 3 percent per annum. The power sector is facing a major challenge due to the unreliability of its primary power source; hydropower. Droughts and shortfall of rain have caused the dams to produce significantly low outputs.

The abundance of other viable power sources in Zambia such as solar, wind and biomass present the options of generating power, from other sources to resolve the crisis and eventually meet the rising demand. Thermal power may be an issue in Zambia as petroleum is a commodity that is imported, thus the viable options all remain renewable sources.

Investment into this sector is also another factor hindering progress in the Zambia energy sector. Corruption, boated government payrolls, shifting tax laws on the mining sector are among many factors that have deterred investors.

The Government of Zambia has recognized the importance of investments in improving the energy sector and has implemented policies favorable to investors particularly in that industry.

POWER SECTOR

Zambia is facing severe power crisis in its power sector resulting in total a deficit of 560MW from the national generation capacity. This is due to shortfall in rainfall to the dam to power the hydro plant and lack of a diversified energy mix. The over-reliance on hydro sources for electricity appears to be the root of this problem. Zambia currently has approximately Zambia has an installed generation capacity of about 2,347MW. Out of the total installed capacity, hydropower constitutes 2,259 MW (96%), followed by diesel contributing about 4%.

Given the crucial role electricity plays in socio-economic development, the Energy Regulation Board (ERB) is working closely with all industry stakeholders to promote investment in power infrastructure. The addition of IPPs such as CEC and LHPC, to the activities of state  power company, ZESCO Ltd. are steadily contributing to the capacity growth of power generation in Zambia.

The government also has fiscal incentives for investors in this industry Under the ZDA act such as investments above $500,000 are entitled to zero percent tax rate on dividends for 5 years from year of first declaration of dividends, zero percent tax on profits for 5 years from the first year of operation and zero percent import duty rate on capital goods, machinery including specialized motor vehicles for five years.In addition to  this, $500,000 investments are also entitled to; investment guarantees and protection against state nationalization; free facilitation for application of immigration permits, secondary licenses, land acquisition and utilities. Investments in the $250,000 range also qualify for some fiscal and non-fiscal benefits.

The future of the Zambian power sector stands to improve significantly if resources are efficiently used. Zambia’s location in the Southern African region allows it to benefit notably from trade on the wider regional power market (exports of power), once the remaining large unexploited power potential is utilized.

References:
  1. Energy Regulation Board. (2014). Zambia Energy Sector Report.
  2. PV Magazine-Photovoltaic Markets and Technology. (2015). Zambia to be home to Africa’s cheapest solar.
  3. Zambia-Invest. (2015). Zambia Energy
  4. Zambia Development Agency. (2014) Energy Sector Profile