Investing in Infrastructure: Zambia Upgrades Electricity and Transportation

The future growth of Zambia’s mining industry depends on today’s choices.

Anita Kruger

GNR-BLOGApart from a favorable and stable policy environment, a stable and sufficient electricity supply is the most important variable in Zambia’s mining sector. Zambia’s current generation capacity is around 1,800 megawatts (MW), which is almost solely generated from hydropower through state-owned Zesco.

Until 2005, Zambia was a regional electricity exporter, but when maintenance and rehabilitation commenced on many of its hydro power plants the country became a net importer. As Zambia offers some of the region’s lowest electricity tariffs, funding for generation capacity upgrades and new projects have been hard to come by. In June 2012 the Energy Regulation Board (ERB) announced plans to gradually raise electricity tariffs to provide additional funding to improve Zambia’s energy infrastructure. The ERB aims to stimulate investment in the sector by endorsing power sector investments prior to project implementation, which assures reasonable returns through an approved tariff.

The mining industry is Zambia’s largest power consumer, accounting for around 55% of total consumption. With only 22% of Zambia’s total population currently having access to electricity and in-line with the drive to create a favorable investment climate, a number of new power projects are underway in Zambia.

Zambia is aiming to become a regional hub for hydro-electricity generation and is hoping to supply its surplus demand to its neighboring countries by as early as 2017. This will be done through various hydro-electricity expansion projects as well as smaller scale coal-fired plants. In terms of hydro-electricity potential, Zambia holds 28% of the water supply of the SADC region. It has the potential to generate 6000 MW of hydro-electricity and exploit the remaining 70% that has not yet been tapped into. The private sector through Public Private Partnerships (PPP) will also play a pivotal role in realizing the country’s potential.

Zambia’s is bordered by eight countries, which provides it access to the entire region of 170 million people. Zambia’s transportation system is dominated by road and rail with over 75% of traded goods being transported through these avenues. However, the state Zambia’s road infrastructure is limiting and adding costs to doing business. With only 7,300 km of Zambia’s 40,000 km road network being paved, it is no surprise that costs of frequent replacements of parts of transportation vehicles are extremely high.

To reduce the cost of doing business, the Zambian government has launched the Link Zambia 8000 project. The three-phased road development scheme is to be completed by 2017 and has the ambitious goal of constructing and rehabilitating 8,200 km of roads to link all provincial capitals. Combined with the Pave Zambia 2000 program that will see the upgrading and repairing of 2000 km of roads, the Zambian government has already committed to invest $5.4 billion into Zambia’s road infrastructure over the next few years.

The opportunities that arise from the vast infrastructure expansion should be used to Zambia’s advantage. At the moment Chinese companies have the ability to provide cheap credit for large infrastructure projects, which prohibits local competition in the tendering process. China will keep funding infrastructure projects in exchange for access to Zambia’s natural resources and currently accounts for up to 50% of the Zambian construction market. To ameliorate this problem and to facilitate knowledge and skills transfer, countries in the region, including Zambia, are attempting to pass legislation that will require foreign investors to partner with a local company in the development of infrastructural projects.

Zambia’s proximity to other developing mining countries makes it an ideal distribution hub and point of departure in the sub-Saharan and Central African region. An efficient railway system in Zambia can be a game-changer in the region. The Zambia railway network has been operating on two systems; the Zambia Railways Ltd (ZRL) and the Tanzania-Zambia Railway System (TAZARA). Plans to rejuvenate the country’s railway system were made clear when ZRL announced a new management board. Progress, however has been slow to follow and in many cases mining companies choose to develop the road and rail infrastructure independently to ensure greater efficiency and timely completion. Being landlocked also means that Zambia is especially reliant on road networks to access the ports of its neighboring countries for imports as well as exports. With heavy road traffic on routes to the ports, of Dar-Es-Salaam, Durban, Benguela, Beira and Maputo, the regional railway system is becoming increasingly important.

The hope is that the North-South Corridor Project will also enhance efficiency in cross-border trade in the region. It is a collaborative project between Zambia and seven of its neighboring countries to improve the road and rail system between Dar-Es-Salaam and the Copperbelt and between the Copperbelt and South Africa’s southern ports. This project will not only aim to improve the physical transportation system, but also the regulatory environment by promoting intra-Africa trade between Tanzania, the DRC, Malawi, Botswana, Zimbabwe, Mozambique, South Africa and Zambia.

This article was written as part of the research being conducted by GBR for its upcoming Mining in Africa Country Investment Guide (MACIG) 2015. To participate in this report, please contact Sharon Saylor at ssaylor@gbreports.com.

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