Zambia's economy is 56.4 percent free, according to a 2008 assessment by the Heritage Foundation, which makes it the world's 99th freest economy. Its overall score is 0.8 percentage point lower than last year, mainly reflecting a much-worsened score in labor freedom. Zambia is ranked 15th out of 40 countries in the sub-Saharan Africa region, and its overall score is slightly higher than the regional average.

Zambia scores better than the world average only in terms of government expenditures, which are low in formal terms. This is likely a sign of government weakness, not efficiency. Personal and corporate tax rates are moderately high, but overall tax revenue is relatively low as a percentage of GDP. Total government expenditures equal about one-fourth of national GDP.

All of Zambia's other scores are equal to or below the world average. The judicial process is slow, and many courts cannot arbitrate commercial suits effectively. Corruption is widespread. The regulatory environment hinders business activity, and labor regulations are especially difficult. The government has streamlined foreign investment procedures, but capital is still subject to extensive restrictions.

Background:
The former British protectorate of Northern Rhodesia became the independent Republic of Zambia in 1964. Popular demand for multi-party democracy led President Kenneth Kaunda, who had ruled since independence, to remove restrictions on political parties. Multi-party elections were held in 1991 for the first time since the 1960s. Current President Levy Mwanawasa's anti-corruption effort won a major victory when a British court convicted his predecessor of corruption. Falling copper prices led to steadily declining income from 1974 to 1990. Economic reform began in the 1990s, but much needs to be done to improve governance and enhance the business climate. Copper is the biggest export, but mining contributes only 12 percent to GDP. Subsistence agriculture is the main employer. HIV/AIDS is a significant problem.

Business Freedom - 62.4%

The overall freedom to start, operate, and close a business is restricted by Zambia's regulatory environment. Starting a business takes an average of 33 days, compared to the world average of 43 days. Obtaining a business license takes more than the world average of 234 days, and costs are high. Closing a business is relatively straightforward.

Trade Freedom - 71.2%

Zambia's weighted average tariff rate was 9.4 percent in 2005. Import restrictions, import taxes, import certification, export licensing requirements, and corruption add to the cost of trade. An additional 10 percentage points is deducted from Zambia's trade freedom score to account for non-tariff barriers.

Fiscal Freedom - 72.6%

Zambia has burdensome tax rates. The top income tax rate is 35 percent, and the top corporate tax rate is 35 percent. Other taxes include a value-added tax (VAT), a tax on services, and a property transfer tax. In the most recent year, overall tax revenue as a percentage of GDP was 17 percent.

Freedom from Government - 80.3%

Total government expenditures, including consumption and transfer payments, are moderate. In the most recent year, government spending equaled 25.6 percent of GDP. Progress in improving spending management and restructuring the public sector has been mixed.

Monetary Freedom - 62.9%

Inflation is high, averaging 12.2 percent between 2004 and 2006. Relatively unstable prices explain most of the monetary freedom score. The government subsidizes agricultural input products and influences prices through state-owned enterprises and utilities. An additional 15 percentage points is deducted from Zambia's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom - 50%

Zambia's positive approach to foreign investment is dampened by corruption. The Zambian Investment Center is a one-stop resource for international investors. An investment board screens all investments for which incentives are requested. Investments in communications, banking, tourism, transport, mining, health, education, and aviation are subject to additional regulations and approvals. The retail sector is closed to foreigners. Privatization of certain sectors like electricity and telecommunications stalled in 2003. Red tape is extensive, and corruption remains common despite government efforts. Residents and non-residents may hold foreign exchange accounts. There are no controls on payments, transfers, capital transactions, or repatriation of profits.

Financial Freedom - 50%

Zambia's financial sector is small and dominated by banking. Zambia has one of Southern Africa's more liberal banking regimes. Banking supervision and regulation have improved. There were 11 commercial banks in August 2006, including several majority foreign-owned banks. The poor loan repayment records of many borrowers and difficulty in seizing loan collateral have led banks to invest in government debt and to remain highly risk-averse. The legal climate does not easily support creditor claims on collateral, and lengthy trials are common. Zambia is creating a credit assistance program to build a wider network of reliable potential borrowers. The insurance market is open to competition. Privatization of the state-owned Zambia State Insurance Corporation has stalled with little investor interest. Though participation is increasing, capital markets remain very small. There are no restrictions on foreign investment in the stock exchange.

Property Rights - 40%

Zambia's judicial system suffers from inefficiency, government influence, and a lack of resources. Contracts are weakly enforced, and courts are relatively inexperienced in commercial litigation. Despite constitutional and legal protections, customary law and practice place women in a subordinate status with respect to property, inheritance, and marriage. Trademark protection is adequate, but copyright protection is limited and does not cover computer applications. It takes at least four months to patent an item or process.

Freedom from Corruption - 26%

Corruption is perceived as widespread. Zambia ranks 111th out of 163 countries in Transparency International's Corruption Perceptions Index for 2006. Controls over government funds and property are often weak, investigative units lack authority and personnel, and officials dealing with the public frequently demand illicit payments with impunity. The government has no clear policy for the disposal of confiscated assets, and a lack of transparency surrounds the liquidation of assets seized in the recent government campaign against corruption.

Labor Freedom - 48.2%

Rigid employment regulations hamper overall productivity growth and employment opportunities. The non-salary cost of employing a worker is low, but the rigidity of hiring and firing a worker creates a risk aversion for companies that would otherwise employ more people and grow.

Zambia

* Rank: 99
* Regional Rank: 15 of 40
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Quick Facts

* Population:

11.7 million
* GDP (PPP):

$11.9 billion
5.2% growth in 2005
4.7% 5-yr. comp. ann. growth
$1,023 per capita
* Unemployment:

50.0% (2000 estimate)
* Inflation (CPI):

18.3%
* FDI (net inflow):

$259.0 million
* Official Development Assistance:

$1.5 billion (8.5% from the U.S.)
* External Debt:

$5.7 billion
* Exports:

$3.9 billion
Primarily copper, cobalt, electricity, tobacco, flowers, cotton
* Imports:

$3.1 billion
Primarily machinery, transportation equipment, petroleum products, electricity, fertilizer, foodstuffs, clothing