Zambia’s economic performance is closely tied to the price of and demand for copper, which accounts for 70% of foreign exchange earnings and exports. This lack of export diversity in the economy leaves Zambia extremely vulnerable to global shocks since foreign investment is correlated to the copper price. While higher copper prices boosted the economy (and made Zambian T-bills a temporary wonder) during the 2007-08 commodity boom, the subsequent correction of commodity prices broke the country’s growth momentum, which was further trammeled by the global slowdown. A combination of industrial destocking, weak industrial production and a weak property sector exacerbated the shift in exports from advanced economies to EMs in general—and China in particular. From 2007-09, Zambian exports to the EU fell by 41%, driven by a reduction in metal exports. Notably, exports to Zambia’s largest trading partners within the EU—the UK and the Netherlands—both declined. (The average annual export growth dropped 23% and 6%, respectively.) Switzerland, Zambia’s main export destination, also significantly reduced its metal imports over the period.
China, conversely, has been gradually increasing its imports from and investment in resource-rich African countries and has become Zambia’s second largest export destination. Zambian exports to China surged by 47% from 2007-09, offsetting the reduction in exports to advanced economies. In 2009 Zambian copper export volumes remained robust as it kept pace with China’s credit-fueled industrial production growth.
This is an excerpt of a longer Analysis available exclusively to RGE Clients: Strength in Numbers: How Export Diversification Can Help African Economies.
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