African woman street vendor, selling eggs and vegetables, self employed
After nearly four years of effort, the country is nearing the completion of its debt restructuring via the G-20 Common Framework, following agreements with bilateral creditors and international bondholders. Although the economy showed signs of recovery from 2021-2023 and significant policy reforms are underway, the recently published Zambia Country Economic Memorandum shows that structural challenges persist. The report highlights that the country’s growth during the 2000s commodity boom could not be sustained, and its benefits barely reached the poorest households. It also highlights that over the last 20 years, not enough productive jobs have been created to enable people to enjoy dignified livelihoods out of poverty.
The challenge is particularly daunting since Zambia's working-age population is projected to expand significantly by 2050, as many young people will enter the labor force seeking better-paying jobs than those available to previous generations. The ongoing drought, the driest in the last 40 years, underscores the urgent need to build resilience against economic and climate shocks, especially for the poor.
The key way forward lies in boosting productivity and accelerating economic transformation to ensure growth, that is both sustained and inclusive.
Zambia’s growth story: Impressive yet unequal
Zambia’s economy grew at an impressive rate during the 2000s, with GDP averaging 7.7% annually between 2001 and 2010, driven mainly by a boom in commodity prices. The mining sector expanded, contributing to one-fifth of the country’s growth during this period. However, the benefits mainly reached urban areas, reducing poverty only in cities, while rural poverty remained high.
Figure 1. Real GDP growth, Zambia and selected country groups (2001-2021)
Source: World Development Indicators (WDI), World Bank. Note: HIPC = Heavily Indebted Poor Countries (HIPC) Initiative; LIC = low-income countries; LMIC = lower-middle-income countries; SSA = Sub-Saharan African countries excluding high-income countries.
When the commodity boom ended, the economy slowed. Growth dropped to an average of 4.1% in the 2010s and even lower between 2015 and 2019. Government services and public investment became the primary drivers of growth, but they relied heavily on public debt, which led to macroeconomic imbalances. By 2020, Zambia defaulted on its Eurobonds, entering into debt treatment discussions.
Yet, despite periods of rapid GDP expansion, the country saw limited progress in reducing poverty. In fact, between 1996 and 2015, the number of people living below the poverty line increased by about 2.5 million. By 2022, an estimated 11.7 million Zambians — roughly 60% of the population — were still living below the poverty line.
More jobs, but few quality ones
Between 2001 and 2019, Zambia's employment grew at a rate of 4.3% annually. Unfortunately, most of these new jobs were in agriculture and services, sectors with some of the lowest productivity rates. Agriculture, where 60% of Zambians are employed, has seen productivity drop by nearly 50% over the past two decades. This decline has a direct link to the rise in rural poverty despite overall economic growth.
The rest of the economy has shown limited improvement as well. Most private sector jobs are found in small, informal businesses, while most waged jobs are in a few large, formal firms with higher productivity and wages. The highest wages are offered by the public sector, which employs over half of tertiary-educated workers, or by capital-intensive sectors. Both these employment channels have a limited capacity to absorb many Zambian workers and create enough job opportunities. Overall, the economy has struggled to diversify into labor-intensive sectors that can generate more and better jobs.
The way forward - Raising productivity and accelerating economic transformation
So, where does Zambia go from here? The report outlines four pathways for achieving sustained and inclusive growth:
- Increasing agricultural productivity
Agriculture remains central to Zambia’s development. For the country to grow, labor productivity in agriculture must improve. Right now, inefficient government programs and climate hazards are holding back progress. But with the right focus on infrastructure, extension services, climate change adaptation, and promoting crop diversification, Zambia can turn things around. Expanding agribusiness and commercial farming into high-value crops, livestock, and aquaculture offers great potential for better jobs and economic diversification.
- Boosting formal firms' productivity
For Zambia’s economy to truly transform, productivity needs to increase across the board, especially in the private sector. Recent research, based on tax administrative data, shows that productivity in formal firms is declining in most sectors. Expanding access to financial services, improving electricity supply, enabling digital transformation, and enhancing the overall business climate are crucial reforms that could unlock broad-based private sector growth. By prioritizing strategies that support new and existing firms in labor-intensive sectors, Zambia can create more quality jobs for its growing workforce.
Figure 2. Agriculture productivity (value added per worker) and GDP per capita PPP
Source: Authors’ calculations based on Jobs Group, from GGDC/UNU-WIDER Economic Transformation Database.
- Additional pathways: Strengthening fiscal governance and leveraging the global energy transition
Addressing fiscal vulnerabilities is crucial for sustained and inclusive growth. In the recent Zambia Public Finance Review (World Bank, 2024), the challenges and opportunities in enhancing Zambia’s fiscal governance through transformative investments are highlighted. It identifies revenue-enhancing measures and improvements in expenditure efficiency and effectiveness. Additionally, the global shift to low-carbon energy presents a pathway for Zambia’s growth, offering opportunities to leverage its substantial untapped natural wealth.
The World Bank is working with the Zambian Government to harness this potential while overcoming key development obstacles. Together, these efforts aim to transform Zambia’s economy, paving the way for sustainable growth, better jobs, and improved livelihoods for all its citizens.
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