Earlier in the year, the Bank of Zambia amended foreign exchange regulations as part of monetary policy action taken by Zambia to halt the depreciation of the Zambian kwacha which fell steeply in the first months of 2014. These regulatory changes will make it more efficient for Chinese banks to lend in Zambia.
The regulations that were revoked on March 2014 with immediate effect were under Statutory Instrument No. 33 of 2012 (SI 33) and Statutory Instrument No. 55 of 2013 (SI 55). SI 33 prohibited conducting transactions in Zambia in foreign currency and SI 55 is a monitoring framework requiring lending transactions to be registered with the Bank of Zambia.
The effect of these changes for Chinese banks or other foreign financial institutions engaged in project finance or other lending transactions in Zambia is increased flexibility and reduced administrative costs.
With revocation of SI 33 a lender is permitted to denominate a loan in foreign currency like the USD to the borrower in Zambia. This allows the borrower in Zambia to avoid the step of opening a local bank account to receive funds. In this simplified procedure the loan can be directly disbursed from China to the borrower in Zambia.
In revoking SI 55, the loan agreement between the lender and Zambia-based borrower will no longer need to be registered with the Bank of Zambia. By removing this step from the process, disbursement for the loan can be more rapidly arranged.
Zambia has been a major destination of Chinese investment in Africa with two industrial zones in Chambishi and East Lusaka established since 2007 by the Zambia–China Economic & Trade Cooperation Zone (ZCCZ). The southern African country is also a popular destination for Chinese small and medium enterprises with at least 100,000 Chinese nationals residing in the country, operating businesses ranging from construction firms, private medical clinics, and even chicken farms.