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Firm Growth in Zambia Daniel Gurara SIP/2025/126 IMF Selected Issues Papers are prepared by IMF staff asbackground documentation for periodic consultations withmember countries.It is based on the information available atthe time it was completed on June 30, 2025. This paper is alsopublished separately as IMF Country Report No 25/242. 2025SEP IMF Selected Issues PaperAfrican Department Firm Growth in ZambiaPrepared by Daniel Gurara Authorized for distribution byMercedes Vera Martin and Steven QiSeptember2025 IMF Selected Issues Papers are prepared by IMF staff as background documentation for periodicconsultations with member countries. It is based on the information available at the time it wascompleted onJune 30, 2025. This paper is also published separately as IMF Country Report No 25/242. ABSTRACT:Firm growth in Zambia remains subdued, undermining the country’s potential to create jobs, raiseproductivity, and drive economic transformation. Formal businesses face persistent barriers—most notablylimited access to finance, unreliable electricity supply, and competition from a large informal sector. Using datafrom the World Bank Enterprise Surveys and cross-country entrepreneurship benchmarks, this paper examineshow these constraints affect firm performance and contribute to Zambia’s low rate of new business formation.Empirical analysis indicates that firms with access to credit and stable infrastructure growsignificantlyfaster,while those facing severe constraints underperform. Moreover, Zambia’s rate of new business entry remainslow compared to aspirational peers, reflecting deeper regulatory and financial constraints. Removing keybarriers to firmgrowthisessentialnot only to scale up existing businesses, but also to support structuraltransformation by facilitating the shift of labor into more productive, formal sector employment. RECOMMENDED CITATION:Gurara, Daniel, 2025, Firm Growth in Zambia. IMF Selected Issues Paper(SIP/2025/126). Washington, D.C., International Monetary Fund. SELECTED ISSUES PAPERS Firm Growth in ZambiaThe Republic of Zambia Prepared by Daniel Gurara1 FIRM GROWTH IN ZAMBIA Firm growth in Zambia remains subdued, undermining the country’s potential to create jobs, raiseproductivity, and drive economic transformation. Formal businesses face persistent barriers—mostnotably limited access to finance, unreliable electricity supply, and competition from a large informalsector. Using data from the World Bank Enterprise Surveys and cross-country entrepreneurship benchmarks, this paperexamines how theseconstraints affect firmperformance and contributeto Zambia’s low rate of newbusiness formation.Empirical analysis indicatesthat firms with access tocredit and stableinfrastructure growsignificantly faster, whilethose facing severeconstraintsunderperform. Moreover,Zambia's rate of new Source: Computed based on World Bank Enterprise Survey Data 2007, 2013,2019 business entry remains low compared to aspirational peers, reflecting deeper regulatory and financialconstraints. Removing key barriers to firm growth is essential not only to scale up existing businesses,but also to support structural transformation by facilitating the shift of labor into more productive,formal sector employment. A.Introduction 1.Firm growth in Zambia has been slow, limiting job creation and productivity gains.Despite episodes of macroeconomic expansion—particularly during the 2000s commodity boom—many formal businesses have not grown meaningfully in real terms. Enterprise Survey data showstagnant median sales growth during 2007–13, followed by widespread declines in 2013–19. Thedistribution of firm outcomes has deteriorated over time, with more businesses reporting decliningsales and fewer experiencing growth (see Text Figure). This deterioration in firm-level performancehas weakened the private sector’s role in driving employment and inclusive growth. 2.The sluggish expansion of firms has constrained Zambia’s structural transformation.Structural transformation—the shift of labor from low-productivity activities, such as subsistenceagriculture and informal trade, to more productive sectors like manufacturing and services—hasprogressed slowly (Figure 1). Much of the labor force remains in low-wage informal work, while theeconomy remains heavily reliant on mining. Productivity growth in Zambia has been modest and increasingly driven by within-sector gains, with limitedcontributionfrom structural transformation. Note: “Within” refers to productivity growth occurring inside individual sectors. “Between” (structural change) capturesthe contribution from labor shifting across sectors—e.g., from low-productivity agriculture to higher-productivityindustry or services. “Total” reflects the combined effect of both components. See McMillan, M., & Rodrik, D. (2011).Globalization, Structural Change, and Productivity Growth. In: Bacchetta, M. and Jansen, M. (Eds.), Making GlobalizationSocially Sustainable, Chapter 2