2015 started off with a bang – a tightly contested and peaceful presidential by-election coupled with the economic stimulus of a reduction in fuel pump prices. One can be forgiven for thinking things could only get better from there. Unfortunately, that was not the case.
Here is a recap of some of the factors that shocked the Zambian economy and their subsequent effects:
Copper, the country’s main foreign exchange earner (accounts for 70% of earnings), saw its price drop by 25% to end the year at about $4,701 per MT as a result of a slowdown in Chinese demand:
The Government raised K873 million at the third quarter (Q3)2015 bond auction. K1 billion worth of bonds were up for sale with maturities ranging from 2 to 15 years:
The central bank received bids worth K567 million and allocated K423 million at Treasury bill (T/bill) auction 12 of 2015, yesterday. K900 million worth of T/bills were up for sale.
Zambia’s newly elected President Edgar Lungu, who has promised lower interest rates, replaced the central bank governor a day after he held borrowing costs at a record high. Lungu named Denny Kalyalya, previously deputy governor, to take over from Michael Gondwe, who had been in the post since 2011, according to an e-mailed statement on Friday. Read more....
Bank of Zambia raises policy rate by 50 basis points
The central bank raised the policy rate by 50 basis points to 12.5% until their next monetary policy committee meeting on 8th February 2015. They cited elevated inflationary pressures likely to last into the beginning of 2015 and material deterioration of the external sector (Balance of Payments deficit of $123.2 million in Q3 compared to a surplus of US $740 million in Q2) relative to conditions in August i.e. at their previous meeting. I’m pretty sure uncertainty over presidential elections was also baked into their decision but they didn’t mention it directly!
The average overnight interbank rate has dropped by 900 basis points from a year-to-date high of 25.1% on June 27 since the Bank of Zambia started implementing Open Market Operations (OMOs) last week. The overnight interbank rate is the rate at which banks lend to one another on a short-term basis. The rate was at 15.96% today:
Government set to release $600m VAT refund to affected miners
According to a report by the Daily Mail newspaper on Wednesday, the government will start releasing the $600m in VAT refunds which has been withheld from mining companies which were failing to provide import certificates from destination countries where Zambian copper was being exported. The paper quoted the Minister of Mines who had said that some mining companies had stated complying with the requirement subsequent to which the Zambia Revenue Authority was instructed to begin working on repayment of the funds.
Bank of Zambia recorded a weak Treasury bill sale at auction 13 of 2014. The auction received bid worth K87.7m with the 364 day t/bill accounting for 85% of the total amount bid. The central bank allocated the full K87.7m:
First Quantum Minerals acquires Argentina's Lumina Copper Corporation
Canadian mining giant First Quantum Minerals (FQM) acquired Lumina Copper of Argentina in a $470m dollar cash and stock deal. The $10 per share cash portion of the deal will represent a 28% premium over Lumina'sJune 16 2014 closing price on the TSX Venture Exchange. The project will boost copper production to over 1.3 million MT by 2021. This is FQM's second acquisition in the space of 15 months after completing the the Inmet Corporation deal in 2013.
Trying to decipher this puzzle that is Zambia by using a variety of publicly available data (structured and unstructured) in conjunction with my own skill/experience. * * *