Novi Weekly Wrap Up - April 20 Edition

Energy Regulation Board increases the price of petroleum products

The prices of petrol, diesel and kerosene were increased by 7.2%, 8.5% and 9.45%, respectively. This means that effective April 18 2014, the new pump prices of petrol, diesel and kerosene are now K10.63, K10.01 and K7.48 per litre, respectively. The ERB cited Kwacha weakness as the main driver of the decision to increase prices. Last year's increase was due to the removal of fuel subsidies.

Zambia imports finished petroleum products through a costly and inefficient supply chain - it also does not help that Indeni Oil refinery has obsolete equipment! The ERB sets pump prices so that they cover the cost of importation - so if the cost goes up (because of Kwacha depreciation), then pump prices have to go up to compensate otherwise the ERB would lose millions of Kwacha each time petroleum products are imported.

This is a logical move but will be very unwelcome by consumers because it will force retailers to raise prices of various goods i.e. inflation will pick up - maybe above 8% over the next few months?

So will this decision be reversed should the Kwacha start regaining its strength? Zambians already pay some of the highest gas prices in southern Africa. In the meantime, perhaps it would be prudent for the ERB to hedge this currency risk on say, the Bond and Derivatives Exchange before they come up with a final solution on Zambia's fuel problem?

ZRA records Q1 revenue surplus

Last year, the ZRA had issues collecting tax revenues which was one of the main reasons that why Zambia had a fiscal deficit which came in above forecast in 2013. They collected a net amount of K7.078bn versus a target of K5.646bn - a surplus of K1.431bn. The surplus was driven domestic VAT, PAYE, company income tax and withholding taxes.

Make no mistake; this is really positive news after the debacle of last year. But, as they say, "you are only as good as your next sale". ZRA has to continue on this trajectory and be consistent. Let's see what Q2 has in store...

Huawei starts building mobile towers

Last year, the government announced that they intended to build 169 mobile towers to improve connectivity for people in the most remote areas of Zambia. Chinese telecom company Huawei completed the first tower in Luapula province. The towers will be shared by Zamtel (57), MTN (56) and Airtel (56). The project is expected to be completed by October 2014.
Connectivity of these areas is a very positive step - Zambia is a very big country.

It will be interesting to see which of the 3 service providers will pick up the most subscribers and how they will go on about doing so. The cheapest service provider will definitely win because most people in those areas are quite impoverished -who will that be?

Tobacco set for bumper harvest in 2014

The new agriculture minister revealed that the country is set to harvest more that K750m (45m Kgs) worth of tobacco in 2014, which is 5.5% over the previous year. Most tobacco is grown through out-grower schemes and then purchased and exported by big players like Alliance One and JTI Leaf.

Tobacco is a very valuable cash crop with relatively inelastic demand - more Zambia companies should invest in tobacco out-grower schemes because of this fact. The potential pay-back is worth every Kwacha put up and people are not going to stop smoking anytime soon...

The LuSE All Share Index closed Thursday at 5,953.92 points after breaking 6,0000 earlier in the week. A total of 510,689 shares were transacted in 26 trades resulting in a turnover of K1,399,874.