Novi Weekly Wrap Up - May 18th Edition

Kwacha continues fall, ends the week at 6.61

The Kwacha hit a record low of K6.71 per $US dollar before closing the week at K6.61:

The Kwacha has hemorrhaged value against not only the US dollar but other major global currencies over the last 6 months. The government’s $5.6bn infrastructure spending drive and mining sector projects have led to increased importation of capital goods. Have a look of the trade balance (exports minus imports) year over year Q1:

As can be seen, starting February 2014, import growth outstripped export growth leading to lower year over year monthly balance of trade figures. This is chiefly because Q1 2014 copper prices (which account for over 70% of exports) have decreased by 11.2% over what they averaged in Q1 2013 ($7,030 per MT versus $7,917 per MT) – meaning we are earning less forex than we were last year.  This and the fact that capital goods imports (which are being used for infrastructure and mining projects account for over 30% of imports) are still very high is putting a lot of pressure on the Kwacha (high demand for dollar by importers). 

The Kwacha should stabilize and decrease at some point when copper prices recover and capital goods imports gradually decrease (would be strange if the trend continued the whole year). Until that happens, Zambians will have to get used to higher dollar/pound/euro…. The positive is that the decline does not have much to do with economic fundamentals.

Government kicks off farming input distribution for 2014/15 season

The Minister of Agriculture officially commenced the K2.1bn countrywide farming input distribution under the Farming Input Support Program (FISP). The program has also been scaled up to support 1 million small-holder farmers from 900,000 the previous season. The recently resuscitated Nitrogen Chemicals of Zambia is set to supply 106,409 MT of compound D fertilizer.

The Minister also talked about increasing productivity from 2.3 Ha to 3 MT per Ha for small scale farmers to guarantee production of 4m MT of maize for the 2014/15 season which would involve “setting targets per province”. It’s not as simple as that. One of the biggest causes for low output per Ha (of all crops) is usage of poor planting and post-harvest methodology by small-holder farmers emanating from a lack of access to proper technology as well as extension services. If the government wants to have a material impact on productivity, they have to scale up facilitation of diversified extension services to farmers countrywide. This doesn’t mean that they go at it alone and throw money at the problem in the 2015 budget but this would entail looking for partners that can help to enhance implementation.  Ball is in their court…

Mobile money accounts exceed bank accounts

The Central banks revealed that there are 3.4 million mobile money accounts compared to 2 million bank accounts. According to the FinScope Zambia 2009 report, 62.7% of the population did not have access to financial services:

Six years have passed since the survey was undertaken but the fact that there are only 2 million bank accounts to date still shows that there is a gap that still needs filling - mobile money is what will gradually fill that gap. There are 169 new mobile towers that are being erected in the most remote parts of the country which will increase connectivity and further boost the potential for mobile money.

Bank of Zambia is reviewing Zamtel’s mobile money application and is set to make its decision by the end of the year. This will mean that all 3 service providers have mobile money capability which they can market to their combined 10.4 million subscribers (as of end of year 2013). One can only wonder why Zamtel took such a long time to get this off the ground! It will be interesting to see how the dynamics of this sector change once a new service provider enters the market (supposedly after digital migration in 2015).

TAZARA suspends operations

The Tanzania Zambia Railways Authority (TAZARA) suspended both passenger and goods trains between Tunduma and Dar- es- Salaam due to withdrawal of labour by unionized workers on the Tanzanian side. The workers are demanding their four months unpaid salaries by management. However, the service will continue to run normally on the Zambian side between Kapiri-Mposhi and Nakonde. TAZARA is a key route to the port of Dar- es- Salaam which was the quickest route to the Indian Ocean for Zambia prior to the recent linking of Nacala port in Mozambique.

This is another blow to the railway line which has continued to suffer from operational inefficiency, disruptions and a lack of adequate funding over the years. Can they get their act together or continue to die a slow death? And could this be the opportunity for Nacala to usurp some of the passenger and freight business that goes on this line?

NAPSA driving volumes on LuSE in May 2014

The average daily volume traded this month has shot up to 106.6 million shares from 17.3 million in the entirety of April, according to data compiled by Bloomberg. The National Pension Scheme Authority (NAPSA) has been driving the growth in volumes. The authority has approximately K8bn worth of assets under management and wants to increase its investment allocation to equities to 21% from the current 9% according to its treasury investments officer. They have a lot of excess cash which their looking to put to work on the stock market but, unfortunately, to date, there are still just 21 listed companies on the Lusaka Stock Exchange (LuSE).

One always hears about various Zambian companies/parastatals proclaiming their intentions to list on the LuSE but only Prima Re-insurance have put their money where their mouth is over the last 6 years. Finance Bank is said to be close but then again they said that last year and it came to nothing. Madison Financial services was said to be listing 40% of their shares by April 2014 but still no news on that. The stock market is a great way for retail (you and me) and institutional investors (like NAPSA) to boost their wealth – Warren Buffet is a great example of that; all his wealth was generated from prudent investment in various financial products, most of which were stocks and not because an inheritance. The LuSE is still a very young exchange, with a current market cap of K61.7bn (including Shoprite) – it still has a lot of room to grow.

The LuSE all-share Index closed the week at 5,966.30 points.