Zambia Weekly Wrap - April 6 Edition

The IMF completed their latest Article 4 consultation meetings with senior government officials which highlight fiscal and external pressures that the economy is facing. You can read the full statement here. Below is a chart of the key takeaways:

As can be seen, some of the issues like pressure from agricultural subsidies and sub-optimal pricing of fuel, are self-imposed. Last year, the government purchased over 1 million MT of maize from farmers – 100% over-budget, which is a key reason why the farmers were paid late. Maize purchases need to stay within budget – the previous government spent billions on agricultural subsidies but that didn’t help them stay in power (hint hint’).

Fuel pump prices at their current levels are not covering costs which led to an accumulation of $257 million in arrears to PTA bank by the end of February. PTA bank finance government’s fuel procurement as per this supply chain chart:

Fuel prices need to be raised to optimal levels and they probably will be this month – low pump prices have been great for the populace but not at the expense of investment in other key areas.

Other issues like state pension deficits and expenditure on road infrastructure have built up over decades and were not addressed by previous parties in power. On pensions, the government took one step in the right direction by raising the retirement age but more bolder action is required. This will have to involve disposing of state entities like Zambia State Insurance Corp., Zamtel etc. to private buyers in order to raise and free up cash which would go a long way towards alleviating pension deficits and road financing pressures.

The dispute over the new mining taxes has had a lot to do with timing – it has been well documented that copper prices have dropped significantly to as low as $5,400 per MT (around $6,000 per MT now) – which means that miners are paying more while earning less. The idea behind the tax changes was good because mining has not contributed enough to tax revenues but timing unfortunate. In two days we will find out what the compromise will look like – the IMF (like Zambians should) is looking for a comprehensive deal and not a mine-by-mine deal, which will be better for government revenues in the long run. April 8 could also see an appreciation of the Kwacha whose supply has been low on the domestic market because inflows from mining companies have been very low (account for over 70% of forex earnings).

It is also very unfortunate that it takes an IMF consultation for Zambians to hear about the condition of government finances. What the government must realize is that a lack of transparency breeds speculation/uncertainty which is what people (domestic and foreign) will end up making their decisions off of. Amos Chanda (special assistant to the President for Press and PR) understands this, why doesn’t the Ministry of Finance get it?

$800 million in deals signed on President Lungu’s China trip

PRESIDENT Edgar Lungu has facilitated the signing of a range of investment agreements in China to a total value of US $800 million. The investment agreements, with the major one being the oil refinery and the majority private sector-driven, have been signed between Government and the Zambian private sector companies working with their counterparts in China. (Read more)

Construction of 1,600MW Batoka power plant set to begin in January 2016

ZAMBIA and Zimbabwe will start constructing the 1, 600-Megawatts (MW) Batoka power stations in January 2016, Mines, Energy and Water Development Minister Christopher Yaluma has said. Two Batoka Gorge hydroelectric power stations with the capacity of 800 MW each will be constructed around 54 kilometres downstream from Victoria Falls extending across the international boundary of the two countries. (Read more)

Mansa sugar set to inject $54 million

MANSA Sugar, is set to invest a total of US$54 million in the plantation and production of sugar in Chembe District of Luapula Province. The project which will be located in Chembe district is set to start next month.
Luapula Province Permanent Secretary Bornface Chimbwali who confirmed the development in an interview from Mansa yesterday said the plantation would be located near the Multi Facility Economic Zone (MFEZ) while the plant would be located with the economic zone. (Read more)

Key data