Zambia weekly wrap - december 13 edition

Energy Regulation Board implements further cuts in pump prices

The ERB cut pump prices of petrol, diesel and kerosene for the second time in the space to two weeks. Pump prices now stand at K9.89, K9.19 and K6.77 per liter for petrol, diesel and kerosene, respectively. This equates to a combined average reduction of 8.2% across the three products. The ERB cited a significant drop in the price of the cargo shipment procured in September which docked on December 1.

This will provide somewhat of a boost to retailers who should be able to pass on some savings to consumers (who have been under pressure this year), especially over the holiday season          . Consumers will have slightly more disposable income to spend on everything from food to clothing. Global oil prices are likely to remain low going into 2015 because of higher production by non-OPEC nations like the USA and a slower rise in demand - which should provide a further boost for the Zambian economy as well as strained government coffers. But ultimately, the long term solution to the country’s high fuel prices is to reform the procurement process – which also means Indeni and Tazama’s operations.

So far the government is working on a ‘govt-to-govt’ procurement deal with Saudi Arabia and Tazama has also announced a tender for the supply of 11.2Km of pipe and pipe materials to help shore up their 1,700Km pipeline. Alternatively, the $1.6 billion ‘Bwana Mukubwa’ oil refinery should begin construction in 2016 and will have the capacity to process 5 million MT of oil annually (Indeni does under 1 million MT). Success in combination with biofuel blending could radically reduce the cost of doing business in the country.

NUMAU president envisions difficult 2015 wage negotiations

The president of National Union for Miners and Allied Workers (NUMAU) has predicted tough wage negotiations with mining firms operating in Zambia because of the challenges experienced this year. The K600 million in VAT refunds still being withheld by the Zambia Revenue Authority (ZRA), global copper prices have continuing to fall and implementation of a new tax regime will be the major hurdles against union negotiators this year. A potential increase in power tariffs is also under dispute in the high court.

Last year workers at Lumwana mines received 11% increments where as other mining firms negotiated increments in a similar range. This year, negotiators are in a much weaker position and will be lucky to earn their members pay-rises close to inflation. The new tax regime should pass unchanged but despite all the talk and threats of deferred investments by mining firms, nobody really knows whether the impact will be positive, negative or neutral – fear of the unknown. This will make the first quarter of 2015 very interesting.

Shoprite opens 23rd supermarket, Eastpark Mall opens its gates

Shoprite Zambia opened its 23rd store in the country - located in Kapiri Mposhi, Central province. The $1.2 million store has employed 102 staff. This comes at the same time that ‘East Park Mall’, anchored by Pick N Pay opens its doors to consumers in Lusaka. This will be Pick N Pays 10th store in Zambia.

This continues the trend involving South African retailers making a mint off expanding their Zambian operations (not that there is anything wrong with that). What is wrong is that there are hardly any Zambian-made goods on their shelves so most of the benefits go to South African manufacturers. The country needs a stronger manufacturing base of quality products which can be stocked on any retailers shelves so that any money being made stays in the country. Until that happens, the economy will be prone to external shocks such as the currency depreciation experienced earlier this year. Wealth and job creation will also continue to remain outside the control of Zambians. Making quality products is what makes entrepreneurs multiple times wealthier than General Managers or CEOs of foreign companies.

Professional Insurance Corp. announces intention to list on Lusaka Stock Exchange

Professional Insurance Corporation Zambia (PICZ) announced its intentions to list on the Lusaka Stock Exchange (LuSE). The company was quoted on the LuSE at the end of September – prior to which it had converted into a Public Limited Company (Plc) as per exchange requirements. PICZ is 65% owned by ‘Finsbury Investments’. This would be the 3rd insurance company to list on the exchange within the last 2 years.

Finsbury is 100% by Finance Bank chairman Dr. Rajan Mahtani through Mahtani group of companies. Mahtani also has advanced plans to list Finance Bank on the LuSE (imminent), Johannesburg Stock Exchange (JSE) and London Stock Exchange (LSE).  Exciting times lay ahead for the LuSE and any investor looking to participate.

Data Check

LME 3-month Copper closed at $6,480 per MT