zambia weekly wrap - february 22 edition

VAT rule 18 amended

Effective February 23 2014, VAT ‘rule 18’ is set to be amended to include import documents from a transit country as sufficient proof of export as well as scrapping the provision requiring export proceeds to be deposited in Zambian accounts (proof of payment by an intermediary should suffice). For transactions prior to February 23, exporters will be required to fulfil the old rules. [KPMG Zambia release on 20.02.2015]

Enforcement of provision 2 had led to an impasse between the Government and exporters (mostly mining companies) over the last 2 years which resulted in the Zambia Revenue Authority (ZRA) holding over $600 million in VAT refunds. This provision was unreasonable to miners who mostly sell their produce to commodity traders as it was difficult for them to produce documentation for the final destination of their exports.

However, it’s interesting that transactions prior to the date of effect for the amendments will be subject to the old rules. This will help the ZRA with court cases involving rule 18 which are still under litigation. And last year, the Minister of Finance said that VAT refund payments to miners would be “staggered” without giving details on the time frame. The $600 million was probably used up in Government operations in 2014 so they need more time to repay.

Kwacha declines against major currencies

The Kwacha was under tremendous pressure this week against major currencies. It dropped x% against the US dollar to breach the K7 mark for the first time since May 2014.

The currency has been on a downward trend since 2013 because of lower copper prices – a trend shared with Chile (the largest producer of copper in the world:

Low supply of the US dollars on the domestic market has put further pressure on the Kwacha and left it even more vulnerable to short sellers as well as panic buying of foreign currency. The central bank probably sold (sold $251 M in Q3 & 4 of 2014) US dollars onto the market to defend against further decline which would result in an uptick inflation on the import-heavy economy. They have around $3 billion in foreign reserves which is not enough to combat currency depreciation over a longer period so it will be interesting to see what the new Bank of Zambia Governor has up his sleeve.

Government announces mealie meal price reduction, temporal lifting of wheat import ban

The Minister of Agriculture announced a K4 cut in the wholesale price of mealie meal resulting in:

• Breakfast meal wholesale price at K61 per 25Kg bag
  
• Roller meal wholesale price at K44 per 25Kg bag
  

The recommended retail margin is K3 per 25Kg bag. They also announced that due to the current deficit of wheat in the country, they would allow importation of 75,000 MT of wheat until 31 August 2014. [ZNBC]

Government close to agreeing oil deal with Saudi Arabia

The Minister of Energy announced that negotiations for a Government-to-Government oil deal with Saudi Arabia were at an advanced stage and close to completion. [ZNBC]

The purpose of this mode of procurement is to cut out unnecessary middlemen who add to significant cost to a currently inefficient process. Details of the deal a potential impact on domestic pump prices have not been revealed. 

New machinery purchased for Government printers

The Government has purchased new machinery and equipment for its printers wing which will be able to print ballot papers for elections as well. [ZNBC]

Prior to this, the Electoral Commission of Zambia (ECZ) would have ballot papers printed in South Africa because of the lack of adequate capacity within the country. 

Key Data

LME 3-month Copper seller price closed the week at $5,692 per MT