zambia weekly wrap - july 26 edition

LUSAKA, July 24 (Reuters) - Zambia has issued a $1.25 billion eurobond meant for infrastructure development at a coupon rate of 8.97 percent, a government statement seen by Reuters on Friday said. (Read more)

According to the President’s special assistant for PR, the government was looking to raise between $1.5 and $2 billion. An update from the Financial Times indicated that the offering started off with tepid demand at the beginning of the day but picked up significantly toward the end of the trading day with the order book exceeding $2.5 billion. The issuance coincidentally happened on the same day Goldman Sachs revised down their global copper price projections - in a week when commodities from gold to oil were down big! 

The $1.25 billion at an exchange rate of K7.65 to the US dollar falls just short of the financing required to fund the K10.5 billion shortfall that the Minister of Finance highlighted in the mid-year budget review last month. They will still want to raise an additional $300 - $700 million from other external sources. Will it be a syndicated loan from international commercial banks, China, the World Bank/IMF? It will be interesting to see where they turn to and what interest rates they will have to pay.

Exchange risk

Even though it makes financial sense to contract external debt (domestic debt too expensive and market too shallow), exchange rate risk will be causing major headaches for the Minister of Finance – not only its effect on external debt servicing (now north of $200m a year) but also its impact on the earnings of a number private companies (those which pay tax and hire people who also pay tax). Will businesses want to hire more people in an environment of exchange rate volatility/weakening (on top of high interest rates) is cutting into their margins?

The Kwacha is currently caught in the crosshairs of a slowing Chinese economy (which consumes half the world’s copper), slowing non-traditional exports (down 10% y/y) and a strengthening US dollar (which should rise further should the Federal Reserve raise interest rates later this year). This is the type of scenario that every country with a high import bill and over-reliance on commodity exports dreads. Because of this, Zambian consumers’ wallets are getting hit by rising costs (on top of an energy deficit!). And it’s not just Zambia – plenty of other African countries are experiencing the same thing because they have similar problems.

Silver lining

“There’s nothing like a crisis to spur action”.

In the grand scheme of things, this could end up being a good thing because it will force the government (who is reactive) to finally act with impetus on key issues affecting the economy and ultimately, the population (VOTERS). Road infrastructure is a good start but we could see further action such as:

• Diversifying and expediting energy projects (accompanied by appropriate policies)
  
• More robust policies to scale up industrialization
  
• Broadening the tax base and ramping up revenue collection 
  
• The government finally leaving fuel procurement to the private sector? (50:50!)
  

We have already seen some recent action on 2 of the above. Basically, we SHOULD see a greater effort to create a better environment for businesses to flourish and make this economy more sustainable in the way it grows (things which have remained inadequately addressed for decades).

London Metal Exchange data could signal more bad news for copper prices
A measure of demand for copper, the metal used in everything from power lines to electronics, is at the weakest in more than two years, signaling the meltdown that’s sweeping through commodity markets could get even worse. The number of requests to withdraw copper from London Metal Exchange warehouses relative to the level of global inventories tracked by the bourse dropped this week to the lowest since March 2013. That shows consumption has almost dried up for the stockpiles that have doubled over the past year. (Read more)


Treasury yields continue to fall as Zambia issues 3rd Eurobond
Today’s Treasury bill (T/bill) auction attracted K983 million in bids of which K427 million were allocated:
(Read more)

Indeni shuts down as government assesses damage caused by faulty oil

VICE-PRESIDENT Inonge Wina says the government will probe agents responsible for the importation of faulty crude oil which has halted operations at Indeni Petroleum Refinery. The refinery has shut down as key installations got damaged due to faulty crude procured by the government, according to sources within the Department of Energy. According to sources, the latest consignment of crude was not suitable for Indeni  Petroleum Refinery as the acid levels were higher than what Indeni was designed for. (Read more)

Stanbic Bank Zambia Purchases 49% Stake in Head Office Building from REIZ

Stanbic Bank Zambia purchased the 49% stake of Burnet Investments Limited held by Real Estate Investments Zambia (LuSE: REIZ) for a net consideration of US$2.84 million. Burnet Investments owns 100% of ‘Stanbic House’ – a property currently occupied by Stanbic Bank under a triple net lease (Read more):

IDC and IFC sign 100MW solar energy MoU
IFC, a member of the World Bank Group, has signed a memorandum of understanding with the Industrial Development Corporation of Zambia to explore development of two 50 MW solar PV independent power projects in Zambia through the Scaling Solar program. The projects would be Zambia’s first utility scale PV projects, providing competitively priced, clean power that would reduce Zambia’s dependence on hydro resources and diversify the country’s energy supply mix. (Read more)
 

Zambian pay-tv revenues set to rise as new DTT bouquets kick in
THE Zambian Pay-TV market saw subscriber revenues total approximately US$21.13 million in 2014, growing in value by 121% since 2008. Dataxis forecasts that revenues will grow to US$53.26 million by end-2018 with Digital Terrestrial Television (DTT) taking an increasing proportion of the total following the licensing of a new player in 2015/16. (Read more)
 

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