Zambia set to tap international bond market to fund projected K10 bn budget gap
Zambia’s plan to plug a gaping budget deficit by more than doubling foreign bond issuance is sending dollar-borrowing costs to 14-month highs.It could get worse, according to Oliver Saasa, a consultant who was briefed about the plan to raise as much as $2 billion in Eurobonds by a Finance Ministry official. The southern African nation may have to pay as much as 10 percent for the new debt, about 2 percentage points higher than yields on existing securities, he said. (Read more)
It makes financial sense to tap the international bond market in light of the limited size of the domestic capital markets and the prospect of further pushing up already-high bond and T/bill yields (killing private sector credit growth). However, this will further expose Zambia to increased currency risk – which puts pressure on government finances especially when the Kwacha depreciates as much as 21% to the US dollar (2 years in a row now).
It will be interesting to see where this third Eurobond offering will be priced. Investors will like the long term growth prospects of Zambia but a lot will depend on how investors perceive the Government’s ability to follow through on fiscal adjustments as the 2016 general elections approach. The Minister of Finance revised down his GDP growth forecast for 2015 from 7 to 5.8% on lower mining and Agriculture output. Ghana, which is in a significantly worse fiscal and economic position than Zambia is set to do a $1 billion Eurobond at the end of this month. Zambia’s offering should be priced below that.
Ministerial Statement - MoF
The Minister of Finance gave a Ministerial Statement at the opening of the current session of parliament. The main highlights were:
What was very disappointing in the parliamentary session was the lack of quality probing questions directed toward the Minister of Finance by parliamentarians – opposition or otherwise. With the media being partisan (and to a large extent broken), parliamentarians are the only hope of holding the Government to account. Is it a lack of interest or understanding? Either way it doesn’t inspire much confidence!
IMF Article IV report
The report, which you can download by clicking here is a treasure trove of data and provides tremendous insight into the Government’s finances (which are not published if ugly). On the monetary policy side, the IMF recognises that the central bank has basically done a good job in light of the headwinds that have been faced.
The fiscal side is where the major challenges lay and the IMF team made recommendations as to how the 2015 budget deficit can be narrowed (which involved raising VAT). They expressed concerns about raising more external debt. The Government ruled out raising taxes in 2015 but has started to implement some of those changes including:
There are a lot of smart people working in Government. They know what the problems are but it’s the execution of solutions needs to be improved. Furthermore, with 2016 elections fast approaching – will there be any political will to make tough calls?
Government to export 800,000 MT of maize
GOVERNMENT will this year export 800,000 metric tonnes of maize, Minister of Agriculture and Livestock Given Lubinda has said. Mr Lubinda, however, assured that Government will not deplete the strategic reserves as a result of the exportation of the maize. (Read more)
Zambia Revenue Authority set to revise 2015 revenue estimates
THE Zambia Revenue Authority (ZRA) will revise the revenue collection estimates for this year following the recent changes made to the 2015 mining tax regime, Commissioner General Berlin Msiska has said. Government has revised the 2015 taxation regime for the mining sector which will see mineral royalty tax rate for open cast mining and underground mining operations pegged at nine per cent. (Read more)
Government planning to ban raw mineral exports – Mines Minister
Zambia, Africa’s number two copper producer, plans to introduce a law banning the export of unfinished mineral products, its minister of mines said on Friday. “We want to curb the unnecessary export of unfinished mineral products. We need to get all exports beneficiated in the country and this will come into effect very soon,” Christopher Yaluma told a mining and energy conference. (Read more)
It’s a good idea to have mining companies add value to copper before exporting it and could work from a policy aspect if executed well enough. But as we’ve seen over the last 7 years, it could backfire and destabilize the mining sector if implemented without proper dialogue/consultation.
Zambia partially migrates to digital
ZAMBIA today switches from analogue television to digital terrestrial broadcasting in line with the June 17 deadline set by the International Telecommunication Union (ITU).
This means that Zambia National Broadcasting Corporation (ZNBC) will now have an initial four channels dedicated to news, sports, Parliament and children. (Read more)
Ikulileni Investments IPO unsuccessful
THE ‘controversial’ listing of Ikulileni Investment Plc was withdrawn on Monday after failure to meet the Lusaka Stock Exchange (LuSE) minimum subscription requirements.
Ikulileni Investment Plc, incorporated and registered in Zambia last year, owns 11.9 percent of MTN Group Limited’s Zambian unit at a share sale valued at almost US$97 million and was scheduled to list on the LuSE on June 16, 2015. (Read more)
The listing (unfairly) got some very bad press which resulted in poor subscription.
Tripartite Free Trade Area launched
African leaders have agreed to create the continent's largest free-trade zone, covering 26 countries in an area from Cape Town to Cairo. The deal, signed in Egypt, is intended to ease the movement of goods across member countries which represent more than half the continent's GDP. Since the end of colonial rule, governments have been discussing ways to boost intra-African trade. (Read more)
UMCL to launch first commercial iron ore mine in Zambia
Zambia's first commercial iron ore mine, Sanje Hill will start mining operations on July 7, 2015 with committed investment of US$10 million. The mine is being developed by Universal Mining and Chemical Industries Limited (UMCIL), which is part of the Trade Kings Group of Companies. Sanje Hill located in Nampundwe area has a capacity of 5.4 million tonnes and estimated to yield tangible iron ore deposits over the next four to five years. (Read more)
Trying to decipher this puzzle that is Zambia by using a variety of publicly available data (structured and unstructured) in conjunction with my own skill/experience. * * *