Zambia weekly wrap - november 30 edition

Energy Regulation Board reduces pump price of petroleum products

The Energy Regulation Board (ERB) reduced the pump prices of petrol, diesel and kerosene by K0.25, K0.38 and K0.27 per liter, respectively while wholesale prices were cut by 3.66%. The changes took effect yesterday at midnight. The new pump prices of petrol, diesel and kerosene per liter are K10.48, K9.73 and K7.21, respectively. Global oil prices have fallen by over 27% over the last 5 months and yesterday Brent crude traded below $70 per barrel for the first time since 2010.

Pix: michaelczinkota.com

The ERB said that the ZMW/$US exchange rate and the cost of each cargo are key determinants in pump prices. But this marginal reduction in fuel prices only encapsulates the costly inefficiencies that plague fuel importation which consumers cover as per ERBs Cost-plus pricing model - a 30% drop in global oil prices leading to reduction of only 3% in pump prices? Even if one “nets out” the 6.8% depreciation of the Kwacha which occurred as global oil prices were falling, in theory there should still have been a significant costs savings remaining. 

However, inefficiencies aside, this could be a stimulus of an estimated K18.6 million pumped into the economy over the next 33 days from price drop till 2015 assuming that Q1 fuel consumption patterns (petrol, diesel and domestic kerosene) hold. It is likely that there could be a more material reduction in Q1 2015 after the ERB purchases the next cargo shipment. The government is also working on securing a government-to-government oil procurement deal with Saudi Arabia with a view to cutting out costly middle-men as per current procurement process.

Civil service retirement age increased to 65

The retirement age for civil service employees was increased by 10 years to 65 though Statutory Instrument 63. The instrument states that “an officer in the public service will now retire on the 65th anniversary of their day of birth”. 

The issue of the retirement age has sparked some pushback from many in society primarily because of reasons such as “it hampers youth employment opportunities” or “exceeds the current life expectancy within the country”. However it’s important to understand that this is one of the long overdue steps in reforming the public service pension fund which has huge deficits projected at K2.9 billion in 2014, K2.6 billion in 2015 and K2.8 billion in 2016. The extension allows for more contributions by civil servants which will replenish various public pension funds over time. If these reforms are not implemented, tax payers will continue footing the bill of the currently unsustainable public service pension funds.

ZICTA suspends market promotion activities by mobile service providers

Zambia Information and Communications Technology Authority (ZICTA) suspended market promotion activities by mobile service providers (SPs) with immediate effect due to the poor quality of service. No promotions would be approved by the regulator until it was satisfied by the quality of service provided by MTN, Airtel and Zamtel. The three SPs were availed with technical reports highlighting their respective performance over 5 key parameters in the first 3 quarters of the year.

No responses have been issued by the 3 SPs yet. ZICTA admitted that they were still investigating to ascertain the root cause but have linked promotions offering “bonus minutes” to recent network congestion amongst the 3 SPs. This is an interesting move by the regulator – it cuts off promotions which are HIGHLY lucrative for SPs but also hurts consumers (a lot of whom have become heavy users of promotions became of perceived value). Have SPs been focusing on profits at the expense of reinvesting in their network infrastructure? Only time will tell if ZICTAs move will yield positive results.

Inflation rises to 8.1% in November

Inflation quickened by 0.2% from the previous month to 8.1% for the month of November. The rise was driven by an increase in prices of various food and non-food items like fish and vehicles. This comes off the back of the central bank raising the policy rate by 50 basis point to 12.5%. The country maintained a trade surplus which came in at a provisional figure of K67 million for October, down 22% from a revised September surplus of K99 million.

Data check

LME 3 Month Copper at $6,497 per MT