Zambia Weekly Wrap - October 4 Edition

Government considering scrapping corporate tax, upping mineral royalties for mining sector

News broke this week that the Government was considering scrapping corporate tax for the mining sector in favor of a higher mineral royalty rate which is currently at 6 percent. The Government is said to consider mineral royalties simpler and more transparent to administer than corporate taxes. No indication of the new percentage were given. 

Source: ICMM report

Logically, the move would make financial sense. According to the economic report of 2013, the Government collected K1 billion in corporate tax from the mining sector (3.9 percent of total revenues) in contrast to K1.7 billion in mineral royalties (6.7 percent of total revenues). The top 3 contributors to Government revenues last year were VAT, Pay-as-you-earn and Customs & Excise duty which collectively accounted for slightly over 67 percent of 2013 revenues – a trend which has repeated itself over the years. Copper output has also been projected to exceed 1.5 million MT over the next couple of years as major mining projects go online.

This could be good news for constrained Government coffers and possibly the ZCCM Investment Holdings which owns a portion of many of the major mines. How will the mining companies react? Like any smart company, they’ve already put their legal teams to work in order to see if there is a way around this. We should learn more next week as the Minister of Finance will be presenting the 2015 National Budget on Friday.

Johannesburg Stock Exchange lists currency futures contracts for ZMW, NGN and KES

The Johannesburg Stock Exchange (JSE) listed 3 currency futures contracts which track the exchange rate between the South African Rand against the Zambian Kwacha, Nigerian Naira and Kenyan Shilling. Investors, importers and exporters will be able to use these instruments to hedge against currency fluctuations like those experienced by the Kwacha this year.

Zambia has many South African companies doing business here ranging from commercial banks to supermarkets. Trade between the two countries has grown by a staggering 320 percent over the last 10 years. According to South Africa Revenue Service (SARS) data, trade flows between Zambia and South Africa from January to July 2014 were slightly below R18 billion (approx. K10 billion). Could this also be a catalyst for more action on the recently launched Bond and Derivatives Exchange (BaDEx)? Hedging plays an important role for business regardless of sector – currency risk in particular has negatively impacted the financial statements of many Zambian companies this year.

Agriprofocus Zambia hosts maiden ‘Agribusiness Financial Fair’

Agriprofocus Zambia launched the inaugural Agribusiness Financial Fair in Choma, Southern province. The 2 day Fair attracted over 500 farmers. 13 companies participated in the event by showcasing their products, carrying out workshops and business forums. The list included various Regulators, Banks, Agribusinesses, Insurers and other types of organizations. Southern province is widely known as a strong producer of Dairy, Beef and Sugar. Agriprofocus promotes farmer entrepreneurship – the Zambian version of it is being hosted by Dutch development organization SNV Zambia.

Zambian farmers need all the knowledge that they can get their hands on in order to hit their full potential. They need to learn how to be more productive and business savvy which should be complemented by cheaper access to finance and tailored insurance products to help them hedge against various risks. More small-holder farmers need to be integrated into the financial ecosystem but for the most part, the majority of banks remain rigid and slow to adapt their methods.

Renault set to officially enter Zambian market in January 2015

Renault Group will officially be rolling out a range of products and services in the Zambian market effective January 2015. They will be partnering with F-one Hazida Limited who will be the sole distributors of Renault vehicles in the country. They will initially provide 3 models – the Duster (compact SUV), Koleos (compact SUV) and Fluence (Sedan).

Like Pizza Hut’s recent announcement, here is another company looking to target the growing middle class segment in Zambia.  Second-hand Japanese imports are still very attractive and continue to dominate the automobile market because they are well priced and easy to purchase. It will be interesting to see how Renault position their brand new vehicles price-wise in this market because vehicle financing for individuals is still relatively new and quite pricey for your average Zambian. There are also lots of other players in market – Chevrolet, Toyota, Hyundai etc. Could we see lower pricing as a result of additional competition?

Government in dividend bonanza: The Government received dividends from Zanaco Bank (K10.8 million), Nanga Farms (K3 million), Mulungshi Village Complex (K150,000) and Kepa Housing Complex (K10,000)

CEC restored power to troubled Konkola Copper Mine (KCM) in a ‘good faith’ gesture to the mine which still owes them a $44 million electric bill.

New Bosses at ZNBC (Eng. Richard Mwanza – Director General), ZCCM-IH (Dr. Pius Kasolo – CEO) and Zambeef (Carl Irwin – joint CEO)

Data Check

Kwacha closed at K6.34 per USD, K10.13 per GBP, K7.94 per EUR and K0.56 per ZAR

Yields from latest T/bill auction: 91 days (9.5%), 182 days (17%), 273 days (16.4%) and 364 days (17.99%)

LME 3-month Copper seller price closed week at $6,630 per MT

The LuSE all-share index closed the week at 6,214.60, down 0.12%