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Zambia: What to watch for in 2015

15/1/2015

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We are two weeks into 2015 and there are a number of key things to keep an eye on this year. Aside from watching the ‘Chipolopolo’ compete in this year’s African Cup of Nations (AFCON), here are a few interesting things to watch over the next 11 and a half months:
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Source: Electoral Commission of Zambia
January 20 Elections: Incumbent or opposition?

That will be the question which will be answered on the 20th of January as the population decides on which of the 11 presidential candidates will be ushered into State House as the sixth president of Zambia. It took 1.17 million (42% of votes) votes to elect late President Michael Sata in 2011 off of a voter turnout of about 54%. What kind of figures will number 6 rake in? Will their leadership quicken the pace at which the country moves forward socially and economically?
Kwacha: up, down or steady?

The Zambian kwacha depreciated by just over 12% against the US Dollar last year and had been down as much as 27% in May. As a country with a low manufacturing base which relies heavily on imports, a weaker currency negatively affects many sectors of the economy from company financials to the pockets of consumers. The Kwacha has already started on a low note because of next week’s elections as well as low US Dollar supply levels on the market.
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Energy: Lower fuel prices and more electricity generation?

Fuel: Global oil prices are now trading below $50 per barrel which is around 50% down from their $110 highs. If the Kwacha holds steady, we could see more meaningful drops in pump prices in 2015 which could boost economic growth (reforming the oil importation process is what will ultimately make a bigger impact on fuel prices). Could we also see more movement on the biofuel blending front this year?

Electricity: The 120 MW Itezhi Tezhi hydro and at least 150 MW of the 300 MW Maamba thermal should come online in 2015. Will this reduce load-shedding? Perhaps marginally because new mining projects will need more energy as well (consume over 50%). Other sources of renewable energy such as solar and wind have been talked about for a while – will we finally see some action in 2015?
Mining: Lower Copper prices in 2015?

LME Copper is already trading below the $6,000 per MT mark two weeks into 2015. Copper accounts for over 70% of export earnings and brings in the majority of forex. In addition to global copper prices, here are a few things to watch domestically in the mining sector:
  • How will the new mining tax regime work out?
  • VAT refunds: will rule 18 be amended and the circa $600 million impasse resolved?
  • Will we see higher copper output in 2015 as new projects begin to come online?
  • Miners legally challenged the decision to raise electricity tariffs in 2014 – will they play ball this year?
It’s fair to say that there is a lot to be resolved in the mining sector this year!
Government Finances

Government (GRZ) finances have been under pressure since the upward adjustment in wages for civil service employees in September 2013 (wages gobble over 50% of revenues) which led to a higher than anticipated budget deficit.  Despite an improvement in 2014, finances will remain under pressure because of the lack of diversified tax base (PAYE and VAT provide the majority of tax revenues) and heavy wage burden.
Agriculture: Extension services and irrigation

Extension services: The Government is set to recruit 500 extension services officers in 2015 which could be a boost to an agriculture sector replete (for the most part) with smallholder farmers. Increased extension services could see better farming/livestock methods and higher productivity this year and beyond countrywide. Extension services will be key to diversifying agricultural production in Zambia.

Irrigation: Most farmers depend on the rainy season for their water needs and neither have the capital nor adequate know-how to implement proper irrigation systems. $115 million funding received over two years ago from the World Bank for irrigation will FINALLY be put to use starting in Mufulira, Chisamba and Chirundu (covering 3,250 hectares in total).

African swine fever and army worm infestation are two key risks which need to be carefully managed countrywide.
Capital Markets: 2 IPOs, Lusaka Stock Exchange-Alternative Investment Market and ZAMACE

Initial Public Offerings (IPO): Finance Bank Zambia and Professional Insurance corporation look set to be listed on the Lusaka Stock Exchange (LuSE) this year. Madison Financial Services (LUSE: MFIN) was the lone IPO of 2014, raising K62 million.

LuSE Alternative Investment Market (AIM): The LuSE launched a second tier specifically targeted at attracted Small and Medium Enterprises (SMEs) to list and be able to raise cheaper capital. Which company will be first?

ZAMACE: The Zambia Agricultural Commodities Exchange (ZAMACE) could resume trading once regulation for a warehouse receipt system is put in place. In anticipation of this, the LuSE and ZAMACE signed a memorandum of understanding which would see the LuSE take a 60% stake in ZAMACE. 
Financial services: New capital threshold for insurance companies and Islamic Finance

Insurance: The Pensions and Insurance Authority (PIA) is set to make a decision on a revised capital threshold for the industry. Currently, K1 million is the required capital but figures closer to K10 million have been mentioned.

Islamic Finance: The Central Bank launched the guidelines for Islamic Finance in 2014. Which bank or company will take the lead on this in 2015? 
ICT: Digital migration and 4th Mobile SP?

Digital Migration: The Government is looking to beat the International Telecommunication Union (ITU) deadline of June 2015 for rolling out Digital Migration in Zambia. Phase one has already been launched for Lusaka with phase two and three coming after.

4th Mobile Service Provider: The Minister of Communication and Transport said that a fourth mobile service provider will be allowed to enter the market after implementation of Digital Migration. Vodacom is the name that has been mentioned a lot. 
Aviation: 5% customs duty removed and Fastjet to enter market

The Government removed 5% customs duty on aviation fuel as per 2015 National Budget. This will be a big boost to domestic and foreign airlines as fuel can take up a significant portion of total costs.

Fastjet: The low-cost airliner is set to begin operations in Zambia this year. It will be interesting to see whether their entrance will have a downward effect on domestic fares. Currently, Proflight Zambia is the dominant domestic airline. Cheaper flights in 2015?

What will you be watching for in 2015?
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