Zambia Debt Watch

Zambia recently borrowed $14 million from Kuwait in order to set up a new teacher training college in North-Western Province. The loan agreement will last 24 years, preceded by a 4 year grace period. The project is expected to commence this year and complete end 2015 / early 2026 at a total cost of $20 million. Government is funding the other $6m through other means. (Source : Lusaka Times)

Thank You, Chikwanda!

I have been writing on economic issues relating to Zambia for many years now. And I can confidently say that this is the most exciting time to be a Zambian economist for more than a decade. Why do I say so?

After Mwanawasa crossed the HIPC completion point and secured debt relief the economic issues became largely "microeconomic". The analysis was mainly about the economics of reducing corruption, tackling local poverty, creating incentives, securing money from copper, and other micro issues. In fact china was just arriving on the continent, so the politics of foreign investment was not as amplified.

Desperate Zambia gambles on bond finance

Editor's note : The Financial Times (UK) reported this week that Zambia is looking to tap the bond markets. The Government is undeterred by a crumbling currency, worsening fiscal deficit and rising debt repayment costs. 

Zambia plans to become the first African government to tap global capital markets in 2014, providing an important test of investor demand for the continent's debt.

Deutsche Bank and Barclays are organising meetings with investors in the US and London this week and next ahead of a probable US-dollar denominated bond sale, which would break the lull in African sovereign issuance so far this year.

Saving the Kwacha : Abolition of SI 55

Zambia is a very funny country. One would have expected the removal of Statutory Instrument 55 ("SI 55") to be properly analysed by people with pros and cons. Instead what I have heard and read so far is pretty superficial and disappointing comments.  What is even more puzzling is that it seems all of a sudden no one wanted SI 55. Where are its supporters?

We may even go further and ask, why do these same people now believe SI 55 is the cause for the free falling Kwacha? Where is the cost benefit analysis of the latest decision? What is being gained and lost? And is a fire sale abolition of instruments without wider public consultation (not just with multinational businesses) good way to make policy? We must not forget that a lot of money has been spent by GRZ to get here! 

Saving the Kwacha : Additional BOZ Measures

In the midst of revoking SI 55 and SI 33 another piece of monetary news did not get much media coverage. [I may separately return to the abrupt SI changes in future posts].

The Bank of Zambia (BoZ) last week announced additional measures (on top of recent increase in reserve ratios) to tighten liquidity and prop up the Kwacha. The rate on its overnight lending facility (OLF) is now set at 6% above the policy rate. Prior to these changes the OLF was set at 2.5% above the policy rate, with interbank rates trending within a 2% range around the policy rate. 

BoZ has also now restricted automatic access to OLF. Commercial banks will be able to access OLF only once a week. Banks will be required to meet their liquidity needs by borrowing in the interbank market. With liquidity in our banking system largely concentrated among a few institutions, this is will inevitably lead to much more pressure on overnight rates – even more than the 3.5% hike in the OLF rate implies.

Saving the Kwacha : Chikwanda Responds

Editor's note:  Finance Minister Alexander Chikwanda this morning gave a press conference on the state of the economy at which he delivered the speech below. The speech is designed to restore investor confidence, especially with respect to money markets. The main announcement is that Government is no longer seeking to defend or keep the Kwacha below K6 per US$1 because of depleting foreign reserves. Crucially, it believes "the weakening in the Kwacha parity is temporary and Government will not be tempted into interventions". GRZ has also moved to revoke SI 33 and SI 55 with immediate effect. Given the pressures are structural (e.g. copper risks, increasing fiscal deficit, declining political environment) it is unlikely that the latest changes, though welcome in some quarters, will have much of an effect on the medium term trend  of the Kwacha. I will leave discussions of the wider economic and political implications of revoking SI33and SI55 to another time.

The Government wishes to update the nation on the state of the economy to ensure that the public is well informed on the latest developments and the outlook in line with our economic development model that aspires to maintain strong partnerships between ourselves, private sector, cooperating partners and other non-governmental partners in development. 

Zambia Fitch Rating (March 2014)

Editor's note: Fitch today affirmed Zambia's credit rating at 'B', suggesting the outlook remains stable despite significant deterioration in public finances. It appears slightly dated with respect to the rapid monetary developments taking place and other issues (e.g. GDP rebasing has not been mentioned). Full assessment below. 

Fitch Ratings affirmed Zambia's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'B'. The issue ratings on Zambia's senior unsecured foreign and local currency bonds are also affirmed at 'B'. The Outlooks on the Long-term IDRs are Stable. The Country Ceiling is affirmed at 'B+' and the Short-term foreign currency IDR at 'B'. 

KEY RATING DRIVERS

The affirmation of the ratings reflects Zambia's continued strong macroeconomic performance, with robust growth and low inflation. However, vulnerabilities have increased as fiscal policy has turned more expansionary and the exchange rate has come under pressure, partly due to weaker copper prices but also due to policy announcements, which have undermined private sector confidence.

Mining Developments, 2nd Edition

Gemfields Plc, producer of about a fifth of the world's rough emeralds, says revenues from its February auction in Zambia were a record $36.5 million. The February auction of rough emeralds and beryl was the fourth to be held in Lusaka in the last 12 months. Gemfields has been lobbying GRZ to extend its emerald auctions beyond the country, without success [`Source : Reuters]

Chinese owned Non Ferrous Africa Mining Corporation (NFCA) has committed US$100 million in this year's financial budget towards the development of the South East Ore Body Mine (SEOB) in Chambishi as it seeks to expedite the project. The project when completed, will create more than 5,000 jobs. NFCA's planned investment in the development of the SEOB was US$830 million and that by last year, the company had injected in a total of $123 million [Source : Times of Zambia]

Zambia Copper Risks, 3rd Edition

More trouble for Zambia. Copper prices have fallen 14.4 per cent this year, including 10 per cent in the past month.

On 30th April 2013 I wrote an article 'Zambia is Vulnerable' where I argued that there's a copper price storm coming for Zambia.

The Real Challenges to Growth

Editor's note : the article below is from Nobel laureate Michael Spence (via Project Syndicate). It mainly focuses on the economic challenges facing advanced economies as they seek to recover from the crisis. However, some of the general lessons are applicable to the developing economy context. Spence rightly notes that inclusive growth is the only sustainable equilibrium worth aiming at in the long term. Growth does not happen in a vacuum, it requires effective leadership that has the know how and will to build new growth models for their countries.  

Advanced economies' experience since the 2008 financial crisis has spurred a rapidly evolving discussion of growth, employment, and income inequality. That should come as no surprise: For those who expected a relatively rapid post-crisis recovery, the more things stay the same, the more they change.

Funding Local Radio

Information Minister Mwansa Kapeya recently said GRZ is reviewing the media policy so that community radio stations can start benefitting from government grants to sustain their operations. Mr Kapeya says GRZ wants to assist community radio stations because many operate purely on volunteerism (Source : Times of Zambia).

Zambia has more than 70 radio stations, and rural radio stations are increasing. GRZ had set aside K8.3 million to install FM transmitters to enhance radio reception countrywide. So far, radio transmitters have been installed in Shangombo, Mulobezi, Chilubi Island, and Shiwang’andu. UNESCO has also provided some financial assistance to radio stations situated in far-flung areas. And theres a controversial possibility of utilising CDF funds as well.

Saving the Kwacha

The Bank of Zambia (BoZ) has momentarily abandoned its "random walk" mantra by offloading foreign reserves to desperately keep the Kwacha under K6 per $1. Only last week Finance Minister Chikwanda was still saying government will allow "forces of demand and supply to determine the currency's performance". 

The decision to keep the Kwacha below K6 appears to be political rather economical. The Patriotic Front (PF) cadre base is struggling to come to terms with the new realities. The Kwacha is now at its lowest level against the US dollar. This morning it was trading at K6.0.

Education and Training in Zambia

Editor's note: This is a guest post by Henry Kyambalesa, a resident contributor to Zambian Economist. He is a Zambian academic currently residing in Colorado, USA. The articles argues that the government's recent decision to impose the teaching of selected Zambian languages in schools from Grade 1 through Grade 4 is misguided. It also calls for creation of a Higher Education Authority.

In 1917, a philosopher by the name Alfred North Whitehead warned about the ill-fated destiny of a society which does not make meaning ful invest ments in its peop le's education that is perhaps truer today than it was during his time:

"In the condi tions of modern life, the rule is ab solute ... [a nation] which does not value [edu cation] ... is doo med."

It should, therefore, be obvious that accessible and high-qua lity education can be said to be the most impor tant invest ment a govern ment can make. It is not possible for any soci ety to succeed in the pursuit of other human endeavors without ade quate pools of enlightened citi zens.

Zambia's Copper Risks, 2nd Edition

Copper prices were on track for their biggest drop in more than two years Friday, as investors worried about slowing growth in China, the world's biggest consumer of the industrial metal. Copper for May delivery, the most actively traded contract, fell 3.6% to trade at $3.1015 a pound on the Comex division of the New York Mercantile Exchange. It was the lowest price since November and the biggest one-day percentage drop since December 2011 (Source: Wall Street Journal)

Investors have become unnerved by a barrage of negative economic news coming out of China, which accounts for 40% of the world's copper demand. On Friday, a solar-equipment maker became the first Chinese company to default on a bond traded in the mainland, according to Moody's Investors Service.

Emerging Markets’ Submerging Currencies

Editor's  note: the article below from Michael Heise (via Project Syndicate) observes that emerging economies have gotten off to a grim start but the impact is not uniform. Most importantly it seems that financial markets are evidently punishing the currencies of countries that, due to macroeconomic imbalances or political instability, are susceptible to external shocks of any kind. This is particularly important in our own context as we see the Kwacha continue to fall and debt costs rising.  

For many emerging economies, 2014 has gotten off to a grim start. Concern over the Chinese economy's marked slowdown and the Argentine peso's steep slide against the US dollar has triggered heavy selling pressure on an array of emerging-market currencies. But the current volatility does not portend sustained weaker growth in emerging economies as a whole. Differentiation is needed, and that is what financial markets are now doing.