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Tuesday, 27 May 2014

Killing the Kwacha : another record fall

We always like to share reports from other news sources so that you have multiple angles on the issues affecting Zambia. We aim to encourage debate and action not indoctrinate our views. See below on what Bloomberg reported on the Kwacha today.

It goes without saying that though Razia Khan is correct that supply of foreign exchange is somewhat below its levels from some players (but not GRZ given the Eurobond), a more astute reading suggests the challenge are to do with sentiment. It is not an issue of demand and supply per se. It is simply about sentiment and clearly the fundamentals appear to be weakening given PF's general direction. As we have repeatedly noted, we have to see the Kwacha first within its general trajectory over the last three years, and then since September 2013 following the widening fiscal deficit position and subsequent credit downgrade, tapering of US credit and associated policy mistakes. The key is restoring confidence. Sadly, that may become challenging if the gathering suggestions that we may be  on the precipice of a major political risk are to be believed : 

Zambia’s kwacha retreated to a record low against the dollar, depreciating more than any other currency in the world this month, as lower copper prices and a tax dispute with mines curbed foreign-exchange supply.

The currency of Africa’s second-largest producer of the metal, used for electrical wire and water pipes, weakened as much as 2.3 percent, the biggest slide in two months, to 7.035 per dollar. The kwacha was trading at 6.9610 as of 2:03 p.m. in Lusaka, the capital. That extended losses in May to 9.4 percent.

Sunday, 25 May 2014

News from Malawi!

News Flash:

Former Ivorian President Laurent Gbagbo has disclosed Joyce Banda is his long lost sister. 

Confirming the development, Hosni Mubarak, their paternal uncle said the whole family had been searching for their long lost sister since the fall of their maternal grandfather Idi Amin Dada in 1979.

Meanwhile family spokesperson Robert Mugabe says it's a joyous occasion for the family to finally have one of their one and only sister back home. Mugabe said Joyce is definitely their sister.

"She definitely has the traits of father. Our father would have been proud of her", Mugabe remarked!

(Author : Kasabo Seth Rozell Kalusa)

Saturday, 24 May 2014

Saving the Kwacha : How should PF respond?

There are some readers who appeared to be in disbelief that the Kwacha is at K6.9 per $1. The rapid fall of the Kwacha is clearly shown in the chart below (click for clarity). 

The rapid fall of the Kwacha has puzzled many people. But if you are a follower of Zambian Economist this was all predicted. Indeed, in our strident opposition to the abolition of SI 55, when everyone was praising the move, we made it clear that abolishing SI55 would only make things WORSE not better.

Friday, 23 May 2014

President Sata vs Daily Nation

President Sata this week made a much publicised court appearance in the case he has brought against Richard Sakala and the Daily Nation. This is the first time a sitting president has testified in a court case and opened himself up to the possibility of brutal cross examination.

President Sata is suing the Daily Nation over an article they published on 16 May 2012, in which the author Choolwe Beyani suggested that President Sata had ordered the Development Bank of Zambia (DBZ) to fire its lawyers, Vincent Malambo and Company, to protect his friends Fred M’membe and Mutembo and Nchima Nchito from paying back K14 million to the DBZ.

Local Govt Developments (Tujilijili, Vendors, CDF)

Chipata Municipal Council has conceded defeat in its effort to control the sale of the infamous alcoholic sachets popularly known as Tujilijili. Despite being banned Tujilijili continues to pour in Chipata largely due to the porous between Zambia and Malawi. Local traders have "vowed not to stop the sale of the illegal products" (Source: Times, MuviTV). In 2012, GRZ banned the manufacture and sale of Tujilijili. But as expected, the ban has not been enforced in many councils, due to lack of capacity and competing problems. What has happened is that imports have gone up!

Sunday, 18 May 2014

Energy Developments (Kariba, Oil, Indeni)

The EU says Kariba Dam is a disaster waiting to happen. It estimates that around $100m is needed to repair the dam. The 128m tall dam was built in 1955 under the British colonial Federation of Northern Rhodesia, Southern Rhodesia and Nyasaland. Zambia and Zimbabwe have reportedly only got three years avert disaster have been met with near-panic. The only challenge is where to get the money. A tricky matter internationally given Zimbabwe is one of the partners (Source: Times of Zambia, The Economist)

Saturday, 17 May 2014

Zambia is Mocked by Vedanta

An interesting video has cast light on the ongoing argument about whether or not Vedanta Resources of the UK, the owner of Konkola Copper Mines, is externalising profits from Zambia. The video allegedly (it is in Hindi) shows Vedanta’s majority-owner, its chairman Anil Agarwal, mocking Zambia when addressing the Jain International Trade Organisation in Bangalore, India, in March 2014. The video was released by Foil Vedanta, whose name reveals its agenda. Here is an extract of the transcript:

Anil Agarwal: “Seven to eight years back, hunger remains to do big work. Pondering what to do... how can we let life go in vain? I saw it in the paper FT [Financial Times]; there was largest copper mine in Africa. That copper mine was up for sale. That government was privatising it. I got quite interested in it. I have a friend in McKinsey – [MD in India] Ranjit Pandit. I went to him, asked him to make papers.

Friday, 16 May 2014

Chaos at ZAWA, 2nd Edition

The story of ZAWA is a shocking one. In 2012 Tourism Minister Sylvia Masebo fired the ZAWA management for alleged corrupt practices in awarding Safari hunting concessions. Ms Masebo claimed said ZAWA had awarded hunting concessions to a family cartel, among others, which had significant potential to promote money laundering.

That fired ZAWA board was constituted in April 2012 by Minister Given Lubinda. Only to be fired in August 2012 by new Minister Sylvia Masebo. Masebo then appointed a new team led by mostly her close friends like Wynter Kabimba and Guy Robinson. That new ZAWA board hired a new management to run ZAWA. A board and a management many now accept were equally corrupt.

Wednesday, 14 May 2014

Agriculture Developments (Maize, Coffee, Bonds)

Agriculture Minister Wilbur Simuusa recently announced that Zambia has recorded another maize bumber harvest for the 2013/2014. The projected supply of maize now stands at a record 3.4m metric tonnes. Zambia only needs 1.5m tonnes. These figures include the existing FRA carry-over stock of around 0.6m metric tonnes (Source: Various)

GRZ has lifted the ban on exports of maize with maize export permits now being issued to interested exporters following the issuance of statutory instrument (SI) No. 35 of 2014. GRZ says the lifting of the ban on exports of maize will bring in much-needed foreign exchange in the country. The country has more maize than it needs and FRA can only purchase 0.5m tonnes, so a lot of maize may go to waste unless exported (Source: Times)

Government is considering issuing an agriculture bond to facilitate independent financing for the agricultural sector, according to agriculture permanent secretary Julius Shawa.  The idea behind the bond was for agriculture to have an "independent source of financing as opposed to relying on budgetary allocations". (Source: The Post)

Zambia's coffee production has declined from 450 tonnes recorded in 2013 to 200 tonnes this year. Zambia Coffee Growers Association (ZCGA) chief executive officer Joseph Taguma said Zambia's coffee production will continue to drop because, "we don't have a [government] policy that is geared towards promoting tree crop agriculture". So much for crop diversification! Incidentally Cassava production has also fallen sharply (Source : Times)

Chola Mukanga 
Economist | Consultant
Copyright © Zambian Economist 2014

Monday, 12 May 2014

Gondwe's Ineptitude

The Kwacha is hovering around K6.5 per $1 and K11 per £1. Well above the levels it reached before SI55 and SI33 were abolished. What everyone is asking is : what will be abolished now? Earlier this month the hapless Bank of Zambia Governor Michael Gondwe gave the following explanation on what has happened to the Kwacha in a speech at the Bank of Zambia Media Seminar :
The Kwacha has been relatively stable in the last few years. However in 2013, the Kwacha was characterised by a depreciating trend against most major trade partner currencies, except the rand. The Kwacha depreciated against the US Dollar by 4.9% to an annual average of K5.39/US$ from K5.14/US$. Similarly, the Kwacha depreciated against the Pound Sterling and Euro by 3.6% and 8.3%, respectively.

Saturday, 10 May 2014

When Mining Companies Prevail

Sometimes I weep when I read what is written in our newspapers and the lack of critical thinking in Zambia. Sometime back the Chamber of Mines got together with the Government and released an "independent report" done by ICMM called 'Enhancing mining's contribution to the Zambian economy and society'.

For those who don't ICMM, it's full title is the International Council on Mining and Metals . It was formed in 2001 "to represent the world's leading companies in the mining and metals industry and to advance their commitment to sustainable development".

So let us get this right. The Chamber of Mines, which is effectively the mines, gets together with Government run by PF, which I am sure gets significant campaign finance money from mining companies. There's no campaign finance regulation in Zambia, so we can never know for sure. What we do know is that some of PF's influential members allegedly have significant shares in mining companies. They then get ICCM a mining body to do a report about mining. 

Thursday, 8 May 2014

Killing the Kwacha

Two graphs that tell the story of how the Kwacha has performed since PF came to power. I thought rather than write long piece these graphs would be sufficient to paint the picture.

Tuesday, 6 May 2014

Politics of Subsidies

"The government has no choice but to bring back subsidies on production. It has to bring back subsidies on fertilizer, subsidies on fuel. Look at the agriculture sector, it is in a mess because most of our peasant farmers can not afford fertilizer which simply means that we have no food security in the country..."
(FDD Spokesperson) 

This is just economic folly. Where is GRZ going to find the money to do all these things? Where does FDD think PF will find money to restore subsidies? The counterfactual has changed. Have they been sleeping?

Sunday, 4 May 2014

Policy Blunders (PSMFC loans)

The Public Service Microfinance Company (PSMFC) has announced that it has so far disbursed K70 Million to 4, 000 Civil Servants spread across 74 districts around all provinces. The Government funded financial lending institution offers loans to civil servants at 5 percent annual interest rate subsidised by tax payers. (Source : Mwebantu)

CEO Mubanga Mwiko says the available funds for the public service loan scheme in 2014 is K107m of which K100m is the budget provision for the year and K7m are carry-over funds from 2013.  

The PSMFC recently hinted that all employees of of quasi-government institutions may soon be eligible to access the subsidised loans. Government wants to "shield public servants from unfavourable lending rates". 

Friday, 2 May 2014

Zambia's Violent Political Culture

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 violence has become part of Zambia's political DNA. 
In a recent article entitled "Kabimba Advises PF Members, Officials to Avoid Violence," which appeared in The Post Newspaper of 28th April 2014, Comrade Wynter Kabimba is quoted as having advised Patriotic Front (PF) members and leaders to avoid violence because the country "can go into flames if violence becomes part of our political culture."

Zambia's Homegrown Risks

The IMF has released its latest economic forecast for Africa [April 2014]. And it carries dire warnings for Zambia. Here is how the Financial Times reports on the same:
Sub-Saharan African countries face rising “homegrown” economic risks, the International Monetary Fund has warned, shifting the focus from the external factors that have hitherto worried investors.

The warning about domestic risks, including persistently high fiscal deficits and rising public debt, comes after a decade in which the IMF largely praised the economic policies in sub-Saharan Africa, the world’s second fastest growing region after developing Asia.