Country FilesSouthCountry Profile 2014: ZAMBIA

Sun,21Jan2018

Posted on Wednesday, 05 February 2014 16:12

Country Profile 2014: ZAMBIA

Flag ZambiaMining giants feel the heat

While copper-based economic growth wil l continue to tempt the Zambian authorities to indulge in uncontrolled spending, it is at the same time encouraging tighter regulation of the large mining investors than seemed possible a few years ago. Government efforts to force companies to be more transparent about their tax affairs and to undertake more welfare-oriented activities have not always succeeded, but persistence could yet produce positive results.

 

 TABLE OF CONTENTS:

Top Zambian Companies

Top Zambian Banks

 

theafricareport-zambia-72dpiMining giants feel the heat

The government’s rash of unplanned spending spells fiscal trouble ahead

Ethnic rivalries dominate the search for a potential successor to Michael Sata

While copper-based economic growth wil l continue to tempt the Zambian authorities to indulge in uncontrolled spending, it is at the same time encouraging tighter regulation of the large mining investors than seemed possible a few years ago. Government efforts to force companies to be more transparent about their tax affairs and to undertake more welfare-oriented activities have not always succeeded, but persistence could yet produce positive results.

A sense of economic buoyancy is helped by the strong performance in overall copper output, reaching 850,000 tonnes in 2013 on the back of new production from major projects at Kansanshi, Lubambe and Muliashi mines, although at the same time the industry’s profitability is at risk from sluggish copper prices, which hit a new low in June. The hope is that China, which consumes about 40% of world production, can yet lead a big revival in demand.

High operational costs at Zambia’s underground mining operations have made them the most vulnerable to closure. As these mines are more labour-intensive, the government is always conscious of
company attempts to shed labour to remain competitive as prices fall.


LITTLE GDP CONTRIBUTION

When Konkola Copper Mines, majority- owned by Vedanta Resources, attempted to retrench 2,000 workers, citinghighproduction costs and dropping prices, the government reacted that it might consider deferring payment of mineral royalties by the mining firms hurt by copper price trends, but backtracked
as its coffers ran dry. Copper mining is Zambia’s biggest industry but it continues to contribute comparatively little to GDP. Concern about the financial leakages is expressed by government as well as institutions like the World Bank and IMF.

In July 2013, the government announced Statutory Instrument Number 55 (SI 55), which empowered the Bank of Zambia to monitor the balance of payments for all multinational companies operating in the country. The bank is now working with the Zambia Development Agency and Zambia Revenue Authority to compel all foreign multinational companies, the bulk of them inmining, to submit specifieddocuments
from importers and exporters above a specific threshold, as well as details of remittances and external loans. Monthly returns are to be submitted by financial service providers facilitating transfers. The main objective is to try to reverse tax avoidance through transfer pricing which the government alleges to be rampant in the mining sector.

Economic growth is expected to hit 7-7.5% between 2014 and 2016 on the back of a likely resurgence in the copper, agriculture and construction sectors. Growth declined somewhat in 2013 to 6% in the wake of an 11% fall in maize production in the 2012/13 season, resulting from poor input distribution by the government and failure for the national grain buyer – the Food Reserve Agency – to pay farmers on time. The government now plans to upscale distribution of farming inputs to peasant farmers to help boost and streamline maize production. For the first time in almost 20 years, the government plans to manufacture fertiliser locally and to improve distribution channels.


theafricareport-zambia-72dpi-2SUBSIDIES IN DANGER

The constant tug of war between the political and macroeconomic priorities could soon reach a crisis point. Secretary to the Cabinet Fredson Yamba revealed that the 2014 budget would cut government spending to contain the rising fiscal deficit, which accelerated in 2013 from a target of 5% to 8.5% of GDP. If pursued, the squeeze would need both more spending cuts and some tax rises. In April, the government announced a reduction in fertiliser subsidies from 75% to 50% while at the same time removing a fuel subsidy that had been in place for close to a decade.

Since 2011, the Patriotic Front (PF) government has spent heavily on infrastructure projects in energy, road and rail construction. Much spending has been unplanned, as when public sector workers were given a 200% salary hike to ensure “more money in your pockets” – as the PF had promised its voters – but the move put pressure on the treasury, which had to issue bonds and treasury bills with more than the usual frequency.

The construction sector could benefit from a scheme called ‘Link Zambia 8000’ in which the government aims to spend $5.6bn on building 8,000 bituminous and 2,000 paved roads over the next five years while creating more than 5,000 jobs. As with the bighydro-electric schemes under negotiation, some of these projects go ahead without consideration of long term environmental and other concerns. Yet investors have been drawn to the economy’s high rate of growth, and the country’s debut $750m bond issue was 15 times oversubscribed.The bulk of the loan went into attempts to resuscitate state-owned Zambia Railways, improve the road sector, boost electricity generation and increase availability of money for onward lending to entrepreneurs.

Zambia’s current debt level as a percentage of GDP is projected to rise to 37% while the fiscal deficit is the highest since key donors cut Zambia’s external debt from $7bn to just over $500m under the Heavily Indebted Poor Countries Initiative in 2005. Copper prices have fallen and the government’s spending is higher than planned, while revenue is below target – instigating fears that the country
could again become heavily indebtedin the next 20 years if the trend is not kept in check. On the political front, President Michael Sata is expected to focus on attempting to fulfil his ambitious
campaign programme and on ensuring that the PF remains united, despite its domination by the Bemba-speaking majority from the north of the country.

There are strong indications within the ruling party that Sata will not seek re-election in 2016 because of his flagging health and advanced age; Wynter Kabimba, PF secretary general, is favourite to take over through the backing of Sata’s key allies such as the Post editor, Fred M’membe, the Director of Public Prosecutions Mutembo Nchito and first ladyChristine Kaseba. At the same time, PF youth, mainly Bemba-speaking, have organised countrywide protests against Kabimba on the grounds that he is opposed to Sata’s continuation in office. Coming from a minority ethnic group, Kabimba happens to have been close to Sata for many years. “I am becoming the sacrificial lamb of that tribal agenda,” said Kabimba in September. Those opposed to himare galvanised around Defence Minister Geoffrey Bwalya Mwamba, Sports Minister Chishimba Kambwili and Finance Minister Alexander Bwalya Chikwanda.


‘TENDERPRENEURS’

Also fuelling the clash between Kabimba and the Bemba interest is growing competition for government contracts and so-called ‘tenderpreneurs’. When Sata directed the Anti-Corruption Commission to halt investigations into corruption allegations against Kabimba and Mwamba, it was seen as designed to defuse the power struggle between the two.

Other parties are in disarray. The formerly governing Movement for Multiparty Democracy (MMD), although the country’s biggest opposition, is in decline and the United Party for National
Development, led by wealthy Lusaka businessman Hakainde Hichilema, is attracting popular support from some discontented MMD stalwarts, even from ex-President Rupiah Banda himself. In this climate, few expect to see a coordinated challenge to the PF in 2016

ANTI-CORRUPTION EFFORTS FOCUS ON POLITICAL OPPONENTS

ONCE PRESIDENT MICHAEL SATA had called off corruption investigations against members of his own
government, the chances of any serious battle against graft seemed to evaporate. Instead the focus is on the proceedings against former President Rupiah Banda – whose immunity from prosecution was stripped in March 2013 – and against members of his government. Observers see these cases as attempts to hamper future electability of political players.

Banda has been charged with misappropriating more than $11m during his three years in office. One charge stems from a government to-government oil deal in negotiation between Zambia and Nigeria, in which he is accused of siphoning off $2.5m, even though the deal was never finalised. Another charge accuses him of concealing the receipt of campaign vehicles offered by a Chinese company in exchange for a contract to build a stadium in Ndola. Meanwhile, Banda’s son Andrew, who served as a diplomat in Italy, faces charges of profiting from the allocation of contracts to Italian interests.

A former labour minister, Austin Liato, was convicted in May of siphoning several million kwacha and burying the cash on his farm. Probes also continue against other Banda allies, such as former education minister Dora Siliya and former mines minister Maxwell Mwale.

 

 Top Zambian Companies

 

Rank 2012Rank 2011CompanySectorCountryTurnover (Thds $)Turnover changeNet profits
7191KANSANSHI MININGMININGZAMBIA2,048,00023.52%0
8077KONKOLA COPPER MINES*MININGZAMBIA1,825,000NA309,100
344392AIRTEL ZAMBIATELECOMSZAMBIA345,62121.38%55,907
416433ZAMBIA SUGARAGRIBUSINESSZAMBIA271,22310.03%54,753
 

 Top Zambian Banks

 

Rank 2012Rank 2011Bank nameCountryTotal assetsNet interest incomeLoansDeposits
147150ZAMBIA NATIONAL COMMERCIAL BANKZAMBIA896,348118,948376,084648,341
151-BARCLAYS BANK OF ZAMBIA*ZAMBIA838,209121,706344,228635,428
 


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