AUTHOR: Wasili Mfungwe
ZAMBIA
Money Market Developments–
Local Interbank Money Market
Interbank rate has been relatively stable at 11.20%.
Monetary Policy Rate
Zambia’s central bank left its main lending rate unchanged at 9.75% for the third straight month on 30 September, saying the impact of a firmer kwacha currency would balance out inflationary pressures from rising food prices. After weighing the inflationary risks, the committee resolved to maintain the current relatively tight monetary policy stance following recent upward adjustments in the policy rate in June and July.
Primary Treasury Bill Market
The Bank of Zambia (BoZ) announced to raise ZMK1.8 Billion through Treasury Bills within the month under review. Investors replied with funds amounting to ZMK2.1 Billion translating to 18% over-subscription. The BoZ allotted ZMK1.6 billion rejecting ZMK493 million indicating 23% rejection rate. The Monetary Authorities tried to sterilize the rates by limiting the accepted bids hence allotted ZMK161.7 million less than the target.
The 273-day paper was the only loser having closed the month at 13.7%, 40 basis point weaker. The 91-day paper remained set at 8%. The 182-day paper and the 364-day paper added 20 and 49 basis points to touch 13.50% and 14.24% respectively. The longest tenor, the 364-day tenor command the most demand at 43% followed by the 273-day paper at 33%. The demand for the risk-free government continues to show a positive yield curve indicating investor confidence in the performance of the economy.
Capital Markets–
Bond Market
At the recent primary bond auction within the month, a total of ZMK920 billion was offered but investors supplied ZMK598.5 billion translating to 35% under-subscription. The Bank of Zambia rejected ZMK52.7 billion to accept bids worth ZMK545.8 billion representing 9% rejection rate. A bulk of the bids went on the 3 years note accounting for 51% of applications followed by the 5 year paper at 38% of demand.
Equities Market
The Lusaka Stock Exchange maintained a bullish trend within the month of October with the LuSE ALSI firming 124 index points or 3% to settle at 5,003.40. Market Capitalization consequently inched up 7% to touch ZMK 22.1 billion. In trading terms total turnover recorded ZMK28.6 million.
Exchange Rate Developments
The Zambia Kwacha depreciated against all the major currencies in the month of October 2013. We forecast an annual average depreciation of 2.1% for the Kwacha in 2017, owing to strong copper exports in 2014-16. The predominance of copper in the export basket leaves the currency at risk to external shocks.
Inflation
Zambia’s annual rate of inflation for October 2013 has dropped to 6.9% a touch lower than 7% recorded in September 2013. The major driver of the drop was mainly lower prices of food and non-alcoholic beverages. The annual food inflation rate for October 2013 was recorded at 5.9% compared to 6.5% recorded in September 2013 indicating a 60 basis points decrease.
On a month-on-month basis, CPI slowed to 0.0% in October, from 0.4% previously.
Economic Growth
Economic Growth is anticipated to improve forecasted to 8% in 2013 due to the recovery in copper production, wage increases for civil servants that are expected to boost consumer spending and investment in power, growth in mining and roads. Having slowed slightly in 2013, real GDP growth is forecast to improve in 2014, to 6.8%, as copper production improves, civil service wage increases boost consumer spending and investment in power, roads and mines grows rapidly. In 2015-16 annual growth will average 7.6% as copper production soars with the completion of major projects at the mines.
Trade Balance
Zambia recorded a trade surplus valued at ZMK53 million in September from ZMK58 million previously, meaning that the country exported more than it imported in nominal terms. The country has continued to record trade surpluses since January with the highest valued at ZMK364 million in April and the lowest trade surplus was recorded in September at ZMK53 million. Zambia’s major export products in September were copper cathodes and a section of refined copper. Other exports were from the consumer goods, capital goods and raw materials categories which collectively accounted for 17.9%.
International Relations
Zambia’s relations with its international partners remain favorable especially China as they have mutual economic interests. However, the country risks aid cuts from its Western donors should the government’s heavy handed-handedness toward the opposition worsens.
Other Developments–
Budget Deficit Widens
The national budget for 2014 was unveiled within the month. Minister of Finance and Planning said that the budget deficit is likely to reach about 8.5% of GDP this year, wider than the 4.3% earlier projected. The government, which is one of the biggest employers in Zambia, plans a two-year freeze on the pay of government workers and a halt to hiring, after increasing salaries by as much as 50 % in September. The public wage bill will account for 53% of government revenue in 2014. Zambia’s economy is expected to expand at least 7% next year, while the inflation rate is projected at 6.5% or less by December 2014.
Zambia Sees $1 Billion in Bond Offers as Stock Market Jumps
Zambia’s stock exchange is Africa’s fourth-best performer this year. Companies and finance institutions are tapping growing demand for debt with as much as $1 billion in bond sales as the government boosts spending to sustain growth. The African Development Bank is set to follow the International Finance Corp.’s local-currency Zambezi bonds that were 4.8 times oversubscribed when ZMK150 million (US$28 million) of the medium-term notes were sold, the IFC. Standard Bank Group Ltd. (SBK)’s Zambia unit has registered to sell 1 billion kwacha of debt, according to the country’s Securities and Exchange Commission. Rates are close to 15%.
Zambia’s Credit Rating Down Graded by S & P
Standard & Poor’s cut its credit rating outlook for Zambia, Africa’s biggest copper producer, to negative, saying growth in the government’s planned spending for next year will boost debt. The ratings agency affirmed its ’B+’ long-term and ’B’ short-term ratings for government debt, saying there was a more than one-in-three chance it could downgrade if the country’s financial situation deteriorated. The government is adopting this expansionary fiscal stance just as it faces decreasing support, given the economy’s failure to generate sufficient job opportunities.
Zambia to Reinstate Export Tax for Unprocessed Metals
Zambia will restore a 10% export tax for unprocessed metals less than a month after the government removed the levy. President Michael Sata ordered the government to repeal the law that removed the tax in a broadcast on state-owned ZNBC. Finance Minister Alexander Chikwanda halted export taxes on 4 October 2013 for unprocessed metals including copper, nickel, zinc, lead, silver and uranium, after mining companies complained Zambia lacked smelting capacity.
Bond Market Volatility Forces the Government to Borrow from Banks
Zambia’s Ministry of Finance is raising a new US$ 250 million syndicated loan. Zambia’s loan, its first in nearly 30 years, is being arranged by Standard Chartered and Citigroup and is expected to sign this month with a group of local and international lenders. Zambia initially considered raising money in the bond market, but opted to approach banks for a loan after recent bond market volatility.
First Oil or Natural Gas Well Targeted for 2017
The Zambian government will issue 10 new oil exploration licenses as it targets 2017 for its first oil or natural gas well. Ministry of Mines, Energy and Water Development Permanent Secretary said that the government wanted to expedite exploration works and has since restricted exploration to experienced companies following the failure by companies that got the licenses to make progress. According to him, the 10 companies have a record of oil exploration in other parts of the world as well international reputation, adding that the ministry was now looking at firms with technical expertise in order to expedite exploration works.
Local Bourse to Benefit from ADRs
Bank of New York Mellon Corp. is selling American Depositary Receipts (ADRs) for three Zambian companies as U.S. investors tap growth in Africa’s biggest copper producer. The ADR programs established for Copperbelt Energy, Zambeef Products Plc and Zambia National Commercial Bank Plc are the first in Southern Africa outside South Africa. Zambia’s all-share index has advanced 28% this year, outpacing a 15% gain in the Dow Jones Industrial Average over the same period. Zambeef, which produces beef, poultry and cooking oil, and owns its own retail stores, has climbed 17%, while Zambia National Commercial Bank has surged 39%. Copperbelt Energy, the biggest supplier of power to mines in Zambia, has declined 0.2%. While ADRs offer U.S. investors the opportunity to profit from growth in countries such as Zambia, they also benefit local stock markets and share prices, according to a BNY Mellon sponsored study in 2008 by U.K.-based Oxford Metrica. Liquidity on home markets for a listed ADR increases by an average 32%, the study found.
Government Intervenes on Shoprite’s Labour Dispute
The Zambian government threatened to shut down Shoprite stores, after the South African retailer fired 3,000 workers who went on strike. The workers on Monday staged a boycott, demanding among other things improved conditions of service, salary increments and dismissal of some top management officials whom they accuse of being incompetent. Workers are demanding an end to casualization and a minimum of ZMW 1, 100 which is the government decreed threshold for shop workers. Labour minister said the company; a large multi-national grocer had backtracked on the sackings and had been given 10 days to resolve the grievances over pay that triggered the strike action.
Pension System Overhaul Eminent
The government plans an overhaul of the pension system over the medium to long term including a proposal to raise the retirement age from 55. The public sector pension deficit is expected to hit ZMW 2.9 billion next year, ZMW 2.6 billon in 2015 and ZMW 2.8 billion in 2016.
Government to Disinvest in ZCCM Investment Holdings
Zambia will cut its 87.6% stake in ZCCM Investment Holdings to less than 50%, according to Mines Minister. ZCCM-IH holds minority stakes in the local units of Glencore Xstrata Plc (GLEN), First Quantum (FM) Minerals Ltd. and Vedanta Resources Plc (VED), following state asset sales that began in the 1990s. ZCCM-IH plans to sell stock to existing shareholders to repay debt to the government and invest in new developments. The state doesn’t intend to increase its ownership through the exercise. Most minority shareholders own their stock through the NYSE Euronext in Paris, according to ZCCM-IH, which estimates the company’s asset value at ZMW 2 billion (US$ 387 million).
Shoprite Zambia Plans to go Private
Shoprite have offered to buy the securities at a 25% discount to the price on the Zambian bourse, where the Cape Town-based company has a secondary listing. The proposal was rejected because it was too low. The retailer is suing some shareholders of its Zambian unit in a bid to reverse the purchase of shares now worth more than US$ 31 million.
60% Excise Duty on Clear Beer Threatens Investment
Zambian Breweries is reviewing its plans to construct the ZMK 173 million (US$ 32.6 million ) malting plant following Government’s introduction of a 60% excise duty on clear beer in the 2014 National Budget. Zambian Breweries corporate affairs director stated in a press release that the upward adjustment of tax will have an impact on demand resulting from the upward price adjustment. This has prompted Zambian Breweries to take a review of its operations and investment plans.
