Africa’s copper producer, Zambia has made significant strides in its sentiment restoration journey over the last 40 days. This follows the successful election of Hakainde Hichilema as Zambia’s 7th Republican President, taking over from Edgar Lungu. The period has seen a rally in the both local and international bonds while the currency has reversed most of the losses hemorrhaged over the pandemic period. The Zambian delegation at the 76th United Nations General Assembly led by Hichilema utilized the trip to meet multilateral chiefs such as David Malpas Head of the World Bank and Kristalina Georgieva Managing Director of the International Monetary Fund – IMF. It is the first time in the history of Zambia that a sitting head of state is meeting multilateral chiefs to signal political will to restoring fiscal fitness given the fragile economic posture the red metal producer is currently in the labyrinth of.
VERY MINIMAL IMPACT ON DOLLAR BONDS BUT TECHNICAL MISSION TEAM COURTING ZAMBIA
Bond prices have appreciated 16-20% over the last 3 months with the biggest portion covering the period after the August polls. However following the meetings with the IMF and World Bank, dollar bond prices infinitesimally moved as markets eagerly seek clues for when exactly the IMF will conclude the deal with Zambia. The IMF on its website have announced another technical mission team visit to the copper producer for September 27 to October 01 to work with the MinFin to understand key policy and specific reform measures prioritized in the new dawn. The trip comes a few weeks before presentation of the copper producers estimates of revenues and expenditures (the 2022 national budget).
With copper prices at decade highs of $9,300/MT the Southern African nations tax regime remains very critical from mining growth perspective amidst thorny issues around the low propensity for exploration investment give double taxation and non-tax deductibility of mineral royalties. In the first week of Hichilema’s inauguration, an advisory committee was grouped and tasked to address tax issues well ahead of the 2022 budget whose presentation has been set for the last week of October. Other potential policy changes expected are in the energy and manufacturing sectors.
FOREIGN POLICY COULD BE ZAMBIA’S FISCAL REDEEMER
Economic policy diplomacy has proved beneficial for Zambia this week as Hichilema’s debut at the UN General Assembly set the copper producer apart from the world through a message of hope nodded by all. Zambia extended its green footprint by showing off its newly set up ministry of green and environment well aligned the SDGs 2030. This was deemed by many as Hichilema’s sale pitch for green bond issuances for Zambia which provide an opportunity to re-profile the copper producers Eurobonds.
Zambia’s President Hakainde Hichilema and US Vice President Kamala Harris at the White House
Democracy dividends are clearly paying off with US Vice President Kamala Harris meeting Zambia’s head of state at the White House. It is vivid that these steps will improve the ease of doing business for the Southern African nation. Zambia has in the week received positive feedback from key partners including the European Union.
Markets remain eager to pick clues around when Zambia is likely to be granted an IMF Extended Credit Facility – ECF. Its now 19 months from when the red metal producer formally applied for a bail out deal as economic woes deepened.
The Kwacha Arbitrageur