LUSAKA (The Business Telegraph):- The celebrated 6 pillar barometer, the ABSA Africa Financial Market Index 2020 revealed that Zambia’s market overall performance ebbed a notch lower to ninth place with a score of 53 out of a 100. This reflects a 2 point deterioration from 2019 level of 55. Revealed during an AFMIndex launch on October 14 during a virtual launch webinar, Zambia’s currency slide of 40% year to date was the steepest observed of the 23 countries tracked by the index while liquidity woes weighed the copper producers performance on the index driven by disease pandemic effects pricing into business fabric.
Read also: Weak capacity of local investors weigh as Zambia maintains 8th place on the AFMIndex
The copper producer has for years been one of Africa’s robust free floats yet 2020 revealed significant deviation from the historical standard on the back of amplification of fiscal risks by disease pandemic which manifested in currency depreciation exacerbated by general asset sell – off pressure at a time when reserves plummeted to decade lows of under one and half yards in dollars.
The financial market index highlighted Zambia’s formation of a capital markets tribunal to enhance dispute resolution and settlement as a significant milestone in the year 2020.
SPECIFIC PILLAR PERFORMANCES
The red metal producer scored 75 out of 100 in market transparency, ranking eighth behind peers namely South Africa (94), Nigeria (89), Mauritius (88), Ghana (88), Uganda (80) and Rwanda (80).
Legal and enforceability of standard financial markets master agreements was another pillar that Zambia scored highly at 83 in fourth place behind Mauritius (98), South Africa (94) and Nigeria (87). The copper producer has been commended for its legal structures to enforce such agreements. Access to foreign exchange is one pillar where the copper producer slackened in performance as the Southern African nation dropped a notch to 60 out of 100 in seventh place hurdled by rapid currency depreciation, deteriorating foreign exchange reserves leaving the central bank with a weak ammunition buffer for price stability and rising transfer and convertibility risks breeding credit risk concerns. Leaders in this pillar were South Africa (80), Uganda (67), Rwanda (66), Seychelles (65) and Egypt (64).
Market depth on the continent remains shallow, weighed by a limited array of financial instruments with the copper producer scoring (41) in tenth place, a pillar led by South Africa the only nation with a 100 score while Nigeria and Mauritius scored 70 respectively and Botswana at 55. Dismal performances were observed in capacity of local investors where Zambia was ranked twenty second with a score of 12 out of 100 which while the access to macro opportunity pillar was similarly sub optimal in performance at 47 out of a 100 in twenty second place.
Read also: Zambia’s ‘roulette’ quagmire with creditors could weigh credit appetite
IN DEBT RESTRUCTURE ROULETTE QUAGMIRE
Zambia is in the labyrinth of debt restructure that has investors on the edge on what the way forward will be following lack of fiscal space to service its obligations with various creditor classes. These items of issue have resulted in a confluence of factors such as sovereign risks downgrades to a notch just above default deeper in junk status (S&P – CCC-, Fitch ‘C’ and Moody’s Ca) that has affected both local and foreign asset performance. Risk skew has been towards shorter dated higher yielding assets as opposed to fixed income paper as fiscal posture deteriorates which various interventions such as dollarization of mining taxes to help shore foreign exchange reserves has distorted the supply of foreign exchange on the market causing backlogs as dollar demand for agriculture inputs and petroleum continues to rise. Despite marginal innovation in the money market space through issuance of COVID bonds Zambia is still miles behind in usage of digital technology in trading as compared its peers like Kenya that use android devices to purchase government securities.
The Kwacha Arbitrageur
