Africa’s second largest copper hotspot Zambia will today witness the presentation of its 2024 fiscal estimates of revenues and expenditures. The Southern African nation faces a array of headwinds that gravitated around high cost of living with inflation at an 18 month high, local currency on a losing streak north of 20, sliding red metal production waning tax revenues and is still in the labyrinth of a debt restructure.
Finance Minister Situmbeko Musokotwane will present his third budget under the auspices of the new dawn government that have taken on fiscal vulnerabilities from an earlier regime but have scored significant strides to debt restructure with bilateral creditors 10 months exactly after successfully obtaining approval for an extended credit facility with Washington based lender, the International Monetary Fund.
Hakainde Hichilema, Zambia’s head of state but double hatting as the copper producing nations chief marketing and investment officer has courted creditors and key multilateral chiefs face on to provide assurances and demonstrate the strong political will to restore fiscal fitness. Hichilema has won the hearts of the west and the east maintaining a business posture that positions the Southern African nation as a top investment destination especially in the era of the electric car as the nation houses a plethora of green metals. Hichilema was in China on the invitation of his counterpart Xi Jinping at which in addition to business opportunity, China pledged to support Zambia’s debt restructure process.
Musoktwane has a mammoth task to reassure citizenry that the state has a plan to tackle the rising cost of living quandary while steering the economy in the direction that comforts creditors on the other hand as the country is still in the middle of restructure discussions. Despite rating agencies upgrading the red metal producers local currency long term issuer risk rating to Caa3 (Moody’s) Zambia remains default rated for its foreign currency rating which will only improve if the dollar bond debt portion is restructured. Global developments have not spared the Southern African nation as geopolitics and energy market supply uncertainties continue to scale petroleum prices which continue to weigh private sector pulse. Borrowing from the domestic markets by the sovereign has kept the yield curve elevated, slowing down the anticipated lowering of interest rates which a rising inflation does exacerbate the lending rate quandary to support the private sector.
Zambia’s central bank has hiked rates thrice a total of 100 basis points to 10% this year in tandem with a 250 bps tighter cash reserve ratio of 11% which a persistent inflation forecast could force adjustments higher in subsequent rate decision sessions. On the upside, the copper producers growth forecast was revised higher after the Zamstats tracked higher 1Q23 and 2Q23 rates of expansion of 4.4% and 5% and which will likely land the economy at higher that 2.7% forecast by the MinFin’s medium term expenditure framework green. Headwinds remain in the mining sector with 14 year low forecast this year at 682,677 metric tons, 10% lower than previous years while agribusiness and electricity generation is expected to be weighed by El Nino weather.
Zambia recently resolved an impasse concerning Konkola Copper Mines after 4 years of a legal battle with Vedanta Resources. Vedanta has committed to injecting $1 billion in investment over the next 5 years while Mopani Copper Mines search for an equity partner is still ongoing. The uncertainty around the two mines have cost production which has contributed to the widened gap with the Democratic Republic of Congo (DRC) whose output is north of 2 million metric tons of copper annually. KCMs production resumption is expected to increase the Copperbelt of Africa’s production possibilities as it adds money flows to the veins of the economy which Zambia has lacked over the years. Musokotwane will be tasked will presenting a budget that supports exploration investment if Zambia is to attain 3 million metric tons in the next decade.
Realization that despite endowed with arable land and water bodies, the 2024 budget could see agriculture incentives that could improve the sectors contribution to gross domestic product higher than the current 3.06%. Zambia’s head of state has championed supply side agriculture policy as opposed to demand and price controls which should effectively incentivize famers to increase output. Other incentives are likely in the energy, small businesses and farming. It remains a dry point of construction that successful debt restructure will be critical to the resource allocation clarity and will also addresses uncertainties surrounding further disbursements of the IMF facility which falls due in October.
Trade and growth data on the upside do show strong agriculture and no traditional exports in addition to a very strong services sector as industries shrug off pandemic related hurdles. The telecoms sector continues to grow spurred especially by a resilient payments sector anchored by banks and mobile network operators.
The Kwacha Arbitrageur
