In the quest to boost performance of state owned entities the Industrial Development Corporation – IDC has injected K684 million (circa $30 million) for capitalization purposes in Zambia’s fertilizer manufacturer Nitrogen Chemicals of Zambia – NCZ. This according to IDC Group Chief Executive Officer – Mateyo Kaluba should levitate the fertilizer producing asset to self sufficiency and allow for a widened competitive landscape in the production of blended fertilizers and effective diversification of proceeds from sales. Kaluba decomposed the injection into 7% located towards financing a chemical fertilizer blending plant while the remaining 93% would go towards working capital.
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The capitalisation move comes at a time Africa’s copper hotspot Zambia grapples with currency pressures whose source in part has been lumped on dollar demand to absorb fertilizer importation costs linked to the Farmer Input Support Program – FISP. This has been an agriculture subsidy program that the Zambian authorities have embarked on to assist small scale farmers contribute to the national food basket. One of the top imports for the Southern African nations bill has been chemical fertilisers and related commodities such as sulphur and ammonium nitrate which continue to flag the need for local manufacture of the listed items for self sufficiency and ultimate employment creation plus value creation in the indigenous market. With the current risks to supply chains posed by a deepening pandemic and political unrest in trade partner jurisdictions, the need for self sufficiency in agro input production remains key for Zambia to absorb advent of external shocks. The Washington based lender World Bank has for years highlighted the need to restructure Zambia’s fertiliser industry through various advisory submissions.
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The fertiliser manufacturing asset arguably missed out on potential adequate recapitalisation opportunities using proceeds of dollar bonds in 2022, 2024 and 2027.
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“This August House may wish to note that the Government, through the IDC, has received a number of expressions of interest in the NCZ and is currently pursuing them for actualisation. The prospective partners have since been undertaking due diligence exercises in the NCZ with a view to making a decision to invest in it. Therefore, subject to the outcomes of these due diligence exercises, the IDC is confident that this could culminate into concrete proposals and discussions with potential partners in the second quarter of 2020, and result in successful partnership with respect to revamping of the NCZ and its recapitalisation.”
Honourable Dr. Bwalya Ng’andu – Zambia’s Finance Minister (August 2020)
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Kaluba commended NCZ for its cost efficiencies and futuristic innovations over the FY20 period leading to earnings of K30.8 million ($1.4 million). Zambia’s IDC has continued to see a surge in decent profitability of its portfolio mix of SOEs as more dividends have been declared.
Industrial Development Corporation – IDC Group Chief Executive Officer Mateyo Kaluba.
However other schools of thought have called for increased accountability and floating of shares to equity partners and the public to allow for the entities to compete with other private sector players. The performance call comes in the wake of historical over dependence on the state for capital injections which was a cost on the fiscal purse. Listing, then provides greater corporate governance pressure for performance to be monitored by all key stakeholders in a competitive environment. Most SOE’s including listed ones have a reputation of delaying release of financial statements which has caused red flags to key stakeholders with respect to adherence to governance standards.
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“This development is a good initiative and excites us as Zambia Association of Manufacturers because it then links into both forward and backward linkages to promote value addition, local sourcing of materials, boosting employment and above all contributing to the agriculture sector. Agriculture provides the strongest push into the value addition chain followed by manufacturing, accommodation and services sector and eventually construction.”
Zambia Association of Manufacturers President – Ezekiel Sekele
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RECAPITALISATION TO INCREASE ECONOMIC PULSE OF KAFUE TOWN
NCZ is one of Zambia’s oldest standing national assets established in 1967 commissioned by the copper producers first Republican President Dr. Kenneth David Kaunda in Kafue. However the asset, has undergone obsoleteness in technology and machinery, negative jaws which subsequent capital injections have been aimed at addressing. Despite a series of slow downs and operating hurdles affecting output, the asset remains very strategic in the food security and mining ecosystem for fertiliser inputs and explosive materials (ammonium nitrate) respectively. The opportunity that befalls the fertiliser company can be linked to the budget allocation towards farming inputs key of which is fertilizer which the SOE could benefit from. The Zambian treasury had budgeted between K5.7billion (4x the previous years level) to ramp up the food security needs of the nation which evidently paid off through a bumper harvest in an election year as the red metal producer had 3.7 million metric tons on record for maize. However on the downside, the wider the input demand and budget allocations the greater the pressure on foreign currency for importation of fertiliser which NCZ recapitalisation should seek to absorb.
Nitrogen Chemicals of Zambia’s recapitalisation could transmit positive economic pulse to Kafue town in addition to other giant corporates such as Universal Mining Chemical and Industry Limited – UMCIL (Kafue Steel) and Sinoma Cement Plant in bringing development and changing livelihoods to resident citizens. Much as Zambia’s manufacturing sector health gauge the IHS Markit Purchasing Managers Index – PMI is adversely impacted by currency weaknesses and pandemic induced supply factors, the countries manufacturing posture has generated some of the supply hurdles the nation faces today. The NCZ injection is very strategic to boosting the coppers producers untapped manufacturing capabilities.
The Kwacha Arbitrageur
