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Key risks facing the Zambian economy

Zambia, Africa’s top copper producer, has enjoyed peace and stability compared with many countries in southern Africa but a September election and a possible energy crisis is clouding its immediate outlook.

Zambian President Rupiah Banda dissolved parliament on 28 July 28 and set 20 September as the date for elections that are likely to hand him and his Movement for Multi-party Democracy (MMD) party another five years in power.

Banda and his MMD party face a stiff challenge from opposition Patriotic Front leader Michael Sata, who narrowly lost elections in 2008 and 2006.

Banda has placed economic growth and infrastructure development at the top of his agenda and the government may be tempted to overspend to fulfil campaign commitments.

Zambia has also been hit by electricity shortages, with peak demand of 1,580 MW against available generation of 1,401 MW, according to the energy regulator.

Higher oil prices are posing a risk for the end-year inflation target of 7%, the central bank has said. Global oil prices have climbed more than 17% this year and retail fuel prices in Zambia have risen 11% since February.

ELECTIONS

With the US$13 billion economy running at more than 6% annual growth, Banda has always been in a strong position for the presidential and parliamentary polls. His standing could improve if he manages to capitalise on divisions in opposition ranks, analysts say.

A tie-up between Sata and the United Party for National Development unravelled this year, improving the chances of a new full term for Banda, who moved into the presidency after the 2008 death of his predecessor, Levy Mwanawasa.

Banda’s MMD has ruled Zambia for the last two decades but a high-pressure campaign could also expose damaging rifts in the party.

Although the ruling party has a slight advantage, the race is still wide open because the opposition are yet to get out their campaign messages.

Banda lost an influential supporter who could sway votes in the north when Frederick Chiluba, Zambia’s first democratically elected president who fought off corruption charges after standing down, died at the age of 68 in June.

The biggest risk for the country as election day nears is a move towards short-term populism from economic policies designed to build long-term growth.

Rapid urbanisation is creating a huge demand for jobs and services in cities, and may cause elections pledges that come back to haunt the country and the economy.

Privatised state enterprises and foreign investments could become political targets, with possible controls on expatriate labour or higher taxes for the mining sector.

Sata has already said he will re-nationalise fixed-line phone operator Zamtel. He and other opposition politicians have criticised the sale, saying Zambians should hold a bigger stake in the company.

What to watch:

– MMD unity as poll date nears.

– MMD defections to other parties.

POLITICAL VIOLENCE

Zambian elections since independence from Britain in 1964 have mostly passed peacefully and the central bank says this year’s race may boost growth through increased demand for goods and services during campaigning.

But violence-free elections are not guaranteed.

Dozens of people were injured in April 2010 during clashes between rival parliamentary by-election supporters, and Sata’s narrow 2008 loss prompted accusations of MMD electoral fraud.

The opposition and some civil society groups want a parallel vote count alongside the election commission’s official tally. The government is against the idea.

What to watch:

– Outbreaks of political violence during campaigns

– Political leaders saying they will not accept the outcome

FISCAL DISCIPLINE

The pressure ahead of the elections to invest in capital projects could push the government into excessive borrowing.

Zambia is getting ready to launch a debut $500 million eurobond, part of which is likely to go towards 1 trillion kwacha ($217 million) of road upgrades.

Mining taxes are another probable source of finance, although analysts say the budget is under pressure in light of social and economic promises made by political parties.

The government could also subsidise the price of maize, the staple food, putting more pressure on revenues.

What to watch:

– Increased non-budget expenditure

– Policy statements about the price of food and other basics

ECONOMIC NATIONALISM

Zambia has attracted huge amounts of foreign investment, mainly in mining, from emerging markets such as China, but Sata says Chinese and other Asian mining firms are promoting slave labour conditions with scant regard for safety.

Sata said in May Zambia’s copper exports were not being properly accounted for because major exporters are exploiting a vicious circle of corruption to avoid paying tax.

Opposition parties and the public have also criticised the scrapping of a minerals windfall tax, saying it means the country is missing out on a mining boom.

What to watch:

– Anti-Chinese rhetoric from opposition leaders

– Opposition pronouncements on minerals policy

CORRUPTION

Donors have raised concerns about corruption and have frozen aid three times in the last few years.

What to watch:

– Graft scandals that may embarrass Banda ahead of polls

ELECTRICITY

The electricity supply will remain tight for the next four years, casting a shadow over the power-intensive mining sector.

The energy ministry estimates that new generation capacity will not exceed projected demand until 2015.

What to watch:

– Blackouts. State-run Zesco is rationing household power but has assured industries such as the mines that they will be spared. (Reuters)


Despite our best efforts, How we made it in Africa cannot cover every single business story on the continent. What you need to know tracks important developments originally reported on by other media organisations.


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