Dutch investment firm sees opportunities in Zambia

Lusaka, Zambia

Lusaka, Zambia

XSML Capital, an investor in small- and medium-sized businesses in Africa, has expanded its activities to Zambia.

While XSML managing partner Barthout van Slingelandt acknowledges that Zambia’s economy has experienced ups and downs in recent years, he believes now is a good time to establish a presence in the country. He also thinks that Zambia, with a population of just over 21 million, is sufficiently large for XSML to achieve success.

Other jurisdictions where XSML has a presence include the Democratic Republic of Congo, Uganda, and Angola. All of XSML’s investments include a debt component, whereby the firm provides a loan that must be repaid in monthly instalments over a predetermined period. In some cases, XSML also acquires an equity stake in the companies, becoming a shareholder with interests typically ranging from 10% to 25%.

Zambia has grappled with several economic challenges in recent years, especially a significant debt burden. In November 2020, it became the first African country to default on its sovereign debt during the COVID-19 pandemic, with its external debt rising from $4.8 billion in 2014 to $11.2 billion in 2019. More than three years later, Zambia is still negotiating with its creditors. However, progress was made in March when the government and a group of bondholders agreed on a deal in principle.

The Zambian kwacha recently touched record lows of over 27 to the US dollar, although the currency has strengthened somewhat in the past few days. The kwacha’s depreciation partly stems from a severe drought that has ravaged crops in Zambia, forcing the country to ramp up food imports. Critically low water levels in Zambia’s hydropower dams, which generate 85% of the nation’s electricity, have also necessitated plans for increased electricity imports, further straining the local currency. Moreover, a rising demand for dollars to import petroleum products has intensified pressure on the kwacha.

This slump in the kwacha is not new. The Zambian currency has depreciated more than 300% against the US dollar over the last decade.

Read our full interview with Barthout van Slingelandt: Investment adventures in Africa’s frontier markets