Index trend
Previous Quarterly Editions
Expropriation Risk: 58 58 57 54 ▼Political Violence Risk:39 39 39 38 ►Terrorism Risk:14 12 12 12 ►Exchange Transfer and Trade Sanction Risk: 64 63 63 63 ►Sovereign Default Risk:83 83 83 83 ►
Overall Risk Temperature: 60 (Significant -1) TREND ►
Special topic: Relationship with the ‘global rules-based order,’ or ‘liberal international order.
Zambia has historically been a supporter of the global rules-based order, in part because it has often been dependent on foreign aid to sustain its education and healthcare systems (although Zambian leaders have often been critical of the limitations of this system). In the 1970s and 1980s, President Kenneth Kaunda railed against the International Monetary Fund (IMF) and World Bank conditions that forced him to cut government subsidies, leading to food riots and many citizens becoming cynical about the aims and methods of the global international financial institutions. Yet this did not stop the country from attempting the “double-transition” of simultaneously reintroducing multiparty politics and free market economics in the 1990s, seeking to comply with the advice of the IMF and World Bank once again. This experiment ended also badly. High levels of corruption hampered the privatization process, and economic downturn led to high levels of unemployment; however, Zambia continued to value its relations with Western powers. The U.K. and the U.S. are two of the country’s most influential partners.
China is also a key partner, due to Chinese ownership of mines such as the Macrolink copper mine in Ndola city, which recently experienced an emergency when miners found themselves trapped in a flooded shaft; however, the relationship between the Chinese government and its Zambian counterpart has rarely been straightforward. Many Zambians are critical of China. They accuse Chinese companies of racism and of having worse working conditions and paying lower wages — despite the fact that this is not always true. This anger was effectively mobilized by former president Michael Sata to rally support behind his party, the Patriotic Front, and helped him to become the country’s most prominent opposition leader in the 2000s. Sata even went as far as to speak of foreign “infestors” (rather than investors) and pledged to recognize Taiwan if elected. After winning power in 2011, however, Sata took a different approach, opting for a policy that saw more continuity than change. This has remained the case under subsequent leaders. Other states more critical of the liberal international order, such as Iran and Russia, currently have little presence in Zambia.
There are few signs that this will change under President Hakainde Hichilema. Less than two years after he came to power, Zambia co-hosted the Democracy Summit in March 2023 with the U.S., South Korea and the Netherlands, which was widely seen as a reward for the democratic progress the country made in 2021. During the summit, government leaders and foreign representatives were keen to stress their strong relationship, commitment to democratic ideals and belief in internationalism. Hichilema has also been keen to stress that his government would not refuse to recognize the country’s vast debt burden and would instead work with bodies such as the IMF and World Bank to renegotiate it. As part of this process, Hichilema has invested a vast amount of time and effort to bring together different creditors, including private and Chinese lenders, and to find an agreement that would be acceptable to all. In this sense, Zambia reflects many African governments that do not want to have to choose between “East” and “West” and instead hope to be able to maintain positive relations with a range of international partners.
In line with this, Zambia willingly participates in the main arenas associated with the global rules-based order, and this is likely to continue. Hichilema has at times expressed frustration, however, with the slow pace of both decision making and change within international institutions. During the Democracy Summit, for example, he warned Western governments that unless they provided greater financial support to governments such as his, he would be forced to seek stronger ties with countries such as China in order to deliver basic services to his citizens. He has also voiced frustration at the length of time it has taken to finalize an agreement on restructuring the country’s debt. This process led to a war of words between Chinese and U.S. representatives in the country, who blamed each other for holding up the agreement. It was therefore no surprise when Hichilema joined forces with William Ruto, president of Kenya, and Nana Akufo Addo, president of Ghana, to write an op-ed for the Economist that demanded the overhaul of the global financial system. As part of this initiative, Zambia has pledged to host the second iteration of a new African Economic Summit in 2026, after Kenya hosts the first one in 2025. According to Hichilema, this is necessary for African states to speak with one voice and hence amplify their message in international arenas.
As with other leaders in this movement, Hichilema is proposing reform to make the system fairer and more effective, rather than challenging the rules-based order itself. The most significant challenge to this status quo is likely to come if Hichilema loses the next election to opposition leaders who have attempted to undermine his popularity by depicting him as a pawn of Western powers. If this strategy is successful, a new government may feel compelled to take a more critical approach to the IMF and the World Bank. Even if this comes to pass, however, the country’s desperate need for international partners, and reliance on aid to support key public survives, means that it is unlikely to actively seek to undermine the liberal international order.
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Given his demonstrated commitment to repaying the country’s creditors and adopting liberal economic policies, it is highly unlikely that Hichilema will pose an expropriation risk. The government will come under increasing pressure as it gets closer to the next general elections scheduled for 2026, however, especially if there are no signs of economic recovery. The IMF projects that economic growth will increase to 4.3% in 2024, from an estimated 3.5% in 2023. Nonetheless, given the low base Zambia is coming from, this will be insufficient to create the jobs that Zambian citizens are hoping for or to fund the public services that Hichilema promised during the election campaign. In turn, this will raise the pressure on his government to drive a harder bargain with foreign mining companies — especially as the Patriotic Front opposition party intentionally spread malicious rumors that Hichilema had personally gained from the controversial mining privatization process in the 1990s during the last election campaign.
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Zambia has historically suffered low levels of political violence, and the military has never been used to settle political disputes. The repressive strategies of the previous president, Edgar Lungu, raised concerns that this might change around the 2021 general elections, but after the size of Hichilema’s landslide victory became clear, Lungu was persuaded to leave power peacefully. This initially led to cordial relations between the two leaders, but the situation has subsequently deteriorated. For its part, the government has prosecuted members of the former government on charges of corruption and attempted to restrict the activities of opposition leaders — including preventing Lungu from leaving the country for health treatment. In response, opposition leaders have accused the government of carrying out a political witch hunt. They have also supported conspiracy theories emerging from the 2023 Zimbabwean election that Hichilema was part of a Western ploy to use the Southern African Development Corporation election observation mission to bring down the Zimbabwean government. While high levels of political violence remain unlikely, the combination of economic hardship, disappointed voter expectations and political controversy could lead to growing unrest in the future.
There are no terrorist organizations known to be operating in Zambia. The country has not experienced a major terrorist incident; however, any serious deterioration in the country’s stability would reduce the ability of the security services to monitor external threats.
Inflation is one of the main challenges facing Hichilema’s government. It hit a two-year high when the consumer price index increased to 13.5% in February from 13.2% in January, having been just 10.5% as recently as July 2023. One of the main reasons for this was increases in food prices. Interest rates have been increased to tame inflation, rising to 12.5% from 11% in February 2024. This was the fifth straight increase in a row, leading to the highest level of interest rates in almost seven years. Yet this has not proved to be fully effective.
The price of copper — which is critical to the Zambian economy — experienced a peak of $4.12 per pound on March 18 but has fallen from an average of $4.25 per pound in 2021. The price is expected to fall below $4 per pound again by the end of the quarter, which will make it difficult for the government to maintain a balanced budget.
Having initially appeared to make good progress toward persuading all relevant parties to accept a debt restructuring, Hichilema became increasingly frustrated that negotiations subsequently stalled, partly due to disagreements and tensions between different groups of creditors. This impasse appeared to have been broken in July 2023, when the government announced that a debt restructuring plan had been agreed upon with the IMF. The arrangement was estimated to save Zambia $7.65 billion by 2026. Despite this, progress toward a genuine resolution to the situation remains slow. It was not until late February 2024 that China and India finally signed restructuring agreements, for example, and a group of international bondholders only signed a non-disclosure agreement with the Zambian government to discuss a plan to restructure debt worth $3 billion on March 19. Partly as a result, serious uncertainty continues to surround Zambia’s economic prospects, and the likelihood of economic recovery this year remains low.
