Previous Quarterly Editions
Expropriation Risk: 67 67 69 72 Political Violence Risk: 68 68 68 69 Terrorism Risk: 20 20 20 20 Exchange Transfer and Trade Sanction Risk: 65 65 66 68 Sovereign Default Risk: 82 82 85 86
TREND ▲ OUTLOOK ▲
The Patriotic Front (PF) government is continuing its efforts to push through amendments to the constitution in the face of increasing opposition. The Constitutional Amendment Bill makes a number of changes but criticism is focused on the provision that removes the limit on the number of parliamentary constituencies. The government’s opponents see this as designed to create a new form of patronage for the ruling party while allowing it to gerrymander constituency boundaries ahead of the elections scheduled for 2021. A number of international legal bodies have also warned that the bill would effectively undermine the independence and impartiality of the judiciary. Efforts by the government to present the constitutional changes as inclusive and beneficial, which have included the holding of a National Dialogue Forum on political reforms in May, have had limited success. The country’s main opposition leader, Hakainde Hichilema, has said that the United Party for National Development (UPND) will fight the changes. The PF recognises that the Constitutional Amendment Bill is vulnerable in parliament because it only holds 57% of the seats, well below the two-thirds threshold required for approving constitutional reform legislation. As a result, it has circumvented parliamentary procedures so that approval only requires a simple majority, polarising opinion still further. Coming so soon after the controversy over President Lungu’s eligibility to stand for a third term, a move approved in December 2018 by a compliant Constitutional Court despite the constitutional two-term limit, the proposed constituency changes have pushed political tensions to a new level. This, in turn, has contributed to a deteriorating economic situation. In July, the World Bank revised its projection for economic growth this year down to 2.5% from 2.9% in May, while an IMF consultation exercise that concluded in August gave the country one of the lowest marks possible. President Lungu appointed Bwalya Ng'andu, a respected former deputy governor of the central bank, as the new finance minister in July after sacking his ineffective predecessor. Ng'andu initially indicated that the government needs to better implement its agreed austerity measures and re-engage with the IMF, with whom talks on a new funding programme have repeatedly stalled. However, it is not clear how far this represents the president’s own position.
With the economic situation still difficult, the government is increasing the pressure on foreign mining companies to comply with recent tax increases and deepen their commitment to the country. President Lungu has focused in particular on Konkola Copper Mines (KCM), the local unit of India-based Vedanta Resources. Accusing it of failing to meet its investment pledges while owing the state more than 100 million dollars, both of which the company denies, the government is attempting to force the liquidation of KCM and force the sale of its 80% stake in the country’s largest copper mine. Vedanta has sought arbitration in a South African court, which ruled that the sale should be halted, but the government is pushing ahead. In late July it encouraged mineworkers and their families to demonstrate against the continued presence of KCM in the country while claiming that Chinese and Russian firms are keen to replace it. The PF government knows that the nationalisation of KCM is likely to be popular with Zambian voters, although it will further undermine the confidence of Western investors. While denying that its action amounts to expropriation, it appears to be gambling that KCM can be quickly replaced, probably by a Chinese counterpart.
Although political violence remains rare in Zambia, it has increased in recent years. The controversial constitutional amendment process is likely to provoke significant opposition protests. Depending on how the government responds to them, it is possible that these could trigger a broader process of civil disobedience that would encompass concerns about political and economic issues as well as corruption in the Lungu administration. Rising inflation, which has increased the cost of living, has further eroded popular support for Lungu, and so the potential for individual protests to merge into a broader movement against the PF government is growing.
TREND ► OUTLOOK ►
There are no terrorist organisations known to be operating in Zambia, and 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.
In August, the government decided to postpone plans to replace the VAT system with a new sales tax due to concerns that this would increase inflation. The change will now take place in January, meaning that the government will miss out on much needed revenue during the second half of 2019. Inflation reached a three-year high in July and looks likely to exceed 10% by the end of the year. The kwacha has continued to weaken, reaching a recent low against the dollar in May. As speculation grew, the finance ministry has been forced to deny that it planned to re-introduce the exchange controls that were ended in 2014. Zambia’s continued dependence on copper exports for foreign exchange, together with strained relations with international donors as a result of both democratic backsliding and corruption scandals, will ensure continued pressure on the currency.
A recent IMF consultation found that by the end of 2018, total public and publicly guaranteed debt stood at 78% of GDP. Even though the cost of borrowing continues to rise, Zambia is still contracting external and domestic debt even as its foreign reserves shrink to below two month’s import cover. Total debt exceeded 10 billion dollars in June, and the situation is likely to get worse over the coming months. The deficit widened to 10.5% in 2018 and is likely to remain unsustainably high. There are also concerns that the ruling party is attempting to undermine scrutiny of the country’s debt burden. The Constitutional Amendment Bill includes a provision that would remove parliament’s right to access information and exercise oversight in this area. Despite the appointment of Bwalya Ng'andu as finance minister, there appears little political will either to bring the country’s spending under control, or to rebuild relations with international financial institutions.
Return to contents Next Chapter