Previous Quarterly Editions
Expropriation Risk: 69 72 74 76 Political Violence Risk: 68 69 72 71 Terrorism Risk: 20 20 20 20 Exchange Transfer and Trade Sanction Risk: 66 68 70 72 Sovereign Default Risk: 85 86 86 87
TREND ▲ OUTLOOK ▲
Although the COVID-19 virus was only just reaching Zambia at the end of March 2020, at least according to government figures, it was already dominating the political landscape. On March 25 2020, the government ordered schools and universities to close, limited restaurants to take-away services only, and banned gatherings of more than 50 people. The measures were announced by President Lungu, who had been facing heavy criticism for his silence on the issue. However, what was billed as an inspirational TV address was marred when Lungu appeared to be in poor health and read his script slowly and without conviction. This apparent confirmation of rumours about the president’s health has increased concerns about the possibility of a power vacuum at the heart of government, and there is growing discontent within the ranks of the president’s own ruling Patriotic Front (PF) party. The government can ill-afford internal splits as it faces an uphill battle to persuade the National Assembly and the public to accept controversial legislation known as Bill Number 10, which the opposition claims would undermine the independence and effectiveness of both the legislature and the judiciary. A public petition against the bill, widely seen as a power grab by the PF, has already attracted over 40,000 signatures. As the 2021 general elections draw closer, the struggle over how they will be conducted is likely to become increasingly intense, especially as a stagnating economy is threatened by the impact of the virus on areas like tourism. Growth was expected to be little more than 2% this year even before the virus hit, and inflation remained above the target band of 6-8%. The state of the economy was reflected by the weakness of the kwacha, which is now expected to fall further with the impact of COVID-19 on the economy. The Lungu administration’s rows with Western governments in recent months, most notably with the US over the PF’s condemnation of homosexuality, has reduced the prospect of a sympathetic hearing from donors. Just as disputes with foreign mining companies are partly an attempt to demonstrate the PF's national-populist credentials in standing up for Zambia's economic interests, homophobic rhetoric is intended to present the government as the defender of Zambian culture from Western interference and is increasingly being used as an excuse to limit political expression.
The difficult economic situation means that the government will continue to increase its pressure on foreign investors. Once again, the copper mining sector will bear the brunt of calls to contribute more to the economy, even though their dormitory style of accommodation can put miners at high risk from the virus and most companies will be curbing production. Despite high-level meetings between the government and Vedanta Resources, the Indian company which owns Konkola Copper Mines (KCM), the proceedings which Lusaka began in mid-2019 to liquidate KCM have yet to be halted. In February 2020, the government launched a fierce rhetorical attack on the company, accusing it of breaking the law. This attack, which triggered a strong response from Vedanta, was widely reported to have worried other investors. According to the government, a range of companies from countries such as China and Russia are interested in making new investments in the country’s mining sector, but there has been no evidence of this so far. In a separate move, the government’s mining investment arm, ZCCM-IH, has begun buying up gold from artisanal miners. The new policy is intended to formalise the gold mining sector and to capture additional government revenue, but its encouragement of artisanal activity is also seen as another move against the established mining sector.
TREND ▼ OUTLOOK ▲
The virus-related ban on gatherings has given the government greater powers to manage dissent, which had been becoming obvious in the latter part of 2019 as the country’s main opposition party, the UPND, held huge rallies in previous PF strongholds such as the Copperbelt. Given the deteriorating economic situation, the controversy over Bill Number 10, and the struggle that the government will have to handle the healthcare challenge of COVID-19, political dissatisfaction will only increase as the elections due in August 2021 draw closer. However, Zambia does not yet feature the kind of politicised militias that have scaled up local unrest into national-level conflict in other countries and, despite the political importance of next year’s elections, this is not something that appears likely in the medium or even the longer term.
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.
The central bank raised its benchmark rate to 11.5% in November 2019, citing rising consumer price inflation. It held that rate in March 2020 while maintaining a growth forecast of 3% this year and 3.1% in 2021 despite growing concerns about the impact of COVID-19 on the economy. However, at the start of April 2020 it made available a package totalling half a billion USD to banks and other financial service providers to help them restructure existing loans and encourage further borrowing to help companies get through the worst of the virus disruption. The kwacha has continued to struggle in recent months, twice falling past the significant mark of 15 to the dollar (USD), as the country’s dependence on revenue from the copper sector continues. A further fall in global prices, which fell by 20% in the first quarter to reach their lowest point for four years in March 2020, kept the currency under pressure at close to 19 to the USD in early April 2020.
Zambia’s external debt ended 2019 at more than 11 billion USD, a new record, and continued to increase during the first quarter of 2020. Qualification for a suspension of debt repayments to the IMF and World Bank due to the impact of COVID-19 would help the government to manage for the moment but will do nothing to reduce current debt levels. These will only increase as the country responds to the impact of the virus. Nor will it help a fiscal deficit that is now above 8% of GDP as Lusaka drags out the implementation of promised cuts to the public sector wage bill. The government has already begun defaulting on domestic debt in order to maintain payments to external creditors. However, even before the virus, it was clearly going to be a struggle to meet the 750-million USD Eurobond payment due in 2021 and the government appears to have little choice but to seek refinancing on what will be increasingly onerous terms.
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