Previous Quarterly Editions
Expropriation Risk: 64 64 55 54 ▼ Political Violence Risk: 49 49 39 39 ► Terrorism Risk: 20 20 20 18 ▼ Exchange Transfer and Trade Sanction Risk: 64 64 64 64 ► Sovereign Default Risk: 83 83 92 83 ▼
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Government's commitment on climate policy Weakest 1 2 3 4 5 Strongest
Zambia is officially committed to help to bring down global emissions and reduce climate change, but the country faces various challenges, including a prolonged debt crisis and an economy dependent on copper mining. Zambia’s Nationally Determined Contribution (NDC) commits the country to reduce emission levels by 25% by 2030 at business-as-usual levels of international support, and by 47% if it receives substantially more support, as compared to 2010 emissions. While the country continues to update its NDC, and submitted a modified plan in July 2021, this did not include more ambitious targets.
The main areas where the government hopes to make gains include improving access to electrical energy, greater efficiency in energy generation and usage, and greater use of renewable sources. However, while the country has abundant renewable sources, such as biomass, hydropower, solar and wind, the government has been slow to invest in these areas, in part because its revenue is under intense strain.
Donor-funded projects are now starting to come online, such as the European Union’s Capacity Building for Renewable Energy and Energy Efficiency project, which aims to create a set of solar-powered mini-grids to deliver electricity to rural communities. However, the scale of these is relatively small. For example, the Capacity Building project will deliver power to an estimated 10,000 people, while it is estimated there are at least 950,000 rural Zambians without electricity.
One fundamental challenge this is likely to create in the future is that as the country becomes wealthier and the number of citizens demanding electricity increases, the government will struggle to meet basic energy needs. This will make it extremely politically difficult to retain a focus on phasing-out forms of energy generation harmful to the environment. At present, Zambia does not have a dedicated political party that bases its appeals on ‘green’ issues, and electoral contests focus much more on which candidate will be able to deliver jobs and handle the country’s fragile economy.
As with many other African countries, Zambia continues to suffer many negative consequences of global warming, most notably drought. In 2020-21, there was a significant rainfall deficit in the November-March season, which left at least 500,000 people in need of food assistance. Droughts have been a growing problem since 2019, especially as they have gone together with economic decline and hence falling resilience among the general population. In turn, this has exacerbated tensions over the control of land and water, although the absence of a history of political violence means that this is easier for the government to manage than in many nearby states.
Looking to the longer term, the limited forward planning capacity of the government, combined with a lack of resources, mean Zambia is poorly placed to manage other likely consequences of climate change, such as high levels of population movement from negatively affected areas to other rural areas and to cities and towns.
The new government has frequently committed itself to respecting contracts signed with multinational companies and creating a positive investment environment. President Hakainde Hichilema is also believed to have a much healthier relationship with key mining companies -- and there are some suggestions that mining interests supported his election campaign.
The government continues to be placed under considerable public pressure to improve the economic situation facing Zambian citizens, and historical political rhetoric has encouraged the public to believe this can be achieved by forcing multinational companies to contribute more, though this is a pressure Hichilema is likely to resist. According to the World Bank, economic growth was just 1.8% in 2021 and is likely to average just 2.8% in 2021-23.
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Having recently emerged from a general election in which power was exchanged peacefully to the opposition, the prospects for widespread political unrest have been significantly reduced. The prospects for political stability further improved when the new government surprised many commentators by quickly issuing statements that encouraged the police to act against party cadres, including those of the ruling party, to remove them from public areas.
However, several risks remain. The new government raised expectations it would be able to deliver jobs and a more affordable standard of living, but it lacks the resources to be able to transform the economy and, as a landlocked country, the cost of imports is particularly susceptible to rising fuel prices.
Already, the government has been put under strong pressure from students angry that it failed to provide scholarships to an estimated 8,000 students who had been admitted to public university. The government has responded by enacting popular measures, such as giving ZK65 million it said had been recovered from the proceeds of crime to the Ministry of Education to fund student bursaries. But this is unlikely to be a long-term solution, as the amount is only sufficient to cover 2,232 students, and even then, only for a year.
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.
As part of the efforts to stimulate the economy during the COVID-19 crisis, the central bank reduced its benchmark interest rate, which has remained at 8% since November 2021. The main aim of this move was to “steer inflation”, according to the governor of the central bank. Inflation has been falling since late 2021 after consumer prices rose 19.3% year-on-year in November, but it remains high at 15.1% year-on-year in January 2022 and 14.2% year-on-year in February.
The kwacha gained on the U.S. dollar in 2021, and is now at 18.29 to the dollar, having been 22.45 to the dollar in December 2020. This is below the high of 17.92 to the dollar recorded in the aftermath of Hichilema’s August 2021 election victory, but demonstrates some of the renewed investor confidence that his win generated has been sustained. Most notably, in December 2021 the International Monetary Fund (IMF) and Zambia reached an initial agreement on a USD1.4 billion credit facility, which it is hoped will enable the government to bring the debt crisis under control.
A rally in the global price of copper, largely driven by growing Chinese demand, has also buoyed economic prospects. On March 9, copper traded at USD4.57 per pound, up from an average of USD4.24 per pound in 2021.
With a USD1.4 billion credit facility from the IMF, the government is in a much better position to negotiate debt restructuring and cancellation. It remains unclear, however, whether the country’s investors will recoup all their investments.
In a speech in January, Hichilema vowed not to favour Chinese investors over others as part of the debt restructuring process. This may generate frustration in China however, where investors have no track record of accepting losses on their debt, especially given that Chinese creditors agreed to a freeze in interest payments on their loans at a point when international bondholders had rejected a suspension.
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