Previous Quarterly Editions
Expropriation Risk: 67 69 72 74 Political Violence Risk: 68 68 69 72 Terrorism Risk: 20 20 20 20 Exchange Transfer and Trade Sanction Risk: 65 66 68 70 Sovereign Default Risk: 82 85 86 86
TREND ▲ OUTLOOK ▲
After many months in which President Edgar Lungu relied on his allies and lieutenants to communicate his intention to stand for a controversial third term in the 2021 presidential election, he officially declared his candidacy in November. While widely anticipated, the announcement hardened opposition to the president within the ruling Patriot Front (PF) party as well as outside it. Within the party, a faction associated with Kelvin Bwalya Fube, a lawyer with presidential ambitions who backed Lungu in 2015 but clashed with the party hierarchy during 2019, argues that it will be easier to win the 2021 elections with a candidate who is more popular than Lungu. Beyond the PF, opposition parties and a number of civil groups claim that the president, who as vice president took office on the death of President Sata, will reach his constitutional limit of two terms in 2021. The threat of a legal challenge to Lungu’s candidacy has led his supporters in the PF to push a constitutional amendment bill that would remove a clause that currently enables any individual to question a candidate’s eligibility. At the end of 2019 it was not clear that they could muster the two-thirds majority to move the amendment through parliament, so Lungu has withdrawn the measure until his supporters can build a stronger legislative coalition. The risk of this strategy is that it also gives his detractors more time to plan their opposition to the legislation, and for international donors concerned at the implications for the rule of law to apply pressure against the move. This ensures that the presidential election, although 18 months away, continues to dominate political debate at the start of 2020 despite the immediate economic problems facing the country. Growth in 2019 was only 2%, down significantly from the 3.7% achieved in 2018, and low growth is feeding through into a lack of jobs for young people. While 300,000 people leave the school system annually, it is estimated that only 56,000 jobs are now being created each year. Having breached the government’s upper limit target of 8% in May, inflation rose to 10.7% in October, and began 2020 still in double figures, while the decision to postpone the introduction of a new VAT system until early 2020 deprived the government of much needed revenue during the latter months of 2019. A widely discussed IMF rescue package worth 1.2 billion dollars remains the country’s best route out of economic malaise, but this appears to be as far away as ever as Lungu rejects the curbs on public spending that would accompany any IMF bailout. An IMF staff mission that visited Lusaka at the end of 2019 urged the government to pursue urgent economic adjustment measures in order to secure fiscal and debt sustainability.
The difficult economic situation means that the government will continue to increase the pressure on foreign investors, most notably in the copper mining sector. Despite high level meetings between the government and Vedanta Resources, the Indian company which owns Konkola Copper Mines (KCM), the proceedings which began in mid-2019 to liquidate KCM have yet to be halted. According to Vedanta, the government has failed to respond to its efforts to reach an out of court settlement. The dispute hinges on the accusation that Vedanta failed to meet its investment pledge and owes the government money. While the case drags on, Vedanta has said that it is worried about the “situation on the ground”, which is a reference both to government claims that it has made the mine more productive than Vedanta thinks is feasible, and a number of worrying safety incidents. More broadly, the dispute with Vedanta has raised concerns among current and prospective investors in Zambia, although the government continues to claim that Chinese and Russian firms are lining up to replace any US or European ones that pull out. At the end of December, regulators allowed state power company Zesco to increase prices to all users by an average of more than 100% in the hope of attracting new investment.
Although political violence remains rare in Zambia, it has increased in recent years. If the PF manages to force through the controversial constitutional amendment that prevents judicial review of Lungu’s ability to stand again in 2021, major protests are likely. Rising inflation, youth unemployment and growing dissatisfaction with a PF government that has been in power for almost a decade with little to show for it are also increasing the risks of unrest. However, Zambia does not yet feature the kind of politicised militias that have scaled up local unrest into national-level conflict in other countries.
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, citing rising consumer price inflation. The kwacha struggled against the dollar throughout the latter half of 2019, ultimately falling by some 20% during the year. The country’s dependence on copper exports for foreign exchange to pay for energy and other imports continues to put the currency under pressure, and the recent dip has fuelled rumours that the government plans to introduce exchange controls early in 2020.
TREND ► OUTLOOK ▲
IMF projections suggest that Zambia’s debt-to-GDP ratio will reach 96% during 2020. However, given the government’s undisclosed loans and opaque arrangements with foreign governments, the real level of debt may be even higher. The government has already begun defaulting on local debts in order to maintain external ones. This suggests that, when major debts such as the country’s Eurobonds become due, the government’s only choice now is to seek to refinance them on deteriorating terms. Foreign reserves have fallen steadily, dropping below 1.4 billion dollars by the end of 2019. President Lungu’s reluctance to implement any policy that would further undermine his government’s popularity, particularly a reduction in spending on public services, means that there is no political will to bring the situation under control.
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