Previous Quarterly Editions
Expropriation Risk: 55 54 54 57 ▲Political Violence Risk:48 39 39 39 ►Terrorism Risk:20 20 18 16 ▼Exchange Transfer and Trade Sanction Risk: 64 64 64 64 ►Sovereign Default Risk:92 83 92 83 ▼
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Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
Zambia’s international partners have been a considerable source of controversy and public debate over the last fifteen years. This is largely the legacy of the political strategies used by opposition leader Michael Sata to campaign against the ruling Movement for Multiparty Democracy. Both in 2016 and 2011, when Sata won the presidency, he painted Chinese investors as the enemy against which to mobilise his populist campaign. This included threatening to recognise Taiwan, at which point the Chinese government stated that should this happen, it would cut ties with Zambia.
However, it is important to note the reality has never quite matched the rhetoric. Soon after he won power, Sata came to an accommodation with Chinese leaders, and neither his pledges to force mining companies to pay much higher taxes, or his threat to recognise Taiwan, ever came to pass.
By contrast, Zambian relations with the U.K. and the U.S. have been consistently warm, even though the country’s first president, Kenneth Kaunda, identified with African socialism and rejected capitalist forms of development.
Now Zambia has reverted to a largely neo-liberal economic model, the main source of tension with Western states is criticism of democratic backsliding and corruption. This occurred both under President Frederick Chiluba (1991-2001) and under President Edgar Lungu (2015-21). In the latter case, Western donors and media outlets spoke out against the arrest of opposition leader Hakainde Hichilema on trumped-up treason charges, and were critical of the government’s economic record, at times suspending aid. However, even during these periods personal relations between Lungu and Western diplomats in Lusaka remained cordial.
The international connections of political leaders were a significant topic in the Zambian general election of 2021, when President Lungu attempted to prevent mineworkers from backing now-President Hichilema by claiming he would sell out their interests to alleged foreign backers from countries such as South Africa. However, this strategy was largely unsuccessful, and Hichilema ultimately won a landslide, performing well across the country too.
In office, Hichilema has emphasised the importance of working with a broad cross-section of international donors to resolve Zambia’s debt crisis, including the U.K., U.S., China, and the International Monetary Fund (IMF). At present, he appears to have built strong relations with all these partners, especially London and Washington. This includes agreeing a rescue package with the IMF while persuading Chinese lenders to cancel USD1.6 billion in loans, to boost Zambia’s economic recovery.
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Hichilema is believed to have a much healthier relationship with key mining companies. There are some suggestions mining interests supported his election campaign. Given his commitment to repaying the country’s creditors and adopting liberal economic policies, it is highly unlikely Hichilema’s government will pose an expropriation risk, even though it is likely to come under continued pressure to increase the contribution foreign investors make to the country. Economic growth recovered to 3.6% in 2021 but is expected to remain modest at 4%.
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The 2021 general elections saw rising repression and the use of the security forces to intimidate and harass opposition leaders and supporters. However, concerns of a major political crisis were averted when President Lungu was persuaded to step down, having lost comprehensively at the ballot box, and congratulated his rival.
Hichilema has subsequently taken steps to professionalise the police and to remove political party affiliated gangs from bus stations, where they previously illegally took a cut of the takings, which has further reduced the risk of political violence.
However, despite the positive signs under Hichilema, economic conditions have not improved significantly for many Zambians, and so the risk of protests driven by economic grievances remains. One positive development in this regard is the new government’s track record on inflation, which has fallen from 24.4% in August 2021 to 9.5% in August 2022, according to the government’s statistics agency.
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 November 2021, the central bank increased the interest rate to 9%, the second increase in a year, and has held it at this level ever since. This was largely driven by a desire to contain inflation, which had risen considerably, an aim that has been largely successful.
The kwacha gained considerably on the U.S. dollar following the election of Hichilema, and for a brief time was the world’s best performing currency against the dollar, rallying over 18.5% between January 22 and September 1, 2022. The kwacha subsequently fell slightly but appears to be stabilising at around 15 to the dollar.
The price of copper, which is critical to the Zambian economy, remains high but has fallen slightly from an average of USD4.25 per pound in 2021 to USD4.15 per pound in 2022.
The ability of Hichilema to negotiate the cancellation of the USD1.6 billion in loans from China Exim Bank and Industrial Commercial Bank of China in August has created much needed breathing space for the government to finalise an International Monetary Fund (IMF) loan agreement and begin restructuring the economy.
The subsequent announcement the IMF’s executive board had agreed a USD1.3 billion Extended Credit Facility in August means Hichilema will have the resources he needs to main structural economic changes while managing their impact on ordinary Zambians. This is also a significant vote of confidence in what the Fund described as a “homegrown reform plan to restore debt sustainability, create fiscal space for much-needed social spending, and strengthen economic governance”.
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