Zambia

The death of Michael Sata, Zambia’s president, could delay an International Monetary Fund visit to the southern African nation and, consequently, any Fund support package.

Africa’s second largest copper producer turned to the IMF in June as the kwacha hit record lows against the US dollar and the government battled a wide fiscal deficit after Sata’s administration reaped the fruit of what was seen as excessive public spending. Read more

African dollar bonds are increasingly gaining mainstream acceptance as the continent’s brisk economic growth and low interest rates in the developed world help buoy demand for high-yielding debt.

The size of Africa’s dollar-denominated debt market, not including South Africa, is now more than $20bn, accounting for 6 per cent of JP Morgan’s EMBI index. In sub-Saharan Africa, issuance of international sovereign bonds hit a record $6.9bn this year, with offerings from Kenya, Ivory Coast, Senegal, Ghana, Zambia and South Africa.

But amid the excitement over Africa’s growing role in international capital markets, some are beginning to question just how healthy the dollar borrowing spree is. Read more

By Kevin Daly, Aberdeen Asset Management

Africa is set to be a focus of the International Monetary Fund (IMF) and World Bank’s agenda at meetings next week. But observers need to be discerning: for too many the temptation is to think of Africa as one entity (or even country, if you are certain US politicians). This is frustrating for Africans. It is downright foolish for investors.

The 54 nations of the African Union speak over a thousand languages, are home to over a billion people and hold vast quantities of natural resources. Most maps, based on Gerardus Mercator’s 1569 projection, do not help by distorting land masses which gives the impression Africa is roughly the same size as Greenland.

It is in fact 14 times larger and easily large enough to fit China, India, the USA, Japan and a slew of European countries inside its land mass. The differing attitudes towards adversities suffered by Zambia and Ghana present a lesson in the continent’s contrasts. Read more

The number of middle class households in 11 key sub-Saharan African countries – excluding South Africa – are set to triple to 22m by 2030, creating a burgeoning consumer market for items such as vehicles, insurance policies, property and health products, according to a Standard Bank research report.

Simon Freemantle, senior political economist at Standard Bank and author of the report, said the prospective boom in middle class households – those earning between US$8,500 and US$42,000 a year – is also likely to be complemented by a swelling in the number of lower middle class households that earn between US$5,500 and US$8,500 annually. Read more

Following a decade in which Chinese largesse has helped to transform Africa’s prospects – and challenged the supremacy that western companies once enjoyed over the continent’s natural resources – Beijing has sent word to Washington that the world’s two biggest economies might combine their efforts to generate some much-needed electricity in one of the poorest.

The Democratic Republic of Congo, an expanse the size of western Europe that perennially ranks among the worst countries in which to do business, has known little but conflict and penury for decades. World Bank-backed plans to build a third dam at Inga are part of a broader vision for a dam complex capable of generating 40,000MW – twice the size of the Three Gorges dam in China. Read more

When Zambia last week approached the International Monetary Fund for financial help, another cash-strapped African country was surely watching: Ghana.

Lusaka and Accra face similar problems: runaway fiscal deficits – the result of electorally-driven increases in public sector salaries – and a swelling current account deficit that is pressuring the exchange rate.

The market response to Zambia’s request should convince Ghana to seek help, too. Read more

To see how China is managing its growing clout over trade and investment around the world, it might help to take a look at how an economic hegemon evolved in the past – Britain’s colonists in eighteenth and nineteenth-century India.

In reality, China is still in the East India Company stage of global economic strategy – opportunistic and pragmatic rather than ideological and intellectually coherent. (It is something of an irony that the one-party autocracy of China is proving itself eclectic while the open-market democracy of the US has been doctrinaire.) And while there are some signs that China’s economic statecraft is moving towards the transparent and plurilateral, most of its policies towards other emerging markets are opaque and self-interested. Read more

The Zambian kwacha has been one of the weakest currencies against the US dollar this year, losing more than 8 per cent of its value against the world’s reserve currency during the past month alone.

Source: Thomson Reuters

 Read more

Mining may get a bad press in Africa, but there’s no denying the potential – and it’s importance. Nearly one quarter of the continent’s GDP is now based on extractive resources, the highest ratio among all regions, and between 2000 and 2008 alone, the value created from natural resources in Africa rose from $39.2bn to $240bn.

Yet this is all achieved despite a huge deficit in infrastructure, especially in rail. So a new Grindrod rail network deal in Zambia should be good news – if it can be delivered. Read more

What do you do when you get downgraded by a major credit rating agency, citing deteriorating government finances and macroeconomic policies that “could deter investment”?

Issue more debt! Or at least that’s the possible plan from Zambia, once a credit darling issuing a eurobond at 5.75 per cent (cheaper than Spain, as everyone noted at the time), but now rated just ‘B’ by Fitch after a downgrade on Monday. That’s the same level as on-the-brink Ukraine, and just one notch above Greece, Egypt and Argentina. Read more

Sometimes you get lucky – the International Finance Corporation certainly did when it picked Thursday to launch its first local currency bond in Zambia.

As the US Federal Reserve confounded analysts by announcing that it will keep its quantitative easing programme steady at $85bn a month, prompting a rally in emerging market assets, the private sector arm of the World Bank issued a $150m ($28.5m) kwacha-denominated note at 15 per cent. The four-year “Zambezi” bond is the first issued by a foreign organisation in Zambia’s domestic market, and will raise money for IFC’s local operations, officials told beyondbrics. Read more

Zambia’s plans to make companies repatriate foreign currency export earnings back to Lusaka are part of an effort to crack down on tax avoidance, particularly in the mining sector.

But are they going to be enough? Perhaps not, according to the country’s vice president Guy Scott. Read more

Checking prices

When Ethiopia set up its commodity exchange in 2008, few observers foresaw the demand it would generate. But five years on, the ECX has shown that a bourse can help tackle food insecurity in poor nations, and countries are now falling over themselves to replicate its successes. Read more

Zambia’s second bourse is hoping to kick off trading “in weeks”, giving investors a chance to trade derivative products alongside the bonds and equities available on the main Lusaka Stock Exchange (LuSE).

Peter Sitamulaho, deputy chief executive of the Bonds and Derivatives Exchange Zambia, or BaDEx, said the bourse is just waiting on getting its first clearing member, which would guarantee trades: “When the first bank signs, we will be able to trade.” Read more

The China-Africa debate is never far away. Lamido Sanusi, governor of Nigeria’s central bank, recently wrote in the FT of a whiff of colonialism. Much has been said about the two countries’ unequal relationship, based on China’s supposedly insatiable desire for African raw materials and for control of its mining assets.

But perhaps a bigger problem is not China’s dominance but China’s slowdown. What happens when the country doesn’t want so many of Africa’s exports? That moment may be coming sooner than you think. Read more