Magazine article African Business

Michael Sata Inherits Solid Economic Base

Magazine article African Business

Michael Sata Inherits Solid Economic Base

Article excerpt

Zambia's economic performance over the last few years, under the rule of the MMD party, has been exceptional, with virtually all sectors recording growth and a strong infrastructural foundation being laid. However, says Nawa Mutumweno from Lusaka, the benefits have yet to trickle down to the common man. Can the new government under president Sata build on the previous success and deliver to the population at large?

Although the Movement for Multiparty Democracy (MMD) lost power to Michael Sata's Patriotic Front following the general and Presidential elections last September, its track record on the economy has been impressive.

During its final years at the helm, the country maintained the inflation level at a single-digit figure, posted GDP growth of between 6% and 7% and enhanced foreign direct investment (FDI). Zambia recorded a trade surplus of ZMK7.95 trillion ($1,52bn); from January to November 2011, investment pledges were over $4.6bn.

Another milestone was being assigned a B+ sovereign rating by Fitch and Standard & Poor's (S&P), which is expected to reduce the cost of borrowing significantly.

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Having deferred plans to seek a credit rating and selling its first global bond of $1bn in 2009 due to the world financial downturn, Zambia is poised to proceed with offloading a $70001 bond - up from the initial figure of S500m.

This intervention is expected to significantly reduce the cost of borrowing both for the public and private sectors. Through the issuance of a US dollar bond, Zambia will realise the financing of more development projects while the private sector, especially mining firms, will borrow at a low cost to finance huge projects.

The 2011 Doing Business Report by the World Bank ranked Zambia among the top 10 global economies that have improved the process of doing business. Zambia also attained the lower middle-income status, positioning it steadfastly towards becoming a middle-income country as promulgated in its Vision 2030.

Another feather in its cap was Zambia's ranking third in the Foreign Private Capital (FPC) programme which aims at tracking the economic developments in the region under the auspices of the Macroeconomic and Financial Management Institute of Eastern and Southern Africa.

Mining

The country's number-one sector recorded increased production and expanded exploration works during the year under review.

First Quantum Minerals (FQM), co-owners of Kansan-shi Mine, injected a $1bn investment into a new mammoth project, Trident, in northwestern Zambia. Another major development was the $8bn purchase of Lumwana Mine by Barrick Gold from Equinox Minerals while Vale Mining of Brazil indicated its intention to inject $9om into the Konkola North Copper Mine (KONNOCO) project, a joint venture with African Rainbow Minerals, expected to commence copper production in 2013 and operate at full capacity in 2015.

The mining firms paid a colossal ZMKi trillion ($192m) in various taxes, which was partly channelled to road rehabilitation and other construction works.

Manufacturing

The centrepiece of this growing sector was Zambia's hosting of the African Growth and Opportunity Act (AGOA) in June last year where about $250m worth of deals in joint venture partnerships were wrapped up cutting across various sectors - agriculture (including agro processing), construction and manufacturing.

"The sector has grown by 2-3%. There has been a substantial number of new investments such as metal and steel fabrication," observes Zambia Association of Manufacturers (ZAM) chief executive officer Roseta Mwape. Other areas that have seen growth are cement production, following the expansion by Lafarge Cement and increased production from other players, and foods and beverage.

The cost of doing business remains a glaring challenge. …

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