The year 2011 started on good note and indeed has been a defining moment for Zambia as it has maintained the inflation level at a single-digit figure, expected to post Gross Domestic Product (GDP) growth of between six and seven percent and sustain the Foreign Direct Investment (FDI) inflow. The Kwacha opened on an average K4, 700 but lately has remained vulnerable due to the Euro Zone debt crisis fluctuating in the range of K5, 000 – K5, 200.

But financial experts say that the trend will only be reversed if financial markets receive significant client inflow at the back of a strong copper price on the international market.

“The Kwacha strengthened from K5, 120-K5, 140 to close at K5, 000- K5, 080 on the back of significant inflows from the exporters. We expect these levels to hold unless more flows come into the market. Focus range K5, 050-K5, 100,” the Standard Chartered Bank daily brief for December 29, 2011 notes.

Zambia also continued to record trade surplus with the trade balance standing at K7.95 trillion with pledged investment of over US$4.6 billion and a pledged employment of 31,752 as from January to November 2011. This is against the projected US$3 billion investment. It is undoubtedly that the country has been assigned a B+ sovereign rating by two renowned rating agencies, Fitch and Standard and Poor’s (S&P), a move which is expected to reduce the cost of financing.

Notably, 2011 was an election year and such events tend to create and present concerns and opportunities.

The positive macroeconomic performance continued despite the anxiety of the tripartite polls in September which ushered in the PF-government which was in the opposition for a long time- straight away the government went to work.

Having postponed plans to seek a credit rating and selling its first global bond of US$1 billion in 2009 because of the global financial crisis, Zambia is still keen to proceed with plans to offload a US$700 million bond which was initially at US$500 million.

It is anticipated that rating will significantly help in reduced cost of borrowing both for public and private sector. Through the issuance of a US dollar bond, Zambia will see more developmental projects being financed while the private sector, especially mining firms, will borrow at a low cost to finance huge projects.

As evidenced by the Macroeconomic and Financial Management Institute of Eastern and Southern Africa, Zambia was ranked third in the Foreign Private Capital (FPC) programme which aims at tracking the economic developments in the region.

Mining

Economic development as regards the mining sector, the country recorded inevitably huge mining activities as witnessed by expansion in exploration works, increased metal production and massive machinery.

First Quantum Minerals, co-owners of Kansanshi Mine, unveiled a US$1 billion (over K5 trillion) investment to open a new large-scale mine called Trident Mining in North-Western Province.

Barrick Gold purchased Lumwana Mine at a cost of US$8 billion from Equinox Minerals while Vale mining, a Brazil-based firm, indicted its intention to pump US$90 million into its Konkola North Copper Mine (KONNOCO) project during the year. KONNOCO is a joint venture between Vale and African Rainbow Minerals which is expected to start copper production in 2013 and will operate at full capacity in 2015.

Major players are Glencore International, owner of Mopani Copper Mine, Vedanta’s Konkola Copper Mine (KCM), ZCCM-Investment Holdings and Abidon Limited. Others are Mulyashi Mine, Chibuluma mine owned by Metorex Minerals among others.

The mining firms paid about K1 trillion in various taxes which was partly channelled to road rehabilitation and construction works.

Financial

With such huge investments in the mining sector, the financial sector, particularly commercial banks, has repositioned its strategies to be more innovative in the provision of banking products and services.

During the same period, many banks increased their loan portfolios and branch networks while others signed a number of loan syndicates with mining firms to finance huge projects and enable purchase of machinery. Nearly all commercial banks reduced their interest rates due to the move by Bank of Zambia (BoZ) to reduce the statutory reserve ratio to five percent from eight percent, a development that will release an additional K700 billion to commercial banks for onward lending to the private sector and push lending rates downwards in line with a Presidential directive.

Bankers Association of Zambia chief executive officer David Chewe said the reduction will go a long way in reducing interest rates that have disadvantaged investors for a long time.

“The discussions with the central bank are bearing fruit because it has responded to our calls to reduce the reserve ratio to enable commercial banks to reduce interest rates,” he said.

There was only one new entrant in the commercial bank arena, AB bank, a German bank which mostly caters for small and medium enterprises (SMEs).

Agriculture

Globally, SMEs contribute significantly to the economy; the agriculture sector has thrived on account of small-scale farmers due to the Government subsidy, the Farmer Input Support programme (FISP). For two consecutive years, Zambia recorded maize bumper harvests mainly because of the FISP, commercial farmers’ contribution coupled with favourable rain pattern.

For this reason, the price of maize meal (mealie-meal), which is the staple food, has reduced marginally.

On the other hand, the FISP has not met the expectation of the target group while with growing incomes, production constraints faced by livestock producers manifested in higher prices for animal protein products which calls for concerted efforts to re-focus and prioritise the livestock industry.

Other crops such as wheat, cotton and tobacco also performed very well although tobacco experienced a downward spiral in prices in comparison to the previous year.

However, despite the sufficiency in wheat production, the price of bread increased by an average K500 as bakers cited the depreciation in kwacha against the US dollar.

Zambia National Farmers Union president Jervis Zimba says, “The farming fraternity delivered in 2011 and all things being equal, there is cause for optimism on the expected outcome in 2012. This is premised on past performance and making assumptions for the future.”

Manufacturing

As for manufacturing, the sector performed well.

“The sector has grown by two to three percent. There has been substantial number of new investments such as in metal and steel fabrication,” notes Zambia Manufacturers Association chief executive officer Roseta Mwape.

Other areas that have seen growth are the cement following the expansion by Lafarge Cement and increased production from other players, food and beverage.

Ms Mwape, however, says that the challenge remains the cost of doing business, which impacts negatively on competition with other players in the market adding that there is need to revamp the textile, gemstone and leather industries. In terms of policy, there is need to work on strategies to back commerce, trade and industry.

The manufacturing sector experienced a rare moment when Zambia hosted the African Growth Opportunity Act (AGOA) where a number of deals were clinched. For instance, PS International of the United States and Freshpikt sealed a letter of intent worth US$42 million with 1,000 jobs expected to be created at full production.

On the overall outlook, Ms Mwape says the future is right adding that there is need to take advantage of the new Government’s focus on creation of employment, not necessarily skilled ones.

Construction

The industry is expected to post further growth following Government’s commitment towards infrastructure development.

“This trend will continue going by government’s commitment towards infrastructure development as seen from the 2012 national budget where over K4 trillion has been set aside for road works alone as compared to the K3trillion in the 2011 budget,” National Construction Council (NCC) executive director Sylvester Mashamba observes.

The year saw major road projects and multi-million modern structures. The construction of the US$200 million Levy Business Park and Zambia National Building Society re-development of Society House in Lusaka’s central business district at a cost of US$100 million are some of the major developments that have changed the face of the city.

NCC anticipates 15 percent growth in the construction industry this year compared to the 13 percent recorded last year due to an increase in infrastructure development across the country. Dr Mashamba notes that “various construction projects in the road, health, education, energy, agricultural and tourism sectors have contributed to the expected growth in the construction industry.”

Energy

In sharing similar sentiments, Zambia Association of Chambers of Commerce and Industry (ZACCI) vice-president – South-Chabuka Kawesha notes that “the activities of the Governments and private sector in the year 2011 continued to reflect the potential Zambia holds to build and diversify its market, modify and develop our infrastructure in the areas of aviation, communication, energy, road, inter-town rail connections, as well as keep up with the fundamental objectives of trade policies and trade agreements generally.”

Earlier in the year, Zesco Limited and Copperbelt Energy Corporation agreed to increase bulk supply tariff by 30 percent thereby increase capacity of the mining company while mitigating on the consumers who for the past years have been affected by the cost-reflective system.

The country continued experiencing load shedding with the power deficit expected to continue next year although Government in collaboration with Zesco Limited earmarked on mini hydro power projects namely Lunzua, Shiwang’andu, Lusiwasi, Chishimba and Musonda to try and mitigate the power outages in the country.

On the major power project, Zesco Limited corporate affairs and business development director Bestty Phiri indicates that the company is still focused on the main power projects. The projects include Kariba North Bank extension with 360 Megawatts (Mw) to be completed this year and Itezhi-tezhi hydro power with 120MW to be completed in February 2015.

The 750MW Kafue Gorge Lower project, which is a widely anticipated project not only in Zambia but in the Southern African Power Pool, is expected to give the much needed relief to the power deficit and possibly turn Zambia into a regional power hub.

For petroleum sub-sector, the country had a stable flow of fuel and Indeni Petroleum Refinery took its routine maintenance works. The price of petrol and diesel reduced slightly just a few weeks the PF government assumed office.

Tourism and Aviation

The issue of high petroleum products such as the price of JetA1 fuel has been cited as major cost of just the basic running of the operation in the aviation industry. The year witnessed the demise of Zambezi Airlines as the operation license was suspended citing poor safety standards.

However, KLM Royal Dutch Airliner will start flying into Zambia on May 15 although passenger booking commenced on November 23, 2011 while Emirates have launched their flights into Zambia starting January 9, 2012 for booking while the first flight will be launched on February 1, 2012.

Although Kenneth Kaunda International Airport has not yet been transformed into a passenger and cargo hub of the region, during the year under review, Egyptair operated seven flights from Cairo to Lusaka from January 17-28 but suspended operations due to revolution challenges in that country.

National Airport Corporation introduced aviation security charges to both departing local and international passengers to enhance security at the airport.

On tourist arrivals, Zambia targets for a million tourists arrivals to earn US$350 million in 2011.

“We are hoping to attract one million visitors this year because on average, the arrivals are 825,000 with each tourist spending about US$200 and spending between two to three days,” Zambia Tourism Board chairperson Timothy Mushibwe said recently.

Telecommunication and Communication

The three mobile service providers namely Airtel, MTN and Zamtel have made tremendous contributions to the information, communication technology (ICT) sector particularly with the 3G technology which has been rolled out in a number of sites, especially in rural areas.

The 3 G technology is wireless network technology that puts strong emphasis on internet and multimedia service such as browsing, video conferring and downloading music.

“The network expansion comes in the wake of the company’s increased investment,” observes Zamtel in one of its statements.

Undeniably, the service providers have expanded in communication across the country, especially in rural areas, thereby increasing subscriber base, increased the number of roaming partners in various countries as well as supported the social sector under their respective corporate social responsibility programmes.

However, most consumers have lamented on the exorbitant prices for internet bundles, inconveniencing promotional SMS sent at awkward times, and generally poor services.

This prompted the two regulatory bodies; Competition, Consumer Protection Commission (CCPC) and Zambia Information Communication Technology Authority (ZICTA) to enter into an agreement to deal with consumer cases in the telecommunication sector, according to CCPC executive director Chilufya Sampa.

ZICTA also invested K100 million in equipping pupils with ICT skills before they enter the labour market. The ICT club was launched in selected secondary schools in Lusaka and Copperbelt provinces and will soon be launched in Southern province.

Social sector

Both the education and health sectors witnessed developments where schools, hospitals and clinics were constructed countrywide.

Several clinics were constructed and upgraded to referral hospitals to try and decongest the University Teaching Hospital (UTH), central and general hospitals during the year under review. For instance, in Lusaka the Levy Mwanawasa General Hospital was constructed while a private hospital, Fairview, was built at a cost of US$40.2 million creating about 180 direct jobs. Development is not achieved in 12 months but any given period creates its own opportunities and challenges – hence 2011 was no exception!

There is need for economic boom with increased private sector involvement. Zambia is predicted to increase its regional and international influence in 2012 going forward.

CYNTHIA MWALE is Senior Business Reporter at Zambia Daily Mail

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