A breath of fresh air in southern Africa
Amid the depressing flow of news from Mozambique, South Africa, and Zimbabwe, it is a relief to report the election of an opposition candidate, Hakainde Hichilema, to the presidency of Zambia last month. This was his sixth attempt at the presidency so it would be an overstatement to refer to him as a new face. That said, he has an agenda that is popular with the private sector, particularly in South Africa and the international community. His convincing win by a margin of about one million votes discouraged the losing incumbent from challenging the result in the courts.
Hichilema, a well-known businessman in Zambia, set out his stall last week in an interview during The Africa Debate, a virtual event organized by the UK-based InvestAfrica. Reviewing his first 30 days in office, he identified his priority as reaching an agreement with external creditors and the IMF. Zambia defaulted in November 2020 on bonds totaling USD3bn under the weight of then weak copper prices and stubbornly high government spending. The fiscal pressures were already mounting pre-COVID.
Zambia has had 12 programmes with the IMF to date and a thirteenth would not be a great surprise when we consider the Fund’s eagerness to support developing country members and the new president’s message. Hichilema stressed in the interview that he wanted to reassert the rule of law, which, he maintained, had been eroded under his predecessor by the ruling party’s interference in the civil service and police. Public institutions would be strengthened on his watch, and agencies such as the Anti-Corruption Commission and the Drug Enforcement Commission would again be genuinely independent.
The rule of law, good governance, and a reduction in the costs of doing business, and clarity and consistency in government policy are, of course, on the shopping list of most private investors. The message has been “recalibrated” for the times. The president has appointed a green economy minister. He pointed to the possibilities of solar and wind power.
Recovery for the economy requires a turnaround in the pivotal mining sector. The price of copper, Zambia’s pre-eminent export, has rallied in a timely manner for the new presidency. From a low of USD 4,600/tonne in March 2020, it has surged to about USD9,500. The prospects for copper (as for aluminum and lithium) are surely good as much of the world moves to tackle climate change. The commodities desks at leading investment banks anticipate a level of USD15,000/tonne over the next decade but they have a track record for making bold forecasts to grab the headlines.
The rule of law, good governance, and a reduction in the costs of doing business, and clarity and consistency in government policy are, of course, on the shopping list of most private investors.
However, the president needs to demonstrate to the mining industry that he is not offering the form of resource nationalism practiced by his predecessor, Edgar Lungu. Glencore sought to suspend operations at its Mopani Copper Mines last year and was threatened with the withdrawal of its license by the government. In January it announced the sale of its majority stake in Mopani to the state-owned ZCCM Investment Holdings for a token USD1 and the transfer of loans totalling USD1.5bn, which the buyer is to repay from future production. The government maintained that the loans would not appear on its balance sheet.
ZCCM was merely acting in line with Lungu’s pledge to operate mining assets, presumably through acquisition, rather than watch from the sidelines as a minority investor. The idea was that the holding of strategic stakes would boost mining value-added.
Hichilema also wants to add value and said during the campaign that he wanted private investment in the economy provided that companies were run for the benefit of Zambians. He has a delicate balancing act to perform. A macho stance, as shown with Glencore in Zambia or by the previous Tanzanian administration with Acacia Mining, is clearly counter-productive. At the same time, he has to negotiate deals that he can sell to civil society and the local media. This becomes easier if the mining companies approach the talks in an even-handed manner.
Another delicate issue for the new president is relations with China, which have proved divisive in previous presidential elections in Zambia. China accounts for about USD3bn of an external debt burden that Hichilema’s team has estimated at close to USD13bn. The burden is unsustainable by any criteria but China has historically not joined rescheduling negotiations alongside other bilateral creditors within the Paris Club. The government should also be prepared if Chinese miners already present in the country look to add to their assets.
The president said in the interview that he had a target of middle-income ranking, which status Zambia briefly held after 2011. Given the fall from grace leading up to and during COVID, his supporters should be patient.
Kronsten is the head; Macroeconomic and fixed income research FBNQuest Capital