More pomp, please

More pomp, please

Zambians are headed to the polls today in order to elect a successor to late President Levy Mwanawasa, who died in August in France after a stroke. About 4 million registered voters are expected to cast their ballots in the 6,456 polling stations across the country. The favorites? Rupiah Banda is the vice-president of the ruling Movement for Multiparty Democracy (MMD) and has acted as the nation’s caretaker since Mr. Mwanawasa’s death, overseeing a 5.4% increase in growth in the process. But punters point to the 71-year old Michael Sata, a former MMD stalwart, leader of the Patriotic Front and a “fiery populist” per The Economist who was defeated in 2006, as the likely choice. A poll last week by the Steadman Group, a Nairobi-based market research company, predicted that Sata would probably win with 40 percent of the vote, compared with 29 percent support for Banda.

Sata is known as the “King Cobra” and for good reason. He plays well in front of large crowds, particularly ones tired of their seemingly eternal poverty in spite of the fact that the country is Africa’s leading copper producer and one of the SADC region’s more stable, peaceful societies. Further angering his growing base is the fact that the ruling MMD refused to update voter registers since the 2006 election, effectively disenfranchising tens of thousands of young opposition supporters who have turned 18 since then. In a country where the average life expectancy is in the mid-30s, 18-20 year olds constitute a disproportional percentage of the voting age population in comparison to more developed countries. Sata’s zealous rhetoric promises to keep foreign money at bay. On October 15, it is alleged that he told a campaign rally he would force foreign companies to give up 25 percent stakes in their operations to local investors and revoke their licenses to operate if they refused. However, as The Economist noted last week, this could all just be pomp and circumstance:

In 2006 [Sata] fueled a growing anti-Chinese mood, threatening to cut ties with China, a leading trading partner and investor in Zambia, and to expel foreign traders. Since then he has changed his mind; foreign companies should merely respect labour laws and get no better treatment than local ones. At a campaign rally he was reported to have said he would force foreign investors to have local partners, but his officials deny this is his plan.

Today, Bloomberg reports that Sata now claims he will sell state assets in banking, mining and telecommunications if he is elected.

[Sata] denied a report that he will force foreign companies to give 25 percent of their shares to local investors. His plan is for the government to divest its stakes in companies such as Zambia Telecommunications Co. and Zambia Consolidated Copper Mines Ltd., or ZCCM, by selling a quarter to workers, 24 percent to customers and restricting private investors to a 51 percent share, [he] said in an interview at his home in the capital, Lusaka.

If Sata indeed is just parading for the bands of young and unemployed, then the market effects of his tirades could lead to an irrational dampening of prices in the short term. Bloomberg’s report mentions, for instance, that “Sata has a history of making comments that unnerve investors, [and that] Leon Myburgh, Africa strategist at Citigroup Inc. in Johannesburg, said in a television interview yesterday that ‘back in 2006, we saw the kwacha depreciate meaningfully because of remarks he made about foreign nationals.'” Moreover, Sata would be taking over at a time when the market needs as much foreign help as it can muster, even though its budget is less dependent on foreigners now than it was in the past. Despite price decreases, inflation is still high due to previously-rising food and petrol prices. The kwacha has dropped to a three- year low. And the economy, while more diverse than it once was, still leans heavily on copper, whose price has slumped by around 40% since early September, and 57% overall from its recent record in July.

But these dips may be the result of overshooting, just like the psychology of a Sata victory may be irrational given the practical constraints the economy is facing and the pragmatic solution that a continued cozy relationship with China would present. All metals on the London Metal Exchange surged yesterday, for example, on speculation efforts by governments and central banks in Asia to revive their economies will support demand for metals. “I am always surprised by the resilience in Asia,” said Alex Heath, head of trading for industrial metals such as zinc and copper at RBC Capital Markets in London. “They have a real desire to grow and improve their economies and you can be sure they will recover far faster than other regions.”