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Given that one of our core themes hitherto in 2012 for SSA relates to improved inflation prospects (based on myriad factors including base effects, firming currency dynamics and perhaps most importantly–given its typical CPI weighting–a marked decline in food inflation) and by extension a general tilt away from monetary tightening and towards [comparative] easing, local bonds continue to look particularly appealing given a secular widening in yields across the region since 2010 may be in the process of retracing.  To this end this week’s Alterio report explored both Nigeria and Zambian local debt in terms of perceived impending [real] yield retracement potential:

Real [364-day T-Bill] yields look most attractive in Nigeria (nearly 4x the SSA average) where naira appreciation of over 2 percent since the beginning of the month also continues to outperform other countries in our coverage area given increased USD supply from oil firms (in addition to normal bi-weekly CBN auction flow) and decreased demand stemming in part from the ongoing, oil import subsidy probe.  Furthermore monetary policy, which we now gauge as only slightly ahead of the curve (based on our estimates of neutral real prime rates and 1-year forward price expectations) should remain near term supportive despite a hitherto cumulative 575bp increase in the policy rate in 2011 given the still uncertain pass through effects of January’s fuel subsidy row detailed in our report last week.  That said not only should any price spike be transitory in nature but it should also be comparatively muted given the real yield dynamic which we expect will only entice additional foreign inflows in the coming months.  Underpinning yield retracement is ongoing fiscal discipline as the federal government’s commitment to maintaining a deficit of less than 3 percent in 2012 looks increasingly credible given the Budget Office’s statement this week that the benchmark oil price for the annual budget would remain USD 70/bbl.

Likewise Zambian inflation-adjusted yields (at nearly 2x the regional average) could also retrace in the short term despite the fact that policy rates already sit in line with the curve per our estimates and moreover unlike Nigeria currency dynamics are not nearly as supportive.  The kwacha remains our second worst performing currency over the past twelve months, for instance, despite the expectation of a relatively subdued inflationary environment given the introduction last month of a revised [albeit still food-weighted at >50 percent] consumer basket (indeed CPI eased to 6% y/y in February from 6.4% in January as both food and non-food price pressures moderated) which should keep headline numbers within the central bank’s target band.  To that end this week the USDA’s chief economist projected a sharp decline in global food prices for 2012, though given the opposite outlook for fuel prices as well as an increasing fiscal deficit (along with a comparatively low reserve-to-GDP ratio and our coverage area’s most taxing short-term external debt burden, per our original sin methodology) we fear that inflation could be stickier than thought such that our policy bias is now moderately tighter.  Yet it should be noted that the government’s plans to increase external borrowing this year at the expense of lower local supply should place a defacto ceiling on yields, meaning that despite tighter liquidity conditions of late which saw the most recent T-bill auction’s overall bid-to-cover ratio decline to 0.6 from 1.2 the scope for further yield widening is limited in our view.

Excerpted from this week’s Alterio Research report:

Given in particular the success of Namibia’s USD500mn maiden Eurobond last fall which saw an over-subscription of roughly 5.5x—largely a function, per pundits, of its perception as a proxy on SSA commodity wealth with a similar [Fitch] credit rating (BBB-) to South Africa (BBB+) but an approximate 200bp added spread—most observers expect Zambia’s impending offering in 2012 to be similarly received against a supportive macro backdrop defined chiefly by copper’s potential and relative price resiliency (in the face of developed market aggregate demand contraction) as well as accommodative monetary policy unconstrained by overly zealous inflationary pressures.

To the first point much like the supply side dynamic for crude whereby prices are likely to be supported going forward by limited spare capacity and inventory cover (irrespective of events stemming from China, Europe or even Iran), global mine output for copper—bluntly described by one analyst as ‘disastrous and getting worse’—was on track in late November to contract annually for the first time since 2002 while physical indicators in China (i.e. wire and cable demand and scrap shortages) now pose upside risks given deep discounts already ascribed to the effects of a credit-induced market crash there.  Such price stickiness would not only be welcome to Zambia, where the potential pace of Copperbelt output expansion over the next several years stand to make it the fifth-largest producer in the world, but somewhat imperative to post-election fiscal ambitions and thus of utmost interest to its creditors who will monitor the continued health of a current account balance now slightly in surplus (the 2012 budget, for example, is characterized by increases in social spending and farming subsidies as overall spending is slated to rise to 26.5 percent of gross domestic output from 21 percent).  To this end President Michael Sata’s decision to double mining royalties but withhold a much-ballyhooed windfall tax was not only prudent but in fact obligatory in our view given the unfortunate reality of infrastructural bottlenecks (i.e. transport and power supply related) and skilled-labor shortages that for the appreciable future will relegate Zambia to being a comparatively inefficient, high cost producer (though admittedly bond proceeds would theoretically begin to erode at least some of these concerns).

As to central bank easing, strategists suggest that Sata’s election in fact signaled a monetary policy paradigm shift towards cheaper funding costs.  Indeed within one week of former President Rupiah Banda’s defeat then-central bank Governor Caleb Fundanga, credited by some with helping to temper inflation into single digits for the first time in three decades, was removed.  Since then a 300bp reduction of the reserve ratio for both local and foreign currency deposits as well as the core liquid assets ratio, coupled with a general reduction of base lending rates (for now Zambia lacks an official benchmark rate per se) augmented liquidity while headline inflation fell sharply over the last three months of the year (7.2 percent y/y in December from 8.1 percent in November and 8.7 percent in October).  Taken together, and alongside a fairly resilient currency (due in part to central bank support) real yields remain attractive going forward as investors embrace a new political and perhaps monetary landscape in the new year.

From this October’s Business Diary Botswana:

Zambian President-elect Michael Sata’s recent victory over former President Rupiah Banda and his ruling Movement for Multiparty Democracy (MMD) ended two decades of MMD power while concurrently creating a cloud of uncertainty not only for Zambia’s mining industry, which per the World Bank accounts for roughly 70 to 75 percent of the country’s export earnings (albeit only about 10 percent of its tax revenue), but also those supporters of Sata’s Patriotic Front (PF) party who, having been sold a seductive slogan of “more jobs, less taxes and more money in your pockets” may be in for a rude awakening.  Even prior to the hotly contested race, which culminated in a peaceful transfer on September 23rd during an inauguration ceremony in Lusaka, some pundits opined that the 74-year old Sata (formerly a minister in Kenneth Kaunda’s United National Independence Party which ran Zambia from independence in 1964 until its defeat in 1991, at which point he joined the MMD for its first decade of governance) would in practice stray from the provocative, populist platform he so ardently promulgated.  Per The Economist, for instance, in reality “the policies of [Messers Banda and Sanda] look much the same”, an increasingly popular stance among observers predicated not only on perception but also an acknowledgement of the Zambian economy’s precarious reality—namely the vulnerability of its balance of payments to copper prices (see copper spot’s technical analysis, inset).

The lion’s share of Sata’s campaign gusto centered around the premise of redressing the country’s chronic economic imbalance, a pitiful phenomenon whereby one of the continent’s historically richest countries, previously known as Northern Rhodesia while under British Rule until 1964, ultimately became one of the poorest in the following decades “largely as a result of nationalization, mismanagement, plummeting copper prices and soaring debt”.  And while burgeoning BRIC demand eventually provoked a newfound price paradigm for natural resources—most importantly for Zambia, China’s copper consumption grew from about 1.8 million metric tons in 2000 to nearly 5 million metric tons in 2008, trebling China’s share of global consumption in the process—“most Zambians have personally yet to enjoy their new-found prosperity [as] around two-thirds of them, mostly subsistence farmers, still live on less than $2 a day” (in fact, Zambia’s GDP per capita of USD1,300 is well below the median of USD2,960 for similarly rated countries, per S&P, a ratings agency).  Along with an aim to create more jobs and redistribute the country’s wealth, Sata thus vowed to revisit a 25 percent windfall tax on mining revenues that Banda had previously abolished in 2009.  In that interim, Sata reminded his base (a contingent built largely around metropolitan areas and particularly the legions of disenfranchised youth), copper prices had increased from around $3,000/ton to nearly $10,000 to the benefit primarily of Chinese-owned firms, many of whom it is alleged routinely flout domestic labor laws (to say nothing of at least two purported criminal cases of protesting employees being fired upon by their superiors) while paying “slave wages” with Banda’s implicit approval—a Faustian deal of sorts critics claim involved kickbacks.  Undeniably, China’s influence in the country runs deep.  As the Financial Times noted in January, not only have Chinese companies zeroed in on Zambia’s copper and coal reserves, but they have also staked a growing presence in manufacturing and agriculture.  To that end, the Zambian Development Agency reported this year that in a country with an annual gross domestic product of just $13bn, China alone has injected more than $1bn.  Yet the paradox of such largesse creates friction.  “The more we keep the Chinese out, the more we will stay impoverished,” lamented Sebastian Kopulande of the country’s International Trade and Investment Center.

Zeroing in on the mining sector and its role in a perceived larger sphere of corruption, Sata underscored the lack of transparency in the industry and the need for, at the bare minimum, enhanced audits in order for the Zambian Revenue Authority to more efficiently assess its tax owed.  Mounting evidence suggested, Sata stated, that under an industry practice known as “transfer pricing” (whereby subsidiaries of the same company were said to be trading with one another at “arm’s length” in order to theoretically shift profits more efficiently and thereby minimize tax liabilities) the bulk of Zambia’s copper exports, though destined for Switzerland (more than 85 percent of asset portfolios for sub-Saharan Africa pass through tax havens such as Switzerland, home to firms such as Glencore International AG, a leading integrated commodities producer and marketer) never actually arrived at the assumed destination, per Swiss customs data.  And according to one news report, a leaked memo authored by Grant Thornton, a consultancy, at the request of the Zambia Revenue Agency (ZRA) highlighted that the pricing structure for Swiss copper, though “remarkably similar to Zambia’s exported copper”, was nevertheless “six times higher than the funds Zambia received, facilitating a potential loss of some $11.4bn,” nearly the whole of national annual output.

Yet despite Sata’s initial pledge to tackle said opacity, many remain skeptical his ascendance will result in meaningful change given an ever-murky backdrop of slowing global growth and a violent commodity unwind triggered largely by China’s slowdown.  At September’s end, for instance, Shanghai’s Composite Index hit its lowest point since July 2nd, down more than 14 percent this quarter.  Meanwhile copper prices, which at the beginning of July stood “within striking distance of record highs” per The Wall Street Journal, slid by 25% in September alone, while Barclays Capital cut its copper price forecasts to reflect “weaker-than-expected economic activity during the second half of this year, as well as in 2012” (while admitting, however, that “the weak supply picture . . . should help to buffer the downside”).  With this in mind, many analysts do not expect Sata to rock the boat, so to speak, any more than necessary, if at all.  “The risk is that he is coming in at exactly the moment when global commodity prices may have just gone into reverse and we have seen before, including in Zambia, that when prices are falling it becomes much easier for investors to pressure the government to relax transparency,” noted Alex Cobham, chief policy adviser for UK-based charity Christian Aid.  In the meantime both industry and country-wide investors sit in lurch, given the metal’s importance to Zambia’s overall macro well-being.  Yet currency markets seem to suggest that a pragmatic outcome indeed looks most probable.  While the Kwacha fell from 4,810 to 5, 150/$USD during the week of, and immediately post-election, it has since largely recovered.  Moreover analysts point out that given Zambia’s purported mission to ultimately issue a USD500mn eurobond in order to finance infrastructure expenditure (mainly in the transport and energy sectors), it is likely to tread cautiously with the very industry it hopes to help it double copper production within 5 years, less international capital markets, already shaken by the recent global macro developments, become even more reticent.

My contribution to this month’s Business Diary Botswana which now operates out of both Harare and Lusaka as well:

Zambia’s plan to issue USD$500MM in sovereign paper to finance infrastructure—Absa analysts wrote last month that the government “intends to forge ahead with plans to issue its maiden Eurobond [in early 2011] once it has obtained a sovereign rating”—comes on the heels of Nigeria’s initial foray into international debt markets in late January in which the continent’s most populous nation received orders equaling more than two times the amount of debt sold, attracting buyers from 18 countries in Europe, the U.S., Asia and Africa, despite fairly ardent reservations from certain international investment houses and fund managers regarding its fiscal profligacy.  A windfall oil revenue account set up under former President Olusegun Obasanjo, for instance, fell from $20bn to a recent estimate of roughly $300MM, while FX reserves dropped from USD42bn in January 2010 to USD33.1bn by November, marking the second consecutive annual decline (reserves were roughly USD53bn year-end 2008) as the Central Bank of Nigeria (CBN) continued to defend its preferred level of USD/NGN150.  Citing the above, along with increased “political risk” ahead of this April’s elections as well as high inflation underpinned by rising food costs and a 2010 fiscal deficit of 6.1% of GDP compared with 4.8% targeted, Fitch Ratings lowered Nigeria’s sovereign credit outlook to Negative (BB-) in October, though S&P maintained its B+ “Stable” outlook primarily on the back of the country’s strong external debt (2.4% of GDP).  Moreover, the Financial Times noted, “the country’s ratio of oil production to oil reserves is very low (2m barrels per day from 36bn in reserves), so it is a safe bet that petrodollars will keep flowing well beyond the 10-year lifespan of the bond.”  With this in mind, the paper’s ultimate 7 percent yield looked reasonable in comparison with Ghana’s 2017 paper (rated B)—which couponed at 8.5%, now yields 6.3% and is considered the region’s defacto sovereign benchmark—and per some analysts may even look “dear” sooner rather than later.  “All expectations are for a rally in the Nigerian Eurobond in the months to come, perhaps when the uncertainty of elections is seen to be less significant,” mused one Standard Chartered banker.  For their part, Nigerian officials couldn’t have been happier.  “This is a major success and milestone for the country and economy,” Finance Minister Olusegun Aganga gushed to reporters from his office in Abuja.  “[The country will now have a] transparent and internationally observable benchmark against which international investors can accurately price risk.”    

Relative to the squabble surrounding Nigeria’s fiscal soundness, Zambia’s impending auction should be somewhat tame as “lofty commodity prices should support the case for a relatively low interest rate” per one commentator in regards not only to Zambia but to Tanzania, a rapidly emerging gold producer.  But this outlook may be particularly true for Zambia, Africa’s largest copper producer (responsible for roughly 9 percent of total world exports) given the recent run-up for industrial metals while precious metals such as gold and silver have seemingly paused for breath.  Copper specifically has been buoyed by both demand and supply fundamentals—China’s consumption of the metal has tripled in a decade to an estimated 6.8 million tons in 2010, according to CRU, a metals and mining consultant that projects due largely to the accelerating urbanization of central and western China (in addition to the continued development and refinement of ever-burgeoning coastal giants) the country is on pace to almost triple its annual use of copper to 20 million tons in 25 years—more than the world produces today and setting the stage for a potential global shortage of 11 million tons a year by 2035.  And while the People’s Bank of China (PBC) has acted increasingly hawkish regarding inflation—“reserve requirement ratio (RRR) increases have triggered fears that the Chinese authorities are about to significantly accelerate policy tightening, which could lead to a sharp slowdown in domestic credit and consequently overall economic growth,” wrote one credit analyst, the overall global macro landscape is such that both demand and supply should be running in somewhat opposite directions for the foreseeable future.  On the demand front the U.S., the world’s second largest copper consumer behind China, continues to stabilize as economic data in late January showed that showed the country’s GDP grew at a rate of 3.2% for the fourth quarter of 2010 and 2.9% annually, its biggest rise in half a decade.  Moreover, VM Group, a London-based metals, energy, agribusiness and renewals consultancy, wrote to clients recently of the expectation of a supply squeeze in the medium term adding further support to copper’s overall return dynamic over the coming year: “Dominating copper’s allure are its supply-side shortfalls, which are now well established. Mine supply has not kept pace with demand for many years, nor has it responded with alacrity to the meteoric price rise, implying that structural difficulties exist.”  To that end “the world refined copper market is expected to have a 500,000-metric-ton to 600,000-ton deficit in 2011, even with a significantly weaker demand scenario,” according to metals strategists with JPMorgan Securities Ltd.

Moreover while Nigeria’s history of ethnic-fuelled political violence and current macro story (namely inflation) give some investors serious pause, Zambia in contrast is a study in economic soundness and stability.  Absa noted in its year-end Emerging Market Quarterly for instance that FDI inflows—which reached record levels totaling USD4.3bn (27% of GDP) in 2010—more than doubled the total FDI inflow of USD1.8bn in 2009 and should be underpinned in 2011 by further investment—as well as “improved private consumption and infrastructure spending will result in growth of close to 7% in 2011 from an estimated 6.6% in 2010.”  Of note, Chinese investment in Zambia (which has swelled by over 400 percent since 2004) is expected to more than double to $2.4bn in 2011, driven mainly by investments in mining and manufacturing, trade minister Felix Mutati reported last month.  Meanwhile, Vancouver-based First Quantum Minerals Ltd. will invest more than $1bn in a copper mine (with three open pits) and smelter project in Zambia’s Northwestern province that will be commissioned by the end of the year, probably produce copper over 20 years and create about 2,000 jobs, per the firm’s president Clive Newall, who noted that the company will also build a new hydropower station near the mine to ensure continuous supply of electricity.  And although the upcoming October presidential elections between the MMD’s President Rupiah Banda and the opposition PF’s Michael Sata should be closely contested, “Zambia has had peaceful elections since becoming a multi-party democracy in 1991,” analysts note.  Inflation, meanwhile, is likely to pick up some due to higher expected energy costs, infrastructure and social spending inherent to the government’s continued fiscal expansionary stance as well as the natural effect stemming from stronger domestic demand.  Yet Zambia’s fiscal deficit, at just above 3% of GDP in 2010, is among the lowest in Sub-Sahara Africa   And while rising food inflation (which accounts for 57% of the consumer basket) is likely to cause CPI to spike going forward, analysts note that large domestic food stocks mean inflation could remain anchored within single digits, although it accelerated already to 9 percent in January on an increase in grain prices, acting Director of the Central Statistical Office John Kalumbi announced.  Yet the inflation dynamic and the resulting pressure on sovereign borrowing costs is admittedly a nuanced one.  As one report noted, “for outsiders that balance between moderate inflation that stimulates healthy bond yields, and runaway price increases that damage overall economic performance, will be crucial.”  To that end, “there’s been a huge amount of policy accommodation in Africa, and understandably, a reluctance to roll that back very quickly,” said Razia Khan, head of Africa research at Standard Chartered in London.  “But at the same time the inflation outlook is not going to be that favorable. The big question is ‘Do domestic yields rise fast enough to compensate for that or not?’  If it’s not the case, you’re not going to see sizeable investor interest.”  Regardless, the eventual issuance of Zambian sovereign debt is yet another cause for celebration as it will accelerate the maturation of domestic capital markets, in turn making state and ultimately corporate balance sheets all the more autonomous.  And as Ashmore Investment’s Jay Dehn reiterated, “sovereign yield curves help corporates to price bonds, [and] in turn [will unlock] Africa’s huge medium term growth potential.”

Though admittedly no one really knows what goes on behind the scenes in Beijing, the recent decision to keep rates on hold despite a 28-month high in inflation suggests that growth still trumps price stability even as President Hu mentioned last week that managing the latter was a “priority.”  To some analysts this reluctance to tighten monetary policy is a deeply rooted, psychological one that extends across much of Asia.  An Economist piece last week, for instance, notes that “Asia’s policymakers remain ‘paranoid about growth scares from the West.’  They do not want to repeat the mistake of 2008, when they were caught tightening even as the financial crisis struck.”  At the same time, Goldman Sachs projects, much of the price run-up may naturally subside as America’s inventory build-up, which traditionally feeds Asian component-makers and which has been on a tear over the past year, subsides.  If not, Beijing may be in fact be just as guilty as the U.S. of ‘kicking the can down the road’, though as long as the two act in tandem perception can theoretically trump reality ad infinitum, a ploy not likely lost on Messrs Hu and Obama.  That said, eventual rate hikes are inevitable

Regardless, China’s rate decision was a big shot for risk trades and in particular could exacerbate certain markets such as a copper that some warn are already stretched.  Copper climbed to a record $9,267.50 a ton on Dec. 14 and has gained 22 percent this year as China-led demand outpaces supply (see graph).  And while some analysts note that alumnium may in fact have greater upside at this point than copper given its role as an alternative, the outlook remains strong for copper as well.  This should benefit frontier markets like Zambia in particular, the continent’s top copper producer.  Against this backdrop analysts at Barclays expect the country’s current account deficit to halve in 2011 (from a projected 2.3% of GDP) while FDI-supported output growth continues–inflows mainly into the mining and manufacturing sectors reached record levels totalling USD4.3bn (27% of GDP) in 2010, more than double the total FDI inflow of USD1.8bn in 2009,” analysts wrote.  This has largely been a function of Zambia’s courtship of Chinese investment into two “Special Economic Zones”, one serving the mining industry in Chambishi in the northern Copper Belt, and the other a nascent manufacturing-for-export hub near the capital.  Assuming the copper price acts as expected, look to see how Zambia’s maiden USD500mn Eurobond in H111 reacts.

Citing record production and sales, Malawi’s sole sugar manufacturing company, Illovo Sugar Limited of South Africa, announced a K6.353 billion profit–up 23% from last year. Sales and export volumes increased by 13% over the previous year (despite the resilient strength of the Kwacha against the U.S. dollar), and domestic sales grew by 11%.

The company expects a cane crop in excess of 310,000 tons next year, given typical weather conditions and increased production capacity. Illovo, which is also listed on the Malawi Stock Exchange, has paid an interim dividend of K2.40 to its shareholders, while its Directors have declared a second interim dividend of K3.70 per share.

In related news, Zambia Sugar Plc, the country’s largest sugar producer, said it plans to more than double output in the year to end-March 2010 after expanding its plantation and factory and buying a new farm. Per Reuters, Company Secretary Lovemore Sievu said in a statement to shareholders that sugar production would rise to more than 420,000 tons in the current season from 192,186 tons in the year ended March 2009.

Zambia Sugar, listed in Lusaka, is also a unit of South Africa’s Illovo Sugar.  Per the firm’s website, Zambia, Swaziland, Malawi and South Africa export sugar to a number of regional markets where selling prices are related to the world market price. “In all instances, however, premiums above the world price are achieved as a result of various competitive advantages.”

Zambia’s Investrust Bank recorded a K60 billion growth in assets, according to bank managing director, Friday Ndhlovu.  Investrust Bank’s total asset growth has reached K60 billion in the last 12 months, rising to K466 billion last month and up from K408 billion recorded during the same period last year.

2009 has been an active year thus far for Investrust, which has opened up new branches in Livingstone, Lusaka Industrial, Lusaka International Airport and Lumwana.  Ndhlovu noted that the bank was encouraged by the economic expansion which was being experienced in urban and rural areas outside the line of rail, especially the Copperbelt and North-Western provinces, and that the ground breaking investment by Lumwana Mine, which included development of an entire town from scratch, offered immense opportunities to businesses, the Lumwana community and its surrounding areas.  “Our goal has always been to bring affordable banking services and products closer to the Zambian public,” Ndhlovu said.

Finally, Ndhlovu urged the Government “not to relent” in implementing policies to mitigate the effects of the global credit crunch, which has had a significant bearing on the nation’s economy (see Zambia All Share index below, charting the past five years).


Zambian Economist links to the latest report on the country’s annual rate of inflation, as measured by the all items Consumer Price Index (CPI), which was recorded at 16.6 percent in December. The rate is 1.3 percentage point higher than the October rate of 15.3 percent, and is primarily due to food inflation.

Two weeks ago reports from Lusaka warned of a “copper crisis” in Zambia, one of the world’s largest copper producers.  Since the beginning of the global credit crunch, prices for the metal, which is vital to both the electronics and buildings industries, have tumbled from record highs of nearly $9000/metric ton between 2005 and 2007, to roughly $3000/ton given both perceived and actual demand destruction.  The Mail & Guardian, a South African newspaper, reported that copper accounts for 80% of Zambia’s foreign earnings.  Earlier this year, in fact, the Zambian government projected more than $415-million in revenue from copper exports after revising mineral royalty taxes from a paltry 0.6% to the global standard of 3% and introducing a windfall tax triggered by the higher prices of copper.  That tax, however, now looks suspect, as a number of mines are cutting their workforces as revenues from foreign demand dip.  Luanshya Copper Mine (LCM) shut down its Chambishi Metals Plc unit, the country’s largest cobalt producer, and its Baluba copper mine soon after suspending a $354 million Mulyashi copper project, which had been due to start producing 60,000 tonnes of copper in 2010.  According to Reuters, the firm cited “operational difficulties arising from the global credit crunch” as reasons for the decision.

In spite of the dour headlines, some officials remains cautiously optimistic. Following the LCM shutdown, the government asked foreign mining firms to use profits that they made when copper prices were high to keep working in the downturn.  And according to Reuters, Bank of Zambia (BoZ) governor Caleb Fundanga “expressed optimism that copper prices would soon rebound,” though he admitted that” developments at LCM were a threat to the country’s copper industry.”  Moreover, in October Australia’s Equinox Minerals Ltd. announced that it signed a $80 million loan facility with Standard Chartered Bank Plc and Standard Bank to complete its Lumwana copper mine in Zambia, which recently started production.  The Lumwana mine is Africa’s largest open-pit copper mine.

Industry analysts posit that most copper mines have also slowed down expansions and upgrades following the global financial crisis.  This “supply destruction” will also lead to stagnant surpluses around the world that, once they wind down, will ultimately help right the price shift.  However, renewed growth in the industry will be dependent on a turnaround in demand (i.e., in China, the world’s largest user, where, according to Paul Harper’s excellent piece on this issue, demand for copper slowed to an estimated 9.8 percent in 2008 from 26 percent in 2007), and to that extent Fundanga said that Zambia remains optimistic that the global economy will stabilize soon and that demand for copper will begin to increase.  However, he also stressed that the government would seek to mitigate the effects of falling copper demand and prices by diversifying the economy to other sectors, such as agriculture and manufacturing of copper products.  Botswana, long dependent on diamonds, has been embracing this approach as well.

Zambeef Products PLC (LSE: ZAMB), headquartered in Lusaka, engages in the production, processing, distribution, and retail of beef, chicken, eggs, milk, and dairy products in Zambia.  Its cropping operations comprise 2,700 hectares under irrigation and a further 1,500 hectares of dry land crops.  The company, through its subsidiary, Zamleather Limited, also involves in the tanning of hides for export to the Far East and Europe, as well as the production of finished leather, shoes, and industrial footwear.  It operates 82 retail outlets that sell meat, chicken, milk, eggs, and processed meat in Zambia; in-store butcheries in Shoprite supermarkets; and fast food outlets, selling fried chicken and chips. In addition, the company provides transportation services through a fleet of approximately 200 trucks; and operates as a franchise on Shoprite Checkers butcheries. 

Recently, the Times of Zambia reported that the firm will spend USD $30 million on expansion of existing projects and the initiation of new business activities in 2009, and moreover that it had recorded a turnover of K493 billion, representing an increase of 69% in Kwacha terms compared to the 2007 turnover:

Chairman Jacob Mwanza stated in the company’s 2008 annual report released to shareholders at the Zambeef annual general meeting (AGM) held at Pamodzi Hotel in Lusaka that among the upcoming projects was the establishment of a new modern stock feed plant. Dr. Mwanza stated that the group would also set up a new poultry hatchery, establish ranching operations, expand its piggery and pork processing operations, and establish the first 3,500 hectares of the planned 20,000 hectare palm plantation in Mpika. He also said that the group had continued to diversify its business in line with its diversification strategy and significant reinvestment policy, which had helped reduce the volatility of its earnings while improving the quality of earnings.

During the financial year ending on September 30, 2008, Zambeef Products Group invested in excess of K289 billion in developing, expanding and diversifying the businesses under its belt. Dr. Mwanza said that the major revenue source during the year under review was the issuance of 44 million new ordinary shares in the group, which helped to the company raise K259 billion. “This has resulted in a very well capitalised and diversified agribusiness, which is well placed to benefit from the strong real growth not only in Zambia but in the region,” he stated.


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