ZAMBIA ELECTIONS Short but tough stint

New president’s 20-month tenure may be undermined by weak copper prices

ambia has a history of peaceful transition. It has had six presidents from three different political parties since it acquired independence from Britain in 1964, a development that has earned it the reputation of being a model of democracy on the continent.

Zambia’s ruling Patriotic Front candidate, Edgar Lungu, won a tightly contested presidential by-election last week to elect a successor to the late President Michael Sata, who died in office.

Lungu scored 807 925 votes (48,33%). His closest rival, Hakainde Hichilema of the United Party for National Development, received 46,67% of the vote. The difference — of just 27 757 votes — and an election turnout of 32% illustrates how close the race was. Lungu will complete the remainder of Sata’s five-year term, due to end in September 2016, when Zambia will hold general elections.

“Zambia isn’t heaven, but a lot can be learnt from this young nation about political tolerance and transition,” British high commissioner to Zambia James Thornton said after the swearing-in ceremony.

Lungu becomes president at a challenging time — for the world as well as for the Zambian economy. The World Bank has downgraded global GDP growth to 3,3% in 2016, down from 3,5%, and the global price of copper, Zambia’s major export, is trading at around US$5 500/t, its lowest since 2009. Coupled with $4,7bn in external debt and domestic debt of $3,3bn, this makes conditions particularly difficult for Lungu.

The country of 15m people plans to embark on an unprecedented amount of infrastructure development.

However, it has had to rely on foreign borrowing to fund these projects because of inadequate mining revenue. In 2012 and 2014, Zambia borrowed $750m and $1bn respectively by selling bonds.

How Lungu manages to tackle these challenges will determine his success during the 2016 elections. He plans to base his policies on consistency and predictability and will aim to create an investor-friendly country that will attract more business to broaden the tax base.

“If the new administration works on broadening its tax base, it could earn significantly more and cut back on borrowing, which only burdens future generations,” economist and business analyst Maambo Hamaundu told the Financial Mail.

Copper accounts for more than 70% of Zambia’s exports.

Declining copper prices will reduce the inflow of foreign exchange, thereby causing the local currency, the kwacha, to depreciate. This will increase the cost of doing business, which will affect economic growth and investor confidence. Mining companies will also find it difficult to make profits, which could affect their tax remittances to government.

Zambia is Africa’s second-largest producer of copper and the eighth in the world. But its citizens have not benefited fully from the country’s mineral wealth and have called on successive governments to find ways of improving revenue collection. The mining industry, which attracts over 80% of Zambia’s foreign investment, contributes less than 10% to the country’s GDP.

Lungu’s administration is trying to change this by using its newly restructured taxation system for the mining industry. It has moved from a corporate profit tax system to a royalty-based one. Mineral royalties were also raised from 6% to 8% for underground mining and from 6% to 20% for open-pit mining.

These taxes will contribute an extra $269m to the treasury in 2015. It will please Zambians, but may discourage capital investments.

Miners have already asked government to revert to the old rates. Though Lungu is expected to keep the new rate, he says he is willing to negotiate.

Meanwhile, Zambia’s election has been described as credible, free and fair by local and international observers.

Allegations by Hichilema that the results were manipulated in favour of the ruling party were refuted by the chair of the Electoral Commission of Zambia, Judge Ireen Mambilima.

“If this was stolen, if we manipulated the results, we did it together,” Mambilima said.

All the competing political parties were involved in the electoral process. This included the setting of the election date, the printing of ballot papers and the verification of election results. Alexander Mutale Edgar Lungu Willing to negotiate on mineral royalties