As west­ern in­vestor sen­ti­ment de­clines, Zam­bia looks east to China.

• Xi Jin­ping happy with China-Zam­bia co-oper­a­tion • Zam­bia in eco­nomic and tech­ni­cal sup­port MOUs • Lungu courts chief ex­ec­u­tives of 15 Chi­nese cor­po­ra­tions

Zambian Business Times - - FRONT PAGE -

With wan­ing con­fi­dence in Africa’s sec­ond largest cop­per pro­ducer fol­low­ing high risk of debt distress clas­si­fi­ca­tion and no IMF bailout pack­age, Zam­bia has looked to China for in­creased trade and in­vest­ment co-oper­a­tion. Us­ing as credit de­fault spreads on Eurobonds to proxy in­vestor sen­ti­ment, dol­lar as­set val­u­a­tion for the cop­per pro­ducer are at their low­est with bonds ma­tur­ing in 2022, 2024 and 2027, yield­ing record highs of be­tween 14.33% - 15.57% (com­pared to 5.25% - 8.975% is­suance lev­els). Zam­bian dol­lar as­sets are the worst per­form­ers af­ter Mozam­bique’s 2023 bonds pay­ing 17.25%. The strong dol­lar en­vi­ron­ment as a re­sult of trade wars be­tween the two largest global economies have caused an emerg­ing mar­ket (EM) as­set sell-off, which Zam­bia has not been spared from. Au­gust has been the worst month for EMs with cur­rency routs as an au­topsy of weak com­mod­ity prices caused by dump­ing of risky as­sets by in­vestors.

Zam­bia’s case is unique as the EM con­ta­gion just com­pounds the al­ready ex­ist­ing sen­ti­ment around es­ca­lated debt lev­els re­ported at US$9.37bil­lion and a de­layed IMF US$1.3bil­lion bailout pack­age. Volatil­ity in cop­per prices to near one month lows wors­ened growth prospects for the South­ern African na­tion. Cop­per is said to be the only metal with a PHD and is used as a barom­e­ter for eco­nomic pulse. The IMF in the last week of Au­gust re­called its res­i­dent rep­re­sen­ta­tive for Zam­bia, Pro­fes­sor Al­fredo Bal­dini, to be de­ployed else­where. This added pres­sure on dol­lar bond yields which widened over 450bps as con­fi­dence waned fur­ther.

The kwacha money mar­kets have trended bear­ishly with yields ris­ing to 2 year highs. One-year money will now pay 20.5001% as other tenors re­main fairly el­e­vated be­tween 14.5% and 18.5%. An­nual in­fla­tion for the month of Au­gust breached the Bank of Zam­bia target band of 6-8% at 8.1%. Kwacha demand has dwin­dled as mar­ket play­ers pre­fer the USD as a safer haven cur­rency. This has re­sulted in kwacha de­pre­ci­a­tion.

What China has to of­fer

Zam­bia took ad­van­tage of the Fo­rum for China Africa Co-oper­a­tion (FOCAC) trip by ar­rang­ing bi­lat­eral talks with its Chi­nese coun­ter­parts ahead of the fo­rum. The Zam­bian del­e­ga­tion led by Pres­i­dent Edgar Lungu met with his Chi­nese coun­ter­part Pres­i­dent Xi Jin­ping in Beijing on Septem­ber 1. Pres­i­dent Jin­ping ex­pressed hap­pi­ness at the China-Zam­bia co-oper­a­tion and ap­pre­ci­ated the bi­lat­eral part­ner­ships the two na­tions share.

Vig­or­ously seek­ing in­vest­ment

Pres­i­dent Lungu met with chief ex­ec­u­tives of 15 top cor­po­ra­tions in China who pre­sented busi­ness and in­vest­ment pro­pos­als ex­press­ing in­ter­est in Zam­bia. These ex­pressed ap­petite for in­vest­ment in min­ing, agri­cul­ture, con­struc­tion, man­u­fac­tur­ing of elec­tronic gad­gets and biotech. The Pres­i­dent im­plored the in­vestors on his de­sire to ex­port pro­cessed prod­ucts through a value add mech­a­nism that would al­low max­i­miza­tion of re­turn as op­posed to raw ma­te­ri­als. This meet­ing was chaired by the chair­man for the Na­tional People’s congress Li Zhan­shu.

Jin­ping pledged RMB200mil­lion (US$30mil­lion) grant for the elec­tri­fi­ca­tion of the Lusaka South Multi Fa­cil­ity Eco­nomic Zone (LSMFEZ) and mod­ern­iza­tion of the con­ver­sion of the Mu­lun­gushi In­ter­na­tional Con­fer­ence Cen­tre to a con­ven­tion cen­ter in readi­ness for the African Union Heads of State Sum­mit to be held in Lusaka in 2022.

Four MOUs were signed with re­spec­tive min­is­ters sign­ing on be­half of the Pres­i­dents. These in­clude MOUs on eco­nomic and tech­ni­cal co­op­er­a­tion, pro­to­cols for ex­port of Zam­bian prod­ucts and grants for en­ergy gen­er­a­tion. Zam­bian honey from Mwinilunga will now have a mar­ket in China, the world’s sec­ond largest global econ­omy.

Also wit­nessed was the twin­ning of Jiangxi Province with Zam­bia’s Muchinga Province.

Debt rene­go­ti­a­tion

Zam­bia will court its Chi­nese coun­ter­parts to dis­cuss debt re­struc­ture pos­si­bil­i­ties. 30% of the cop­per pro­ducer’s ex­ter­nal debt com­prises bi­lat­eral debt with China. The rene­go­ti­a­tion of debt is part of the as­set li­a­bil­ity ex­er­cise that the Min­istry of Fi­nance is car­ry­ing out in ad­di­tion to the re­demp­tion strat­egy for its soon ma­tur­ing dol­lar bonds. Zam­bia cur­rently grap­ples with an ex­ter­nal debt of US$9.37bil­lion and do­mes­tic debt stock of the kwacha equiv­a­lent of US$5.3bil­lion in ad­di­tion to do­mes­tic ar­rears of the kwacha equiv­a­lent of US$1.37bil­lion.

Zam­bia Pres­i­dent Edgar Lungu with his Chi­nese coun­ter­part Xi Jin­ping in Beijing

Credit de­fault spreads on Zam­bian dol­lar bonds as a proxy for in­vestor sen­ti­ment. Sen­ti­ment has de­clined sharply over the last two months.

Zam­bian del­e­ga­tion left and Chi­nese del­e­ga­tion right in Beijing ahead of the Fo­rum For China Africa Co­op­er­a­tion

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