ZAMBIA AUGUST 2007 ECONOMIC ROUNDUP

UNCLAS SECTION 01 OF 03 LUSAKA 001054

SIPDIS

DEPARTMENT FOR AF/S AND EB/CBA - DENNIS WINSTEAD
COMMERCE FOR 4510/ITA/IEP/ANESA/OA

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV BEXP EAIR ZA
SUBJECT: ZAMBIA AUGUST 2007 ECONOMIC ROUNDUP


1. SUMMARY
-- BOZ Bemoans Oil Prices, Warns Of Inflation Rate Rise
-- Stakeholders Query Government Over CEE Act
-- World Bank, IMF Caution On Copper Prices, Ag Subsidies
-- BOZ To Withdraw Money From Commercial Banks
-- Zambian Airways Records Growth
-- Mining Companies Find High-Grade Uranium Deposits
-- Barclays Confident In Economy, Makes Plans To Expand
-- World Bank Supports Credit Facility
-- WEF Rates Zambia's IT and Tourism Sectors
-- New Structures To Facilitate Zambia-DRC Trade
-- Zimbabwe Seeks Trade Opportunities In Zambia
-- Pande Invites Chinese Investment

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BOZ Bemoans Oil Prices, Warns Of Inflation Rate Rise
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2. On August 6, the Bank of Zambia (BOZ) warned that continued
increases in international crude oil prices may jeopardize Zambian
efforts to maintain single-digit inflation. However, BOZ Governor
Caleb Fundanga said that he expects foreign exchange earnings from
agricultural and copper exports to cushion inflationary pressure.
He pointed out that in 2007 the central bank has accumulated
additional reserves equivalent to USD 182 million. The year-on-year
inflation rate in August 2007 was 10.7 percent.

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Stakeholders Query Government Over CEE Act
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3. During a seminar on the Citizens Economic Empowerment (CEE) Act,
Zambia Consumer Association Executive Secretary Muyunda Ililonga
questioned the GRZ's ability to implement the Act when it appeared
to have insufficient resources to pay pensions to retirees.
"Empowerment should be a continuous process. We do not need an Act
to empower Zambians," he said. Ililonga also questioned what
measures the CEE Commission had put in place to harmonize the Act
with the Fifth National Development Plan. The CEE Act, which was
passed into law in 2006, aims to provide commercial opportunities to
disadvantaged citizens, but the way in which the GRZ will carry out
this empowerment is not clearly defined, and much decision-making
authority is vested with the Presidency. At the seminar, University
of Zambia Professor Love Mutesa advised the GRZ to invest in human
capital and to improve access to land. Land, he argued, would
enable Zambians to access additional financing by using their
personal property as collateral.

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World Bank, IMF Caution On Copper Prices, Ag Subsidies
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4. In a Joint Staff Advisory Note (JSAN),the World Bank and
International Monetary Fund indicated that a sharp fall in copper
prices poses a serious threat to the implementation of Zambia's
Fifth National Development Plan (FNDP). The Bretton Woods
institutions advised the GRZ to address the existing FNDP financing
gap and to implement a more efficient and equitable tax system. The
JSAN pointed out that GRZ agricultural sector spending allocates
insufficient funds to those programs that contribute to improved
agricultural productivity, such as agricultural research,
technological and irrigation development, and crop diversification.
The report advised the GRZ against its subsidized fertilizer support
program that absorbs significant resources but reaches less than ten
percent of intended beneficiaries such as the small-scale farmers.


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BOZ To Withdraw Money From Commercial Banks
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5. Acknowledging the cost of holding GRZ funds in non-interest
bearing commercial accounts, Finance Minister Ng'andu Magande has
indicated his intention to withdraw GRZ funds from private banks.
(Note: These banks earn interest on GRZ deposits by using the funds
to purchase GRZ bonds. End note.) Secretary to the Treasury Evans
Chibiliti said that about K700 billion (approximately USD 175
million, or six percent of the national budget) of GRZ money is
"lying idle in commercial banks." Economics Association of Zambia
Treasurer Noel Nkoma criticized the decision, warning of interest
rate increases, credit deficits, and reduced liquidity in the
banking sector. BOZ Governor Fundanga, however, maintains that the
move will lead to lower interest rates and increased lending in the
private sector, as commercial banks look for other sources of
income. Comment: Post welcomes the decision, which improves public
sector financial management, and supports GRZ plans to establish a
national treasury. End Comment.

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Zambian Airways Records Growth
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6. On August 9, Zambian Airways Chief Financial Officer Victor
Nyasulu announced that in 2006 the airline achieved income growth of
USD 11.5 million, compared to USD 5.3 million in 2005. During the
same period, Zambian Airways recorded an increase in the number of
passengers carried, from 41,195 in 2005 to 55,126 in 2006. The
airline, which was established in 1998 following the privatization
of Roan Air, estimates that it will carry 160,000 passengers in

2007.

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Mining Companies Find High-Grade Uranium Deposits
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7. Equinox Minerals has discovered high-grade uranium with a 0.093
per cent grading at its Lumwana project in northwestern Zambia.
However, Minister of Mines and Mineral Resources Kalombo Mwansa
warned investors against mining uranium until the GRZ introduces
uranium mining provisions into the 1995 Mines Act. He emphasized
that the Act does not allow mining of uranium and the GRZ is closely
monitoring recent discoveries in the Kariba area by OmegaCorp and in
North-Western Province by Equinox. The Lumwana Uranium Mineral
Resources have been estimated at 9.5 million tons. Equinox has
contracted the Australian-owned mining company Ausenco to manage and
implement a Uranium Feasibility Study (UFS),to follow up on a
Bankable Feasibility Study that was completed in 2003, which
included work on the extraction of the Uranium mineralization to
produce uranium oxide (yellowcake).

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Barclays Confident In Economy, Makes Plans To Expand
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8. Barclays Bank Zambia announced on August 7 that it will open 50
more branches across the country. To accomplish this, Barclays has
recruited 410 staff in the last six months, consisting of 360 direct
sales agents and 50 managerial staff. According to Managing
Director Danie Nel, Barclays has committed GBP 8 million towards the
expansion program, which he says reflects the bank's increased
confidence in the Zambian economy, as well as growth in key sectors
such as agriculture, mining, and tourism.

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World Bank Supports Credit Facility
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9. World Bank has provided the GRZ with a USD 12 million
concessionary loan, to support an investment credit facility that
will offer medium and long-term loans to agribusinesses, commercial
farmers, and smallholder businesses. The BOZ, which will administer
the funds, welcomed the assistance, noting the difficulty Zambian
farmers traditionally have faced accessing capital to expand or
improve their operations. On August 6, responding to this "credit
crunch," BOZ Governor Fundanga urged commercial banks to reduce
lending rates further in order to encourage economic growth. "We
have used every forum to request commercial banks to reduce lending
rates to be in line with falling inflation rates." He added that
although rates are declining and the trend is in the right
direction, "we consider the lending rates to be still too high and
we urge banks to reduce their lending rates to stimulate growth."

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WEF Rates Zambia's IT and Tourism Sectors
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10. Out of 122 countries that the World Economic Forum evaluated,
Zambia ranked 112th on the Global Information Technology Report
(GITR),scoring below neighboring Botswana, Namibia, Tanzania, and
Malawi. This marks a significant decline for Zambia, which ranked
81st in the 2003-2004 report (in 2005-2006 Zambia was not included
in the study).
Zambia's recently-launched Information and Communication Technology
(ICT) Policy, which aspires to increase ICT literacy, reduce the
cost of ICT equipment, and expand ICT services and job
opportunities. The WEF also ranked Zambia 94th out of 124 countries
in its Travel and Tourism Competitiveness Report (TTCR). Although
the GRZ is actively seeking to market Zambia as a tourist
destination, the TTCR forecasted an annual growth rate over the next
ten years of only two percent. Zambia performed well in numerous
categories (human resources, national tourism perception, and
natural resources),including ranking first in its hiring and firing
practices. However, inadequate ground transportation and tourism
infrastructure, as well as numerous other health and environmental
issues, brought down Zambia's overall score. The report valued
Zambia's travel and tourism industry at USD 103 million (1.3 percent
of the Gross Domestic Product). The industry provides approximately
16,000 jobs (1.1 percent of the total Zambian workforce).

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New Structures To Facilitate Zambia-DRC Trade
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11. The Smallholder Enterprise and Marketing Program Agribusiness
Development Component (SHEMP-ADC) has constructed two warehouses at
Kasumbalesa, on Zambia's border with the Democratic Republic of
Congo (DRC). SHEMP-ADC Agribusiness Team Leader Gerrit Struyf said
the two warehouses are likely to increase trade between the two
countries in view of the growing market for agricultural products in
the DRC. One of the containers is dedicated for livestock
(primarily goats),and the other for agricultural commodities such
as cassava, beans, groundnuts, potatoes, and onions. SHEMP, through
Celtel Zambia, has also begun a pilot project on the Cross-Border
Market Information System, which will take the same form as the
Zambia National Farmers Union cellphone-based commodity marketing
information system. Earlier in the month, the Zambia Development
Agency (ZDA) and the European Union Export Development Program
coordinated a trade mission to Lubumbashi, in southern DRC, of 20
local manufacturing companies. Early reports of its impact are
positive. According to export data collected from the Central
Statistical Office, Zambian exports to DRC in June 2007 accounted
for 4.8 percent of Zambia's total exports.

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Zimbabwe Seeks Trade Opportunities In Zambia
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12. Zimtrade, the export promotion wing of the Government of
Zimbabwe, announced its intention to set up a retail shop of
exclusively Zimbabwean products, particularly processed foods, in
Zambia. Chief Executive Officer Hebert Chakanyuka said the move was
part of the Government of Zimbabwe's National Export Strategy.
Chakanyuka also disclosed that Zimbabwean companies that
participated in the recent Lusaka Agricultural and Commercial Show
managed to generate business agreements worth USD 300,000, with
another USD two million still under negotiation.

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Pande Invites Chinese Investment
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13. In an August meeting with a small Chinese business delegation,
Foreign Affairs Minister Kabinga Pande urged the business
representatives to invest in mineral smelting in North-Western
Province. He also told them that there were great investment
opportunities in infrastructure development, tourism, game ranching,
and transport. "Zambia is in a hurry to develop and needs all
well-meaning friends like China for the country to move forward," he
said. He praised China for its development agenda towards African
countries and the fulfillment of its pledges to assist Zambia in
various social-economic fields.

MARTINEZ