Identifier
Created
Classification
Origin
07LUSAKA1133
2007-10-05 07:28:00
UNCLASSIFIED
Embassy Lusaka
Cable title:  

ZAMBIA SEPTEMBER 2007 ECONOMIC ROUNDUP

Tags:  ECON EINV BEXP EAIR ZA 
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VZCZCXRO7546
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLS #1133/01 2780728
ZNR UUUUU ZZH
P 050728Z OCT 07
FM AMEMBASSY LUSAKA
TO RUEHC/SECSTATE WASHDC PRIORITY 4999
RUCPDOC/DEPT OF COMMERCE WASHDC
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
UNCLAS SECTION 01 OF 02 LUSAKA 001133 

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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 SEPTEMBER 2007 ECONOMIC ROUNDUP


UNCLAS SECTION 01 OF 02 LUSAKA 001133

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 SEPTEMBER 2007 ECONOMIC ROUNDUP



1. SUMMARY
-- ZAMBIA RECORDS SINGLE DIGIT INFLATION
-- URANIUM MINING PROJECTS AWAIT GRZ POLICY FINALIZATION
-- ZESCO PROPOSES ELECTRICITY PRICE HIKES
-- KCM IMPORTS STATE-OF-THE ART SMELTER PLANT EQUIPMENT
-- NEW TRI-NATIONAL JOINT VENTURE ESTABLISHED
-- COMMERCIAL BANK LENDING RATES TOO HIGH FOR SME
-- GRZ CONCERNED WITH WHEAT SHORTAGE

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Zambia Records Single Digit Inflation
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2. The year-on-year inflation rate fell to 9.3 percent in September,
from 10.7 percent in August. Zambia has not recorded single-digit
inflation since January 2007. Central Statistics Office Acting
Director Efreda Chulu attributed the drop to reduced prices of food,
clothing, medical care, transport, rent, and household energy.
Chulu warned, however, that increases in petroleum prices may raise
inflation rates once more.

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Uranium Mining Projects Await GRZ Policy Finalization
-------------- --------------


3. At the Africa DownUnder Conference in Perth, Australia, in early
September, Zambia's Mines Minister Kalombo Mwansa said that the GRZ
had already issued several uranium prospecting licenses "to service
some current activities" in southern Zambia. His announcement
contradicted former statements that the GRZ will not issue uranium
mining licenses until a uranium policy is in place. A number of
uranium projects, such as the Kariba Uranium Project, Zambezi
Resources and Lumwana Uranium Project have reportedly been moving
forward, in spite of the lack of a GRZ policy. Mwansa claimed that
the GRZ's uranium policy will be released by the end of 2007, will
be in line with International Atomic Energy Agency guidelines, and
will offer incentives to encourage investment. Note: In the 1950s,
a British company called Amco, operating out of Nkana Copper Mines
(currently Mopani Copper Mines) in Kitwe, mined uranium, which was
shipped to the United Kingdom. Since then, the mineral has not been
actively mined in Zambia. End Note.

--------------
ZESCO Proposes Electricity Price Hikes

--------------


4. Zambia's state-owned power utility provider, ZESCO, has submitted
a proposal to the Energy Regulation Board (ERB) to increase
electricity rates by approximately 60 percent, starting in October
2007, in order to obtain financial resources to rehabilitate and
expands its power station infrastructure. ZESCO also publicly
announced the planned hikes in September, and the ERB requested
public feedback in writing by October 3, for consideration at public
meetings to debate the hikes. Zambia Chamber of Small and Medium
Business Association Executive Secretary Maxwell Sichula said the
tariff will negatively impact its members. Former Commerce Deputy
Minister Eugene Appel also voiced concerns over the proposed hikes,
claiming they would "create an uncompetitive business environment"
for Zambian firms and be very hard on poorer consumers. World Bank
Resident Representative Kapil Kapoor was reported to have said that
because the electricity rates in Zambia were among the lowest in the
region, a rise was justified. Energy consultant and former ERB
Board Chairman Raphael Salasini also noted that unless (below cost)
electricity rates are increased, the entire electricity sector "will
collapse."


5. Comment: During the privatization of the Power Division, ZESCO
entered into Bulk Supply Agreements with mining companies to charge
tariffs below the cost of generating and supplying of power-at a
time when prevailing copper prices were very low and the sector
needed such help. Copperbelt Energy Corporation is responsible for
supplying power to mining companies but ZESCO hopes to review these
power contracts. In the past, ERB has responded--albeit
conservatively--to ZESCO's pricing requests. In 2003 and 2005, ERB
approved price adjustments of 5.3 percent and 11 percent
respectively (against ZESCO's application for rate increases of 16
percent and 15 percent). Despite the public outcry, ERB may be
compelled to approve the latest request in order to meet increased
future energy demands. End Comment.

-------------- --------------
KCM Imports State-Of-The-Art Smelter Plant Equipment
-------------- --------------


6. Konkola Copper Mines (KCM) has purchased flash smelting
technology from the Finnish engineering company Outokumpu. KCM's
smelter, once operational in 2008, will be the largest in Africa,
with a production capacity of 250,000 tons/year. KCM, a subsidiary
of Vedanta Resources, is currently the largest mining and metals

LUSAKA 00001133 002 OF 002


company in Zambia, with an annual capacity of 200,000 tons of
copper. Its expansion program for the Konkola deep mining project
will provide access to 250 million tons of copper ore and extend the
mine's life to 2035. The Konkola deep mining project is the largest
single investment in Zambia's mining history, costing USD 400
million.

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New Tri-National Joint Venture Established
--------------


7. The governments of South Africa, Zambia, and Zimbabwe have formed
a tri-national joint venture called Pan African Minerals Development
Company (PAMDC) to take over the mineral rights of a defunct
colonial railway company, known as the Rhodesia Railway Corporation.
In 1980, ZIZA Limited, a company jointly owned by the governments
of Zimbabwe and Zambia, inherited the mineral rights located in the
Northern Cape and Limpopo provinces of South Africa. ZIZA has
placed its mineral rights, which cover 1.6 million hectares, under
the stewardship of De Beers. Patrick Bondai, a ZIZA Secretary,
announced that PAMDC will be registered in Zimbabwe and Zambia and
listed on the Johannesburg Stock Exchange (JSE) "to raise money for
exploration and development." The concessions have potential for
manganese, iron, coal, gold and platinum.

-------------- --
Commercial Bank Lending Rates Too High For SMEs
-------------- --


8. Central Bank Governor Caleb Fundanga observed that commercial
banks' lending rates remain high despite positive achievements by
the central bank in monetary and fiscal management. He said small
and medium enterprises, which are the engine for fostering economic
development, are held back by high interest rates. He appealed to
commercial banks to provide more financial support for the growth
and development of the economy. He made his comments at the
official opening of a new Standard Chartered Bank Branch at
Crossroads Shopping Mall in Lusaka. Speaking at the same occasion
Standard Chartered Bank Board Chairman George Sokota said his bank
had given K143 billion (USD 35 million) in private sector loans in
the past 12 months.

--------------
GRZ Concerned With Wheat Shortage
--------------


9. Zambia's shortage of wheat and wheat products is impacting bread
prices. The GRZ held consultative meetings with stakeholders to
identify possible causes for the shortage, including "illegal" wheat
exports. Ministry of Agriculture and Cooperatives (MACO) Permanent
Secretary Sam Mundia speculated that farmers use wheat export

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proceeds to pay off cooperative loans and other production costs.
However, Zambia National Farmers Union Executive Director Songowayo
Zyambo refuted allegations of illegal exports. Earlier in
September, Millers Association of Zambia Vice Chairman Peter Cottan
advised the GRZ not to grant wheat export permits because of the
wheat shortage. MACO PermSec Mundia announced that the Government
issued a ban on the export of wheat and wheat products, although it
did not back up the announcement by implementing a necessary
Statutory Instrument. Note: Zambia's annual wheat consumption is
190,000 tons, whereas annual production is approximately 160,000
tons. The difference is imported from South Africa and Brazil.

MARTINEZ