Identifier
Created
Classification
Origin
08LUSAKA1163
2008-12-10 14:13:00
UNCLASSIFIED
Embassy Lusaka
Cable title:  

ZAMBIA NOVEMBER 2008 ECONOMIC ROUNDUP

Tags:  ETRD EMIN ENRG EINV ECON ZA 
pdf how-to read a cable
VZCZCXRO2827
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLS #1163/01 3451413
ZNR UUUUU ZZH
P 101413Z DEC 08
FM AMEMBASSY LUSAKA
TO RUEHC/SECSTATE WASHDC PRIORITY 6543
RUCPDOC/DEPT OF COMMERCE WASHDC
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RHMFISS/HQ USAFRICOM STUTTGART GE
UNCLAS SECTION 01 OF 02 LUSAKA 001163 

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

SIPDIS

E.O. 12958: N/A
TAGS: ETRD EMIN ENRG EINV ECON ZA
SUBJECT: ZAMBIA NOVEMBER 2008 ECONOMIC ROUNDUP

REF: LUSAKA 302

UNCLAS SECTION 01 OF 02 LUSAKA 001163

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

SIPDIS

E.O. 12958: N/A
TAGS: ETRD EMIN ENRG EINV ECON ZA
SUBJECT: ZAMBIA NOVEMBER 2008 ECONOMIC ROUNDUP

REF: LUSAKA 302


1. SUMMARY
-- Inflation Remains High
-- Local Currency Continues To Depreciate
-- Farmers Union Acquires Stake in Financial Sector
-- ZESCO To Disconnect Power Supply To Lumwana Mine
-- Zambia Prepares to Launch Small Claims Court
-- Civil Servants To Receive Subsidized Fertilizers

Inflation Remains High


2. According to the Central Statistical Office, year-on-year
inflation rose to 15.3 percent in November, representing a slight
(0.1 percent) increase from October. Bank of Zambia Governor Caleb
Fundanga attributed the increase to higher food prices. Fundanga
optimistically opined to the Ambassador that inflation would decline
in 2009 due to lower fuel prices and improved agricultural
productivity. Early indications, however, suggest that the maize
crop will be short. Large-scale commercial farmers are having
trouble securing production credit and are shifting to other crops.
The price of fertilizer will diminish smallholder usage, and the
Zambian Government's fertilizer support is once again too late to
have its optimal impact.

Local Currency Continues to Depreciate


3. The Zambian Kwacha continued to fall in November, despite a
brief period following the October 30 presidential election when it
performed well against other major currencies. Its depreciation
began in late June, following announcements of late President Levy
Mwanawasa's illness. Economists attribute the Kwacha's drop to
global financial instability, rising inflation in Zambia, and
declining world copper prices. Several business leaders opined to
emboffs that the Kwacha would remain weak until copper prices
rebound.

Farmers Union Acquires Stake in Financial Sector


4. The Zambia National Farmers Union (ZNFU) has acquired a four
percent share in Zambia National Commercial Bank (ZANACO). This
move is part of the strategy of the Netherlands-based Rabobank,
which owns a 45 percent share in ZANACO, to increase its presence in
rural areas. ZANACO and ZNFU immediately launched several projects
to increase small- and medium-scale farmers' access to credit. The
development appears to be a market response to commercial

under-lending within the agricultural sector. According to an IMF
representative, agricultural lending by commercial banks in Zambia
grew by less than two percent in 2008, despite a 48 percent increase
in overall commercial lending.

ZESCO To Disconnect Power Supply To Lumwana Mine


5. A commercial dispute between Lumwana Mining Company and the
state-owned electricity provider ZESCO is likely to culminate in
London-based arbitration. Until the issue is resolved, ZESCO
intends to stop providing power to Lumwana Mine, effective January
26, 2009. Lumwana, which is owned by the Canadian/Australian
Equinox Minerals, does not have an alternative source of power and,
therefore, the termination will interrupt its operations and delay
its launch that was scheduled for early 2009. The dispute relates
to a connection agreement for a 330kV power line. When launched,
Lumwana will be Africa's largest copper mine, producing an estimated
122,000 tons of copper per year.

Zambia Prepares to Launch Small Claims Court


6. High Court Registrar Mwamba Chanda announced the appointment of
20 commissioners to the Small Claims Court, which will be launched
in December. The commissioners, who are attorneys by profession,
will have jurisdiction to resolve private sector civil disputes of
claims that are less than K 20 million (USD 4,500). Plaintiffs will
be allowed to argue their own cases, without the representation of
an attorney. Initially the court will maintain offices in Lusaka
and Ndola, although the judiciary intends to open similar courts
throughout the country. If successful, these courts could help
decongest Zambia's legal system, which is considered to be
under-resourced and inefficient. The courts will also benefit
small- and medium-sized enterprises, which will no longer need to
risk long and costly litigation to resolve relatively simple civil
suits.

Civil Servants to Receive Subsidized Fertilizer


7. President Rupiah Banda has promised to fulfill his campaign
pledge to make the government's K500 billion (USD 110 million)
Fertilizer Support Program (FSP) available to farm-owning civil

LUSAKA 00001163 002 OF 002


servants and military personnel. In the past, civil servants
typically had purchased FSP fertilizer in the secondary market from
small-scale farmers. The President's directive has caused some
concern that GRZ employees are apt to benefit disproportionately
from the GRZ-administered program. Perhaps more importantly, the
move shows the government's increased commitment to a program that
distorts the market, interferes with the development of commercial
fertilizer providers, and tends to benefit those farmers who need it
least. Consequently, an even greater number of farmers will delay
planting their crops as they wait for government fertilizer that
comes late, if at all. According to the donor community, Zambia's
prospects for food security will be weak as long as the government
continues to divert its agricultural spending from more productive
investments such as infrastructure (roads and irrigation),research,
extension services, and marketing systems.

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