ZAMBIA AUGUST 2008 ECONOMIC ROUNDUP

UNCLAS LUSAKA 000918 DEPARTMENT FOR AF/S AND EEB/CBA - DENNIS WINSTEAD COMMERCE FOR 4510/ITA/IEP/ANESA/OA SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ETRD EMIN EINV ECON ZA SUBJECT: ZAMBIA AUGUST 2008 ECONOMIC ROUNDUP REF: LUSAKA 302 ¶1. (U) SUMMARY -- Inflation Increases in August -- Government Holds Off on Windfall Tax -- Zambian Companies Participate in Chinese Trade Fair -- GRZ Develops Railway Infrastructure -- Zambian Airways Faces Economic Problems Inflation Increases in August ¶2. (U) Year-on-year inflation continued its increase in August 2008, rising to 13.2 percent (from 12.6 percent in July). The Bank of Zambia attributed the rise to high fuel, transportation, and food prices. This upward movement makes it increasingly unlikely that the Zambian Government (GRZ) will achieve its inflation target of seven percent by December 2008, as outlined in the 2008 national budget. Government Holds Off on Windfall Tax ¶3. (U) According to September 11 press reports, Secretary to the Treasury Evans Chibiliti told the Parliamentary Committee on Estimates that the GRZ had deferred the implementation of its new windfall tax on the mining sector. He said the GRZ is reviewing the tax, in coordination with the private sector. Industry experts suggest that the windfall tax will be introduced eventually, but at a reduced rate. This will come as some relief to mining companies, who have pointed to the windfall tax as the most onerous portion of the GRZ's new mining tax regime. To date, only two companies reportedly have made the windfall tax. Zambian Companies Participate Chinese Trade Fair ¶4. (U) Over 90 Zambian companies registered with the Zambia Development Agency to participate in the 12th China International Fair for Investment and Trade (CIFIT) and Africa Commodities Exhibition scheduled for September 8-11 in China. Their participation points to widespread interest in expanding commercial ties to China within the private sector. GRZ Develops Railway Infrastructure ¶5. (U) The GRZ signed a memorandum of understanding with China Rail Engineering Corporation (CREC) to construct a 240-kilometer stretch of railway that will link mining towns in the North-Western and Copperbelt Provinces. This follows a GRZ decision to cancel its railways development agreement with North-western Railway Company, owned by former Vice President Enock Kavindele, which failed to make progress over the past three years. CREC constructed the Tanzania-Zambia Railways (Tazara) in 1978. Zambian Airways Faces Economic Problems ¶6. (SBU) The GRZ is exploring ways to hold the privately-owned Zambian Airways accountable for a USD 1.6 million debt to the National Airport Corporation Limited (NACL),consisting primarily of landing fees and passenger taxes. Zambian Airways' chief executive has expressed concerns to emboff of rising fuel costs, disappearing profit margins, and high interest rates. The GRZ publicly announced that it will seek a solution that will hold Zambian Airways accountable for the liability, without causing insolvency. Business organization representatives have voiced their concern and called for GRZ leniency on the airline, which they argue to be integral to Zambia's economic growth by offering increased competition in the transportation sector. KOPLOVSKY