ZAMBIA DECEMBER 2008 ECONOMIC ROUNDUP

UNCLAS SECTION 01 OF 02 LUSAKA 000029

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 DECEMBER 2008 ECONOMIC ROUNDUP

REF: LUSAKA 302


1. SUMMARY
-- Inflation Continues to Rise
-- GRZ Sells Subsidized Maize
-- Mining Operations Scale Back
-- Financial Markets Continue Decline
-- COMESA Customs Union Delayed

Inflation Continues to Rise

2. According to the Central Statistical Office (CSO),year-on-year
inflation
rate rose to 16.6 percent in December, 1.3 percent higher than in
November.
The increase is attributed primarily to food prices. Food accounts
for 9.9
percent of the rise.

3. The Zambian Government (GRZ) reduced the fuel price at the pump
following
reductions in oil prices on the international market. For 90,000
tons of oil
which arrived in November, GRZ paid USD 53 million compared to USD
81 million
paid for a similar consignment in October--a 35 percent decrease.
This
reduction brought a slight reduction in transportation costs for
both
passengers and freight. The impact should be reflected in the
Consumer Price
Index for January 2009.
GRZ Sells Subsidized Maize to Reduce Cost of the Staple Food


4. The GRZ directed the Food Reserve Agency (FRA) to offload some
of its
strategic reserve maize stocks and to import 100,000 tons of maize
to reduce
and stabilize the rising mealie meal prices on the market.
Agriculture
Minister Brian Chituwo told parliament that millers and private
traders have
been issued with import permits for non-genetically modified
organisms (GMO)
maize from South Africa. (Note: The premium for non-GMO maize is at
least 30
percent). The maize imported from the Southern African Development
Community
(SADC) and COMESA will be duty free, while a special duty mechanism
will be
worked out for maize imported from outside the region. This will
make the
landed price lower and the price of mealie meal more affordable to
consumers.
Opposition parties had threatened to organize protests over the
rising cost of
Zambians' staple food.


5. According to government, Zambia produced 1.2 million tons of
maize during
the 2007/2008 compared to 1.3 million tons in 2006/2007 season.
With an
increase in consumption rate of 60,000 tons per month, there has
been an
overwhelming demand for maize and maize products. This has resulted
in fears
about whether Zambia has enough maize stock to last until the next
harvest
season.


6. The FRA is selling off 30,000 tons of maize to millers under
special
contract, and all major millers in the country have thus reduced the
mealie
meal price as directed by the FRA. The maize is currently being
sold to
consumers for K55,000 (USD 11.22) per 50 kilogram bag from K63,000
(USD 12.86)
in April 2008, a 13 percent decrease.

Mining Companies Scale Back


7. The collapse of copper prices has led Canadian-based First
Quantum
Minerals to shut down its copper processing plant and retrench 365
workers at
Bwana Mkubwa mine, while Kansanshi Mine retrenched over 70 workers.
Lumwana
Mine offered to reduce its expatriate labor force to cut costs,

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which makes up
40 percent of total labor force. Luanshya Copper Mines closed down
and was
put under care and maintenance, retrenching over 1,700 workers.
With some
calling for GRZ to temporarily nationalize the mine to keep it
running (and
preserve the jobs),Government has set up a committee to recommend
to the way
forward on the mine closures.


8. The Zambian economy is largely dependent on copper and cobalt
exports.
Copper prices, which had reached a record high price of USD 8,985
per ton in
first week of July 2008, closed at below USD 3,000 per ton on
December 24,

2008. This 65 percent decrease has been attributed to low demand
from major
consumers, whose economies have slowed down as a result of the
credit crisis.
The high copper prices in the last two years spurred huge
investments into
mining. For example a concentrator and an ultra modern smelter have
been
installed at Konkola Copper Mines, Nchanga strategic Business Unit.
Mining
and crushing activities commenced at Lumwana Copper Mine and Munali
Nickel
Mine.

Financial Markets Continue Decline


10. Zambian financial markets have faced challenges since July
2008, when
late president Levy Mwanawasa fell ill, through his death in August
and the
change of administration in November 2008. Uncertainties over
Zambia's
economic policy induced volatility in the foreign exchange and
securities
markets, especially among foreign portfolio investors in treasury
bills and
equities on the Lusaka Stock Exchange.


11. Celtel (Zain) Zambia shares fell to K400 per share on December
1, 2008
from the listing price of K640 on June 11, 2008. The 38 percent
drop is
attributed to foreign investors seeking to cash out on uncertainty
and to the
weakening of the local currency.


12. The Zambian Kwacha depreciated over 60 percent from June 2008
to the end
of the year, closing at K4900 = USD1. The sharp decline can be
attributed
primarily to falling copper prices and rising inflation. This
development has
seen a number of service providers quoting prices in USD, an illegal
practice
in Zambia. While a depreciated currency is general advantageous for
a
country's exports, the dip could trigger a steep rise in consumer
prices in an
import-dependent economy such as Zambia's.

COMESA Customs Union Delayed


13. The COMESA Customs Union, scheduled to commence in December 8,
missed the
deadline after heads of state in the region failed to meet for a
third time in

2008. The trade ministers who met in Lusaka early December failed
to pick a
date and venue for the next Summit that failed to take place in
Harare since
May. The Summit, which is the apex decision making organ on the
organization
is supposed to meet once a year to endorse decisions made by
technical teams
and council of ministers. The date and venue of the next meeting
will be
communicated in the course of the year.

BOOTH