ECONOMIC ROUNDUP

UNCLAS SECTION 01 OF 02 LUSAKA 000493 DEPARTMENT FOR AF/S AND EEB/CBA - DENNIS WINSTEAD COMMERCE FOR 4510/ITA/IEP/ANESA/OA SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ENRG ETRD EMIN EINV ELAB ECON ZA SUBJECT: ECONOMIC ROUNDUP REF: A) LUSAKA 73 B) 08 LUSAKA 302 LUSAKA 00000493 001.2 OF 002 ¶1. SUMMARY -- June Inflation Rate Declines Marginally -- GRZ Invites Bids For Oil and Gas Exploration -- Munali Nickel Mine Resumes Operations -- Zambezi Airlines Acquires Two Boeing Aircraft -- Horticultural Sector Performance Falls -- GRZ Reviews First National Development Plan June Inflation Rate Declines Marginally ¶2. The year-on-year inflation rate declined marginally from 14.7 percent in May 2009 to 14.4 percent in June 2009. The Central Statistical office attributed the decline to reduced prices of some food products such as the staple corn meal. The Minister of Finance asserted on July 13 that year-on-year inflation by end 2009 would be 10 percent. GRZ Invites Bids For Oil And Gas Exploration ¶3. The GRZ has invited bids for 23 oil and gas exploration licenses in Northwestern, Western, and Eastern Provinces. Bidders are required to pay a non-refundable fee of USD 10,000 (Kwacha equivalent) in advance of the August 7 closing date. Separate from the application fee is the mandatory information packages, which can be purchased for USD 10,000 each from the Zambian Geological Survey Department or Ministry of Mines headquarters. The Director of Geological Surveys Kenneth Liyungu told Emboff that the response is positive from local and international firms. Closed Munali Nickel Mine Resumes Operations ¶4. Munali nickel mine, which owner Albidon put under care and maintenance in January, will resume operations immediately following a seven million dollar recapitalization and restructuring payment from Chinese Jinchuan Group, China's largest nickel producer, which has a life-of-mine off-take agreement with Albidon. Munali nickel mine was commissioned in 2008 and is important to the GRZ's efforts to diversify the mining sector from over-reliance on copper. Zambezi Airlines Acquires Two Boeing Aircraft ¶5. Zambezi Airlines, which started operations in May 2008, leased two Boeing 737-500 planes from General Electric for its regional flights to Johannesburg and Dar es Salaam. The airline will operate daily flights between Lusaka and Johannesburg and four flights weekly between Ndola and Johannesburg. The company chairman, Maurice Jangulo, announced in Lusaka during the launch of regional flights that the airline intends to list shares on the Lusaka Stock Exchange (LuSE) within the next three years. ¶6. (SBU) Zambezi Airlines has formed an alliance with Proflight Commuter Services Limited, a local flight company offering charter and domestic flights. Under the agreement, Proflight will run all domestic flights under the branding of Zambezi Airlines, while the latter will only operate regional flights. The deal is a blow to competition in the already overpriced domestic market. ¶7. (SBU) According to Embassy contacts, Maurice Chaaba Jangulo has a majority sharehold in Zambezi Airlines, together with airline chief executive officer Cornwell Muleya (who is married to the niece of prominent politician and chief government whip Vernon Johnson Mwaanga) and President Rupiah Banda (who is using his eldest son James Banda as a front). Maurice Jangulo was previously managing director of Omnia Fertilizer and moved on to establish Nyiombo Investment Limited. Nyiombo and Omnia are the main suppliers and distributors of fertilizer and other farming inputs under the Ministry of Agriculture Fertilizer Support Program through single sourcing, a position that has continued to raise concerns amongst other players in the market and donor community. Horticultural Sector Performance Falls ¶8. Zambia Export Growers Association (ZEGA) Chief Executive Officer Luke Mbewe announced at the African Caribbean and Pacific - European Union conference that the horticultural industry in Zambia has fallen by 50 percent due in part to high air freight costs, inadequate electricity supply, and the global economic crisis. He pointed out that jet fuel in Zambia is about 40 percent higher than the regional average. According to Mbewe, these constraints have led to a drop in employment from 12,000 in 2005 to 6,000 in the commercial horticultural industry. LUSAKA 00000493 002.2 OF 002 GRZ Reviews Fifth National Development Plan (FNDP) ¶9. The GRZ held a mid-term review of the FNDP, which covers the years 2006-2010, to evaluate the performance of the plan, identify challenges, and determine a way forward. A review of the economic sector showed a decline in agricultural growth for three consecutive years (from 2.2 percent in 2006 to 0.4 percent in 2007 and 0.2 percent in 2008) due to unfavorable weather conditions, late distribution of inputs especially fertilizer under the GRZ's "Fertilizer Support Program", and livestock diseases. However, crops such as rice, sunflower, groundnuts, and mixed beans registered a favorable growth during this same period. ¶10. Former Ministry of Agriculture and Cooperatives (MACO) Permanent Secretary Bernard Namachila revealed that 76 percent of the MACO budget goes to support the Food Reserve Agency (FRA) and Fertilizer Support Program (FSP). He also mentioned that the agriculture sector suffers from policy reversal by Government. Namachila cited as an example the Ministry of Finance's transfer of MACO's contract to manage the irrigation fund from Finance Bank to the Citizens Economic Empowerment Commission. (Over the course of the FNDP review, the GRZ determined to move the fund back to Finance Bank.) The overall performance of the agriculture sector was deemed unsatisfactory and therefore unlikely to meet the FNDP targets. ¶11. The overall performance of the energy sector from 2005-2008 was considered unsatisfactory with growth registered at negative 1.2 percent at the end of 2008. Ministry of Energy and Water Development Permanent Secretary Peter Mumba blamed controlling officers for the GRZ's overall poor performance due what he termed misplaced priorities such as spending monthly allocations on fuel allowance, buying office furniture and hosting workshops instead of priority sectors of the ministry. BOOTH