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Zambia issues altar call for economy; it may take more

A man holds Zambian 50 kwacha banknotes in Lusaka on Oct. 8, 2015.
Waldo Swiegers | Bloomberg | Getty Images
A man holds Zambian 50 kwacha banknotes in Lusaka on Oct. 8, 2015.

As Zambia's currency has swooned to record lows, the country's president called for a national day of prayer to reverse the country's fortunes, exacerbated by a prolonged slump in worldwide commodity prices and China's downturn.

Amid a plunge in the country's copper output and two credit downgrades, President Edgar Lungu called for a day of prayer and fasting, which took place on Saturday, to help reverse conditions. Last month, Moody's Investors Service downgraded the country's rating deeper into speculative territory, following Standard & Poor's downgrade in July.

Lungu's plea, however, has been met with widespread skepticism and outright hostility from within the country. Earlier this week, Zambia's labor minister, Fackson Shamenda, was quoted by Zambian publication The Post as saying that: "In our own wisdom, we have failed to do things. That is why we are asking for God's intervention."

However, the publication on Friday spoke to a major tribal leader, who denounced Lungu's Patriotic Front governing party as "idiots," and blistered the entire effort.

"To fast and pray for what; for an economic miracle to happen or what?" The Post quoted chief Ntambu of the country's North-Western Province as saying. "Is it God who caused those sufferings for you to go back to him and say, 'No you have done this and that and we want you to reverse your decision?' " he added.

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Victim of the emerging market washout

Yet given the country's growing list of woes, an act of God may be the only thing standing between Zambia and the meltdown of its currency, the kwacha.

The official rate has plunged by about 25 percent against the dollar last quarter, which has helped send annualized surging by nearly 8 percent in September, according to Zambia's statistics office. Meanwhile, investors have taken fright.

"Clearly, the investment case in Zambia is fraught with risks," says Raza Agha, Middle East & Africa chief economist with VTB Capital.

"And given the state of the global markets, and the difficulty in Zambia getting past perceptions of being a 'one trick pony,' " weak investor confidence is unlikely to abate anytime soon, Agha said.

Zambia is one of the world's top 10 copper producers, and the second-largest within continental Africa. Yet with the decline in copper prices, mining revenues have fallen from 3.2 percent of GDP in 2012 (16.8 percent of total revenues and grants) to a projected 2.3 percent of GDP in 2015 (12.8 percent of total revenues), according to VTB data. In 2014, they were 18 percent of tax revenues.

According to the World Bank, copper contributes 11 percent to its annual growth and accounts for 70 percent of its exports. The sector, however, has suffered as slowing Chinese demand — which accounts for more than 40 percent of worldwide consumption — has ricocheted across emerging markets and driven Zambian production to near six-year lows.


Lusaka, Zambia
Tom Cockrem | Getty Images
Lusaka, Zambia

The country's heavy debt and public spending shortfalls are "unlikely to reverse over the course of the 3-to-5-year rating horizon, given the challenges stemming from a lower growth environment amid an extended period of weak commodity prices, constrained copper production, and domestic electricity shortages constraining business activity," Moody's said last month, when it cut Zambia's credit rating.

Zambia also remains vulnerable to those factors given the lack of an International Monetary Fund program intended to anchor investor expectations as the country heads into elections in 2016. which, analysts say, could weaken resolve to maintain spending restraint and institute necessary reforms.

The grim picture has not yet dented the government's optimism about growth, however.

On Friday, Zambian Finance Minister Alexander Chikwanda unveiled a budget that implied a 2015 growth rate of 5 percent, and a reduction in the budget deficit to 3.8 percent from 6.9 percent.

The government, VTB's Agha says, needs to stick to credible fiscal reforms, perhaps under an IMF program, but negotiations have been stalled since last year.

In addition, Zambia must "reduce the external sector reliance on copper and address electricity shortages, including via better management of water reservoirs," Agha said.