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Markets

A First National Bank – FNB note to its clients seen by the Zambian Business Times – ZBT has attributed the Kwacha appreciation to a sudden US dollar supply or inflows into Zambia of dollars coming from off-shore (outside Zambia) market players.

“The local unit appreciated by about 2% against the greenback (US dollar) in Wednesday 8 December 2021 trading session, to close the session at K17.17 from K17.52 at the mid. Volumes ticked up on both sides of the market, particularly in US dollar supply as corporates closed off dollar positions. With market fundamentals unchanged, the local unit’s movement was purely sentiment driven,” FNB explained in its Daily Market Update on Thursday 9 December 2021 seen by the Zambian Business Times – ZBT.

“With sentiment biased towards further kwacha gains and foreign currency demand remaining anaemic, we expect the local unit to trend lower and breach the K17.00 mark in today’s (Thursday) session. Support is seen at K16.80.”

The FNB note further explained that offshore investors were largely responsible for offloading dollars on the local financial market.

“As expected, the local unit responded positively to the news that Zambia had finally reached a Staff-Level Agreement with the IMF – moving from an opening mid-level of K17.84 to K17.52 at close of business. We saw an immediate impact on the offshore side as players offloaded significant US dollar flows into the market. Offshore flows were supplemented by onshore supply from some corporates looking to meet local currency obligations,” FNB stated in an update released Wednesday.

“It is unclear whether the IMF agreement’s effect on sentiment has bottomed out given [the current] market movement. Overall, activity slowed down on both ends of the market (demand and supply) as some businesses continue to wind down for the year. With outstanding demand orders filled and overall demand waning, we could see the local unit continue to make gains, albeit mild, against the greenback. Support and resistance are seen at K17.30 and K17.70, respectively.”

On Friday, December 3, the Zambian government reached a Staff-Level Agreement on a programme under the IMF’s ECF that envisages provision of financial support of US $1.4 billion over a period of three years.

And Access Zambia Bank Limited which is now a big player on the Zambian banking sector following its acquisition of Cavmont and the recently announced merger with Atlas Mara has observed that positive sentiment from the Fund’s ECF announcement fuelled the local currency’s appreciation against major currency convertibles.

“Monday trading saw the kwacha make bullish moves against major traded currencies on the back of positive sentiment surrounding the IMF Staff Mission Agreement with the Zambian government. The USD-ZMW pair opened the trading session quoted at K17.78/K17.83 and closed at K17.54/K17.59, 1.57 per cent stronger than Friday’s close of K17.82/K17.87,” stated Access Bank in its Treasury Market Update released recently.

The names these offshore players who have flooded the Zambian market with dollars following the signing of the staff level agreement with IMF has not been made public. More to follow on who these players are and what they intend to invest into…

 

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A First National Bank - FNB note

Markets

Economist Chibamba Kanyama says the current appreciation of the kwacha can be attributed to the conclusion and agreement of a staff level deal with the International Monetary Fund (IMF) as it has sent a positive signal that Zambia’s economy is getting back on track.

Kanyama said the fiscal deficit would begin to narrow because government will reign in on expenditure under the IMF programme and begin to prioritise expenditure, adding that with the IMF programme comes the funding, which has positive implications for market players.

He noted that even a third of the total allocated amount by the IMF is enough to change the market sentiment and supply, noting that there will be some supply of about US$400 million at the initial stage next year and that alone indicates that there will be some supply of the dollar to the market.

Kanyama stated that the appreciation of the kwacha was expected. “If you have observed, every time the previous regime gave some positive news about discussions with IMF, you saw at that moment how the Eurobonds would perform and how the kwacha would perform just on the prospects of negotiation”, he said.

Speaking in an exclusive interview with the Zambian Business Times – ZBT, Kanyama noted that the IMF programme also indicates that the major anxiety of investors particularly Eurobond holders including overall investors of potential default on the first bullet payment by Zambia to the Eurobond holders has been scrapped off.

He added that there might have been concerns that Zambia would be punished if it defaults on the US$750 million, therefore it would have to borrow from the market and worsen the general market conditions.

Kanyama mentioned that with the IMF coming on board, there is strong assurance that Zambia will be in a position to service or refinance the bullet payment next year.

He added that this deal also indicates that Zambia will now get budget support from bilateral and multilateral donors and this money comes in dollars, therefore if that happens it will beef up the dollar reserves in the country. So that sentiment is beginning to impact the exchange rates.

“Most of those holding dollars are now speculating and panicking; they don’t know where the dollar will settle at tomorrow. They wouldn’t want to offload their dollars when the kwacha has become stronger, they would rather do it now so these are the ones who are also speculating going in the market, buy kwacha and offloading the dollar which may lose value”, he said.

“There would be a holding position; there will come a point where those who are holding the dollar will feel like I think we don’t want to lose any further than this.  They will hold a position and am anticipating it will be around K15 per US dollar, but you can never rule out the possibility of it appreciating further in the coming weeks”, he told ZBT.

The depreciation of the Kwacha continues to be one of Zambia’s major economic challenges. A depreciating Kwacha means a reduction in purchasing power of both business and individuals whose earnings and assets are denominated in Kwacha.

The country’s economic management team needs to find ways to take control of the Kwacha as opposed to relying on external factors which are outside its control.

 

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Economist Chibamba Kanyama says the current appreciation

Agribusiness

The National Union for Small Scale Farmers in Zambia – NUSFAZ has advised farmers who have already planted [and have no irrigation system] to replant their crops as soon as the Zambia Meteorological Department provides clearance.

The farmers union has noted that some farmers started planting at the onset of early rains, therefore chances are that they will have wasted their seed as well as the fertilizer that they had put together with their seed.

Union Executive Director Ebony Loloji explained that farmers should wait until the meteorological department guides that there would be enough rainfall, which will be consistent before they start replanting.

Loloji said replanting would enable the farmers to harvest something next year adding that farmers should replant medium or early maturing varieties so that the harvest is not affected since they will be planting later than they had anticipated.

Speaking in an interview with the Zambian Business Times – ZBT, Loloji noted that some farmers started planting at the onset of early rains therefore chances are that they will have wasted their seed as well as the fertilizer that they had put together with their seed.

It is not clear if affected farmers who are on Farmer Input Support Program which has a weather indexed insurance component will be compensated. Otherwise, most farmers capital positions are not strong to withstand this early loss.

“Already, we have been warned by the meteorological department that for the next 10 days, we are not going to receive meaningful rainfall, rainfall that is enough to put moisture into the soil which can support plant growth. That is the more reason that they have advised that if at all there is anything that they can plant, it is just cassava, not any other plant”, he said.

He emphasized that provided the farmers listen to the guidance of experts where going about a short season is concerned, the union believes that food security cannot be affected drastically by the dry spell that the country is currently experiencing.

Loloji has encouraged farmers to adopt methods of farming that will help them to conserve moisture noting that there is technology that can assist farmers in conserving moisture as well as focus on the use of early maturing hybrid.

He added that technology such as agro ecology where farmers work on things like conserving soil and moisture and the use of hybrid or seed varieties that mature early could help farmers get the desired harvest.

The met department is yet to give a longer term revised projection that can guide the farmers to plan their production. As things stand, fears are growing that climate change effects may lead to a drought which causes hunger and food insecurity for most citizens.

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The National Union for Small Scale Farmers

Agribusiness

Nitrogen Chemicals of Zambia – NCZ has confirmed that it has delivered over 80% of the tonnage of fertilizer that the company is supplying to Southern Province and expect to conclude delivering in the both D-compound and Urea in next two weeks.

NCZ Marketing and Sales Manager Cleopatra Chanda also confirmed that NCZ only manufactures D-Compound while Urea is imported. She further disclosed that the company has utilized some of the money injected by IDC for working capital to produce and deliver the Southern Province fertilizer order.

When asked on what progress has been made on procuring a fertilizer blending plant which was financed in July 2021 by IDC, Chanda said the company has initiated and is in the process of procuring a blending plant which will make it possible for the company to blend fertilizer once the machine is in the country adding that the machine is likely to arrive early next year 2022.

In July this year 2021, the Industrial Development Corporation – IDC  injected a total of K684 million (about $31 million at the time)  into NCZ to enable the company acquire a modern blending plant as well as boost its production capacity.

IDC Group CEO Mateyo Kaluba at the time of investment stated that of the total amount invested, K638 million was for working capital support for the production of fertilizer to enable the company consistently supply the commodity to the market, while K45.6 million was to enable procurement of a modern fertilizer blending plant.

The NCZ marketing manager told ZBT that NCZ has so far delivered over 80% of the tonnage of fertilizer that the company is supplying in Southern Province. She said the company is delivering both D-Compound and Urea and is expected to finish distributing the fertilizer in the next one to two weeks.

Chanda mentioned that issuance of fertilizer to the farmers is currently going on in Southern Province and the distribution is going well noting that there are no challenges being experienced. See ZBT article on IDC $31million investment into Nitrogen Chemicals of Zambia – NCZ https://zambianbusinesstimes.com/k638m-investment-into-ncz-to-cut-need-for-imports/

Fertilizer imports continued to be one of the major foreign exchange drainers in the Zambian economy due to the big volumes ordered as well as bulk transportation costs. Analyst have however contented that local manufacturing of the commodity remains one of the viable routes for Zambia to take.

The late founding President of Zambia – Dr. Kenneth Kaunda’s government that got independence for Zambia realized that importing fertilizer was unsustainable and set up NCZ but successive governments after that from MMD, PF and now UPND have continued to opt to import. This is despite not availing the public any technical and financial report that support their decisions or policies to opt to import fertilizer than produce locally.

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Nitrogen Chemicals of Zambia - NCZ has

Agribusiness

The Small Scale Farmers Development Agency – SAFADA says about 15% of over 600, 000 rain dependent local farmers who have already planted their crops will have no option but to replant due to the dry spell currently being experienced across most parts of Zambia.

The dry spell that has continued into early December is causing anxiety among local farmers whose production is heavily dependent on rains and subsidized inputs from government. Most farmers ended up planting after a false start of rains which has now turned into a dry spell after planting had already been done.

SAFADA Executive Director Boyd Moobwe said government might need to assist the farmers who planted their crops as soon as the first rains came because the financial status of most local farmers who are the majority of the small-scale farmers cannot afford to replant.

Moobwe said the country had recorded bumper harvests for the past three seasons but now household food security is under threat as most farmers have sold everything harvested in the previous season, noting that, on a national level, government has assured the public that there are enough reserves.

Speaking in an interview with the Zambian Business Times-ZBT, Moobwe noted that there might be rains towards the end of this month as indicated by the metrology department but normally when farmers plant during the rainy season, they need to ensure they finish planting before January 15 therefore it is worrying that there is still no rain.

He said government should also assess how the continued dry spell will affect the country’s harvest next year in order to decide whether to continue exporting maize in the reserves or not because the weather pattern being currently experienced is not encouraging.

Moobwe has advised government to start planning what will happen in the next six months if the country does not have good maize yields.

“We had some rains the first week of November in some places like Chipata, Lundazi, Chibombo  and Central province, so farmers were ploughing and planting hoping that the rains had started but unfortunately things have changed”, he said.

He mentioned that there is need to provide technical and financial assistance to farmers adding that extension officers need to be on the ground advising farmers on various issues including the effects of climate change, but farmers are only getting most of the information from the media.

Moobwe said it is unfortunate that farmers are just being told to wait and not being provided with more information.

“You can still plant and calculate to say the rains will come in 14 days time and the crop will germinate but farmers are not being told this, instead they are being told to wait. For how long because the season is only for three months for a crop to grow and mature”, he lamented.

The Ministry of Agriculture has announced the sale of a further 450,000 tons of maize, additional to the initial 450,000. But fears are growing that if the rainfall situation does not improve, the country may end up with a deficit which will make the staple food unaffordable for the majority.

Minister of Agriculture Mtolo Phiri is yet to issue a comprehensive statement on the way forward regarding continued exports in relation to the current dry spell. Moreover, some maize stocks from the 2020/2021 Agro season in the other nine provinces remain uncollected as only the Southern Province Ministry seems to have mobilize the army to mobilize and collect from his assigned region.

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The Small Scale Farmers Development Agency -

Agribusiness

The price of cooking and other edible oils currently being imported under the suspended customs & excise duties as well as suspended or zero rating of value added tax – VAT temporal regime is projected to jump up by about 41% when the two taxes become applicable on 1st January 2022.

A check on the current retail prices reveals that the current market prices are based on imports and distribution of edible oils that are enjoying the temporarily suspended import duty on edible oils which is at 25% of the value of imported edible oils.

The current cooking oil market prices are also less another suspended Value Added Tax (VAT) of 16%, which therefore means that if the two Statutory Instrument (SI’s) that have been extended to 31st December 2022 which exempts importers from paying import duty and VAT expires, importers would have to pay a total of about 41% (25% + 16%) in additional taxes which will have to be passed on to the final consumers.

According to a check done by the Zambian Business Times – ZBT, the two SI’s 83 and 85 of 2021 will both expire on 31 December 2021 and if not extended, cooking oil prices may increase and consumers would have to bear the increase in landed costs.

And the Crushers and Edible Oil Refiners Association (CEDORA) has disclosed that prices of cooking oil are likely to go up between 16% to 41% if the temporal suspension on import duty and VAT is not extended beyond 31 December 2021.

Speaking in an exclusive interview with the Zambian Business Times – ZBT, CEDORA Director Aubrey Chibumba however said prices of locally manufactured cooking oil are likely to go up by a lower margin of between 20% to 25%.

“If my cooking oil costs $100, am supposed to pay $25 dollars as import duty, so it will go up between 16% and 41%, if you are importing packed refined oil, then yes it would go up by that 41% but for locally manufactured oil, it would go up probably around 20%-25%”, he said.

Chibumba confirmed that there was an extension after the initial SI that temporarily suspended import duty and VAT on edible oils expired at end of October this year, 2021. See earlier ZBT article on Suspended Import duty effect on cooking oil prices.

Driving local manufacturing of edible cooking oil remains one of the viable ways to cut the prices of the commodity but both Soya and Sunflower production remains below national consumption demand. See ZBT article on Sunflower production in Zambia

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The price of cooking and other edible

Companies

Zambia’s President Hakainde Hichilema – HH and his Malawi Counterpart Lazarous Chakwera have pledged to fast tract completion works at the US$7.5 million one stop border post construction which started in 2018.

President Hichilema during a joint press briefing with Malawi President Chakwera stated that his visit to Malawi underscores the deep relationship and ties that exist between the two countries. The two countries share common languages, culture and ancestry among others.

HH stated that Zambia and Malawi has enjoyed good relations with Malawi at people to people and government to government level. He stated that this visit has enabled to two leaders to agree to extend the relations further to include deep business to business relations.

According to the United Nations COMTRADE data on international trade, Malawi exports to Zambia in 2020 was about US$27 million while Zambia’s exports to Malawi in the same year was about  US$104 million.

President Hichilema and his Malawi counterpart however did not announce the signing of any specific or quantifiable bilateral trade deal and the visit was mostly concentrated on diplomatic etiquette.

Zambia and Malawi share a common land border of over 800 kilometers that the two countries should use to further deepen corporations and trade. HH said the two countries should continue to foster and entrench democracy. Sustainability of democracy relies on creation of better opportunities for the youth as well as accelerating economic and social development.

And Malawi President Lazarous Chakwera who is also serving as the regional Southern Africa Development Community – SADC  Chairman re-affirmed that the two leaders agreed to timely harmonize and simplify border controls to increase the volume of trade.

Chakwera stated that he has agreed with HH to support the completion of the Mchinji – Mwami border modernization works and the two leaders pledged to open it early next year 2022.

The African Development Bank (AfDB) financed the US$7.5 million construction of a one stop border facility at Mwami/Mchinji Border. This Zambia-Malawi one stop border facility has being under construction from September 2018.

The one stop border post is expected to enhance Zambia’s trade with neighboring Malawi  and facilitate the efficient processing of more goods, people movement and general trade transactions.

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Zambia’s President Hakainde Hichilema - HH and

Agribusiness

Customs and excise duty on maize exports have been suspended, meaning that all excess maize exports from the 2020/2021 maize bumper harvest will be exported out of Zambia without paying any export tax.

Finance Minister Situmbeko Musokotwane suspended export tax on maize from 1st November to 31 December 2021. This was done through a statutory instrument no. 83 of 2021 seen by the Zambian Business Times – ZBT.

Agro analysts have called for long lasting policies on the application of customs and excise duty on maize exports together with the perennial and unpredictable bans on exports at the expense of maize or corn farmers who are forced sometimes forced to end up lobbying even after their hard earns production.

Suspicions and accusations of corruption regarding “policy auctioning” and “taking cuts in exchange for tax breaks” have also been sounded by stakeholders which need to be eliminated by implementing well thought out and longer lasting Agro policies that would take away the need for lobbying to qualify for granting of export permits.

The Ministry of Agriculture in September 2021 authorized exports of 450, 000 tons of maize grain following the stocks monitoring committee meeting held in September this 2021. There is also more maize that is yet to be mopped up across the country. See earlier ZBT article on 450,000 tons maize authorized for export .

A further 450,000 tons have been advertised for sell by a Ministry of Agriculture Agency, the Food Reserve Agency – FRA for additional sale and possible exports. FRA to raise K1.8 billion on additional maize sales.

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Customs and excise duty on maize exports

Tech

Even as government proceeds to shut down Indeni and pivots towards importing of finished petroleum products via road transporters, the situation on the ground is indicating that this sector will also join other sectors that have been handed over to foreign entities and increase the amount of forex going out of the economy.

The Petroleum Transporters Association of Zambia (PTAZ) has revealed to the Zambian Business Times – ZBT that some government contracted suppliers and Oil Marketing Companies (OMCs) such as Puma energy, Vivo energy (operating as Engen) and Mount Meru Petroleum who are importing huge volumes of fuel have sidelined Zambian citizens in the transportation sector.

PTAZ General Secretary Benson Tembo said the suppliers have also ignored the provisions of the law, which states that preference must be given to Zambian citizens and that atleast 50% of all imported fuel must be transported by Zambian citizen owned Transport companies.

Tembo said the suppliers contracted by government have instead given priority and preference to foreigners who are registered in Zambia and foreign companies from Tanzania, Zimbabwe and Mozambique. He said currently, a lot of Zambian trucks are packed waiting for business meanwhile fuel is being supplied and transported by foreigners.

Speaking in an interview with ZBT, Tembo said Zambian transporters have been left as spectators who are just watching foreigners thriving in areas where government has prescribed volumes for citizens.

“We didn’t start transporting fuel today; we started transporting fuel a long time ago. On the importation, we are the ones who opened the eyes of most of the citizens who didn’t know that there is money in the transportation of fuel in 2016 and over time, most of the transporters who have come have benefitted from what we were preaching”, he said.

He said it is unfortunate that local transporters are failing to meet their monthly obligations at banks and other places where they borrowed money because business was taken away from them.

Tembo noted that the law that protects the interest of Zambians is in place as the Patriotic Front (PF) government through the President signed Statutory Instrument (SI) No 35 of 2021, which is known as “Transportation of Bulk and Heavy Goods by Road” adding that the law states that Zambian citizen owned companies must be given the first right of refusal to the effect that 50% of all imported fuel must be transported by Zambians.

The law is there but full implementation of that law is lacking,Tembo said. He mentioned that President Hakainde Hichilema has on many occasions talked about giving preference to Zambians and has encouraged joint ventures but that is not happening, a situation which has been there for a long time.

Tembo added that citizens opted for change because of the way things were been done and the transporters waited for 10 years to have the regulation which they pushed for in place in order to see full implementation and enforcement of that law but nothing has changed.

He explained that mines, which are one of the biggest consumers of fuel have also opted to use foreigners in the transportation of copper,acid and sulphur thereby depriving many Zambians of participating in the transport sector and retaining most of the foreign exchange.

“If I go to Tanzania, I cannot do the business which the Tanzanians are doing. In the case of copper transportation, they are coming to Zambia, they would have made their money, they have an option of going back to Tanzania empty but what do they do, they come to Zambia and give them a low rate which a Zambian cannot do”, he said.

Tembo explained that it is unfortunate that mines have also opted to use foreigners in the transportation business despite understanding the provisions of Mines and Minerals Development Act No 11 of 2015 which states that all services to the mines must be given to Zambian citizens.

“When a Zambian goes to the mines and says this is my rate, they say no you are too expensive we will go for this Tanzanian because for him, that rate he has given the mine is only to cover for the cost of fuel, the driver and other payments. His money is already made on the initial trip that he made to Zambia. Once a Zambian gives a lower rate and goes to Tanzania what is he going to load from there, there is nothing to load because there is nothing for him, just like Zimbabwe”, he said.

Tembo said the cost of doing business in Zambia is very expensive because of the cost of fuel, spare parts, repairs, toll gates as well as licensing which is high and the statutory instrument that is now in place for drivers’ salaries is very restrictive therefore Zambian transporters are choked.

“Then you take away the business from them, the next thing you see is Zambian transporters closing, is that the desire of government when it is preaching about creating jobs. We have tried to create thousands of jobs in the transport sector which are now on the line because the transporters are defaulting in these banks and they are also defaulting from all the people who helped them get the trucks, they are failing to pay”, he said.

He mentioned that mines ask for incentives from government and when given those incentives they turn around and start depriving Zambians of the much needed revenue from the mine activities.

“Government has until 2026 to show that they can do better than what has been happening all these years”, he said. Tembo said the minister gave a directive that by 15th November there should be full compliance but until now, nothing has happened and no one is listening to government directives.

“We are dealing with very rich organisations and companies that are well to do so they can maneuver in all these government offices and do the necessities to blindfold the people who are supposed to enforce the law. We feel this is what is happening because Zambian citizens don’t have money to go and bribe anybody, the only thing they are waiting to see is the implementation of the law”, he said.

Tembo said he wants to see a situation where the association praises the government every time it speaks to the media but there is no reason to do that as they are not doing anything. “The question is for how long are we going to cry and complain”, he said.

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Even as government proceeds to shut down

Companies

The anticipated price hike in cooking oil and other edible oils that are mostly imported into Zambia has been postponed by two more months to end of the year from 31 December 2021, coinciding with the start of the new budget cycle for 2022.

The eminent increase in prices of cooking and other edible oils was anticipated after the initial statutory Instrument – S.I. that was issued by the former ruling Patriotic Front – PF government suspended the collection of customs and excise duty expired.

Finance Minister Situmbeko Musokotwane under the now ruling United Party for National Development – UPND has signed off or re-issued another S.I. that has re-imposed the suspension of customs and excise from 1st November 2021 to 31st December 2021.

The current edible and cooking oil prices on the market are not reflective of real market prices as government is losing on budgeted revenue from the levies on the imports of the various edible oil products.

Unless another S.I. is again re-issued in January 2022, the price of cooking and other edible oils will go up as international prices have also been on the rise from the second and third quarter of the year . The 2022 budget and the impending International Monetary Fund – IMF will make it even impossible to avoid a price increase as the ministry of finance would have signed off on stringent local revenue mobilization conditionality’s.

The Crushers and Edible Oil Refiners Association (CEDORA) had revealed to the Zambian Business Times – ZBT that cooking oil prices were about to go up due to the significant increase in global shipping costs and various other challenges being encountered with shipping and the global supply chain in September 2021. See ZBT article Cooking oil price hike looms

CEDORA had further told ZBT that the statutory instrument – SI that temporarily suspended import duty on edible oils expired at end of October 2021 and attributed this expiry to have been behind market price instability of the commodity see ZBT article on Indecision on cooking oil import duty fuels price instability

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The anticipated price hike in cooking oil