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Economy stalls as copper demand falls.

Unlike its neighbour Malawi, Zambia is beginning to feel the pinch of the global economic downturn mainly because of the volatility on the international market for its major export earner, copper. The copper price, which reached a high of $8,985/t in July last year, had plummeted to just under $3,000 before recovering somewhat thanks to renewed demand from China (see Commodities p 75).

As some mining companies cut back on their expansion projects, others downsized their workforce. One company, Luanshya Copper Mine, actually ceased operations, leaving about 1,700 workers unemployed. Reports say the government is currently trying to work out modalities of reviving its operations.

Another company, Mopani Copper Mine, also downsized its workforce, cutting 700 jobs at its smelter while another 1,013 miners lost their jobs at Chambishi Metals. The reduced revenue from copper exports had resulted in the country's currency depreciating against major convertible currencies.

A local economist, Chibamba Kanyama, confirmed that the fall in the export revenue was mainly due to problems in the copper mining sector, but also cited capital flight from portfolio investment in government securities and the poor performance of the capital markets.

Kanyama, noting that the local currency had depreciated by 60% in seven months, has forecast that fuel prices are likely to increase because of the continued weakness of the zambian kwacha. However, Zambia's Finance and National Planning Minister Situmbeko Musokotwane said the depreciation of the Zambian currency was not simply because of falling copper prices. He noted that some speculators were buying the US dollar in huge quantities, creating an artificial shortage of the US currency and causing the local currency's depreciation. "The economic fundamentals are fairly strong, so this volatility cannot be justified. We believe strongly that the supply of dollars is more than adequate," Musokotwane said.

To tackle the effects of the global economic downturn, the government announced an economic stimulus package in this year's budget. The Minister of Commerce, Trade and Industry, Felix Mutati, said the government has provided Zkw2.3trillion ($418m) to stimulate the economy in the wake of the current global crisis.

Among other things, Mutati said the government had removed windfall taxes for mining companies and increased capital allowance for mining firms to 100% as an investment incentive. He also disclosed that the government had increased the exemption threshold for workers' Pay As You Earn (PAYE) tax from $109 to $127. This measure, said the minister, would result in workers having more disposable income to boost the economy.

Delivering a policy statement on the estimates of revenue and expenditure for the year 2009, the Minister of Tourism, Environment and Natural Resources, Catherine Namugala, said that the government intended to promote the diversification of the economy and the tourism sector had an important role to play in this policy objective.

Namugula said that one initiative that had been introduced as a way of broadening the revenue base was for the Zambia Wildlife Authority to start auctioning game meat - obtained from the culling of species to butcheries - as well as participating in the capture of animals for local and international game ranching.
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Title Annotation:Zambia
Publication:African Business
Geographic Code:1USA
Date:May 1, 2009
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