MARKET UPDATE – AFRICA (Abridged)

A financial Advisory
Company
ZAMBIA
POLITICAL OUTLOOK
Election Cycle enters Homestretch
The country has entered the homestretch of the
election cycle with the official campaign period
commencing on May 16th, 2016. The election is
bound to elicit enormous interest as it is widely
perceived as a referendum on the administration
of incumbent President, Edgar Lungu, which
is grappling with an adverse macroeconomic
environment. Lungu, who took office following the
Presidential by-election of January 2015, assumed
power a time when copper prices were on a
nose dive in the global markets and China, one of
Zambia’s key export markets, was decreasing its
activity and demand for raw materials. As such,
the economy has been buffeted by fiscal and
monetary pressures that have seen inflation soar
and the government tighten its belt on diminished
export earnings.
BUSINESS ENVIRONMENT
Solar Auction Bodes well for Business
Environment
The outcome of the World Bank-led solar power
auction won by Neoen SAS and First Solar Inc
bodes well for the economy which is grappling
with the after effects of a protracted energy crisis.
The two companies’ bid to generate electricity at
6.02 cents per Kilowatt Hour and are expected to
build a 45.0 Megawatt solar plant to help meet
growing demand for energy in the country.
Growing Focus on Non-hydro Energy
This begins to raise confidence that the country
is making steps towards addressing the ongoing
energy crisis that has affected the investment
climate. It also serves as a crucial signal of growing
interest in the non-hydro renewable energy sector
of the economy which promises to diversify further
the pool of energy sources.
ECONOMIC OUTLOOK
Central Bank Remains Hawkish as Inflation
Declines and Election Jitters Loom
Bank of Zambia maintained a hawkish stance in
its May 2016 meeting despite decline in inflation
between February 2016 and May 2016 signaling a
cautious position on the monetary environment.
This could, in part, be informed by the drought
afflicting Southern Africa and is feared to drive
food inflation upwards as well as need to have the
tightening cycle transmit through the monetary
system. We do not anticipate expansionary change
in the monetary policy until after the August 2016
general election as the Central Bank maintains a
watchful position on the state of the economy
and potential spill-overs from the political
environment.
DEBT MARKET UPDATE
Available data indicates the yield curve humped
sending an indication of possible jitters by
investors over the state of the economy in the
medium term.
Yield Curve (May 20th, 2016)
30.0%
28.0%
26.0%
24.0%
22.0%
20.0%
2 Year 3 Year 5 Year 7 Year 10 Year 15 Year
Source: Bank of Zambia, StratLink Africa
Foreign investor holdings have been declining
faster in the short-term than in the long-term
papers, further lending credence to the view of
likely jitters over the economy’s trajectory in the
short-term.
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JULY 2016 | MARKET UPDATE – AFRICA
7
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