Global +1 718 865 8851
Asia +852 6854 1589
Australia +61 434 574 347

IABFM Articles > > Markets > Zambia in the global context

Zambia in the global context


28 October, 2012

Zambia in the global context

By Michael Preiss

LuSE (Lusaka Stock Exchange All Share Index) has lost about -6 per cent in value so far this year while the UK FTSE Index gained about +5 per cent and the US S&P500 Index gained about +12 per cent.

This compares to +10 per cent for South Africa, Namibia +6 per cent, Nigeria +14 per cent and Kenya +27 per cent.

As Zambia is Africa's largest copper producer and China is the largest buyer for copper globally, the economic slowdown in China is impacting Zambia more than other African markets.

The current stock market weakness in the local market is a healthy correction in a multi-year secular bull market for Zambia equities.

In 2011, Zambian equities were the third best performing stock market in the world rising over +100 per cent, only outpaced by Sri Lanka and Mongolia.
This year with the slow down in China, not just Zambia but many other emerging markets have come under some selling pressure.

However, the Zambian economy is forecast to expand 7.7 per cent this year. Strong investment inflows underpin this robust economic growth.
The country has recorded investment pledges of more than USD 4 billion in the first half of this year. This represents a 37 per cent increase over US $3 billion for the same period of last year.

A big driver of inward investment into Zambia is the planned currency rebasing. Turkey's economy boomed after Turkey rebased the currency in 2005 and introduced the New Turkish Lira, slashing off six zeros.

Early this year, the Zambian government announced that a monetarily neutral rebasing of the kwacha would be carried out, with each unit of the currency under the new system equivalent to 1,000 units.

The rebasing is the right step in the right direction as it seeks to address the accumulated loss of the currency's value during the hyperinflation in Zambia seen in the late 1980s and early 1990s, and is geared towards simplifying financial transactions.
Now is the right time for Zambia to introduce currency rebasing.

Price stability has improved markedly in recent years. However, the predominance of copper in the export basket does mean that the kwacha remains highly vulnerable to commodity price shocks and a slow down in China.

Despite a lot of debate, it seems the rebasing has been well received by the private sector, although there are concerns about the associated logistical challenges, particularly as the economy is largely cash-based and rural infrastructure is poor.

In May, the Bank of Zambia said that both current notes and new notes would be accepted as legal tender over a two-year transition period. More recently it has said that this transition period, during which both sets of notes will be accepted, will last for only six months, although a longer period, extending to end-2014, will be provided for all current notes to be replaced with new notes.

The rebasing could also have some inflationary impact, as the one-off cost for commercial banks and businesses of adjusting payment and accounting systems to the new currency may be passed on to consumers.

However, any such impact should be marginal. Over the medium term it should support business activity by lowering transaction costs. In the long-term the benefits from currency rebasing are significant.

Just look at what Turkey did after it rebased its currency and introduced the New Turkish Lira! Turkey became one of the most competitive and well-run economies in the world. Zambia should take and follow the lead from Turkey and prepare the economy for the new Zambian kwacha.

Michael Preiss is a Professor at the IABFM (International Academy of Business and Financial Management) based in London.

About the Authors


Member Login

Search Articles

All rights reserved 2003-2020 International Academy of Business and Financial ManagementTM

Join our groups on linkedin and Facebook