VZCZCXRO9115
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLS #1054/01 2600950
ZNR UUUUU ZZH
P 170950Z SEP 07
FM AMEMBASSY LUSAKA
TO RUEHC/SECSTATE WASHDC PRIORITY 4914
RUCPDOC/DEPT OF COMMERCE WASHDC
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

UNCLAS SECTION 01 OF 03 LUSAKA 001054 
 
SIPDIS 
 
DEPARTMENT FOR AF/S AND EB/CBA - DENNIS WINSTEAD 
COMMERCE FOR 4510/ITA/IEP/ANESA/OA 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV BEXP EAIR ZA
SUBJECT: ZAMBIA AUGUST 2007 ECONOMIC ROUNDUP 
 
¶1. SUMMARY 
-- BOZ Bemoans Oil Prices, Warns Of Inflation Rate Rise 
-- Stakeholders Query Government Over CEE Act 
-- World Bank, IMF Caution On Copper Prices, Ag Subsidies 
-- BOZ To Withdraw Money From Commercial Banks 
-- Zambian Airways Records Growth 
-- Mining Companies Find High-Grade Uranium Deposits 
-- Barclays Confident In Economy, Makes Plans To Expand 
-- World Bank Supports Credit Facility 
-- WEF Rates Zambia's IT and Tourism Sectors 
-- New Structures To Facilitate Zambia-DRC Trade 
-- Zimbabwe Seeks Trade Opportunities In Zambia 
-- Pande Invites Chinese Investment 
 
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BOZ Bemoans Oil Prices, Warns Of Inflation Rate Rise 
--------------------------------------------- ------- 
 
¶2. On August 6, the Bank of Zambia (BOZ) warned that continued 
increases in international crude oil prices may jeopardize Zambian 
efforts to maintain single-digit inflation.  However, BOZ Governor 
Caleb Fundanga said that he expects foreign exchange earnings from 
agricultural and copper exports to cushion inflationary pressure. 
He pointed out that in 2007 the central bank has accumulated 
additional reserves equivalent to USD 182 million.  The year-on-year 
inflation rate in August 2007 was 10.7 percent. 
 
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Stakeholders Query Government Over CEE Act 
------------------------------------------ 
 
¶3. During a seminar on the Citizens Economic Empowerment (CEE) Act, 
Zambia Consumer Association Executive Secretary Muyunda Ililonga 
questioned the GRZ's ability to implement the Act when it appeared 
to have insufficient resources to pay pensions to retirees. 
"Empowerment should be a continuous process.  We do not need an Act 
to empower Zambians," he said.  Ililonga also questioned what 
measures the CEE Commission had put in place to harmonize the Act 
with the Fifth National Development Plan.  The CEE Act, which was 
passed into law in 2006, aims to provide commercial opportunities to 
disadvantaged citizens, but the way in which the GRZ will carry out 
this empowerment is not clearly defined, and much decision-making 
authority is vested with the Presidency.  At the seminar, University 
of Zambia Professor Love Mutesa advised the GRZ to invest in human 
capital and to improve access to land.  Land, he argued, would 
enable Zambians to access additional financing by using their 
personal property as collateral. 
 
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World Bank, IMF Caution On Copper Prices, Ag Subsidies 
--------------------------------------------- --------- 
 
¶4. In a Joint Staff Advisory Note (JSAN), the World Bank and 
International Monetary Fund indicated that a sharp fall in copper 
prices poses a serious threat to the implementation of Zambia's 
Fifth National Development Plan (FNDP).  The Bretton Woods 
institutions advised the GRZ to address the existing FNDP financing 
gap and to implement a more efficient and equitable tax system.  The 
JSAN pointed out that GRZ agricultural sector spending allocates 
insufficient funds to those programs that contribute to improved 
agricultural productivity, such as agricultural research, 
technological and irrigation development, and crop diversification. 
The report advised the GRZ against its subsidized fertilizer support 
program that absorbs significant resources but reaches less than ten 
percent of intended beneficiaries such as the small-scale farmers. 
 
 
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BOZ To Withdraw Money From Commercial Banks 
------------------------------------------- 
 
¶5. Acknowledging the cost of holding GRZ funds in non-interest 
bearing commercial accounts, Finance Minister Ng'andu Magande has 
indicated his intention to withdraw GRZ funds from private banks. 
(Note: These banks earn interest on GRZ deposits by using the funds 
to purchase GRZ bonds.  End note.)  Secretary to the Treasury Evans 
Chibiliti said that about K700 billion (approximately USD 175 
million, or six percent of the national budget) of GRZ money is 
"lying idle in commercial banks."  Economics Association of Zambia 
Treasurer Noel Nkoma criticized the decision, warning of interest 
rate increases, credit deficits, and reduced liquidity in the 
banking sector.  BOZ Governor Fundanga, however, maintains that the 
move will lead to lower interest rates and increased lending in the 
private sector, as commercial banks look for other sources of 
income.  Comment:  Post welcomes the decision, which improves public 
sector financial management, and supports GRZ plans to establish a 
national treasury.  End Comment. 
 
------------------------------ 
 
LUSAKA 00001054  002 OF 003 
 
 
Zambian Airways Records Growth 
------------------------------ 
 
¶6. On August 9, Zambian Airways Chief Financial Officer Victor 
Nyasulu announced that in 2006 the airline achieved income growth of 
USD 11.5 million, compared to USD 5.3 million in 2005.  During the 
same period, Zambian Airways recorded an increase in the number of 
passengers carried, from 41,195 in 2005 to 55,126 in 2006.  The 
airline, which was established in 1998 following the privatization 
of Roan Air, estimates that it will carry 160,000 passengers in 
¶2007. 
 
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Mining Companies Find High-Grade Uranium Deposits 
--------------------------------------------- ---- 
 
¶7. Equinox Minerals has discovered high-grade uranium with a 0.093 
per cent grading at its Lumwana project in northwestern Zambia. 
However, Minister of Mines and Mineral Resources Kalombo Mwansa 
warned investors against mining uranium until the GRZ introduces 
uranium mining provisions into the 1995 Mines Act.  He emphasized 
that the Act does not allow mining of uranium and the GRZ is closely 
monitoring recent discoveries in the Kariba area by OmegaCorp and in 
North-Western Province by Equinox.  The Lumwana Uranium Mineral 
Resources have been estimated at 9.5 million tons.  Equinox has 
contracted the Australian-owned mining company Ausenco to manage and 
implement a Uranium Feasibility Study (UFS), to follow up on a 
Bankable Feasibility Study that was completed in 2003, which 
included work on the extraction of the Uranium mineralization to 
produce uranium oxide (yellowcake). 
 
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Barclays Confident In Economy, Makes Plans To Expand 
--------------------------------------------- ------- 
 
¶8. Barclays Bank Zambia announced on August 7 that it will open 50 
more branches across the country.  To accomplish this, Barclays has 
recruited 410 staff in the last six months, consisting of 360 direct 
sales agents and 50 managerial staff.  According to Managing 
Director Danie Nel, Barclays has committed GBP 8 million towards the 
expansion program, which he says reflects the bank's increased 
confidence in the Zambian economy, as well as growth in key sectors 
such as agriculture, mining, and tourism. 
 
----------------------------------- 
World Bank Supports Credit Facility 
----------------------------------- 
 
¶9. World Bank has provided the GRZ with a USD 12 million 
concessionary loan, to support an investment credit facility that 
will offer medium and long-term loans to agribusinesses, commercial 
farmers, and smallholder businesses.  The BOZ, which will administer 
the funds, welcomed the assistance, noting the difficulty Zambian 
farmers traditionally have faced accessing capital to expand or 
improve their operations.  On August 6, responding to this "credit 
crunch," BOZ Governor Fundanga urged commercial banks to reduce 
lending rates further in order to encourage economic growth.  "We 
have used every forum to request commercial banks to reduce lending 
rates to be in line with falling inflation rates."  He added that 
although rates are declining and the trend is in the right 
direction, "we consider the lending rates to be still too high and 
we urge banks to reduce their lending rates to stimulate growth." 
 
----------------------------------------- 
WEF Rates Zambia's IT and Tourism Sectors 
----------------------------------------- 
 
¶10. Out of 122 countries that the World Economic Forum evaluated, 
Zambia ranked 112th on the Global Information Technology Report 
(GITR), scoring below neighboring Botswana, Namibia, Tanzania, and 
Malawi.  This marks a significant decline for Zambia, which ranked 
81st in the 2003-2004 report (in 2005-2006 Zambia was not included 
in the study). 
Zambia's recently-launched Information and Communication Technology 
(ICT) Policy, which aspires to increase ICT literacy, reduce the 
cost of ICT equipment, and expand ICT services and job 
opportunities.  The WEF also ranked Zambia 94th out of 124 countries 
in its Travel and Tourism Competitiveness Report (TTCR).  Although 
the GRZ is actively seeking to market Zambia as a tourist 
destination, the TTCR forecasted an annual growth rate over the next 
ten years of only two percent.  Zambia performed well in numerous 
categories (human resources, national tourism perception, and 
natural resources), including ranking first in its hiring and firing 
practices.  However, inadequate ground transportation and tourism 
infrastructure, as well as numerous other health and environmental 
issues, brought down Zambia's overall score.  The report valued 
Zambia's travel and tourism industry at USD 103 million (1.3 percent 
of the Gross Domestic Product).  The industry provides approximately 
16,000 jobs (1.1 percent of the total Zambian workforce). 
 
LUSAKA 00001054  003 OF 003 
 
 
 
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New Structures To Facilitate Zambia-DRC Trade 
--------------------------------------------- 
 
¶11. The Smallholder Enterprise and Marketing Program Agribusiness 
Development Component (SHEMP-ADC) has constructed two warehouses at 
Kasumbalesa, on Zambia's border with the Democratic Republic of 
Congo (DRC).  SHEMP-ADC Agribusiness Team Leader Gerrit Struyf said 
the two warehouses are likely to increase trade between the two 
countries in view of the growing market for agricultural products in 
the DRC.  One of the containers is dedicated for livestock 
(primarily goats), and the other for agricultural commodities such 
as cassava, beans, groundnuts, potatoes, and onions.  SHEMP, through 
Celtel Zambia, has also begun a pilot project on the Cross-Border 
Market Information System, which will take the same form as the 
Zambia National Farmers Union cellphone-based commodity marketing 
information system.  Earlier in the month, the Zambia Development 
Agency (ZDA) and the European Union Export Development Program 
coordinated a trade mission to Lubumbashi, in southern DRC, of 20 
local manufacturing companies.  Early reports of its impact are 
positive.  According to export data collected from the Central 
Statistical Office, Zambian exports to DRC in June 2007 accounted 
for 4.8 percent of Zambia's total exports. 
 
-------------------------------------------- 
Zimbabwe Seeks Trade Opportunities In Zambia 
-------------------------------------------- 
 
¶12. Zimtrade, the export promotion wing of the Government of 
Zimbabwe, announced its intention to set up a retail shop of 
exclusively Zimbabwean products, particularly processed foods, in 
Zambia.  Chief Executive Officer Hebert Chakanyuka said the move was 
part of the Government of Zimbabwe's National Export Strategy. 
Chakanyuka also disclosed that Zimbabwean companies that 
participated in the recent Lusaka Agricultural and Commercial Show 
managed to generate business agreements worth USD 300,000, with 
another USD two million still under negotiation. 
 
-------------------------------- 
Pande Invites Chinese Investment 
-------------------------------- 
 
¶13. In an August meeting with a small Chinese business delegation, 
Foreign Affairs Minister Kabinga Pande urged the business 
representatives to invest in mineral smelting in North-Western 
Province.  He also told them that there were great investment 
opportunities in infrastructure development, tourism, game ranching, 
and transport.  "Zambia is in a hurry to develop and needs all 
well-meaning friends like China for the country to move forward," he 
said.  He praised China for its development agenda towards African 
countries and the fulfillment of its pledges to assist Zambia in 
various social-economic fields. 
 
MARTINEZ