VZCZCXRO6112
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLS #0022/01 0071409
ZNR UUUUU ZZH
P 071409Z JAN 08
FM AMEMBASSY LUSAKA
TO RUEHC/SECSTATE WASHDC PRIORITY 5289
RUCPDOC/DEPT OF COMMERCE WASHDC
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE

UNCLAS SECTION 01 OF 02 LUSAKA 000022 
 
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 DECEMBER 2007 ECONOMIC ROUNDUP 
 
¶1. SUMMARY 
-- INFLATION RISES SLIGHTLY IN DECEMBER 
-- ELECTRICITY RATES WILL INCREASE IN 2008 
-- COMMUCATIONS AUTHORITY TO MONITOR QUALITY 
-- AUSTRALIAN COMPANY BEGINS BIO-DIESEL PRODUCTION 
-- ZAMBIA FAILS TO MEET ANNUAL COPPER PRODUCTION TARGET 
-- MANUFACTURING SECTOR RECORDS GROWTH IN 2007 
-- ZAMBIA'S DOMESTIC CREDIT INCREASES BY 15 PERCENT 
 
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Inflation Rises Slightly in December 
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¶2. According to the Central Statistical Office's (CSO's) Consumer 
Price Index, Zambia's year-on-year inflation rate was 8.9 percent in 
December 2007 (up slightly from 8.7 percent in November).  The CSO 
attributed the slight increase to rising food prices.  Although by 
the close of the year, the GRZ failed to achieve its objective of 
five percent annual inflation, as outlined in the 2007 national 
budget, it managed to contain inflationary pressure caused by 
escalating fuel prices.  At its 2007 peak (in March), the 
year-on-year inflation rate reached 12.7 percent.  Central Bank 
Governor Caleb Fundanga attributed Zambia's success in maintaining 
single-digit inflation to "prudent monetary and fiscal policies." 
Fundanga also pointed to Zambia's "increased food supply," referring 
presumably to Zambia's increased agricultural production in 2007. 
Comment:  The GRZ's failure to spend its 2007 budget allocations 
fully, due to inefficient financial management procedures, may also 
have been an unintended source of fiscal discipline and 
counter-inflationary pressure.  End Comment. 
 
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Electricity Rates Will Increase in 2008 
--------------------------------------- 
 
¶3. Zambia's Energy Regulation Board (ERB) authorized the state-owned 
power utility company, ZESCO, to increase its electricity rates by 
as much as 65 percent over the next three years.  The new rates, 
which vary according to end-user category, went into effect on 
January 1 and will provide the company with additional funding for 
capital investments and infrastructural improvements.  ERB Chairman 
Sikota Wina publicly advised ZESCO to improve its performance in 
order for the new rates to remain effective in 2009 and 2010.  ZESCO 
is currently negotiating rate increases with Copperbelt Energy 
Corporation (CEC), a private company that supplies much of Zambia's 
mining sector with power.  Until both parties reach an agreement, 
the mining companies will not be affected by the rate increases. 
The Zambia Association of Manufacturers cautioned that the new rates 
will increase production costs and commodity prices, even though the 
tariffs for commercial users will increase by a mere 1.3 percent in 
¶2008.  The Zambia National Farmers Union, however, described the new 
commercial rate as "a fair deal." 
 
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Communications Authority to Monitor Quality 
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¶4. In response to public demand, the Communications Authority of 
Zambia installed equipment to monitor the service quality and 
billing accuracy of information and communication technology 
companies in Zambia.  A Spanish company, Ibys, installed the 
hardware at a cost of K4 billion (USD 1 million).  The equipment 
will also evaluate the reliability of Internet and data services. 
The equipment is expected to become fully operational in January 
¶2008. 
 
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Australian Company Begins Bio-Diesel Production 
--------------------------------------------- -- 
 
¶5. In December, an Australian company, Oval Biofuels Limited, began 
producing bio-diesel fuel from soya beans through a "toll treatment" 
process.  The company, which was formed in 2006 by directors of 
Australian mining companies such as Albidon and African Energy 
Resources, produces 3000 liters per day at its Lusaka refinery.  The 
company will distribute much of the fuel through Total Zambia.  Oval 
Biofuels will also begin producing bio-diesel from jatropha seeds, 
when the jatropha plant becomes commercially available.  The GRZ, 
however, is concerned about jatropha's alleged negative effects on 
the environment and possible impact on food security (if jatropha 
cultivation crowds out important food crops), and has been cautious 
about promoting the farming of jatropha.  Oval Biofuels has multiple 
outgrower schemes for jatropha in Lusaka, Southern, Western, and 
Central Provinces. 
 
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Zambia Fails to Meet Annual Copper Production Targets 
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LUSAKA 00000022  002 OF 002 
 
 
¶6. Central Bank Governor Caleb Fundanga announced that heavy 
rainfalls in 2007 would prevent Zambia from reaching its annual 
copper production target of 670,000 tons.  He warned that the rains 
in early 2008 could cause additional flooding and further reductions 
in output.  According to Central Bank data, the copper mines 
produced 456,893 tons of finished copper by November 2007, compared 
to 457,730 tons in the same period in 2006.  Fundanga advised the 
Government to diversify its economy, and warned of possible 
disruptions by cross-border mining, referring to export bans and 
other moves that affected Zambian processing of copper extracted in 
the Democratic Republic of Congo. 
 
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Manufacturing Sector Records Growth in 2007 
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¶7. Zambia Association of Manufacturers Chairman Dev Babbar said that 
in 2007 the manufacturing sector recorded positive growth in about 
eighteen sub-sectors, including agro-industry, food processing, and 
cement.  He pointed to important investments, including a USD 200 
million investment by Zambia Sugar Plc to boost sugar 
production--from its current level of 250,000 tons--to 450,000 tons 
in 2008.  He also noted a USD 120 million investment by Lafarge 
Zambia to increase cement production.  ?The construction industry 
has grown tremendously over the past few years, which has led to 
increased demand of cement on the local and international markets," 
said Babbar. 
 
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Zambia's Domestic Credit Increases by 15 percent 
--------------------------------------------- --- 
 
¶8. Preliminary data released by the Central Bank indicates that 
domestic borrowing went up by 15 percent in 2007 due to increased 
commercial lending.  Central Bank Governor Fundanga identified 
agriculture and manufacturing as the largest sectoral sources of 
commercial borrowing and noted a sharp decrease in commercial loans 
to the GRZ, which declined by over 39 percent.  He also observed 
that interest rates continue to decline, reaching an average of 24.3 
percent in November 2007 (down from 27.9 percent in December 2006). 
Fundanga suggested that ?the drop in lending rates follows the 
generally lower government securities yield rates and inflation over 
the past few years.? 
 
KOPLOVSKY