VZCZCXRO2827
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLS #1163/01 3451413
ZNR UUUUU ZZH
P 101413Z DEC 08
FM AMEMBASSY LUSAKA
TO RUEHC/SECSTATE WASHDC PRIORITY 6543
RUCPDOC/DEPT OF COMMERCE WASHDC
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RHMFISS/HQ USAFRICOM STUTTGART GE

UNCLAS SECTION 01 OF 02 LUSAKA 001163 
 
DEPARTMENT FOR AF/S AND EEB/CBA - DENNIS WINSTEAD 
COMMERCE FOR 4510/ITA/IEP/ANESA/OA 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD EMIN ENRG EINV ECON ZA
SUBJECT: ZAMBIA NOVEMBER 2008 ECONOMIC ROUNDUP 
 
REF: LUSAKA 302 
 
¶1. SUMMARY 
-- Inflation Remains High 
-- Local Currency Continues To Depreciate 
-- Farmers Union Acquires Stake in Financial Sector 
-- ZESCO To Disconnect Power Supply To Lumwana Mine 
-- Zambia Prepares to Launch Small Claims Court 
-- Civil Servants To Receive Subsidized Fertilizers 
 
Inflation Remains High 
 
¶2.  According to the Central Statistical Office, year-on-year 
inflation rose to 15.3 percent in November, representing a slight 
(0.1 percent) increase from October.  Bank of Zambia Governor Caleb 
Fundanga attributed the increase to higher food prices.  Fundanga 
optimistically opined to the Ambassador that inflation would decline 
in 2009 due to lower fuel prices and improved agricultural 
productivity.  Early indications, however, suggest that the maize 
crop will be short.  Large-scale commercial farmers are having 
trouble securing production credit and are shifting to other crops. 
The price of fertilizer will diminish smallholder usage, and the 
Zambian Government's fertilizer support is once again too late to 
have its optimal impact. 
 
Local Currency Continues to Depreciate 
 
¶3.  The Zambian Kwacha continued to fall in November, despite a 
brief period following the October 30 presidential election when it 
performed well against other major currencies.  Its depreciation 
began in late June, following announcements of late President Levy 
Mwanawasa's illness.  Economists attribute the Kwacha's drop to 
global financial instability, rising inflation in Zambia, and 
declining world copper prices.  Several business leaders opined to 
emboffs that the Kwacha would remain weak until copper prices 
rebound. 
 
Farmers Union Acquires Stake in Financial Sector 
 
¶4.  The Zambia National Farmers Union (ZNFU) has acquired a four 
percent share in Zambia National Commercial Bank (ZANACO).  This 
move is part of the strategy of the Netherlands-based Rabobank, 
which owns a 45 percent share in ZANACO, to increase its presence in 
rural areas.  ZANACO and ZNFU immediately launched several projects 
to increase small- and medium-scale farmers' access to credit.  The 
development appears to be a market response to commercial 
under-lending within the agricultural sector.  According to an IMF 
representative, agricultural lending by commercial banks in Zambia 
grew by less than two percent in 2008, despite a 48 percent increase 
in overall commercial lending. 
 
ZESCO To Disconnect Power Supply To Lumwana Mine 
 
¶5.  A commercial dispute between Lumwana Mining Company and the 
state-owned electricity provider ZESCO is likely to culminate in 
London-based arbitration.  Until the issue is resolved, ZESCO 
intends to stop providing power to Lumwana Mine, effective January 
26, 2009.  Lumwana, which is owned by the Canadian/Australian 
Equinox Minerals, does not have an alternative source of power and, 
therefore, the termination will interrupt its operations and delay 
its launch that was scheduled for early 2009.  The dispute relates 
to a connection agreement for a 330kV power line.  When launched, 
Lumwana will be Africa's largest copper mine, producing an estimated 
122,000 tons of copper per year. 
 
Zambia Prepares to Launch Small Claims Court 
 
¶6.  High Court Registrar Mwamba Chanda announced the appointment of 
20 commissioners to the Small Claims Court, which will be launched 
in December.  The commissioners, who are attorneys by profession, 
will have jurisdiction to resolve private sector civil disputes of 
claims that are less than K 20 million (USD 4,500).  Plaintiffs will 
be allowed to argue their own cases, without the representation of 
an attorney.  Initially the court will maintain offices in Lusaka 
and Ndola, although the judiciary intends to open similar courts 
throughout the country.  If successful, these courts could help 
decongest Zambia's legal system, which is considered to be 
under-resourced and inefficient.  The courts will also benefit 
small- and medium-sized enterprises, which will no longer need to 
risk long and costly litigation to resolve relatively simple civil 
suits. 
 
Civil Servants to Receive Subsidized Fertilizer 
 
¶7.  President Rupiah Banda has promised to fulfill his campaign 
pledge to make the government's K500 billion (USD 110 million) 
Fertilizer Support Program (FSP) available to farm-owning civil 
 
LUSAKA 00001163  002 OF 002 
 
 
servants and military personnel.  In the past, civil servants 
typically had purchased FSP fertilizer in the secondary market from 
small-scale farmers.  The President's directive has caused some 
concern that GRZ employees are apt to benefit disproportionately 
from the GRZ-administered program.  Perhaps more importantly, the 
move shows the government's increased commitment to a program that 
distorts the market, interferes with the development of commercial 
fertilizer providers, and tends to benefit those farmers who need it 
least.  Consequently, an even greater number of farmers will delay 
planting their crops as they wait for government fertilizer that 
comes late, if at all.  According to the donor community, Zambia's 
prospects for food security will be weak as long as the government 
continues to divert its agricultural spending from more productive 
investments such as infrastructure (roads and irrigation), research, 
extension services, and marketing systems. 
 
KOPLOVSKY