VZCZCXRO7312
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLS #0029/01 0150621
ZNR UUUUU ZZH
P 150621Z JAN 09
FM AMEMBASSY LUSAKA
TO RUEHC/SECSTATE WASHDC PRIORITY 6625
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 000029 
 
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 DECEMBER 2008 ECONOMIC ROUNDUP 
 
REF: LUSAKA 302 
 
¶1. SUMMARY 
-- Inflation Continues to Rise 
-- GRZ Sells Subsidized Maize 
-- Mining Operations Scale Back 
-- Financial Markets Continue Decline 
-- COMESA Customs Union Delayed 
 
Inflation Continues to Rise 
¶2.  According to the Central Statistical Office (CSO), year-on-year 
inflation 
rate rose to 16.6 percent in December, 1.3 percent higher than in 
November. 
The increase is attributed primarily to food prices. Food accounts 
for 9.9 
percent of the rise. 
¶3.  The Zambian Government (GRZ) reduced the fuel price at the pump 
following 
reductions in oil prices on the international market.  For 90,000 
tons of oil 
which arrived in November, GRZ paid USD 53 million compared to USD 
81 million 
paid for a similar consignment in October--a 35 percent decrease. 
This 
reduction brought a slight reduction in transportation costs for 
both 
passengers and freight.  The impact should be reflected in the 
Consumer Price 
Index for January 2009. 
GRZ Sells Subsidized Maize to Reduce Cost of the Staple Food 
 
¶4.  The GRZ directed the Food Reserve Agency (FRA) to offload some 
of its 
strategic reserve maize stocks and to import 100,000 tons of maize 
to reduce 
and stabilize the rising mealie meal prices on the market. 
Agriculture 
Minister Brian Chituwo told parliament that millers and private 
traders have 
been issued with import permits for non-genetically modified 
organisms (GMO) 
maize from South Africa.  (Note: The premium for non-GMO maize is at 
least 30 
percent).  The maize imported from the Southern African Development 
Community 
(SADC) and COMESA will be duty free, while a special duty mechanism 
will be 
worked out for maize imported from outside the region.  This will 
make the 
landed price lower and the price of mealie meal more affordable to 
consumers. 
Opposition parties had threatened to organize protests over the 
rising cost of 
Zambians' staple food. 
 
¶5.  According to government, Zambia produced 1.2 million tons of 
maize during 
the 2007/2008 compared to 1.3 million tons in 2006/2007 season. 
With an 
increase in consumption rate of 60,000 tons per month, there has 
been an 
overwhelming demand for maize and maize products.  This has resulted 
in fears 
about whether Zambia has enough maize stock to last until the next 
harvest 
season. 
 
¶6.  The FRA is selling off 30,000 tons of maize to millers under 
special 
contract, and all major millers in the country have thus reduced the 
mealie 
meal price as directed by the FRA.  The maize is currently being 
sold to 
consumers for K55,000 (USD 11.22) per 50 kilogram bag from K63,000 
(USD 12.86) 
in April 2008, a 13 percent decrease. 
 
Mining Companies Scale Back 
 
¶7.  The collapse of copper prices has led Canadian-based First 
Quantum 
Minerals to shut down its copper processing plant and retrench 365 
workers at 
Bwana Mkubwa mine, while Kansanshi Mine retrenched over 70 workers. 
Lumwana 
Mine offered to reduce its expatriate labor force to cut costs, 
 
LUSAKA 00000029  002 OF 002 
 
 
which makes up 
40 percent of total labor force.  Luanshya Copper Mines closed down 
and was 
put under care and maintenance, retrenching over 1,700 workers. 
With some 
calling for GRZ to temporarily nationalize the mine to keep it 
running (and 
preserve the jobs), Government has set up a committee to recommend 
to the way 
forward on the mine closures. 
 
¶8.  The Zambian economy is largely dependent on copper and cobalt 
exports. 
Copper prices, which had reached a record high price of USD 8,985 
per ton in 
first week of July 2008, closed at below USD 3,000 per ton on 
December 24, 
¶2008.  This 65 percent decrease has been attributed to low demand 
from major 
consumers, whose economies have slowed down as a result of the 
credit crisis. 
The high copper prices in the last two years spurred huge 
investments into 
mining.  For example a concentrator and an ultra modern smelter have 
been 
installed at Konkola Copper Mines, Nchanga strategic Business Unit. 
Mining 
and crushing activities commenced at Lumwana Copper Mine and Munali 
Nickel 
Mine. 
 
Financial Markets Continue Decline 
 
¶10.  Zambian financial markets have faced challenges since July 
2008, when 
late president Levy Mwanawasa fell ill, through his death in August 
and the 
change of administration in November 2008.  Uncertainties over 
Zambia's 
economic policy induced volatility in the foreign exchange and 
securities 
markets, especially among foreign portfolio investors in treasury 
bills and 
equities on the Lusaka Stock Exchange. 
 
¶11.  Celtel (Zain) Zambia shares fell to K400 per share on December 
1, 2008 
from the listing price of K640 on June 11, 2008.  The 38 percent 
drop is 
attributed to foreign investors seeking to cash out on uncertainty 
and to the 
weakening of the local currency. 
 
¶12.  The Zambian Kwacha depreciated over 60 percent from June 2008 
to the end 
of the year, closing at K4900 = USD1.  The sharp decline can be 
attributed 
primarily to falling copper prices and rising inflation.  This 
development has 
seen a number of service providers quoting prices in USD, an illegal 
practice 
in Zambia.  While a depreciated currency is general advantageous for 
a 
country's exports, the dip could trigger a steep rise in consumer 
prices in an 
import-dependent economy such as Zambia's. 
 
COMESA Customs Union Delayed 
 
¶13. The COMESA Customs Union, scheduled to commence in December 8, 
missed the 
deadline after heads of state in the region failed to meet for a 
third time in 
¶2008.  The trade ministers who met in Lusaka early December failed 
to pick a 
date and venue for the next Summit that failed to take place in 
Harare since 
May.  The Summit, which is the apex decision making organ on the 
organization 
is supposed to meet once a year to endorse decisions made by 
technical teams 
and council of ministers.  The date and venue of the next meeting 
will be 
communicated in the course of the year. 
 
BOOTH