VZCZCXRO5061
PP RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLS #0103/01 0481428
ZNR UUUUU ZZH
P 171428Z FEB 09 ZDS FORMATTING
FM AMEMBASSY LUSAKA
TO RUEHC/SECSTATE WASHDC PRIORITY 6731
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 03 LUSAKA 000103 
 
DEPARTMENT FOR AF/S AND EEB/CBA - DENNIS WINSTEAD 
COMMERCE FOR 4510/ITA/IEP/ANESA/OA 
 
C O R R E C T E D  C O P Y 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ETRD EMIN ENRG EINV ECON PGOV ZA
SUBJECT:  JANUARY/FEBRUARY 2009 ECONOMIC AND POLITICAL UPDATE 
 
REF:  A) LUSAKA 80 
B) 08 LUSAKA 302 
 
LUSAKA 00000103  001.2 OF 003 
 
 
¶1. (U) SUMMARY 
-- Inflation Declines Slightly 
-- Zambian Government (GRZ) Shuts Down Chinese Coal Mine 
-- Luanshya Copper Mines Investors Suspend Zambia Operations 
-- Zambia-China Economic Sub-Zone Launched in Lusaka 
-- Competition in Banking Sector Intensifies 
-- Patriotic Front Expels "Rebel" Parliamentarians 
-- Movement For Multiparty Democracy Nominates President 
-- GRZ Prepares to Launch Rolling Voter Registration Process 
 
Inflation Declines Slightly 
 
¶2.  (U) According to the Central Statistical Office (CSO), 
year-on-year inflation declined to 16 percent in January from its 
December 2008 rate of 16.6 percent.  The CSO attributed the slight drop 
primarily to reductions in the price of corn meal, petroleum products, 
and local transportation costs. 
 
GRZ Shuts Down Chinese Coal Mine 
 
¶3.  (U) The GRZ closed down the Chinese-owned Collum Coal Mine in 
Southern Province following two fatal accidents in January.  During the 
past two years, the GRZ has suspended operations at Collum Mine multipl 
times for safety-related reasons, but each time the company allegedly 
resumed operations without the government's approval (Ref B).  Ministry 
of Mines Chief Mining Inspector Billy Chewe told the press that four of 
the shafts at the mine were closed and operations would only resume 
after the company complies with safety standards.  The GRZ has also 
urged the company to recruit trained personnel and put in place proper 
underground support structures.  The company's main clients are Lafarge 
Cement, Konkola Copper Mines, and some companies in the Democratic 
Republic of Congo. Currently, Collum is the only local source of coal i 
the country and its closure may affect cement production and therefore 
the construction sector. 
 
Luanshya Copper Mines Investors Suspend Zambia Operations 
 
¶4.  (U) Luanshya Copper Mines (LCM) laid off 1,740 miners after 
suspending operations in December 2008.  The Swiss-Israeli joint ventur 
cited low copper prices as the reason for its closure.  LCM halted 
operations at the Chambishi Metals smelter and Baluba Copper Mine and 
suspended development of its USD 354 million Mulyashi Copper Mine 
project.  LCM produced about 20,000 metric tons of copper in 2008 (abou 
3.5 percent of Zambia's total estimated annual copper output). 
 
¶5.  (SBU) The GRZ has announced that the parastatal Zambia 
Consolidated Copper Mines Investment Holdings (ZCCM-IH), a 15 percent 
shareholder of LCM, will "manage" the mine until either the owners 
resume operations or other equity partner(s) are found, leading to 
(false) expectations that retrenched employees will be recalled to work 
by ZCCM.  The Minister of Mines told the Ambassador, however, that the 
GRZ has no intention running copper mines again, which before 
privatization cost the GRZ approximately USD one million per day. 
Rather, he said, ZCCM-IH will keep the mine under "care and 
maintenance."  The Chairman of the Chamber of Mines told Emboff that 
investor interest in the 
 
LUSAKA 00000103  002.2 OF 003 
 
 
mine is weak after the government breached its development agreements b 
imposing windfall and other new taxes on mining companies in early 2008 
(Ref A). 
 
Zambia-China Economic Sub-Zone Launched in Lusaka 
 
¶6.  (U) President Banda launched a Zambia-China Economic and Trade 
Cooperation Zone (ZCCZ), which is intended to attract Chinese-Zambian 
joint ventures by offering tax relief and other benefits.  The ZCCZ, 
which is situated a few kilometers from the Lusaka International 
Airport, will focus on manufacturing development.  The ZCCZ is a 
"sub-zone" of the Multi-Facility Economic Zone (MFEZ), which former 
President Mwanawasa and Chinese President Hu Jintao launched in 
Chambeshi in 2006 and which now hosts approximately ten Chinese 
companies.   The tax benefits of this alleged multi-million dollar 
investment include the removal of withholding tax on management fees an 
interest payments to foreign contractors and Value Added Tax exemption 
on manufacturing machinery, equipment, and supplies. 
 
Competition in Banking Sector Intensifies 
 
¶7.  (SBU) The Central Bank has issued operating licenses to Eco Bank 
of Togo and First National Bank of South Africa.  Central Bank Governor 
Caleb Fundanga said that the arrival of two banks suggests that the 
Zambian financial sector has not been directly affected by the global 
economic crisis.  He added that most banks in Zambia are adequately 
capitalized and the inter-bank market continues to operate smoothly. 
 Once operational, this will bring the number of commercial banks in 
Zambia to 16.  (Comment:  Fundanga may be correct in his assertion abou 
the health of Zambia's banking sector.  One banking executive described 
2008 to Ambassador as his bank's most profitable year in Zambia.  He 
projected, however, that although the global economic crisis will 
not constrain the liquidity of Zambia's financial sector, lending 
may decrease in 2009 due to risk mitigation.  Another financial 
institution, Finance Bank, intends to move forward with its plans to 
expand to the Democratic Republic of Congo, after reassuring Credit 
Suisse, which owns 40 percent of its shares. End Comment.) 
 
Patriotic Front Expels "Rebel" Parliamentarians 
 
¶8.  (U) The Patriotic Front (PF) expelled 16 "rebel" Members of 
Parliament from the party, following Lusaka High Court judge Gregory 
Phiri's decision to dismiss an interim injunction, which he granted to 
the MPs in January.  The parliamentarians have appealed this decision t 
the Supreme Court. In the interim, and until a Supreme Court decision 
has been rendered, the Speaker of Parliament will continue to recognize 
the 16 parliamentarians.  The dispute relates to the parliamentarians' 
participation in the National Constitutional Conference (NCC), despite 
the party's boycott of the NCC process, on the basis that it is a waste 
of public funds.  If the Supreme Court upholds the High Court's ruling, 
the Speaker will vacate these seats, and the Electoral Commission of 
Zambia (ECZ) will call for by-elections in 16 constituencies. 
 
LUSAKA 00000103  003.2 OF 003 
 
 
GRZ legal advisors have suggested to emboff that the GRZ is loath to 
hold by- elections, which would be both costly and time-consuming to 
government. 
 
Movement for Multiparty Democracy (MMD) Nominates President 
 
¶9.  (U) The MMD's National Executive Committee (NEC) met on February 7 
to ratify the appointment of President Rupiah Banda as Acting MMD 
President.  The appointment places President Banda as a front runner fo 
the party's nomination as MMD President at the party's national 
convention scheduled for 2010, and for nomination as the party's 
presidential candidate in the presidential elections slated for 2011. 
 
GRZ Prepares to Launch Rolling Voter Registration 
 
¶10. (U) The Electoral Commission of Zambia (ECZ) Chairperson, Judge 
Florence Mumba, announced that the ECZ will update its voter rolls by 
launching a continuous voter registration process as soon as Parliament 
approves the 2008 national budget.  For many years now, civil society 
organizations have been expressing concern about the failure by ECZ to 
implement continuous voter registration despite a law requiring it. 
 Earlier in the month, PF President Michael Sata instructed his 
attorneys to legally compel ECZ to start the registration process.  Onc 
implemented, the registration process will expand the voter rolls to 
include all those who turned 18 after the last voter registration 
exercise in December 2005 and who were disenfranchised in the 2008 
presidential by-election. 
 
BOOTH