WHAT A YEAR

Zambia 2017 | DIPLOMACY | YEAR IN REVIEW

Zambia has long been a bastion of stability in Southern Africa, and while its economy has been rocked in recent years by the falling value of copper prices, a devaluating kwacha, and high inflation, through the Economic Recovery Program the government has bold ambitions to right the ship.

Zambia's economy is built on copper, with the metal accounting for 80% of foreign earnings. Before 2015, the country had enjoyed a decade of strong growth that saw its GDP peak at USD28.05 billion in 2013. From 2015 on, however, Zambia has felt the pain of falling commodity prices and a drop in demand from key markets such as China. In 2015, the kwacha became the worst-performing currency in Africa, falling 50% against the dollar. Combined with the higher price of imported goods (Zambia ran a current account deficit of 3.5% of GDP in 2015, and 4.5% in 2016), inflation began to rise, from 7.9% in 2014 to 21% in 2015 and 19% in 2016. Amidst international concerns over what this all meant for the nation's economy, the Bank of Zambia (BoZ) stepped in, raising the policy rate from 12.5% to 15.5% in 2015, which, while successful at lowering the price of essential consumer items, limited access to the credit needed for investment and growth. With that in mind, in February 2017 the BoZ cut the rate to 14%, citing the fact that inflation had further slowed to 7% as of January 2017.
Over recent years, much growth has been sustained via public spending, with 28.1% of GDP spent on public expenditures in 2015. That same year, the fiscal deficit reached 9.4% of GDP, remaining at 10% in 2016. Hoping to reverse this situation, the government announced that it aims to narrow that gap to just 7% in 2017 via reduced borrowing. It stops short of full austerity, however, with the authorities shunning some international calls for more belt tightening, citing the need for continued social spending. This includes increases in education spending (ZMW9.1 billion to ZMW10.6 billion), health spending (ZMW4.4 billion to ZMW 5.8 billion), and agriculture, which saw the Farmers Input Support Program budget increased by 160%.
Indeed, the budget has been on center stage of late, with the Minister of Finance using the opportunity to launch the Economic Recovery Program. The plan has five pillars, including boosting fiscal sustainability, increasing social protection, cutting waste, improving budget credibility, and promoting economic stability by reducing red tape around the private sector.

Amongst other initiatives already underway is a USD50 million credit line from the African Development Bank to set up an SME lending program. With more than 70% of GDP derived from SMEs, the government is keen to offer smaller firms better access to financing. Discussions are also ongoing with the IMF over a potential aid program, although concerns at the Fund exist over the budget deficit and the country's potential inability to meet debt obligations, with USD750 million due to be paid by Zambia when its first Eurobonds begin to mature in 2022. Whatever kind of deal is made, it is clear it will come with the requirement of further fiscal consolidation.

At the head of the ship is President Edgar Lungu, elected in a by-election in 2015 following the death of his predecessor and then elected to a full presidential term in August 2016. On the international stage, he has taken up a series of interesting positions, voicing support for the Sahrawi Arab Democratic Republic (SADR), only to later back Morocco's claim's over Western Sahara while simultaneously signing 19 partnership agreements with Morocco during King Mohammed VI's visit to Zambia in February. Lungu has also overseen a golden age in relations with Israel, paying a visit to PM Netanyahu in February to discuss knowledge transfers between the countries. PM Netanyahu was particularly praiseworthy about the recent opening of a synagogue and Jewish history museum in Lusaka. He also announced that Israel hopes to send experts to Zambia to assist with alternative energy, water issues, and in other areas in return for Zambia advocating for the renewal of Israel's observer status in the African Union, which it lost in 2002. Zambia is also keen to develop ties closer to home, however, boosting ties with Uganda. The two countries agreed to open embassies in the respective capitals as a result. More significantly, in mid 2016 Zambia signed a deal with Uganda to build an oil pipeline from the latter to the Indeni oil refinery in Zambia's Copperbelt province. Lungu also visited Madagascar, Morocco, Equatorial Guinea, and Tanzania in November 2016 and Kenya, South Africa, and Egypt in December. Part of Lungu's prerogative in doing so was to gain Zambia observer status in the Northern Corridor Transit and Transportation Coordination Authority, a transit agreement between the land-locked countries of Uganda, Burundi, and Rwanda, on the one hand, and Kenya, on the other, whereby the former gain access to the port of Mombasa on Kenya's Indian Ocean coast. Shrugging off concerns that the president spends too much time abroad, the authorities have pointed out that, as a landlocked country, Zambia must be willing to take chances if it is to shine on the global stage.