Zambia’s Mining Economy Suffers

Due to lower commodity prices and routine power outages that disrupt business activity, Zambia’s economy will grow less than 5.0 percent in 2015, according to Reuters. Zambia’s woes drove the nation’s currency, the kwacha, to record lows as investors sell commodity-based currencies in a panic. Zambia is a landlocked country in Southern Africa and is Africa’s second-largest copper producer.

Due to lower commodity prices and routine power outages that disrupt business activity, Zambia’s economy will grow less than 5.0 percent in 2015, according to Reuters. Zambia’s woes drove the nation’s currency, the kwacha, to record lows as investors sell commodity-based currencies in a panic. Zambia is a landlocked country in Southern Africa and is Africa’s second-largest copper producer.

The news comes as a disappointment to Finance Minister Alexander Chikwanda, who predicted a year ago that 2015 growth would be 6.0 percent. Zambia is in trouble primarily because of its mineral industry, but it only constitutes 15 percent of the total budget. The problem is that the mining field extends employment to people in other sectors, and minerals make up 70 percent of the nation’s export capacity.

In an attempt to stop the hemorrhaging of job losses, the government remains in open talks with major copper producer Mopani Copper Mines, whose parent company is on the verge of stopping operations because of the harsh business climate. MCM plans to eliminate at least 4,300 jobs.

Mopani’s role is important because Zambia’s copper industry may collapse without the firm’s presence, and despite the large job deficit that Zambia would incur, officials stress government mandates and regulations are unlikely.

However, official spokesperson Chishimba Kambwili stated that the government might revoke the invitation of Chinese company CNMC Luanshya Copper Mines after planning to suspend operations that would affect 1,600 workers. One way the government can boost business morale is to enhance a fledgling electric grid that hampers mining productivity.

Zambian Power

On the plus side, foreign investors are pouring enough funds for the African country to triple energy capacity to 6,000 megawatts in two years. The government is hoping to counterbalance an energy system that mostly relies on hydroelectricity. For instance, Italian investors plan to build three solar plants in key economic areas throughout the nation. Aliko Dangote of Nigeria, who is Africa’s wealthiest individual, is establishing power plants that will direct extra power to Zambia.

Zambia’s additional problem is a water shortage caused by a lack of rainfall from the previous season, and the government stated that power outages were necessary to compensate for the water deficiency.

Finance Plan

To save Zambia from freefall, the government aims to diversify the export sector away minerals to find other sources of revenue. External debt is another burden, and officials plan to reduce spending and borrowing to meet obligations for the 2016 budget. The budget deficit for 2015 expects to reach 20 billion kwacha, which is well beyond an initial forecast of eight billion kwacha. The government plans to borrow at the international level instead of domestically to escape the whopping 19 to 24 percent interest rates attached to the loans, choosing the Intentional Monetary Fund instead.

However, the IMF deal comes with strings attached, such as shorter repayment periods that the government cannot handle. Authorities stated that a 20-year payment window would be a better option.