Scanning international news can be relentlessly depressing as the world faces multilayered transitions. Firstly, from a largely bipolar world that a colleague cruelly named “the West and the rest” to a multicountry one where “the rest” or the “global South” challenges the relevance of institutions that have dominated international relations for 70 years. Part of that challenge is Russia’s war against Ukraine, which continues to destabilise North Africa. The prospect of Russia’s Wagner Group as a headless hydra with mercenaries – unpaid – and involved in national security in several countries in West Africa has dramatically increased the prospect of instability across the region.
Russia’s alleged materiel support for rebels has also seen a failed coup erupt in civil war in Sudan. The instability across east and west and a failure by several West African governments to deliver any kind of future to a mass of youth have led to scenes of utmost cruelty as would-be migrants seek to cross the Mediterranean to the European Eldorado. Five days of rioting and destruction across France’s banlieues after a French police officer shot and killed a 17-year-old joyrider of immigrant heritage show there is no Eldorado.
So, it is quite refreshing when a search reveals good news that illustrates what strong leadership and a plan can do. Zambia’s President Hakainde Hichilema seems to have resolved nearly all the messes created by his predecessor, Edgar Lungu, and his populist Patriotic Front party in the space of a month. As the second anniversary of his landslide election victory looms in August, HH – as he is popularly known – appears to have resolved the nation’s debt crisis, come to an agreement on the $1-billion that the State-owned electricity company, Zesco, owes to independent power producers, and is close to a resolution on a long and protracted legal battle with Vedanta Resources over its Konkola Copper Mines.
China’s apparent reluctance to “take a haircut” or cut some of the principal amounts owed meant Zambia’s debt rescheduling negotiations were gruelling. However, with the support of France’s President, Emmanuel Macron, a deal was secured on the sidelines of the Paris climate change summit. The bones of the deal are that repayments will be fixed up to 2031 and Zambia gets a three-year payment holiday on the current debt of $6.3-billion before payments on principal and interest resume. Interest rates are set at International Monetary Fund (IMF) concessional rates and maturity is extended from 9 to 12 years. The effective savings with all the changes in interest rates and duration is a 40% reduction in the net present value of the debt equivalent to $2.52 billion. However, the deal carries a sting in the tail: if Zambia’s debt carrying capacity improves dramatically, the shorter repayment time will resume, and interest rates will be adjusted. Crucially, the deal gives Zambia an immediate breather and allows it to access some $188-million in IMF debt relief.
Zambian businesspeople and local economists, speaking on a webinar organised by the Zambia Association of Manufacturers, welcomed the deal, as it is expected to unleash renewed investment – and because they are frustrated at paying for debt at higher rates than in the neighbouring Democratic Republic of Congo and Zimbabwe. Local economists gave an optimistic long-term outlook for Zambia taking the deal as an expression of confidence that the days of Lungu and the Patriotic Front’s massive unregulated borrowing – fiscal indiscipline that caused such currency instability and balance of payments crises – were well and truly over.
Giving further lift to the fillip of the debt deal was news that an arrangement had been reached between Zesco and Zambia’s independent power producers (IPPs) over the $1-billion that Zesco owes. According to local media, the IPPs, which include Maamba Collieries, Ndola Energy Company, Lunsemfwa Hydropower Company and Itezhi Tezhi Power Corporation, account for about 14% of Zambia’s installed power generating capacity. Zesco defaulted on its power purchase agreements (PPAs) over five years ago, while the external debt default was two years ago, but local observers say the deal will have a long-lasting positive effect simply because it is resolved. Zesco reportedly “got away” with its PPA default as it was partial: Zesco stopped paying IPPs in full, drip-feeding them with enough cash to meet their operational costs and pay interest on their debt. The PPAs were sovereign guaranteed and so the risk to Hichilema’s incoming government was that power producers would demand that Zesco buy the IPPs, thus adding to Zambia’s overall debt burden. Several in the power sector are hoping that the new Zambian government will agree to move to a more open access market like Namibia’s, where IPPs can sell directly to customers, and pay Zesco a toll for using its distribution wires.
As ever, optimism in Zambia is measured by what happens in the mining sector. Zambia Chamber of Mines CEO Sokwani Chilembo welcomed the debt deal but urged that competitive mining tax measures accompany it to bring Zambia’s competitiveness in line with other countries. He said miners are still cautious and need to be persuaded to look again at Zambia.
The Zambian government’s resolving of a long and protracted legal case involving partly State-owned Vedanta Resources over its Konkola Copper Mines may go some way towards renewing miners’ confidence in Zambia. Under Lungu, the case culminated in the State’s takeover of Konkola Copper Mines’ assets and its forced liquidation. In early July, the Mines Ministry reported that it was close to resolving the dispute. Reuters reports that a resolution could help unlock funding to advance the Konkola Deep Mining Project, which holds one of the world’s richest copper deposits, but requires investment of as much as $1.1-billion.
But nothing says “look again” like a new venture by a veteran player in the mining world. In May, Zambia veteran Anglo American entered a joint venture with ARC Minerals to develop copper interest in Northwestern Province – a deal that the media heralded as “the first new investment in Zambia for 20 years”. That, surely is as damming on the Lungu regime as it is praise for Hichilema’s.