By: Oluwatosin Ogunjuyigbe
Zambia’s economic progress has become the talk of the continent today. But there’s more focus on how the Zambian kwacha is now the world’s second-best performing currency and Africa’s 6th most powerful currency.
It’s not out of place that the world is surprised by this sudden growth because the Zambian kwacha was one of the worst performing currencies in 2020. However, the reasons for this surge are not far-fetched.
New-found political stability
In July 2021, the Kwacha fell to K22.6 per dollar, continuing a losing streak from the previous year. There were widespread concerns that (former) president Edgar Lungu’s economic risk-taking was unsustainable. For instance, Zambia was Africa’s first pandemic-era sovereign defaulter in November 2020.
But after the country held its elections and Hakainde Hichilema –a renowned businessman and activist– emerged president, there was a fresh burst of optimism. Following the general elections on August 12, the Kwacha gained 30 per cent against the dollar to hit K15.89 per dollar. The currency went on to record its best year since 2005.
Restored mining bullishness
Zambia is Africa’s second-largest copper producer, behind the Democratic Republic of the Congo. Mining has long been a cornerstone of Zambia’s economy, comprising 77 per cent of its annual export value and 27.7 per cent of its annual government revenue.
But despite the lucrative resources, western mining companies have put more effort into getting out of it than into the African copper haven for years. Policy u-turns and cash grabs have been the primary causes of their increasing frustration.
All of a sudden, that’s not the case anymore. Existing investors are doubling down, and others — like giant BHP Group — are snooping around the region for the first time in years. First, Quantum Minerals Ltd. finally approved a billion-dollar expansion in Zambia, while Barrick Gold Corp., which considered selling its Zambian mine, is hunting for new projects in the country. Anglo American Plc also announced a new joint venture in Zambia.
Aside from Hichilema’s zeal for the industry, there’s a growing awareness that copper and cobalt are central to the world’s shift toward renewable energy, and security of supply will become crucial in the coming decades. The global copper market is tightening, so new mines are difficult to find. In cobalt, Congo is so dominant that it’s impossible to ignore. Consequently, the Zambian kwacha has been in high demand, as revenue from the country’s exports increased by 14.2 per cent to $5.9bn in 2021. According to the Bank of Zambia, copper contributed $4.4bn to the country’s total earnings that year.
Recently, First Quantum Minerals also launched a nickel mining project in Zambia. Nickel is a key metal in lithium rechargeable batteries, stainless steel manufacture and jet engines.
Massive debt relief
Zambia’s dollar debt, including arrears and state-owned company liabilities, rose to $17.3 billion by the end of last year. Paying back that much debt would mean the country needs more dollars, weakening its currency. However, Zambia is now intent on reworking its loans.
On July 30, Zambia’s official creditors, led by China and France, agreed to negotiate a restructuring of their debts. Consequently, Zambia got final approval from the International Monetary Fund for a $1.4 billion bailout. Following this news, the Zambian kwacha advanced to its highest level since September last week.
Investors are now keen to get their hands on local currency bonds issued by the Central Bank. At the end of December 2021, the size of Zambia’s government securities increased 7.1 per cent to K192.9bn ($11bn). Non-resident investors owned K54.1bn ($3.1bn) compared with K44.8bn ($2.5bn) at the end of June. Last Tuesday, Zambia’s $1 billion of Eurobonds due 2024 advanced for a 10th straight day, gaining up to 0.3 per cent to 60.9 cents on the dollar.