(This is a transcript of the podcast posted on Monday, August 9th, 2021. You can listen to the podcast by clicking on this link https://www.buzzsprout.com/1655965/8988981)
Greetings and welcome to this edition of Mansa’s The Weekly Beat, I’m Arnold Segawa joining you from Johannesburg, and Maggie Mutesi I think you’re in Cape Verde this time round. How are you doing today?
I’m doing okay. Mindelo is fine. I’ve realized just as I stayed in lockdown there’s just much happening, but it’s interesting to see a little bit of Africa. I mean, it is pretty amazing.
Well, it’s interesting times indeed, here in South Africa. The president Cyril Ramaphosa just announced a while back that the age group has now moved. Remember the other week we told you that it was 35 and above, now it has come down to… Well, starting on the 1st of September, the age group would have come down to 18 years and above. Of course, that applies to all the others who are already in the age group that was going to be given the jab.
So 1st of September the whole country, well, most of it, 18 years and above. With queues I’m sure it’s going to be very, very long, but staying on the southern part of the continent, some fascinating news coming through or should I say an event this time round, Zambians will be heading to the poll on the 12th of August.
This is amid mounting economic challenges, reports of election-related political violence, not forgetting the elephant in the room, which is that virus that we have come to, in a way even live with. It’s of course COVID-19. Some of the countries have gone to the polls. So we saw Uganda this year, just the year before we saw Burundi. And this time around President Edgar Lungu goes back to the poll. Of course also 19 candidates will be vying for the presidency. Maggie, now your first thoughts on this.
Zambia is an interesting country to look at. It feels like the country’s is at the point where they need an economic revolution. And when you go through the articles or the pieces written about even the election itself, I would think 19 people coming out to vie the same position, there is so much that it says about a country and of course, President Edgar Lungu, who’s not as popular from the reports we’re seeing that are coming from there.
But Arnold it’s interesting and for me looking at it in the economic perspective, I feel like even people taking to the streets and demanding, and the reports we’re reading it saying beyond just the election it’s more than that in terms of it has one of the most indebted countries, COVID-19. It’s a lot of things that have happened.
It’s quite an interesting story. And it, again, begs the question whether or not we are going to see this kind of populism where someone shows up, it’s very common in Africa, then they promise things that they actually promised a few years back. I went through a manifesto for the ruling party in Uganda, National Resistance Movement, the NRM. Of course the president, the chairperson of this particular party, has been in power since 1986. And when I went through the manifesto, one thing that was very striking id him promising things that were promised maybe five years before. And for me, the Zambian equation here this will be something that we might have to look at.
President Lungu has that elephant in the room away from COVID-19 has to be the debt. Remember there were reports, these were unconfirmed, that there’s a particular dam in the country had been actually there was an equity swap with the Chinese because they were on the verge of actually defaulting. Now add COVID-19 to the equation. Don’t get me started on some interest rate payments. PWC, PricewaterhouseCoopers, released an interesting report showing that they’ll actually be seeking a six month suspension of interest rate payments from October. This of course is in line with close to $3 billion in Eurobonds.
So these are all questions that have to be answered. The sizable allocations of fertilizer input subsidies programs that have just not been answered per se. Remember that Fitch, which is of course a rating agency, Fitch, S&P, and Moody’s. Fitch in this particular conversation here they dropped Zambia’s credit rating from CC to just C. This is close to junk status.
So some commentators would argue that is this time for you to actually think about maybe putting a halt on the election for maybe a year and first deal with the pandemic? Because if we’re to explain all of this, don’t get me started on the kwacha and how it depreciated per se, is an election top of the agenda? Again, I’m sitting on the fence there, but again, going back to what happened in Uganda, the constitution in some of these countries is very clear. If at all time elapses on an election, then power has to be ceded to let’s say a speaker. I don’t know if Lungu or Museveni would be ready to play that game.
Everything you said is so clear, but the economy is central to this election. Now, just to add on that Arnold, just for the inflation in the country is over 30%. I mean, this is the highest we’ve seen in nearly two decades in Zambia, but there are things like you’ve mentioned that are central, that probably need to be looked at before because an election alone costs a lot of money. It’s a lot of money that the government is spending to ensure that they secure their position. And this is the same question. Now I’m going to take it away from just Zambians. This is the same question I don’t know if analysts have been asking in Kenya. I don’t want to bring Kenya into this because they have an election as well next year. And election also comes with several expenses. We’re looking at Zambia, which defaulted on debt, and we’re looking at an economic crisis in a country that has been around a lot of things like corruption and, you know, poorly structured loans like you’ve mentioned.
And there is all these issues that need to be addressed in the middle of a pandemic. Many of these elections across Africa maybe could have been put on hold to first figure out because the pandemic also came with a lot of demands. How do you feed the people especially if you lock down in their countries? If there is no trade within the region, how do you give funds to those who are not able to? And that’s something that we see that has not happened in Africa. It has happened in the West, but a few countries in Africa have actually been able to do that. So I would say this is something that could be put on hold and extended for a year or two so that the country figures out its economic challenges.
It’s really a debate that could go on for quite a while. And many at times the reason for doing this is around first of all, you need to have legitimacy. So you have a White House now that is kind of looking back at the continent, not like one who used the s-hole word to describe this particular continent. So now you have a White House that is looking back at the U.S.-Africa relations, and you have to legitimize your position come what may. And to be honest, Zambia is looking at a third wave. And in a bid to legitimize your own presidency and your own term in office, you push through and try your best to have the elections.
Now this goes back to what we were was saying before, the debts defaulted. Remember that Zambia continues to be a major incipient of U.S. foreign assistance, according to the Atlantic Council. Last I read it was close to $500 million annually. So again, these are things that the U.S. will look for. They want a legitimate regime, that the states to have sort of a democracy.
So you trying to justify COVID-19 as a reason for suspending elections in the country might not be taken very well by Uncle Biden. And guess what? $500 million is a good check any day of the week. Every African leader wants to take it. Maybe the other thing that we might have to touch on is the economies of both developed and frontier margin markets. Everyone is kind of having a bounce back. Copper prices have actually appreciated and Zambia for me has just failed to take a look at this. And they have arguably the highest tax regimes in the world when it comes to mining and they’ve just failed to capitalize on this. With copper prices appreciating across the world, one would have thought that this would have been something that President Lungu’s regime would have capitalized on. And I just feel like they’ve really come up short on this one.
For me the fact that it’s not a peaceful election Arnold, it’s not the usual election like it’s an election day and then you go and vote. It’s riots on the streets, it’s deployment of military. It is the risk of having more COVID-19 infections. It’s all of these things put into context. These are things that have to be factored in. These are things that have to be looked at in my own opinion. I just read somewhere that actually Zambia attracted more foreign direct investments, which is really dramatic stuff because for a country that has been having all these woes, like I wouldn’t expect a lot of investors.
It’s really a combination of things. One thing that really sticks out is the citizen investment incentives which are quite striking. It’s a good idea that one occasion should be taken with a pinch of salt. What do I mean? In a bid to encourage citizen participation in investments eligible for incentives under the ZDA Act, some of the ministers have actually proposed to reduce the investment thresholds from the $500,000 $100,000 for qualifying Zambian citizens. This is of course, in a bid to encourage the citizenry in participating in some of these priority sectors. Now on paper, some of these tax breaks and incentivization it does work, but we’ve also seen it work the other way round. If someone actually then gets like an Arnold here or Maggie, and then let’s say Maggie is a foreigner, Arnold is Zambian. You front me, I come in.
And this was a problem that the Chinese grappled with for such a long time, because people were actually just fronting locals, and then they get all these incentives and then they run away with it. So the biggest elephant in the room is the fact the mining sector is still largely dominated by Canadian companies, Australian companies, the U.K., the Chinese.
I mean, FDI flows in Zambia dropped to $700 million. This is a 63% drop. This is from 2017 to 2018. And it just has you thinking, where’s the rest of the continent? If it’s not maybe an AngloGold Ashanti from here in SA, which also is a conversation for another day, where is the rest of the continent on one of the biggest copper producers in the world? So these are things that might come front and center in the framing of this particular election and the setting of the agenda. But Maggie, your last words. We’re actually running heavy.
An election is not ideal to have in this kind of situation, especially the fact that in many African countries the elections are not peaceful elections. These are usually riots. They come with military deployments in the streets, a lot of people everywhere. And then we’d go back to the same cycle. A lot of people out, a lot of chaos and then there’s COVID-19, something we see in South Africa and everywhere.
So I feel like it’s time to rethink some of these things. I mean, it’s very important to have the elections as per the Western world, but for the sake of the health of the people, but also economically not to just spend money anyhow, I think some of these elections can be postponed. Not a lot of people would really agree with this, but I feel it’s economically draining, but most importantly, health comes fast. You cannot grow an economy without people. So you cannot just put them at the risk of COVID-19. I’m looking forward to see what really happens. And I hope for me, this Zambian election is not just an election. It’s an economic revolution, and I would love to see. I’d love to hear. I don’t know what will happen, but we wish them the best.
Thank you for that Maggie. Maybe just to top that off, here in South Africa, they’re supposed to have been a municipal election come the 27th of October, 2021. And as it turns out an affidavit has been filed actually for the postponement of this. Of course as you can imagine this is because of the COVID-19 pandemic, but well, many players, many parties are arguing that a democracy cannot be suspended or postponed.
That’s where we leave it for this edition of The Weekly Beat brought to you by Mansa. As always, if you did miss anything in the course of the week, just visit the website, mansamedia.africa. On Twitter we’re @mansa_media. From me Arnold Segawa and Maggie Mutesi, have a lovely week.
The Weekly Beat by Mansa with your hosts Arnold Segawa and Maggie Mutesi and Dumi Jere, giving you all the info on Africa’s big finance and economic stories, The Weekly Beat by Mansa.