Lungu stands to lose …. Large-scale mine lay-offs will degrade Lungu’s 2016 chances, says UK-based

LARGE-SCALE layoffs in the mines will degrade President Edgar Lungu’s chances of re-election in the coming general elections, says UK based investment advisor Africa Matters Limited.

Africa Matters, which provides economic data of individual African countries to investors worldwide, stated in its latest analysis of the Zambian economy that the loss of mining jobs will worsen the situation on the Copperbelt, which has traditionally been a PF stronghold, giving the opposition a chance to win.

“Lungu stands to lose significantly if he runs for the presidency on a PF ticket and the Copperbelt’s fortunes don’t pick up,” stated Africa Matters Southern Africa client manager Felix Janvrin.

“Another issue for him is that, given how nervy the current government has been with mining companies over the past 18 months or so (increasing mining royalties and then allegedly illegally cutting off power supplies), it’s not as if mining investors feel like they owe the government much at the moment. Lungu’s election hopes are unlikely to get much of a mention in Glencore’s plans to freeze operations in Zambia, and his recent veiled threat of renationalisation may be a consequence of this realisation.”

The investment advisor observed that Zambia’s economic outlook was deteriorating.

“Zambia’s economy continues to stumble as its weak currency deteriorates the country’s debt metrics. The Kwacha has lost over 51 per cent of its value against the dollar this year and stroked 14 kwacha to the dollar on 6 November, although it has since rallied back to 12 to the dollar. Barring a further recovery, the International Monetary Fund reckons this could now inflate the value of Zambia’s debt to gross domestic product ratio to over 56 per cent by the end of the year,” Janvrin stated.

He stated that the plight of Zambia’s economy compelled a team of IMF experts to visit the country on November 11, although no decision on an intervention by the international lender has yet been tabled.

“Finance minister Alexander Chikwanda has lately admitted in an interview that all options were on the table and that he ‘won’t rule out the possibility’ of IMF aid. Any such intervention would severely constrain Chikwanda’s borrowing options and hypothetically tie President Edgar Lungu’s policy options into a straight-jacket ahead of next year’s elections. Chikwanda is known to have an aversion to international lenders and has formerly voiced his interest in obtaining a new bank loan of approximately US$500 million next year,” he stated. “In AML’s views, this is unlikely because of the treasury’s predicament and the absence of fiscal retrenchment, several measures of which were announced in the 2016 Budget. Given that an ongoing regional drought has sustained a power crisis and cut the country’s corn crop by 22 per cent, the 2016 elections could yet be won by the opposition. The current government is therefore likely to adopt short-term solutions to buoy its election chances.”

Africa Matters further note that the power crisis affecting the country continues to weigh on ordinary Zambians’ lives, with power cuts lasting up to 14 hours a day.

It further noted that mining companies have come under renewed pressure after President Lungu back-pedalled on earlier assurances of support to announce that he would not let international commodity company, Glencore, to lay off staff at the company’s Mopani mines.

“And the threat of nationalisation will do little to reanimate investor sentiment across the industry. President Lungu is believed to have said this in order to harvest political support after he was met with jeers by constituents during a recent trip to the Copperbelt region, traditionally a Patriotic Front (PF) stronghold,” stated Janvrin.

The volatile economic situation on the Copperbelt caused by the massive job losses forced miners to jeer and boo President Lungu during his recent visit tothe mining area, following his government’s failure to secure their jobs despite earlier promises.

President Lungu recently told the mines that the government may consider taking over operations to secure jobs. His labour minister, Fackson Shamenda, also repeated the threats last week, saying the government may temporarily take over operations of the mines and find other investors to run them if the current investors continued to complain about the current economic problems in the country.

Konkola Copper Mines is laying off 2,503 contract employees following a decision by the mine to place its Nchanga Underground operation on care and maintenance, while Mopani Copper Mine has also started the retrenchment process of 8,760 workers, including contractors and experts, by the end of this year.

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