Introduction

In this overview we will explore the noteworthy developments in the Zambian economy and financial markets for the month of March. The most outstanding developments being the 3-year debt restructuring agreement which is a major step forward in addressing the country’s debt issues and the unveiling of Mopani Copper Mines new strategic partner International Resources Holding (IRH), a partnership which has the potential to increase copper production following its formalization. Other noteworthy highlights for the month include the World Banks grant approval, repossession of Investrust by Bank of Zambia and Global Finance naming Zanaco the best performing bank, among other news.

World Banks approval of US$100 million to Zambia for the National Energy Advancement and Transformation (NEAT) programme

World Bank released a statement on Friday March 15, 2024 stating that the NEAT programme has been designed to increase financial stability, operational reliability and resilience of the electricity sector in Zambia by 2033. This is the World Banks first energy project in Zambia since 2018. The grant of US$100 million has been approved for disbursement from the pledged total of US$700 million for phase 1 of the NEAT programme for a period of 10 years, and according to the Minister of Finance and National Planning Situmbeko Musokotwane, this shows a clear demonstration of the confidence that the World Bank has in Zambia’s home-grown strategic reforms, and in the country’s recently strengthened public financial governance credentials, among other factors. In the long run it is anticipated that the NEAT programme will facilitate ZESCO’s return to financial stability, reduce its fiscal burden and attract private sector investments to enable new growth.

Unveiling of Mopani Copper Mines New Strategic Partner – International Resources Holding (IRH)

The President of The Republic of Zambia Hakainde Hichilema on Thursday March 21, 2024 officially unveiled Mopani Copper Mines new strategic partner International Resources Holding (IRH). IRH is a dynamic natural resources extractive company with a portfolio of diverse metals and minerals, and it has acquired a majority stake of 51% in the mines in a bid to revitalize operations thereby leaving Zambian citizens with 49% shareholding to retain through (Zambia Consolidated Copper Mines Limited – Investment Holdings) ZCCM-IH. We expect to see an increase in copper production following the formalization of the partnership. The $1.1 billion invested by IRH marks a significant milestone as it is the first substantial investment from the (United Arab Emirates) UAE in Zambia.

Zambia’s Debt Restructuring Agreement with External Bondholders

On Monday March 25, 2024 Zambia also came to an agreement with external bondholders regarding three major Eurobonds amounting to $3 billion. Zambia defaulted more than 3 years ago and is reworking its debt under the Common Framework, a G20 platform to bring together big creditors to ensure swift and smooth debt overhauls for low-income countries. The latest deal proposes swapping Zambia’s three existing instruments into two amortising bonds, one of which would deliver higher repayments if the country’s economic outlook and capability of dealing with its debt burden improve. While the overall claim that bondholders have against the country grew to $3.98 billion due to accumulated unpaid interest, under the new deal investors will receive bonds with a face value of $3.05 billion, a reduction from the $3.135 billion proposed in October 2023, bondholders will forego approximately $840 million of their claims, in contrast with the $700 million in the previous proposal. With reduced debt servicing costs, Zambia can allocate more resources towards other sectors of the economy, access to international capital markets will be restored and long-term investment into Zambia is expected to resume as well.

Government Bonds Auction

In the month of March, the Government Bond Auction was held on Thursday March 28, 2024 and settlement was held on Tuesday, April 2, 2024. The results of the auction were released on Thursday March 28, 2024 and they reflected an undersubscription compared to the expected amount to be raised, this may be attributed to the new way of issuing bonds at par value. Bonds sold at par value have no discount or premium, while discount bonds are priced below face value, providing higher effective yields to investors. The coupon rates remained unchanged from January to March. The 2-year, 3-year and 5-year bonds were undersubscribed, where as there was a notably high demand for the 7-year, 10-year and 15-year bonds, this may be attributed to the higher coupon rates. In as much as half of the bonds were undersubscribed, the month of March has still recorded a significant increase in the value of successful bids (amount allocated) in contrast to February 2024.

TENOR	AMOUNT OFFERED (AT FACE VALUE)	AMOUNT ALLOCATED (FACE VALUE) – JANUARY	AMOUNT ALLOCATED (FACE VALUE) – FEBRUARY	AMOUNT ALLOCATED (FACE VALUE) – MARCH	CUT-OFF COUPON RATE
2 years	K350.00 Mn	K161.79 Mn	K51.82 Mn	K36.09 Mn	17.0000
3 years	K400.00 Mn	K530.00 Mn	K31.27 Mn	K240.10 Mn	20.0000
5 years	K420.00 Mn	K420.00 Mn	K40.66Mn	K173.38Mn	22.0000
7 years	K300.00 Mn	K105.62 Mn	K162.82 Mn	K315.80 Mn	23.0000
10 years	K300.00 Mn	K300.00 Mn	K489.52 Mn	K414.37 Mn	24.9700
15 years	K230.00 Mn	K482.59 Mn	K336.93 Mn	K487.86 Mn	26.5000
Total	K 2,000.00 Mn	K2,000.00 Mn	K1,113.02 Mn	K1,667.60 Mn

It is anticipated that investors will continue to demand more of the longer-term bonds due to the attractive coupon/yield rate. The next bond auction in the second quarter of the year 2024 is scheduled for Friday April 26, with a reduction in the auction size from K2000Mn to K1600Mn. The decision for the Bank of Zambia to reduce the auction size may be due to a number of reasons which may include improved investor sentiment attributed to Zambia’s recent debt restructure agreement, the significant decrease in yield rate as compared to the previous year, significant debt obligations like the repayment of previously allocated bond and treasury bills and foreseen government local financing. In summary, the reduction in bond auction size aligns with Zambia’s efforts to stabilize its economy, manage debt, and attract investor confidence during this crucial period.

Exchange Rate

At the beginning of the month the dollar was valued at ZMW/USD 23.5472 (buying) and ZMW/USD 23.5972 (selling) where as at the end of the month it was valued at ZMW/USD 24.8906 (buying) and ZMW/USD 24.9406 (selling). The dollar has been experiencing a consistent upward trend from the start indicating a depreciation in the value of the kwacha. However, on Thursday March 28, 2024 the value of the dollar is shown to have reduced by a rate of 0.77% indicating a slight appreciation in the kwacha. A lower exchange rate can be expected to improve a country’s balance of trade, while a higher exchange rate can be expected to worsen it. Higher exchange rates could be attributed to the increase in inflation rate to 13.7% from February’s  reading  of  13.5%,  particularly  itcould be attributed to food inflation which soared to 15.6% in contrast to the 14.1% recorded in the previous month. Movements in the exchange rate, particularly against major currencies like the US dollar, affect import costs and inflation. However, Economist Yusuf Dodia said the Zambian Kwacha is likely to strengthen to below K15 per 1USD after the full implementation of the export proceeds tracking framework which came into effect on January 1, 2024, as announced by the Bank of Zambia (BoZ).

Inflation Rate Trends

Like many developing countries, Zambia experiences inflationary pressures which can impact consumer purchasing power and economic stability. The annual inflation rate in Zambia accelerated for the ninth month to hit an over two-year high of 13.7% in March 2024, compared with February’s reading of 13.5%. Food inflation soared to 15.6% in March from 14.1% in the previous month, mainly due to higher bread, cereals and meat prices. Meanwhile, non-food inflation slowed to 11.2% from 12.7% in February, in part linked to the slight appreciation of the kwacha. Monthly, consumer prices rose by 1.2% in March, following a 2.2% increase in the prior month. Continued depreciation of the exchange rate remains the key driver of inflation. Over the forecast horizon, covering the first quarter of 2024 to the fourth quarter of 2025, inflation is projected to move even further away from the target band. In order to curb the rising inflation and strengthen the ailing currency, the Central Bank of Zambia raised its benchmark interest rate by a further 150 bps to 12.5% during its regular meeting on February 14th 2024. To stabilize the kwacha, authorities implemented other measures like requiring exporters to keep their earnings in Zambian accounts and instructing banks to transfer government deposits to the central bank’s Treasury account. In addition to these measures, the Bank of Zambia increased the reserve-ratio requirement for lenders to 26% from 17%. The policy rate influences borrowing costs, credit availability, and overall economic  activity  and byadjusting  it,the central bank can manage inflation expectations. Encouraging diversification away from heavy reliance on specific sectors (such as mining) can enhance economic stability and reduce inflationary pressures and enhancing agricultural productivity can lead to increased food supply, therefore reducing food price inflation.

Possession of Investment Bank by BoZ

The Bank of Zambia gave notice pursuant to Section 64 of the Banking and Financial Services Act No. 7 of 2017 (BFSA), the Bank of Zambia took possession of Investrust Bank Plc effective from April 2, 2024. The Bank of Zambia stated that the possession of the bank has been necessitated by its insolvency. The Bank of Zambia has had numerous engagements with the shareholders to recapitalize the bank. Unfortunately, the shareholders have been unable to resolve the insolvency. Under the circumstances, the Bank of Zambia has had to exercise its authority under the law to safeguard financial stability and the interests of the public.

Trade Movements

Zambia heavily relies on copper exports for revenue and fluctuations in global copper prices can significantly impact the country’s economy. The country recorded a K3.5Billion trade deficit in February 2024. A trade deficit (when imports surpass exports) can strain the economy. It may lead to reduced domestic production, job losses, and reliance on foreign goods. Conversely, a favorable trade balance (when exports exceed imports) contributes positively to economic growth. It indicates that a country is producing and selling more goods and services to other nations, leading to increased revenue and employment opportunities. Exports mainly comprising domestically produced goods, increased by 20.1 percent to K17.3 billion in February 2024 from K21.7 billion in January 2024. Zambia Statistical Agency (ZamStats) ActingStatistician  General, Chola  Nakazwe Daka reported that trade for the period January to February 2024 was K79.6 billion, while that of 2023 for the same period was K66.3 billion, representing a 20.2 percent increase in the cumulative total trade earnings. Imports decreased by 2.9 percent to K19.8 billion in January 2024 from K20.4 billion in December 2023. This was mainly as a result of a 10.2 and 2.7 percent decrease in import bills of Consumer goods and Intermediate goods. Trade balances tend to influence exchange rates, a trade surplus strengthens a country’s currency because foreign buyers need it to purchase exports. Conversely, a trade deficit weakens the currency.

Stock Market 

The Zambian stock market showed resilience during this period and is expected to remain positive owing to improving economic fundamentals such as the current debt restructure and re-operationalization of key mines. These developments are expected to positively influence market activity. Additionally, discussions have advanced to list the first commodity backed Exchange Traded Fund (ETF) on the Lusaka Stock Exchange market. These activities are expected to drive liquidity over the medium term. During the month of March, the Lusaka Stock Market witnessed several notable gainers. Some top-performing stocks during this period are shown in the table below:

COMPANY	PRICES (1ST MAR 2024)	PRICES (31ST MAR 2024)	PRICE CHANGE	% PERIOD CHANGE
AIRTEL	43.50	43.50	K    –	0.00%
AECI	41.98	40.00	– K1.98	4.72%
BATA	3.16	3.16	K   –	0.00%
BATZ	2.30	2.31	K0.01	0.43%
CEC	7.66	7.70	K0.04	8.60%
CHIL	13.80	13.80	K   –	0.00%
MFIN/MAFS	1.86	1.86	K   –	0.00%
NATB	4.10	4.10	K   –	0,00%
PMDZ	0.80	0.80	K   –	12.68%
ZAMRE	2.80	2.80	K   –	0.00%
PUMA	2.80	2.80	K   –	12.00%
REIZ	1.35	1.68	K0.33	29.23%
SCZ	2.89	3.47	K0.58	131.33%
SHOP	64.00	64,00	K   –	0.00%
ZAMBF	2.43	2.39	– K0.04	-5.53%
ZABR	7.00	7.00	K   –	0.00%
ZAMEFA	5.00	5.01	K0.01	2.24%
ZNCO	5.33	6.36	K1.03	67.37%
ZSUG	35.00	35.00	K   –	0.00%
ZCCM	47.00	47.53	K	13.17%
ZFCO	2.53	2.53	K   –	0.00%

From the table above, companies reflecting an increase in share price are highlighted in green, whereas companies reflecting a reduction are highlighted in red. Zambia National Commercial Bank (ZNCO) has been named the best performing bank in Zambia by Global Finance for the fifth year running. ZNCO began the year with a share price of K3.80 and has since gained 70.8% on that price valuation, ranking it second on the LuSE in terms of year-to-date performance. Shareholders can be optimistic about Zanaco knowing the stock has accrued 22% over the past four-week period alone – third best on LuSE. Zanaco is the eighth most traded stock on the Lusaka Securities Exchange over the past three months (Jan 3 – Apr 4, 2024). ZNCO has traded a total volume of 520,964 shares valued at ZMW 2.81 million over the period, with an average of 8,269 traded shares per session. A volume high of 77,970 was achieved on March 6th for the same period. The bank continues to deliver on its strategic intent of becoming the top transactional customer-centric bank by 2025 by maintaining market leadership, continuously improving customer experience and creating efficiencies through innovation. Standard Chartered began the year with a share price of K1.50 and has since gained 142% on that price valuation, ranking it first on the LuSE in terms of year-to-date performance. Shareholders can be optimistic about SCZ knowing the stock has accrued 26% over the past four-week period alone – second best on LuSE. Standard Chartered Bank is the third most traded stock on the Lusaka Securities Exchange over the past three months (Jan 3 – Apr 4, 2024). SCZ has traded a total volume of 2.77 million shares valued at ZMW 5.02 million over the period. Zambeef Products began the year with a share price of K2.53 but has since lost 5.53% off that price valuation. AECI closed its last trading day  (Wednesday, March 27, 2024) at K40.00 per share on the Lusaka Securities Exchange (LuSE). AECI Mining Explosives began the year with a share price of 41.98 ZMW but has since lost 4.72% off that price valuation. In aggregate some top gainers in the month of March where Zanaco and Standard Chartered Bank, with Zambeef and African Explosives Zambia being some of the least performers.

Conclusion

Zambia reached a significant milestone by striking a $3billion restructuring deal with bondholders. This development is a major step forward in a yearslong saga that exposed deep fractures in the system for resolving debt issues in poorer countries. The country had defaulted on its foreign debt in November 2020. It became one of the first countries to test a new system for debt restructuring, known as the common framework, which aims to account for the rise of China and private investors as major lenders to developing nations. These developments highlight both challenges and opportunities in Zambia’s financial landscape. The exchange rates fluctuated throughout March 2024, with the US Dollar experiencing both appreciation and depreciation against the Zambian Kwacha. Investors and policymakers will closely monitor further progress in debt restructuring and market performance. The stock market had some stocks that soared to new heights while other plummeted, it is key to monitor company share prices in order to make informed investment decisions.

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