Introduction
This report explores the financial and capital markets activities of June 2024, highlighting developments such as significant share price increases in a major company listed on the Lusaka Securities Exchange (LuSE) and the debut of Zambia’s inaugural Real Estate Investment Trust (REIT). Additionally, it analyses the performance of Government bonds, trends in exchange rates, and other related factors shaping the current financial landscape.
This report aims to offer valuable insights into various economic factors impacting the financial sector. Despite ongoing debt restructuring efforts, Zambia’s economy shows signs of recovery following multiple crises. Furthermore, it examines the launch of the inaugural Financial Stability Report by the Bank of Zambia, aimed at curbing speculative behaviour affecting the country’s financial stability and managing stakeholder expectations. Lastly, the report provides a concise summary of the period’s key developments and offers perspectives on what to anticipate in the second half of the year.
Zambia’s Trade Balance
The country has seen fluctuations in its trade dynamics, influenced by various factors including commodity prices, global demand trends, and domestic economic policies. Key exports such as copper, cobalt, and agricultural products continue to play pivotal roles in Zambia’s trade portfolio, contributing to export earnings. In the previous month, Zambia recorded a trade surplus of K3 billion. Exports mainly comprising domestically produced goods, increased by 19.9 percent to K27.1 billion in May 2024 from K22.6 billion in April 2024. This was mainly on account of a notable 20.9 percent increase in export earnings from intermediate goods (mainly Copper anodes). Imports increased by 19.5 percent to K24.2 billion in May 2024 from K20.2 billion in April 2024. This was mainly a result of 30.3 and 29.1 percent increases in import bills of intermediate goods and capital, respectively.
However, challenges persist, including infrastructure limitations and global market uncertainties, which impact the balance of trade. Efforts to diversify export markets and enhance value addition in key sectors are ongoing, aimed at strengthening Zambia’s trade resilience and economic stability in the face of external shocks.
Ascension of the Local Currency
Exchange rates provide several insights into a country’s economic condition and its relationship with the rest of the world. A strong exchange rate relative to other currencies can indicate economic strength, stable fiscal policies, and attractive investment opportunities. Conversely, a weak exchange rate might suggest economic instability, high inflation, or uncertainty. Exchange rates influence inflation through their impact on the price of imports. Foreign investors often consider exchange rates when deciding where to invest and a strong currency can make investments in a country more attractive, while a weak currency might deter investment.
CURRENCY | BUYING (31 MAY) | SELLING (31 MAY) | BUYING (28 JUN) | SELLING (28 JUN) |
| USD – Dollar | 26.1718 | 26.2218 | 24.6933 | 24.7183 |
| GBP – Pound | 33.3298 | 33.4013 | 31.2296 | 31.2711 |
| EUR – Euro | 28.4592 | 28.5214 | 26.4268 | 26.4634 |
| ZAR – Rand | 1.3985 | 1.4020 | 1.3558 | 1.3583 |
In June, the exchange rate gradually appreciated against major global currencies. Although the local currency initially depreciated against the US Dollar mid-month, it quickly rebounded in the third week and has remained stable. This appreciation in the Zambian Kwacha can be attributed to improved economic sentiment resulting from debt restructuring and reduced demand for dollars. Exchange rates serve as a critical indicator of a country’s economic health, impacting trade flows, inflation, and investment choices.
Inflation’s Steep Climb
In June 2024, annual inflation rose to 15.2% from the previous months 14.7%. This signifies an average 15.2% increase in prices for goods and services between June 2023 and June 2024. The increase was primarily driven by price fluctuations in both food and non-food items.
Annual food inflation rose to 16.8%, an increase from the previous month’s 16.2%. On average, food prices increased by 16.8% between June 2023 and June 2024. This rise was primarily driven by increases in prices of Bread and Cereals, Fish, Milk, and Fruit. Annual non-food inflation rose to 13% from the previous month’s 12.7%. This increase was primarily due to higher prices of non-food items, including Spirits (imported Scotch Whisky, Vodka, Gin), Pharmaceutical Products (Ampicillin, Aspirin, Paracetamol, Medix cough syrup), and other services (Funeral service, Photocopying, Private security services, Hammer milling charge), and essentials like Paraffin, Diesel, charcoal, and Car Insurance.
High inflation reduces the purchasing power of money over time which may result in the diminishing of wealth as the value of investments declines in real terms. In the previous month, the Central Bank raised interest rates to combat inflation, this decision might take some time to get the desired result. Overall, high inflation rates introduce uncertainty and challenges for investors, influencing their decisions across asset classes and geographic regions.
Government Bond Auction
In June, the Government Bond Auction took place on Friday June 21, 2024. The bonds offered were valued at K1,600 million and settlement occurred on Monday June 24. Auction results, released on Saturday June 22, showed an overall oversubscription. The 5-year, 7-year, 10-year, and 15-year tenors were oversubscribed, with the 15-year tenor receiving nearly double the initial offer.
Tenor | Amount Offered (At Face Value) – May/Jun | Amount Bid (Face Value) – May | Amount Bid (Face Value) – Jun | Amount Allocated (Face Value) – May | Amount Allocated (Face Value) – Jun | Cut-Off Yield Rate |
| 2 years | K280.00 Mn | K16.21 Mn | K132.22 Mn | K15.71 Mn | K132.22 Mn | 17.5000 |
| 3 years | K320.00 Mn | K25.84 Mn | K304.44 Mn | K24.84 Mn | K304.44 Mn | 20.5000 |
| 5 years | K330.00 Mn | K161.54 Mn | K387.26 Mn | K160.84 Mn | K 385.02 Mn | 22.5000 |
| 7 years | K240.00 Mn | K176.49 Mn | K240.92 Mn | K176.49 Mn | K240.92 Mn | 23.5000 |
| 10 years | K240.00 Mn | K255.51 Mn | K265.70 Mn | K247.01 Mn | K265.71 Mn | 25.7500 |
| 15 years | K190.00 Mn | K141.22 Mn | K331.24 Mn | K141.22 Mn | K330.74 Mn | 27.2500 |
| Total | K1,600.00Mn | K 776.81 Mn | K1,661.78 Mn | K 766.11 Mn | K1,659.05 Mn |
Out of the total offering amount, K1,66.78 million was received in bids, indicating a significant increase in investor demand compared to the previous month. This surge can be attributed to investor anticipation of rising yield rates, similar to the previously released treasury bill results. In June, coupon rates increased by 0.5% for the 2-year, 3-year, 5-year, and 7-year tenors, while the 10-year and 15-year tenors saw a coupon rate increase of 0.75%. Additionally, it can be attributed to increased investor confidence in the Zambian economy due to the ongoing debt restructuring process, which has attracted Foreign Direct Investment (FDI), particularly into critical sectors such as mining, manufacturing, and energy.
LuSE’s Surging Shares and Stellar Performance
Share prices experienced significant fluctuations, with Shoprite (SHOP) and Copperbelt Energy Corporation (CECZ) reflecting a substantial increase in their share prices by 25 and 28.4 percent respectively. The LuSE has continued to show exceptional performance in the period under review. It’s essential to remember that short-term fluctuations in share prices don’t necessarily reflect a company’s true performance. Share price volatility is a natural characteristic of the stock market. The table below shows the share price changes during the specified period:
| COMPANY | PRICE (3 JUN 2024) | PRICE (26 JUN 2024) | PRICE CHANGE | % PERIOD CHANGE |
| AECI | 40.00 | 40.00 | – | 0.00% |
| ATEL | 43.50 | 43.50 | – | 0.00% |
| BATA | 4.88 | 4.89 | 0.01 | 0.20% |
| BATZ | 2.50 | 2.53 | 0.03 | 1.20% |
| CECZ | 7.79 | 10.00 | 2.21 | 28.4% |
| CHIL | 16.50 | 16.56 | 0.06 | 0.36% |
| MFIN/MAFS | 1.86 | 1.86 | – | 0.00% |
| NATB | 4.10 | 4.10 | – | 0.00% |
| PMDZ | 4.62 | 4.62 | – | 0.00% |
| ZMRE | 2.80 | 2.80 | – | 0.00% |
| PUMA | 3.75 | 3.95 | 0.2 | 5.33% |
| REIZ | 2.00 | 2.00 | – | 0.00% |
| SCBL | 3.50 | 3.50 | – | 0.00% |
| SHOP | 64.00 | 80.00 | 16.00 | 25.0% |
| ZMBF | 2.19 | 2.15 | – 0.04 | – 1.83% |
| ZMBR | 7.00 | 7.00 | – | 0.00% |
| ZAMEFA | 5.01 | 5.01 | – | 0.00% |
| ZNCO | 6.47 | 6.30 | – 0.17 | – 2.63% |
| ZCCM | 48.00 | 48.00 | – | 0.00% |
| ZAFFICO | 2.53 | 2.53 | – | 0.00% |
| ZSUG | 35.00 | 35.00 | – | 0.00% |
REIZ launched the country’s first ever Real Estate Investment Trust (REIT), signifying a momentous achievement. REITs allow collective investment in real estate without direct property ownership or management, while providing a stable income stream. Unlike physical real estate, REITs are publicly traded on the stock market, ensuring high liquidity. The introduction of this dollar-traded instrument is a positive development for the capital market and will enhance its competitive edge.
Additionally, on June 19, 2024, Shoprite’s share price surged from its stable K64 to K80, highlighting stock market volatility. NATB announced its 56th Annual General Meeting (AGM) scheduled for July 11, 2024 following a year of significant revenue growth but also increased operational losses. Shareholders await management’s plans to address revenue growth and operational losses. Zambeef’s interim financial results for the year ended March 31, 2024, reveal a K3.4 billion ($144.1 million) revenue and K1.1 billion ($47.1 million) gross profit. Year-on-year, this represents a 22.6% and 27.5% increase in kwacha terms, with a 9.2% and 5.5% decrease in US dollar terms. The Group’s operating profit of K193.1 million ($8.2 million) reflects impressive growth.
Furthermore, the LuSE CEO Mr. Nicholas Kabaso was appointed as Vice Chairman of the committee of the SADC Stock Exchange (CoSSE) following elections held during its 64th bi-annual meeting on June 18, 2024, in Johannesburg, South Africa.
ERB’s Quest for Sustainable Solutions
On June 21, 2024, the Energy Regulation Board (ERB) hosted the Energy Indaba at the Mulungushi International Conference Centre. The event aimed to address the nation’s current power challenges. Key stakeholders, including the Ministry of Energy Zambia, Independent Power Producers, financial institutions, and the Lusaka Securities Exchange (LuSE), gathered to discuss strategies for shaping Zambia’s energy ecosystem.
Several solutions were proposed to address the power issue including promoting solar rooftops for households. Another recommendation involves implementing a net-metering system, allowing households to install their own energy solutions and feeding surplus energy back into the grid, earning payments from ZESCO for this service. Furthermore, micro-generation, approved by the Board, allows for small-scale production of heat or electricity from low-carbon sources, offering an alternative or complement to conventional centralized grid-connected power systems.
Kwacha Appreciation Entices Fuel Price Reduction
In July, the Kwacha saw a notable appreciation against the US dollar, moving from K26.2218 to K24.7183. This increase is primarily linked to an increased supply of foreign exchange within the local market. Additionally, positive market sentiment following the successful completion of the International Monetary Fund’s third review of the Extended Credit Facility further supported this appreciation. Consequently, the strengthened local currency exerted downward pressure on domestic fuel prices. Below are the pump prices for July:
PRODUCT | PUMP PRICES K/LITRE | ||
| JUNE PRICE | JULY PRICE | % CHANGE | |
| Petrol | 35.56 | 31.58 | 11.19 |
| Diesel | 31.11 | 29.34 | 5.69 |
| Kerosene | 29.50 | 26.36 | 10.64 |
| Jet A-1 | 32.76 | 29.20 | 10.87 |
These prices came into effect on 30th June 2024 and shall remain in effect until revised by the Energy Regulation Board (ERB).
Conclusion
Zambia’s economy is on the path to recovery after facing multiple crises. The Zambian Kwacha has demonstrated stability by appreciating against the US dollar. Despite rising inflation rates, investor confidence remains positive, as evidenced by strong participation in Government Bond auctions. The stock market continues to perform well, with companies maintaining good financial health. Additionally, credible institutions, including the Energy Regulation Board, are actively addressing the nation’s power challenges. Diversification is crucial, because it enables a society to mitigate the impact of a disruption in one energy source, by expanding the utilization of alternative sources like nuclear or solar energy.
