Event

The leader of the ruling Patriotic Front (PF) party and former defence and justice minister, Edgar Lungu, was inaugurated as Zambia’s new president on 25 January. He secured a narrow victory, with a lead of merely 1.6% over the United Party for National Development (UPND) candidate, after one of the tightest political contests in the history of Africa’s second-largest copper producer. Lungu will serve out the remainder of former president Michael Sata’s five-year term until September 2016. Sata died in office in October 2014.

Impact on country risk

Despite growing anxiety during the campaign, unrest and electoral violence were successfully held off, reaffirming Zambia’s status of stable African democracy. Under PF presidency, populist policies are likely to continue, marked by pro-poor spending and large infrastructure investments. However, these policies are controversial as they lead to fiscal slippage and unpopular tax hikes on the mining sector, hereby stirring policy uncertainty. Additional taxes on copper mining might further depress the sector’s profitability and increase the risk for suspension of mines and investment projects. Lungu’s short time in office will put him under pressure to deliver results quickly, increasing the probability of populist policy introduction and relaxation of fiscal discipline. Moreover, the recent campaign period displayed large inter-party divisions and political realignments that are likely to delay further policy making. At the same time, Zambia is facing considerable economic challenges caused by its commodity dependence. Copper makes up for around three-quarter of current account revenues at a time where the international copper price has hit a five-year low due to global oversupply and falling Chinese demand. As a consequence, the local currency reached record lows early 2014 but a tightening of Zambia’s monetary policy and higher international reserves from Eurobond proceeds helped to somewhat stabilise the kwacha during the summer. Nevertheless, pressure from a strong US dollar, moderating capital inflows and election-related uncertainty has again increased volatility.

Analyst: Louise Van Cauwenbergh, l.vancauwenbergh@credendogroup.com