Sata, who defeated incumbent Rupiah Banda in a Sept. 20 election, dissolved the boards of three state agencies, including power utility Zesco, according to a statement from his office. The board of the Bank of Zambia was removed after Governor Caleb Fundanga was fired on Sept. 29.
The currency of Africa’s biggest copper producer dropped as much as 3.8% to 5,014 per dollar yesterday, the biggest decline since December 2008 and the most of any currency tracked by Bloomberg. It weakened 1% to 5,065 by 8:38 a.m. in Lusaka. Sata’s overhaul may heighten investors’ concerns at a time when copper prices have dropped 27 percent since August, undermining the economy’s outlook.
Sata “is sending the message that he is not dependent on external powers. Obviously that is a worrying sign for investors.”
“When people come into presidential positions they bring their own people,” Yarik Turianskyi, a political researcher at the South African Institute of International Affairs, said in a telephone interview from Johannesburg yesterday. “With more moderate leaders, this is more of a moderate process.” Sata “is sending the message that he is not dependent on external powers. Obviously that is a worrying sign for investors.”
The kwacha gained 20 percent from April 2009 to the end of last year as the economy benefited from debt cancellation in 2006, rising copper prices and inflation easing below 10 percent for the first time in three decades.
Sata, 73, has pledged to extract more money from mining companies to distribute to citizens, create jobs and fight corruption. Companies including Vedanta Resources Plc, First Quantum Minerals Ltd. and Glencore International Plc operate in Zambia.
Sata didn’t give a reason for annulling FirstRand’s 27 billion-kwacha ($5.5 million) takeover of Finance Bank Zambia Ltd.. The central bank seized Finance Bank in December for breaching financial laws and agreed to sell it to Johannesburg- based FirstRand, which had been managing it for eight months.
“We strongly believe that due process was followed and that the agreements reached with the Bank of Zambia were concluded in accordance with Zambian law,” Michael Jordaan, chief executive officer of FirstRand’s First National Bank, said in an e-mailed statement yesterday.
John Sangwa, a lawyer for Finance Bank’s former Chairman Rajan Mahtani, said the central bank’s decision to dispose of Finance Bank’s assets was “flawed” and Mahtani was “very happy” with the decision.
This is the risk of doing business in Africa, if certain political parties are not happy there is the chance they can reverse a deal
Meanwhile Analysts have said Zambia’s decision highlighted the political hazards of investing in an African country, particularly after a change of government. “It is a bit of a shock, as I thought that it was done and dusted,” said Johan Scholtz, banking analyst at Cape Town-based Afrifocus. It was even more surprising since Zambia was a country where South African companies such as retailer Shoprite had experienced great trading success, he said.
“This is the risk of doing business in Africa and if certain political parties are not happy there is the chance they can reverse (a deal),” said Faizal Moolla, a banking analyst at Avior Research. “However, it was a small acquisition so it would have not had a dramatic impact on FirstRand’s African strategy. But it is a bad precedent and leaves a bad taste.”
Mr Moolla said FNB could still expand in Zambia through organic growth, although he warned this could be costly, given the expenditure required for new branches, ATMs and recruiting staff.
Mr Jordaan struck a positive note about FNB’s future in Zambia, saying the bank remained committed to investing in the country and would “continue to evaluate our options as the situation develops”.
FNB had expected to become the fifth-largest retail bank in Zambia after purchasing Finance Bank based on balance sheet size, adding 50 more branches to its five.[Bloomberg/Businessday]