Tuesday, March 5, 2024

EIU foresees China Demanding Zambia’s Mineral Assets in Exchange for the Huge Debt

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In its latest edition published on November 20, 2020, the EIU, a UK based specialist publisher serving companies, has said that it foresees China demanding Zambia’s mineral assets in exchange for the huge debt the southern African country owes.

“Zambia lacks an IMF programme, which has helped other countries (like Angola) to restructure billions of dollars of commercial debts to Chinese firms. Zambia’s President, Edgar Lungu, has probably also sabotaged any chance of the country gaining one while he remains in power, as a result of his government’s erratic approach to economic policy,” the EIU reports. “We continue to forecast that China will demand access to Zambian mineral assets in exchange for any deal. Although Mr Lungu has proven unwilling to do any such thing before the upcoming elections, which would damage his political support, given Zambia’s popular resource nationalism, his administration has been laying the groundwork for potential expropriations afterwards, and Zambia’s business environment has declined sharply so far in 2020.”

The EIU however foresees strong resistance to such a transaction from people, both internally and externally.

It also predicts a slow debt structuring from the Zambian government.

“Giving any expropriated mining assets to Chinese companies would be hugely contentious inside and out of Zambia; but should Mr Lungu succeed in his re-election bid, we believe that his control of the security services would allow him to repress any demonstrations against this course of action,” it states further. “Meanwhile, the relations of Western countries and international bodies with his government have been poor for many years, and Zambia would probably ignore criticism from them in favour of appeasing China. Debt-restructuring will be slow and haphazard in Zambia.”

The EIU also anticipates that “China and Zambia will announce a bilateral debt-restructuring programme sometime in advance of the 2021 elections (probably in early 2021) – a development that would help to boost the PF’s chances of remaining in power.

“Until then, the process of negotiating a restructuring of Zambia’s Eurobond debt will remain slow and patchy, and bondholders will work to ensure that they receive equal treatment with China, while Zambia’s government plays for time with bondholders until a bilateral deal with its most important creditor can be reached,” the EIU reports. “Once this has been achieved, we would expect progress to be made with Eurobond holders, and a hard default on this debt will ultimately be avoided, in exchange for higher interest repayments to investors.”

The EIU states that infrastructure development has been hugely responsible for Zambia’s high debt.

“Looming elections and debt owed to China pose potential risks. Debt negotiations will be complicated by the political fortunes of the ruling Patriotic Front (PF) party, whose debt-led infrastructure development programme has been responsible for pushing Zambia into debt distress (which has been exacerbated by the coronavirus-induced global economic crisis since the start of 2020), which faces legislative and presidential elections in August 2021,” the Unit states. “A change of government in Zambia (although this is not our central forecast) might undo or set back any progress made between investors and the present regime, whose heavy borrowing has been controversial at home, particularly its bilateral borrowing from China, its biggest creditor.”

The EIU states that although the Zambian government had said it would treat all creditors equally, “the key issue to the country escaping debt distress remains its unresolved bilateral debt with China”.

“Without a debt-restructuring agreement between the two parties, an IMF-supervised reform programme, which would create a framework to accumulate the funds needed for debt repayments, and which remains a key demand of the bondholders’ committee, will not materialize,” the EIU states. “Zambia’s large volume of bilateral debt to China is ultimately what has pushed the country into debt distress rather than its Eurobond payments, and although Zambia was awarded US$139.2m in debt service suspension by the G20, this did not cover its bilateral debts with Chinese state-affiliated commercial lenders.”

And the EIU states that, “since coming to power in 2011, the PF and (in particular) Zambia’s president, Edgar Lungu, have created significant uncertainty for investors with their erratic governing policies”.

“…including towards the mining industry, which has seen serial changes to the industry’s tax codes in recent years, but also towards its bondholders. According to the ZCM, a significant number of the country’s Eurobond holders are also heavily invested in Zambia’s mining and prospecting firms, and allowing companies to once again deduct royalty payments from their corporate income tax would mitigate some of the losses that Zambia’s creditors will be asked to bear as the country tries to escape debt distress,” states the EIU. “Reforming the tax code would also help to boost construction activity and (eventually) production over the 2021-25 forecast period, with additional benefits for the country’s job prospects. Nonetheless, we believe that it is unlikely that the government will concede to the industry’s demands ahead of legislative and presidential elections in August 2021. It seems unlikely Mr Lungu would be willing to offer the unpopular mining industry tax concessions before the upcoming elections, as this would damage his political support among the country’s electorate, given widespread resource nationalism, ahead of a tight race.”

27 COMMENTS

  1. Its HH who has written this so will be the cry of Yesterday Chanda ntentente with our very own morinho. Ine pliz cut my piece of Zambia i can manage for my self. Was listening the counting the coast on Aljezera . Why should we be news coz of the wrong reasons. A country with MP donating buses to constituency . What economical benefit would we get to those buses honestly. That money would have been used to set up tailoring companies to tailor worksuits for all those mining companies and lobby for business based on association rotating ownership. Did you Need me to have a degree for me to think on your bahalf ba Lusambo and kapamba. Even if its stolen money pliz use the little brain to think for the people you have subjected to poverty.

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  2. cant never .kkkkkki. it will borrow to offset the debt as it usually do. The problem is we were highly indebted freed by mwanawasa hipc policies and slided into debt again. Despite domestic tax policies so high on citizens and taxless on foreign investors who enjoy tax holidays if feel no tax holiday should be entertained.

  3. The more I see these articles the more I believe HH used his influence to stop IMF from issuing a bailout for zambia. I mean how come he is so confident that IMF will give him a bailout…. This chap wants the worst for zambia so that we can vote him in. Panyoko

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  4. Although it happened to Kalengwa Mine I don’t see it happening now because all mines in Zambia are in private hands unless they’re talking about KCM which is still encumbered. Or is it greenfield projects? Some of these write-ups don’t make much sense

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  5. No one covers the world the way The Economist does. They hv been doing it since 1843. They hv the right connections. The current editor Zanny (Susan) Minton-Bedos is a former World Bank staff member. No CEO or finance director of any corporation turns down a call from The Economist. Spend some time reading the magazine, especially its special reports, technology quarterlies and book reviews. Then u will know wht the fuss is all about.

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  6. Even if you gave lungu $40 billion and cancelled the present debt , he would plunge Zambia back into debt within 5 years…….

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  7. my advise to all youths is that go and register to vote, you see that hooligan you call commander at bus stations, he has registered and if you don’t he will be making a decision for you on who to run the economic affairs of this country, whichever decision he will make will affect you aswell in the next 5 years and beyond.

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  8. Thank God Bill 10 failed so all loans on our books should have been approved by Parley. Those that are “secret” should be ignored. The chinks need to learn to promote good governance abroad. Let them follow those who signed these loans secretly and now need NDAs in place to be disclosed to bondholders while us the citizens are kept in the dark.

  9. Who remembers in 2011 and 2016 when similar articles were published by these upnd supported imperialists? In 2016 they were adamant that hh was going to win. The hyena ended up in tears. This year again same old story. These boys never learn.i have been in politics long enough to tell you that upnd in its current state will never win any election. Learn to listen.

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  10. Zambian mining and land laws stipulate that all minerals are owned by the Zambian state. Mining companies just apply and get a licence to mine the minerals for which they’re charged a fee called mining royalty. That’s for u Ayatollah.

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  11. China needs Africa. It will not do anything that will scare away other African countries that it will want to bring into the debt fold. There is a conflict between western and eastern thinking here. In the west, every debt must be repaid. In the east, forgiveness is a virtue. You can see eastern thinking in what the Torah says. The year of jubilee was a time to forgive debts regardless of how much. That is how easterners think. The Yehudim have been called Shylocks in error. They were forced to live like westerners because of persecution. It is unnatural for African and eastern creditors to insist on debt repayment. ‘Forgive us our sins even as we forgive our debtors.’ This is the eastern and African way.

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  12. As president , Zambia needs an economist , a person who knows how global bussiness runs , a person who knows how banks and local bussiness run…….not a crooked lawyer who has a poor cv…….

  13. With the way things are its best mutauke guys, we gave you changes now it’s time you zoom out, you forgot about important things and started thinking only for yourselves.

  14. This is not like exams that when you fail you repeat, PF has failed so why do they want to repeat. There is no provision for repeating, all that is required is to leave, please. All economic indicators which MMD left in positive are all now in negative. You cant continue subjecting this country to suffering because of your reckless borrowing. Awe……

  15. Stone head lab tech as usual not positing anything in relation to the article. You are all going, whether you show your feeble resistance here or not, you are on your way out, Zambians are decided

  16. Lungu is out if plans , maybe guarantee him 15% of what he has stolen so that Zambians have free and fair elections without violence and police intimidation.

    He is scared of spending the rest of his days at the high court…..

  17. Who remembers in 2011 and 2016 the Communist China publicly lending huge loans to Zambia. All the huge loans that have mortgaged our country were given in secretive dealings to enrich president Edigar Lungu and his inner circle cronies who now claim loans were for investments of infrastructures in Zambia. Today China is foreseen to demand Zambian mineral assets in exchange for the huge Chinese debt that few Zambians know about. The Economic Intelligence Unit (EIU) which is a world wide authority on world economic synthesis country by country says ” Since coming to power in 2011 by PF regime, and in particular president Edigar Lungu, has created significant uncertainty for investors with their erratic (Chimbwi no plan) governing policies”. We have told PF regime this position before,…

  18. Why don’t they ask the Chinese instead of making assumptions? You see a corrupt and guilty minds will always think from their perspective. This is the position they would like to be in so that we are controlled via debts. They don’t want you to think for your selves. Evil chaps.

  19. So what! You ruled Northern Rhodesia and took away minerals worth billions and billions of pounds and what did you leave behind? It’s better you just keep your ?

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