Friday, April 12, 2024

Peter Sinkamba urges Bank of Zambia Bank to consider including copper to its foreign reserves strategy

Share

The Green Party President Peter Sinkamba has written to Bank of Zambia urging the Central Bank to consider including copper to BOZ foreign reserves strategy. This letter to BOZ follows comments by a renown economist at John Hopkins University in the United States who has suggested that Zambia should consider establishing a USD-denominated Currency Board. Mr. Sinkamba has said that while establishing a Currency Board is a good idea, however, he does not believe that its effectives will any better the the existing Monetary Policy Committee.

“I write to add my voice on comments made by the renowned economist at John Hopkins University, Steve Hanke who has stated that the International Monetary Fund (IMF)’s debt resolution plan for Zambia under the Common Framework will do little good considering the country’s dwindling forex reserves. He has stated further that the best solution for Zambia is a USD-denominated Currency Board similar to the one that was established for the country between 1940-56 to address inflation and the measure is believed to have worked well.” Mr. Sinkamba wrote to Bank of Zambia.

“Whilst I agree that establishing a Currency Board is a good idea, I however believe that its effectiveness will not be any better than the existing Monetary Policy Committee (MPC) in terms of addressing the dwindling foreign reserves. From recent press statements, the Bank Governor is reported to have disclosed that the international reserves have increased from US$1.2 billion to US$1.4 billion representing 3.5 months import cover. The Governor also disclosed that the gold reserves have also increased by 289 kilogrammes. These policy disclosures effectively dispel assertions that the Central Bank has completely exhausted the reserves and that the MPC in its form is ineffective. I greatly commend the MPC for the interventions so far undertaken to boost the foreign reserves,” Mr. Sinkamba said.

“In addition to the gold strategy, I propose that BOZ considers including copper stocks to its strategic foreign exchange reserves portfolio. As you may have followed international trade developments, copper prices have increased exponentially and dictating trade regimes.

“As a novel measure, I propose that BOZ could start forward purchases of copper from the 20% that, by matter of Government policy, all copper mines are supposed to sell locally. The copper bought by BOZ could them be sold as Sovereign Copper Bonds (SCBs) — which in essence could be Government securities denominated in pounds or tonnes of copper — sold in quarterly phases until December 2030. This novel policy measure would offer a good option to investors who can look forward to appreciation in copper prices at the end of the eight-year bond tenure. As you are aware, copper prices have increased from US$6, 200 in 2020 to US$10, 000 in 2021. It is projected that the price of copper will reach US$20, 000 by the end of 2030. This provides a grand opportunity to boost the country’s foreign reserves significantly.

“What would be the terms of the issue of the Sovereign Copper Bonds? Bank of Zambia could make an initial forward purchase of 25,000 tonnes of copper from Mopani Copper Mines (MCM) at the cost of US$250 million, for forward delivery in January 2024. This initial purchase could constitute the Sovereign Copper Bond Scheme 2021-24—Series I, issued by BOZ, and be open for subscription in September, 2021. This could be followed by Series II (January 2022), Series III (April 2022), Series IV (June 2022), Series V (September 2022) and Series VI (January 2023).

“The nominal value of the 8-year bond works out to be the price one tonne of copper, based on the simple average closing price published by London Metal Exchange (LME) for copper of 99.99% purity on the last three business days of the week preceding the subscription period of each Series. The copper bonds could bear interest at a fixed rate per annum on the amount of initial investment which will be credited semi-annually. The bonds could then be sold through BOZ offices or branches of national banks, private banks, foreign banks, or authorized stock exchanges either directly or through their agents.

“Why start with purchase of MCM copper? MCM was recently acquired by Government. It requires a minimum investment of US$250 million to increase production capacity, within two years, from the current 60, 000 tonnes per annum to 160, 000 tonnes per annum . Being a wholly owned mine by Government, if all revenue from its copper sales report into the local economy, that will surely have a significant impact on the dollar-kwacha parity. Additionally, it is important to note that Government has set 20% limit quota for copper to be sold for local industrial use. At 800,000 tonnes total production per year, this implies combined quota of 160, 000 per annum being available for local industrial use. At 1,000,000 tonnes per annum, the local quota increases to 200,000 tonnes. However, the local industries do not have capacity to fully purchase this sort of quota. And, this is where BOZ must come in with this novel SCBs initiative to boost foreign reserves. Additionally, once BOZ announces that it will start buying copper in Zambia to boost its reserves, the announcement will certainly push the copper price up. And each time BOZ announces the forward copper purchases, the price of copper on the international market will also rise. In that way, Zambia will be a big factor in terms of influencing the price of copper on the international market. If Central Banks of other copper producing countries follow suit, then the copper price will sky-rocket.

“What will BOZ and investors get on redemption? BOZ and investors gain from appreciation in copper prices as redemption of bonds will be based on the then prevailing prices. If copper prices double after eight years, BOZ and the investor will get the higher prices plus, say, 2.5% interest. If copper prices fall, which is unlikely, investors’ returns will fall accordingly. The investor does not lose in terms of the units of copper which they pay for. On maturity, the copper bonds will be redeemed in US dollars and the redemption price will be based on a simple average of closing price of copper of 99.99% purity of the previous 3 business days from the date of repayment, published by the LME.

“Although the tenure of the bond is 8 years, early encashment/redemption of the bond could be allowed after the fifth year, on coupon payment dates. The bond could be tradable on exchanges, if held in tradable form authorized by BOZ. It could also be transferred to any other eligible investor according to BOZ terms. Why investors could be motivated to invest in copper? The term “Doctor Copper” is market lingo for this base metal that is reputed to have a “Ph.D. in economics” because of its ability to predict turning points in the global economy. Copper is often seen as a leading barometer for the global economic health. It is cited by market and commodity analysts as having a strong ability to assess overall economic well-being through the price of copper because of its wide-ranging applications in industrial production, and electrical equipment. While higher US bond yields and strengthening of the dollar put pressure on commodities like gold, leading to fall in gold prices, this is not the case with copper.

“Why should an investor buy copper bonds rather than physical copper? The quantity of copper the investor pays for is protected, since the investor receives the ongoing market price at the time of redemption/premature redemption. The bonds offer a superior alternative to physical gold. The risks and costs of transportation and storage are eliminated. Investors are assured of the market value at the time of maturity, and periodical interest. Bonds are free from issues like manufacturers making additional charges for late deliveries and questioning of the purity. Meantime, the bonds are held in BOZ books or other authorized forms, eliminating the risk of loss of scrip etc. What would be the minimum and maximum limits for investment? The bonds could be issued in denominations of one pound or one tonne gram of copper and in multiples thereof. The minimum investment will be one pound or one tonne, with a maximum limit of subscription set by BOZ for individuals and corporations.

“Could these bonds be used as collateral for loans? They can be used as collateral for loans from banks, financial Institutions and non-banking financial companies (NBFC). The loan-to-value ratio could be the same as applicable to ordinary loans prescribed by BOZ from time to time. Granting loans against SGBs could be subject to the decision of MPC, and cannot be inferred as a matter of right,” Mr. Sinkamba said..

26 COMMENTS

  1. There is some substance in what Sinkamba is proposing. If nothing else, he is challenging BOZ to find a way of taking advantage of positive future copper prices. Can one strengthen kwacha by creating products around lucrative copper prices? Finally, how can Zambia strengthen its strategic position as one of major copper producers? Clearly Sinkamba wants Zambia to be one of the key players.

    18
    1
  2. ZAMBIA IS CURRENTLY INOT PROFITING FROM THE HIGH COPPER PRICES BUT THE MINING COMPANIES ARE MAKING A KILLING AND DEPOSITING THE FOREX IN THEIR HOME COUNTRIES.
    BANK OF ZAMBIA SHOULD WITH IMMEDIATE EFFECT DECLARE THAT 25 PERCENT OF THE COPPER SALES FOREX EARNINGS BE USED TO BUY KWACHA AT SAY 16 KWACHA PER USD. THE KWACHA COULD STABILISE AT SAY 18 KWACHA PER USD
    THAT WAY THE RUNAWAY INFLATION COULD BE ARRESTED AND ALL ZAMBIANS WOULD BENEFIT. THE CURRENT RATE OF INFLATION IS SIMPLY NOT SUSTAINABLE.
    PETER’S SUGGESTION IS GOOD INTENTIONED BUT TOO ELABORATE WHILE THE BOZ MEASURES HAVE NOT WORKED

  3. I love sinkamba because unlike that childish under 5 hh, he offers constructive advice and feedback. Sinkamba will rule Zambia before hh

    13
    12
  4. Brilliant proposal. The Bank of Zambia should quickly embrace this proposal and run with it. This proposal stands to significantly increase the foreign exchange reserves. It could also help strengthen the kwacha

    13
    1
  5. It is Friday and I am just buying some drinks for the weekend. Earlier on I met some upnd dressed youth who asked me for money and said that they know pfwill win and that they want to join pf. I told them to contact me and gave my number. We work even as we shop.

    4
    12
  6. It is Friday and I am just buying some drinks for the weekend. Earlier on I met some PF dressed youth who asked me for money and said that they know UPND will win and that they want to join UPND ……….
    SOME ARE JUST REALISING NOW PF IS ALL BUT DEAD AND BURIED

    8
    2
  7. COPPER AS A RESERVE REALLY ??? LETS COLLECT THE LOOTED FUNDS AND PAY OFF MOST OF THE NATURAL DEBT
    SURELY THIS WILL BE BETTER IN THE LONG RUN

    6
    4
  8. The copper price fluctuates too much soyou will find your reserves disappearing wihile your debt keeps increasing

    7
    2
  9. The Copper price fluctuates too much so we will find ourselves without any foreign reserves but with double the nkongole

    3
    3
  10. These PF embwas found our forex reserves at historic highs of $3.2b USD and they’ve destroyed it to just $1.2b.Now they have the nerve to applaud Sinkamba?

    6
    5
  11. These are the kinds of discussions that we need from the opposition not insults and pulling him down so that we can ascend to the throne. Mr Sinkamba you have set a good example of being a genuine opposition leader. Not just fighting for plot one. But offering propositions for our country. Our country is greater than all of us including our tuntemba political parties.

    11
  12. Does Sinkamba understand the the word precious metal?

    Copper prices are not reliable but gold and platinum.

    This man smokes too much hashish and thereby impair his mental capacity to think properly!

    Just maintain the dollar and gold as your reserves full stop.

    US will remain the richest country in the world no matter what threat from these rogue nations may pose.

    Just be factual.

    PF must go!

    2
    6
  13. “Why start with purchase of MCM copper? MCM was recently acquired by Government.

    Peter please dont hallucinate go and read the terms of that agreement of MCM and Govt deal…you still have years of paying the original investors before you can proudly state that MCM is GRZ property and to top it off they have to give you remainder of what is sold and take a large portion of the sales.
    And so long as you have a reckless regime of Lazy Lungu you are fighting a fruitless battle….its like pouring water in a bucket with holes.

    1
    4
  14. A brief understanding of linking money to metal reserves is very key before one suggest that copper be linked to reserves. A cardinal question would be….which country follows that in the world in terms of linking copper to their reserves? Up until the mid 20th century, global currencies were directly linked to the amount of gold reserves they held, controlling the amount of paper money they could print and the potential value of their currency. This was referred to as the Gold Standard, because it standardized the value of a currency against Gold. While this kept national currencies in check, it had some noticeable flaws such as a lack of flexibility and an assumption that all national banks remain transparent. In 1973, the US went off the gold standard, allowing Gold to be traded on…

    1
    1
  15. The biggest enemy to the development of our country are arm chair critics and pessimists who cannot think beyond their criticisms. There are very good ideas out there which we need to be naturing and using for the benefit of our country.

    5
    1
  16. This is an excellent suggestion. Copper prices will continue going up bcoz of electric cars and other industrial uses. Puting the metal in reserve is an excellent idea.

    2
    1
  17. Sinkamba is a great thinker who should be encouraged his ideas always make sense i support his thoughts and the government should quickly come up with the security of our copper they should not allow this chance to just be a by words .
    it is a fact that copper will continue attract great benefits as it has replaced oil in the running motor industry . this is not just a story but a fact

    1
    1
  18. Sinkamba has sang a good song. To him, I say keep it up. Bank of Zambia should include Cobalt because of its high price. Note, DRC and Zambia are
    among the major producers of Cobalt in the world. The argument that copper price is not reliable is correct if you limit yourself to exporting contained copper only. What is required is to attract investments in the manufacturing of products made of copper so that when prices are low we stock pile. China does what Mr. Sinkamba has suggested. Again, I say thank you, Mr Sikamba.

    1
    1
  19. Mr. Sinkamba has provided a very good reason for a copper backed reserve for Zambia with the understanding that Copper prices are cerainly on the continued upward swing. It therefore remains with the technocrats at Bank of Zambia to give us direction of their informed decision whether such a route can or cannot be taken. Shall we wait…………………..

  20. The way you manage your currency is called a currency regime and a currency board is Just one of It Most reserve currencies of that Gold standard will normally Have it Gold like copper are commodities that central Banks may hold as part of the SW sovereign wealth fund but normally Gold and other precious stones that appreciate in value will be a better case for reserve management but they by themselves without a well structured economy to effect proper Balance of payments in terms of the Terms of trade Capital Account and Financial Capital is futile Commodities like Precious stones can either be in Contagion or Backwardon and the losses…

  21. So you hold a currency reserve and perform your economy to record surpluses on your balance of trade to either lend to other countries or Invest the surplus into a Sovereign wealth fund You sell the copper when the price is super and demand is high for batteries and semi conductors manufacturing in TMSC and Euro areas before other online Investments for the higher price now come online

    Good work by the MPC and Board the Economy has been positioned well and is poised to perform looking at the forward exchange rate of the kwacha and the yield curves that has to be worked on

  22. Or that Reserve metal as it were Look at also the depth of Chinese reserve of over 2.6Trillion Dollars and learn why the saving culture
    together with productivity per capital matters A developing country like Zambia will seriously look at its Industrial and export strategy into the global value chains and play currency and reserve management with a solid base of is it fundamentals

  23. The current Infrastructure development and other critical infrastructures should be used a strong base on which to Build a strong, sustainable ,well positioned and balanced inclusive Zambia economy that structurally fits in the regional and global economic for future
    many years to come Zambia has the resources and reserves in measure to perform

Comments are closed.

Read more

Local News

Discover more from Lusaka Times-Zambia's Leading Online News Site - LusakaTimes.com

Subscribe now to keep reading and get access to the full archive.

Continue reading