Economic Outlook - President Sata 90 Days

The victory implies that after 20 years in power, and despite the recent economic performance of the Zambian economy, a majority of the Zambian voting population was dissatisfied with MMD government policy. In short, this election appears to have been primarily a call by Zambians that:

• They want a stake in the national economy via tangible and direct economic empowerment to improve their livelihoods; and
• The youth want a future, they want jobs.

Market’s response

The Lusaka Stock Exchange (LuSE) was expectedly somewhat restrained this week, with total volumes traded and turnover for Monday, Wednesday and Thursday totalling 2.8 million and ZMK 985 million respectively, versus total volume of 4.8 million shares and total turnover of ZMK 4.3 billion last week. However, on this limited activity, the index rose consecutively day-on-day by 0.03% on Wednesday 21st and 0.47% on Thursday 22nd.

The LuSE has not been negatively affected in terms of direction this year by the prospects of an election, generally maintaining its upward trajectory and perhaps being reflective of the expectation of a peaceful election and continued economic stability. Interestingly enough, it has also shown very little correlation with the copper price, suggesting that investors view the long term prospects for the listed companies to be positive, despite any short term negative fluctuations in the price of Zambia’s key commodity.

Outlook

President Sata campaigned on the basis of change and benefit within 90 days. We expect cautious trading on the LuSE over the next few weeks, primarily from foreign investors, which will be a combination of recent uncertainty in the greater global economy, as well as uncertainty around the implications of the new president, and primarily the structure of any policy adjustments especially with regard to foreign investment in Zambia.

We are of the view that there will likely be a divergence in policy from that of the MMD with respect to mining in particular given Sata’s leftist leanings, although we expect this to largely be carried out via a renegotiation of terms with current investors. The first 90 days will be telling regarding the new appointments expected in key government ministries and institutions such as the Finance Ministry and the Reserve Bank. However, we are still positive on the Zambian economy, and maintain our favourable outlook for the LuSE.