Zambia’s Lungu Faces Tight Election As Debt Crisis Bites
ZAMBIA’S President Edgar Lungu will seek to fend off a
perennial opposition challenger in a vote on Thursday that may be decided by
frustrated young voters amid economic turmoil and a pending bailout for one of
Africa’s most indebted nations.
Investors are closely watching the Aug. 12 vote in the major
copper producer which had the continent’s first pandemic-era sovereign default
in November.
International Monetary Fund (IMF) support, already broadly
agreed, is on hold until after the vote. So too is debt restructuring seen as
an early test of a new global plan to ease poor countries’ burden.
In power since 2015, 64-year-old Lungu faces a potentially
tight contest against Hakainde Hichilema – known as “HH” – a businessman who
has criticised the incumbent’s economic management.
While Hichilema has shown a desire to tackle the debt
problems and engage with investors, Lungu’s Patriotic Front (PF) for years
sought to avoid an IMF programme, noted Christian Libralato, emerging markets
portfolio manager at BlueBay Asset Management.
“Investors may see a potentially clearer path to an IMF
programme and a debt restructuring under HH,” said Libralato, whose firm holds
Zambia’s defaulted bonds.
Zambia owes in excess of $12 billion to external creditors
and spends 30%-40% of its revenues just meeting the interest payments on its
debt, credit rating firm S&P Global estimates. Its debt-to-GDP ratio was
near 120% last year, one of the highest in emerging markets and probably double
the level considered to be manageable.
Zambia said in May it had reached a broad agreement with the
IMF on macroeconomic and fiscal targets and policy issues during talks to
secure lending, setting the stage for what investors hope will be a
post-election deal.
YOUTH VOTE
Zambia’s electoral commission in May announced a ban on
campaign rallies to curb the spread of Covid-19. But both the PF and
Hichilema’s United Party for National Development have held gatherings on the
pretext of distributing face masks.
Lungu is campaigning on infrastructure investments and
increased state control of mining.
Copper mining, which generates around 70% of Zambia’s export
revenues, has been highly politicised in the run-up to the election.
Zambia’s state mining investment arm ZCCM-IH agreed in
January to take on $1.5 billion in debt in exchange for full control of Mopani
Copper Mines, which previous majority owner Glencore had planned to shutter.
Lungu framed the deal as a boon for workers.
Hichilema, however, criticised it, saying it added to
Zambia’s debt load.
Hichilema, 59, casts himself as a self-made man in campaign
videos, saying he walked to school barefoot as a child and attended university
on a government bursary. He was CEO of an accountancy firm before entering
politics.
He has contested and lost five presidential elections, but
only narrowly lost to Lungu in 2016’s disputed vote. He was charged with
treason and briefly jailed the following year.
With polls seen as unreliable, analysts say this election is
too close to call. Political violence has escalated ahead of the vote,
including two ruling party supporters hacked to death with machetes, leading
Lungu to deploy the military.
Some 54% of registered voters are 34 or younger, statistics
from the Electoral Commission of Zambia (ECZ) show.
That could help Hichilema, who has placed the economy front
and centre of his campaign, said Euston Chiputa, history professor at the
University of Zambia.
“Hichilema has gained ground among the youth because there
are frustrations regarding employment,” he said.
Unemployment hit a 10-year high in 2020, according to
International Labour Organisation estimates, and the local kwacha currency’s
nearly 40% depreciation since January 2020 has made life more expensive for
Zambia’s roughly 18 million people.
The roads, schools, and hospitals built by Lungu’s
government and paid for by debt – notably Chinese loans and eurobonds – have
not yet delivered promised growth.
The IMF expects the economy to be among the weakest in
Africa this year, with GDP set to grow just 0.6% after a 3.5% contraction last
year.
A win for Hichilema, seen as a market-friendly candidate,
could trigger a relief rally for Zambian assets, said Kevin Daly at Aberdeen
Standard Investments, a member of the Zambia External Bondholder Committee,
which represents holders of Zambia’s eurobonds.
Zambian government bonds have already gained more than 30%
since November as investors look to an IMF deal.
Zambia is also set to be the biggest beneficiary of the
IMF’s new $650bln allocation of Special Drawing Rights, which will boost its
foreign reserves.
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