Zesco, Chinese debt and economic Cold War

Zesco, Chinese debt and economic Cold War

By Alexander Nkosi 

Uwakwensha ubushiku bamutasha lilya bwacha. There is no Zambia for the ruling party and Zambia for the opposition. A better economy is good for all Zambians. It is actually better for the ruling party as it makes politics easier. When debating matters relating to our economy, we have to be objective and factual.

For a country like Zambia, a small ‘dosage’ of borrowing is necessarily if it is going towards investments which will catalyse economic activities, enable us pay back and leave a much better economy. However, debt is not something to be proud of. Debt sustainability should not just be based on calculating debt to GDP ratio, certain economic fundamentals have to be factored in. We have to look at things like: how is the money being invested? what is the economy anchored on? How strong is the industrial and export base? What is our main source of revenue and how strong and reliable is that source? In an event of negative external factors, would we still be able to pay? These are critical questions. This is why it is not wise to compare Zambia’s debt to those countries with a far bigger economy and more solid industrial and export base.

Let’s look at the economic fundamentals surrounding Zambia’s debt. An economy that is growing around 4%. An economy that is still way too dependent on copper as its major export. Copper that is controlled by foreigners where we have very weak negotiation power. Copper whose production we have less influence over. Copper whose current and future prices we do not control. Our drive to diversify the economy is insignificantly worrisome. Verbally, one of the key sectors we want to promote in our drive to diversify the economy is agriculture. However, a close look at our medium term expenditure framework shows a reduction in expenditure towards input support, allocations to FRA. Input support is projected around $150m with allocations to FRA of around $60m per year respectively. Investment in agricultural infrastructure, extension and value addition is insignificant. In 2018, we recorded a 36% reduction in maize production. Two years of poor rainfall would hit us badly. Crop marketing remains a big challenge. There are no significant investments planned for the manufacturing and tourism sectors as well. The loans we have been getting have mostly been going to transport infrastructure. In seven years, this has left our economy worse off despite having better roads, more schools and hospitals. Roads need maintenance and we may have to borrow to maintain most of them even before we pay back. We have perpetual budget deficits, the public wage bill is high. We have a total of $3b euro bonds due 2022, 2024 and 2026. We are already thinking of refinancing the $750m euro bond due in 2022. The country where we hope to strike a refinancing deal with some company also has its own debt crisis raising question over the refinancing terms. We still have the $1b due in 2024 and $1.25b due in 2026. The most likely option will be refinancing. To this burden, we add the huge debt we owe China.

Given this background, the big question is where will money to pay back our debt come from? We have not demonstrated enough ambition to grow our economy and we still remain so susceptible to external shocks. If we cannot clearly point out how we are going to raise money to pay back, even a debt half the current amount should be a source of concern to us. So I do not understand how debt and arrears of $15b should not be a source of concern.

I want to believe that ZESCO is not yet sold. However the concern raised by some sections of society is that the company is in the process of procuring a big loan on top of the $750m Kafue gorge hydroelectricity project loan. We know the company has not been running efficiently. We know it badly needs funds to do proper maintenance, upgrading and new investment to keep pace with increasing electricity needs. We know government has bigger problems which makes it difficulty to give the company the financial push it needs. With the current economic pressure, we may actually be getting something from the company. Given this background and the ‘raining loans’ in China, would ZESCO just watch from a distance as ESKOM borrows $2.5b? The possibility of borrowing is high and lack of sufficient clarification from the right government officials to dispel these rumours in a qualified way is not helping the situation. It is not enough to say China has not taken over ZESCO. Give more details: are we negotiating for a loan with China? If not, then give us a solid strategic and financing plan for the company proving it is not looking up to China for funding. Does the company have a solid plan to repay the $750m?

Let’s discuss this.

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