Foreign investors are on edge as they anxiously await news of Zambian President Michael Sata’s stricter policy plans, with rumours of a new windfall tax and a raised minimum wage on the cards.
If Sata’s cancellation of FirstRand’s previously agreed purchase of the Finance Bank of Zambia is an indication of his line of thought, investors could be in for a rude awakening.
First National Bank, a subsidiary of South Africa’s FirstRand, received formal notification of the junked buyout — estimated to be worth $5.4-million — late last Friday after Sata intervened and returned the Zambian bank to its controlling owner, Rajan Mahtani.
FNB, which was invited to rehabilitate the Zambian bank after it was put under administration on the back of maladministration allegations, will not be contesting the decision. Instead it will continue its own banking operation in Zambia and look for further greenfield opportunities.
But the cancelled bank sale has spooked South African and other foreign investors. The two countries are major trading partners — Zambia is South Africa’s third-largest market for exports in Africa after Mozambique and Zimbabwe, according to the department of trade and industry.
South African supermarket chain Shoprite has 19 superstores and eight Hungry Lion fast-food shops in Zambia, its largest non-domestic operation. Other local companies growing their footprint in Zambia include fuel suppliers Engen and retailers Mr Price, Markham and Jet.
Glencore, Vedanta Resources and First Quantum Minerals are mining houses with major stakes in Zambia’s copper and metals industry, which has turned huge profits in the past 12 months because of high commodity prices.
But despite the success of Zambia’s mining industry and the country’s strong gross domestic product growth of 7.6% last year, high poverty levels remain and affect two-thirds of the population; only one in 10 Zambians has formal employment. This paradox — and a growing sense of injustice among the country’s poor and unemployed about the lack of trickle-down effects — helped Sata to secure victory in the September elections.
Sata has made big promises to his voters, particularly about job creation, pledging to “restore Zambian dignity and change and transform the country” in 90 days.
The mining sector, which is mostly foreign-owned, is likely to supply the money to boost economic growth and employment. Copper accounts for up to 75% of Zambia’s export earnings, but mining as a whole only makes up 10% of tax revenues.
Mining trade unions have said Sata wants to put in place new reporting standards to ensure more transparency and accountability for all exports leaving Zambia.
The sharp-tongued Sata has reiterated over the past few weeks that he welcomes foreign investment but wants “fair partnerships”.
He has warned foreign companies to abide by labour regulations, which has been interpreted as a direct strike against the Chinese, who in recent years have earned a bad reputation for appalling working conditions and low salaries.
But Sata’s call for “appropriate distribution” of wealth is also a hint that tax systems, which under the former government were seen as favourable to investors, may be heading for a shake-up.
Speaking to Reuters in the days following Sata’s election, Minister of Mines Wilbur Simusa said: “The money we are getting from the mines in the form of tax is not adequate and we are going to sit down with them and discuss so that we reach a win-win situation.”
Glencore has said it is “working closely with the government”. A number of Western mining companies have claimed that they already pay above the minimum wage and are not worried about the possible increases, which they feel would likely affect Chinese-owned mines that pay lower salaries.
Fred Bantubonse from the Zambian Chamber of Mines has warned against increasing industry taxes, saying it could scare away investors, reducing job creation in the long term.
But analysts and Transparency International have said the uncertainties over Sata’s policies are balanced by a clear commitment to reduce the corruption that has dogged Zambia for years.