[miningmx.com] — FINANCIAL markets and mining investors might react with some nervousness to the election of Michael Sata as the new president of Zambia, but his victory shouldn’t trigger a significant “run for the door’.
This is according to Africa analysts at Citi in Johannesburg, who said the election of the Patriotic Front leader over the incumbent Rupiah Banda was encouraging in that the country has accepted the democratic process; a move which would support improved governance.
Zambia is Africa’s biggest copper producer and home to operations owned by First Quantum Minerals, Vedanta Resources, African Rainbow Minerals as well as Metorex – soon to be taken over by China’s Jinchuan Group.
Sata – who is known as King Cobra for his silver-tongued rhetoric – was declared winner of the presidential election on Friday by the Electoral Commission of Zambia, with 43% of the vote after 95% of the votes were counted. He has in the past made some extreme comments regarding foreign investment, especially from China, but his rhetoric was markedly toned down during the election campaign.
Leon Myburgh, Sub-Saharan Africa Strategist at Citi, said Sata was no socialist and his party’s election manifesto contained broadly middle-of-the-road economic and social policies.
“If you ask me how much the policies of (Banda’s) Movement for Multi-Party Democracy differ with that of the Patriotic Front; it is not that much,’ Myburgh said.
“Overall, it is difficult to be conclusive on the likely government policy under a Sata policy,’ read a report compiled by Citi. “Clearly, they will want to make some changes from the MMD government, and it seems as if the most likely change will be to mining taxation.
“But what the form this will take is not clear, not whether the outcome will necessarily be a negative one.’
In a report published by Bloomberg on Friday, the news agency quoted Sebastian Spio-Garbah, managing director of New York-based DaMina Advisors LLP, a frontier-market risk adviser, who said Sata’s “more pugnacious campaign style appeals strongly to the disillusioned bulk of unemployed youth and lower middle class salaried government workers’.
“An upset by Sata will likely see a more resource nationalist policy for the mining sector, with potential tax hikes and greater government equity shares.’
The Zambian kwacha slid to a 14-month low of 5,110 against the dollar on Friday; with the currency’s weakness exacerbated by the recent decline in the price of copper, as well as a broad flight of capital from emerging and frontier markets.
“For now, we would expect some short term pressure on the kwacha, as investors stay on the sidelines and possibly hedge their exposures,’ said the Citi analysts. “That said, foreign interest in the local rates market seems rather limited so we do not see Sata’s victory as triggering a significant “run for the door’.’
INVESTORS WELCOME
Sata said on Friday foreign investors were welcome in Zambia, but they had to adhere to labour laws, reports Reuters.
“Foreign investment is important to Zambia and we will continue to work with foreign investors who are welcome in the country … but they need to adhere to the labour laws,” Sata said after being sworn in.
Sata said the gap between rich and poor was growing and this had to be addressed.
