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By Shapi Shacinda

LUSAKA (Reuters) – Mineral-producing Zambia fears global economic turmoil will lower copper demand from China and the West and hurt its economic growth, which depends heavily on the metal, the finance minister said on Saturday.

Ng’andu Magande also said the financial squeeze had forced institutional investors to withdraw foreign exchange in government securities and this could hurt the kwacha, although the local currency could be stabilised.

Analysts say reserves from new mining taxes provide some protection from the ripple effects of financial turmoil.

“Perhaps our (worry) is the commodity prices. If the recession continues we will see demand for copper from China coming down and this will definitely affect us,” Magande told Reuters in an interview.

The government aims to lift its economic growth to 7 percent from 6.2 percent last year and attain at least 10 percent by 2010.

Zambia depends on copper and cobalt for more than 63 percent of government revenues. Magande said less demand would translate into reduced foreign exchange earnings.

The government could also be hard pressed to keep investors confident.

“Some people have been withdrawing foreign exchange in government securities and these are institutional investors, but we think we will be able to stabilise the kwacha,” Magande said, without elaborating.

On Friday, the kwacha closed at 4,040 to the dollar, the weakest level in five months.

Risk aversion ahead of the presidential election has added to the pressure on the currency.

Zambians will on October 30 elect a successor to Levy Mwanawasa, who died in August after a stroke, with acting President Rupiah Banda and opposition leader Michael Sata the main contenders.

Mwanawasa was widely praised for strict policies that helped lift economic growth and kept inflation under control, and his death has increased political and economic uncertainty.

Zambia has this year imposed a 25 percent windfall tax on copper mining companies and raised mineral royalties to 3.0 percent from 0.6 percent.

The government has also raised corporate tax for copper mines to 30 percent from 25 percent, making foreign mining companies uneasy.

Standard Chartered Bank Plc said however in its latest global economic focus that Zambia had created an important source of long-term revenue by raising the taxes.

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