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You know how it is most times when your predictions come true … others seem to wink an eye. We at the Zambian Chronicle warned about how the current financial crisis could affect the Zambian Enterprise when the times were great, the boom was on the rise and no one saw it (the crisis) coming.

 

In our weekly memo over a year ago we warned the Zambian government against this as we encouraged them to take stock of the commodities boom looking at it as a short-medium term opportunity while putting in place other measures for an upcoming burst.

 

It was on September 24, 2007 and we wrote Zambia’s Short To Medium Term Outlook – Extremely Encouraging, But … In that memo we went on to say the following …

 

“The challenge now is for countries like Zambia that are dependent on commodity exports to properly “manage” the commodity boom.

If we respect the truth, then we need to admit that commodity boom phases have not been managed well in the past, and we are at risk of making the same mistakes again. The main factors underpinning commodity prices were strong demand for platinum in devices that cut pollution in cars and rising demand in China and other emerging markets.

Still, commodity prices might drop, hurting growth in some African countries. To assume that current prices and the current boom phase reflects a permanent shift, rather than a temporary opportunity, would be a naive and risky approach to adopt.

If our analysis is correct, then the slump will come and it will bring with it a significant decline in commodity prices but prudent asset management now would help governments that are diversified enough to transition into manufacturing, construction and service sectors.”

While we can safely say that the Mwanawasa Administration really paid attention to most of the economic forecasts we put out there because our own info gathering and general feedback supports the notion, sometimes measures were not in place to fully implement them.

 

Our highly qualified team at the Zambian Chronicle takes time to look at all the data, crunch the numbers and analyze facts. By the sheer nature of the economic enterprise, booms and burst are a common place and it is not pessimistic but prudent to critically look at “what if scenarios”.

 

In another memo entitled National Development Corner: Barj Dubai – World’s Tallest Building Is Now In Dubai … we stated that the United Arab Emirates were in a hurry to develop and diversify because they understood the importance of turning current booms into diversification for future utility; we wrote the following below then …

 

“The United Arab Emirates (Dubai) is the fastest growing enterprise in the world per capita growth. Its own population is only one-eight compared to that of temporary immigrant workers from around the world working inside Dubai, for instance. It is no wonder some of the world’s Fortune 500 corporations are relocating their headquarters there.

 

The incentives are incomparable in many ways, from zero to marginal taxation to free trade zones, Dubai now houses the world’s tallest hotel, the world’s largest man-made port, the world’s largest shopping mall, the world’s largest man-made islands called “The World”, and the list is endless.

 

What is amazing though is that the Emirates are forward thinkers and planners such that their own Sheiks are at the center of the storm as they transform their nation into a premier world destination. Theirs will be an enterprise to reckon with nevertheless. One of the world’s most profitable airlines is called the Emirates.”

 

How does the above relate to individuals, corporations and governments alike? One might ask. Well for individuals, the scenarios are basic … you too will have good times in your life. There will be times when everything seems just right. That will be your personal financial and or micro-economic boom.

 

You income will right where you want it to be if not more. I have had those myself and even wondered whether I really deserved to be paid that kind of money for the same number of hours worked as Joe across me who earned far less. In most cases it was because I was more qualified than Joe while in others I was a better performer but the facts were I was having an individual economic boom.

 

Such are not times to squander your earnings but to build reserves for a rainy day, college fund for your kids and or retirement. You plan now, you rest tomorrow otherwise if you rest today you would be destitute tomorrow … if you fail to plan, you are planning to fail.

 

For corporations, those which don’t turn their reserves into marketable securities end up with cash crunches when the times are hard, end up winding operations and or filing for bankruptcy.  The process can have a devastating impact on the overall going concern.

 

Most times though, forward thinking enterprises pay dearly for forecasting tools and such things as cutting edge Management & Executive Information Systems they neither are nor usually caught unaware because Daily Statistical Reports (DSR) reveal and recommend mitigating resolutions.

 

For governments, those without foresight end up not finding ways to stimulate their economies and help citizens with unemployment benefits just as when  Luanshya Copper Mine halts operations … all 1,740 employees would be laid off and the Zambian government can do dimly squat.

 

An adverse economic reversal in Zambia would take more time for a turn around. What the government needs do is to come up with a Neo-Keynesianism approach right away as we suggested in the memo, “No Election Honeymoon For RB; The World Economy Is In Shambles, So Will Zambia’s …

 

The smart people of the Zambian Enterprise deserve better and the incoming government needs to take a critical look at mitigating circumstances – because Zambia is greater than any single one of us.

 

What we are experiencing is just the tip of the iceberg, the world economic crisis has approximately another twelve months to run its course but now time is of the essence.

 

Compliments of the Season, Live Long & Prosper; that’s this week’s memo from us at the Zambian Chronicle … thanks a trillion.

 

Brainwave R Mumba, Sr.

CEO  & President – Zambian Chronicle 

 

Copyrights © 2008 Zambian Chronicle. All rights reserved. Zambian Chronicle content may not be stored except for personal, non-commercial use. Republication and redissemination of Zambian Chronicle content is expressly prohibited without the prior written consent of Zambian Chronicle. Zambian Chronicle shall not be liable for any errors, omissions, interruptions or delays in connection with the Zambian Chronicle content or from any damages arising therefrom. 

Zambian Chronicle is a wholly owned subsidiary of Microplus Holdings International, Inc.

Copyrights © 2008 Microplus Holdings Int., Inc.

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By Shapi Shacinda

LUSAKA (Reuters) – Zambia has enough currency reserves to protect the economy in case the illness of President Levy Mwanawasa prompts some reduction in foreign investment, central bank Governor Caleb Fundanga said on Tuesday.

Fundanga said the only slight worry of the Bank of Zambia (BoZ) was rising oil and food prices, which threatened its single digit inflation target. However, he remained optimistic of achieving 7.0 percent annual inflation in December this year.

Fundanga said it was evident the illness of Mwanawasa, who is in a French hospital after suffering a second stroke, had caused anxiety among some investors but that there was “no need for panic”.

“The investors in the mines will continue exporting copper. It is possible that … some investors may decide to pull out, but we have enough reserves, $1.4 billion held by the Bank of Zambia and another $1 billion by commercial banks,” Fundanga told a news conference, adding Zambia had 5.6 months of import cover.

Mwanawasa impressed the International Monetary Fund and other Western donors by cracking down on government spending and launching an anti-corruption drive.

Fundanga said Zambia had investment pledges totalling $1.8 billion so far this year compared with just $1 billion in the first six months of 2007. The government has previously said a number of these investments have been fulfilled.

“Naturally, as a result of the illness of the captain, as some refer to the president, there are some people who might be feeling uncomfortable. Given this situation, are we vulnerable? Will all forex (foreign exchange) dry up? The answer is ‘no’,” Fundanga added.

He said mining and non-traditional sectors had continued to perform satisfactorily with copper export earnings for the three months to June just 0.1 percent lower than the previous quarter’s earnings, at $967.6 million.

Fundanga said non-traditional exports at $187.6 million at end-June were 12.3 percent above the $167.1 million recorded in the previous quarter ending in March.

“Favourable export earnings have led to the strengthening of the external sector reflected in the appreciation of the kwacha against major currencies and a 10 percent increase in international reserves to $1,338.4 billion in June 2008 from $1,216.3 billion in March 2008,” he said.

There were inflationary pressures from a 15 percent wage increase for civil servants from January and from higher global oil prices, which would put pressure on transport and commodity prices.

“However, these pressures may be mitigated by pass-through effects of the appreciation of the exchange rate of the (Zambian) kwacha against major currencies on account of external sector performance,” Fundanga said.

Fundanga said the kwacha appreciated 11.3 percent against the dollar in the three months to June to trade at an average of 3,259/dollar.

“We cannot give up on 7.0 percent inflation at the end of the year because we have enough food to feed ourselves and we will not necessarily be affected by global food prices,” he added.

(Lusaka newsroom + 260-977843609/260-955779523)

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ABOUT 500 workers at Chambishi Copper Smelter (CCS) have been issued with summary dismissal letters following their two-day riotous behaviour in protest against alleged poor conditions of service. And Police have apprehended seven CCS workers in relation to the riot that took place on Tuesday at the copper smelter company.Both CCS company secretary, Sun Chuanqi, and Copperbelt permanent secretary, Jennifer Musonda, confirmed the figure of the dismissed workers in separate interviews yesterday. Mr Chuanqi revealed that company property worth about US$200,000 was allegedly destroyed by the irate workers during the riot.He said management was saddened that the workers rioted before the conclusion of negotiations with union representatives.

Mr Chuanqi said the workers had been given a grace period of three days within which to exculpate themselves and show cause why disciplinary action should not be taken against them.

He complained that work had been adversely affected by the workers’ riotous behaviour.

Mr Chuanqi warned that all workers identified as ring leaders would be dismissed from employment to discourage others from behaving in a similar manner.

By press time yesterday more than 19 alleged ring leaders had been identified while more than 66 workers collected their summary dismissal letters.

Mr Chuanqi appealed to workers to exculpate themselves within the stipulated time so that the innocent ones could be reinstated.

“We’re appealing to the workers to respond quickly to the summary dismissal letters so that those that did not take part in the riotous behaviour could be reinstated because work has been grossly affected and we need local manpower,” he said.

Mr Chuanqi said CCS belonged to Zambians and wondered why the workers destroyed what belonged to them simply because of a dispute that could have been resolved amicably.

“What we are building here also belongs to Zambians, so people must desist from destroying this investment. For those who will not come to collect their letters, we will follow them until they get them so that they can exculpate themselves,” he said.

However, Mr Chuanqi paid tribute to government for its continued support to Chinese investment in Zambia.

He also said the Chinese worker only identified as a Mr Li who was injured during the riot on Tuesday was discharged from the hospital.

And Mrs Musonda also confirmed that workers were served with summary dismissal letters when they reported for work yesterday.

A check by the Zambia Daily Mail crew yesterday at the CCS premises found several riot police officers manning the company.

Some Zambian workers were found waiting to collect their summary dismissal letters while others were reluctant to collect them, claiming that they did not take part in the riot.

Those spoken to said they were ignorant about the whole thing and that they were just forced by some of their colleagues to riot.

Copperbelt Police commanding officer, Antonneil Mutentwa, revealed that six officials of the National Union of Miners and Allied Workers (NUMAW) and their member were apprehended by police in connection with the riot.

Mr Mutentwa said the union officials and their member were apprehended around 17: 45 hours on Tuesday.
NUMAW national secretary Albert Mando condemned the action by the workers to riot and damage company property.

“We are not in support of what the workers did. We are also disappointed with what happened on Tuesday because the negotiations have not yet collapsed, so why strike or riot?” Mr Mando said.

Zambia Daily Mail

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Times of Zambia reports…

Chambishi fires 500

 ALL the 500 striking workers at Chambishi Copper Smelter (CCS) were yesterday fired while seven National Union of Miners and Allied Workers (NUMAW) branch officials were arrested and detained on Tuesday evening.

The workers were served with letters of summary dismissal by management in the morning.

The move by management was as a result of the riotous behaviour by the workers at the company premises on Tuesday morning.

Police said those arrested were detained at Kitwe Central Police Station to help with investigations.

The workers at the Chinese-owned company had been on strike since Monday, demanding improved conditions of service.

The situation worsened on Tuesday when the workers decided to become violent and damaged property worth millions of Kwacha.

Both CCS company secretary, Sun Chuanqi and NUMAW national secretary, Albert Mando, confirmed that all the 500 workers who took part in the work stoppage had been served with letters of summary dismissal and had been given three days in which to exculpate themselves.

But Mr Mando said it was unfortunate that management had decided to serve the workers with letters of summary dismissal, saying there was no reason to continue with negotiations when its members had been served with letters of dismissal.

He, however, said his union would work hard to ensure that the seven branch union officials, who had been arrested, were released so that negotiations could continue.

“Yes, I have been told that the management at the company has also served the workers with letters of summary dismissal, but it is unfortunate management has resolved to take this stance.

“This decision by management will affect our negotiations because how do we negotiate when our members have been given letters of summary dismissal,” Mr Mando said.

And speaking in an interview at CCS, Mr Chuanqi said the management at the company had decided to serve its workers with letters of summary dismissal as a way of disciplining them for their riotous behaviour, but that they were free to exculpate themselves.

He said management was eager to listen to the concerns of the workers, but was saddened that the workers quickly resolved to become riotous and damaged property at the company.

He said the Chinese investment in Zambia was there to benefit both Zambians and Chinese and there was no reason for Zambian workers to become violent and damage property.

“As management, we do not take pleasure in dismissing our employees, but we want them to know that violence does not pay and that they have to do things according to the law. Problems arise where there are people, but things must be done correctly,” Mr Chuanqi said.

And Mr Mando confirmed the detention of the seven union branch officials and that he was trying to secure their release.

Mr Mando, who was still at the Kitwe Central Police Station by Press time, said those arrested were branch chairman, Oswell Chibale Malume, vice-branch chairman, Christopher Yumba, branch secretary, Steven Kabwe, branch vice-secretary, Christopher Nkandu, treasurer, Kafwaya Ndombwani, vice-treasurer, Chanda Mhango and a shop steward, Kachinga Silungwe.

Mr Mando said the seven were picked up on Tuesday evening and had not been formally charged although they were still being interrogated.

“Yes I can confirm that seven of NUMAW branch officials at Chambishi Copper Smelter have been arrested and detained at Kitwe central police station. They were picked up around 18:00 hours on Tuesday.

“I am actually at the police station, but I have not talked to them because they are still being interrogated and have not been formally charged. As a union, we are trying to secure their release,” Mr Mando said.

The Times team which went to CCS found the place deserted with only armed police dotted all over to keep vigil.

End of report.

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Fed Can’t Print Its Way Out

A well-known stock market commentator this week said, “There’s been no growth in the money supply for two to three years.”

He also suggested that the recent increase in consumer credit is a positive economic development.

Well, here are the facts. At the end of November, the latest date for which data is currently available, the most common measure of the money supply, known as M2, had risen 11.4 percent since November 2005 and 16 percent since November 2004.

(Just in case you wanted to know: The M2 money stock includes currency, coins and traveler’s checks held by the public; balances in commercial bank checking accounts; balances at credit unions; savings accounts and certificates of deposit accounts less than $100,000; overnight repurchase agreements at commercial banks; and non-institutional money market accounts).

A broader measure of the money supply, the MZM money stock, has risen at an even faster rate over the past few years.

As of Nov. 30, MZM had risen 18.2 percent since Nov. 30, 2005 and 20.8 percent since Nov. 30, 2004.

(In detail, MZM includes all of the components of M2 mentioned before, plus institutional money market accounts and greater-than-one-day repurchase agreements).

So, as you can see, the money supply has clearly grown over the past few years.

My guess is that the well-respected economist who made the comments about the lack of growth in the money supply was referring to a different measure of money, known as the monetary base. That’s defined as currency in circulation plus funds held by commercial banks at their respective region’s federal reserve bank (“reserves”).

Although the monetary base also has risen over the past few years, it has grown at a much slower pace than the M2 or MZM money stock. As of Dec. 31, 2007, the monetary base had risen a modest 4.2 percent since December 2005 and only 8.5 percent since December 2004.

So, you’re probably thinking “Why all of the talk about the money supply?”

The answer is this: When the money supply increases, short-term interest rates tend to decline, and when the money supply decreases, short-term rates tend to rise.

In fact, the Federal Reserve adjusts the target rate for the Fed funds rate by affecting the level of the money supply, or more precisely, by affecting the monetary base.

When the Fed seeks to lower the target Fed funds rate — the rate at which commercial banks borrow (overnight) from one another — the Fed increases its purchases of U.S. Treasury securities in the open market.

(Those who follow the Fed may have noticed that the press releases issued by the Federal Reserve following meetings on interest rate policy always begins with statement, “The Federal Open Market Committee decided to… ”. That’s why it’s called the “open market” committee, because it buys securities on the open market.)

Likewise, when the Fed desires a higher Fed funds rate, it sells U.S. Treasury securities.

However, the Fed is not able to set the exact level of M2, MZM or other money supplies, because there are other factors that affect the money supply.

For example, the ongoing credit crunch and large sums of money that commercial banks have lent to financially-strapped businesses and to individuals over the past six months has caused commercial bank reserves to fall — even though the Federal Reserve has increased its purchases of Treasury securities.

As a result of the decline in bank reserves, the monetary base has grown at an anemic rate over the past few months. In fact, the monetary base rose only 1.5 percent during December 2007 from the same period a year ago.

In light of the ongoing credit crises, the Fed will likely need to significantly increase its purchases of Treasury securities in order to increase the monetary base. Many Wall Street economists have recently been encouraging the Fed to take this step in an effort to lower short-term interest rates.

(Note: When the Fed increases its purchases of Treasury securities, the prices of those securities rise as a result of their increased demand and the yields — interest rates — on those securities therefore fall.)

Well, here’s what I have to say about the recommendations of these “insightful” economists. Go ahead, persuade the Fed to increase the monetary base, because one outcome is certain if the Fed follows the desperate advice of these “experts.”

The result will be that the exchange value of the U.S. dollar will plummet and inflationary pressures will skyrocket. Gold prices, already breaking records, will continue to surge.

In regards to the esteemed economist’s comment regarding the supposedly positive increase in consumer credit, you should consider the following: When the economy is in an expansion mode, an increase in consumer credit is usually a positive development, because such a development indicates that consumers are confident in the future direction of the economy.

To be more specific, when consumers feel good about their employment prospects and their future earning power (that is, salaries and wages), they tend to take out more loans for automobiles, consumer electronic devices and home appliances. They also tend to use credit card debt more willingly for spending on clothing and other personal items, as well as dining out at their local restaurant.

As a result, aggregate consumer spending tends to rise during such periods, as does the total output of goods and services (GDP). That’s because consumer spending accounts for approximately 70 percent of U.S. GDP.

However, when consumers become more fearful of losing their jobs and their confidence in future economic conditions falls sharply — which is exactly what has been occurring over the past two months — an increase in consumer credit should be interpreted as a very negative development.

This is especially so when a large number of consumers begin using credit card debt to help pay their home mortgage loan, as they have also been doing over the past few months. But, don’t worry, there’s also a way to profit from this type of supposedly “positive” economic development.

How would what goes on in the US economy affect the rest of the world, one would ask? Because US Treasury Securities are the world’s most trusted and are purchased by almost every enterprise public or private. So when they are catch a cold, the world sneezes …

Copyright (c) 2008 Money News

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By TENDAI POSIANA and FELIX NKINKE

MINISTER of Commerce, Trade and Industry Felix Mutati has said foreign direct investment in Zambia reached US$1 billion in the first nine months this year.

Mr Mutati said Government was optimistic that investments would rise to US$1.5 billion by the end of the year.

He was speaking during the official opening of a Finance Bank branch in Lusaka, opposite the Arcades shopping complex.

Mr Mutati said about 40,000 new jobs for local people had accompanied this foreign investment.

“This year alone, this country has recorded a huge investment and this has largely been due to what we have seen take place in the mining sector on the Copperbelt and North-Western provinces and in other selected parts of the country,” he said.

Mr Mutati said Government was hopeful that the country’s Gross Domestic Product growth rate would hit 7 per cent this year.

He said with the kind of investment that was flowing into the country, the well-being of most Zambians would eventually improve.

“We want to take the GDP into the pockets of the Zambian people so that they feel empowered,” he said. And Mr Mutati expressed happiness that the financial sector in the country had continued growing as more banking facilities were being opened.

Speaking at the same function, Finance Bank chairman Rajan Mahtani said the bank was poised to record another successful year with customer deposits within the reach of K1 trillion before the end of this year.

Dr Mahtani said total loans and advances had increased from K418 billion to K535 billion while the gross earning as at last month stood in excess of K55 billion.

He said with the compliment of all this development, the bank’s assets base had grown to K1.3 trillion. Mr Mahtani said the bank would soon be launching its 45th branch at the University of Zambia.

Source: Zambia Daily Mail

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LONDON, Oct 10 (Reuters) – Newly Africa-focused Russian investment bank Renaissance Capital has launched a stock index covering 11 markets in sub-Saharan Africa, reflecting growing interest in the region, the bank said on Wednesday.

The RC SSA 50 index is made up of 50 equities and represents 62 percent of the total market capitalisation of the domiciled sub-Saharan equity market, at $61.3 billion, Renaissance Capital, also known as RenCap, said in a statement.

The index covers equities in Botswana, the West African regional stock exchange Bourse Regionale des Valeurs Monetaires (BRVM), Ghana, Kenya, Malawi, Mauritius, Namibia, Nigeria, Uganda, Zambia and Zimbabwe.

The base date of the index is Jan. 2, 2007, and the total dollar return of the index since inception is 39 percent, compared with a gain of 29 percent in the benchmark MSCI global emerging equity index, the bank said.

Investors have shown an increasing interest in Africa as they search for higher returns within emerging markets, but lack of liquidity remains a deterrent.

RenCap, a 12-year old firm with brokering, private equity and a $4.5 billion asset management business, told Reuters earlier this year it plans to double its $500 million investment into Africa by next year and aims to help African firms raise capital on global markets.

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The factors boosting commodity prices such as copper, uranium, gold, cobalt, sugar, etc. are likely to continue, keeping those prices up …

The good times are here to stay in the short to medium term. Sugar is in high demand in the European Union and Nakambala can reap high returns from this. 

The price of gold, South Africa’s biggest export, has surged 16 percent this year, helping to underpin the currency for instance.  Copper has climbed 25 percent, benefiting Zambia, Africa’s biggest producer of the metal.

Overall, Sub-Saharan Africa is benefiting from rising prices of gold, oil and copper, helping the region’s economy expand an estimated 6.8 percent this year, from 5.5 percent last year. The challenge now is for countries like Zambia that are dependent on commodity exports to properly “manage” the commodity boom.

If we respect the truth, then we need to admit that commodity boom phases have not been managed well in the past, and we are at risk of making the same mistakes again. The main factors underpinning commodity prices were strong demand for platinum in devices that cut pollution in cars and rising demand in China and other emerging markets.

Still, commodity prices might drop, hurting growth in some African countries. To assume that current prices and the current boom phase reflects a permanent shift, rather than a temporary opportunity, would be a naive and risky approach to adopt. 

If our analysis is correct, then the slump will come and it will bring with it a significant decline in commodity prices but prudent asset management now would help governments that are diversified enough to transition into manufacturing, construction and service sectors.

 

 

 

However, with norminal GDP rising from $3.24 billion in 2000 to well over $10.71 billion in 2006; per capita GDP income thriving from $303.00  in 2000 to $902.00 in 2006; inflation falling from 26.1% in 2000 to just 9.2% for fiscal year 2006; tourism at its highest peak and a combination of other factors … the Zambian Enterprise is headed for some good times, that’s the memo this week from us at the Zambian Chronicle … thanks a trillion

 

Brainwave R Mumba, Sr.

CEO & President – Zambian Chronicle  

Copyrights © 2007 Zambian Chronicle. All rights reserved. Zambian Chronicle content may not be stored except for personal, non-commercial use. Republication and redissemination of Zambian Chronicle content is expressly prohibited without the prior written consent of Zambian Chronicle. Zambian Chronicle shall not be liable for any errors, omissions, interruptions or delays in connection with the Zambian Chronicle content or from any damages arising therefrom.

Zambian Chronicle is a wholly owned subsidiary of Microplus Holdings International, Inc.  

Copyrights © 2007 Microplus Holdings Int., Inc.  

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