Zambia - Q2 2013


SWOT Analysis

Strengths

  • Significant natural resources, the country ' s status as the la rgest copper producer in Africa and considerable coal and cobalt reserves have all attracted infrastructure investment .

  • Strong economic growth forecast over the medium term (2013-2017) of 7% on average per year.

  • Construction industry has expanded by double-digit rates over the past few years.

Weaknesses

  • Financing constraints have stalled the development of crucial infrastructure.

  • Absence of sophisticated sources of finance.

  • High levels of corruption and lack of transparency in tendering.

  • Severe disruptions to power supply - due to ageing infrastructure and lack of capacity and diversification - hinders the country's business environment.

  • Construction freeze in June 2012 will have stalled growth for 2012, resulting in a downgrade to our forecast.

Opportunities

  • Strong construction industry growth anticipated over our 10-year forecast period.

  • Significant investment in expanding generating capacity should ease power shortages.

  • High commodity prices are making significant investment in new and expanding mines economically feasible; this often includes construction of associated freight and power infrastructure.

  • Government is hoping to use public-private partnerships to finance infrastructure, which could unlock new capital.

  • Anti-corruption pledge by President Michael Sata should help improve transparency in contract awards.

  • EIB has resumed lending to infrastructure projects in the country in a show of confidence in the anti-corruption moves of President Michael Sata.

  • Regulatory reform and a clamp down on land allocation and building permits will create a more sustainable industry outlook.

  • Success in raising funds by sovereign bonds opens up the potential to use sovereign bonds for infrastructure, allowing the raising of financing a t relatively low interest rates.

Threats

  • A drop in commodity prices, which are trading above historical trend, could result in a drop in foreign investment in mines and associated infrastructure. However, copper prices and demand for copper should remain strong, despite a slight fall in prices over 2012.

  • Reduced mining revenues would also reduce government revenues and therefore remove funding for public infrastructure investment.

  • The election of Michael Sata as president presents some threat to policy continuity. Although Sata is working to root out corruption and improve transparency, this will involve a policy shakeup and has led to the sacking of high-ranking officials. However, we do not anticipate any major changes in policy and expect this to benefit the country's business environment.

This article is tagged to:
Sector: Infrastructure
Geography: Zambia