Strictly Personal
How China’s demands at debt talks are adversely affecting Zambian Economy – A Critical Analysis, By Mwansa Chalwe Snr
Published
2 years agoon
The Monetary Policy Committee (MPC) of the Bank of Zambia in its Statement of 15 February 2023, has confirmed beyond reasonable doubt that China’s latest demands at the debt restructuring talks have started to adversely affect the Zambian economy. The Monetary Policy Statement demonstrated the adverse effects that the stalled debt restructuring talks were having on the economy, in terms of the exchange rate, interest rates, inflation, and job creation, due to the uncertainty. The 2022 economic stabilisation gains are all at risk of reversal, if no urgent diplomatic action is taken by Zambia.
Rapid depreciation of the Kwacha
The demand by China that Zambia’s local currency government bonds held by foreign investors, should be included in the deal, and has particularly contributed to the rapid depreciation of the kwacha, which has resulted in the increase of fuel prices and public transport fares. The kwacha exchange rate, is Zambia’s most important economic metric as it affects all Zambians regardless of their status because Zambia is an import dependent country
The Bank of Zambia’s statement shows that the demands by China have contributed to the reversal of the gains that the Kwacha made in 2022, which earned it the title of the best performing currency in the world. The Kwacha has been depreciating against the dollar almost every day for two months now, and it is at its weakest in nearly a year, as talks drag on with no end in sight.
“After a cumulative appreciation of 10.0 percent in the previous two quarters, the Kwacha depreciated by 4.3 percent against the US dollar to an average of K16.71 in the fourth quarter of 2022. The depreciating trend in the Kwacha has persisted in 2023, with the Kwacha trading at K19.33 per US dollar as at February 14.
“Foreign financial institutions, that had typically been suppliers of foreign exchange, are now more pronounced on the demand side as they are divesting from the domestic market. This is principally due to tighter global financial conditions, negative sentiments associated with the protracted debt restructuring negotiations and uncertainty around the treatment of non-resident holders of Government securities,” the Bank of Zambia Statement said.
Higher inflation outlook for 2023
The Central Bank has also revised its inflation outlook for 2023.It has partially attributed the forecasted higher inflation to China’s demand to have Zambian foreign investors in local bonds to be included in the restructuring deal.
“Over the forecast horizon, inflation is projected to increase and remain above the 6 – 8 percent target range. Inflation is now projected to average 11.1 percent in 2023 compared to the November 2022 forecast of 8.5 percent,” The Bank of Zambia Governor, Dr. Denny Kalyalya said. “Negative sentiments arising from the protracted debt restructuring negotiations (and more so the uncertainty over the treatment of the non-resident holders of Government securities) are also projected to add to elevated inflationary pressures.”
Forecast Economic activity and job Creation
The Bank of Zambia has increased the benchmark monetary policy rate to 9.25% from 9.0%. And it recently increased the statutory reserve ratio to 11.5 percent on commercial banks’ deposit liabilities, in order to support the depreciating kwacha. These measures will negatively affect the economy. The cost of borrowing (interest rates) will go up, and there will be continued shortage of liquidity in the economy, which will result in lower economic activity like last year and fewer jobs created.
Geo-political dimension to the debt talks and China’s demands
There is something that most Zambians do not seem to understand about the restructuring talks. There is a chess game that is being played between the US and China, with Zambia being the pawn in the game – which I predicted in my book two years ago. There is clearly a stealth “war” going on between the West/US and China in these debt restructuring talks. And if anyone thinks geo-politics and economics is not at play in the current talks, they must be either quite naïve or have not been following geopolitics of the past twenty years. They are well advised to go research and read more.
China cannot be blamed for its current demands because it is merely pursuing its self-interest by using its economic power in negotiations. China, is in some way, leading other emerging economies in trying to reform the global system for restructuring sovereign debt, which currently excludes multilateral banks like the World Bank. In general, China wants respect and recognition commensurate with its current status as the number one bilateral lender, the number two world economy, and Zambia’s largest bilateral creditor, and the key to the restructuring deal.
The Chinese seem to be pursuing a two pronged strategy in the debt restructuring negotiations, in as far as their demands are concerned. This can only be deciphered by experts on the subject. One is aimed at the West, to pursue reforms in sovereign restructuring, and the other is aimed at the Zambian government so that China can protect its turf which is under some apparent threat.
China has made repeated calls at the restructuring talks and in press conferences, for the World Bank and other multilateral development banks to participate in debt reductions. This demand is clearly targeted at the Parish Club and G7 countries in the debt negotiations.
On the other hand, China is demanding the almost impractical condition, of foreign investors in Zambia’s local currency bonds, to be part of the restructuring deal. This demand is clearly aimed at the Zambian government. It is the clearest sign yet to Zambia that it should directly engage with China at the highest level in order to allay the perception that Zambia has outsourced negotiations to Western countries and institutions. It is designed to put economic pressure on Zambia to act.
This week, Zambians will be on the edge watching the proceedings of the G20 finance minister’s central bank governors meetings in Bengaluru, India, from Feb. 23-25. They will be waiting for the outcome of the talks. The meeting’s agenda will include a debt round table discussion on Feb. 25, which China is part of. This has been organized by the host India, the IMF, and the World Bank. It will discuss broader issues that are creating roadblocks to debt relief deals for Zambia, Sri Lanka, and other countries.
During the G20 meetings in India, the US Secretary of Treasury, Janet Yellen, is expected to focus on unblocking debt restructuring talks and press China to speed up its debt relief for Zambia. The US government’s expectation is to see a deal struck on Zambian debt at these meetings. And the US embassy in Lusaka has echoed the same sentiments: “As Zambia’s largest bilateral creditor and as a co-chair of Zambia’s official creditor committee under the G20 Framework, China has an excellent opportunity to follow through on its announced commitment by moving expeditiously to restructure Zambia’s debt so all Zambians can begin benefiting from inclusive economic growth without delay.”
How to unlock the debt restructuring talks
On the basis of past experience, and knowing how the Chinese operate, it is unlikely that they will be swayed and greatly influenced by appeals from their geopolitical rival, the US or the Bretton Woods institutions-International Monetary Fund and World Bank in making their decisions on the deal.
Last year, the new Chinese Ambassador to Zambia Du Xiaohui disclosed that China never wanted to join the G20 Creditors Committee because it believes that friendly bilateral cooperation is the best way to deal with debt between friends. It had to take a direct phone call from Zambian President Hakainde Hichilema on 31 May, 2022 to Chinese President Xi Jinping to unlock the stalemate. And within two weeks, on the 16th June, 2022, the first Official Creditors Committee (OCC) meeting was held after over six months of failure, following the provisional approval of Zambia’s $1.3billion IMF deal on 3 December, 2021.
And following the aforementioned phone call, the Chinese Foreign Affairs Ministry released a statement about what President Xi Jinping had told President Hichilema. The contents of the statement gives a cue of what Zambia needs to do, to unlock the debt restructuring deal.
“The two sides should strengthen strategic communication and policy synergy, fully implement the nine programs of the Forum on China-Africa Cooperation (FOCAC), deepen mutually beneficial cooperation in various fields, promote more Zambian goods, especially quality agricultural products, to enter the Chinese market, and strengthen anti-pandemic cooperation. Both sides should carry forward the Tanzania-Zambia Railway (Tazara) spirit, keep it updated in accordance with the trend of the times, and make Tazara an important transportation channel in the region. The two sides should adhere to independent foreign policy, firmly safeguard international fairness and justice, and uphold the international system with the United Nations at its core and the international order underpinned by international law,” The Statement said.
Conclusion
President HH should find it easy to arrange a meeting to unlock the deal with China for a number of reasons. First, he did not publicly criticise China during the 2021 general elections campaign, unlike some other previous Zambian Presidential candidates. Two, he must have established some good rapport with President Xi Jinping through last year’s telephone conversation. And in general, there has been no express antagonism between Zambia and China since he became President. The deadlocked debt restructuring talks provides him with a great opportunity to recalibrate Zambia’s relationship with China. READ MORE:https://www.lusakatimes.com/2021/07/27/zambia-china-economic-ties-need-recalibration/
President Hakainde Hichilema, has repeatedly stated that his administration intends to continue with the tradition long-established by his predecessors of upholding the all-weather friendship between Zambia and China, and so it should not be too difficult to engage China at Presidential level.
China is Zambia’s big “brother”. The two’s relationship dates back to Zambia’s pre-independence. It is a sixty eight (68) year old relationship, dating back to 1955.The deal is so easy to unlock, if Zambia directly approaches China at the highest level. And this is the appropriate timing for which nobody would be faulted.
The writer is a Chartered Accountant, Author and an independent financial commentator and analyst.
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Strictly Personal
African Union must ensure Sudan civilians are protected, By Joyce Banda
Published
3 weeks agoon
October 25, 2024The war in Sudan presents the world – and Africa – with a test. This far, we have scored miserably. The international community has failed the people of Sudan. Collectively, we have chosen to systematically ignore and sacrifice the Sudanese people’s suffering in preference of our interests.
For 18 months, the Rapid Support Forces (RSF) and the Sudanese Armed Forces (SAF) have fought a pitiless conflict that has killed thousands, displaced millions, and triggered the world’s largest hunger crisis.
Crimes against humanity and war crimes have been committed by both parties to the conflict. Sexual and gender-based violence are at epidemic levels. The RSF has perpetrated a wave of ethnically motivated violence in Darfur. Starvation has been used as a weapon of war: The SAF has carried out airstrikes that deliberately target civilians and civilian infrastructure.
The plight of children is of deep concern to me. They have been killed, maimed, and forced to serve as soldiers. More than 14 million have been displaced, the world’s largest displacement of children. Millions more haven’t gone to school since the fighting broke out. Girls are at the highest risk of child marriage and gender-based violence. We are looking at a child protection crisis of frightful proportions.
In many of my international engagements, the women of Sudan have raised their concerns about the world’s non-commitment to bring about peace in Sudan.
I write with a simple message. We cannot delay any longer. The suffering cannot be allowed to continue or to become a secondary concern to the frustrating search for a political solution between the belligerents. The international community must come together and adopt urgent measures to protect Sudanese civilians.
Last month, the UN’s Independent International Fact-Finding Mission for Sudan released a report that described a horrific range of crimes committed by the RSF and SAF. The report makes for chilling reading. The UN investigators concluded that the gravity of its findings required a concerted plan to safeguard the lives of Sudanese people in the line of fire.
“Given the failure of the warring parties to spare civilians, an independent and impartial force with a mandate to safeguard civilians must be deployed without delay,” said Mohamed Chande Othman, chair of the Fact-Finding Mission and former Chief Justice of Tanzania.
We must respond to this call with urgency.
A special responsibility resides with the African Union, in particular the AU Commission, which received a request on June 21 from the AU Peace and Security Council (PSC) “to investigate and make recommendations to the PSC on practical measures to be undertaken for the protection of civilians.”
So far, we have heard nothing.
The time is now for the AU to act boldly and swiftly, even in the absence of a ceasefire, to advance robust civilian protection measures.
A physical protective presence, even one with a limited mandate, must be proposed, in line with the recommendation of the UN Fact-Finding Mission. The AU should press the parties to the conflict, particularly the Sudanese government, to invite the protective mission to enter Sudan to do its work free from interference.
The AU can recommend that the protection mission adopt targeted strategies operations, demarcated safe zones, and humanitarian corridors – to protect civilians and ensure safe, unhindered, and adequate access to humanitarian aid.
The protection mission mandate can include data gathering, monitoring, and early warning systems. It can play a role in ending the telecom blackout that has been a troubling feature of the war. The mission can support community-led efforts for self-protection, working closely with Sudan’s inspiring mutual-aid network of Emergency Response Rooms. It can engage and support localised peace efforts, contributing to community-level ceasefire and peacebuilding work.
I do not pretend that establishing a protection mission in Sudan will be easy. But the scale of Sudan’s crisis, the intransigence of the warring parties, and the clear and consistent demands from Sudanese civilians and civil society demand that we take action.
Many will be dismissive. It is true that numerous bureaucratic, institutional, and political obstacles stand in our way. But we must not be deterred.
Will we stand by as Sudan suffers mass atrocities, disease, famine, rape, mass displacement, and societal disintegration? Will we watch as the crisis in Africa’s third largest country spills outside of its borders and sets back the entire region?
Africa and the world have been given a test. I pray that we pass it.
Dr Joyce Banda is a former president of the Republic of Malawi.
Strictly Personal
Economic policies must be local, By Lekan Sote
Published
3 weeks agoon
October 24, 2024With 32.70 per cent headline inflation, 40.20 per cent food inflation, and bread inflation of 45 per cent, all caused by the removal of subsidies from petrol and electricity, and the government’s policy of allowing market forces to determine the value of the Naira, Nigerians are reeling under high cost of living.
The observation by Obi Alfred Achebe of Onitsha, that “The wellbeing of the people has declined more steeply in the last months,” leads to doubts about the “Renewed Hope” slogan of President Bola Tinubu’s government that is perceived as extravagant, whilst asking Nigerians to be patient and wait for its unfolding economic policies to mature.
It doesn’t look as if it will abate soon, Adebayo Adelabu, Minister of Power, who seems ready to hike electricity tariffs again, recently argued that the N225 per kilowatt hour of electricity that Discos charge Band A premium customers is lower than the N750 and N950 respective costs of running privately-owned petrol or diesel generators.
While noting that 129 million, or 56 per cent of Nigerians are trapped below poverty line, the World Bank revealed that real per capita Gross Domestic Product, which disregards the service industry component, is yet to recover from the pre-2016 economic depression under the government of Muhammadu Buhari.
This has led many to begin to doubt the government’s World Bank and International Monetary Fund-inspired neo-liberal economic policies that seem to have further impoverished poor Nigerians, practically eliminated the middle class, and is making the rich also cry.
Yet the World Bank, which is not letting up, recently pontificated that “previous domestic policy missteps (based mainly on its own advice) are compounding the shocks of rising inflation (that is) eroding the purchasing power of the people… and this policy is pushing many (citizens) into poverty.”
It zeroes in by asking Nigeria to stay the gruelling course, which Ibukun Omole thinks “is nothing more than a manifesto for exploitation… a blatant attempt to continue the cycle of exploitation… a tool of imperialism, promoting the same policies that have kept Nigeria under the thumb of… neocolonial agenda for decades.”
When Indermilt Gill, Senior Vice President of the World Bank, told the 30th Summit of Nigeria’s Economic Summit Group, in Abuja, Federal Capital Territory, that Nigerians may have to endure the harrowing economic conditions for another 10 to 15 years, attendees murmured but didn’t walk out on him because of Nigerian’s tradition of politeness to guests.
Governor Bala Muhammed of Bauchi State, who agrees with the World Bank that “purchasing power has dwindled,” also thinks that “these (World Bank-inspired) policies, usually handed down by arm-twisting compulsions, are not working.”
What seems to be trending now is the suggestion that because these neo-liberal policies do not seem to be helping the economy and the citizens of Nigeria, at least in the short term, it would be better to think up homegrown solutions to Nigeria’s economic problems.
Late Speaker of America’s House of Representatives, Tip O’Neill, is quoted to have quipped that, at the end of the day, “All politics is local.” He may have come to that conclusion after observing that it takes the locals in a community to know what is best for them.
This aphorism must apply to economics, a field of study that is derived from sociology, which is the study of the way of life of a people. Proof of this is in “The Wealth of Nations,” written by Adam Smith, who is regarded as the first scholar of economics.
In his Introduction to the Penguin Classics edition of “The Wealth of Nations,” Andrew Skinner observes: “Adam Smith was undoubtedly the remarkable product of a remarkable age and one whose writing clearly reflects the intellectual, social and economic conditions of the period.”
To drive the point home that Smith’s book was written for his people and his time, Skinner reiterated that “the general ‘philosophy,’ which it contained was so thoroughly in accord with the aspirations and circumstances of his age.”
In a Freudian slip of the Darwinist realities of the Industrial Revolution that birthed individualism, capitalism, and global trade, Smith averred that “How selfish soever man may be supposed, there are evidently some principle in his nature which interest him in the fortune of others, and render their happiness necessary to him, though he derives nothing from it, except the pleasures of seeing it.”
And, he let it slip that capitalism is for the advantage of Europe when he confessed that “Europe, by not leaving things at perfect liberty (the so-called Invisible Hand), occasions… inequities,” by “restraining the competition in some trades to a smaller number… increasing it in others beyond what it naturally would be… and… free circulation of labour (or expertise) and stocks (goods) both from employment to employment and from place to place!”
Policymakers, who think Bretton Woods institutions will advise policies to replicate the success of the Euro-American economy in Nigeria must be daydreaming. After advising elimination of subsidy, as global best practices that reflect market forces, they failed to suggest that Nigeria’s N70,000 monthly minimum wage, neither reflects the realities of the global marketplace, nor Section 16(2,d) of Nigeria’s Constitution, which suggests a “reasonable national minimum living wage… for all citizens.”
After Alex Sienart, World Bank’s lead economist in Nigeria, pointed out that the wage increase will directly affect the lives of only 4.1 per cent of Nigerians, he suggested that Nigeria needed more productive jobs to reduce poverty. But he neither explained “productive jobs,” nor suggested how to create them.
In admitting past wrong economic policies that the World Bank recommended for Nigeria, its former President, Jim Yong Kim, confessed, “I think the World Bank has to take responsibility for having emphasized hard infrastructure –roads, rails, energy– for a long time…
“There is still the bias that says we will invest in hard infrastructure, and then we grow rich, (and) we will have enough money to invest in health and education. (But) we are now saying that’s the wrong approach, that you’ve got to start investing in your people.”
Kim is a Korean-American physician, health expert, and anthropologist, whose Harvard University and Brown University Ivy League background shapes his decidedly “Pax American” worldview of America’s dominance of the world economy.
Despite his do-gooder posturing, his diagnoses and prescriptions still did not quite address the root cause of Nigeria’s economic woes, nor provide any solutions. They were mere diversions that stopped short of the way forward.
He should have advocated for the massive accumulation of capital and investments in the local production of manufacturing machinery, industrial spare parts, and raw materials—items that are currently imported, weakening Nigeria’s trade balance.
He should have pushed for the completion of Ajaokuta Steel Mill and helped to line up investors with managerial, technical, and financial competence to salvage Nigeria’s electricity sector, whose poor run has been described by Dr. Akinwumi Adesina, President of Africa Development Bank, as “killing Nigerian industries.”
He could have assembled consultants to accelerate the conversion of Nigeria’s commuter vehicles to Compressed Natural Gas and get banks of the metropolitan economies, that hold Nigeria’s foreign reserves in their vaults, to invest their low-interest funds into Nigeria’s agriculture— so that Nigeria will no longer import foodstuffs.
Nigerians need homegrown solutions to their economic woes.
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