Standard & Poor’s affirmed Zambia’s foreign and domestic credit ratings at B+ with a stable outlook, saying the country’s economic prospects are promising and newly elected President Michael Sata is likely to continue to court foreign investment.
Sata defeated incumbent Rupiah Banda in a Sept. 20 vote. Since taking control of Africa’s largest copper producer, he has fired the governor and board of the central bank, dissolved the boards of four state agencies and scrapped the sale of a local lender to FirstRand Ltd. (FSR), a Johannesburg-based bank.
“We view the smooth handover of power following the recent presidential elections in Zambia as indicative of a maturing of democracy,” Standard & Poor’s said in an e-mailed statement today. “While Mr. Sata’s victory has increased economic policy uncertainty, we expect any shifts to continue to broadly support investment.”
Sata, 73, has pledged to extract more money from mining companies to distribute to citizens, create jobs and tackle graft. Companies including Vedanta Resources Plc (VED), First Quantum Minerals Ltd. and Glencore International Plc operate in Zambia.
Standard & Poor’s warned that Sata may reintroduce a windfall tax on mining companies, raise government spending and cut taxes.
The rating company also expressed concern about increased political interference in monetary policy following the Sept. 29 dismissal of central bank Governor Caleb Fundanga. Appointed in 2002, Fundanga helped bring inflation below 10 percent for the first time in 30 years.
Higher Copper Price
Zambia’s economy has been bolstered by an increase in copper prices and production, with per-capita growth likely to exceed 4 percent this year and the inflation rate likely to remain slightly above 8 percent, Standard & Poor’s said.
“The stable outlook balances improving economic fundamentals against uncertainty regarding the new administration’s economic policies,” it said. “The ratings could be lowered if the new administration’s policies shift macroeconomic policies radically, weakening external, fiscal and monetary fundamentals, or impairing copper production.”
Standard & Poor’s first assigned Zambia a B+, the fourth- highest junk-grade rating, in March, placing it on a par with Kenya and Nigeria. Fitch Ratings gave the southern African nation a similar rating the same month.
Before the election, Zambia’s government announced plans to sell a $500 million Eurobond to finance new transport links and generate and transmit more electricity to the copper mines that drive the economy. The sale was delayed until after the vote.
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