Zambians and their central bank decide

By Rafiq Raji, PhD

Zambians go to the polls this week (11 August). They would also be asked to endorse a constitutional amendment in tandem. Holding the referendum together with the elections has been criticized: the amendment enjoys wide support, potentially tilting the electoral vote towards the ruling Patriotic Front (PF) party. Quite naturally, heightened tensions ahead of the vote have spurred fears of potential violence in the aftermath of what are likely to be disputed results. Just before then (8-9 August), Zambia’s central bank, Bank of Zambia (BoZ), decides on its benchmark interest rate, which I reckon would remain unchanged at 15.5 percent.

Polls may be violent, but not all too much
Zambia’s president, Edgar Lungu, faces a tough challenge in polls this week from the leading opposition United Party for National Development (UPND) candidate, Hakainde Hichilema – two elections in a row now – who he barely beat (and under controversial circumstances) in the 2015 by-election, following the death of erstwhile leader, Michael Sata. If social media following were a valid benchmark, Mr Hichilema would win by a wide margin. In any case, dissatisfaction and economic woes since Mr Lungu’s ascension to the presidency may have strengthened Mr Hichilema’s following. There are pointers: Mr Sata’s former deputy, Guy Scott, who was also briefly president, has endorsed the leading opposition candidate – evidence of divisions within the ruling party. There have also been incidents of violence, mostly against opposition supporters. A popular independent newspaper critical of the Lungu administration has also had to endure the weight of officialdom, with tax authorities accusing it of evasion. Mr Lungu has also not been shy to use threatening language: it is widely reported that he has tremendous admiration for Uganda’s president, Yoweri Museveni, known for his ruthless strangulation of opposition elements in his country; leading many to believe Mr Lungu could deploy similar tactics against opponents in the aftermath of elections that he could lose. True, the opposition could potentially lead the vote or the two leading candidates’ tallies may be so close, like the last time, as to be within the margin of error; and hence instigate potentially violent protests. However, authorities’ heavy-handedness ahead of the elections fan these fears some more. Mr Hichilema has expressed concerns: he does not believe the elections would be free and fair, citing recent cancellations of two rallies by authorities. Even so, I am not convinced that any potential violence would be so significant or widespread as to put the economy in jeopardy. Former Nigerian president, Goodluck Jonathan, who is leading the African Union observer mission, believes the elections would be ‘satisfactory.’ Naturally a pacifist, Mr Jonathan tends to take a positive view, especially of constituted authority. Regardless, both sides need a peaceful country to retain their support base, currently frustrated in light of still ongoing economic headwinds – drought, power shortages, high food prices, and expensive electricity. And even if Mr Hichilema feels cheated in the event that he is declared to have lost, his vast local business interests should be good enough reason for him to adopt a peaceful approach. All that may be needless: Mr Lungu may yet prove to be a statesman.

BoZ would likely hold rates
Expectedly, Zambian consumer inflation has started trending downwards: the annual headline slowed to 20.2 percent in July from 21.8 percent at the beginning of the year. The monthly inflation pace is more instructive: it slowed to a paltry 0.1 percent in July from 1.3 percent in January; surprisingly little affected by the election cycle. Current measures have been adequate in fending off price pressures, which typically intensify ahead of elections. After the polls, fears about potential violence might cause an initial artificial scarcity: affecting food and transportation prices. And electricity tariffs remain high: even when the poor are spared the expense, continued power shortages mean second-round effects transmit to prices of goods and services that depend on electricity in one form or another. Regardless, my forecasts have not changed much since my last column on Zambia (10 May 2016): I still see annual consumer inflation slowing to single-digit levels before year-end. Thus, the BoZ may see the wisdom in cutting rates at its monetary policy committee (MPC) meeting in November, by 350 basis points to 12 percent, say. But at the meeting this week, the committee would likely keep the benchmark rate unchanged at 15.5 percent.

Also published in my Business Day Nigeria newspaper back-page column on 9 Aug 2016 (Tuesdays). See link viz. http://businessdayonline.com/zambians-and-their-central-bank-decide/

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