Postcard from Zambia – Mining & Planting Its Way To A Recovery
Visit Summary By Kato Mukuru and Russell Curtis
Mining & planting its way to a recoveryWe recently had the pleasure of spending a week in Lusaka with our regional partners, Pangaea Securities. Whilst a lot of our time was spent indoors with Pangaea’s analysts, we did get to meet a number of blue chip corporates and government agencies/ regulators. What was most impressive to us was the extent of the recovery in Zambia. As the Bank of Zambia (BoZ) told us that Zambia has reached agreements in principle covering about 90% of its external debt, which totalled approximately USD13.34bn. This is impressive, as its GDP was USD18.1bn when it defaulted in November 2020. Not only was the debt issue being addressed, but business activity felt so much stronger than at any other time we had been in Lusaka. Zambia is on the move and targeting 1mn tons of copper production this year (+22% Y-o-Y) and 3mn tons by 2030 (+24% p.a. growth). It is also expecting this harvest to be a bumper year with 3.4mn tons of maize (+125% Y-o-Y), as per the US Department of Agriculture (USDA) following the end of the drought. Real GDP growth in 2025e, 2026e and 2027e is expected to improve to 6.2%, 6.8% and 6.4% respectively (vs 4% in 2024). Encouragingly, the IMF expects Zambia’s fiscal deficit to fall to 1.7% by 2027e (vs 4.9% in 2025e and 13.8% in 2020). In 2026e, the IMF expects Zambia’s 2026e inflation rate to drop to 9.2% (from 14.2% in 2025e) and then normalise at 7% from 2028e onwards. As at December 2024, Zambia had USD4.3bn of reserves (4.6 months of import cover). What stocks caught our attentionAlthough we expect the MPC to hold its policy rate at 14.50% at this week’s meeting, we are confident that rates will decline over the coming 24 months. This should support demand for credit, particularly if agriculture and mining production remain strong. For these reasons, we believe that Zanaco, Zambia’s leading bank is worth a look. With an estimated power deficit of 1,600 MW, the IMF recently noted that the key risk to Zambia’s economic recovery is “a slow recovery in electricity generation and [continued] electricity shortages”. As a leading developer of energy infrastructure with operations in both Zambia and the DRC, which has a power deficit of 1,000 MW in its copperbelt region alone, the CEC must be the best positioned stock to benefit from this crisis. However, finding the funding for the significant capex needed will be a key challenge. As the farm-to-folk powerhouse of Zambia, we were very impressed by the scale of Zambeef’s operations. Their hatchery is churning out 1mn eggs per week, while their cattle farm is processing 80,000 heads of cattle per week. They are planting 25,000 hectares of wheat, 18,000 hectares of maize and still have a reserve of 4,000 hectares. Given the scale of these operations, they are now looking to export more across SADAC. To translate this scale to shareholder dividends, they need to restructure their balance sheet and replace expensive debt funding with equity. With our detailed notes from our meeting available below, we wanted to share the following pictures with you that best captured our time in Lusaka… Well priced beef: Zambeef’s retail price for its super beef ribs were ZMW99.9/Kg, which translates to USD3.74/Kg. In the UK, British beef ribs cost between USD15.7-20.2 and discounted beef ribs at whole foods in the USA (online) cost USD15.98 manufacture over 100 premium products. Infrastructure deficit being addressed: Encouragingly, our regional partners at Pangaea Securities are organising capital raising for a number of private infrastructure projects (mainly roads). The one that stood out to us the most, was the Barotose Highway. This USD337mn PPP is the fastest route linking Zambia’s mineral-rich Copperbelt and Northwestern Provinces to the West Coast Regions of Africa and South Africa. Note that, I am actively discussing my investment in Zambian infrastructure with my people (see above) ☝😉Lots to do and see in Lusaka: When next in Lusaka, make sure to enjoy the great local dishes, which all come with Nshima (Zambia’s staple carbohydrate). For those of you who like golf, the course are beautiful and you have plenty of places to enjoy the 19th hole …trust me 😉 Team photo: Our team with the best hosts in Zambia. Thank you very much Team Pangaea! For our detailed trip notes, please reach out to us by clicking here |
