BMI View: After unsustainable levels of public investment, the construction sector will moderate from double-digit growth to a more realistic, but still healthy, pattern over our 10-year forecast period to 2024, largely driven by continued investment in transport and energy projects. However, an uncertain environment for the crucial mining sector will pose a downside risk and lead to lower capital expenditure.
On the one hand the government has moved to improve Zambia's construction sector, through tough action in the industry and wider economy to address corruption, which is likely to create a more transparent sector over the longer term. Following the inauguration of President Edgar Lungu, expectations are plans under this agenda are set to continue.
However, overspending in recent years and falling copper prices will severely restrict the government's ability to invest in the infrastructure sector. Spending cuts are likely to fall on capital spending rather than current in the run up to the 2016 elections, and uncertainty over mining tax policy will likely limit investment in that sector. Altogether, the Zambian infrastructure sector looks set to see less investment than it has received in the last few recent years.
Key Trends And Developments
New Zambian President Edgar Lungu was sworn into office in January 2015. He is part of the same party as his predecessor, Michael Sata, and is expected to continue with his anti-corruption stance. However, elections in 2016 are a threat to policy continuity as resentment towards the incumbent government's tax policies in the mining sector.
The International Finance Corporation (IFC) will consult the Industrial Development Corporation of Zambia on the deployment of 100MW of solar photovoltaic (PV) capacity. The two organisations will explore the development of two 50MW solar plants under a new memorandum of understanding. Both facilities, which will reportedly be the country's first utility-scale PV projects, will be developed on separate sites by different private sector firms. Each of them is expected to be partially held by a local firm. IFC's advisory role will be negotiated in the next few weeks. The two partners will issue requests for prequalification to prospective developers in three months.
The African Development Bank (AfDB) has cleared loans worth USD243mn for a project to rehabilitate the 210km Chinsali-Nakonde road, connecting northern Zambia to southern Tanzania. Work includes reconstruction of the road between Chinsali and Nakonde, rehabilitation of 50km of feeder roads and setting up service stations. The entire project is estimated to cost USD255.76mn. The Zambian government is expected to provide the remainder of the project cost through counterpart funding. The Chinsali-Nakonde road will connect the port of Dar-es-Salaam in Tanzania to the copper belt in the Democratic Republic of the Congo and northern Zambia. The road will also help link the copper belt to South African ports.
Zambia's Road Development Agency (RDA) is seeking expressions of interest (EoI) from financially and technically competent prospective concessionaires for six road projects in Zambia. Work includes converting selected roads to dual carriageways. Successful bidders will finance, design, build, upgrade, rehabilitate, operate, maintain and toll the road projects. The public-private partnership projects include the 321km Lusaka-Ndola road, 50km Ndola-Kasumbalesa Border road, 124km Chirundu Border-Chilanga road and the 855km Kapiri Mposhi-Nakonde road. The projects also include a 205km road from Chingola to Mutanda through Solwezi and a 488km road from Kazungula via Livingstone to Turnpike. Interested firms are required to submit their EoI by July 17.
Zambia ranks in fourth place BMI's Sub-Saharan Africa (SSA) Risk/Reward Index (RRI), a fall from third place last quarter, owing to reduced growth prospects. Overall the long-term trends suggest the business environment is improving due to former President Michael Sata's anti-corruption drive, although this could be under threat from growing resource nationalism. Zambia scored 45.5 overall this quarter, a slight decrease on the previous quarter.