Western Investors Salivate at Future IMF Deal After Businessman Hichilema Wins Zambia Elections

Zambia’s first president, Kenneth Kaunda, who died in June, was an avid believer in African socialism and used the independent Zambian state to help the nation recover from nearly 80 years of British colonial rule. However, many of his policies were reversed by neoliberal economic reforms after he was overthrown in 1991.

Zambian opposition politician Hakainde Hichilema won an upset victory in Monday’s presidential elections, defeating incumbent President Edgar Lungu by almost 1 million votes out of about 5 million cast. Hichilema is one of the country’s richest men and is likely to steer the country on a course closer to the West, with investors already making plans for after the country’s expected International Monetary Fund (IMF) bailout.

In the Monday vote, 59-year-old Hichilema of the United Party for National Development (UPND) won 60% of the vote, or 2.8 million ballots, triumphing over 64-year-old Lungu’s 1.8 million votes. Because of the wide margin, there was no need for a runoff election, and while Lungu initially claimed there had been irregularities in the election, he soon conceded defeat and said he would “comply with the constitutional provisions for a peaceful transfer of power.”

Speaking later on Monday, Hichilema told Zambians, "it is in no doubt what the instruction is to all of us [that you] ... elect us to office at a very difficult time.”

According to Al Jazeera, Hichilema benefited from a large “protest vote” over Lungu’s perceived poor handling of the COVID-19 pandemic and the economic downturn the pandemic has brought. At 70%, turnout was its highest since multiparty elections began in 1991.

Hichilema, who has run for president six times, is one of Zambia’s richest men. According to a profile of him by Deutsche Welle on Monday, he obtained advanced degrees in economics and business administration from the University of Zambia and the United Kingdom’s University of Birmingham before becoming head of the Zambian operations of accounting firm Coopers and Lybrand, which later became part of PricewaterhouseCoopers and Grant Thornton. He owns one of Zambia’s biggest cattle herds and has used his wealth to bankroll the UPND, which he founded in 2006.

Copper and Debt

Zambia, according to the Tricontinental Institute for Social Research, “is a rich country with a poor population.” With a poverty rate of between 40 and 60%, the country also holds enormous mineral wealth, making it the second-largest copper producer in Africa after the Democratic Republic of the Congo. 

However, much of that wealth flows out of the country. According to data collected by the Observatory of Economic Complexity, in 2019, 53.4% of Zambia’s exports were raw copper and another 19% were refined copper, and 28.7% of its exports went to Switzerland, while another 15.9% went to China.

However, Lungu’s government made a major move toward control over its own resources earlier this year when Zambia Consolidated Copper Mines, the state-owned mining firm, acquired a 90% stake in the Mopani Copper Mines for $1.5 billion from Glencore, an Anglo-Swiss multinational commodity trading and mining company that owns mineral extraction facilities across Africa.

In addition, the country is heavily indebted, including $2.2 billion owed to China, $3 billion in Eurobonds, $3.5 billion in bilateral debt, $2.1 billion to multilaterals and $2.9 billion to commercial lenders. Despite being a minority of its debt, Lusaka’s debt to China has been extensively attacked by the Western press as proof of Beijing’s “neocolonialism” in Africa and even called “debt slavery.” In fact, Zambia owes more to the European Union than to China.

In November 2020, Zambia became the first African nation to default in the COVID-19 pandemic, bailing on payments on a $1 billion Eurobond. As a result, Lungu’s government began talks with the IMF for a bailout, but his government’s refusal to accept the kind of stiff austerity measures the IMF demands of its borrowers has so far kept the deal off the table.

Looming IMF Deal

However, with the victory of a Western-oriented businessman, investors are salivating at the possibility of such a deal in the near future.

“Post-inauguration, an IMF program is on the cards for Zambia,” Gregory Smith, emerging markets strategist at ‎M&G Investments in London, told Bloomberg on Tuesday. “Once an economic plan is in place the IMF negotiations can finally step up a gear. An IMF program is feasible ahead of the April 2022 meetings.”

Aleix Montana, Africa analyst at risk intelligence company Verisk Maplecroft, told the outlet that “Hichilema’s first priority as president will be to implement economic reforms and to work towards an agreement with the IMF for financial assistance, which has become more likely following his victory.”

“An IMF bailout would facilitate the restructuring of Zambia’s debt and increase the likelihood of it being accepted in other debt assistance programs. Zambia’s commitment to reforming its public finances will be judged on the outcome of the negotiations with the IMF,” Montana added.

“Given his history in the private sector, we expect that a Hichilema presidency will implement more business-friendly policies, as opposed to Mr. Lungu, who has a track record of intimidating foreign mining companies,” Zaynab Mohamed, an analyst at South Africa-based NKC African Economics, told the Wall Street Journal after Hichilema’s victory.

Zambian analyst Neo Simutanyi told DW that Hichilema “will be in a better position to negotiate terms with international creditors and investors in mining operations and the economy,” adding that "until now, there has been a lack of confidence in the economy."

At an IMF press briefing in May, communications director Gerry Rice noted that talks on an extended credit facility had yielded “broad agreement on the macroeconomic framework” and they had made “notable progress” in outlining the “key policy measures to address the imbalances currently facing Zambia and to enable a return to sustained growth with ‑ and this is important for us, enhanced fiscal space for social and development spending.”

In other words, the Brussels-based lender has prepared the ground for Lusaka to accept austerity measures and limit its control over banking and investment as its economic situation worsens.