Zambia Infrastructure Report Q1 2013

Includes 3 FREE quarterly updates

BMI View: Construction industry growth in Zambia is expected to return to trend from 2013 after a temporary freeze on construction is anticipated to have eroded growth in 2012. Infrastructure is benefitting from significant attention; in particular, the government’s US$5.4bn five year road plan will boost growth. As such, we have revised up our 2014/2015 outlook and are now anticipating growth of 8.6% on average per year between 2013 and 2017.

The construction sector is being reformed as part of a 'pro-poor' agenda of the Patriotic Front Government, led by President Michael Sata. Sata came to power promising to root out corruption and support poverty reduction; he has made substantial progress on the former and looks set to improve the latter. The anti-corruption agenda has seen tough action, which has negated short-term growth – indeed we anticipate 2012 construction sector growth to be around 2 percentage points lower than trend. This has been particularly evident in the construction sector, including management changes at the state-owned utility, a freeze on construction to ensure proper permitting processes and most recently (in September 2012) the seizure of the national railway which was being run by a concession company formed of South African firms. Notice was served due to dissatisfaction with the level of investment and the quality of service.

From 2013, we anticipate strong growth, closer to trend, to resume, at 8.3% y-o-y real growth. The biggest upside for growth from 2013 is the recently announced US$5.4bn road building programme. The so-called Link 'Zambia-8000' programme is a three-phase road building scheme that envisages the construction and rehabilitation of 8,211km of roads and bridges in Zambia over a five-year period (October 2012-2017). In total, the programme will see ZMK28trn (US$5.4bn) invested into the country's surface transport network. Other projects recently announced, which will support growth, include:

• In October, financing was secured for the US$70mn Kazungula Bridge from the AfDB and JICA. The project consists of a new toll road and railway bridge across the Zambezi River, as well as access roads and a one-stop border post facility at the Kazungula border between Botswana and Zambia. Design and feasibility studies for the project have been completed and with financing now secured the project should move forward shortly.
• A US$500mn railway line linking Chingola to Lumwana proposed by the North-West Railway Company submitted its EIA for approval in September 2012. Financing is in place for the project; however it is currently trying to raise support from mining firms to make the project viable.
• Construction work on the Livingstone Stadium in the Zambian city of Livingstone is expected to start in January 2013. The stadium will have a capacity of 30,000 and is hoped to be completed in Q3 2013.
• The Millennium Challenge Corporation, will begin water and sanitation projects totalling US$350mn in Lusaka, Zambia, in May 2013, to be executed over a five year period.
• The 2013 budget appears likely to include considerable social development funding. Initial indications during the opening of the second session of the 11th national Assembly of Zambia include: construction of new universities; rehabilitation and construction of healthcare facilities; building irrigation for 17,000 hectares of land; and new grain silos to support the agricultural industry.

In order to fund these improvements; Zambia is following a growing trend of raising infrastructure capital through government bonds. Zambia issued its first Eurobond in mid-September 2012, raising EUR750mn, most of which will be dedicated to infrastructure investment. Zambia follows Kenya, Ghana and Cote d'Ivoire is utilising this method, which is one we believe is an important source of financing for a cash-strapped region.