Zambia Goes To Ballot Box Today For Biggest Vote In Democratic History 2

Zambia headed to the ballot yesterday to vote in the country’s 9th multiparty elections. They will not just vote for a new president, but also for a new parliament, local councillors, mayors and an amended constitutional bill of rights. The 2016 presidential election will be one of the more significant and challenging ballots in Zambia’s recent democratic history. Stakes between the two main parties, the incumbent Patriotic Front (“PF”) and the United Party for National Development (“UPND”) are high. The economy, a key factor in people’s voting decisions, is depressed. Furthermore, the political climate is conspicuously agitated, following waves of negative campaigning, significant upswings in politically motivated violence on both sides and the memory of a bitter election pitting the same frontrunners against each other only a year and a half ago.

This brief will evaluate the issues surrounding the presidential election and its impacts on the immediate and medium term business operating environment. We expect a significantly disputed election to take place and short term policy uncertainty and economic stagnation to remain. However, despite the ambiguity caused by the elections, the medium to long term picture shows a promising stabilization of Zambia’s economic and democratic course.

What are the key issues for this year’s election?

The 2016 election features 9 candidates, but will certainly be a two horse race between President Edgar Lungu (“Lungu”), the incumbent PF candidate, and Hakainde Hichilema (“HH”) of the UPND. HH has been contesting elections since 2006, so this effort will be his fifth and probably final attempt to clinch the presidency. As Figure 1 below illustrates, his party has been improving in the polls and came close to unseating Lungu last year. Lungu won those elections by a razor thin margin of 27,000 votes, in what was a particularly low turnout. Meanwhile, the Movement for Multiparty Democracy, a historically dominant party, collapsed last year, shedding equivalent amounts of support to the PF and UPND.

This year’s poll features new constitutional rules governing the presidential electoral process, which were implemented via a constitutional amendment in February. These include the requirement of a clear majority (50 +1 percent) of the vote to secure victory, and the subsequent possibility of a runoff. The prospect of a run off in this election is high. Given last year’s close result and the presence of several small parties restricting opportunities for a clear majority, no candidate is likely to win in the first round. A highly informed diplomatic source we spoke to said that despite his mission’s best efforts to poll voters across different regions, no clear victor could be discerned. Zambian polling idiosyncrasies and turnout uncertainty further reduced prediction accuracy this year.

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Figure 1: Zambia’s Recent Election History and Registered Voters for 2016 (source: ECZ)

For the first time, the elections also feature a presidential running mate. This amendment was brought in by Lungu on popular demand, to mitigate the risk of a leadership crisis in case of the untimely death of a president, as has happened twice in Zambia in the past 8 years. Although the country has established a firm reputation for peaceful democracy in southern Africa, Figure 1 highlights that Zambia has experienced two elections (2008 and 2015) triggered by the death of serving statesmen. According to several sources in Zambia with whom we spoke, voting fervor is particularly strong this year because people are keen to get through this election following what was effectively a dry run in 2015. This factor, the plight of the economy and the timing of the election (taking place at the height of the dry season when long distance travel in rural areas is viable) lead us to believe that turnout will be substantial. If we were to be mistaken, according to a political commentator we spoke to, high levels of voter apathy could play into HH’s hands, since disgruntled PF supporters will be more likely to stay at home than their counterparts.

The 2015 election happened in February, at the peak of the wet season, when travel in rural areas was restricted. That election also took place just before the economy took a turn for the worst, due to two separate occurrences that coincided:

1. A sustained dive in world commodity prices, including copper prices, which account for 11 percent of the country’s GDP and over 70 percent of its forex earnings. The Kwacha’s value followed suit, losing up to half of its value at one point and contributing to cost push inflation of up to 22 percent. Over 10,000 jobs were lost in the Copperbelt, the country’s mining hub and a traditional PF stronghold, leading to violent protests against the government’s failure to negotiate with international mining firms including Glencore and First Quantum.

2. A severe regional drought attributed to the El Nino weather phenomenon that afflicted the country in the tail end of 2015. Food shortages were reported in rural areas in the north and east, and a ban on maize exports (a staple grain) was introduced. Hydroelectric power supplies were severely afflicted, also due to mismanagement, and unplanned electricity outages reached up to 10 hours per day in some parts of the country, causing businesses to fail or forcing them into hibernation.

GDP growth fell from five to three percent last year, and is expected to stagnate this year. However, since the arrival of the dry season in May, the PF appears to have stemmed the tide of economic insecurity. Load shedding has largely stopped due the provision of imported electricity and a partial restoration of hydroelectric output, and food supplies have been guaranteed. Meanwhile, excellent efforts from the largely independent Bank of Zambia have so far brought the currency and inflation under control.

This narrative presents a dilemma for many election analysts, since it is unclear how voters will respond to Lungu’s track record whilst in power. On one hand, he can be faulted for failing to provide adequate relief to the mining workforce in the Copperbelt, and their anger against him was palpable earlier this year, when he was booed at a rally in the region after failing to secure jobs having promised to do so only a few months earlier. It is not clear how long voters’ memories there will be given recent improvements in living conditions. The region is traditionally a PF stronghold, but we think it is now a key battleground between the PF and the UPND. Lungu’s government, especially his Ministry of Finance, also stands accused of wasteful and corrupt management of the economy. This includes not only water resources, but also on infrastructure projects (such as the construction of roads), begun by Sata but maintained by his successor. Ironically, Lungu has campaigned on a promise to “finish the job”, with one of his campaign slogans being “Look what we’ve done” in reference to several new roads that crisscross the country.

On the other hand, there is a case to be made that Lungu was thrust into power at an unfortunate time and was exposed to economic headwinds outside of his control. Both occurrences listed were international phenomena. Furthermore, some fault for financial mismanagement can be laid at the feet of the outgoing Minister of Finance, Alexander Chikwanda, an aging stalwart of the PF who bankrolled Lungu into power in 2015 and who, according to a highly placed source in the mining sector, pulled most of the strings in State House. Chikwanda has been repeatedly accused in the media of siphoning off Eurobond funds, as well as money from “inflated” Chinese road contracts to subsidize the PF’s popularity. In the case of this election, the party has indubitably used state coffers to its advantage, funding local chieftains, deploying young political cadres and monopolizing advertising space. A political analyst we spoke to in Zambia said that the Copperbelt region had been blanketed by PF posters during the run up to the election, whilst opposition displays had been vandalized.

Lungu’s economic policies should he win haven’t been defined beyond the stated aim to continue his predecessor’s work. However, his opposite number’s policies are also unclear. HH has campaigned vigorously to denounce Lungu’s mismanagement of the economy, and to promote his own abilities to remedy the economy in various ways, including promoting value addition in the copper industry, cutting red tape and the civil service and diversifying the energy mix. But he has not provided specific details on this, instead relying on his business acumen honed as a successful management consultant to emanate competence for the presidential function. HH has publicly vowed to bring his professional experience to the role. As a result, many sources in the business community would prefer to see him in power, but HH has historically struggled to unite Zambians of different ethnic and regional backgrounds.

Zambia has a history of tribalism that survives to this day, and still plays a leading role in political elections despite Kenneth Kaunda’s efforts to instigate a national sense of identity. Hailing from the Tonga tribe in the south of the country and the Lozi tribe in the East respectively, HH and his counterpart must extend their appeal to over 70 different tribes that populate 11 Zambian provinces. This means crafting a web of interethnic alliances in order to gather key regions to heel. The introduction of running mates has spiced up proceedings this year.

What will be the outcome?

Our prediction is speculative, but we think that HH will win narrowly in the first round without gaining an overall majority. A runoff will probably favor Lungu, who will deploy all available state resources to ensure victory. A run-off is likely to engender significant uncertainty. It must be called within 37 days of the first round. Following this, any appeal by a party must be heard by the constitutional court within 14 days. Following this, the court has 30 days to reach a decision. We therefore expect electoral uncertainty to last around three months.

According to various academic, political and journalistic sources we spoke to, we expect that:

• Urban centres in Lusaka and the Copperbelt (the most populous parts of the country) are more likely to vote on an economic basis than on tribal affiliation. Being usually wealthier and more informed than their rural counterparts, they are likely to swing to the candidate of choice. We estimate that both are key battlegrounds, despite the PF winning both regions in 2015. In an act of pure speculation, we believe that the recent downturn will ultimately play into HH’s hands in those regions.

• The Southern, Western and North-Western province will come out in favour of HH, as they did last year. HH hails from the South and his party has not been troubled by the PF’s attempts to gain voters in this territory (despite being a Westerner, Inonge Wina, Lungu’s running mate, is not well viewed by her local constituents).

• The Eastern provinces will be a fairly tight split between Lungu and HH, with perhaps a slight advantage for the former. Ethnic and economic ties will both be at play.

• The Northern Provinces will also be split. Traditionally closely affiliated to Michael Sata (a Bemba from the North), it should swing towards the PF. However, HH has worked hard to cultivate ties with the region, including naming his running mate, Geoffrey Bwalya Mwamba, a former PF official and ally of Sata’s. There is a chance that HH could edge this region away from Lungu.

What will happen after the elections?

• If HH loses by a slim margin, we believe he will contest the vote. This is his fifth and probable last attempt to win the presidency, and his party is at its most powerful.

• A runoff will extend political uncertainty and the possibility of incidents of unrest for approximately a month. Should the runoff be legally contested, uncertainty may extend into mid to late October. Doubts have been raised about both the Electoral Commission of Zambia (“ECZ”) and Constitutional Court’s impartiality to judge the appeal. New regulations voted in earlier this year granted a suspicious degree of legal immunity to ECZ members, while several judges appointed to the constitutional court at the same time have close ties to Lungu. Questions about the validity of their judgement could usher in a more protracted period of uncertainty, perhaps lasting up to the end of the year.

• We do not expect civil unrest to endure after the election. We have noted with concern some comments indicating that the army will intervene should violence continue after the election, but we remain confident in the electorate’s desire for peace and the country’s historical stability.

• IMF assistance is expected to be solicited no matter the outcome. This will bring liquidity to the market and should stimulate investment, despite reducing policy leeway for the incoming government. The victor will probably need to make several difficult spending cuts on fuel, agricultural and electricity subsidies in order to correct distortions in the economy. However, several business executives we have spoken to this year had put on hold their investment decisions due to concerns over the country’s macroeconomic situation, notably its high levels of external debt in the face of a growing budget deficit. An economic straightjacket imposed by the IMF may well boost private sector confidence.

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