Zambian president authorized to seek third term

Zambia's Constitutional Court on 7 December ruled that President Edgar Lungu of the ruling Patriotic Front (PF) can contest the 2021 elections to seek a third term as president.

• The court ruling is highly likely to strengthen President Edgar Lungu's prospects of remaining the Patriotic Front (PF)'s prime candidate to stand for re-election in 2021.
• In response to mounting criticisms from the opposition United Party for National Development (UPND) and civil society organisations, the PF administration is increasingly likely to resort to using repressive tactics like banning protest marches and permitting violent intervention by security forces.
• Declining portfolio investor confidence reflecting debt distress concerns is likely to increase non-payment risks while decreasing foreign direct investment inflows will increase the scope for project delays and cancellations, with particular risk in the mining sector, and for contractors providing services to the public sector.

According to the unanimous ruling from the seven-member bench, President Edgar Lungu's first tenure from January 2015 to August 2016 did not constitute a full term, making him eligible to stand for a substantive second term in 2021. President Lungu, a former minister of defence and justice, was elected president following the death of President Michael Sata (in office from September 2011 to October 2014) and the ineligibility of then vice-president Guy Scott, as both his parents were non-Zambian. Lungu subsequently won the August 2016 elections and indicated his intention to stand again in 2021 despite opposition criticism from the United Party for National Development (UPND) and others that this was unconstitutional. Although Zambia's 2016 constitution stipulates a limit of two full five-year terms, an additional provision states that the term of office of a replacement president, if less than three years, does not constitute a full term. However, four opposition parties including the UPND and the influential civil society group, the Law Association of Zambia (LAZ), petitioned the Constitutional Court in January 2018 opposing Lungu's eligibility in 2021.

PF internal dynamics

Lungu's re-election ambition remains unpopular with the public and some PF members. This reflects differing interpretations over the term limit coupled with an increasing divide in the ruling administration over allegations of poor economic management and widespread corruption. On 3 January, Harry Kalaba, then the foreign affairs minister and a potential successor to Lungu, resigned, criticising the government over rising corruption. Corruption allegations also featured on 19 September, when Lungu dismissed community development minister Emerine Kabanshi for heavy reported links to a USD4.7-million social cash transfer scandal. This followed the withdrawal of funding for the programme by donors including UKAid and USAID and threats of freezing all aid over corruption.

Lungu also is accused by a faction of the Patriotic Front (PF) party aligned to late president Sata of purging PF party structures and appointing Movement for Multi-Party Democracy (MMD) allies to his cabinet to consolidate his power base. Lungu appointed MMD member Joseph Malanji as foreign affairs minister, replacing Kalaba in January. Lungu also reshuffled his Cabinet on 14 February, replacing or reassigning over half his ministers. The cabinet reshuffle appeared an attempt by Lungu to respond to mounting criticism over economic performance and to remove resistance within the ruling PF party to his third-term bid by moving influential gatekeepers like Felix Mutati who could obstruct his plans.

Rising external debt concerns

The Constitutional Court ruling comes alongside stalled USD1.3-billion International Monetary Fund (IMF) bailout negotiations and rising external debt concerns - fuelled by overinflated projects such as the USD1.2-billion Lusaka-Ndola road and a USD400-million Israeli defence equipment contract. Discussions on the bail-out package stalled over uncertainties over the actual size of Zambia's external liabilities and government unwillingness to commit to IMF-specified targets. In October, IHS Markit downgraded Zambia's short-term sovereign risk rating from 35/100 (or BBB on the generic scale) to 40/100 (or BBB- on the generic scale), and revised the outlook to Negative. This reflected the significant increase in the current-account deficit during the first half of 2018, the falling import cover ratio, and indefinite suspension of some donor aid for the Zambian budget. In August 2018, IHS Markit downgraded Zambia's medium-term sovereign risk rating to 65/100 (CCC+ on the generic scale) from 60/100 (B- on the generic scale) with a Stable outlook. Despite new finance minister Margaret Mwanakatwe halting new borrowing and cancelling an estimated USD5-billion of contracted loans, external debt servicing costs reached USD1.6 billion in 2017 according to the latest World Bank figures. Yields on Zambia's USD1-billion Eurobond, which matures in 2024, spiked up to 16.61% in October, indicating reduced portfolio investor confidence given debt-distress concerns and increasing perceived non-payment risks.

Outlook and implications

The Constitutional Court's ruling is highly likely to strengthen Lungu's prospects of remaining the prime PF candidate to stand for re-election in 2021. Any resulting political instability will worsen Zambia's debt-sustainability problems. Despite being the second-largest copper producer in Africa, debt distress concerns are reducing investor confidence, curtailing its market access and increasing non-payment risks. Non-payment risks are more acute in the mining sector, and for contractors supplying the public sector.

Despite ruling-party splits, the opposition does not seem well placed to benefit. The UPND's recent heavy electoral losses, notably in strongholds such as the Lusaka Mayoral elections and Chilanga parliamentary by-elections has indicated splits in UNDP's leadership and internal organisational. These are likely to weaken UPND's electoral prospects. In response to the growing criticism from UPND and civil organisations, Lungu and the PF administration are increasingly likely to use repressive tactics, potentially seeking to regulate internet and social media usage, ban protest marches, and permit violent interventions by the security forces. On 8 October, a student at the University of Zambia reportedly died from suffocation after police fired a tear gas canister into her room following student protests over delayed government accommodation and meal allowances.

Tax increases in the telecoms and mining sector are also are likely to become more pronounced if commodity prices for Zambia's copper exports decrease. Other indicators of changing non-payment risks include announcements following the outcome of the debt and procurement audit, resumption of bilateral aid, increasing hydro-electricity production for the mining sector, and changes to agricultural output. Successful prosecutions of public officials for alleged fraud and corruption would indicate Lungu's electoral prospects in 2021 becoming stronger.

Posted 14 December 2018 by Thea Fourie, Director, Economics, S&P Global Market Intelligence and

Theo Acheampong, Senior Analyst Country Risk – Sub-Saharan Africa, S&P Global Market Intelligence