US-Iran tension may affect Zambia’s economy – Kanyama

Economist Chibamba Kanyama says the ongoing tension between the United States and Iran may have a negative impact on Zambia’s economy as the country’s level of investment in foreign countries could be affected.
And Kanyama says he does not expect a further increase in fuel pump prices in Zambia arising out of hike in international oil prices amidst unless the occurrence is sustained.

The continued tension between Washington D.C. and Tehran, triggered by the brutal drone strike that killed top Iranian general Qasem Soleimani earlier this month, had led to an increment in Brent Crude oil by 1.4 per cent, at US $69.21 per barrel in the middle of the Asian trade, easing back from earlier gains.

Commenting on the international development, Kanyama said although he did not expect an increase in fuel prices locally, the current tension between the US and Iran would affect the country’s level of investment in foreign markets due to the impact the conflict may have on the volumes of Non-Traditional Exports (NTEs) and minerals to China and other countries.

“Overall, the current tension, generally, has an impact on Zambia because it involves more than just the price of fuel. You will observe that the trade war between China and the USA has its own detrimental impact on our economic growth, particularly in positioning our copper and other exports. The price of copper dropped from US $6,800 per metric tonnes to just about US $6,000, hugely impacting our copper production output, export earnings and foreign reserves. In other words, the deteriorating situation in the Middle East will eventually affect our level of investment because our minerals and Non-Traditional Exports (NTEs) are not only about China, but many other countries,” Kanyama said.

He observed that oil prices on the international market may only affect Zambia if the higher prices were sustained over the long-term.

“The increase in the international oil price arising from the USA-Iran relations is not healthy for all other countries that have not hedged against volatilities in the oil price. We do not know how long this tension will hold and it’s now likely going to fuel further deteriorating relations with the entire Middle East, which supplies our oil. I am not very sure Zambia buys fuel using futures markets, which is about locking an agreed price for a period of time so that if there’d be in upward adjustment in the price, fuel would continue to be offloaded to Zambia at the locked price. While hedging or other market-based derivatives are an effective tool of purchasing commodities, they are not popular for developing economies with low oil uptake. This is because of the various complications as well as potential losses in the event that the price of oil drops as we have seen many times before,” said Kanyama.

“However, at the given rise of 4.5 per cent, one anticipates that the impact on Zambia is minimal as the present purchased stock may last a couple of months longer. It is only when the increase is sustained over a period of time and the margin of increase is high enough to shock our own reserves when we may see our government respond. Besides, it is very likely the recent increase in fuel did take account of price adjustments within a certain range of movement, either arising from exchange rate devaluation or international price movements.”

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Mumba Jefferson
Mumba Jefferson

Thanks so much for the update.

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