JOHANNESBURG – Investors are overlooking Zambia’s political risk and buying the nation’s assets as the price of copper, its biggest export, rises.

The yield on Zambia’s $1-billion Eurobonds due April 2024 have fallen 135 basis points this year to 7.55% on Wednesday. The southern African nation’s currency has appreciated 12% against the dollar in 2017, making the kwacha the continent’s best performer after Mozambique’s metical. Copper prices are at their highest in more than two years. The metal used in plumbing and electrical wiring accounts for about 70% of Zambia’s export earnings.

At the same time, the country’s main opposition leader, Hakainde Hichilema has been detained for over 100 days on treason charges. President Edgar Lungu this month imposed emergency measures and gave the authorities extra powers to detain suspects for more than 48 hours, after what he said was an arson attack at the country’s biggest market, and parliament approved extending this for three months.

“The drop in the yield of Zambian government bonds is 100% attributable to the copper price, as the political situation worsened over the course of the last months,” said Lutz Roehmeyer, a director at Landesbank Berlin Investment in Berlin, who helps oversee $2.6-billion including Zambian Eurobonds. “Politics have short legs and fundamentals are all that count.”

IMF PROGRAMME
Political tensions in the country could jeopardize its negotiations with the International Monetary Fund over an economic program, Fitch Ratings said July 17. Zambia is still on course to reach a staff-level agreement with the Washington-based lender this month to take to its board for final approval in August, Finance Minister Felix Mutati said this week.

Expectations that Zambia will access a loan from the fund has “allowed investors to put any concerns surrounding domestic political tensions to one side,” David Willacy, a foreign-exchange trader at INTL FCSTone in London who monitors the kwacha, said.

“It wouldn’t be all that surprising that in the event the country scuppered its chances of a IMF deal because of political decisions, the kwacha gave up all of its 2017’s strength,” he said by email. “Investor confidence in the country and its economy is built on a fragile economic recovery, and as quickly as dollars have come into the country this year, they could as quickly be removed.”