Zambia's GDP growth seen at 6.6 pct in 2012-poll

JOHANNESBURG, (Reuters)

Zambia's economic growth with hold up well this year and next as cashes in on high copper prices through privatisation, bringing more machinery to build the $13 billion economy through the mining sector.

A poll of ten analysts conducted over the last week showed mining would be the key driver of growth in Africa's largest copper producer, fueling the economic growth to 6.6 percent this year and 6.9 percent next year.

For 2012, the latest survey represents a slight downgrade from the 6.9 percent expected in the last poll in November, although still an improvement on the 6.5 percent expansion for 2011 expected by Zambia's statistics office.

"The backbone of the economy, the mining sector, is continuing its growth path, supported by a combination of low taxes, privatisation and overall high copper prices," said Celeste Fauconnier, economist at Rand Merchant Bank.

Zambia plans to double the contribution of the mining sector to its gross domestic product to 20 percent.

Africa's top copper producer may also consider bringing back a mining windfall tax if copper prices hit $10,000 per tonne. The benchmark copper prices on the London Metal Exchange (LME) is around $8,380.00 a tonne.

But the windfall tax could be rolled back if prices collapse.

Foreign mining companies operating in Zambia include Canada's First Quantum Minerals, London-listed Vedanta Resources Plc, Glencore International Plc, Barrick Gold and Metorex of South Africa.

Standard Bank said in a note the mining sector is likely to continue attracting a considerable amount of foreign direct investment to build the economy.

An expected increase in social spending and farming subsidies from President Michael Sata's government might boost the economy further, financed by rising mineral royalties and a planned debut Eurobond of around $500-700 million.

The poll showed the budget deficit could widen to 5.6 percent of GDP from an estimated 4.3 percent last year, before narrowing to 5.1 percent in 2013.

Inflation has edged down due to robust maize stocks in the land-locked nation, which have partly filled shortages in southern Africa.

But the poll showed inflation will rise slightly, averaging around 7.2 percent this year, before accelerating to 8.1 percent next year.

Consumer inflation slowed sharply to 6.4 percent year-on-year in January from 7.2 percent in December.

"Food, Zambia's largest component in the overall consumer basket, but also the most volatile, is poised for a relatively favorable outcome during the first half of the year," said Thea Fourie, economist at IHS Global Insight.

"The government's decision to sell 55 percent of maize stock on the market for local suppliers and exporters in order to minimize grain losses from November 2011 onward will furthermore keep staple food prices low," Fourie added.