Zambia faces a wave of mining strikes and the government in place since September may find it difficult to push laws through parliament in the face of an increasingly united opposition.
Investors have also been rattled by a doubling of base metal royalties in the November budget of Africa's biggest copper producer, while frequent power shortages look set to worsen problems for mining companies.
Erratic rains have delayed the planting of this year's maize crop, the country's staple, raising the possibility of a poor harvest and rising food prices.
STRIKE SEASON
Mining companies are likely to experience more labour disputes as they enter the final phases of negotiations with unions for better pay and working conditions.
Workers at First Quantum Minerals' flagship Zambian copper mine resumed work on January 5 after a two day strike that started with demands for a doubling of wages.
The strike at Kansanshi, one of the top paying mines, was only called off after management gave in to union demands and analysts said the deal may be used as a standard in negotiations with other mines.
CORRUPTION
In line with his zealous anti corruption pledges, President Michael Sata has scrutinised deals done under his predecessor, Rupiah Banda, who was criticised for taking a relatively lax line on graft.
Mr Sata has appointed an anti corruption chief and last month police charged a former minister with receiving stolen property after 2.1 billion kwacha (USD 414,000) was found buried at his farm.
As well as investigating state fuel tenders, Sata may overturn the sale of fixed line operator Zamtel to Libya's LAP Green after an inquiry found it was sold illegally.
However, the clean up has sparked accusations of an anti-Banda witch-hunt, potentially becoming the cement that unites the two main opposition parties, which, if put together, have a slender parliamentary majority over Sata's Patriotic Front.
In an apparent effort to consolidate his position, Sata in December made three opposition members of parliament junior ministers, prompting an outcry from their party which accused him of trying to weaken the opposition.
FISCAL DISCIPLINE
An expansive 2012 budget included big increases in social spending and farming subsidies to be paid for by a rise in mineral royalties and a debut Eurobond.
Finance Minister Alexander Chikwanda said in December the government planned to increase the size of the issue to USD 700 million from USD 500 million due to strong external appetite.
Although higher mineral royalties should raise revenue in the short term, Zambia may be forced to tweak the rates if copper prices fall. Turmoil in the euro zone also casts doubt over the plans for the Eurobond issue.
If worsening economic conditions make it difficult for Sata to make good on promises of giving Zambians more disposable income, analysts say he may start to put more of a squeeze on foreign investors.
His administration has already approached the World Bank for finance, saying foreign aid and domestic funding was not enough to build the infrastructure needed to underpin economic growth.
ECONOMIC NATIONALISM
Despite some investor nervousness, Sata is unlikely to go down the path of radical resource nationalism and fiscal recklessness, analysts say.
Finance Minister Alexander Chikwanda has said Zambia will not re impose a minerals windfall tax, and Mines Minister Wylbur Simuusa told Reuters in December the new mineral royalties could be rolled back if copper prices collapse.
However, Sata may reverse mining and other deals that are found to have been corruptly agreed under the previous government.
Zambia has attracted huge amounts of foreign investment, mainly in mining, from emerging economies such as China but many Chinese companies have been hit by strikes over poor pay and conditions since the change of government.
Sata met Chinese diplomats and investors shortly after his election to try to ease tensions, but he also made clear that the Chinese companies that have ploughed more than USD 2 billion into the mining sector would not get preferential treatment.
Amid concerns about copper exporters misreporting the quantities leaving the country, he has tightened up loopholes, ordering all export payments be routed via the central bank, with new rules due to start in the first quarter of 2012.
ELECTRICITY
Electricity supply will remain tight for the next four years, casting a shadow over the power-intensive mining sector. The Energy Ministry estimates generation capacity will not exceed projected demand until 2015.
A four hour power cut hit Zambia's capital and main mining region in November, although it was not clear what, if any, impact there was on output.
(Sourced from Reuters)
