FACTBOX-Political risks to watch in Zambia

LUSAKA Mon Nov 12, 2012 9:35am EST

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LUSAKA Nov 12 (Reuters) - The killing of a member of President Michael Sata's ruling Patriotic Front (PF) party during by-election campaigns this month raised tensions in Africa's top copper producer.

Lawmakers in the PF, which overturned 20 years of Movement for Multi-Party Democracy (MMD) rule in last year's election, are jockeying for power in a party that backs populist polices for spreading mining wealth to the impoverished masses.

Investors, irked by the doubling of mining royalties in the 2012 budget, are worried about a new law that will mean paying taxes before recouping their initial investment outlay.

Donors are concerned that political considerations could outweigh economic ones in implementing a transport development programme for the southern African country, which sold a $750 million Eurobond in September.

POLITICAL TENSION

Fears of political violence following the stabbing of a ruling party supporter during by-elections won by the PF this month threaten to erode Zambia's image as a peaceful country.

Seven opposition supporters have been detained for questioning. Sata has called for swift arrests and punishments.

What to watch:

- Arrest of opposition members that raise tension

INFIGHTING

Zambia's Anti-Corruption Commission is investigating Defence Minister Geoffrey Mwamba and Justice Minister Wynter Kabimba over separate deals, which could be part of attempts by enemies in the PF to discredit them for political gain.

Both Mwamba and Kabimba said fellow PF members wanted to dent their images in an internal power struggle.

What to watch:

- Infighting moving beyond personal attacks to affect government policies

MINING TAX

In presenting the 2013 budget, Finance Minister Alexander Chikwanda cut tax concessions in the mining sector.

The chamber of mines, which represents foreign mining firms, said the new rule would discourage investment in new projects as mine operators would have to start paying tax before recouping all their investment.

What to watch:

- Abandonment of planned mining projects

INFRASTRUCTURE DEVELOPMENT

More than 4 trillion kwacha ($765 million) has been allocated to the transport sector in the 2013 budget, and international donors are concerned about whether the money will be spent effectively.

The World Bank said last month the capacity of institutions handling road and railway projects was questionable and it was not clear if feasibility studies had been done for the projects.

What to watch:

- Whether transport projects can be developed efficiently

CORRUPTION

Sata's government has launched several high-profile graft investigations and court cases against members of the administration of his predecessor, President Rupiah Banda.

Companies that struck deals with the Banda government may see their contracts come under scrutiny as investigations grow.

What to watch:

- Cancellations of agreed contracts

PARLIAMENT

The government has tried to have courts strip the MMD, the largest opposition group, of its party status.

The PF, which took two seats from the MMD in July and November by-elections, looks set to wrestle more seats from the MMD in future elections if the opposition party proceeds with its threat to expel its MPs serving as ministers.

What to watch:

- By-elections after expulsion of more MMD MPs ($1 = 5160.0000 Zambian kwachas) (Editing by Jon Herskovitz and Louise Ireland)

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