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Thursday, August 6, 2020

Six arguments that suggest the Zambian economy is on the mend in 2017

Headlines Six arguments that suggest the Zambian economy is on the mend in...

By Gregory Smith

The Zambian economy has experienced tough times in 2015 and 2016 after a period of fast expansion. The economic woes swiftly combined for the slowdown, suggesting they can dissipate quickly.
Here are six points that argue for a little more optimism in 2017.

1.Copper prices regained some losses. At US$5,720 per metric ton on 19 January 2017, the price of the metal has recovered to May 2015 levels. After five years of annual decline this is good news although it remains far below the 2011 recent peak. Where it goes now, nobody can say with clarity. The more bullish fear supply shortages (with the possibility of strikes in Chile and exports bans in Indonesia), they think the new US government will invest more in infrastructure and take heart from better manufacturing data from China. The more bearish think the recent rally might be overdone as supply appears to them as ample to meet global needs.

Despite the recent power outages, lower prices and mine closures; Zambia’s copper production has kept growing as new mines have ramped up their production (production in Q3 2016 was the fourth highest quarterly output since 2000). Annual production in 2017 is being forecast to be slightly higher again. More copper exported at a higher price is good for the economy. The recent EITI report highlights Zambian mining industry contributed ZMW 9 billion in 2015, equivalent to 26% of total government revenue.

2.Above average rainfall. What is good for farmers and electricity generation (Zambia is 95% dependent on hydro) is good for the economy. The 2016 harvest was 10% up on 2015 and in 2017 cereal production is expected to exceed the recent average (2011-15) of 3.22 million tons. Army worms have caused some havoc, but their maneuvering will not be enough to stop a very good harvest according to the FAO who report an ‘enhanced chance for above-average rainfall conditions’ and that the ‘2017 agricultural outlook is favorable’.

Despite the good news there are still people in the southern area facing food insecurity, as they –unlike much of the country- got hit by a second round of El Niño dryness, but the Government asserts humanitarian support is being provided. Tight supplies and higher demand over borders mean that the mealie meal price is still rising putting pressure on people’s pockets in urban areas. Either less food is bought for families or other consumption plans get the chop. Not everyone benefits from economic growth, particularly when the prices of essentials keep rising.

The rain is also helping replenish hydro-electric reservoirs. Frequent data on Lake Kariba is posted on the Zambezi River Authority website, and it appears that, despite levels remaining historically low, the annual recovery (more water flowing in, than is being used) has started 7 weeks earlier than in 2016 (when rains came late). This and the recent addition of Maamba Collieries to the grid will help the sector, although power outages (loadshedding) will persist in some form or other until reforms are progressed with, financial sustainability of the sector improves and big new projects come online.

3.A period of exchange rate stability. For 9 months the Kwacha has not deviated more than 10% from the rate of 10 Kwacha per US$. The currency plummet of 2015 (mostly August to November of that year), when chaos replaced the fundamentals, had undermined confidence in the economy. And although the rate remains far weaker than the ZMW 6.4 per US$ at the start of 2015 the recent stability has helped businesses and investors make clearer decisions.

4.Inflation back in single digits. Zambia imports many goods (including some of its food) so when the exchange rate weakens prices increase. The depreciation in 2015, coupled with a weaker harvest, sent annual inflation above 20%. However, since then really tight monetary policy and careful exchange rate management has pushed inflation back into single figures (7.4% in December 2016). NB the Zambian statistics website produces monthly trade data and inflation reports.

5.Returning market confidence. The November 2016 Kwacha bond auction was three times over-subscribed. Having stayed away after the currency went into its 2015 free-fall, international investors dipped their toes in August 2016, but in November they came back with confidence and the prospect of high real returns (interest rates remained high as inflation has declined). This and an unexpected ‘fifth’ quarterly bond auction (they’re now to be held every two months) provided the government with some much needed cash to clear some of the spending arrears at the end of a tough 2016, where borrowing opportunities and revenue collection fell short and expenditure pressures mounted on account of emergency power imports and unbudgeted petrol and diesel subsidies.

6.Liquidity is a little less tight. To tame inflation and the exchange rate plunge, in a context of loose fiscal policy, the central bank had to make liquidity really tight. This has squeezed banks and the private sector just as the economy slowed down making things really tough. However, there are now grounds to argue good news might be on the horizon. The annual growth of commercial banks’ liquidity turned positive in December 2016 after 12 months of decline. This came after the central bank eased monetary policy slightly (although they did not alter the policy rate) at their November 2016 monetary policy meeting.

Easing liquidity constraints should permit some much needed credit growth that has stuttered for some time and made it harder for firms to expand. Faster growth and less extreme fiscal imbalances are still required before the central bank can ease monetary policy much further. This would help get the cost of borrowing down closer to something reasonable (they’re currently close 35%-40%) and ease a huge impediment to the private sector.

Remember that the 2015 and 2016 slowdown was attributed to global headwinds (mainly via plummeting copper prices) and domestic pressures (weaker harvest, power outages, deteriorating confidence, and political uncertainty). The above numbers suggest some change on each of these fronts. Despite all the global uncertainty in 2017 and much needed reform on the domestic front: are these arguments enough for renewed economic optimism in 2017?

Well, none of these trends?especially the copper price bounce? is guaranteed to continue, but they should be enough for growth to pick-up to 4%. To get back to the magic number (7% growth that doubles the size of the economy in 10 years) better economic policies and structural reforms are needed. With the political space from no election until 2021 this should be possible, but it will take bold action.

The Author is a Senior Economist at World Bank Group

59 COMMENTS

    • Ok Gregory, what is your motive for writing this article.? What do you want, because you people always want something and everything!

    • Gregory,
      Please spare UPND. When you write such articles, people in the UPND have heart attacks. Mazhandu has killed enough people so please don’t cause any more deaths.

    • From the perception of Wastage in our government and over expenditure…You have not addressed the continued deficit is it narrowing or widening ?? ….. Any relation to Ian Smith?
      hehehe!

    • The Zambian economy was doing much better in 2011 but Zambians still voted for PF. These economic indicators are meaningless to the man and woman on the street when they cannot sell enough mushrooms to survive. And if there is enough rain and water coming into our rivers, how come powercuts are still 8 hours long? All these indicators will mean zero when you have an incompetent govt in power that cannot capitalise on the positives to reduce the cost of doing business and stimulate the economy. Low market demand for goods and services, high interest rates, powercuts, poor infrastructure etc will ensure that the incompetent PF are voted out in 2021.

    • There are millions of Zambians that pray to God for the country everyday seeking forgiveness, wisdom for our leaders, grace & favour for the country and prosperity of our land. Some even laughed at us when we trooped to the place of prayer to pray for the rains & peaceful elections in 2016. God is raising this country & its leadership! We are not a Christian country for nothing. We are not called ‘Zambia’ (meaning God’s country) for nothing. God is rewarding our faith in Him & is smiling upon us. Continue getting surprised by the miracles God is working! Some of us already know that God is at work!

    • People forget that one of the main reasons LPM & Magande managed to revive the Zambian economy was not only High copper prices and great fiscal management, but LPM desire to restore and maintain RULE OF LAW.

      Without rule of law (All men must be treated equal before the law)
      – Foreign and Local Investors will shy away from making meaningful and long term investments
      – Breakdown of basic morality as seen with rampant crime and corruption

      Zambia is decaying both physically and spiritually and no abstract No.s like GDP increase will save us

    • @TheChosenOne – in which language is Zambia “God’s Country”? Please stop lying. The name Zambia was derived from Zambezi and the country could have been Zambezia was it not that there already was Zambezia Province in Mozambique. Don’t fool your children and grandchildren with such patent lies. They may just believe them!

    • @TheChosenOne – in which language is Zambia “God’s Country”? Please stop such fibs. The name Zambia was derived from Zambezi and the country could have been Zambezia was it not that there already was Zambezia Province in Mozambique. Don’t confuse your children and grandchildren with such patent fibs. They may just believe them!

    • @Backteeth, the correct word is actually ‘Yambezhi’ in the Lunda language which literally means the ‘heart of everything’. It was corrupted to Zambezi by the colonialists. Do you know who the ‘heart of everything’ or the ‘heart of all’ is in the Scriptures? Read a book ‘Best of Zambia’ by Sven Boermeester & published by image publications which calls it ‘God’s River’. That is where the country’s name is derived from. There isn’t enough space to explain even more interesting variations of this but do your own research before you shoot! God Bless Zambia!

    • Ba United Dunderheads mulikwi imwe ba fikezi? What did I tell you?

      The archives don’t lie!

      2020vision as accurate as ever!

      We predict the positives, the positive become reality, the Dunderheads predict the negatives- the negativew become nothing but evil dreams of frustrated and bitter 1mbeciles!

      Next accurate prediction- HH to lose again in 2021! GBV will not be his running mate!

    • @buckteeth at the time of our independence there was no Zambezi’s province. That province was Quelimane with Zambezi’s district as its capital. Even with a place called Zambezia out there nothing stopped us from adopting the name. There’s Niger in Nigeria and Niger is a country outside Nigeria. Its actually true that Yambeghi or yambezhi is the original name of the mighty river

    • @buckteeth at the time of our independence there was no Zambezia province. That province was Quelimane with Zambezia district as its capital. Even with a place called Zambezia out there nothing stopped us from adopting the name. There’s Niger in Nigeria and Niger is a country outside Nigeria. Its actually true that Yambeghi or yambezhi is the original name of the mighty river

    • “Six arguments that suggest the Zambian economy is on the mend in 2017″…

      ONE argument that suggests the opposite………

      An incompetent, dull and visionless drunken thief that rigged and stole an election has now occupied State House.

      The lessons of history prove this is ALWAYS and economic DISASTER for ANY country.

      I rest my case.

  1. Mr Smith, the Zambian economy is in dununa reverse just like street vending has replaced the beauty of Lusaka from what would look like the above pic to what we see at Soweto market and the streets around Kulima tower etc.

  2. The writer forgot to look at specific policies PF has since coming into power, their Agric policy is colonial or primitive, cant prepare adequately for FISP,CHEMICALS AND OTHER EVENTUALITIES IN AGRICULTURE. Buying of the same maize will be a problem. Liquidity is far from being as stated..dont write from aircon office, come n see things on the ground so that you are relevant.

    • Argue with points against Gregory – you are attacking PF — Gregory has not said anything about the impact of PF on the economy.

    • That’s the problem of Gregory’s article. Just because the economic pointers are good does not mean that the incompetent PF will make them work for the benefit of Zambians. The incompetent PF will mess around and make sure that Zambians continue suffering.

  3. The copper mining industry is in a critical condition. For it to recover and fully contribute to the national tax envelope and provide meaningful participation in the economy by many, copper will have to trade at the mid 2000’s levels of $8-9000 per ton.
    Jobs are being lost daily as austerity measures now translated into increase of taxation of the middle income sector have began taking effect. Related to this is the stagnation of the real estate sector. Once a booming and attractive spot for investment, shopping malls that were mushrooming all across the country are now posting negative returns. This had led to a steady loss of jobs.

    • medium and small scale players in the agri and little manufacturing that is there, have taken near fatal hits by the devaluation of the kwacha incessant shortages of electricity and the recent increase in the price of fuel – though this impact is yet to be fully assessed. Other than incomes in these brackets dwindling, jobs to have been lost.

      The Author gives macro-economic statistics, figures of which have always painted a good picture of Zambia but realities on the ground prove something else.

      Zambia has been posting similar figures for the past 22 years and yet poverty still stands at over 50%, with joblessness also at similar percentages. On the human development index, since 1991 Zambia remains stuck among the 49 Least Developed Countries on the planet.

      ‘People don’t eat…

    • Very right -people don’t eat statistics!

      And this clown quotes PF LIES from their rigged website as if it is gospel truth!

      He is obviously too dumb to understand that a bunch of criminals that steal elections by adjustments to the number of votes have no problem adjusting statistics like inflation to reinforce their PF LIES !

    • Thanks. You have done better analysis that the stuffed and overpaid economist from the World Bank. Zambia appeared to be on a roller coaster of economic success when MMD were kicked out and replaced with PF. All these statistics are meaningless when Zambians are struggling to put food on the table and keep their kids in school. SMEs are smothered with regulations, taxes and powercuts. Mines are overwhelmed with daily changes in tax regimes. Agricultural inputs are stolen or intentionally delayed until the farming season is over. How can these monkeys ever run a successful economy?

  4. The last IMF and Rating Agencies Economic Reports on Zambia were damming. What has changed since then? Nothing! No fiscal reforms have been implemented so far. Zambia needs IMF funding to repair the economy. This funding will only be made available to Zambia if the govt implements the needed macro-economic reforms including governance issues. The delay in the Hearing of the Petition is a human right violation. Without reforms and resolving the Illegitimacy/Petition issue No funding will come from bilateral and multi-lateral institutions like IMF,WB, EU,AfDB etc.Donald Trump factor worsens the Funding prospects. Gregory Smith is trying to spruce the Zambian Economy. A frog can wear lip stick but it will never win a human being beauty contest. It will remain an illegitimate frog.Period.

  5. Zambia’s copper production has kept growing and new mines have ramped up their production..blah blah blah…. The problem is these mines are owned and controlled by foreign companies. As Zambia we don’t benefit directly from what ever profits gained except for the nchekelako percentage we are given through tax. And that I call it nonsense.

    • Lungu is so busy being a world tourist he has no idea that Zambia is being robbed blind by transfer pricing of its copper.

      The little village in Switzerland that buys millions of tons of copper every year has a few people that are laughing their heads off at clueless Lungu and his idiocy! They are thanking their gods that HH is not President because they know he is not that stuupid!

      And Mahtani is watching his bank accounts grow by the minute for teaching these crooks how to dodge tax.

  6. The Economy is in the upswing because we the MMD , who orchestrated one of the greatest growth experienced by Zambia are in charge of the economy. It is as simple as that and Mutati is basically Magande’s prodigy. I don’t know if we can say Lungu is Mazoka’s prodigy since he came from UPND.

    Anyway, this is just speculation, the truth will be revealed at the end of the year. And truth be told, if HH had won and this report had come out and rains improved, HH’s cadres would have been singing about how great their business man is. But it must be hard for them to see the Kwacha stable , inflation stable and confidence returning slowly. These are our MMD policies we believed in. FISCAL Discipline.

  7. Desk top analyst, analyzing our economy while seated somewhere in Washington. In reality, the situation on the ground is the opposite of the positives presented here. Remember the cost of electricity will soon go up, lending rates are at 40%, the price of goods and services are beyond reach for many. The bail out from the IMF has not been finalized, I wonder what magic Mr. Smith has which the PF can employ now which will bring back the confidence in the market. Our macro economic environment is still fragile and if maintaining the kwacha a 10zmw to a US dollar in almost a year translates in stabilizing the economy then may be we need to examine his head.

    • As they have not seen the state of the books on how much we actually owe, its unlikely. They already had a Greece, now Mozambique. Both the IMF, Afdb and other institutions are no longer lending willy nilly. Unless they can see fiscal discipline, Macro- policy implementation, Zambia will need to find other routes for liquidity.

  8. Who is this fictitious Economist called Gregory Smith at the World Bank? The World Bank allows the Publication of its own official Country Reports and does not allow personal reports. Gregory Smith is fake and if he exists he doesn’t work for the World Bank at all. IMF and World Bank money will not come to Zambia until the illegitimate Lungu govt meets onerous conditions and austerity reforms. Lungu has been told by IMF,Multi Lateral and Bilateral Institutions that he will not get their moneys if these reforms are not implemented. To get foreign funding Lungu needs to restore Legitimacy. To restore legitimacy Lungu has to allow the Hearing of Petition. No hearing the Petition No Funding. Its that Simple. That is why there is no talk of IMF money becoz it is tied to Hearing and Disposal…

  9. There is this Economists throwing about these statistics from Washington go to Kabwata market and tell them the economy is on the mind because of blah blah…here is an economy that depends on rains for food and energy…noone sees a problem there.
    MMD’s Mutati may not be not be the best candidate BUT he is far much better than Fossil Chikwanda and outdated Chikwandanomics theories which contributed for second time in history to put us in mess.

  10. As it is said above, the Zambian copper mines are being robbed by the foreign companies, but now that is changing. The leadership of the giant are making a stand and for that reason when the copper prices do increase we will get more of a share in the profits, shame is that it will the government who claim this was there success when it was not, it was the leadership of our company ZCCM.

  11. @ Ken. Stealing Elections has grave consequences. Lungu stole the Election and quickly rushed to swear himself back in power. Lungu is illegitimate becoz he was illegally and unconstitutionally inaugurated. IMF and other Multi Lateral Institutions and bilateral financiers do not give or lend money to illegitimate Regimes like that of Lungu. If Lungu wants concessionary financing from established long term lenders he has to meet their conditions. Human Rights violations disqualifies the illegitimate Lungu govt from accessing funding from these Institutions. Being heard in Court as a Petitioner is fundamendal human and Constitutional Right. Therefore No Petition Hearing No Funding. ECOWAS,AU,UN and Donald Trump are watching Lungu.

  12. Does anyone know how much of the copper proceeds come back to Zambia – what is the percentage of the forex generated from copper actually hit the books at Babk of Zambia, or is it just a myth?

    • Since the mines are privately owned, they do not have to remit the money to Zambia, and definitely not to BoZ. That stopped with the demise of Unip.

  13. I hate people who only know to be negative all the time buck teeth or whatever you call yourself you are stupid, illiterate, poor and did I mention stupid?

  14. FOR SOME PEOPLE, AS LONG AS HH IS NOT IN STATE HOUSE, THEN EVERYTHING IS BAD. SO DONT WASTE TIME TRYING TO IMPRESS SUCH. THIS ARTICLE IS WELL ARTICULATED AND BALANCED. THE WRITER HAS PROVIDED BOTH SIDES OF THE COIN, THE ADVANTAGES THE FEARS AND CHALLENGES.

  15. Great analysis indeed with Sata kind policies pouring out of the US we could benefit from the much needed DFIs into our economy in the next four years.Keep ranting Mr Trump!

  16. Inflation, exchange rate mean nothing if government can’t pay debts. Government and private debtors must pay to move this country. You can’t succeed without paying debt.

  17. That’s crap.. Farmers are still waiting for the urea that has not been delivered. Instead of refunding the farmers so that they source the urea GRZ is holding on to the money. Tell me Mr Smith, how will the bumper harvest be achieved with this kind of scenario. There is chaos in this country. Markets and bus stops have been taken over by PF cadres. There us lawlessness in the allocation of
    Land. God help us through this agonising term of PF

  18. The writer of this article is a very dump economists or just a theorist with no attempt to connect with reality.That, said, i wish to reminder people that between 2007 and 2011, inflation was running about 6% and interest rates were about 15%.Now, why should inflation be at 7.4 % and interest rates at 50%?Please stop and think before you start parroting out rubbish.

Comments are closed.

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