First Quarter,2024 Economic Performance Analysis

By Mwansa Chalwe Snr
This review of the performance of the Zambian economy for the first quarter of 2024, is carried out from the four perspectives of the main players in the economy – the International Monetary Fund (IMF), the Government, Zambian Households and the Private Sector. This approach is meant to make it easy for non-technical ordinary citizens to understand. The analysis is also evidence based, and covers both the quantitative and qualitative angles.

At the time of publication, we did not have the latest IMF assessment of the Zambian economy, and so it was not possible to present their latest performance review of the economy. The last IMF review of the economy was in November, 2023, and their next review is in April,2024.

GOVERNMENT PERSPECTIVE

The quantitative analysis of the Zambian government’s performance is based on two major components: Bank of Zambia data and the Treasury data. At the time of carrying out this analysis, the treasury numbers relating to the budget performance regarding government revenue, expenditure and other metrics, for the first quarter, were not available, and therefore, no analysis has been done from that angle.

However, according to the information available from the Bank of Zambia, the government performed very poorly during the first quarter. The cost of money was high, there was a critical shortage of liquidity in the economy, inflation was high and increasing, the kwacha exchange rate was high and generally unstable. The evidence of this, is reflected in the various Bank of Zambia statistics.

Interest rates as represented by the Monetary Policy Rate went up from 11% to 12.5%, inflation increased from13.1% to 13.70%, Statutory Reserve Ratio increased from 14.5% to 26.5%, the Kwacha exchange rate was high and ranged from K25 and K27, and foreign exchange reserves at the beginning of January,2024 were at a low $3.3 Billion which is equivalent to 3.7months of import cover. And the Central Bank Governor was open about the most important metric in the Zambian economy, which drives most other economic variables.
“ What we are saying is that the Kwacha has been under severe pressure. There has been excess demand for foreign exchange in our market. We recognize that we do not have sufficient and will not have sufficient foreign exchange to defend the currency”, Dr. Denny Kalyalya said.

It should be noted that when assessing the performance of the economy from the government’s perceptive, the analysis is incomplete, if one only uses quantitative metrics only, and ignores the non-financial and qualitive factors.

The Zambian government did perform fairly well based on non-financial measures. They were able to secure a deal with International Resources Holding (IRH), in which IRH committed to invest a total of US $1.1 billion into Mopani Copper Mines (MCM) as a Strategic Equity Partner. The potential upstream benefits of the deal include job creation, foreign exchange earnings, tax income, dividends and corporate social responsibility activities.

The other qualitative achievement by the government in the first quarter was in regard to the debt restructuring deal.The Memorandum of Understanding (MOU) with Official Creditor Committee (OCC) was finally signed by all of them including China and India. The government also concluded a deal with Bondholders.

The potential benefits of the debt restructuring deal include: more funds available for social sectors, normalization of Zambia’s credit rating, improvement in market sentiment by both local and foreign investors, reduction in pressure for government to borrow from the domestic market thus lower interest rates, increased access to grants and concessional borrowing

HOUSEHOLDS PERCEPTION OF THE ECONOMY

The majority of ordinary Zambians’ current perception of the economy is that it is not working for them. Zambian households argue that the cost of living is high. They have no money in their pockets. They justify this claim by pointing to the high prices of mealie meal, fuel, electricity, interest rates, transport, and the high exchange rate.
These claims by citizens seem to be supported by empirical evidence from economic statistical surveys done by various credible organizations. The government owned Zambia Statistics Agency( Zamstats), for example, has reported inflation to have increased from 13.1% in December 2023 to 13.7% in March,2024. The Jesuit Centre for Theological Reflection (JCTR) basket of goods for December,2023 was at K9,157, it increased to K10,603 in March, 2024, which was an increase of K1,446 or 15.8%.

Zambian Citizens also feel that jobs are difficult to come by because the economy is simply not creating enough jobs due to the low economic activity. This is evidenced by Stanbic Purchasing Manager Index (PMIs) for 2024, which were below 50. And apparently, their claim is supported by the International Monetary Fund who are our current benefactors.

“The participation rate in the labour force is low and only 31 percent of the working age population is employed. There are limited employment opportunities, and even among those employed only 27 percent are in formal employment,” IMF wrote in the Zambia Country Report of July 2023, whose situation has not changed.

PRIVATE SECTOR PERFORMANCE EVALUATION

The Zambian private sector performed poorly in the first quarter of 2024 for a variety of reasons. The top most constraint to Private sector growth is the high cost of doing business in Zambia. The term: “high cost of doing business,” is made up many components. These include high interest rates, high fuel prices, high cost of imported inputs, excessive taxation, high electricity tariffs, multiplicity of regulations and licences with their attendant levies. In order for government to achieve the 2024 Budget theme of: “Unlocking Economic Potential,” they should address the above constraints to the growth of the Zambian Private sector.

The quantitative evidence of the poor performance of the Private Sector in the first quarter of 2024, was captured in the monthly Stanbic Purchasing Manager’s Index (PMI)Surveys. Business activity fell throughout the quarter from 49.6 in December,2023 to 48.8 in March,2024. Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

Head of Sales at Stanbic Bank, Musenge Komeki, succinctly captured the status of Private Sector performance during the first quarter, in his comments on the monthly Stanbic Purchasing Manager Index ( PMI).

” The private sector health in Zambia declined. Business conditions continued to see a deterioration as a result of reduction in money supply and the depreciation of the kwacha, which have negatively impacted demand. Money shortages crippled new orders and forced cutbacks in output, employment and purchasing activity.” he said.

CONCLUSION

The Zambian economy grew by 4.6% in 2021, 4.7% in 2022 and 4.3% in 2023.It is forecast to grow by 4.7% in 2024. These rates are insufficient for the country to develop, create jobs and reduce poverty. And the IMF agrees with this assertion.

“ Despite its abundant resources, growth has been insufficient to lift its young and growing population from poverty. More than 60 percent of Zambia’s population lives below the international poverty line compared to 35% across the Sub Saharan Countries,” IMF said in a statement reviewing the Zambian economy.
In the light of the general election due in 2026, and having sorted out the debt and mining issues, as well as sufficiently marketed Zambia as a good destination for foreign direct investment (FDI),the government should laser focus on local solutions for job creation through Micro and Small Enterprises (MSEs) in order to create millions of jobs for youths. In the 21st century, Youth determine elections in almost all countries, like they recently did in Senegal.
It has been established by studies that in order for economic growth to have any impact on poverty in developing countries like Zambia, the country’s economic activities ought to be growing at 10 % or more, as China and South East Asia countries have proved. And to achieve this growth rate, it requires innovative solutions, and the engagement of experienced local thinkers, who understand Zambia, its economic problems and its culture better.

The writer is a Chartered Accountant and Author. He is the Founder of a research based virtual Knowledge and Strategy firm, Prosper Knowledge Solutions Limited. Contact : pmchalweATgmailDOTcom.