Zambia has a lot of work to do in order start achieving inclusive double-digit GDP growth which will go a long way into helping absorb an ever increasing number of the youth population into the job market. One sector which seems to be moving in a positive direction is Copper mining - which accounts for north of 75% of exports and over 12% of GDP. LME Copper prices are up 21% over the last year, closing at $6,712/MT on Friday last week:
2015 started off with a bang – a tightly contested and peaceful presidential by-election coupled with the economic stimulus of a reduction in fuel pump prices. One can be forgiven for thinking things could only get better from there. Unfortunately, that was not the case.
Here is a recap of some of the factors that shocked the Zambian economy and their subsequent effects:
Copper, the country’s main foreign exchange earner (accounts for 70% of earnings), saw its price drop by 25% to end the year at about $4,701 per MT as a result of a slowdown in Chinese demand:
"At the moment, none of us can read China” - Ivan Glasenberg, CEO of Glencore on Bloomberg.
2015 has been a tough year for commodities. Unforgiving market conditions saw global copper prices drop by as much as 20% this year to below the $5,000 per MT mark. A slowdown in the Chinese economy (which consumes 40% of global copper output) has been the key driver of this downturn.
Kwacha falls to record low against US dollar
The Zambian Kwacha (ZMW) fell 3.5% this week and hit a record low of K7.87 before settling at K7.85 to the US dollar:
Zambia’s newly elected President Edgar Lungu, who has promised lower interest rates, replaced the central bank governor a day after he held borrowing costs at a record high. Lungu named Denny Kalyalya, previously deputy governor, to take over from Michael Gondwe, who had been in the post since 2011, according to an e-mailed statement on Friday. Read more....
The Central Bank kept the policy rate unchanged at 12.5% until the next decision in May 2015. They cited the slowdown in China’s growth as a key component in the policy rate decision because it has a negative impact on global copper prices which in turn has a downward effect on the Kwacha and consequently inflation. This is the first policy rate decision since last month’s election.
2015 has started off in stark contrast to the previous year - January inflation slowed down for a second month in a row to 7.7 percent. According the Central Statistical Office (CSO), the slowdown was driven by a decline in food as well as some non-food prices.
October 2014 inflation inched up by 0.1 percent from last month to 7.9 percent. The change was driven by a slight rise in prices of food and non-food items:
2014 has been very tough on the wallets and purses of people in Zambia. It started out with the prices of talk-time and clear-beer both being raised in line with pronouncements in the 2014 National Budget. To add insult to injury, the Kwacha then experienced an aggressive weakening against major global currencies between February and June this year:
VAT rule 18 set to be amended
Zambia plans to amend VAT rule 18 which requires exporters to produce import certificates from destination countries because of feasibility issues. The Minister of Finance wrote to the President asking that the VAT rule be limited to export verification.
Trying to decipher this puzzle that is Zambia by using a variety of publicly available data (structured and unstructured) in conjunction with my own skill/experience. * * *