Zambia’s largest bank by asset size, Stanbic Bank revealed during an economic brief held in the Copperbelt of Africa on 06 March, that it remains bullish on Zambia despite some of the risks to growth. Speaking during a presentation by the Groups Research Head Mphumele Mbiyo, the bank reiterated that it has remained bullish on Africa, Zambia inclusive.
As the Standard Bank Research team, our view on growth has been very positive irrespective of the risks over the last 3 years. We have a fairly optimistic stance from a global perceptive and that the authorities in Zambia have the capacity to deal with the challenges without giving rise to a crisis.
SBG Africa Research Head – Phumelele Mbiyo said
“The sub optimal growth trend observed over the last 4 years is not something that will last unless there are some policy mistakes with Zambia. The only potential policy error would be fiscal policy management, Mbiyo said.
Policy errors a driver of asset sell off pressure in previous periods
Part of the negative sentiment last year globally was due to policy errors by the US Federal Reserve which resulted in rate hike cycle as they worried about inflationary pressures. Other jurisdictions that had similar rate hike cycles include Canada, New Zealand, Denmark and United States. Because of this cycle, asset sell-off pressure impacting the base metal market affecting Zambia’s silver lining, copper. It impacted demand for riskier assets negatively.
“From a cyclical point of view we are not likely to see significant downside risk to growth on the continent and this is largely predicated on the expectation that we will not see the US Federal Reserve commit the same mistake committed during the rate tightening cycle,” the Group Economist said.
The positives with allowing the Kwacha to bear the brunt of lower copper prices
Mbiyo highlighted one thing worth noting for commodity nations like Zambia and Mozambique as having allowed their currencies to bear the brunt of a fall in commodity prices which other commodity nations such as Nigeria and Angola refused to do and as such went into recessions.
Zambia and Mozambique however despite debt issues have not gone into recession. Angola delayed to devalue its currency the Kwanza (AOA) and as we speak is still in a recession just like its counterpart Nigeria kept its Naira (NGN) flat for a year at a time when crude prices tanked and this stance slid its economy into a recession.
Stanbic Bank Economist – Mr. Mutisunge Zulu and Stanbic Head of Global Markets Mr. Victor Chileshe take a traditional picture at the Economic brief held on the Copperbelt of Africa on 06 March
Silver linings for Zambia
The fiscal deficit that Zambia faces is one that is much easier to manage as it relates to capital expenditure which can be slowed as opposed to one exacerbated by recurrent expenditure like the case of Ghana, he said. Mbiyo identified this as a silver lining for Zambia and said this is why the International Monetary Fund (IMF) argues as to why Zambia should cut its expenditure a variable that is controllable.
The Standard Bank Research said increased capex creates capacity for growth which is the second silver lining for Zambia. The timing and lagging effect however could be the potential problem as it involves borrowing and servicing debt in the now yet benefits take longer to manifest. The Standard Bank Economist said this is however not unique to Zambia, other nations that slowed in growth similarly include Angola, South Africa, Mozambique and Nigeria.
“The slump in growth prolonged, is not unique to Zambia, policy makers however have the capacity to manoeuvre these challenges,” Mbiyo said.
Stable exchange rate and appetising risk – reward on government debt
Stanbic Bank Zambia Head of Global Markets Victor Chileshe in his presentation of the Zambia financial and macroeconomic landscape said the exchange rate has been fairly stable with the risk – reward on government securities fairly appetizing but in the midst of an MPC statement revealing the macroeconomic fundamental challenges such as low reserves and fiscal deficits, led to an unsuccessful bond auction. Chileshe echoed the Bank of Zambia’s Governors MPC note citing that real risk to the economy are on the fiscal side. However, he re-iterated Zambia’s silver lining as being copper which is currently trading healthier at USD$6,500 metric ton on the London Metal Exchange.
Businesses urged to use the PMI tool as a monthly proxy for GDP
Chileshe encouraged businesses to follow the Purchasing Managers Index (PMI) on the 5th of every following month which the bank has superimposed as a Gross Domestic Product (GDP) proxy. Because GDP is a lagged indicator, the PMI gives businesses a monthly indicator of private sector pulse.
Stanbic Bank Head Channels Ms. Musambo Mwamba used the opportunity to sell insurance brokerage product to clients in attendance are the economic brief.
“Stanbic is a one stop shop. Are we diversifying? Being the bank with the largest asset book in Zambia, we will accord you an opportunity to buy insurance at a deep discount. So the same way you walk into a Shoprite or pick and pay and they have many stands is the same way when we finance your vehicle, loan or mortgage we will sell you insurance. With a wide clientele base we enjoy massive discounts with insurance company to 3% from a high as 6%.
2018 was a mixed year but Zambian economy remains robust
Bank Executive Director for Corporate and Investment Banking (CIB) Ms. Helen Lubamba told clients that she was happy to be in the Copperbelt of Africa where the country’s money comes from.
“On this road show, it’s been interesting listening to our clients and comparing with last years’ experience. One of the critical issues raised previously include being on the cusp of an IMF program and improvement in power stability. When we look at mining partners and contractors to see how they have been operating, we discover that 2018 was a mixed year.
Executive Director CIB – Helen Lubamba
In some cases, production was up and in some it was down, the key thing is looking at what we can control and understanding what we cannot control. We can’t control copper prices but can work around production and cost of inputs. All counterparts we spoke to have made those adjustments and their businesses have remained sustainable, she said.
“Copper remains Zambia’s mainstay and the downstream impact effects it has affects contractors and the domino effect on spending power to sustain even these shopping malls. There are lots of silver linings despite economic challenges,” Ms. Lubamba said.
“One thing that is consistent is that mining, agriculture and real estate remain key focus areas for Zambia which remains our home as such we are committed to her growth,” the Corporate and Investment Banking Director said.
In all this, what comes out is the robustness of the Zambian economy.