Business pulse in Africa’s red metal producer, Zambia remained subdued in the month of December as Kwacha bears, Rand bulls and general muted activity over the festivities weighed. As forecast earlier, it was expected that the industrial break period which Zambian companies take would mute private sector activity thereby manifesting in a softer purchasing managers index reading to year end. Other themes that have over the last one year dragged business fabric lower include energy prices for both power and fuel that are key drivers of manufacturing costs.
Read also: ZAR ‘bulls’ and ZMW ‘bears’ to weigh Zambia’s manufacturing business pulse to year end
According to Market Economics data released on January 06, Zambia headlined 49.0 from 49.3 in November. This below 50 reading will be the 22nd contractionary headline the Southern African nation posts since February 2019 when manufacturing activity flirted with an above 50 reading. Fifty (50) is the benchmark for contraction (<50) and expansion (>50). Despite some infinitesimal signs of improvement in business conditions, demand remains subdued resulting in modest reduction in business activity, the report highlighted.
Companies hiked input prices for the fifth consecutive month but on a decelerating pace, the softest since August 2020.
WIDENING SPREAD BETWEEN THE ZAR AND ZMW BREWING IMPORT INFLATION
Inflationary pressure remains high as cost push and import pressures weigh on manufacturing costs whose burden producers have continued to pass onto consumers to manifest in price escalations.
The southern Africa’s net import position continues to exacerbate inflation pressure from a bullish rand (ZAR) given the widening spread between the two country currencies. Zambia’s December consumer price index accelerated 180 points to 19.2% a 55 month high. Speculation to some extent has had a key part to play in price escalation as players who are generally not impacted by Kwacha depreciation has leverage off the opportunity to hike prices.
LOOKING AHEAD
Zambia’s medium term factory pulse remains at risk from a second COVID wave that has struck the copper producer escalating its epidemiological risks in the first weeks of January.
Disease pandemic remains top risk not only to human but economic health as potential lock downs and business disruptions could highly likely dent demand and impact supply factors if infections persist.
PEER PERFORMANCE BENCHMARK
Save Mozambique (49.3 from 49.4) and Egypt (48.2 from 50.9) that registered contraction at PMI headlines, Zambia’s peers namely Ghana, Nigeria, Kenya, Mozambique, Uganda and South Africa posted expansionary performance (>50) for December.
The oil producer Nigeria posted 51.8 from 50.9 as business conditions improved while Kenya headlined 51.4 from 51.3 though the weakest in 6months as Uganda eased to 51.2 from 53.9 while the continents most industrialized country South Africa still grapples with the highest COVID effects which has subdued business fabric to 50.2 from 50.3 previous month. Rising cases due to the second wave remains the biggest risk for most African nations who run the risk of renewed lock downs to contain the virus spread. Vaccines are nonetheless on the way for most jurisdictions through COVAX agreements yet adequacy of volumes remains a challenge for many.
The Kwacha Arbitrageur