Despite muted activity at year end on the back of business slow down to cater for the festivities, private sector pulse in Africa’s red metal hotspot Zambia remained resilient. According to Markit Economics, the Southern African nations Purchasing Managers Index (PMI) headlined 51.5 an infinitesimal ebb from November’s 51.8. This will be Zambia’s fifth expansionary manufacturing pulse recorded in 2021 after a series of contractions weighed by pandemic effects. Fifty is the benchmark for expansion (>50) and contraction (<50).
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The Markit Economics December factory gauge report revealed that cost inflationary pressures remained relatively muted at the end of the year 2021 and that both purchase prices and staff costs increased, but only slightly. Meanwhile, companies lowered their own selling prices for the fourth month running amid efforts to attract customers.Suppliers’ delivery times lengthened for the fifth successive month, and at the same pace as in November. Delivery delays were often the result of disruption related to the COVID-19 pandemic
POSITIVE SECTOR OUTLOOK POST IMF
Despite grappling with debt issues that the fiscal authorities are addressing evidenced by recent International Monetary Fund (IMF) endorsement, Zambia has seen risk appetite claw back into its markets in the last 4 months. The biggest driver of manufacturing activity has been currency strengthening easing costs for producers manifesting in falling selling prices as inflation slows.
With a more positive outlook following a regime change that has legislated key changes supporting the private sector, manufacturing activity has improved significantly. Stronger pulse is forecast in 1H22 as the copper producer sees greater sentiment ahead of successful debt restructure after the IMF Extended Credit Facility (ECF) disbursements commence.
ENERGY PRICE AND PANDEMIC RISKS COULD WEIGH
Zambia still faces energy price risks following partial lifting of petroleum subsidies that saw fuel rates scale 25% while electricity tariff hikes are on the horizon. This could widen operating costs in the first half of the year though offset by a stronger forecast currency from a sentiment boost linked to the bailout package. Additionally corporates could see higher interest rates signaled by an increase in central bank auction sizes by 53% on average. Zambia’s domestic market will in part be used to fund the K173 billion ($10 billion) fiscal budget in a year when cash flows are thin. Zambia’s COVID cases are on the rise with positivity rates of 30% while health authorities target an aggressive vaccination program.
In the interim buoyant copper prices on the London Metal Exchange (LME) coupled with greater productivity prospects following favorable tax conditions will spur and bellwether economic activity.
The Kwacha Arbitrageur
