Factory activity in Africa’s red metal producer, Zambia, slid sharply into contraction as purchasing Managers Index (PMI) readings headlined 46.9 from 48.7 in November. Three (3) persistent themes drove the factory activity weakness namely lack of liquidity, autopsy effects of load management and currency depreciation exacerbating input inflation. These themes have dominate the private sector space which is still forecast to bear the brunt of energy price risks given the 26 December announcements on 10% fuel price hikes and an energy regulation board on the power utilities application for higher and cost reflective tariffs.
Zambia for the tenth month in a row reverberated in contraction (50 is the benchmark for expansion – >50 – and contraction -<50) having posted only a positive PMI of 50.4 in February 2019. The three themes are expected to persist in 2020 which PMIs projected at below 50 for 1H20 as key risks to growth actualise.
Economic expansion is expected to print between 1.5-1.9% from 2.2% earlier projected by the World Bank and Washington based lender the IMF.
Commenting on the PMI release, Stanbic Bank Zambia Global Markets Head Victor Chileshe said:
“The private sector continues to be negatively impacted by challenging market conditions comprising a weaker Kwacha and a lack of money in the economy on the back of elevated interest rates. This may continue amidst weaker consumer demand as recent increases in electricity tariffs and local fuel pump prices take their toll.”
Performance of Zambia’s peers
Ghana ended 2019 on a bullish note with the sharpest PMI rise since May 2018 at 52.7, while 18 month high employment drove Nigeria’s PMI to 56.8. Despite weak rise in activity Kenya still posted 53.3 while increased orders in Uganda rallied the December PMI reading to 57.7. South Africa shared similar themes with Zambia on the energy front which manufacturing firms bore the brunt of to headline 47.6 to yearend.
The Kwacha Arbitrageur