After a marathon of 4 expansions (>50) in manufacturing pulse in the last 4 months of 2021, the factory activity gauge in Africa’s second largest hotspot Zambia, slid 160 points into contraction as pandemic effects weighed. According to Markit Economics January report, Zambia’s Purchasing Managers Index (PMI) headlined 49.9 (from 51.5 in December 2021), infinitesimally below the 50 meniscus level that sets the benchmark for expansion and contraction.
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The Southern African nation, in the last two months to the end of 2021, grappled with the Omicron variant effects systematic to the world that saw positivity rates soar to close to 30% as the festivities drew high, a period where business activity generally mutes. The report cited softer new order growth and general business activity in a period that petroleum prices scaled 25.0% higher on average. Exacerbating the contraction was a depreciation of the copper currency however the effects were offset by the first few weeks companies were still on holiday and only came back to operations after 15 January 2022.
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With the losing streak observed on the Kwacha given minimal intervention from the central bank coupled with $90 a barrel Brent, the manufacturing gauge index is expected to slide further in contraction in the next few months. Markets in the copper producer are still nervous about outcomes of the fiscal remediation processes characterized by the need for clarity around debt restructure and the International Monetary Fund Extended Credit Facility (ECF) expected in 1H22.
With subsiding pandemic effects upside risks to private sector activity remain from fiscal fragility effects on the financial markets and higher input prices such as fuel costs as international crude prices continue to soar.
The Kwacha Arbitrageur
