For 22 months straight, private sector pulse in Africa’s copper producer Zambia has been in contraction with purchasing managers index readings of below 50. (50 is the borderline between contraction and expansion). The COVID year 2020, was themed by disease pandemic induced supply chain disruptions, energy bottlenecks as generating was bloated by receding dam levels and currency routs which dented business pulse generally. The Kwacha slide remains the steepest of all African currencies at 43%. The last time Zambia ever flirted with expansionary factory pulse (50) was February 2019 (at 50.4) after which the red metal producer has been in the doldrums, posting its steepest slide in May last year, when PMI readings headlined 34.2 as disease pandemic effects were the harshest.
In the labyrinth of power rationing pressures and generally high fuel costs, especially that Zambia is one of the African nations that received zero reprieve in the petroleum sector from its regulator the energy regulations board, manufacturing continues to be dented by historical structural challenges. A disease pandemic year caused more technical pressure on delivery times, employment rate plummets and selling prices with aggregate demand falling sharply. All these being business ecosystem autopsy effects of disease pandemic effects. Recovery nonetheless, is evident post October 2020 with the economy struggling to recoup eroded growth to claw back needed momentum but these efforts remain impeded by a weak Kwacha trading north of 21 for a unit of dollar and rising import inflation from its largest trade partner on the continent, South Africa whose Rand has strengthened immensely. The gap between the Rand and the Kwacha has widened in opposite directions against the respective currency pairs with the dollar.
With Zambia importing 33% of its goods from SA, supported by 10x size compared to what the copper producer exports to Africa’s most industrialized economy, it is highly unlikely that its business pulse will break into positive territory (>50) for December from November’s 49.3. December activity slow down will be another factor that will slow down the factory pulse as most industries do shut down for festivity or industrial breaks. Let alone the persistent endogenous themes that have weighed the purchasing managers index readings for a year have still persisted while exogenous factors such as Rand bulls effects on Zambia’s input inflation will be the major issue why the 50 PMI benchmark will still elude the Southern African nations manufacturing activity for December.
Looking ahead, should the new COVID strain persist, Zambia could be looking to tighten its protocols which if it did, will reverse the momentum built so far in factory activity. We forecast readings of between 48.9 to 49.4 for December with a bearish outlook, COVID infection rates increasing contingent.
Markit Economics is expected to release December PMI readings for most African nations on Monday earliest and Wednesday latest.
The Kwacha Arbitrageur