Looking forward to how the economy will turn out in 2019, one has to wear economic vision gaggles that permit paranormal view, more or less be clairvoyant because the factors that will determine the economic outlook are hazy and ever changing. The International Monetary Fund forecast for economic growth for 2019, is sluggish, it is projected that the global economy will grow at 3.5% compared to 3.7% for 2018. This slow growth will have its domino effects to emerging markets, Zambia inclusive. Below are some of the factor in the equation that will determine the direction Zambia will go economically in 2019:
China’s Economic Slowdown
For the last three decades, China has been leading global growth.However, in 2019 it will register the lowest growth since 1990. It is expected that the economy will grow at a wobbly 5.4% year-on-year compared to 6.6% registered in the fourth quarter of 2018. This slow growth will be exacerbated by the China-US trade war. China has led the global demand for commodities for the last few decades, copper which is Zambia’s main foreign exchange earner will obviously take a hit. According to 2018 projections copper was expected to trade at $6,699 per metric tonne. However with the latest gloomy numbers, that looks unlikely. Zambia’s projected growth for 2019 is 4.2%, but with dark cloud of slowing down China, we might need to revise the number downwards.
Global Oil Prices
The fluctuations in the global Oil prices have made it hard to steer a clear energy policy in Zambia. Despite, having one of the determinants stabilised (the kwacha been stable from Q4:2018 to Q1:2019), Zambia’s oil prices have been sticky upwards. The global oil prices are expected to average between $61/barrel to $73/barrel. In 2018 oil prices had slumped to around $55/barrel due to non- commitments among the OPEC countries to a production cut. But this drop in oil prices had no resultant effects on the domestic price. In 2019 we most likely to see less volatility in the domestic oil prices which will be beneficial to the local economy and business units.
BREXIT
The economic ramifications of this messy BREXIT goes beyond the borders of the UK. The emerging economies are likely to be affected in terms FDI flows as well as the donor aid. It is expected that capital flows will dwindled due to the shrinking of the British economy and a sluggish pound sterling. The UK has always pledged 0.7% of its GNI to development aid through DFID but with the slowing down of economic growth of the UK due to BREXIT we are likely to see a shrink of the portion that will come to Zambia.
Fiscal and Mining Tax Regime Changes
The changes with the mining tax regime, will either have positive or negative impacts depending on how the negotiations will be handled and the implementation thereof. The 2019 budget came with a lot of changes in terms of the royalty rate which will be increased by 1.5% across the metals board. A 10% mineral tax will be charged if and when the copper prices increases above $7,500 metric tonne. The cobalt royalties are to increase from 5% to 8% as well as a 5% import duty on cobalt and copper concentrates of the semi processed forms of the metals. A 15% export duty will be charged on the precious metals and gemstones. The evidence suggests that 2019, the domestic economy will steered mostly by domestic revenues. If the fiscal side of the economy is mishandled, this will jeorpardise the recovery, the debt repayment plan and by that point we would have ‘crossed the Rubicon’ to a better economy in 2019.
Monetary Policy and Exchange Rate
In terms of monetary policy, the central bank is likely going to continue with an inflation targeting monetary policy. 2019, will not have lots of changes in the policy rate, statutory reserve ratio due approach taken the Federal Reserve Bank of the US and other salient factors.The first MPC will most likely hold all the parameters constant to allow for a continued correction from last year. The exchange rate will as well remain stable 11 to 12 Kwacha to a dollar.
Equity Market Upsurge
On the capital market side, the local bourse will have heightened activity. It is expected that Zambia State Insurance Corporation will be able to list on the Lusaka Securities Exchange before the end of Q1:2019. ZSIC is the oldest insurance company on Zambia, it has more than 600 billion kwacha of assets under management and an outstanding 122.68 gross premium income. With a wide branch network, great product range and a sound management ZSIC will add value to the capitalisation of LUSE. Secondly, IZWE Loans has issued a cautionary statement with a plan to list on LUSE, it will be the first micro financial institution on the market. Both IZWE and ZSIC will make technical analysis meaningful as it will add to the already listed financial stocks; Madison Financial, Investrust Bank, ZANACO and Standard Chartered Bank.