In the heat of a global pandemic, one would wonder if Zambia will be able to sustain itself in a total lockdown. The first quarter of the year has been rough for the Zambian economy and this has been indicated specifically in Zambia’s Purchasing Managers Index (PMI) in which readings have been in contraction (<50) for the last 15 months.
The beginning of 2020 was marked with the least shrink in the private sector and the last 4 months have had a minimal but steady rise from a PMI of 46.9 in December 2019 to 47.5 in January 2020 and a further slight increase to 48.5 as of February 2020. However, in March the Stanbic Bank Zambia PMI (published on Tradingeconomics.com) fell to 44.7 and this pointed to the steepest contraction in the country’s private sector since July of 2019. The variable was below 50, indicating a contraction in the structure of the economy of Zambia.
The five components of the PMI each had different angles of what’s happening in the economy of Zambia in the heat of the Covid-19 pandemic with energy risks, lack of liquidity, and currency weakness being the three things weighing the private sector.
As of the end of the first quarter of the year, the Zambian currency depreciated to K18.41 per dollar and this has manifested in higher selling prices as currency weakness is a key diver of input inflation.
The effects of accelerating inflation and a weak Kwacha have led to reduced output and an increase in purchase prices. New orders have continued to fall at a slower pace and on the other hand, output dropped sharply. The number of customers has drastically fallen and there’s been multiple company shutdowns and any business-owner would describe business as ‘slow’ as the number of cases of the pandemic increases.
Employment has continued to fall as most companies have been reluctant to hire new people while others have been laid off. This decline in employment has been the quickest fall in over 5 years. Input cost inflows rose and also an output price continued to rise.
Due to the uncertainty around the future path of the economy, business confidence sentiment has continued to slump. Expectations were that the Composite PMI in Zambia will be 50.00 points by the end of the first quarter, according to Trading Economics global macro models and analysts’ expectations. However, the PMI is at 44.77 and the persistent suppressed business conditions could weigh the Copper-Producer’s growth pace for the first half of the year.
A few years ago, Zambia had a cholera epidemic and this played a role in the shaping of how some businesses and companies conduct business presently. Data points to a few familiar facts: epidemics like Cholera and pandemics like the current Covid-19 often spread through geopolitical trade networks; nations and economies transform rapidly during times of pestilence and disease; social behavior, arts and culture, are often inundated permanently.
How both the Private Sector and government handle this is vital on the future of the Zambian economy. As it is the real winners in this sector are creators. Social media is allowing them to pivot away from traditional “industry” middle man structures like management, agents and promoters by engaging audiences directly via social media. Also, although some jobs may be lost or not as functional due to the pandemic, this space will also allow for an enabling environment to finally bring about the fusion between localized new technology and corporate money. The corporate world is now conducting online meetings and utilizing conference calling and this means that, the longer the effects of COVID-19 lasts, the more likely there would be an incentive for many banks, firms and big corporations, to build their third-party platforms with the value-add of data and security.
All in all, the current pandemic has had unprecedented impacts on the world and no one can say for sure how worse things are going to get before they get better. Businesses and Companies must act today if they are to bounce back in the future. Doing so will help the Zambian economy as a whole recover and hopefully, become more resilient in the process.