LUSAKA, ZAMBIA – Business conditions in Zambia’s private sector neared stabilisation in November, buoyed by an improvement in demand.
According to the latest Stanbic Bank Zambia IHS Markit Purchasing Managers’ Index (PMI), the PMI stood at 49.3 in November, rebounding from October’s 48.9, but staying below the 50-mark separating expansion from contraction.
Although the Zambian economy has been unable to score a 50 mark since February 2019, the past three months have shown a reduction in the rate at which it has been contracting since the advent of COVID-19.
Readings in the PMI above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
At 49.3, the latest PMI indicates the slightest deterioration in the private sector activities since February 2019. These signs of improvement helped output to near stabilisation. Activity decreased at the slowest pace in the current 21-month sequence of decline. Where output fell, panelists in the PMI survey linked this to COVID-19, currency weakness and a lack of money in circulation.
“Input costs continued to rise in November albeit at the slowest pace in 3 months. This was mainly attributed to the relative weakness of the Zambian Kwacha against the US Dollar. Despite the currency having stabilised, the challenge has been the South African Rand continues to post gains against the US Dollar resulting in increased prices of imports from South Africa. Imports from South Africa are a sizable portion of the import basket,” said Stanbic Bank Zambia Head of Global Markets Victor Chileshe.
The weakness of the Zambian kwacha against the US dollar was the principal cause of a fifth successive increase in purchase costs. In turn, this resulted in a rise in overall input prices, despite a further reduction in staff costs.
“Efforts to limit expenses contributed to a fall in employment, the tenth in as many months. Moreover, the rate of job cuts quickened from that seen in October,” added Mr Chileshe.
Cost management was also reportedly a factor behind a reduction in inventories. Meanwhile, purchasing activity decreased, but to the smallest degree since February. Firms lowered input buying in line with a further decline in new orders, although some panelists expanded purchasing in response to signs of improving demand.
“Companies in Zambia raised their selling prices for the fourth month running as higher cost burdens were passed on to customers. The rate of inflation was solid but eased to a three-month low,” he further said.
Mr Chileshe added that there is some confidence that as business conditions improve, activity will increase in 2021 as the pandemic passes.
He however noted that sentiments remained historically muted amid continued challenging business conditions.