The month of June saw a rise in the Purchasing Managers Index(PMI), increasing by 6.24% to 46.6 for June 2019, signalling a slower rate of decline in business activity in Zambia. Regardless, this reading still indicated the general negative outlook on business activity in the country as PMI stayed below the 50 mark, even though this fall was at a slower pace to the month prior.
Current negative business conditions have been linked to the major currency weakness which has seen a major depreciation in the Kwacha over the last couple of months. This contributed to the fastest rise in purchasing costs since December 2016 as a number of import dependent firms absorbed these which is reflected in the low PMI reading. Slight rises in staffing costs as well as a fall in a number of new orders placed by businesses and lower purchasing activity further exacerbated PMI. The current global narrative which is mainly round trade tensions between the US and China has seen PMI values fall globally, with the JP Morgan Global Manufacturing PMI (which accounts for a majority of countries) coming in at 49.4, which was its lowest reading since 2012. This was bound to have a spill over effect on economies including Zambia and so our low PMI should be taken with a pinch of salt. The index which is measured and analysed on a monthly basis indicates that companies still see the 12-month outlook as positive with analysts forecasting the PMI to stand at 50 in a year, regardless of current sentiment.
About PMI
PMI is a measure of the current business sentiment in a particular economy. The index reflects how managers, mainly within the supply chain in both manufacturing and service sectors view the current economic climate and level of business activity. In Zambia, the index involves issuing surveys to purchasing executives in over 400 companies within the private sector who provide information in regard to whether they feel business conditions are improving, falling or constant. These companies are carefully selected to reflect the general structure of the economy with firms within construction, industry, services and retail all included.
The index institutes a number of components such as output, number of new orders made, level of employment and the time it takes for suppliers to deliver products. When accounted for, a number between 0-100 is assigned for that respective month. A value above 50 generally indicates an expansion in business activity, whereas a value below 50 indicates negative sentiment towards business. The PMI is seen as a useful tool in predicting the state of the economy as it gives an indication of how the economy is doing in terms of its GDP and economic growth. The index may act as a signal to central banks who will consider the indicator in their interest rate decision making. Not only do institutions benefit from the PMI. The decision ordinary citizens make with regards to getting into business and venture creation needs to include, although not ultimately, a look at the PMI as it is a clear gauge of the conditions businesses face in the country. It’s a very useful indicator that more people should use in their Cost-Benefit Analysis when it comes to deciding on enterprise opportunities in the country.
In summary, Zambia’s PMI reading of 46.6 in June doesn’t make for very positive reading as it indicates the general deteriorating business activity in the country as it lies below the 50 mark. This doesn’t reflect very positively for those looking to start new ventures and those currently running business in the country. However, compared to the 43.9 reading in May, activity has increased by 6.2% which is indicative of businesses rewiring their operations and adjusting to the macro forces. Also, global geo-political news needs to be considered when evaluating the PMI as there’s a general downturn in business confidence globally. Some confidence can perhaps be restored in the future of business in the country as we await the next reading in July.
For comments send to munalula.lisimba@fizambia.com
Resources
- PMI release. IHS Markit(2019). Available at: Tradingeconomics(2019). Zambian Composite PMI.
2. Investopedia (2019). PMI.