The headline Purchasing Managers Index dropped to 34.8 in May from the previous record low of 37.3 posted in April. The reading signaled a severe deterioration in the health of the Zambian private sector. PMI readings above 50 points signal an improvement in business conditions on the previous month, while readings below 50 points show deterioration. Business conditions have worsened in each month of 2020 so far, with the latest deterioration marked by historical standards. Output, new orders, and employment all declined at unprecedented rates, amid a lack of customers and temporary company closures. There were also reports of delays in the receipt of purchased items, in particular from South Africa, explained by restrictions on movements put in place to try to prevent the spread of Covid-19. Regarding prices, both input costs and output prices decreased.
So far, there’s been a reduction in Zambia’s copper production levels, and the amount of debt owed is a major concern. The Kwacha is still weak, with an expectation to trade at 18.37 by the end of this quarter, according to Trading Economics global macro models and analysts’ expectations. The inflation rate continues to quicken and foreign exchange reserves have decreased.
To help with the impacts of the deteriorating economy, the Central Bank of Zambia during its May 2020 Monetary Policy Committee meeting (MPC), cut the policy rate by 225 basis points to 9.25% and this reduction complemented the broader set of measures the bank has already taken and this includes the Targeted Medium-Term Refinancing Facility of K10 billion which is a stimulus package for depositors experiencing financial challenges through loan restructuring and moratorium via payment holidays. This is meant to help protect businesses and households from the financial shocks related to COVID-19.
Meanwhile, the private sector also did its part by unveiling an economic rescue plan that was birthed out of deteriorating economic conditions to supplement the fiscal side of the economy. The Business Coalition Council Emergency Taskforce (BCCET) was formed by business leaders to assist the Government with cushioning the effects of the pandemic on the Zambian lives, businesses, and households. With respect to economic activity, the full impact of Covid-19 has not yet been felt, but various coincident indicators are pinpointing to the current situation, in particular, employment.
The Employment Index indicated that Zambian companies lowered staffing levels for the fourth successive month during May, with the rate of job cuts quickening to a new record. Anecdotal evidence suggested that employment had been reduced in line with a decline in workloads. However, even before the coronavirus hit Zambia, unemployment was a widespread problem with many youths failing to find jobs; but with the increasing cases of corruption, youth unemployment remains a major worry for the majority of Zambians. Few things capture the hunger for jobs better than the spectacle of 100 youths queuing up to apply for one job or a company receiving thousands of applications for one job advertisement. Job cuts have led to a reduction in wages and salaries in some companies and businesses and as coronavirus changes the workplace, jobseekers are worried about their prospects because companies are now firing, not hiring. It is anticipated that the future of employment is freelancing, short-term contracts and online jobs thus a need for the private sector to be cushioned.