Every time a Finance Minister takes to the stand and presents the coming year’s budget, CEOs, entrepreneurs and Finance Managers alike listen with keen interest on what the macroeconomic environment will be like for their businesses in the coming year. Hon. Felix Mutati last week Friday 11thNovember 2016, presented Zambia’s budget to the house of parliament. This was the most anticipated budget as many stakeholders were keen on understanding how in the era of deficit and courting IMF, Zambia would navigate the coming year.
We at TFHZPC will not go into the details of the entire speech but we shall provide some highlights that may need to be taken note of by premier companies listed on LUSE. With the financial statements in mind, here is our perspective of what industry should expect.
Taxes
With the upward increase in PAYE’s upper band from 35% to 37.5%, there will be movement on SGA on the income statement as admin costs rise marginally. Increases in tax on airtime, beer and cigarettes will impact Airtel, Zambrew, National Breweries and BAT respectively earnings are reduced in tune with the increase in tax. Economies of scale will be the strategy to employ as these companies will seek to grow their revenues from increased units of sale of offset the tax jab.
The Top Line
With K5.7 billion allocated to the medical industry, we envisage insurance firms may consider tapping into this opportunity of increasing their revenue in terms of premiums. We noted in earlier blogs that part of Madison and Prima Reassurance’s strategy was to grow their subscriber base. When money enters the medical industry, it presents a unique opportunity for players in that game. This could be translated into more affordable options for their clients in terms of where they access medical services inadvertently leading to less pay outs from insurance companies for subsidized services.
In addition, government’s plan of diversification to cash crops such as cotton, cashew nuts, soya beans, cassava and rice will have Zambeef thinking seriously about these products. Revenue grow is from scale therefore, looking at their present strategy of growth through acquisition, if the numbers are right, the board may consider a trade buy of an established player as they company consolidates its foothold in the agriculture industry.
Liquidation of Local Debt
Standard Chartered, Cavmont and Invest Trust will be keenly looking at government’s decision to liquidate local debt. This implies more local currency in circulation. This may stimulate banks to offer new services that will seek to increase their interest income on the income statement. When this happens, their balance sheets will see growth in assets that will boast their positions with the central bank. A possible benefit to consumers may be reduction in interest rates as the liquidity crunch would have been lifted. This will be as a result of intense competition as banks try to figure out what to do with all that money.
