By Mwansa Chalwe Snr
This review of the performance of the Zambian economy takes a rather unorthodox approach. The analysis has been done from the four perspectives of the main players in the economy-International Monetary Fund (IMF), the Government, Households and the Private Sector. In the past, the analysis was market-based; using the main markets in Zambia – the goods market, money markets, capital markets and labor markets. The performance indicators used will be both quantitative and qualitive.
IMF PERFORMANCE REVIEW OF ZAMBIAN ECONOMY
In November 2023, the International Monetary Fund (IMF), carried out a review of the performance of the Zambian economy. And according to the IMF, the Zambian economy was performing quite well, using their key performance indicators (KPIs). “Zambian economy is showing resilience. Real GDP growth is now projected at 4.3 percent in 2023 and 4.7 percent in 2024. Conditions do remain challenging, and they’ve put pressure on the external balance in the exchange rate, and inflation has increased.The staff level agreement on the second review of the program was reached on November 20th, and this agreement shows that Zambia’s performance under the program remains satisfactory with a significant fiscal effort undertaken in 2023”, said IMF Communications Director, Julie Kozak, during a media briefing in Washington. As result of this positive outlook on Zambian economy, the IMF released $187 Million under the Extended Credit Facility (ECF), whereas the World Bank released $125million grant.
GOVERNMENT ECONOMIC ACHIEVEMENTS
When assessing the performance of the economy, the Zambian government can claim to have done quite well too; when one reviews several things they accomplished – both tangible and intangible. The government was able to come to an agreement with Vedanta over the KCM asset. In addition, Govt, through ZCCM-IH has entered into an agreement with International Resources Holding (IRH), in which IRH has committed to invest a total of US $1.1 billion into Mopani Copper Mines (MCM) as a Strategic Equity Partner. In terms of promotion of Foreign Direct Investments (FDI), the Zambia Development Agency (ZDA) announced that they had committed investments of $39.95 Billion in 2023, with potential jobs of 160,280. The actualized investment in 2023 were $2.1 Billion which created 25,890 jobs. The debt Restructuring talks is another achievement by government. They made major progress as the Memorandum of Understanding (MOU) with Official Creditors was finally signed in June,2023. The government expects to conclude the talks with Bondholders in the first quarter of 2024. One of the best intangible achievements of the government for 2023, in my books, is the successful trip to China by President Hakainde Hichilema, which has far reaching economic consequences. It resulted in the resetting and recalibration of the relationship between the two nations, which this Author had been calling for in recent years, so that we have a real win-win relationship, unlike in the past. The trip resulted in the upgrading of the ties between the two countries to “Comprehensive Strategic and Cooperative Partnership”, which is the highest classification so far applied to China’s Partners on the African Continent. Presidents Xi and Hichilema agreed to designate 2024 as the Year of Business Cooperation. China committed to support Zambia’s ambition to transform into an industrial hub, capitalizing on its resource endowment. In addition, President Hichilema secured commitments from China to import more agricultural products from Zambia. 2 The government’s ability to continue with social programs like free education, meal allowances for students and increases in the amount and number of Social Cash transfer beneficiaries amidst tight budgetary conditions is a KPI that no objective and Independent analyst can overlook. The New Dawn Government has generally been credited with prudent management of the economy, and to having restored budget credibility. There have improved fiscal discipline since they took over. The Ministry of Finance and National Planning must be busy preparing the 2023 Budget Performance review and 2024 Budget outlook, which is likely to be presented towards the end of January, as per normal practice, where they will demonstrate this aspect of their economic performance evaluation.
HOUSEHOLDS PERCEPTION OF THE ECONOMY IN 2023
The majority of ordinary Zambians’ current perception of the economy is that it is not performing well. Zambian households argue that the cost of living is high, and they lack money in their pockets. They justify this claim by pointing to the high prices of mealie meal, fuel, electricity, interest rates, transport, and high exchange rate. These claims by citizens seem to be supported by empirical evidence from economic statistical surveys done by various organizations. The Zambia Statistics Agency( Zamstats), for example, has reported inflation to have increased from 9.9% in December 2022 to 13.1% in December,2023. The Jesuit Centre for economic reflection (JCTR) basket of goods for November,2023 was at K9,060.60 compared to K8,982.82 in December, 2022; And the Kwacha depreciated by about 44% % for the twelve months period by closing at K26 to a Dollar on 29 December 2023, compared to K18 in December,2022. The Zambian Citizens also feel that jobs are difficult to come by because the economy is simply not creating enough jobs due to the low economic activity. And apparently, Citizen’s claim is supported by the International Monetary Fund who are our current benefactors. “The participation rate in the labour force is low and only 31 percent of the working age population is employed. There are limited employment opportunities, and even among those employed only 27 percent are in formal employment,” IMF wrote in the Zambia Country Report of July 2023. The Finance and Planning Minister, Dr. Musokotwane is also on record as having acknowledged the lack of jobs in Zambia as a major concern. ”Our government feels that the biggest challenge that we have as a country or the biggest challenge that we have is how to create the jobs. Jobs, jobs, jobs. We are not yet doing enough to absorb the number of young people looking for jobs. We are not doing enough,” he told the Chinese Chamber of Commerce during the 2023 post budget and national development symposium.
PRIVATE SECTOR PERFORMANCE EVALUATION
The Zambian private sector has not been doing particularly well for most of 2023, for a variety of reasons. And here is the diagnosis. The top most constraint to Private sector growth is the high cost of doing business in Zambia. The term: “high cost of doing business,” is made up many components. These include high interest rates, high fuel prices, high cost of imported inputs, excessive taxation, high electricity tariffs, multiplicity of regulations and licences with their attendant levies. In addition, the shortage of liquidity has also been a major constraint. And if indeed, the government wants to achieve the 2024 Budget theme of: “Unlocking Economic Potential,” it is vital that they seriously address the above constraints to the growth of the Zambian Private sector. The evidence of the poor performance of the Private Sector in 2023 was captured in the monthly Stanbic Purchasing Manager’s Index (PMI) Surveys. The surveys showed that for most of 2023, the index was below the 50 threshold, or just marginally above, with the highest reading being 51.4 in May,2023. Any number below 50 indicates poor performance of the private sector activity. The year 3 ended with the PMI of 49.6 in December, 2023. “The latest reading pointed to a renewed decline in the country’s private sector activity, amid widespread reports of money shortages related to currency depreciation and high fuel prices, and lower customer numbers. Although business sentiments plunged to a four-month low, companies were still positive that business activity would pick up over the coming year,” The PMI Surveys stated in two of their reports which was reflective of 2023.
COMMENTARY AND CONCLUSION
When one analyses the variables and major assumptions about the Zambian economy, the outlook is that the economy will stabilize. The kwacha exchange rate will stabilize, thereby tame the escalating cost of living and cost of doing business. However, millions of jobs to solve youth unemployment will not be created and poverty will not be reduced. This requires a different set of tools to address them. According to credible available statistics, the Zambian economy grew by 4.6% and 4.7% in 2021 and 2022 respectively. The forecast for 2023 is 4.3% and 4.7% in 2024. These rates are insufficient for the country to develop, create jobs and reduce poverty. And the IMF does agree with this assertion. “ Despite its abundant resources, growth has been insufficient to lift its young and growing population from poverty. More than 60 percent of Zambia’s population lives below the international poverty line compared to 35% across the Sub Saharan Countries,” IMF said in a statement reviewing the Zambian economy. This admission by the IMF that Zambia’s growth rates, even when we are under their supervised Extended Credit Facility (ECF) programs, can neither create millions of jobs that Zambia needs nor reduce poverty, must be taken seriously by all. It supports the evidence and past experience that our Cooperating partners, IMF and the World Bank on their own, cannot solve our unemployment and poverty problems. And the reason is simple. The IMF and World Bank’s current tool kit does not have the tools that can produce the double digit economic growth. It can only give us 4-7% growth rates, which are insufficient to reduce poverty. And it is not their fault. As a practical expert analyst, I found that the IMF and the World Bank’s diagnosis of Zambia’s economic problems, and the consequential design of solutions, are based on 10-15% of the economy and they should not expected to solve our problems when over 85% of the economy is left out in their recommended strategies? It has been established by studies that in order for economic growth to have any impact on poverty in developing country like Zambia, the country’s economic activities ought to be growing at about 10 % or more, as China and South East Asia countries proved. And to achieve these growth rates, it requires engagement of experienced local thinkers, who understand Zambia and its culture better. They live and interact with ordinary people, who are able to tell them the practical solutions for solving our economic problems. The bottom line is that the IMF and World Bank need to be complemented by experienced and exposed local practical thinkers,who can design innovative 21st Century homegrown solutions that utilize mobile technology and Artificial Intelligence tools, and other local initiatives, rather than just rely on 19th and 20th Century traditional euro centric solutions, which are not solving our huge unemployment and poverty problems. There is a Zambian proverb that states than wisdom and knowledge can come from an anthill to a mountain. Zambian experts and thinkers are anti-hills in this regard.
The writer is a Chartered Accountant and Author. He is a semi-retired Knowledge and Strategy Advisor. Contact : pmchalwe@gmail.com.