…Zambia’s GDP Grows Highest in a Decade
After recording a 0.5% growth in Q1 2021, Zambia’s annual GDP growth accelerated to 8.1%, the highest in more than a decade in Q2 2021, a clear signal that Covid-19 induced economic pains are almost over.
With an exception of the mining sector whose production shrunk 7.9%, all economic sectors registered positive growth for the 1st time since Q1 2020. Most importantly, the arts, entertainment and recreation; education as well as accommodation subsectors registered positive growth rates of 45.9%; 20.5% and 2.6% respectively (See Figure 2). Moreover, Q2 2021’s growth of 8.1% is far better than the recession measuring 5.1% recorded in Q2 2020
…What Has Changed to Accelerate Growth?
On top of the list, is the easing of Covid-19 restrictions following a significant drop in the positivity rate in Q2 2021 (for two-thirds of the quarter before June). Actually, the index for discussions about the pandemic in the domestic economy dialed down to 231.33 in Q2 from 372.32 in Q1. With covid-19 positivity rate significantly reducing, the then republican president Edgar Lungu eased confinement measures against Covid-19 pandemic allowing certain businesses to re-open such as restaurants, cinemas and gyms. We also saw other business that had previously remained under restrictions re-opening without permission from authorities that paid a blind eye to these violations. As a response to easing restrictions, more Zambians started venturing outside their home confines as indicated by the Google mobility data which shows that traffic to shopping malls, workplaces and recreation centers improved over the course of the quarter (see Figure 3). With more Zambians visiting shopping malls and recreation centers, demand for goods and services significantly improved thereby inducing many businesses to increase their production levels to meet their customers needs.
Secondly, easing credit conditions saw the private sector borrow more from Zambia’s financial services industry to help meet the growing needs of their customers. H1 2021 saw private sector credit expand 11.8% for the first time since the outbreak of the Covid-19 pandemic in late 2019
Thirdly, the strong external sector performance was a key driver of economic growth in Q2 2021 despite copper production and volume of exports declining. With prices of copper soaring on the international market, Zambia’s exports increased to ZMW 61.6 bn from ZMW 53.2 bn in Q1 2021 whereas imports declined to ZMW 23 Bn from ZMW 25.2 Bn over the same time. It is our view that even though copper production declined YoY, the strong performance of the external continued to provide backward and forward linkages to Zambia’s manufacturing, retail as well as services sectors through increased demand.
Fourth, and speaking to the production side, growth was also received from improved electricity generation.
Data show that the country’s power utility firm, ZESCO, increased its power generation 9.8% in Q2 2021 when compared to the same period last year (see Figure 4). This did not just ease production costs but also enhanced productivity in the economy thereby lifting the ability of firms to deliver goods and services in the midst of growing demand.
The other factor include the significant build-up in liquidity among the citizenry as we approached the 12th August 2021 general elections also helped to push the demand for goods and services. Data suggest that between June 2020 and June 2021, currency in circulation and money market liquidity soared 52.1% and 55.4%, respectively.
From a mathematical perspective, the particularly higher growth recorded in Q2 2021 could be attributed to the lower base of the GDP recorded in Q2 2020 after that quarter’s GDP shrunk by a record 5.1%.
…What’s Our Take on All This?
As we have already communicated in our previous economic updates, we anticipate Zambia to come out of the Covid-19 pandemic induced recession in 2021 while growth will accelerate in 2022 and 2023. However, the growth achieved in Q2 2021 is clearly way ahead of our projections and those of others (IMF, 0.6%;
World Bank, 1.8%) which shows that Zambia’s growth will be 1.9% in 2021 before accelerating to 3.4% and 4.1% in 2022 and 2023, respectively. Clearly, this acceleration in growth suggests that GDP could return to pre-pandemic levels at close of 2021. More excitingly just beyond this year, the Zambian economy may start recording positive growth in per capita income, and this development is seemingly coming sooner than we earlier anticipated.