Cholera, Firmer Rand autopsy slows Zambia’s January 2018 Business Pulse 220points to 50.7 – Stanbic Markit PMI
ZAMBIA’s business pulse slowed 220 points to 50.7 from 52.9 according to the Purchasing Managers Index compiled by Markit Economics. This was attributed to cholera disease business disruption effects and a firmer rand impact on Zambia’s import position. This is the second time the index is slowing consecutively after the Southern African nation recorded its biggest index value in November at 54.7. Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration. According to data provided by Markit Economics output entered a contraction territory for first time in eight months for Zambia as companies faced an increase in cost burdens which led firms to leave their prices broadly unchanged after ten successive months of price cuts.
“The effects of the cholera outbreak and the measures taken thereafter by government have had a significant impact on business activity in January. Higher purchase costs are likely to have largely been driven by a strong Rand. Rand has appreciated by 15% over last three months. The Rand is a significant component of Zambia’s import basket.”
Market Note
This reading is the weakest observed since the economy started to grow in May last year. Zambia was nodded for positive outlook on its Moody’s ‘B’ rating earlier in January on account of fiscal consolidation efforts it has taken to date. Key influencers of business activity in the coming months will be what direction copper will take on the London Metal Exchange, monetary policy direction on 20 February and various initiatives such as the statutory instruments to promote rail usage for bulk cargo. Cholera cost the Zambia fiscal position at least $USD 11million in addition to the ripple effects of business disruption which may be lagged. What we have observed from Markit numbers are a case of disease transmitting effects to the macro’s plus how we as a nation are exposed to South Africa as a trade partner heavily skewed on imports on Zambia’s end. If Ramaphosa assumes the presidency which is coming soon the rand will soar to heights not seen in years and Zambia could be faced with an inflation importation quagmire plus trade balance issues to deal with. A few threats on Zambia’s horizon coming from the not so healthy rainfall pattern after cyclone AVA could add pressure on the power generation capacity which ZESCO is doing a power projection for 2018 as announced by Energy Minister David Mabumba. The Kariba is 35% full, a level that is below the expected threshold signalling a potential energy deficit/bottleneck era as was observed in 2015/2016. Still in the same vein food security may not be threatened as FRA has enough stock of grain irrespective but the nation could lose out on export revenue lines from drought stricken markets such as Kenya and DRC that demand Zambia’s grain. Asides these mentioned other external factors such as Oil pushing to $70/bbl. could also signal potential fuel price hikes that would threaten cost push inflation.