Cholera, Firmer Rand au­topsy slows Zam­bia’s Jan­uary 2018 Busi­ness Pulse 220points to 50.7 – Stan­bic Markit PMI

Zambian Business Times - - BUSINESS REVIEW - Vic­tor Chileshe, Head of Global Mar­kets at Stan­bic Zam­bia

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.

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