经济研究
Zambia

Zambia

Population 17.8 million
GDP 1,503 US$
D
Country risk assessment
C
Business Climate
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Synthesis

major macro economic indicators

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 3.5 4.0 2.1 2.3
Inflation (yearly average, %) 6.6 7.5 9.1 10.8
Budget balance (% GDP) -7.7 -7.6 -7.3 -6.8
Current account balance (% GDP) -1.7 -1.3 -2.6 -2.8
Public debt (% GDP) 65.5 78.1 81.5 83.9

(e): Estimate. (f): Forecast.

STRENGTHS

  • Mineral wealth (copper, cobalt, uranium, gold, diamonds, manganese)
  • Agricultural wealth (maize, tobacco)
  • Significant hydroelectric potential

WEAKNESSES

  • Dependence on copper, which is further accentuated by dependence on China, the main importer of ore
  • Landlocked and dependent on the transport routes of neighbouring countries
  • Electricity generation is insufficient and based almost exclusively on hydropower; unreliable transport networks
  • High levels of inequality; healthcare, educational and administrative deficiencies
  • Risk of debt distress due to non-concessional external debt (about three-quarters of external debt) and growing debt service

RISK ASSESSMENT

Sluggish activity

Growth declined in 2019, held back by drought, which had a negative impact on agriculture and hydropower generation, as well as by a slowdown in mining activity due to lower copper prices, uncertainty in the operating environment and disruptions in electricity supply. In 2020, it is expected to remain sluggish, despite a rebound in the agricultural and mining sectors. However, private investment in the vital copper sector may continue to be constrained. The adjustment to the increase in mining taxes in 2019, the proposed cut to tax deductions on investment expenditure in 2020, the contested VAT refunds on electricity and the disputed judicial liquidation of the Konkola mine will worsen the perception of the investment climate. The difficulties affecting copper, which accounts for more than two-thirds of export earnings, are likely to impact the contribution of the trade balance to growth, especially since the external environment, and in particular the slowdown in Chinese demand, is not expected to be favourable to ore prices. Zambia’s precarious public finances and growing financing constraints will limit the government’s ability to increase its investment and consumption. Private consumption is expected to suffer from tight liquidity, pressure on the kwacha and credit constraints due to high interest rates. The manufacturing sector and import-dependent services, first and foremost trade, would be affected by this. In addition, price increases resulting from drought and pass-through of depreciation to input prices are expected to maintain high inflation, which will erode household incomes.

 

The spectre of debt distress

In 2020, the budget deficit is expected to remain high. The increase in debt service (domestic but especially external), which already absorbs more than 30% of revenues, will continue to weigh on public spending, as will the settlement of domestic arrears. Despite these constraints, the 2020 budget plans to increase spending on infrastructure (especially roads), health and welfare. However, execution of these expenses looks to be compromised by financing difficulties. While revenues may continue to rise through VAT and income taxes, they will struggle to keep up with the increase in public spending. With the budget indicating that almost 10% of domestic income is expected to come from “one-off revenue”, debt will probably be necessary to finance the deficit. The rapid accumulation of public debt since 2011, and particularly non-concessional external debt (Eurobonds, loans from Chinese institutions, syndicated loans and other commercial sources) is thus set to continue. The risk of over-indebtedness is therefore expected to remain very high, despite the authorities’ commitment to restrict new non-concessional borrowing.

 

The current account, which has been in deficit since 2015, is expected to remain negative in 2020. It will be burdened by the deficit in the income account, which reflects the impact of higher interest payments. The deterioration in the current account balance is also a consequence of the services deficit, which is being fuelled by transport. Despite softer domestic demand, which should contribute to a lower import bill, the trade surplus is not expected to increase significantly given the persistent constraints on copper exports and the higher cost of imports as a result of depreciation. Maintained by grants and remittances from expatriate workers, the surplus in the transfer account could be eroded if the external environment deteriorates. The current account deficit may struggle to be financed once again as FDI and portfolio investment flows (particularly in domestic debt) have declined. Pressure on the kwacha is therefore expected to persist, especially as foreign exchange reserves now cover less than two months of imports.

 

Mounting tensions in the run-up to elections?

President Edgar Lungu, a member of the Patriotic Front (PF), was elected in 2016 following a campaign marred by violent clashes and is expected to stand for re-election in August 2021. Uncertainty was removed after Zambia’s Constitutional Court decided in December 2018 that he could run for a third term, ruling that the 18-month interim period (January 2015 to August 2016) following the death of his predecessor Michael Sata did not constitute a real first term. While his candidacy no longer seems in doubt, even before the PF’s elective conference, the president will nevertheless have to face an increasingly tense social environment. Besides the economic difficulties that contribute to perpetuating endemic poverty, popular frustration is also being fuelled by the perception of an authoritarian shift by the president. In addition to frequent arrests of journalists and opponents, the government is pushing for constitutional changes and electoral reforms. The opposition is fighting these changes, which it sees as attempts to favour the PF. The United Party for National Development is already emerging as the main opposition force in the 2021 elections. Budgetary difficulties, suspicions of an authoritarian drift and corruption cases are hurting the perception of the business climate, despite Zambia’s relatively favourable ranking compared with its sub-Saharan African peers in the Doing Business 2020 ranking (85th out of 190 countries).

 

Last update: February 2020

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