The Zambian economy is projected to grow by 1.0% in 2021 and 2.0% in 2022, underpinned by recovery in the mining, tourism, and manufacturing sectors.

The recovery in international demand and copper prices are positive developments, while a reduction in COVID–19 cases will boost activity both in manufacturing and tourism.

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NERVE CENTER: Zambia’s political and economic capital, Lusaka. -Zambia Tourism.

NAIROBI, Kenya: A fresh report by the Africa Development Bank [AfDB] on the continent’s economic outlook 2021, indicates that Zambia’s real GDP contracted by an estimated 4.9% in 2020, after growing by 4.0% in 2018 and 1.9% in 2019. The output contraction is the result of an unprecedented deterioration in all the key sectors of the economy due to COVID–19 pandemic.

Manufacturing output fell sharply as supply chains were disrupted, while the service and tourism sectors were hurt as private consumption and investment weakened due to measures taken to contain the spread of COVID–19.

Mining output, which declined initially due to falling global demand for copper, is recovering amidst production disruptions in South America. Sustained commodity price increases beyond the current forecast could lead to lower economic contraction.

But, even before the pandemic, the report shows, the economy was experiencing serious macroeconomic challenges, such as high inflation, widening fiscal deficits, unsustainable debt levels, low international reserves, and tight liquidity conditions.

Price levels and the financial sector have not stabilized, despite government efforts to deploy monetary easing in 2019 and 2020. Inflation has been rising, mainly driven by the pass-through effects of the depreciation of the Kwacha and elevated food and transport prices.

Following the outbreak of COVID–19, inflation rose to 17.4% in 2020 and is projected to remain above the target range of 6%–8% in 2021.

The external position also worsened in 2020, with dwindling reserves (averaging 1.6 months import cover), and will remain depressed in 2021 due to copper price and output fluctuations, rising public debt payments, and elevated non-oil imports.

The government’s pursuit of expansionary fiscal policy for public investments, despite falling revenues, has resulted in widening fiscal deficits (8.3% of GDP in 2019 and 11% of GDP in 2020).

The expansionary fiscal policy, mainly financed by external and local borrowing, caused Zambia’s public and publicly guaranteed debt to hit 91.6% of GDP in 2019 and 104% in 2020.

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BANK OF ZAMBIA: Despite the Government’s efforts, price levels and the financial sector have not stabilized. – Norvan Reports.

Smart Africa Editor Elvis Mboya interviewed Zambian Business Journalist Chamwe Kaira to help shine more light on these challenges and to suggest possible solutions:  

The effects of COVID–19 has slowed down most economies in Africa, Zambia included. Please, take us through your view of challenges facing the country’s domestic economy.

Kaira: Zambia like the rest of the world has felt effects of COVID-19 with sectors like tourism and mining slowing down.

The economic activities have slowed down leading to negative impacts on the cost of living and employment levels.

The government’s revenue projections have also been affected resulting in the saying it was going to put some of its capital projects on hold.

The government has said it would aim to stimulate economic recovery through practical and tangible support to businesses.

Finance Minister, Bwalya Ng’andu projects real GDP growth at negative 4.2 percent in 2020, the first recession since 1998. Almost all the sectors are expected to record negative growth.

Disruptions in supply chains and containment measures have had a severe impact on sectors such as tourism, construction, wholesale, and retail trade as well as manufacturing, according to projections made in the budget speech by Ng’andu.

The government has also opted to default on Eurobond payments and talks are ongoing with the IMF for a possible bailout.

The WHO health protocols that’s been embraced and effected by most Governments across Africa, including self-isolation and travel restrictions, have regressed prior economic gains and continue to hamper movements of goods and human capital. How have these affected Zambia’s cross border trade with her SADC neighbours and international markets and what’s being done to stabilize?

Kaira: Statistics from the Common Market for Eastern and Southern Africa (COMESA) show that the import traffic in Zambia between March and April 2020 declined by 27% because of the import restrictions which were being imposed in various countries.

The most affected border was Kazungula which recorded 83% decline in import volumes. The border serves three countries namely Zambia, Botswana, and Zimbabwe.

Nakonde border between Zambia and Tanzania recorded 42% imports volume decline.

In value terms, imports declined by 27% with Kazungula recording the largest decline of 89%, followed by Livingstone Port (87%) and Nakonde (55%).

The export traffic declined by a lower percentage compared to imports at 7% with the Kazungula and Nakonde borders being the key contributors.

The national customs duty receipts declined by 36% in April compared to March 2020 with the largest decline being at Kazungula (84%), Nakonde (31%) and Chirundu (30%). They were projected to decline by 17% in May 2020.

The borders are slowly opening but with requirements such as Covid Free Certificates, not many people will travel for tourism but for urgent matters only like educational and medical purposes.

It’s unlikely that Zambia’s main tourism attraction, the Victoria Falls, will see the same numbers as before the pandemic when about one million tourists visited…


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VICTORIA FALLS: The major tourist attraction in Zambia, located at the border with Zimbabwe. – CGTN.

In the same vein, travel restrictions must have adversely affected tourism and hospitality, a major growing sector in the country. How deep is the cut and what’s being done to cushion the sector even in the face of the pandemic?

Kaira: The pandemic has seen major hotels and lodges either temporally closing or scaling down their operations.

Major airlines such as Ethiopian Airways and Emirates which fly in tourists had also either suspended flights or reduced the frequent of the flights. This off course has had a snowball effect on all related industries.

It’s unlikely that Zambia’s main tourism attraction, the Victoria Falls, will see the same numbers as before the pandemic when about one million tourists visited, Livingstone, its tourism resort where the falls is situated.

In 2019, tourism contributed about 7% to Zambia’s GDP earning the country about US$900 million in the process.

The AfDB report indicates that even before the pandemic, Zambia’s economy was experiencing serious macroeconomic challenges, such as high inflation, widening fiscal deficits, unsustainable debt levels, low international reserves, and tight liquidity conditions. Still, price levels and the financial sector have not stabilized, despite government efforts to deploy monetary easing in 2019 and 2020. Has the condition changed?

Kaira: Economic conditions remain on the negative side, but Fitch Ratings has recently increased Zambia’s rating to CCC based on efforts by the government to reduce debt levels in the country. Namibia’s debt is around 114% of GDP.

In monetary terms this is about US$11 billion. Government has on several occasions denied that debt is underestimated, and that Zambia owes China an unknown amount of debt.

I think what the private sector want from the government is good policies, stable power supply and favourable policies.

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ECONOMIC RECOVERY PROGRAMME [ERP]: President Edgar Lungu during the launch of ERP in Lusaka. – Ubuntu Zambia.

The same report has shown that Zambia’s stock of public debt has increased to an unsustainable 104% of GDP and is expected to rise slightly in 2021 before decreasing in the medium term because of improved coordination between fiscal and monetary policy, as espoused in the Economic Recovery Programme. What can be done right to attain debt sustainability?

Kaira: When the current ruling party, the Patriotic Front [PF] took power about 10 years ago, the government embarked on a massive infrastructure development drive: building roads, bridges, airports, schools, and many other capital projects.

But in between copper prices have nosedived, there has been drought, which has affected power supply to major industries such as mines and of course the Covid pandemic has added to the woes facing the economy.

The government has acknowledged that it has borrowed too much and is cutting spending on many capital projects.

On a positive note, the report projects Zambia’s economy to grow by 1.0% in 2021 and 2.0% in 2022, underpinned by recovery in the mining, tourism, and manufacturing sectors. The recovery in international demand and copper prices are positive developments, while a reduction in COVID–19 cases will boost activity both in manufacturing and tourism. At what level can this positivity inspire growth recovery plans?

Kaira: The government’s Economic Recovery Programme for 2020 to 2023 has targets of attaining real GDP growth rate of above 3% by 2022; reduce the fiscal deficit to no more than 9% in 2021, no more than 6.1% in 2022 and no more than 4.9% of GDP in 2023; increase domestic revenue to not less than an average of 18% of GDP over the period 2021 to 2023; reduce and sustain inflation within single digit by end 2022; raise international reserves to at least 3 months of import cover by 2023 and reduce the pace of debt accumulation and ensure sustainability in the next 3 to 5 years.

These are good plans on paper but depend on factors like good copper prices and good rainfall, among others. The government will also have to exercise a lot of fiscal discipline to achieve these goals.

How proactive is Zambia’s private sector, to partner with President Edgar Lungu’s Government and other key stakeholders to influence economic policies, more so, during the pandemic when smart private-public partnerships are much needed to cushion businesses?

Kaira: As a matter of fact, the government is taking up major stakes in copper and gold mining. The government wants to have a bigger say in major sectors of the economy.

In a way, we can call these PPPs [public private partnerships] although largely based on the government assumptions Zambia is not benefiting as it should from mining.

I think what the private sector want from the government is good policies, stable power supply and favourable policies.

For stories, interviews, press releases, and feedback, email The Editor: smartcompany.africa1@gmail.com

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