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The Zambia Advisor, Issue # 2, 2010 Zambia Economic Outlook
February 07, 2010

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The 2010 Zambia Economic Outlook – Here’s The Good And The Bad

Issue #2, February 8th 2010

Hi,

How is the 2010 Zambia economic outlook like?

Our memories are still fresh with 2009 financial crisis which brought in a lot of misery to Zambians. The main reason was too much dependence on one commodity, copper!

It is not surprising therefore that the government’s objective this year is to diversify the economy from mining to agriculture.

The Good

Economic activity is expected to increase this year.

Indications show that the global economy is headed for growth this year. This will help the local economy. For example, Zambia relies on copper as the dominant export. The current level of the price of copper is $ 7,500 per tonne. A high copper price, as a result of global economic growth will help to stimulate mining activity, which encourages other economic activities because of the linkages of this sector to other sectors. Eventually this will mean more job creation.

Here in an example: Lumwana copper mine recorded a 23 percent increase in production in the last quarter of 2009. Production for the whole year totaled 109,413 tonnes of copper in concentrates. The target for 2010 has been put at 135,000 tonnes of copper concentrates.

According to the 2010 budget released by finance minister Dr. Situmbeko Musoktwane on 9th October 2009, the inflation rate has been targeted at 8 percent, and Standard Chartered Bank has projected Gross Domestic Product (GDP) at 5.5 percent.

On the performance of the Kwacha, the standard Chartered Bank has projected that the Zambian Kwacha will remain stable in 2010, and will be trading below K 5,000 against the US dollar, due to positive indicators such as rising copper prices and increased foreign capital and donor inflows. It is projected that the Kwacha will close the year at K 4,925 against the US$.

The bank of Zambia (BoZ) said the inflationary pressures that will be created by the rise in fuel prices will be mitigated by the relative stability in the exchange rate of the Kwacha against the major foreign currencies and its continued implementation of monetary policy to counter the pressures.

In this vein, the Bank of Zambia will shift from monitoring the inflation rates to using the interest rates as a monetary policy tool. Banks base rates will now be relative to the Bank of Zambia (BoZ) rate.

The government has also decided to close most of its accounts with commercial banks and come up with one single treasury account at Bank of Zambia (BoZ).

The Bad

Currently, FAO has predicted a rise in food prices in the near future.

As we know, agriculture is the single most risky lending sector for the commercial banks. It has been estimated that 37 percent of non-performing loans are in this sector, whereas only 13 percent are non-performing across other sectors. Indeed, 87 percent of financing in the country comes from commercial banks.

In order to meet the projected food shortage Stanbic Bank, on 2nd February launched a product known as “Stanbic agricultural banking”. This would provide affordable long-term financing for farmers.

Standard Chartered Bank has projected a 11.4 percent rate of inflation, and whilst the Bank has projected a Gross Domestic Product (GDP) of 5 percent, the Zambian government has projected 7 percent.

Towards the end of January 2010, the government announced an increment of 15 percent on petroleum products.

As expected, there was public outcry about the expected impact on the cost of living.

As to whether the government will meet the 8 percent target remains to be seen. Consequently, Lusaka business consultant Dr. Bwalya Ng’andu doubted the country’s ability to maintain the annual inflation rate in the single digit because of the increase in fuel.

Your Conclusion

What do you think?




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