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Zambia Business Forecast Report Q3 2014

  • June 2014
  • -
  • Business Monitor International
  • -
  • 39 pages

Core Views

Zambia is facing several political challenges including a weakening currency, rumours of President Sata's ill-health and a main opposition party in disarray. The country must also navigate what is likely to be a volatile constitution-making process. At this stage, we believe that Zambia has an institutional framework robust enough to see off
these challenges. The Zambian kwacha will remain under pressure over the short-term as it will take time for the monetary authorities' tightening measures to feed through to sentiment. Over the longer term, we believe that the kwacha is likely to stabilise rather than descend into a spiral à la the Ghanaian cedi.

Currency weakness and potential macroeconomic instability will not meaningfully affect economic growth and we have only made a small downgrade to our 2014 real GDP growth forecast (to 6.7% from 6.9% previously) and left our 2015 forecast unchanged at 7.0%. That said, risks are firmly to the downside.


Major Forecast Changes

We have downgraded our 2014 real GDP growth forecast to 6.7% from 6.9% previously. We have increased our end-2014 inflation forecast to 9.3% from 7.9% previously owing to currency weakness.

Table Of Contents

Zambia Business Forecast Report Q3 2014
Executive Summary. 5
Core Views..5
Major Forecast Changes5
Chapter 1: Political Outlook. 7
SWOT Analysis.. 7
BMI Political Risk Ratings 7
Domestic Politics.. 8
Political Challenges Mounting..8
Zambia is facing several political challenges including a weakening currency, rumours of President Sata's ill-health and a main
opposition party in disarray. The country must also navigate what is likely to be a volatile constitution-making process. At this stage,
we believe that Zambia has an institutional framework robust enough to see off these challenges. However, we note that risks are
rising.
Table: Political Overview..8
Long-Term Political Outlook 9
A Question Of Policy, Not Politics9
Zambia boasts a competitive political environment that has been characterised by closely contested and increasingly freer and fairer
elections (according to observers). However, issues such as corruption and income inequality will require redress over the coming
decade, in order to keep Zambia on a progressive political and economic growth trajectory.
Chapter 2: Economic Outlook 11
SWOT Analysis 11
BMI Economic Risk Ratings... 11
Economic Activity... 12
Currency Weakness To Have Little Impact On Growth.12
Currency weakness and potential macroeconomic instability will not meaningfully affect economic growth and we have only made a
small downgrade to our 2014 real GDP growth forecast (to 6.7% from 6.9% previously) and left our 2015 forecast unchanged at 7.0%.
That said, risks are firmly to the downside.
table: GDP By Expenditure 2011-2018.12
Exchange Rate Forecast. 13
ZMW: Cedi-Like Spiral Possible But Unlikely13
The Zambian kwacha will remain under pressure over the short-term as it will take time for the monetary authorities' tightening
measures to feed through to sentiment. Over the longer term, we believe that the kwacha is likely to stabilise rather than descend into a
spiral a la the Ghanaian cedi. The risks are firmly to the downside however.
TABLE: BMI CURRENCY FORECAST...14
Monetary Policy... 15
Monetary Policy To Remain Tight On Kwacha Weakness15
Monetary policy will remain in its current, tight state for the remainder of 2014 due to currency weakness and related imported
inflationary pressures. At this stage, we do not expect the monetary policy committee to tighten further due to the impact that this would
have on the banking sector. However, if the currency continues on its current trajectory, the central bank's hand might be forced.
Regional Outlook. 16
African Lions: Is Ghana A Bellwether?..16
Ghana's current economic malaise could be replicated in other 'African Lions' over the coming months and years. We will be watching
out for a number of red flags for growth: surging imports, deterioration of the government budget and negative shifts in local sentiment.
At present, Mozambique, Tanzania and Zambia are most at risk of economic instability.
table: African Lions - Current Account Balance, % of GDP..17
Chapter 3: 10-Year Forecast... 19
The Zambian Economy To 2023. 19
Mines Both A Driver Of And Risk To Growth.19
On the back of an improving regional outlook and good prospects for the mining sector, we are projecting average annual growth
of 6.9% over our forecast period to 2023. Buoying this strong performance will be a strengthening private sector, as well as ongoing
investment in mining, agriculture and infrastructure, aided by a favourable business environment.
Table: Long-Term Macroeconomic Forecasts19
Chapter 4: Business Environment. 21
SWOT Analysis 21
BMI Business Environment Risk Ratings.. 21
Business Environment Outlook. 22
Institutions... 22
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS22
Table: BMI LEGAL FRAMEWORK RATING.23
Table: LABOUR FORCE QUALITY..24
Infrastructure... 25
TABLE: ANNUAL FDI INFLOWS25
Table: TRADE AND INVESTMENT RATINGS.26
Market Orientation... 27
Operational Risk.. 28
Table: Top Export Destinations, 2002-2009 28
Chapter 5: Key Sectors.. 31
Power 31
Table: Total Electricity Generation Data And Forecasts.32
table: Total Electricity Generation Data And Forecasts.33
Other Key Sectors... 35
tabl e: Pha rma Secto r Key Indicato rs35
table: Telecoms Sector Key Indicators35
table: Food and Drink Sector Key Indicators..35
table: Autos Sector Key Indicators...36
Chapter 6: BMI Global Assumptions. 37
Global Outlook. 37
Emerging Market Deceleration37
Table: Global Assumptions.37
Tabl e: Develop ed Stat es, Real GDP Growt H, %...38
Tabl e: BMI VER SUS BLOOMBER G CONSEN SUS RE AL GDP GROWTH FORE CASTS, %. 38
Tabl e: Em ergi ng Markets , Real GDP Growth , %..39

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