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Zambia Country Risk Report Q3 2016

  • May 2016
  • -
  • Business Monitor International
  • -
  • 45 pages

Core Views Zambia's economic growth will remain subdued over 2016 owing to pressure on net exports from still low copper revenues, a regional drought as well as a substantial power shortage. Real GDP growth of 3.4% this year will be underpinned by a modest increase in private consumption and fixed capital formation. In the medium term, Glencore's announcement to invest USD1.1bn into Zambia's mining sector will bode well for overall investment into the country. The Zambian government will continue to boost social expenditure as President Lungu attempts to gain public favour in light of the August general elections. Fiscal revenues will increase gradually over the coming years, in line with the copper sector's slow recovery.

Elevated public debt levels will keep investors cautious as concern over debt-servicing costs rise. Various macroeconomic and domestic challenges will make it easier for opposition leader, Hakainde Hichilema to secure a win in the next presidential elections, taking place in August 2016. Incumbent President Edgar Lungu continues to focus on social spending in light of the upcoming elections, although we believe it will not be enough to secure public favour. Zambia's current account will remain under pressure over 2016 as stunted copper revenue growth weighs on exports, while strong import growth will stem from the effects of the regional drought. The Bank of Zambia will continue its hawkish monetary policy approach over the remainder of 2016 owing to persistently high inflation levels. As a result, credit growth will remain subdued as consumers opt to save, negatively impacting private consumption levels. The Zambian kwacha will depreciate in the coming months, as investor sentiment deteriorates and real interest rates dip into negative territory. In 2017 though, the unit will resume an appreciatory trajectory as stronger copper prices and production boost trade dynamics while investor-friendly policies toward the mining sector bolster foreign investment.

Table Of Contents

Zambia Country Risk Report Q3 2016
Executive Summary 5
Core Views5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Net Exports To Dampen Economic Growth8
Zambia's economic growth will remain subdued over 2016 owing to pressure on net exports from still low copper revenues, a regional
drought as well as a substantial power shortage Real GDP growth of 34% this year will be underpinned by a modest increase in private
consumption and fixed capital formation In the medium term, Glencore's announcement to invest USD11bn into Zambia's mining
sector will bode well for overall investment into the country
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS10
TABLE: FIXED INVESTMENT FORECASTS10
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook 11
Current Expenditure Focus Will Widen Fiscal Deficit11
The Zambian government will continue to boost social expenditure as President Lungu attempts to gain public favour in light of the
August general elections Fiscal revenues will increase gradually, in line with the copper sector's slow recovery Elevated public debt
levels will keep investors cautious as concern over debt-servicing costs rise
Structural Fiscal Position 12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES12
External Trade And Investment Outlook 14
Weak Trade Dynamics Will Widen Current Account Deficit14
Zambia's current account will remain under pressure over 2016 as stunted copper revenue growth weighs on exports, while strong
import growth will stem from the effects of the regional drought Investor sentiment and foreign direct investment will improve gradually
as fundamentals recover from 2017 onwards
Outlook On External Position 15
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE15
TABLE: TOP 5 GOODS IMPORTS IN 201516
TABLE: TOP 5 GOODS EXPORTS IN 201516
Monetary Policy 17
High Inflation Levels Will Keep Interest Rates Elevated17
The Bank of Zambia will continue its hawkish monetary policy approach over the remainder of 2016 owing to persistently high
inflation levels As a result, credit growth will remain subdued as consumers opt to save, negatively impacting private consumption
levels
Monetary Policy Framework 18
Currency Forecast 19
ZMW: Rally To Be Reversed By Weak Fundamentals19
The Zambian kwacha will depreciate in the coming months, as investor sentiment deteriorates and real interest rates dip into negative
territory In 2017 though, the unit will resume an appreciatory trajectory as stronger copper prices and production boost trade dynamics
while investor-friendly policies toward the mining sector bolster foreign
investment
TABLE: BMI CURRENCY FORECAST19
Chapter 2: 10-Year Forecast 21
The Zambian Economy To 2025 21
Mines A Driver Of And Risk To Growth21
On the back of an improving regional outlook and good prospects for the mining sector, we are projecting average annual growth of
56% over our forecast period to 2025 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 FORECASTS21
Chapter 3: Political Outlook 23
SWOT Analysis 23
BMI Political Risk Index 23
Domestic Politics 24
Hichilema Victory Will Bolster Business Environment24
Zambia's August presidential elections will be highly competitive, encouraging elevated levels of social expenditure by the ruling
Patriotic Front as well as increasing social unrest, as supporters of the government and opposition clash We maintain our view that
opposition leader Hakainde Hichilema will win, bolstering the investment environment over a multiyear time horizon
TABLE: POLITICAL OVERVIEW24
Long-Term Political Outlook 26
A Question Of Policy, Not Politics26
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 4: Operational Risk 29
SWOT Analysis 29
Operational Risk Index 29
Operational Risk 30
TABLE: OPERATIONAL RISK30
Economic Openness 31
TABLE: TOP 5 IMPORT PARTNERS and PRODUCT IMPORTS, 2010-2014, USDMN 31
TABLE: FREE TRADE AGREEMENTS32
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES33
Availability of Labour 35
TABLE: SUB-SAHARAN AFRICA - AVAILABILITY OF LABOUR RISK36
Chapter 5: BMI Global Macro Outlook 41
Global Macro Outlook 41
Tentative Stability, But New Risks Emerging41
TABLE: GLOBAL ASSUMPTIONS41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %43
TABLE: MACROECONOMIC DATA and FORECASTS45

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