How Botswana is An Exception to the ‘Resource Curse’ - January 2, 2023
The Current Political State of Zambia: Will Foreign Investments Be a Viable Decision? - December 29, 2022
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Recent Macroeconomic & Financial Developments
The economy of Zambia fell into a deep recession due to the adverse impact of the COVID–19 pandemic in 2020. Real GDP contracted by an estimated 4.9% in 2020, after growing by 4.0% in 2018 and 1.9% in 2019 African Economic Outlook 2021. The reason for this trend is the unparalleled deterioration in the key sectors of the economy. The manufacturing sector saw a huge downfall as supply chains were disrupted, and the tourism and service sector was also affected as the investments as well as private consumption weakened due to the unavoidable measures that had to be put in place 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 according to the African Economic Outlook 2021. Before the pandemic took its course, the economy of Zambia was already experiencing severe macroeconomic challenges, which included high inflation, widening fiscal deficits, low international reserves, tight liquidity conditions and unsustainable debt levels.
The government has made efforts to deploy monetary easing in 2019 and 2020, despite the financial sector having not stabilized. 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 African Economic Outlook 2021. In 2020, the external position also deteriorated and will remain through 2021 due to the output fluctuations, copper price, rising debt payments and elevated nonoil 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) African Economic Outlook 2021.
Outlook and Risks
The economy is projected to grow by 1.0% in 2021 and 2.0% in 2022, underpinned by a recovery in the mining, tourism, and manufacturing sectors African Economic Outlook 2021. The decrease in the cases of COVID-19 will further improve the activity in the tourism and manufacturing sector. Through all of that, the economy still faces risks that may surface through a second wave of the pandemic – this will slow down the global economic recovery and restrain demand for copper. The second wave of COVID-19 can also strain the recovery of the tourism sector African Economic Outlook 2021.
Another factor that can pose a high risk for the economy of Zambia is the failure to effectively implement the Economic Recovery Programme which has a mission to resolve nearly all the constraints the economy faces. These include stabilization of the macroeconomic environment and debt sustainability. In the banking sector, the ratio of non-performing loans is expected to increase and contribute to a drying up of bank liquidity, dampening private sector activity African Development Bank Group. Against this backdrop, poverty is expected to increase due to significant job losses in the service sector (on average, 30.6%), manufacturing (39%), personal services (39%), and tourism (70%) African Economic Outlook 2021.
The Political State
The state of Zambia is weak and lacks the capacity for administration in most rural areas. Between 2019 and 2021, political and economic governance in Zambia continued to decline while dissatisfaction with the status quo has increased as documented in the Zambia Country Report 2022. Since the elections in 2016, mayoral elections and by-elections have been contentious and have recorded high levels of violence. There has been rising dissatisfaction in the country which has resulted in unrest. There are serious concerns about the capacity of the Environmental Council of Zambia (ECZ) ahead of the 2021 elections Zambia Country Report 2022. The numbers of registered voters in each province were released by the ECZ. When these numbers were compared to the voter’s roll of 2016, it was apparent that there were more registered voters in 2021 than in 2016. These findings have caused increased unrest. The regulations put in place due to COVID-19 have restricted opposition gatherings, in contrast to the ruling party continuing to campaign through development projects, and state initiative which was branded as party projects.
During the period of 2019 – 2021, there has been increased unrest, and a clampdown on civil society and online activism in Zambia, this period was also the period in which the Cybersecurity and Cybercrimes Draft Bill was passed. The closing down of the independent station Prime TV in 2020 has undermined the freedom of the media Zambia Country Report 2022. There were increased arrests of opposition and civil society figures as well as arrests of private citizens for allegedly insulting the president on social media.
The journalism sector has been constricted since the elections in 2016. As the government has become less tolerant of dissent, freedom of expression in Zambia has come under strain Zambia Country Report 2022. This can be seen through the TV broadcasting and most radio stations being state-controlled therefore they are heavily politicized. State-owned or state-sympathetic media reproduces the government’s line, often despite clear contradictory evidence Zambia Country Report 2022. Not only is this negatively affecting the media sector, but it also affects those who intend on investing in the country – the news in they receive is prejudiced in accordance with what the government wants them to know.
Although the economic state of Zambia may improve from the implications of COVID-19, which are underpinned by the mining, tourism, and manufacturing, sectors are recovering. The political position and governance of the country which shows instability within the government and affects the citizens and country at large put investing in the country more of a risk than a life-long benefit.
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