Zambia: Zambia Outlook for 2013-17

The country (Zambia) is situated in Southern Africa, east of Angola.
It has borders with Congo (Kinshasa) for 1930 km, Angola for 1110 km, Malawi for 837 km, Mozambique for 419km, Namibia for 233km, Tanzania for 338 km and Zimbabwe for 797 km. Land in Zambia is frequently high plateau with a number of hills and mountains.
Zambian land covers an area of 752614 km²
The climate is tropical; modified by altitude; rainy season (October to April).
Zambian speak English, major vernaculars - Kaonda,Bemba, Lozi, Lunda, Nyanja, Tonga,Luvale, and about 70 other indigenous languages.

OVERVIEW

The president, Michael Sata, and his party, the Patriotic Front (PF), will remain in power at least until the next elections in 2016. The government will focus on boosting mining revenue, supporting local investment and lowering unemployment. It will remain willing to intervene directly in the economy in pursuit of these goals. The fiscal deficit is forecast to narrow in 2014-15 as the government restricts spending growth to keep the debt stock in check. We forecast real GDP growth of 6.8% in 2013 as maize and copper output recover, an average of 8.1% in 2014-16 as various large mining projects come on stream, and 5.5% in 2017 as the copper boom winds down. Services and manufacturing are expected to grow robustly throughout 2013-17. Our forecasts allow for some delays in ongoing copper projects, and growth will be higher if they are completed on time. It would be lower than forecast in the event of drought, a slump in copper prices or a major deterioration in the policy agenda.

Political outlook

The government's decision to scrap fuel and fertiliser subsidies will further weigh on its public support base.

Economic policy outlook

From the 2013/14 growing season, the government will discontinue fertiliser subsidies and minimum price guarantees for small-scale producers of maize. The two policies have contributed to a surge in domestic maize production but have nevertheless been deeply flawed. The changes are therefore warranted, but the short-term costs will be high.

Economic forecast

Our fiscal deficit forecasts for 2013 and 2014 have declined marginally following the government's decision to get rid of fuel and fertiliser subsidies.

Our real GDP growth forecast for 2014 has been lowered from 8.4% to 8.1% owing to the impact of recent agricultural policy changes on the sector's growth. The forecast for 2016 has been raised from 7.9% to 8.2% owing to expectations of slightly higher pre-election fiscal spending.

Outlook for 2013-17

• Political stability will be maintained, but this will be marred by sporadic unrest as the government continues to antagonise the opposition and voters remain dissatisfied with its slow progress in meeting its campaign promises.
• Despite voter dissatisfaction, the president, Michael Sata, and the Patriotic Front (PF) will remain in power at least until the next elections, in 2016.
• The government will focus on boosting mining revenue, supporting local investment and reducing unemployment. However, it is prone to imprudent policy moves, which would undermine these goals.
• Real GDP growth is forecast to average 7.3% in 2013-17, supported by large investments in infrastructure and mines, a surge in copper production and robust growth in services and manufacturing.
• The kwacha is forecast to depreciate by an annual average of 3.6%, to an average of ZK6.14:US$1 in 2017, as strong growth in foreign investment and exports is offset by robust import demand and a strong US dollar.
• The current-account position is expected to deteriorate in 2013 as imports grow rapidly; to improve in 2014-16 as production of copper-the country's main export-rises sharply; and to weaken in 2017 as export growth slows.

Review

• The Supreme Court has ruled that the tribunal appointed last year by Mr Sata to investigate an alleged breach of the Judicial Code of Conduct by three high-ranking judges is legal.
• In a radical overhaul of its agricultural policies, the government has stated that it will stop subsidising fertiliser for small-scale producers of maize and will discontinue price subsidies on the staple in the current growing season.
• The two subsidy policies have underpinned a surge in domestic maize production, but have nevertheless been deeply flawed. The changes are therefore warranted, although the short-term costs will be high.
• The Energy Regulation Board's approval of a 21% increase in fuel prices has stoked inflation, sparking protests by university students against the govern‑ment's decision to eliminate the 5% fuel subsidy.
• Plans by Konkola Copper Mines-one of Zambia's largest copper producers-to lay off 2,000 workers (around 10% of its workforce) have highlighted the cost and price pressures facing the mining sector.
• The direct impact of any retrenchment on the Zambian economy would be limited-KCM does not plan to cut production or investment-but the indirect economic consequences and political implications would be significant.