2013 economic review
Published On December 31, 2013 » 3458 Views» By Hildah Lumba » Features
 0 stars
Register to vote!
Alexander Chikwanda with Briefcase

•FINANCE Minister Alexander Chikwanda with the copper briefcase containing the National Budget.



ZAMBIA’s economic growth has had unique and mind boggling aspects in the year 2013, thereby, bringing to the fore current challenges of limiting fiscal and monetary policies.

Despite this, Zambia has remained one of the fastest growing economies in the Sub-Sahara African states, with Gross Domestic Product (GDP) averaging above six per cent per annum.

Preliminary data indicates that GDP growth estimates for 2013 are projected at more than six per cent and expected to average seven per cent over the next three years.

Therefore, economic prospects for the future appears bright if growth may be sustained and broadened to accelerate job creation to help reduce poverty.

After a successive slump in copper output in the recent years, mining bounced back in 2013 and is projected to reach 1.5 million tonnes by 2015.

This is largely due to investments in the new mines and the expansion of capacity at existing plants as well as robust international copper prices which helped to provide additional stimulus to the mining industry.

Foreign Direct Investment (FDI) into the industry was enormous, comprising approximately 86 per cent of the national total.

Growth in other sectors remained equally robust, supported by infrastructure development and improvements in the business environment.

In the agriculture sector, Government has continued to subsidise farming inputs for small-holder farmers in the year under review, despite the hurdles in the distribution of the inputs.

Growth in construction and transport benefited from the Government’s Link 8,000 and the Pave Zambia road infrastructure projects.

Expansion in energy infrastructure, a boost in the services sector from rising urban incomes and improvements in the regulatory environment, had also helped to further strengthen Zambia’s medium term growth.

However, Zambia’s growth may remain redundant unless there is a corresponding increase in job creation and progress on poverty reduction and in tracking the budget deficit.

On the other hand, inflation has continued to be in single digit, with Consumer Price Index (CPI) for the year-end inflation at 7.1per cent compared to 7.3 per cent in 2012.

Also supply constraints, particularly in food and infrastructure, has resulted in the rise in food prices and high dependence on fuel imports have kept inflationary pressures high though, in the past few months we have seen some respite in inflation due to a fall in some food items.

It is important to point out that the Government’s strategy of fiscal management has repeatedly gone off course due to a series of unfavourable developments.

Faced with prospects of a sovereign rate cut and the crowding out of private investments in the economy.

In the middle of the year, the Government undertook a series of reforms, including the removal of both fuel and maize subsidies.

Non-Governmental Organisation Coordinating Council(NGOCC) chairperson Beatrice Grillo highlighted during the year that the removal of the subsidies will affect both owners and non-car owners because the ordinary people, the poor need transport to move from one place to another to access services such as health, education, employment and other services.

It has been argued that the savings from the removal of the subsidies will go towards other social and economic needs as well as other infrastructural development projects that will benefit the general populace.

Ms Grillo said their concern was how best to manage its balance so that people do not go hungry in the short term because Government has to invest in infrastructure and other amenities that have long-term benefits.

The World Bank emphasis on ‘Safety nets’ to cushion the poor from the impact of orthodox stabilisation and adjustment policies is an admission that these policies do not affect all sections of the population equally.

To this effect, it is believed that cuts in expenditure especially the removal of both subsidies on maize and fuel have helped the Government report better-than-expected its fiscal performance.

Although the deficit was still wide enough to weigh on investors’ confidence.

Finance Minister Alexander Chikwanda pointed out that the Government has serious responsibilities to the country and if you look at the 2014 national Budget we have a budget deficit of K10 billion.

Mr Chikwanda said: “If we had to continue with subsidising both fuel and maize you will have a deficit much bigger than this and Government will have to borrow more massively even beyond the capacity of the country to service such borrowing.

The money we raise both locally and externally has to be repaid and the interest factor can be quiet formidable. Government has a duty and that is fiscal responsibility and not fiscal irresponsibility.”

As such, it was important that the Government follows the medium term plans of further reducing the budget deficit which is at over 8.5 per cent of the GDP, more than double what was planned during the budget speech last year.

Further, fiscal management by the Government, if it happens, may impact positively and result in necessary expenditure, adversely impacting long term growth prospects.

According to the World Bank brief, Zambia still has low capacity to undertake economic analysis of Government projects.

There is need for the Government to strengthen its capacity to manage the widening and more complex debt choices and resulting portfolios.

The World Bank brief indicated that Zambia needs a medium term debt management strategy to manage the risk exposure of potential variations on the cost of debt servicing and its impact on the budget.

During the year under review, the International Monetary Fund (IMF) believed Zambia’s macroeconomic indicators were positive.

IMF resident representative Tobias Rasmussen said: “Yes have not seen anything that has suggested that Zambia cannot achieve its targeted growth rate of six per cent.”

“In terms of growth it has been very strong we saw the six per cent that was projected for 2013 is less than what was achieved last year of over seven per cent, it is mainly due to the agriculture and weaker harvest for 2013 but most of the other sectors maintained high growth rate of last year

“I think if that underlying pattern persists and 2014 has a better harvest then we can go back to seven per cent growth,” Dr Rasmussen said.

However, the past three months data indicate that the country has been recording trade surpluses until last month when it posted trade deficit of K327 million, the first time since 2009.

Central Statistical Office (CSO) director John Kalumbi pointed out that Zambia recorded a trade deficit valued at K327 million in November 2013 from a K43 million in October 2013.

This means that the country imported more in November 2013 than it exported in nominal terms.

Mr Kalumbi explained that since January 2013, the country has recorded the first trade deficit saying that Zambia posted its last trade deficit of K275 million in 2009.

There has also been a decrease in the total value of metal exports from K3,757million in October 2013 to K3,210 million in November 2013.

The overall contribution of metals and their products to the total export earnings in November and October 2013 averaged 72.1 per cent.

Mr Kalumbi said the share of the Non-Traditional export recorded an average of 27.9 per cent in revenue earnings between November and October 2013.

During the year under review, we saw a fast- depreciating currency which also led to an increase in the import bill for fuel.

In the near term, we expect the Kwacha to trade range bound as market remains relatively evenly matched.

According to Zanaco daily newsletter, the trading range for the local unit was expected to be between K5.50 and K5.60 on the interbank market.

Global copper demand marginally increased by 3.1 per cent in 2013 compared 3.2 per cent in 2012, while copper production increased by 4.5 per cent in 2013.

Copper prices declined 9.4 per cent from US$8,318 per tonne at the beginning of the year to US$7,540 per tonne at the close of the financial year.

Despite the scenario above, ZCCM-Investment Holdings executive chairperson Wila Mung’omba said Zambia economy was expected to continue to grow at higher rates than most of the economies in Sub-Sahara Africa premised on increased execution of development projects , investment in transport infrastructure, private investment in existing and new mining operations and power projects.

ZCCM-IH is well positioned to maximise returns from its existing investments currently concentrated in copper mining, as well as pursuing value adding opportunities.

Also, this year President Michael Sata lifted the 10 per cent export levy on unprocessed copper concentrates to allow mining companies release surplus stocks saying that, the law suspending taxes on raw material would not benefit the country.

Zambia’s natural resources have not been harnessed to foster structural transformation and inclusive job creation.

The country continues to be dependent on copper mining, which accounts for at least 80 per cent of the foreign exchange earnings.

Thus, Zambia’s long term economic prospects hinge on prudent capture and deployment of copper revenues as well as harnessing the potential of non-copper minerals and other natural resources.

Share this post

About The Author