2014-01-07 21:05:06 - New Country Reports market report from Business Monitor International: "Zambia Business Forecast Report Q1 2014"
A recovery in agriculture in 2014 should see the economy grow by 6.9%, up from an estimated 6.3% in 2013.
Although we are expecting Zambia's external accounts to remain relatively healthy over the years ahead, we believe that the downside risks are greater than the headline balance of payments numbers suggest due to the fact that a fair proportion of copper export earnings never actually enter the country.
Although we are expecting inflation to rise, we believe that it will do so only gradually as slowing food price growth offsets inflationary pressures from a public sector wage increase and a weak domestic currency. We are therefore forecasting that the Bank of Zambia will hold rates at the current level of 9.75% over
the course of 2014.
Full Report Details at
- www.fastmr.com/prod/759048_zambia_business_forecast_report_q1_20 ..
Major Forecast Changes
W e have increased our forecast for Zambia's fiscal deficit to 7.9% of GDP in 2014, from a previous expectation of 4.7% on account of a surging public sector wage bill. With copper prices expected to head lower and a Fitch Ratings downgrade suggesting that foreign investors' sentiment towards the country is deteriorating, we believe that the authorities are likely to struggle to finance spending plans and that capital expenditure will remain below the government's target.
Key Risks To Outlook
The most salient risks to Zambia's economy stem from global economic developments which directly impact the price of copper, Zambia's chief export, as well as the appetite for frontier market investment. If struggles in Europe, China, and other major markets are more or less pronounced than we currently anticipate, then our forecasts would be rendered either too optimistic or too negative.
W e again stress that we believe that President Michael Sata understands the importance of maintaining good relationships with foreign businesses and other private sector stakeholders. However, recent actions threaten Zambia's reputation for democratic stability, and if the situation worsens, businesses may become more wary.
Partial Table of Contents:
Major Forecast changes
Key risks to outlook
chapter 1: political outlook
BMi political risk ratings
regulatory Hard-Line to Hinder investment
- Recent developments in Zambia's regulatory environment threaten to sour investor sentiment towards Africa's largest copper producer. Shifting regulation over mineral export taxes and disputes with both Vedanta Resources and Shoprite have given investors cause for concern in the traditionally investor-friendly country. Although we maintain our view that a lurch to the left is unlikely, we believe that the latest developments serve as a reminder that President Sata will put the interests of ordinary Zambians before those of foreign companies when there is a choice between the two, even if such decisions are to the detriment of the investment climate and by extension the economy.
taBle: Minin G reGulatory outlook
Long- term political outlook
a Question of policy, not politics
- 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.
TABLE: PoLITICAL oVERVIEw
chapter 2: economic outlook
BMi economic risk ratings
Growth to recover in 2014 amid policy risks
- we maintain our view that the Zambian economy will grow by 6.9% in 2014 up from an estimated 6.3% in 2013 thanks to a recovery in agricultural output and continued copper export growth. The main risks to the economy stem from a possible deterioration in Zambia's foreign investment profile and from adverse weather.
TABLE: ECoNoMIC ACTIVITY
Balance of payments
external accounts Healthy But at risk From accounting Quirk
- Although we are expecting Zambia's external accounts to remain relatively healthy over the years ahead, we believe that the downside risks are greater than the headline balance of payments numbers suggest due to the fact that a fair proportion of copper export earnings never actually enter the country.
taBle: current account
Inflation Risks To The Upside
- Although we are expecting inflation to rise, we believe that it will do so only gradually as slowing food price growth offsets inflationary pressures from a public sector wage increase and a weak domestic currency. we are therefore forecasting that the Bank of Zambia will hold rates at the current level of 9.75% over the course of 2014. That said, risks to price growth are firmly to the upside and higher-than-expected inflation could induce policy-makers to hike rates.
taBle: M onetary P olicy
public sector Wage Bill to Weigh on Fiscal accounts
Full Table of Contents is available at:
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