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Zambia Country Risk Report Q2 2016

Zambia Country Risk Report Q2 2016

Core Views

Real GDP growth in Zambia will remain subdued in 2016 at 3.4%due to a struggling copper industry and persistent power shortages.

Private consumption will be restrained by higher interest rates andfood costs stemming from a weak currency.

Fiscal consolidation efforts by the Zambian government will helpto minimally narrow the budget deficit for 2016 to 7.1% of GDP.

The government has also revised the mining tax regime to betteraccommodate the falling copper prices, although another revisionleading to inconsistent policies will weigh on investor sentiment.

Various macroeconomic and domestic challenges will make it easierfor opposition leader, Hakainde Hichilema to secure a win in thenext presidential elections, taking place in August 2016. IncumbentPresident Edgar Lungu continues to focus on social spending in lightof the upcoming elections, although we believe it will not be enoughto secure public favour.

Dwindling copper revenues will continue to weigh on Zambia’s currentaccount deficit, while the capital and financial account will seea surplus as a result. The weak currency will challenge net exportvalue, making imports more costly and overvaluing exports. Thegovernment and central bank will try to boost investor sentiment inorder to increase FDI inflows and support the growing twin deficits.

The Zambian kwacha will continue its trend of depreciation in 2016on the basis of a weak outlook for the country’s copper industry.The lack of a stronger reserve arsenal means the central bank willhave little in the way of ammunition to halt an expected 21.4% fallin the currency’s value by year-end 2016.


Executive Summary
Core Views
Key Risks
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Copper Sector Reduces Shiny Prospects Of Growth
Real GDP growth in Zambia will remain subdued in 2016 at 3.4% due to a struggling copper industry and persistent power shortages.
Private consumption will be restrained by higher interest rates and food costs stemming from a weak currency.
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Fiscal Policy And Public Debt Outlook
Fiscal Deficit Will Remain Under Strain
Fiscal consolidation efforts by the Zambian government will help to minimally narrow the budget deficit for 2016 to 7.1% of GDP. The
government has also revised the mining tax regime to better accommodate falling copper prices, although another revision leading to
inconsistent policies will weigh on investor sentiment.
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
External Trade And Investment Outlook
Copper Slump Shakes Current Account Deficit
Dwindling copper revenues will continue to weigh on Zambia’s current account deficit, while the capital and financial account will see a
surplus as a result. The weak currency will challenge net export value, making imports more costly and overvaluing exports.
Outlook On External Position
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
TABLE: TOP 5 GOODS IMPORTS IN 2014
Monetary Policy
Weak Kwacha Weighs Down Monetary Policy
The Zambian economy will continue to require substantial intervention in monetary policy from the central bank due to high food prices
as a result of the drought, and higher import costs stemming from a weak currency.
TABLE: TOP 5 GOODS EXPORTS IN 2014
Monetary Policy Framework
Currency Forecast
ZMW: Fiscal Consolidation Improves Investor Confidence
The Zambian kwacha is set to follow its depreciatory trend throughout 2016, weakening by 21.4% compared to the 41.8% depreciation
seen in 2015. Improved fiscal consolidation efforts will support the kwacha's stability in the short term, while subdued copper prices will
continue to weigh on the currency in the long-term due to heavy reliance on copper export revenues.
TABLE: BMI CURRENCY FORECAST
Chapter 2: 10-Year Forecast
The Zambian Economy To 2025
On the back of an improving regional outlook and good prospects for the mining sector, we are projecting average annual growth of
5.6% over our forecast period to 2024.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Challenges Pave Way For Hichilema's Win
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.
TABLE: POLITICAL OVERVIEW
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.
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Operational Risk
TABLE: OPERATIONAL RISK
Trade Procedures And Governance
TABLE: TRADE DOCUMENTATION BREAKDOWN
TABLE: TRADE PROCEDURES BREAKDOWN
TABLE: SUB-SAHARAN AFRICA–TRADE PROCEDURES AND GOVERNANCE RISK
Vulnerability To Crime
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Downside Risks Gather Momentum
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: MACROECONOMIC DATA & FORECASTS

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