Zambia Country Risk Report

Providing comprehensive data and in-depth analysis of political, financial and economic risk.

Report includes: BMI's Core Views, 10-year Forecasts, BMI's Economic Risk Index, Political Stability and Risk Index, Long-term Political Outlook, Operational Risk Index, SWOT Analysis and Structural Economic Sections

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Zambia Country Risk Report
Product Price
$1,195.00

Core Views:

  • Economic growth in Zambia will begin to recover over the months ahead as improving rainfall raises agricultural output and domestic power supply. We expect that copper mining sector activity will tick upwards, as gradually rising copper prices encourage firms to raise production, and will provide a modest boost to economic activity over the next 18 months.

  • Headline inflation in Zambia will subside gradually over 2016 and 2017 on the back of increased currency stability and slowly falling food prices. Cooling inflation will allow the Bank of Zambia to move away from hawkish policy in order to stimulate domestic demand.

  • Zambia's budget deficit will begin to narrow over 2016 and 2017 as the government implements sharp subsidy cuts. While negotiations with the IMF are likely to be delayed by the opposition United Party for National Development's decision to contest election results in the constitutional court, we expect an agreement will be finalised in the months ahead, further supporting debt sustainability.

  • Zambia's current account deficit will begin to narrow in the months ahead as rising domestic copper production boosts export growth and increased rainfall eases food and power imports. The gradual uptick in financial account flows, as a result of rising foreign direct investment into Zambia, will be more than sufficient to fund this narrowing external account shortfall in the years ahead.

  • The Zambian kwacha will trade sideways through to year-end and will appreciate modestly over 2017. While elevated inflation will offset improving trade dynamics over the rest of 2016, leading to range bound trade, loose developed market monetary policy will drive capital inflows and will see the kwacha strengthen over 2017.

  • Social unrest will remain elevated in Zambia in the coming weeks, after Edgar Lungu's narrow win over opponent Hakainde Hichilema in the August 11 presidential elections. While the government will maintain a more investor friendly policy toward the mining sector, we expect that sentiment will only slowly improve in the wake of sclerotic mining sector policy during Lungu's prior term.

Major Forecast Changes

  • While we had initially expected an additional 200bps of hikes this year before the Bank of Zambia hit the top of the hiking cycle, slower-than-expected economic growth and the Bank of Zambia's move away from hawkish language in its policy statements in recent months have encouraged us to amend our forecast. We now forecast that the bank will keep the benchmark policy rate on hold at 15.5% over 2016 and 2017.

  • We believe that the government's subsidies cuts as well as gradually improving revenues from the copper sector will see Zambia's fiscal deficit narrow at a faster pace over 2016 than we had initially expected. We now forecast the country's fiscal deficit to 6.6% of GDP over 2016 compared to our previous forecast of 7.8% over the same period.

  • We have revised our forecast for Zambia's current account deficit from 7.5% and 6.3% of GDP over 2016 and 2017 respectively, to 6.2% and 4.9%. We believe that improving rainfall will temper imports of food and power and will ease pressure on the current account balance.

Key Risks:

  • A sharper than expected Chinese slowdown keeps the copper price in decline, leading to further currency weakness and job losses as more mining companies close operations in the challenging operating environment.

  • Government expenditure maintains a focus on unproductive areas of the economy, such as public sector wages, while capital spending remains well below the amount necessary to improve the country's underdeveloped energy and infrastructure sectors.

  • While we expect inflation to subside in the months ahead, as rainfall begins to normalise, price growth will remain susceptible to adverse weather conditions. The country remains reliant on hydroelectric power generation as well as agriculture and a spate of drought or flooding would reduce domestic food and power supply and drive prices upwards.

Macroeconomic Forecasts (Zambia 2014-2025)
Indicator 2014 2015e 2016f 2017f 2018f 2019f 2020f 2021f 2022f 2023f 2024f 2025f
e/f=BMI estimate/forecast. Source: National Sources
Nominal GDP, USDbn 26.9 21.9 22.1 26.3 30.0 32.5 35.1 38.3 41.7 45.3 49.6 54.4
Real GDP growth, % y-o-y 5.6 3.1 3.4 5.2 5.4 5.6 5.6 5.8 5.8 6.2 6.5 6.6
Consumer price inflation, % y-o-y, eop 7.9 21.1 17.0 10.0 8.0 7.0 7.0 7.0 7.0 7.0 7.0 7.0
Exchange rate ZMW/USD, eop 6.39 11.00 10.00 9.80 10.25 10.56 11.07 11.55 12.03 12.51 12.99 13.47
Budget balance, % of GDP -6.3 -7.7 -6.6 -5.3 -4.2 -3.4 -2.6 -1.9 -1.2 -0.6 0.2 0.9
Current account balance, % of GDP 2.2 -3.5 -6.3 -4.9 -3.3 -1.8 -1.4 0.1 0.7 0.5 0.8 1.2
Executive Summary
5
Core Views
5
Key Risks
5
Chapter 1: Economic Outlook
7
SWOT Analysis
7
BMI Economic Risk Index
7
Economic Growth Outlook
8
Net Exports To Dampen Economic Growth
8
GDP By Expenditure Outlook
9
TABLE: GDP GROWTH FORECASTS
9
TABLE: PRIVATE CONSUMPTION FORECASTS
9
TABLE: GOVERNMENT CONSUMPTION FORECASTS
10
TABLE: FIXED INVESTMENT FORECASTS
10
TABLE: NET EXPORTS FORECASTS
10
Fiscal Policy And Public Debt Outlook
11
Current Expenditure Focus Will Widen Fiscal Deficit
11
Structural Fiscal Position
12
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES
12
External Trade And Investment Outlook
14
Weak Trade Dynamics Will Widen Current Account Deficit
14
Outlook On External Position
15
TABLE: CAPITAL & FINANCIAL ACCOUNT BALANCE
15
TABLE: TOP 5 GOODS IMPORTS IN 2015
16
TABLE: TOP 5 GOODS EXPORTS IN 2015
16
Monetary Policy
17
High Inflation Levels Will Keep Interest Rates Elevated
17
Monetary Policy Framework
18
Currency Forecast
19
ZMW: Rally To Be Reversed By Weak Fundamentals
19
TABLE: BMI CURRENCY FORECAST
19
Chapter 2: 10-Year Forecast
21
The Zambian Economy To 2025
21
Mines A Driver Of And Risk To Growth
21
TABLE: LONG-TERM MACROECONOMIC FORECASTS
21
Chapter 3: Political Outlook
23
SWOT Analysis
23
BMI Political Risk Index
23
Domestic Politics
24
Hichilema Victory Will Bolster Business Environment
24
TABLE: POLITICAL OVERVIEW
24
Long-Term Political Outlook
26
A Question Of Policy, Not Politics
26
Chapter 4: Operational Risk
29
SWOT Analysis
29
Operational Risk Index
29
Operational Risk
30
TABLE: OPERATIONAL RISK
30
Economic Openness
31
TABLE: TOP 5 IMPORT PARTNERS & PRODUCT IMPORTS, 2010-2014, USDMN
31
TABLE: FREE TRADE AGREEMENTS
32
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES
33
Availability of Labour
35
TABLE: SUB-SAHARAN AFRICA - AVAILABILITY OF LABOUR RISK
36
Chapter 5: BMI Global Macro Outlook
41
Global Macro Outlook
41
Tentative Stability, But New Risks Emerging
41
TABLE: GLOBAL ASSUMPTIONS
41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
43
TABLE: MACROECONOMIC DATA & FORECASTS
45

Assess your risk exposure in Zambia with our 100% independent forecasts assessing the pace and stability of this key market. Backed by trusted data from BMI Research's 52 million data point economic forecast model, this report will allow you to measure political, economic, business environment and operational risks in Zambia with confidence.

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