By Claudia De Meulemeester
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Melting point: Zambia’s low copper production is putting huge pressure |
Zambia has been on a gradual decline since Q4 2014, falling two places in Euromoney’s global risk table to 107 out of 186 surveyed countries.
Economic indicators have dropped significantly. Its economic assessment has lost more than 2% in nearly two years, and it only scored 37.15 in the most recent quarter, from 39.33 in Q3 2014:
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Credit rating agencies also lowered ratings for Zambia to 1.04 from 1.25 in Q2 2016.
Copper
Lower production figures in mining and a drop in the price of copper – Zambia’s main export product – are putting pressure on the government to diversify investments.
“Zambia is hugely dependent on a single commodity,” says Tony Hawkins, macro economist at the University of Zimbabwe’s Graduate School of Management. “As long as a weak copper market persists, the outlook will not be great.”
Chola Mukanga, economist at the Ministry of Justice in London, adds: “Previous governments have always talked about diversifying economy, but the incentives have not really been there.”
However, structural developments have had a positive impact. ECR scores for hard infrastructure have slightly increased for the first time since 2015, scoring 2.69 from 2.65 in the last quarter.
Although manufacturing and agriculture could be sectors to exploit, tourism seems to be a more accessible source of income.
“Tourism numbers have been growing in general in Zambia and we expect that to continue growing,” says Mukanga.
Still, political tensions arising from the contested electoral outcome could put a burden on the country’s already difficult situation.
“If the elections results will be declared unconstitutional, it will enhance instability,” confirms the University of Zimbabwe’s Hawkins.
IMF
In any case, Zambia is set to finalize a new IMF programme in September.
“Such a programme is likely to turn into an oxygen balloon for an economy in serious trouble,” says António Alberto da Silva Francisco, associate professor at the Eduardo Mondlane University and Institute for Social and Economic Studies in Mozambique.
However, Hawkins cautions: “They will have to go along with the IMF whether they like it or not.”
ECR experts now expect a minimum of two years before a rebound in Zambia’s risk scores is visible.
This article was originally published by ECR. To find out more, register for a free trial at Euromoney Country Risk.