Zambian economy faces headwinds

The Zambian economy is struggling as lower prices for its main export copper and high inflation put the brakes on growth.

Growth in 2015 will be little changed from that of the previous year, at 5.6 percent according to a report published in May by the International Monetary Fund. Troubles in mining slowed output in this sector which accounts for 70 percent of the country’s GDP, the IMF report said.

And inflation is high, expected to reach 8 percent for the year, the report said. This has been exacerbated by the depreciation of the Zambian currency, the kwacha, which is down about 30 percent against the dollar in the first quarter of 2015.

– Mine closures

A number of major copper mines have been closed in Zambia in September.

Commodities trader Glencore said on Sept. 7 that it would close the Mopani copper mine in Zambia for 18 months as production facilities are upgraded.

On the same day, China’s Luanshya Copper Mines closed down production at its Baluba mine in Zambia.

“The effect of both companies’ decisions will put further pressure on the country’s increasingly precarious fiscal and external positions as it will depress growth and proceeds from exports,” Moody’s says in a note issued after the closures were announced.

The mining sector is also troubled by poor infrastructure, according to economist Olivier Saasa. Lower water levels in the Kariba lake have cut power output at the hydropower station there.

“The low supply of power to the mining industry, which is the heart of Zambia’s economy, will automatically translate into lower production. What this means is that when there is a reduction in production by key players like mining companies in the country, there will also be a reduction in the country’s earning and when this happens, you do not expect the economy to perform well,” Saasa told Anadolu Agency in an interview on Monday.

“As though this is not enough, the price of copper has drastically fallen and this has overburdened the Zambian economy,” he added.

– Currency depreciation

But the major threats to GDP will not only come from unreliable power supply but also from external factors in the global market, according to Private Sector Development Association President Yusu Dodia.

“The only time things will get better is when government deals decisively with the budget deficit. Of course, certain programs will be shaved off, but a serious threat to overall GDP is the continued power blackouts, which are unavoidable. In the end this will result in lower production for all sectors,” Dodia said.

Economic Association of Zambia President Chrispin Mphuka has blamed the fast depreciation of the kwacha as the reason why the economy is not doing well.

“This is moving the country towards turmoil. There was no time in the history of Zambia when the local currency has reached such a low point,” Mphuka told Anadolu Agency in an interview on Tuesday.

Mphuka noted that weak kwacha was not only pushing the cost of doing business high, but would make the living standards of people unbearable.

“Already, the cost of fuel has already gone up and there is a short supply of electricity. This is a direct assault on the country’s productivity. For me, this will also affect the country’s GDP,” Mphuka said.

Mphuka also observed that the economy is being hurt by election fever ahead of the country’s general election in 2016. “Provocative statements by campaigning politicians are scaring off investment,” he added.