Zambian Private Sector Cools But Orders Continue To Rise, Says Stanbic

LUSAKA, ZAMBIA – Business conditions in Zambia’s private sector faltered for the first time in eight months, according to the latest Purchasing Managers’ Index survey data from Stanbic Bank Zambia and IHS Markit. Although new orders and employment continued to grow in January, the cholera outbreak, the stronger rand and the depreciation of the kwacha against the US dollar combined to dampen demand.
The PMI registered 50.7 last month, which indicates a moderate improvement in business conditions, but trails December’s 52.9 and November’s 54.7. Readings above 50.0 signal an improvement on the previous month, while those below 50.0 show a deterioration. Overall, just under 45% of firms recorded a fall in output. There were reports of a lower customer turnout, with some panellists linking this to the recent cholera outbreak. The lower turnout also halted purchasing activity. As a consequence, inventories were left unmoved.

Output prices remained unchanged in January, ending the chain of reductions in the previous ten months. When inflation was reported panellists attributed this to higher input costs. Although the rate of inflation was moderate, the overall input prices index accelerated to an eight-month high. Purchase costs rose again in January after falling in December. A number of business commented that the depreciation of the kwacha against the US dollar had pushed up the prices of some materials.

Despite this, job creation accelerated to a four-month high, an indicator of the need to hire staff to fulfil new orders, themselves on an upward trajectory for the tenth time in as many months. The rate of growth remained solid despite easing from December. Anecdotal evidence suggested that stronger underlying demand enabled firms to win new business.

The extra jobs created helped companies to address their work backlogs, which declined for the first time in five months. Nevertheless, the rate of depletion was reported to be only modest. Meanwhile, the Staff Costs Index showed a further rise, albeit more slowly than before and only 2% of firms reported an increase in wages and salaries over the month with the rest seeing no change.
More positively for Zambia’s private sector, lead times were cut in January. The seasonally adjusted Suppliers’ Delivery Times Index registered above the crucial 50.0 non-change line as suppliers aimed to keep up with demand. Vendor performance improved and was at its strongest in 15 months.

However, the stronger dollar and rand took their toll on purchasing prices as inflationary pressures picked up at the start of the year. These caused businesses to leave their selling prices unchanged, the first time in 11 months that firms had not cut prices to stimulate demand.

On January’s survey findings, Victor Chileshe, Head of Global Markets at Stanbic Bank Zambia, said: “The effects of the cholera outbreak and the measures taken thereafter by government have had a significant impact on business activity in January. Higher purchase costs are likely to have been largely driven by a strong rand which has appreciated by 15% over the past three months. The rand is a significant component of Zambia’s import basket.”