- Although the next twelve months look more promising, Zambia faced economic challenges in 2016 following another year of low copper prices and crippling electricity supply deficits affecting economic activity.
- The new government took office in September 2016 and has started implementing its economic reform program that aspires to expand growth and restore budget credibility while reducing the fiscal deficit.
- Job creation guided by an Industrialization Strategy is a key priority of the government as Zambia still retains a low formal employment base of just 11% of total employment.
Despite negligibly higher growth than in 2015, 2016 proved to be challenging for the Zambian economy. Growth remained restrained and insufficient to ensure a positive per capita growth rate. Global growth prospects and demand for copper remained low throughout most of the year affecting the price which averaged USD 4 860 per ton. The lower price affected mining profitability and overall activity in the Copperbelt Province which is the traditional mining area. On the other hand, the mining industry in the North Western Province is buoyed by their lower cost structure. New mining activities initiated in 2016 led to an increase in total copper production by 8.4%. Despite a drought in Southern Africa, late rains resulted in a decent harvest sufficient to ensure food security, but insufficient to contribute to overall growth. Maize output increased by 9.7% to 2.9 million tons while other crops reduced production. Economic performance is expected to improve in the medium term. Copper output is projected to increase by 16% in 2017 and by 8% in 2018. The agriculture season has started with good rains. The projections assume sufficient electricity will be available to increase copper production while weather conditions remain conducive with a limited effect from army worms for a good harvest.
President Edgar Lungu was re-elected in the August 2016 general elections. The first major task of his government was to launch the five point economic recovery program termed “Zambia Plus”. This program aims at balancing the budget to sustainable levels following the increase in fiscal deficits to about 10% of GDP in 2016. A substantial part of the budget is used for paying non-discretionary expenditures such as salaries and interest payments on domestic and foreign loans, and subsidies. Only one third of the domestic revenues are available for goods and services, transfers and other expenditures. Key policies focus on enhancing domestic resource mobilization, improving fiscal governance, accountability and transparency, restoring budget credibility and raising the confidence of the private sector.
The government launched its Jobs and Industrialization Strategy in 2013 as an important initiative to diversify the economy and reduce vulnerability to mining. It is noteworthy that foreign direct investment in manufacturing surpassed mining for the first time in the past decade in 2015. This could be an indication that non-mining investors are looking to Zambia that offers, by regional standards, a stable investor environment.