THERE IS A REAL THREAT THAT ZAMBIA MAY SLUMP INTO AN ECONOMIC RECESSION
By C . Malindi- Investment and Business analyst, Entrepreneur and Venture capitalist
A country’s economiy is driven by the following factors:
- Consumer spending
- Government spending
- Business spending/ investment
- Net Exports
Consumer spending is important because private consumption constitutes two thirds of all economic activity in most countries and Zambia is no exception.
But in Zambia’s case we have seen that , historically, Government expenditure plays a catalytic role in driving consumer spending, even though it may only account for 25- 30% of total economic activity .
It is evident ( anecdotally and statistically) that the current levels of consumer and government spending in our country are pretty low and that is worrying ( to put it mildly) and something has to happen to introduce stimulus into the economy.
It is not clear why both Government and consumers are not spending although there are various hypothesis out there including assertions that Government coffers are empty. The other assertion is that consumer confidence is low because of the uncertainty in government policy direction as those who are able to spend become less certain about their financial prospects and safety of assets. Not to mention the much publicized fight against corruption , which may have put fear in some people’s spending habits and the threat of life style audits. It could also be simply that consumers have no money to spend because of the erosion in purchasing power over the last few years,not helped by the pandemic. But it is evident that even though retail sales in shopping malls may have improved slightly , we are still in a depressed state.
The problem with the lack of or decline in consumer and government spending is that it puts pressure on businesses because they are also unable to increase production or stock up on goods necessary to keep the economic engine running.
It would seem that the only silver lining in Zambia’s case is the high copper prices, which , in theory, should lead to higher export earnings. But how much of that advantage feeds into the local economy through tax and other Govt revenue collections is open for debate . The other debate is on whether the rise in copper prices has resulted in increased job creation as well as increase in income to mine suppliers . Anecdotal evidence suggests that not to be the case.
WHERE TO FROM HERE THEN?
I think Government has no option but to introduce some level of stimulus into the economy via their own spending and various public private partnerships.
We have heard about Govt releasing circa K23 billion ( although one doesn’t know what release really means) in the first quarter , through payment to suppliers, pensioners and other Govt services but that, in truth, is not being felt on the ground- so it would seem. We have also heard that CDF funds have been released to the constituencies but once again , there is very little evidence that anybody has received these funds and therefore helped to spur local business or consumer spending. Govt tenders which , traditionally, spur business activity also seem to have dried up. We have heard that Govt is conducting audits on suppliers before payment to suppliers and presumably then new tenders will be put out thereafter.
The nation is also waiting for what happens with the much talked about IMF package and how that will drive economic growth if at all.
The message is clear though : The lack of expenditure by key drivers of an economy may lead to a RECESSION. I would argue that Govt needs to accelerate their processes in order to introduce liquidity into the economy and hopefully that will then lead to consumer and business confidence to spur the economy further.
Time is of the essence . Waiting for all the stars to line up before taking remedial action is a dangerous game ,in my view.
EXECUTION IS KEY . IDEAS ARE A DIME A DOZEN