STANDARD Bank says it is confident on Zambia’s outlook largely boosted by growth in government expenditure, significant foreign investment and a rise in private sector spending and Zambia’s gross domestic product (GDP) growth is set to accelerate from 7.3% year-on-year in 2012, to close to 8.0% year-on-year in 2014.
During a presentation yesterday Standard Bank African strategist Yvett Babb noted that notwithstanding the government’s assertive investment expansion plans, there are risks to the fiscal outlook Zambia’s growth in the public sector wage is expected to exert pressure on expenditure. The fiscal deficit is currently -5.5% of GDP (currently at USD21 billion). The growth in revenue collections under the 2013 budget relative to the 2012 budget may furthermore not emerge posing risks to the budget. The budget assumption for income tax revenue in 2013 is ZMW4.9 billion, up 47% from the 2012 budget.
She said Public sector wages will considerably in September 2013, while the shift to a single spine salary structure will be associated with additional once-off costs. This is unlikely to be offset by the savings from the removal of the fuel subsidies or a rise in other revenues.
“Copper contributes 70% to export revenues while the mining industry remains the main recipient of FDI inflows. The current account reached a marginal surplus in the 2012 as the trade surplus narrowed. Import growth is likely to remain strong, particularly buoyed by significant public and private sector capital expenditure, which we expect to put further pressure on the current account. Zambia’s sovereign bond proceeds (September 2012) provided a temporary boost to international reserves to USD2.6 billion. We expect Zambia to look to issue another Eurobond at a later stage to fund its investment, particularly in energy and rail, which are vital to the copper industry’s growth, but also roads which is key to economic diversification,” said Babb.
Meanwhile Standard Bank head of commodities Walter De Wet said Zambia’s agriculture sector has successfully contributed to the economy’s diversification. Copper exports amounted to USD6.5 billion on 2012. Other exports grew significantly at a compound annual growth rate of 37% over the past three years. There has in particular been strong growth in vegetable products and foodstuffs, 150% in the past three years. Cereal, tobacco and sugar remain the largest non-metal exports.
He said Agricultural potential remains substantial as only a small portion of agricultural land is being utilised. Zambia continues to grow its trade relationships with the rest of Africa, particularly South Africa (9%), Zimbabwe (5%) and the Congo (8%). Exports to Switzerland (informed by trade in copper with trading houses based there) make up 42% of total exports, from 6% in 2002.
De Wet also note that The removal of fuel subsidies and the looming electricity hike have contributed to elevated non-food inflation expectations, at 6.6% year-on-year in April. Food inflation (53.4% of the CPI basket) partially offset the impact of the headline inflation figure which is above the 5% mark.
He said Zambia’s domestic drivers for growth remain strong. Domestic demand will be supported by significant foreign investment, coupled with growth in government expenditure.