Zambia: Business Activities Fall Sharply in Zambia as Demand Drops

Zambia records share decline in private sector activities in the latter part of fiscal year 2022, according to S&P purchasing manager index (PMI) for December released today.

According to the report, companies in Zambia endured a challenging end to 2022, with waning demand and financial pressures leading to further reductions in new orders and output in December.

In their respective reaction to fine tune activities in line with market development, firms scaled back their staffing levels and purchasing activity. Meanwhile, input costs were little-changed over the month and companies kept their own selling prices stable.

The headline PMI fell to 48.3 in December from 49.1 in November, below the 50.0 no-change mark for the third month running to signal a sustained deterioration in the health of the private sector.

Although modest, the latest decline in business conditions was the most pronounced since February 2021. Challenging economic conditions were reportedly a key factor leading new orders to fall in December.

The PMI noted that new business was down for the third consecutive month, with the reduction the sharpest in 22 months. Part of the difficulties facing firms were from money shortages in the economy.

This, allied with a drop in new orders, resulted in a further decrease in business activity, and one that was the most pronounced since February 2021. Each of the five broad sectors covered by the survey signaled a reduction in activity.

Falling new business led to a fractional reduction in backlogs of work, following no change in the previous month. In turn, companies kept their staffing levels broadly stable. While some firms took on additional workers for specific projects, others reported that difficulties paying staff had led them to scale back workforce numbers.

Purchasing activity also fell, down for the third month running. This trend was matched in terms of inventories, with companies reportedly reluctant to hold stock amid decreasing new business. The reduction in stocks of purchases was the fastest in 23 months.

Overall input costs ticked down in December as a slight fall in purchase prices outweighed a fractional increase in staff costs. In fact, the rise in staff costs was the slowest in the current nine-month sequence of inflation.

Continuing the theme of generally stable price and supply indicators at the end of the year, companies kept their selling prices unchanged. This ended a three-month sequence in which output charges had decreased.

Although on balance firms expect business activity to rise over the course of 2023 due to positive expectations for new business, widespread uncertainty meant that confidence was relatively muted in December.

The construction sector registered the highest optimism, followed by services. The lowest positive sentiment was seen among manufacturing companies.

Victor Chileshe, Head of Global Markets at Stanbic Bank said Challenging economic conditions have seen a continued decline in business conditions over the past month which is partly attributed to continued money shortages and a reduction in new orders.