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Zambia Zambia at a Glance: 2006-07

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Zambia Zambia at a Glance: 2006-07 Country Report Zambia Zambia at a glance: 2006-07 OVERVIEW Political tensions in Zambia will increase as the presidential and legislative elections, which are expected in October 2006, approach. The Economist Intelligence Unit expects the president, Levy Mwanawasa, and the ruling Movement for Multiparty Democracy (MMD) to be re-elected, given the benefits of incumbency and the strong support of rural voters. The prospect of greater opposition unity represents a threat to the president and government, but it is uncertain whether the opposition parties will be able to put aside their differences for long enough to work together and secure power. Even if the MMD manages to win the elections, the party is likely to remain divided over Mr Mwanawasa!s leadership style. Compliance with the economic reforms agreed under the country!s poverty reduction and growth facility (PRGF) may slip in the run-up to the 2006 polls, which would strain, but not break, relations with the IMF and other donors. The government is expected to get largely back on track with its agreed economic reforms in 2007 and relations with donors should improve. Real GDP growth is forecast to rise to 6.2% in 2006 as copper production increases, before declining investments in the copper sector as prices drop cause the rate of growth to fall slightly in 2007, to 5.8%. However, fuel shortages and industrial action in 2005 have highlighted the vulnerability of many sectors of the economy to supply disruptions, and economic growth could be below expectations. Even assuming normal weather conditions, a wider fiscal deficit and high fuel prices will keep inflation in double digits, at a forecast 16.5% in 2006. Falling oil prices should allow average inflation to fall to 13% in 2007. Key changes from last month Political outlook • There have been no major changes to our political outlook. Economic policy outlook • There have been no major changes to our economic policy outlook. Economic forecast • The availability of new official data combined with an adjustment in our expectations for mining-sector profit remittances have caused a widening of our forecast for the current-account deficit. The deficit is now forecast at 5.3% of GDP in 2006 (up from 4% of GDP), widening to 6.2% of GDP in 2007 (up from 5.8% of GDP) as copper prices fall. March 2006 The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 26 Red Lion Square The Economist Building 60/F, Central Plaza London 111 West 57th Street 18 Harbour Road WC1R 4HQ New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7576 8000 Tel: (1.212) 554 0600 Tel: (852) 2585 3888 Fax: (44.20) 7576 8500 Fax: (1.212) 586 0248 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: www.eiu.com Electronic delivery This publication can be viewed by subscribing online at www.store.eiu.com Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright © 2006 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN 1478-0372 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK. Zambia 1 Contents Zambia 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2006-07 7 Political outlook 8 Economic policy outlook 9 Economic forecast 13 The political scene 19 Economic policy 25 The domestic economy 25 Economic trends 27 Agriculture 27 Mining 28 To u r i s m 28 Construction 29 Manufacturing 29 Financial markets 29 Infrastructure 30 Foreign trade and payments List of tables 9 International assumptions summary 12 Forecast summary 15 Composition of parliament 21 2006 budget: expenditure 21 2006 budget: expenditure by function of government 23 2006 budget: revenue and financing 25 Real GDP growth by activity 26 Exchange rate, 2005 31 Debt owed to the IMF 31 Current account List of figures 12 Gross domestic product 12 Consumer price inflation Country Report March 2006 www.eiu.com © The Economist Intelligence Unit Limited 2006 Zambia 3 Zambia March 2006 Summary Outlook for 2006-07 Political activity in Zambia during 2006 will remain focused on the presidential and legislative elections, which are due by the end of the year. Both the president, Levy Mwanawasa, and the Movement for Multiparty Democracy (MMD) are expected to be re-elected, owing to their strong rural support and the advantages of incumbency. However, owing to divisions in the party, some members of parliament may defect to the opposition in 2007. The main thrust of economic policy will be to maintain progress in fiscal consolidation and to remain broadly on track with donor-led reforms, although these could slip in the run-up to the 2006 polls, which may provoke tensions with the IMF and other donors. Strong copper production is expected to be the main factor behind robust economic growth, and real GDP growth is forecast at 6.2% in 2006 and 5.8% in 2007. Despite improving agricultural production, high oil prices and a growing fiscal deficit will ensure that inflation remains in double digits during the forecast period. The political scene Mr Mwanawasa has backed down from his stance over the implementation of the new constitution, although he appears to have succeeded in delaying key constitutional changes until after the 2006 elections. The three largest opposition parties have declared their intention to field a single presidential candidate. All of the main political parties have begun their election campaigns. Economic policy The 2006 budget, announced on February 3rd, contained pre-election expenditure increases, some tax incentives and a reduction in donor reliance. The IMF has released another broadly positive review of Zambia’s economic reform programme, but it did note some areas where improvement is needed. The domestic economy Economic growth is estimated to have slowed in 2005, owing mainly to disruptions in the mining sector. Growth in tourism and construction was buoyant in 2005, but manufacturing growth was below potential. Inflation has continued to fall in 2006, while the kwacha has remained strong. Supported by better rains, early indications are that agricultural production will be significantly higher than the drought-hit levels seen in 2005. Foreign trade and payments The IMF has granted Zambia debt relief worth almost US$600m, but it is unclear how this will affect new aid levels. The current-account deficit is estimated to have widened in 2005 as import growth outpaced export growth and profit remittances by mining companies increased. Editors: Philip Walker (editor); Pratibha Thaker (consulting editor) Editorial closing date: March 8th 2006 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report March 2006 www.eiu.com © The Economist Intelligence Unit Limited 2006 4 Zambia Political structure Official name Republic of Zambia Form of state Unitary republic Legal system Based on the 1996 constitution National legislature National Assembly; 150 members elected by universal suffrage, serving a five-year term. The president can appoint eight further members National elections Presidential and legislative elections due in late 2006 (last presidential and legislative elections December 2001) Head of state President, elected by universal suffrage for a term of five years National government The president and his appointed cabinet; the last major reshuffle was in May 2003 Main political parties The Movement for Multiparty Democracy (MMD) is the ruling party and holds a slim parliamentary majority; the United Party for National Development (UPND), formed in late 1998, is the largest opposition party in parliament, followed by the former sole party, the United National Independence Party (UNIP), and the recently formed Forum for Democracy and Development (FDD); other parties represented in parliament are the Heritage Party, the Zambia Republican Party (ZRP) and the Patriotic
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