Zambia records fastest reduction in new business since February 2017

A latest survey has revealed that business activity and new business in Zambia both declined for the second successive month – with new business recording the fastest reduction since February 2017.

The headline figure from the Stanbic Bank-IHS Markit Purchasing Managers Index (PMI) reads 48.6 in September, down from 49.0 in August, a seven-month low.

The September data points to challenging business conditions in Zambia’s private sector, with the latest PMI reading signalling a further deterioration in overall business conditions.

PMI readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

Output, new orders and suppliers’ delivery times all contributed negatively to the headline figure, partly offset by positive impacts from employment and stocks of purchases. The latest survey results also signalled weakening price pressures. Although total input costs continued to rise, average purchase prices fell slightly, and wage costs were broadly flat.

Commenting on September’s survey findings, Victor Chileshe, Head of Global Markets at Stanbic Bank said: “Weaker customer demand, higher wage bills and increasing costs of raw materials is the narrative for the worsening business conditions seen in September. With the rising costs of input, it is reasonable to expect that customers will soon be paying more for goods and services.

“Supplier performance continued to improve in September, aided by only a fractional increase in purchasing activity by private sector companies compared with August. Input delivery times quickened, at one of the fastest rates signalled by the survey to date, albeit less so than in July and August. The level of inputs held in stock rose for the fifth consecutive month, albeit at a modest pace.”

Chileshe further explained that the latest survey data indicates that inflationary pressures in the Zambian private sector economy remained muted in September, but that overall input prices continued to increase, the rate of inflation was weak, reflecting lower purchase prices paid for raw materials and other production inputs, and flat labour costs; Subsequently, prices charged by Zambian firms for final goods and services declined for the first time in 2018 so far, albeit at a marginal pace.

“The total volume of private sector business activity in Zambia declined for the second month running in September. Furthermore, the rate of contraction was the sharpest in seven months. Companies linked lower output to slow market conditions, a lack of money in circulation and delayed customer payments. In line with the fall in output, new business intakes also dropped for the second month in a row, and at the fastest rate since February 2017,” he said.

The bank also revealed that private sector firms continued to add to their payrolls in September, and that employment rose for the fourth month running and at a rate faster than the long-run survey average, enabling a further reduction in backlogs of work.

Backlogs of work at private sector firms decreased in September. The volume of incomplete business in the Zambian private sector has declined every month in 2018 so far except for a mild increase in June. Around 12 percent of survey respondents reported lower backlogs in the latest period, linked to slow market conditions.

Average staff costs at Zambian private sector firms were broadly unchanged since August, as signalled by the seasonally adjusted index registering close to the neutral threshold of 50.0.

This followed a 13-month period of sustained wage inflation. Some companies reported that slow sales had restricted their ability to increase salaries.