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PANDEMIC RISK, CLIMATE CHANGE COULD SLOW ZAMBIA’S, AFRICA’S GROWTH MOMENTUM IN 2021

By MUTISUNGE ZULU                                                                            
JUST when the world is showing signs of global recovery propelled by economies re-opening as vaccine efforts intensify, Africa still grapples with inequalities in the pandemic management faculty.

With vaccine rates of about 2.0 percent, “vaccine apartheid” is one item of issue that has become topical at global forums such as the World Bank spring meetings and the recently ended G7 Summit.

Will developed nations assist developing and poorer nations with vaccine doses to curb Covid-19? Well, the G7 nations last week made solid pledges to donate vaccines to developing nations to help fight this pandemic.

If it was not for Covid-19 the world would still have climate change as top risk as its effects are forecast to be far more dire than the corona virus.

In fact, it is estimated that by 2050 if climate change is not addressed, the global GDP would lose $23 trillion about 8.5 percent of the G7 nations’ (‘the rich’) output. This was according to Oxfam analysis research by the Swiss Re – Institute.

The two environmental risks arguably classified as environment because they both impact the environmental space are attracting so much attention.

India’s spiking cases have evidently been felt by Africa’s constricted supply of vaccines. Being the largest producer of vaccines, India will focus more on addressing its rising cases than export to Africa.

Zambia’s third wave, deadly variant

Africa’s second largest copper producer Zambia, is experiencing a third wave with positivity rates having spiked to 20.0 percent from lows of 1.0 percent as a number of factors stubbornly remain at play ranging from a descent into winter season to super spreader events the country saw in the last 2-3 weeks.

Most citizens have dropped their guard with regards to adherence to health protocols guided by the earlier fall in infection cases and possibly fatigue the pandemic has caused.

Growth at risk, pandemic induced

The Zambian economy receded 2.9 percent in FY2020 as the economy bore the brunt of pandemic in various sectors. The copper producer saw more funds allocated towards health care at the expense of other productive sectors.

Private sector pulse as measured by the Markit Economics Purchasing Managers Index showed that Zambia was in contraction weighed by supply chain strains and suppressed demand in the period, whose effects risk being replicated if the rising cases are not tamed.

Zambia posted the first private sector expansion in April at 50.1, the first in 26-months but has started to reverse as evidenced by May reading at 49.7. (50 is the benchmark for expansion ->50 and contraction -<50)

The nation has seen improved sentiment evidenced by the S&P Zambia bond index that is up 25.0 percent from Covid lows, stock market recovery as the Bourse, Lusaka Securities – LuSE All Share Index – has “shrugged off” corona virus induced losses in addition to a rise in local currency bond demand.

This has been attributed to a cash flush world after stimulus package bailouts by central banks such as the US Federal Reserve, after market tapering, causing rising inflation making global treasuries unattractive but this has forced fund managers to seek yield in Emerging and Frontier market assets whose real yields are for more positive and attractive.

Zambia has above all made strides towards fiscal fitness through progressing in talks with the International Monetary Fund for an Extended Credit Facility whose success remains a precursor to successful debt restructure. This is projected to conclude after the August 2021 polls.

Bullish metal prices still a hedge for outlook

A commodity price boom on the London Metal Exchange supported by global de-carbonisation effects – climate change related and US infrastructural spend, has improved Zambia’s tax proceeds from the mines which has changed the Bank of Zambia’s inflation forecast from a better exchange rate projection at year end into 2022.

Should this trajectory persist, Zambia’s dollar scarcity woes will significantly subside let alone its reserves will shore up while the authorities will have a healthier pool to absorb some of its dollar denominated debt obligations in the labyrinth of which it remains.

All this however will only translate to a better sovereign risk rating, with the rating agencies (S&P/Moody’s/Fitch) for dollar denominated debt, when Zambia does address its debt arrears position.

Until that happens, the copper producer will remain in selective default for dollar debt on its Long-Term Issuer Rating.

Growth remains at risk as rising infection cases could lead to business disruption, lock downs that evidently will hurt commerce.

Layoffs are said to exert immense pressure on pension funds to pay out benefits which in turn reduces their propensity to invest on the stock market.

Covid-19 remains the biggest threat to Zambia’s growth in 2021 and if not curbed could erode the gains the economy has made thus so far.

Rising numbers are likely to hurt the hospitality and tourism sector, Small to Medium Sized enterprises, mining sectors as decongestion is inevitable, construction projects also risk completion delays to mention but a few.

However, despite the downside risks levelled against the economy, the payment system has nonetheless seen an increased usage of contactless channels such as Mobile Money that grew 81.0 percent to K33-billion, Point of Sale by 74 percent to K10-billion and Electronic Funds Transfers by 23 percent to K21.64 billion as more users shift to electronic payment means in pandemic times spurred by the central banks raising of transaction limits to allow for bigger amounts through the payment system.

Other opportunities include pharmaceuticals and digitisation as an enabler for many.

Pandemic, climate change and growth inter-relationship

Rising cases will further slowdown the climate change sustainability agenda to threaten attainment of the Sustainable Development Goals 2030.

There is clearly a relationship between Covid-19, climate change and growth. Africa’s vaccination efforts will need to intensify more for the pandemic war to be won.

Zambia has to date vaccinated about 142, 000 with the first injection dose of a population of 17 million representing 0.8 percent of the population. The risks remain very high as the copper producers’ peers and trade partners such as South Africa grapple with rising cases too.

The onus of fighting Covid-19 remains with citizens through social distancing, embracing health protocols as a first line of defence while health care posture remains critical but dependent on oxygen supplies, ventilators, vaccines and drugs.

The corona virus pandemic remains a global systematic problem. Economies can bounce back from Covid-19 which they will do, but effects of climate change will be seen every year. There’s need for dramatic action by nations.

*The author is National Secretary at the Economics Association of Zambia.

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