Election uncertainty, weak demand push Zambia to Africa’s weakest business activity

…PMI falls to lowest level in nearly two years in August as customers delay spending

Zambia recorded Africa’s sharpest deterioration in private sector business activity last month as election uncertainty and cautious customer spending weighed heavily on output and new orders.

BusinessDay’s analysis of Purchasing Managers’ Index (PMI) data from S&P Global across eight African economies shows that the southern African PMI fell to 46.0 in August from 50.7 in July, marking its lowest level in 23 months and the sharpest deterioration in business conditions since September 2024.

A PMI reading above 50 signals an expansion in private-sector activity from the previous month, while a reading below 50 indicates contraction.

The sharp decline in Zambia contrasts with a largely resilient performance across the continent. The average PMI for the eight economies slipped only marginally to 50.9 in August from 51.0 in July, while five economies recorded expansion, compared with six in July.

“The country’s private sector contracted sharply in August, with the PMI falling to 46.0, as election uncertainty and cautious customer spending drove steep declines in output and new orders,” said Musenge Komeki, head of Sales at Stanbic Bank.

“Despite weaker activity, lower fuel costs and a stronger kwacha eased inflation pressures, and business confidence rose to its highest level in nearly a decade on expectations of stronger post-election demand and economic stability,” he said.

The PMI report showed that businesses cut purchases and reduced inventories in response to weaker demand, while employment was broadly unchanged.

New business declined sharply, with firms reporting that customers were holding off purchases during the election period. The rate of decline in new orders was the fastest since August 2020.

Business activity fell across all monitored sectors, while new sales contracted in all sectors except construction, where new orders increased.

Firms also reduced input buying at the fastest pace since March 2023 as they responded to weaker demand. Employment was broadly unchanged, although wholesale and retail and services recorded increases in workforce numbers.

The slowdown also reduced pressure on firms’ capacity, with backlogs of work falling at the fastest rate since February 2024.

Election uncertainty weighs on demand

The weakness in private-sector activity came as Zambia headed into presidential elections, with businesses reporting increased caution among customers.

Hakainde Hichilema was re-elected president on August 18 for a second five-year term. His administration’s first term saw inflation fall sharply from above 20 percent to single digits, while progress on debt restructuring helped improve investor sentiment.

The PMI survey signals that businesses now expect demand to recover as election uncertainty fades.

“Sharp decreases in new sales and activity led to a fresh reduction in input buying and a broad stagnation in employment,” the report said. “Nonetheless, business confidence ticked up to the highest in almost a decade amid hopes that the post-election period would bring stability and greater demand.”

The improvement in confidence shows that firms are expecting the political transition to unlock delayed spending and new orders in the months ahead.

Lower costs ease inflation pressure

Zambia’s weak business activity came alongside easing price pressures.

Data from the Central Statistical Office showed annual inflation slowed to 6.2 percent from 6.5 percent in July, its lowest level since February 2018.

Food inflation eased to 6.0 percent from 6.4 percent, while non-food inflation edged down to 6.6 percent from 6.7 percent.

The PMI also showed that total input costs fell for the first time in five months. Purchase prices declined, partly due to lower fuel costs and favourable exchange-rate movements against the US dollar.

Wage bills, however, continued to rise, partly reflecting motivational payments to employees.

Firms largely kept their selling prices unchanged as lower prices in wholesale and retail and services offset increases in other sectors.

The kwacha has also been Africa’s strongest-performing currencies this year, gaining almost 14 percent against the dollar year-to-date as of September 3, according to real time data tracking platform African Markets.

Ghana, Nigeria lead African expansion

Elsewhere, Ghana’s private sector returned to expansion in August, with its PMI rising to 50.8 from 49.9 in July.

Ghana, Africa’s largest gold producer, recorded its first expansion in four months as firms secured more new orders, supporting renewed growth in output and purchasing and stronger job creation.

“The private sector therefore has a solid platform to build on heading into the remaining months of the year,” said Andrew Harker, economics director at S&P Global Market Intelligence.

“One area to watch out for remains the inflation picture. Costs for both purchases and staff rose more quickly in August, and while firms were able to continue to limit pass-through to customers during the month, this may begin to be tested should cost pressures pick up further,” he said.

Nigeria recorded the strongest monthly improvement among the major economies covered, with its PMI rising to 54.3 in August from 52.3 in July.

Egypt remained in contraction despite improving to 49.6 from 46.8, while South Africa moved further into expansion at 50.5 from 50.3.

Mozambique also strengthened, with its PMI rising to 51.9 from 51.3.

Kenya, however, entered contraction for the first time since July, with its PMI falling to 49.7 from 51.3.

Uganda retained its position as Africa’s strongest-performing private sector, although its PMI eased to 55.0 from 55.5.

The August data therefore point to a mixed picture across Africa, with Zambia’s sharp contraction standing out against continued expansion in most of the continent’s surveyed economies.

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