Zambians worried at soaring costs as economy struggles

Zambia’s economy has been growing at a sluggish rate averaging three percent per annum since copper prices dipped two years ago. The cost of living and doing business has been soaring in the process as the country faces economic challenges after the government cut fuel subsides last year causing a 39 percent price hike in petrol, analysts say.

LUSAKA, ZAMBIA (RECENT) (REUTERS – Rising food and transport costs, have made life difficult for many Zambians in recent months as the country feels the effects of a drop in demand for copper that has in turn left the economy struggling.

Zambia is Africa’s second-biggest producer of copper, which is a mainstay of its economy. With prices near six-year lows, mining companies have closed mines and cut thousands of jobs.

Zambia’s currency, the kwacha, fell more than 2 percent in value in August, as data showed China’s demand for copper had slumped 14 percent in July last year.

In addition to the country’s economic woes, in October Zambia hiked retail prices of petrol nearly 39 percent while diesel went up by 33 percent.

In the capital Lusaka Wheat Basket Bakeries is no longer selling bread as much as it used to.

Bakery owner Lillian Kauma says it’s becoming difficult to keep the business running as customers are buying less bread while production costs increased after the fuel price hike last year.

“The fuel increase in the food production has affected us in so many ways because we have to buy our flour from millers who also buy grains from farmers who use farming equipment which usually use fuel, so the cost of production is high, at the end of the day they pass it on to the people who buy flour from them, so when we buy flour to the millers, we bring it here, they also have to cover the fuel costs, so in due course, you find that we also put a small increase on the finished product which is bread and the rolls,” said Lillian.

Zambia spent more than $200 million on fuel subsidies between January and September this year, an unsustainable burden on the Treasury according to the Energy ministry.

The international Monetary Fund (IMF) wants the country to reduce subsidies as part of an aid package of around 1.2 billion dollars currently being negotiated.

“The cost of living in Zambia has actually risen so high that usually I find myself spending more than fifty percent of my income just to travel to and from work and also the fact that in 2017 there is an anticipated increase in electricity tariffs, so that means that certain products are going to go high, or let me say that most of the products are going to go high like food,” said lusaka resident, Nomsa Chirwa.

Zambia has also been hard hit over the past year by a drought that has wilted crops and driven food prices higher. Low levels of the Kariba dam have also meant power shortages have been frequent.

Power is produced through hydroelectric generation at the dam, supplying electricity to parts of the copperbelt where mining companies are situated.

The country’s economy was expected to grow only 3 percent in 2016 largely unchanged from the previous year due to electricity shortages and subdued private sector investment.

Caesar Cheelo, is an economic analyst at Zambia Institute for Policy Analysis & Research (ZIPAR).

“The logistical cost of doing government business will go up, roughly equivalent to the price increase and this will be a permanent change, so the government has to figure out how to reduce its spending because of the price hike among other things. A big impact will obviously be on the private sector – production, again, transport is such a big cost or component in production, so the fuel hike means that prices of production, costs of production have to go up and in tandem the cost of goods and services also has to go up and the third impact will be on households, everyone that’s living in Zambia now depends on transport in one form or another especially in urban areas,” he said.

Zambia’s struggling economy is forecast to pick up this year as copper prices recover and inflation slows sharply, giving the central bank room to cut interest rates, according to a Reuters poll of economists taken last year. The country also slightly reduced fuel prices early this month due to subdued oil prices according to the energy regulator.