Zambia Business Forecast Report Q2 2011

Core Views:
Zambia will be see strong growth in the coming years, and BMI’s forecasts for 2011 and 2012 real GDP growth are both above consensus. Investment will be a major component of growth, both due to its immediate contribution to GDP and its longer-term impact on productivity in mining and other industries.
While copper will remain on centre stage, there exists significant potential in other sectors, notably agriculture, manufacturing, telecoms, and financial services.
Major Forecast Changes:
On the back of high copper prices and a surge of investment, we have upgraded our GDP forecasts for the next two years from 7.0% in 2011 and 6.4% in 2012 to 7.5% and 7.2% respectively. We have begun using Bank of Zambia data for balance of payments figures rather than those reported by the IMF. This, along with higher export prices, have helped inform a significant upgrade to the current account surplus, to US $1.0bn in 2011, representing 5.2% of GDP, up from previous estimates of 0.1%.
Key Risks To Outlook:
Zambian growth and investment remain vulnerable to volatility in commodity prices. Low prices for copper will diminish investor enthusiasm and export revenues, while high fuel costs will erode profit margins for the energy-intensive mining sector.
Although the campaigns have been relatively calm so far, political risk may take on added significance in the lead-up to the 2011 elections, especially in the context of instability in other parts of Africa which continues to weigh on investor sentiment.
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Executive Summary 5
Core Views 5
Major Forecast Changes 5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
MMD Poised For Victory
We expect the ruling Movement for Multiparty Democracy and President Rupiah Banda will emerge victorious
from the 2011 elections in Zambia, due to successful growth under the incumbents’ watch, as well as increasing
fragmentation among the opposition
Long-Term Political Outlook 9
A Question Of Policy, Not Politics
Zambia boasts a competitive political environment which has been characterised by closely contested and
increasingly freer and fairer elections (according to observers)
TABLE: Political Ov erview 10
Chapter 2: Economic Outlook 11
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
The Early 2011 Investment Wave: Are You Watching This?
The large and numerous investments recently announced into Zambia demonstrate the immense growth
potential of the country’s mining, manufacturing, and agricultural sectors
TABLE: ECONOMIC ACTIVITY 14
Key Sectors Outlook 16
Beyond Copper: Key Sectors To Watch
The outlook for a variety of industries operating in Zambia is broadly positive
TABLE: LAR GEST EXPANSION PLANS 16
Investment Climate 18
Debut Eurobond: Inside Nigeria, Outside Gabon
The B+ rating assigned to Zambia by Fitch is in line with our long-held view that the country is among the
most attractive investment destinations in Africa
Currency Forecast 20
Resilient Kwacha Will Remain Strong
The Zambian kwacha is trading at around ZMK4,775/US $, slipping slightly over the past several days of
trading on the back of a significant retracement in copper prices
TABLE: EXCHAN GE RATE 20
Chapter 3: 10-Year Forecast 23
The Zambian Economy To 2020 23
Mines Both A Driver Of, And Risk To, Growth
On the back of an improving regional outlook and good prospects for the mining sector, we are projecting
average annual growth of 61% over the next 10 years
TABLE: Long-Term Macroeconomic Forecasts 23
Chapter 4: Business Environment 25
SWOT Analysis 25
BMI Business Environment Risk Ratings 25
Business Environment Outlook 26
TABLE: BMI BUSINESS AN D OPERATION RIS K RATIN GS 26
Institutions 27
TABLE: BMI LEGAL FRAME WOR K RATIN G 28
Infrastructure 29
TABLE: LABOUR FORCE QUA LIT Y 30
TABLE: MI DDLE EAST & AFRICA , ANNUA L FDI IN FLOWS 31
Market Orientation 32
TABLE: TRA DE AN D IN VESTMENT RATIN GS 32
Operational Risk 33
TABLE: Top Ex port Destinations 33
Chapter 5: BMI Global Assumptions 35
Global Outlook 35
Oil Risks
TABLE: Global Assumptions 35
TABLE: GLOBAL & RE GIONA L REA L GDP GRO WTH % CHG Y-O-Y 36
TABLE: CONSENSUS FORECASTS 36
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