Quarterly Survey of Business Opinions and Expectations Second Quarter 2021 - July 2021, Volume 31 (2)
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Quarterly Survey of Business Opinions and Expectations Second Quarter 2021 July 2021, Volume 31 (2) Disclaimer: The opinions and expectations presented herein are for the respondents and not of the Bank of Zambia i
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iiTable of Contents
Summary ................................................................................................................................... 2
2.0 Economic Performance in the First Quarter of 2021 and Expectations of Economic
Activity in the Second Quarter of 2021 and 12 Months Ahead ............................................ 4
3.0 Evolution of Costs, Wages and Prices ............................................................................. 8
4.0 Expectations of Monetary Policy for Second Quarter 2021 .......................................... 9
5.0 Conclusion ....................................................................................................................... 11
Appendix – Survey Methodology .......................................................................................... 11
iiiSummary
Economic performance remained subdued in the second quarter of 2021 as all monitored
indicators remained below the long-term average with the exception of seasonal
agricultural related activities. This was mainly due to the negative impact of the third wave
of the COVID-19 pandemic. The business community expects economic activity to continue
to underperform in the third quarter and 12 months ahead owing to the persistent
depreciation of the Kwacha, high inflationary pressures, high public debt service and
uncertainity associated with post-election.
2Table 1: Distribution of Responses by Province
1.0 Introduction
Province Frequency Percent
Copperbelt 23 28.4
The Bank of Zambia Quarterly Survey of Central 21 25.9
Business Opinions and Expectations Southern 10 12.3
(QSBOEs) gauges the perspectives of the
Luapula 7 8.6
business community about prevailing
Eastern 5 6.2
macroeconomic conditions which form part of
monetary policy decisions. Northern 5 6.2
Lusaka 4 4.9
This Report presents findings of the Survey
Muchinga 4 4.9
conducted in June on business opinions and
expectations for the second and third quarters North-Western 2 2.5
of 2021, respectively. Total 81 100.0
A total of 271 questionnaires were Source: Bank of Zambia
administered, out of which 81 responses were
received. This represents a response rate of The highest sectoral response rates were from
29.9%, a deterioriation from 43.2% in the the tourism, manufacturing and agricultural
previous survey (Chart 1). sectors while construction and services sectors
recorded the lowest response rates (Table 2).
Chart 1: Response Rate (%): 2019Q3-2021Q2
Table 2: Distribution of Responses by Sector
Response rate (%) Target
100.0 Sector Frequency Percent
90.0 Tourism 28 34.6
80.0
Manufacturing 17 21.0
70.0
60.0 Agriculture 14 17.3
50.0 Merchant 13 16.0
40.0
Service 8 9.9
30.0
20.0 Construction 1 1.2
10.0 Total 81 100
0.0
Source: Bank of Zambia
2020_3
2019_2
2019_3
2019_4
2020_1
2020_2
2020_4
2021_1
2021_2
The rest of the Report is organised as follows:
Source: Bank of Zambia
Section 2 presents opinions of firms about
The highest response rates were recorded in economic performance during the second
Copperbelt, Central and Southern Provinces quarter as well as expectations for the third
(Table 1). Increased COVID-19 infection and quarter and 12 months ahead. Section 3
mortality rates, particularly in Lusaka provides opinions on input costs, wages,
Province, accounted for the lower response prices and profitability. Section 4 presents
rate. In view of this, the Survey results must expectations about the monetary policy
be interpreted with caution. stance in the third quarter and the
performance of the economy one year ahead.
Section 5 concludes. A brief description of the
Survey methodology is provided in the
appendix.
32.0 Economic Performance in the economic outlook for the third quarter,
Second Quarter of 2021 as well however, remains weak (Chart 3).
as Expectations of Economic
Chart 3: Business Expectations Response Patterns
Activity in the Third Quarter of
2021 and 12 Months Ahead 2020_Q2 2021_Q1
2021_Q2 exp Average
Economic performance weakened in the
second quarter, expected to remain
subdued 12 months ahead
output exp
2 volume of sales
Contrary to optimistic business expectations inventories exp 1 exp
in the first quarter, economic performance labour demand
0
volume of service
-1
remained subdued in the second quarter. The exp -2 exp
severe third wave of the COVID-19 pandemic, -3
contributed to the unfavourable economic capacity utilisation -4
domestic sales exp
performance. The volume of sales, exp
profitability, new orders, capacity utilisation
and level of investment were below the first new orders exp profitability exp
quarter levels. In contrast, seasonal economic level of
performance… investment exp12
agricultural related activities (output, volume
of service, labour demand, inventories and
domestic sales) improved (Chart 2). Note: The Survey indicators are standardised net balances of mean=0
and standard deviation=1.A value below the average indicates
weaker economic perfomamnce while above average indicates
Chart 2: Business Opinion Response Patterns* imrpoved economic perfomamnce.
Source: Bank of Zambia
2020_Q2 2021_Q1
2021_Q2 Average Over the next 12 months, growth prospects
remain weak mainly due to uncertainity
output relating to post-election Governmnet policies
2 coupled with persistent depreciation of the
inventories 1 volume of sales
0 Kwacha and high inflation.
-1 volume of
labour demand -2 service 2.1 What has been your firm’s
-3
-4 experience with respect to output?
capacity
domestic sales
utilisation
(Net balance, -0.14; Q1 2021 -0.33)
new orders profitability
Output improved in the second quarter, but
level of remained below the long-term average (Chart
investment
4). This was largely attributed to the maize
*Note: The Survey indicators are standardised net bumper harvest which subsequently,
balances of mean =0 and standard deviation=1. A influenced output in the manufacturing
value below the average indicates weaker economic
performance while above the average indicates sector.
improved economic performance.
source: Bank of Zambia
Firms expect new orders and capacity
utilisation to exceed the long-term average in
the third quarter. This largely reflects higher
agricultural output, especially of maize
following a record harvest in the 2020/2021
farming season, which is expected to trigger
more manufacturing activity. The general
4Chart 4: Opinion on Output depreciation of the Kwacha, high inflationary
output output exp pressures and Government debt service
2.0 obligations.
1.0 2.3 What has been your firm’s
0.0 experience with respect to capacity
utilisation?
-1.0
(Net balance, -0.47; Q1 2021 -0.21)
-2.0
-3.0 Capacity utilisation deteriorated further in
the second quarter and remained below the
-4.0 long-term average (Chart 6). The third wave
2020_Q4
2021_Q1
2019_Q2
2019_Q3
2019_Q4
2020_Q1
2020_Q2
2020_Q3
2021_Q2
of the pandemic largely disrupted operations
reinforced by the high cost of production.
Note: The line at zero (0.0) represents the long-term average Chart 6: Capacity Utilisation
and it applies to all graphs in the report.
capacity utilisation capacity utilisation exp
Source: Bank of Zambia
2.50
Firms, however, expect output to decline in
the third quarter mainly due to seasonal 2.00
fluctuations in agricultural output and the rise 1.50
in input costs on account of the depreciation 1.00
of the Kwacha. .50
2.2 How was your firm’s level of .00
investment? -.50
-1.00
(Net balance, -0.32; Q1 2021 -0.20)
-1.50
The level of investment deteriorated further -2.00
during the second quarter as some companies
-2.50
diverted funds reserved for investment to
2019_Q2
2019_Q3
2019_Q4
2020_Q1
2020_Q2
2020_Q3
2020_Q4
2021_Q1
2021_Q2
respond to the third wave of COVID-19 (Chart
5). In addition, low demand, high production
costs, largely attributed to a weak Kwacha
coupled with reduced profit margins, Source: Bank of Zambia
continued to affect investment appetite. However, capacity utilisation is expected to
Chart 5: Level of Investment rise sharply in the third quarter owing to
level of investment level of investment exp12 increased supply of agricultural related raw
materials and as economic activity is revived
1.0
partly by the on-going COVID-19 vaccination
0.0
programme.
-1.0
-2.0 2.4 What has been your firm’s
-3.0 experience with respect to the
-4.0 volume of service?
2019_Q2
2019_Q3
2019_Q4
2020_Q1
2020_Q2
2020_Q3
2020_Q4
2021_Q1
2021_Q2
(Net balance, -0.41; Q1 2021, -0.48)
Despite remaining below the long-term
Source: Bank of Zambia
average, the volume of service improved
slightly in the second quarter (Chart 7). The
Firms expect investment levels to deteriorate provision of agricultural related services (i.e
further in the next 12 months mainly due to repair and maintenance of agricultural
uncertainity relating to Government policy equipment as well as transportation of output
after the General Elections, sustained and storage) mainly accounted for the
5increase. On the other hand, the tourism Chart 8: Volume of Sales
sector continued to underperform largely due volume of sales volume of sales exp
to the negative effects of the COVID-19 1.0
pandemic. 0.5
Chart 7: Volume of Service 0.0
-0.5
volume of service volume of service exp
-1.0
1.0 -1.5
-2.0
2019_Q2
2019_Q3
2019_Q4
2020_Q1
2020_Q2
2020_Q3
2020_Q4
2021_Q1
2021_Q2
0.0
-1.0 Source: Bank of Zambia
The volume of sales is expected to continue to
-2.0 underperform in the third quarter owing to
the influence of a weaker Kwacha and the
-3.0 associated high inflationary pressures.
2019_Q2
2019_Q3
2019_Q4
2020_Q1
2020_Q2
2020_Q3
2020_Q4
2021_Q1
2021_Q2
2.6 What has been your firm’s
experience with respect to
domestic sales?
Source: Bank of Zambia
The volume of services is expected to fall in (Net balance, -0.04; Q1 2021, -0.06)
the third quarter as agricultural related
services (i.e transportation of produce to Consistent with business expectations,
storage facilities) reduce. domestic sales rose in the second quarter
albeit marginally on account of increased
2.5 What has been your firm’s agricultural output (Chart 9).
experience with respect to the
volume of sales? Chart 9: Domestic Sales
domestic sales domestic sales exp
(Net balance, -0.50; Q1 2021, -0.41) 2.0
1.0
The volume of sales declined further in the 0.0
second quarter and remained below the long- -1.0
term average (Chart 8). This was largely on -2.0
account of subdued consumer demand -3.0
occasioned by the slowdown in economic -4.0
2021_Q1
2019_Q2
2019_Q3
2019_Q4
2020_Q1
2020_Q2
2020_Q3
2020_Q4
2021_Q2
activity due to the marked increase in COVID-
19 infections. The depreciation of the Kwacha
further depressed the volume of sales. Source: Bank of Zambia
Domestic sales in the agricultural and
manufacturing sectors are, however, expected
to decline in the third quarter as agricultural
output reduces and the Kwacha depreciates
further.
62.7 How do you rate your firm’s Chart 11B: Sources of Working Capital
labour demand? retained earnings bank borrowing
partners equity trade credit
other
(Net balance, -0.14; Q1 2021, -0.17) 1.0
0.8
Labour demand improved during the quarter,
but remained below the long-term average 0.6
(Chart 10). This was largely due to crop
harvest related activities. 0.4
Chart 10: Labour Demand 0.2
labour demand labour demand exp
0.0
2.0
2019_Q2
2019_Q3
2019_Q4
2020_Q1
2020_Q2
2020_Q3
2020_Q4
2021_Q1
2021_Q2
1.0
0.0
-1.0 Source: Bank of Zambia
-2.0 2.9 What is your perception of the
-3.0 current availability of credit?
2019_Q2
2019_Q3
2019_Q4
2020_Q1
2020_Q2
2020_Q3
2020_Q4
2021_Q1
2021_Q2
(Net balance, -0.82; Q1 2021, -0.62)
Firms indicated that credit availability
Source: Bank of Zambia remained tight and lending rates rose in the
second quarter. This was attributed to
Labour demand is expected to rise further in heightened default risk occasioned by the
the third quarter, supported by the pick up in third wave of the COVID-19 pandemic and
economic activity boosted by the anticipated high inflation (Chart 12).
successful COVID-19 vaccination programme.
Chart 12: Credit Availability and Lending Rates
2.8 What is your current main
source of investment finance lending rates credit availability
and working capital?
2.0
Retained earnings remained the main source 1.5
of investment finance and working capital 1.0
followed by bank borrowing and partners’ 0.5
0.0
equity (Charts 11A and 11B).
-0.5
Chart 11A: Sources of Investment Finance -1.0
-1.5
retained earnings bank borrowing
-2.0
partners equity trade credit
other -2.5
2020_Q1
2019_Q2
2019_Q3
2019_Q4
2020_Q2
2020_Q3
2020_Q4
2021_Q1
2021_Q2
1.0
0.8
0.6
Source: Bank of Zambia
0.4
0.2
0.0
2021_Q1
2019_Q2
2019_Q3
2019_Q4
2020_Q1
2020_Q2
2020_Q3
2020_Q4
2021_Q2
Source: Bank of Zambia
73.0 Evolution of Costs, Wages and
Prices
Chart 14: Evolution of Wages
3.1 What has been your firm’s
wages wages exp
experience with average input
costs? 0.0
-1.0
(Net balance, 0.60; Q1 2021, 0.69) -2.0
-3.0
Average input costs fell in the second quarter
-4.0
and the trend is likely to continue in the third
2019_Q4
2020_Q3
2021_Q2
2019_Q2
2019_Q3
2020_Q1
2020_Q2
2020_Q4
2021_Q1
quarter. This was mainly due to increased
supply of cheaper agricultural raw materials
such as maize grain to the manufacturing
sector underpinned by a favourable harvest. Source: Bank of Zambia
Reduced operating costs in the tourism sector
also explained the decline following a 3.3 What has been your firm’s
reduction in occupancy levels occasioned by
experience with respect to
the third wave of the COVID-19 (Chart 13).
average selling prices?
Chart 13: Average Input Costs
average input costs (Net balance, 0.32; Q1 2021, 0.38)
average input costs exp
3 PMA average input costs In the second quarter, average selling prices
3 PMA average input cost exp declined and are likely to continue on this
path. This was largely due improved seasonal
4.0
3.0
supply of maize grain to the manufacturing
2.0
sector and promotions by most hotels,
1.0
restaurants, and airlines to encourage the
0.0
uptake of tourism services during the COVID-
-1.0
19 period (Chart 15).
-2.0
Chart 15: Evolution of Average Selling Prices
2021_Q1
2019_Q2
2019_Q3
2019_Q4
2020_Q1
2020_Q2
2020_Q3
2020_Q4
2021_Q2
average selling prices exp
average selling prices
Source: Bank of Zambia 2.0
1.5
3.2 What has been your firm’s 1.0
experience with respect to the 0.5
wage bill? 0.0
(Net balance 0.08; Q1 2021, 0.12) -0.5
-1.0
The wage bill declined in the second quarter
2020_Q3
2019_Q3
2019_Q4
2020_Q1
2020_Q2
2020_Q4
2021_Q1
2021_Q2
mainly due to low profit margins, reduced
working hours and employee redundancies
induced by constrained business activity
Source: Bank of Zambia
occasioned by the third wave of the COVID-19
pandemic (Chart 14). However, the wage bill
is expected to pick up in the third quarter as
business activity improves on optimism about
the COVID-19 vaccination programme.
83.4 What has been your firm’s 4.1 What do you expect the price
experience with respect to level to be over the next
profitability? quarter?
(Net balance, -0.20; Q1 2021, -0.57) (Net balance, 0.69; Q1 2021, 0.50)
Profitability declined in the second quarter Inflationary pressures are expected to remain
and is likely to continue on this path in the high in the third quarter (Chart 18). The
third quarter. This is attributed to depressed majority of the respondents predicted
consumer demand and elevated inflation inflation to be in the 23 – 25 % range (Table
occasioned by the third wave of the COVID-19 3).
pandemic and the sustained exchange rate Chart 18: Inflationary Expectations Next Quarter
depreciation, respectively (Chart 16).
Inflation exp
2.0
Chart 16: Profitability
profitability profitability exp
1.0
1.0
0.0
-1.0 0.0
2021_Q2
2019_Q2
2019_Q3
2019_Q4
2020_Q1
2020_Q2
2020_Q3
2020_Q4
2021_Q1
-2.0
-3.0
2020_Q1
2019_Q3
2019_Q4
2020_Q2
2020_Q3
2020_Q4
2021_Q1
2021_Q2
Source: Bank of Zambia
Table 3: Expected inflation rate at the end of the next
quarter
Source: Bank of Zambia
Inflation Rate Frequency Percent
4.0 Expectations of Monetary Policy Ranges (%)
11-15 1 1.2
for Third Quarter 2021
16-19 3 3.7
The exchange rate is expected to depreciate 20-22 5 6.2
further in the third quarter and lending rates 23-25 13 16.0
remain elevated amid tight credit conditions 26-28 4 4.9
and sustained inflationary pressures (Chart
29-31 2 2.5
17).
38-40 2 2.5
Chart 17: Inflation, Exchange Rates and Lending Non response 51 63.0
Rates Expectations Total 81 100.0
2020_Q2 2021_Q1 2021_Q2 Source: Bank of Zambia
Exchange rate exp
4.2 What are the main factors
Lending rates exp
explaining your expectations of
Creditity availability…
inflation?
Inflation exp
-3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 The key factors explaining inflationary
Notes: expectations are exchange rate depreciation,
Exchange rate = appreciation, strong (+)/depreciate, weak (-)
Lending rates = increase, high (+)/decrease, low (-)
past inflation and cost of production (Charts
Credit availability = tight (-)/ loose (+) 19A and 19B).
Inflation expectations = increase, high (+)/decrease, low (-)
Source: Bank of Zambia
9Chart 19A: Key Drivers of Inflationary Expectations have declined mainly due to the fall in export
next Quarter earnings as a result of the COVID-19
pandemic.
past prices money supply
exchange rates cost of production Chart 20: Exchange rate expectations next quarter
interest rates other factors
Exchange rate exp
1.0
0.0
0.8
-1.0
0.6
-2.0
0.4 -3.0
2020_Q3
2020_Q4
2019_Q2
2019_Q3
2019_Q4
2020_Q1
2020_Q2
2021_Q1
2021_Q2
0.2
0.0
Source: Bank of Zambia
2020_Q2
2019_Q2
2019_Q3
2019_Q4
2020_Q1
2020_Q3
2020_Q4
2021_Q1
2021_Q2 Table 4:Expected exchange rate at the end of next quarter
Exchange Rate Ranges
(K/USD) Frequency Percent
Source: Bank of Zambia 1-10 1 1.2
Chart 19B: Key Drivers of Inflationary Expectations 16-19 1 1.2
next 12 Months 20-22 2 2.5
23-25 46 56.8
past prices money supply 26-28 4 4.9
exchange rates cost of production
35-37 1 1.2
interest rates other factors
1.0 38-40 2 2.5
41-50 1 1.2
0.8 Non-response 23 28.4
Total 81 100.0
0.6
Source: Bank of Zambia
0.4
4.4 How do you expect credit
0.2 availability to be over the next
quarter?
0.0
2019_Q4
2019_Q1
2019_Q2
2019_Q3
2020_Q1
2020_Q2
2020_Q3
2020_Q4
2021_Q1
2021_Q2
(Net balance, -0.77; Q1 2021, - 0.65)
Source: Bank of Zambia Tight credit conditions are expected to persist
in the third quarter as credit risk associated
4.3 How do you expect the with reduced business activity remain tight
performance of the Kwacha (Chart 21). As a result, most lenders are
expected to implement stringent lending
against the US dollar to be at the
conditions in a bid to avert credit risk.
end of the next quarter?
(Net balance, -0.86; Q1 2021, -0.78)
The Kwacha is expected to continue
depreciating against the US dollar in the third
quarter to between K23 and K25 (Chart 20
and Table 4). This is attributed to perceived
low levels of international reserves. In
addition, foreign exchange supply is viewed to
10Chart 21: Credit availability expectations next Elections, persistent depreciation of the
quarter 1 Kwacha and high inflation.
credit availability exp
Chart 23: Economic Performance in the Next 12
0.0 Months
economic performance exp12
0.0
-1.0
-1.0
-2.0
2021_Q1
2019_Q2
2019_Q3
2019_Q4
2020_Q1
2020_Q2
2020_Q3
2020_Q4
2021_Q2
-2.0
-3.0
Source: Bank of Zambia
2019_Q2
2019_Q3
2019_Q4
2020_Q1
2020_Q2
2020_Q3
2020_Q4
2021_Q1
2021_Q2
4.5 What do you expect to happen to
commercial banks’ lending rates
over the next quarter? Source: Bank of Zambia
(Net balance, 0.68; Q1 2021, 0.74) 5.0 Conclusion
Despite showing a declining trend, firms Contrary to business expectations in the first
expect lending rates to remain high during the quarter of 2021, economic performance
third quarter due to high inflation (Chart 22). remained subdued in the second quarter
occasioned by the third wave of the COVID-19
Chart 22: Interest rate expectations next quarter pandemic. Economic activity is expected to
remain unfavorable in the third quarter
2.0 Lending rates exp largely on account of the lagged effect of the
third wave of COVID-19, persistent
depreciation of the Kwacha and the associated
inflationary pressures.
1.0
Firms remain pessimistic about economic
activity in the next 12 months on account of
policy uncertainity post-General Elections,
0.0
external debt service, sustained exchange rate
2019_Q2
2019_Q3
2019_Q4
2020_Q1
2020_Q2
2020_Q3
2020_Q4
2021_Q1
2021_Q2
depreciation and high inflation.
Source: Bank of Zambia
Appendix – Survey Methodology
4.6 What is your expectation of the Data collection for the Quarterly Survey of
performance of the economy in Business Opinions and Expectations is done
the next 12 months? through a questionnaire designed to capture
information on economic performance,
(Net balance, -0.23; Q1 2021, -0.28) sources of finance and operational constraints
for the current quarter as well as expectations
Economic performance is expected to remain for the following quarter and 12 months
subdued over the next 12 months (Chart 23). ahead. The questionnaire is administered to a
This is largely due to the uncertainity relating sample of respondents in manufacturing,
to Government policy after the General trading, tourism and services, construction,
1
Credit availability = tight (-)/ loose (+)
11and agriculture sectors selected on the basis
of their contribution to GDP.
The Survey covers the Copperbelt (Luanshya,
Ndola, Kitwe and Chingola), Southern
(Mazabuka, Choma, Kalomo and Livingstone),
Central (Chisamba, Kabwe and Mkushi
Farming Block), Eastern (Petauke, Chipata
and Mfuwe), North-Western (Kasempa and
Solwezi), Northern (Kasama, Mbala and
Mpulungu), Muchinga (Mpika, Chinsali, Isoka
and Nakonde), Luapula (Samfya and Mansa)
and Lusaka (Lusaka and Kafue) Provinces.
Data analysis is based on net balance statistic
(N) methodology where qualitative responses
are converted into quantitative measures as
follows:
U-D
N=
U+D+S
where U, D and S represent the number of
respondents indicating up, down and same,
respectively.
The net balance statistic method is widely
used in the analysis of survey data and has the
advantage of detecting the directional
changes in performance/expectations of
respondents in surveys. It indicates the
predominance of either an improvement or
deterioration in a variable. A positive
(negative) net percentage indicates that more
respondents reported/expected an
increase(decrease)/improvement
(deteriorating) /tightening (lossening).
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