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Global economic responses to the Pandemic: Zambia’s response amid shifting consumer trends


With much disruption brought about by the corona virus pandemic, perhaps the most telling is the abrupt dislocation of global supply chains and the inability of an enabling logistic function. Some global businesses have been brought to a complete standstill leading to a decline in the provision of goods, services, and overall proficiency of conducting business.


The factors above have rightly caused business leaders and economists to downgrade their forecasts for economic performance over the coming quarters. As indicated in last month’s blog, the World Bank projected -2.6% Gross Domestic Product growth for the Zambian economy. This figure might be conservative considering the impact of the stay-at-home guidelines and how the resulting slowdown of business affected all linkages across the commerce ecosystem. Businesses have had to cut down on productivity due to a number of factors concerning either the lack of demand for goods and services or the inability to supply certain goods due to logistical constraints brought about by border closures. Industry leaders across all sectors have highlighted the difficulty of conducting business in this environment as most have either had to temporarily lay off staff or permanently reduce their work force due to the lack productivity. This has significantly contributed to the nation’s unemployment rate and further hampered GDP growth.


One significant macroeconomic indicator that is most likely to be affected by the pandemic is consumer sentiment. The resulting reduction in the labour force as businesses cut down on staff, has led to a reduction in disposable income earned by the working class. Majority of consumers are feeling the impact of the crisis and as a result are cutting back on spending.

Consider the fact that consumer spending and savings is a function of household income. Since the beginning of the stay-at-home order in Zambia, there has been a shift in consumer spending as consumers have had to tighten their belt. There has been a cutback on most consumer discretionary items and instead increased spending on groceries and home entertainment. Consumer staples will continue to thrive somewhat with minor reduction in demand. Alcohol and Tobacco tend to do just fine in times such as these, in fact, in the case of tobacco, we might just see an increase in sales as levels of anxiety start to creep up. This is a trend I have seen internationally with companies such as Altria and Phillip Morris reporting decent earnings in the first quarter of this year [Altria reported an increase of 13% in their oral tobacco product segment compared to Q1 2019, while Phillip Morris reported a currency neutral net revenue growth in their Heated Tobacco Units of 10%]. Other trends that have seen increased activity are social media (like Facebook, WhatsApp and Twitter), online shopping and home entertainment.


Nations across the globe are experiencing similar difficulties and in response, their governments have initiated programs to help stave off the effects of the pandemic on business and the economy overall. These responses are in tandem with helping the business community to stay afloat and reduce the impact on expected unemployment which would lead to negative consumer sentiment and reduced economic activity.


The United States congress initiated the CARES Act on 19 March 2020 to provide emergency assistance and healthcare response for individuals, families and businesses affected by the coronavirus pandemic. The relief package covers three categories i.e. caters to small business interruption loans, individuals and families and mid to large cap companies. The business relief package focuses on loan programmes, loan forgiveness and delay of payments of certain taxes. One particular loan package for example, requires businesses to spend 75% of the funds on payroll to keep people employed, a clear attempt to avoid massive unemployment. The remainder of the funds are to be utilised for other operational expenses. The total stimulus package will be in excess of $1 trillion dollars and is the largest in US history.


The European Central Bank, ECB, in conjunction with programmes by the individual member nations, has initiated a plan to pump liquidity into the markets through a Pandemic Emergency Purchase Programme (PEPP). The programme aims to purchase assets in the form of bonds and commercial paper of varying maturities, from 70 days to 30 years. The purchase of the public sector securities is guided by the capital key of the national central banks. PEPP is designed to be flexible in order to deal with the unique challenges provided by COVID-19. The purchases will be conducted in a manner to allow for fluctuations of purchases over time targeting different asset classes in various jurisdictions. Commercial banks will be directly provided with liquidity to on-lend to the credit markets as well as encourage lenders to attract borrowers by effectively lowering interest rates.


China has imposed both fiscal and monetary strategies to help its economy avert the worst impact of the COVID-19 pandemic. The National People’s Congress had already lowered the top-tiered value added tax (VAT) to 14% from 16% in 2019 and announced that further reductions in taxes will ensue to support the economy. Finance minister Liu Kun on the other hand, announced an increase in infrastructure spending to help offset the damage caused by the pandemic. In so doing, the China State Council authorised a further USD 140 billion in local government special purpose bonds for infrastructure projects which included funding for old neighbourhood reconstruction programmes. The People’s Bank Of China (PBOC) has also gotten involved, and they are looking to pump liquidity in the financial system both directly to small and large businesses via the lowering of their targeted medium-long term funding facility (MLF) and through commercial banks by initiating a reduction in the Reserve Requirement Ratio by 100 basis points.


Closer to home; Zambia’s central bank has made a response of its own. In April, the Bank of Zambia enacted measures limiting the handling of cash by reducing cash transactions, the objective being to reduce the risk of the spread of the virus. In consultation with commercial banks and payment service providers, electronic money issuers are obligated to waive fees associated with person-to-person e-money transactions valued up to ZMK 150 (USD 8.20). Transaction balance limits on agents and corporate wallets were removed while those for individuals, small scale farmers and enterprises have been adjusted upwards. The bank has also, among numerous other banking infrastructure changes, made available a ZMK 10 billion (USD 54.6) targeted medium-term refinancing facility (3 to 5 years) to eligible financial services providers. This will allow them to restructure or refinance existing facilities, or to further lend the funds on to clients who qualify. In addition to the actions taken by the Bank of Zambia, commercial banks, have also initiated relief programmes of their own. Stanbic Bank, ABSA, FNB and ZANACO have all put together restructuring and refinancing schemes available to eligible customers enabling them to meet financial obligations and help them get through the current economic lull.



Other institutions outside the banking and finance realm have also introduced relief and support programmes. Developmental finance institutions such as Prospero, a UK aid-funded entity, has announced a grant facility to companies using innovative ideas to combat the virus or companies providing services that help alleviate the effects of the pandemic.


The global economic response to COVID-19 initiated by central banks and other institutions has been comprehensive. There seems to be an overriding theme that one notices with each region’s attempt to help avert the effects of the downturn. Liquidity and fiscal support seems to be the name of the game here, as most central bankers look to prop up the commercial banking landscape to either lower the cost of borrowing to individuals and firms (and refinance existing facilities) or encourage the restructuring of outstanding debt to lessen the financial burden of companies during these trying times.


From an investor’s point of view, what is interesting is the changing trends in consumer sentiment brought about by the pandemic. There are two changes we are likely to see in the Zambian consumer; this will be in spending habits and how Zambians choose to transact during this time. The reduction in peoples’ income will force the consumer to be prudent and thus consumer staples especially in the local agriculture and agri-supply chain will present some interesting opportunities especially concerning the challenging logistics presented by border closures. There is talk that the South African economy will only be fully operational later in 2020. This presents more opportunities for local Zambian businesses in the agri space to mobilize and fill the gap. The Bank of Zambia’s shift to encourage cashless transactions to prevent transmission could lead to several opportunities within the fintech value chain and may provide for innovative solutions that could lead to substantial disruption in the industry.


In all, the COVID-19 problem isn’t going away any time soon, presenting companies with an opportunity to innovate and cater to sectors that are struggling to survive. Necessity is the mother of invention. Stay sharp and stay safe!



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