Zambia Economic Outlook

• The outlook for the Zambian economy remains favourable in the medium term, underpinned by good performances and outputs in many sectors and by single figure inflation.
• The country remains vulnerable to external shocks, including risks from a sluggish global economic recovery.
• High youth unemployment and slow progress in poverty reduction overshadow any gains made from growth and limited inflation.

The Zambian economy slowed in 2011, mainly as a result of low growth in mining.

However, the medium-term economic outlook looks favourable. Growth will be solid, underpinned by sustained expansion in agriculture, construction, manufacture, and transport and communications and by a rebound in mining. Inflation is projected to remain in single digits, reflecting prudent monetary policy, while the objective of exchange rate policy is to maintain external competitiveness. Increasing domestic revenues remains a priority for the medium term but huge infrastructure developments will require additional resources. The government plans to issue a USD 700 million sovereign bond in 2012 to bridge the infrastructure funding gap. Risks to Zambia’s sustained growth include vulnerability to exogenous shocks, and sluggish global economic recovery, which could reduce demand for the country’s exports. Moreover, maintaining investor confidence after the recent reversal of the privatisation deal involving Zambia’s telecommunications company, and the subsequent downgrading of the country’s outlook by a ratings agency, will be critical to attracting foreign investment.

Tackling high youth unemployment remains one of the government’s foremost policy challenges. As a proportion of the total labour force, 63% of the urban young in the 15-19age group remained out of work while unemployment is 48% for the 20-24 age category.

In rural areas 16% of the 15-19 group and 7% of the 20-24 age group are unemployed although these figures mainly reflect informal agriculture employment. Significant gender disparities are also prevalent. With about 300 000 young people entering the labour market in an average year, the government has put in place a National Youth Policy and the Youth Enterprise Fund which stress creation of youth employment through entrepreneurship to accelerate poverty reduction. The government has also announced plans to transform the Zambian National Service into a Zambian Youth Training Service with a mandate to strengthen youth skills training.