Private sector output in record fall amid COVID-19

COVID-19’s disruption to economic activities continues to have a telling effect on local trade as Zambia records its sharpest ever fall in private sector business conditions, according to the latest Stanbic Bank IHS Markit Purchasing Managers’ Index (PMI).

Stanbic Bank head of global markets Victor Chileshe warned that the local business environment was expected to continue being negatively impacted by the virus in the months to come, adding that the index showed negative sentiment in the private sector for the first time since the survey started.

In a statement, Chileshe said the month of April recorded the largest ever rate of deterioration in business conditions because of COVID-19.

“The unprecedented contractions were seen in the rate of employment, output and new orders while negative sentiment regarding the future was observed for the first time,” he said. “Demand for inputs also shrunk at a steep pace which contributed to falls in input costs while output prices declined marginally.”

The headline PMI figure sank to 37.3 in April from 44.7 in March. This is the lowest it has ever been since the survey began in March 2015.

PMI readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.

According to the statement, the deterioration was widely attributed to company shutdowns as a result of COVID-19, with falling demand also mentioned by the survey participants.

“These factors contributed to record declines in both output and new orders,” stated Chileshe.

“Almost half of all respondents indicated that their business activity had decreased over the month. With new orders falling sharply, companies were able to reduce backlogs of work for the first time in four months. Several panelists indicated that they had completed most or all of their outstanding business.”

Meanwhile, in line with the trends in output and new orders, Zambian companies saw a record decline in employment during April. As a result, staff costs were down at an unprecedented pace.

“Data from the index showed that business closures and falling demand led firms to scale back their purchasing of inputs to the greatest extent in the series so far. This also led to a record fall in stocks of purchases,” IHS Markit Economics director Andrew Harker stated.

Harker explained that travel restrictions put in place to limit the spread of the virus meant that suppliers’ delivery times lengthened substantially while weaker demand for inputs often led suppliers to reduce their charges.

Subsequently, purchase costs decreased for the first time in four months, and at a record pace.

“Further, Zambian companies lowered their selling prices for the first time in just over a year-and-a-half, in line with reduced input costs. That said, the pace of reduction in output prices was only marginal, with some firms increasing charges due to unfavourable exchange rate movements and efforts to maintain profit margins,” stated Harker.

For the first time since the survey began five years ago, companies were pessimistic regarding the outlook for business activity over the coming year. Concerns about the COVID-19 pandemic and how long any disruption will last were central to negative sentiment, reads the statement.

Stanbic announced a loan relief initiative for its clients and called on businesses to engage the bank when faced with financial problems as a result of COVID-19.

This was followed by a launch of Africa’s first ever China-Africa trade corridor as part of Stanbic’s goal to connect local businesses to import and export opportunities in China and help ease the virus’ impact on trade as well as support businesses beyond the pandemic.

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