The Zambian Flag

The dominant green background symbolises the country's rich vegetation and agricultural wealth; the red stripe is a memorial of the struggle and blood shed in the fight for the country's liberation from colonial rule; the black stripe is symbolic of the original people of the land; the bright orange is a symbol of Zambia's wealth in copper - the country's number 1 income generator. The orange African fish eagle floating above the stripes is a symbol of the freedom of the people, as well as a representation of the people's ability to rise above whatever challenges that they may face as a nation.

The Zambian flag, by law, can only be flown between sunrise and sunset, and on government-approved vessels and institutions.


Kenya: At a glance

Structure of the economy

Over the first decade of the 21st century, Zambia was among the fastest growing economies in Africa, reaching middle-income status in 2011. Zambia is the second largest copper producer in the region, just behind the DR Congo; the lack of economic diversification leaves the country highly sensitive to the outlook for the red metal, which generates three-quarters of export earnings. Last year, Zambia became the first African nation to default in the COVID-era, with the pandemic aggravating pre-existing structural problems in the country. Over recent years the Zambian economy has slowed due to soggy copper prices and the impact of droughts on agricultural and hydroelectric energy production. Much-needed restructuring has thus far been slow, with Zambia’s relationship with China clouding the issue. That said, over recent weeks, an agreement with the IMF for an Extended Credit Facility seems to be inching closer.

Economic Outlook

The Zambian economy entered its first recession since 1989 following the pandemic, with GDP contracting by an estimated 4.9% in 2020, after growing by 4% in 2018 and 1.9% in 2019. In contrast to many of its African peers, the economy is unlikely to rebound quickly from the recession; the IMF forecasts GDP at just 0.6% in 2020 and 1.4% in 2022. While international demand for copper is likely to drag Zambia out of recession, the lingering effects of the pandemic, amid vaccination shortfalls, are likely to stunt domestic demand and the much-needed recovery in tourism.

Monetary policy

The Bank of Zambia is facing an ominous combination of soggy economic growth and accelerating inflation; CPI remained at 24.6% in July, which is the highest reading in 19-years. The central bank has reacted by hiking the policy rate from 8% to 8.5%; the MPC described the decision as a delicate act of balancing the need to control inflation and support growth. Likewise, the MPC signaled that it is read to further tighten policy, with inflation far above its 6 to 8% target band. The hawkish shift draws to a close the emergency policy support introduced last year to soften the blow of the pandemic, where rates were cut by 350bps.

Fiscal policy

Zambia’s debt profile has been spiraling even before the pandemic and Debt to GDP is expected to reach 120% in 2021. Much-needed restructuring has thus far been slow, with Zambia’s relationship with China clouding the issue. S&P has estimated that Zambia owes around $3bn to Chinese state-owned and private lenders, accounting for approximately one-third of the total debt load. Transparency over this relationship is key, both in the context of negotiations with private creditors and the IMF over a bailout package. Over recent months reports have suggested that Zambia has moved one step closer to an agreement with the IMF for an Extended Credit Facility. In a statement, the IMF announced, “broad agreement on the macroeconomic framework”. Looking forward, the conclusion of this IMF agreement is a crucial foundation to restructuring negotiations with private creditors under the G20 common framework. While the IMF agreement has inched closer, further work is required to pave the way to a staff level agreement; Zambia must now implement the agreed reforms. That said, the package is now unlikely to be finalized ahead of this month’s general elections.

Political background

The political system in Zambia is one of a presidential representative democratic republic; executive power rests with the President who is head of state, head of government and the commander in chief of the armed forces. Democratic elections are held every five years. The elections scheduled for August 2021 are currently underway; large turnouts were seen throughout the country, where 83% of eligible voters have registered ahead of the election. While there are sixteen candidates contesting the top job, front runners are current President Edgar Lungu (Patriotic Front Party) and Hakainde Hichilema (United Party for National Development) who is making his sixth run for the role. Violence has flared during a fraught campaign, where the army has been deployed to contain clashes between supporters. The polls are now closed, with the count underway; opinion polls suggest that the election is too close to call. The winning candidate must achieve more than 50 percent of votes to avoid a runoff; this outcome would likely extend the election process by another month and could delay the much-needed IMF Staff-level agreement. The electoral commission has announced over recent days that the result will be announced by Sunday 15th August.

Bottom line: Did not place

The situation on the ground in Zambia is concerning. From a bottom up standpoint, Zambia is only expected to rebound slowly this year and next, lagging both global and regional peers. Likewise, the recovery faces further downside risks as vaccination shortfalls and recurring pandemic reinfection waves become apparent. Likewise, the fiscal situation is extremely concerning. The debt profile continues to spiral, with Zambia increasingly reliant on a breakthrough agreement with the IMF. The political situation is also uncertain, with violence escalating toward this month’s Presidential election.

From a structural perspective, as noted in our Roadmap for Q3 and Beyond, we believe that the current backdrop is complicated for emerging markets. That said, in our view, there are selective opportunities to extract alpha from EM. Firstly, under our US-Led Growth Theme, we believe that as further fiscal stimulus enters the system, at home and abroad, the foundations for the cyclical rebound are solid. This backdrop is likely to support allocations to some emerging markets; we favor the emerging markets which have a strong beta to the demand for commodities and capital goods. Likewise, as noted under our investment theme – Sticky Inflation, Structural Headwinds – we stick to our longstanding view that recent price pressures are transitory. As such, we believe that the Fed will introduce a controlled normalisation of monetary policy under the AIT framework, which will encourage extracted in selective carry positions. While Zambia is likely to gain support from these themes – namely international demand for copper and the ongoing bid for selective EM carry – the desperate situation on the ground, in our view, complicates the case for active investment allocations.


1. United Nations;
2. IMF;
3. The World Bank.
Olympics data:
All other data is ESLJ, 2021.


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Views accurate as at the time of publication. Opinions expressed by the authors are their own and do not necessarily reflect those of Eurizon SLJ Capital Limited, Eurizon Capital SGR or the Intesa Sanpaolo Group.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.

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