Commentary 9th - 14th December, 09

ZAMBEEF PLc, one of the largest agribusinesses in Zambia, has this week announced a less than expected end-of-year profit and this represents the general performance of Zambian industry in 2009. The recorded profit after tax has dropped from K38 billion in 2008 to K16 billion this year.

Whereas turnover has been high, increasing by close to K200 billion, this performance has been significantly subdued by high externally induced costs, most of them associated with the global credit crunch. In 2009, the Zambian economy experienced economic shocks arising from the global recession, worldwide financial crisis and eventually the collapse of the copper prices that led to a significant depreciation of the Kwacha.

The foreign exchange losses were K66 billion for Zambeef and this effectively wiped off the gains coming from the sale of Nanga Farms to Illovo-Zambia Sugar in the year. Compounding the crisis were the high fertilizer and stockfeed prices that have generally depressed the agriculture and livestock industries in the country.

This picture of Zambeef is a similar story for almost every Zambian industry. Whereas we take comfort in the stabilization of world economies, the effects of the credit crunch are still impacting on Zambian industry. As we close the year, many companies are expected to announce reduced profits or actual losses. This is not good news for shareholders.

It is further expected that as a way of responding to this challenge that may continue into 2010, many companies will seek to downsize operations and this may have an impact on government revenue and employment. It should be accepted as good news that general performance in terms of turnover has not been significantly bad and this will account for reasonable growth in GDP as we close the year.

What will suffer is government revenue through taxation. Companies do not declare profits on turnover but on profits. It is, therefore, important that the government should engage the Zambian businesses on the most effective fiscal incentives to avoid companies going through financial distress in the coming year.

Dr. Situmbeko Musokotwane, the Finance and National Planning Minister, has proved to be a very sensitive and understanding policymaker and we expect him to engage industry on the best business options that government can support through fiscal incentives. The earlier this is done, the better for the Zambian economy.