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A tale of two neighbours: Zambia tames inflation while Zim screams



THE downward trend of Zambia’s year-on-year inflation as it retreats towards the single-digit mark while prices in neighbouring Zimbabwe have shot through the roof has brought into sharp focus the impact of Russia’s invasion of Ukraine, governance issues as well as currency dynamics between the two countries.


While both countries share a common heritage and also look up to mining and agriculture to drive economic activities, parallel narratives on which development plan to pursue are emerging.

Zambia’s annual inflation rate decelerated for the 10th straight month to 10.2% in May. Before that, inflation had slowed to a two-and-a-half-year low in April, easing pressure on the central bank’s monetary policy committee to raise interest rates.

Food-price growth slowed to 14.1% in April, compared with 15.3% in the previous month, and non-food inflation decelerated to 8.2% from 10.3%. Prices climbed 0.7% in the month. 

Across the border, Zimbabwe is battling a wave of price increases, prompting the authorities to embark on interventionist measures and increase interest rates. But the rout is unrelenting.

After enduring two years of economic contraction from 2019-20, latest figures from the country’s statistical agency show that the economy remains stuck in a quagmire.

The country’s inflation is dramatically surging to three-digit figures after jumping to 131.7% in May from 96.4% in prior month, reflecting contrasting economic fortunes between the two southern African nations.

The central bank sees annual inflation hovering between 50% and 70% by year-end. But experts and some captains of industry say this may not be achievable under current circumstances.

For Zambian President Hakainde Hichilema (pictured), a former opposition leader who rose to power last year after years of persecution, the obtaining economic outturn signals growing confidence in his administration.

President Emmerson Mnangagwa of Zimbabwe, on the other hand, has been publicly saying the economy is on the mend while at the same time blaming an invisible hand for the depreciation of the domestic currency and soaring prices.

Business has been accused by the authorities of driving parallel market activities and stoking inflation, but economic commentators say companies would need surplus Zimbabwe dollar liquidity to do so. With elections beckoning, analysts say money supply growth would grow as politics reigns supreme.

Chris Mugaga, Zimbabwe National Chamber of Commerce chief executive, said the currency conundrum remains the primary driver of inflation locally.

“Exchange misalignment is creating domestic pressure as companies are scurrying for cover. This is now driving inflation in both Zimbabwe and United States dollar terms,” Mugaga said in an interview with The NewsHawks.

Unlike in Zambia where the kwacha remains the preferred medium of exchange, most Zimbabweans have found confidence in the United States dollar.

Fiscal and monetary authorities in Harare also blame the rent-seeking behaviour of some businesses and supply-chain disruptions caused by Russia’s invasion of Ukraine on 24 February for the surging prices.

Mnangagwa’s recent public utterances, which included last month’s unprecedented move to stop banks from lending, point to a government which resents neo-liberal policies such as floating the domestic currency.

Tony Hawkins, a University of Zimbabwe economics professor, said: “What is driving prices in Zimbabwe cannot be explained by what is happening internationally but what is happening domestically.”

“Looking ahead, we will be lucky if the year closes at an annual inflation rate of 400%. There are so many pressures such as wage pressures which will drive food prices.”

Prosper Chitambara, senior economist and policy adviser at the Labour and Economic Development Research Institute of Zimbabwe, a local think-tank, said the taming of inflation in Zambia is a vote of confidence on Hichilema’s government.

“For Zambia, the coming to power of HH, who is very pro-business has really helped to inspire greater confidence within the Zambian economy and obviously that has had a very positive effect in terms of ensuring greater stability of the macro economy and also the disinflationary trend that we have seen,” Chitambara said in an interview with The NewsHawks.

“So it is really about confidence and also political stability is also good for macro-economic stability. It is also quite interesting that even after removing subsidies on fuel in Zambia, we are seeing that their inflation has been trending downwards. When you look at Zimbabwe, I think our major problems are to do with the creation of money and distortions in the foreign exchange markets.”

Gift Mugano, an independent economist, last month sounded the alarm bell, warning that the Zimbabwe dollar may soon be ditched due to rising inflation.

After the government promised to liberalise the exchange market, the discrepancy between the official and parallel rate remains wide. The local unit is trading at US$1:ZW$320 on the official auction market compared to US$1:ZW$550 on the streets.

Mnangagwa’s counterpart, Hichilema, an economist by training, has signalled his intention to normalise relations with creditors with a view to improving the country’s debt profile. Zimbabwe,  on the other hand, has been moving in circles. Harare is apparently not ready to make more political reforms which may bring the economy out of the woods.

Following the war in Ukraine and sanctions on Russia which have sent metal prices soaring, major mining firms are now searching for new sources of the battery metals, copper and cobalt. Last month, First Quantum Minerals said its board had approved plans for a US$1.25 billion expansion of its Kansanshi mine in Zambia, a decision it said was prompted by renewed confidence in Zambia’s investment climate.

While Zimbabwe’s yesteryear copper mines such as Mhangura have long shut down, experts project that the bullish prices of other minerals such as gold, nickel and platinum group metals will offset economic losses as Russia’s military aggression in Ukraine continues.

But with bad policies, the effects of this boom may not cascade to the domestic economy.

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