Facing the Darkness: Zambia’s Energy Crisis and Its Economic Impact (Part 1)

Alex Chishya , Lusaka, 11th March 2024 — It is no secret, Zambia is facing a daunting energy crisis, with severe power shortages and frequent load-shedding disrupting daily life and the economy. This crisis, driven by an overreliance on hydroelectric power and worsened by prolonged drought conditions, has had multi-dimensional implications that encapsulate industries, small businesses, and ordinary citizens. This inadequate power generation and load management entails a myriad of arduous economic implications for these socio-economic facets whose severity and urgent need for solutions cannot be wholly underscored.

Zambia's dependency on hydroelectric power, which accounts for over 83% of its electricity, makes the nation vulnerable to climatic changes. The current drought, exacerbated by El Ni?o, has drastically reduced water levels in reservoirs like the Kariba Dam and Kafue Gorge, leading to unprecedented power shortages. The government has responded with load-shedding, rationing power to manage the limited supply, but this has led to significant disruptions in various economic sectors such as manufacturing and agriculture.

The energy crisis is more than just a temporary inconvenience; it is a profound threat to Zambia’s economic stability and future growth. We need to nip it in the bud, quick and decisive action is what we need to prevent long-term damage and improve the lives of its citizens. The energy crisis jeopardises Zambia's economic stability, with key sectors like mining and manufacturing experiencing production losses. As mentioned earlier, neither have the SME’s been spared; some have had to grind their operations to a complete stand still. Hard hit are those whose business operations are heavily electricity-reliant such as butcheries, barbershops and restaurants. This threatens GDP growth as it disfigures the country’s economic mosaic through diminished investor confidence and overall defragmented economic health. The severity of the social impacts is virtually unfathomable as the disruptions occur at society’s cohesive core, with frequent power outages disrupting education and healthcare services, essential for the well-being of the population.

For now, one can only speculate the extent to which the energy shortages have deterred investments. It is a given, both domestic and foreign investors seek stable and reliable power supply as a fundamental prerequisite for establishing and expanding businesses. Addressing the crisis promptly is crucial to creating an attractive investment climate. With rising unemployment and SME closures, the energy crisis directly impacts employment and livelihoods. Swift action to stabilise the power supply can help preserve jobs and support the informal sector—vital for the economy.

The industrial sector, including mining and manufacturing, is the backbone of Zambia's economy, contributing about 34% to the GDP (data courtesy of Statistica). Frequent power outages have led to significant production losses. The Zambia Chamber of Mines reported that mining companies, which account for over 70% of Zambia's export earnings, experienced production cuts of up to 15% due to power shortages in 2023. This translates into a potential revenue loss of nearly $500 million for the sector. Agriculture, another critical sector, has also been adversely affected. The reduced power supply impacts irrigation systems, leading to lower crop yields. In 2023, maize production, a staple food crop, decreased by 20% compared to the previous year, exacerbating food security issues and increasing the cost of food imports.

Small and medium enterprises (SMEs), which employ around 60% of the workforce, face increased operational costs due to the need for alternative power sources such as diesel generators. According to a survey by the Zambia Association of Manufacturers, SMEs experienced an average increase in operational costs of 25% due to load-shedding. This has led to reduced profit margins and, in some cases, business closures as earlier alluded. The informal sector, which constitutes about 68% of employment, has seen a decline in productivity, further straining the livelihoods of many Zambians.

Educational institutions experience disruptions, affecting learning outcomes. Health facilities, especially in rural areas, struggle to provide essential services. The Zambia Association of Doctors reported a 30% increase in operational difficulties in health centres due to power outages, impacting patient care. The cost of living has also increased as households spend more on alternative energy sources. A study by the Zambia Consumer Association found that the average household expenditure on energy-related costs rose by 20% in 2023, further straining family budgets.

The overall economic impact of inadequate power generation and load-shedding is profound. The World Bank estimates that Zambia's GDP growth slowed from 4.1% in 2022 to 2.5% in 2023, primarily due to the energy crisis. The loss in productivity and increased operational costs have led to a decline in industrial output by 10%, with the manufacturing sector alone losing approximately $1 billion in potential revenue. Unemployment rates have also increased, with the Zambia Statistics Agency reporting a rise in the unemployment rate from 11% in 2022 to 13% in 2023. This increase is attributed to job cuts in energy-intensive industries and the closure of SMEs struggling with high operational costs.

Zambia’s energy crisis, characterised by inadequate power generation and load management, has severe economic consequences. The disruptions in industrial and agricultural production, increased operational costs for SMEs, and the decline in quality of life for households collectively hinder economic growth and development. Addressing these challenges with urgency is paramount. Immediate interventions to stabilise and diversify Zambia's energy mix are critical not only to mitigate the current economic impact but also to foster long-term resilience and sustainable growth. Prioritising the resolution of the energy crisis should be first on Zambia’s to-do list in a bid to safeguard its economic future and enhance the well-being of its citizens.