BUSINESSES CAN ONLY REDUCE PRICES AFTER A YEAR OF STABLE KWACHA –BOB SICHINGA

BUSINESSES CAN ONLY REDUCE PRICES AFTER A YEAR OF STABLE KWACHA – SICHINGA

FORMER Commerce, Trade and Industry Minister Bob Sichinga says citizens will only see a reduction in commodity prices when the Kwacha appreciation remains stable for about a year.

Sichinga says businesses and manufacturers have no confidence that the Kwacha appreciation will be sustained over a long period of time.

On Tuesday, Commerce, Trade and Industry Minister Chipoka Mulenga called on businesses to review their pricing structures due to the continued appreciation of the Kwacha.

Commenting on the matter in an interview, Thursday, Sichinga said a price reduction of commodities could only happen when costs associated with production came down.

“As a principle, you expect that when an economy is doing well and you have a currency that is appreciating, prices will come down. They (prices) come down because it is expected that now the costs associated with production have also come down. Therefore, the Minister is perfectly in order to require that there should be a reduction in prices.

However, there’s a major condition attending to that; it’s not about a change that has taken place over four weeks because the manufacturers would have in their stocks materials that they had brought in at a price that was higher. So, my advice to the Minister, and also generally speaking, for those that want to comment as economists and so on and so forth, is that the only time you are going to see a change in prices is if that appreciation is stabilised over a longer period of time, not less than a year,” Sichinga explained.

“The Minister of Commerce cannot do much until the Kwacha has stabilised over a period of time, at least a year, then the people themselves in the business community will have the confidence that this currency will be maintained at this level. They are not confident. This change has occurred over a few weeks, you cannot expect that it will create sufficient confidence in the business community [and] that it will be sustained over a long period of time.

The issues of paying for taxes is impacting the value of the Kwacha, it is not because of the performance of the government that the Kwacha is appreciating this way. It is not because the Kwacha has increased in value on its own because of good economic management; it is because the Dollar is losing value against other currencies”.

Sichinga stressed that there was no stability in the currency to lead to the reduction of prices.

“If the price of the materials which they have at the moment was higher, it means the Kwacha they had expended was also higher. The manufacturers and other business people have been pressing the government [saying], ‘can you maintain the stability of the currency’. You may recall that this currency had gone up to as high as K29 to a Dollar.

Now, when you are in manufacturing, you don’t wait until prices change then you order the items because there’s a lead time, by the time the materials arrive at your doorstep, it will be six months, it may be, at shortest, if I say South Africa, it will be at three months. So, there hasn’t been that level of stability leading us up to now to expect that the prices will come down now,” Sichinga noted.

“You can even ask the Minster, what is the price of cement, the bulk of which is local material? Cement, today, is at over K175 per pocket. So, even for local production, until you have stabilised the currency over a period of time, I’m talking about at least a year. In fact, it will be in the interest of the producers themselves to reduce their prices, why, because if they don’t reduce their prices, it means that imported materials will be cheaper than theirs. They’ll be compelled, just because of competition. The Minister doesn’t even have to say anything, they’ll be compelled by competition to reduce the prices so that they can remain competitive”.

He highlighted that the factors contributing to the current appreciation of the Kwacha are temporal.

“You have to understand the factors that are responsible for this change; a lot of these changes are of a temporal nature. They are temporal because during this period, many businesses are required to pay taxes so those businesses that had already gotten money because of the instability of the Kwacha then, they expected that the Kwacha would be more expensive, they would require more Kwacha to get the Dollars, so they bought the Dollars before in order to keep those Dollars in store.

So, when prices rise, they can continue to get their goods overseas which are usually paid for in Dollars. So, they would have kept their Dollars in the expectation that they’ll use that money to get goods from outside whose price will be higher, whose Kwacha equivalent, in terms of prices, will be higher. So, they would have prepared themselves for that,” Sichinga explained.

Sichinga further said government’s decision to start accepting mining taxes in Chinese Yuan is a good move.

“The idea of settlement in Yuan is a very good concept internationally but then Zambia is not a member of [the] BRICS. So, if it was a wise move, they would have now moved to the BRICS grouping so that then they can be able to not just buy in terms of increasing the value of Kwacha and just for the settlement for the purchase of copper in Yuan, they should also be accepting the settlement in the Japanese Yen because we get a lot of things from Japan and Japan is a major buyer of Zambian copper.

Also, China is a major buyer of Zambian copper so it makes sense to have settlement in Yuan and because Zambia buys a lot of things from China so it needs the Yuan to settle the purchases from China, it makes sense,” said Sichinga.

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