RISING INTEREST RATES AND LACK OF LIQUIDITY IN THE MARKET AS BOZ RAISES INTEREST RATES BY 100 BASIS POINTS
Let me first take a historical trend of events before attending to this new development. The Bank of Zambia (BoZ) removed liquidity in the market by raising the statutory reserve ratio on three consecutive times. Meaning funds available with banks to lend to customers were reduced and consequently contracting economic activities. We did mention that these measures will contract the country’s GDP, but we were dismissed. And now, since the International Monetary Fund (IMF) announced the downward GDP forecasts from 4.4% to 2.3%, we now agree. Worse still, to hoodwink us, they have entirely attributed the downward revision in GDP to-drought when negative monetary policy decisions that were implemented in the SRR revision are being obscured. The truth is that GDP growth has reduced because of both SRR revision and partially because of the drought. Let truth be told.
Secondly, to address the continuous depreciation of the Kwacha, the solution lies in creating more production and manufacturing capacity so we can increase our exports and reduce dependence on imports. Now, these policy measures are contradictory.
How will business expand or increase production and manufacturing capacity when the cost of borrowing is going up? First, you remove liquidity through upwards adjustment of SRR, and then you increase interest rates! After which, you ask Zambians to open factories. Where are the Zambians going to access affordable credit? To expand or start any business, you need affordable capital.
So this explains why only foreign entities can successfully run businesses in Zambia at the exclusion of Zambians because they borrow in their countries of origin at affordable rates and capital is readily available.
Clearly, our government’s rhetoric of Zambians to participate in business is totally at variance with the policies they are implementing. Surely Mr Hakainde Hichilema, as he claims to be an accomplished economist, can see this. So we can only conclude that he is doing it deliberately!
What would be the reason he would be doing that?
He has come to the conclusion that he is losing in 2026 and setting a trap for his successor to have a difficult time when he takes over in 2026.
Let’s look at Investrust Bank as an example. They could not raise the required funding to sustain the business despite ZCCM IH being a majority shareholder and consequently went under. Why? It is because capital is not readily available on the local market, and the cost of borrowing is too high.
If, say, Stanbic/FNB/Stanchart we’re faced with a similar situation as Investrust Bank, their parent companies would have sourced affordable funds offshore to avert the capital deficiency. Simply put, Zambia is open to foreigners for business and not Zambians as the government has failed to put policy measures that support Zambian businesses. By contrast, they have put policy measures favourably for foreign businesses like the mines.
Our achievement has only been recorded in closing Zambian companies such as DBZ and Investrust, to mention but a few.
If one refuted this notion, then mention one international financial institution both in commercial and non-commercial banking institutions (micro lenders) except Zambian owned, which has closed since UPND took over!
If anything, this is the time we needed a DBZ the most. It should have been well capitalised to provide affordable capital to Zambian businesses. Commercial banks, as per their name, are their to maximise profits, a development bank by their name is their to offer concessional developmental loans.
Fred M’membe
President of the Socialist Party