WEAK, STRONG OR STABLE KWACHA?

By Miles B. Sampa, MP

“Increasing in order to reduce” thats the mantra on the fuel prices. I guess on the exchange rate it’s “reducing in order to reduce”.

The current strengthening of the Kwacha last six months from 17 to circa 15.5 is indeed superdupa news for our importers. The recent new Copper investments, Nickel investments and progress on the long awaited IMF loan has indeed enhanced confidence in the Kwacha and become bullish.

I am brave enough to strike on any topic seemingly going wrong with the current government but equally not too condescending to ignore any aspect of the economy that is making progress. The Kwacha is definitely doing some wonders on the monetary arena of the Country.

However and not to be a party spoiler to those ululating on the strengthening Kwacha, I have a small reminder. The flip side to a very strong Kwacha is that it’s not user friendly for the export based companies as it erodes their earnings from abroad. This more so to the Mines that are a blood line for our Treasury. Currently they must be posting huge exchange loses from their projected Copper export sales.

Current levels of around 15 is about as much as it should go down so as to balance an equilibrium that is good for both importers and exporters. Otherwise in the nearest future jobs being created by importers will simultaneously be subtracted by job losses in the export industry due to a very strong Kwacha.

Incidentally and as it is some odd tradition in the Zambian economy, huge appreciation of Kwacha does not lead to reduction in prices (DSTV & Talk Time) while a slight depreciation of the Kwacha guarantees increases in prices (fuel, cars).

The key point is that a fast depreciating or fast appreciating currency in any Country is not good for business.

It’s a stable and predictable Kwacha that both Importers and exporters desire. Industry, Commerce and the trading sector of Zambia should be able to have a good idea of what the Kwacha rate will be tomorrow and after 1, 3, 6 and 12 months.

If currency is stable banks can even quote fixed forward rates or options so importers and exporters can plan or hedge their business costs and sales respectively.

Key words here are Importers, Exporters, Kwacha, Rates, Stable and Predictable.

Together We Can
MBS05.08.2022

2 COMMENTS

  1. As a layman in economics, my question is when has a weak kwacha ever benefited the common man ? Whether mines make super profits, the tax paid is very minimal.
    Privatization, mineral tax & other countless interventions thru various SIs have all yielded very little.

    Isn’t time to pursue policies that will favour the common too ?

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