Veteran Politician Dr Mbita Chitala says time has come for Zambia to reintroduce foreign exchange controls.
In an article posted on his Facebook page on the depreciation of the Kwacha, Dr Chitala stated that foreign exchange controls would help stabilise the local currency.
He said introducing a new policy exchange rate regime of pegging the exchange rate will not be sufficient unless the Zambian Government considers introducing capital controls.
Dr Chitala argued that there is historical evidence all industrialized countries utilized capital controls successfully over long periods adding that Zambia should follow suit.
Here is Dr Chitala’s full article
Many Zambians are disturbed that the Kwacha has continued to depreciate raising the spectre of compromising our economic performance and further increasing the poverty and inequality of our people.
The free fall of our Kwacha has been on account of three reasons. First, the PF government exchange rate policy inherited from the MMD government of using market-determined (termed floating) exchange rates where the value of the Kwacha is determined by market forces ; Secondly, the unfettered international private capital flows such as the Euro Bond and other foreign bank borrowing, Portfolio Investment, Foreign Direct Investment and other Transnational Corporations activities, and ; Thirdly, the lack of confidence in our economy managers occasioned by the costly introduction of SI 33 and the suspension of SI 33 and SI 55 without altering the content of our economic management.
The introduction and later suspension of SI33 and SI 55, has resulted in large capital outflows (termed capital flight) which has been putting pressure on the Kwacha and resulting in its depreciation.
As all students of economic theory know, the decrease in the demand of our Kwacha is central to why it is depreciating. This has been occurring because the Mining Companies together with all other investors including our own nationals have been selling their assets or relocating them offshore to secure jurisdictions. This capital flight has further induced a vicious circle of additional flight and Kwacha depreciation, debt service difficulties and the reduction in stock or other asset values.
This is because the panicked investors have been selling their assets en masse to avoid new capital losses brought about by anticipated future depreciation of the Kwacha or asset values.
This capital flight has aggravated Zambia’s macroeconomic vulnerability and financial instability which has culminated in the present exchange rate crisis.
It is important that the government takes up urgent measures and considers changing the current regime of floating exchange rate policies and introduce the pegged exchange rate system in which the value of the Kwacha will be allowed to fluctuate only within a narrow band (pegged exchange rate).
However, introducing a new policy exchange rate regime of pegging the exchange rate will not be sufficient unless our government considers introducing capital controls. Capital controls or the measures to manage the volume, composition or allocation of capital flows and or maintenance of restrictions on investor entrance or exit opportunities.
There is historical evidence all industrialized countries utilized capital controls successfully over long periods. This is true today for China, India, South Africa, Botswana , Brazil as it was for all European countries after WW II, the USA in 1963, Japan and South Korea in 1960s, Malaysia in 1994 and 1998.
In our country, it would be advised that these capital controls could presently target our specific vulnerability, namely, the capital flight and use and identify the specific ‘trip wires’ and ‘speed bumps’ in various domains such as the Kwacha collapse, flight of capital and then take steps to curtail these risks by activating a target capital control- the speed bump. It is in this vain that windfall taxation of our natural resources such as our base metals and emeralds should be seen.
Capital controls are beneficial to Zambia because in our small and underdeveloped economy, First, the controls will promote our financial stability and prevent our social and economic devastation; Secondly, capital controls will promote desirable types of investment and financing arrangements; And Thirdly. Capital controls will enhance our democracy and national independence.
Lastly, It is important that that the bad image that our economic managers at the Ministry of Finance and the Bank of Zambia are responsible for, namely, of having introduced SI 33 in particular which prevented investors and owners of assets from using them freely in Zambia, is urgently addressed.
It is apparent to all and sundry that it will only be a foolish investor who will bring his assets to Zambia if the management is still in the hands of those who caused so much damage to investors and the country in the first instance.
Mbita Chitala PhD
we don’t solve problems by creating another problem chitala you know what has caused this problem
Chitala is right.I can’t agree more.Only cadres can disagree.
This is constructive criticism at its best….. where you offer or suggest alternatives to problems.
The kwacha hemorrhage must be arrested now as it has already caused damage that will be so hard to repair
Hope some tribal group in opposition has learnt something from Chitala’s approach to national issues than just make incorrigible noises
what is veteran about Derrick Chitala aka Mbita.
I agree with you. To failed politician Chitala just study what is happening to Venezuela and then come back with credible solution. PhD kiss my a*se
Chitala has a point on some of the causes of the rampant Kwacha depreciation.
Just to add one more cause, I would say the toxic political climate created by PF is the number one culprit. Zambia ‘s situation is no different from the Zimbabwean one during the political instability created by Bob.
The PF and Sata have sent chilling messages to the investors by deporting investors without following the law. They have even gone further to intimidate any investor who refuses to donate money towards PF party cause. To make the situation worse, the PF party cardres more especially the prominent ones are in the habit of intimidating businessmen and women with impunity.
The unfair implementation of the POA against the opposition is also sending bad signals to investors , hence the…
The Problem is VERY OBVIOUS! PF with a DINOSAUR as Min Of Fin.
MMD can bask in the glory of having advanced our financial fortunes while pabwato have sunk us, it isn’t about Forex controls!!!
And…..this is the problem. Cadres arguing with the educated. What Chitala has said makes sense even to me an Engineer. No need for Rocket Science. The man is spot-on. Any good manager must know that reversing the SIs 33 and 55 without cracking the whip on the people responsible for it (including Finance Minister) cannot improve the performance of the Kwacha. People need to be brave enough and fire erring officers.
Another ignoramus with useless comments!
The simple fact is that a re-introduction of forex controls will totally kill the Zambian economy. Just talking about it in the media is the main cause of capital flight.
We need to treat the DISEASE and not the SYMPTOMS, and the disease is an economically uneducated president and an incompetent and inconsistent PF government.
The “medicine” this Dr. is prescribing is 100% WORSE than the disease! We need a stable economic policy where investors the have security of their investments guaranteed. Otherwise they will just go somewhere else. Zambia is not the only choice for them. And who will provide us jobs then? Sata and his PF?
Gen we are not talking about tribe.we are adressing Economic Isues which has no conection to tribe.No one eats tribe.The truth is PF has failed to manage the Economy ,Hence the ever ever rising exchange rates.The moment we agree to this fact then will begin solving this problem.We dont need foreign exchange controls to strenghthen the Kwacha.That is cosmetic,what we need is to reduce imports and increase Exports .How do we increase Exports by 1.processing our agriculture products and adding value to copper.2 We have to borrow wisely for proper reasons and remove all corupt elements in the system if it means changing the intire PF Government by voting them out.
I agree with Mbita on this.He is on point.Hope government will heed his advice
Go ahead and screw yourselves.
screw yourselves ha ? Cool ! You are a genius !
@Soulosi
i went to church today, i prayed for you and most especially your sister cindy,,, the lady who continues to touch my heart.,,, i thank God for Cindy,,
coming to your comment i must say am impressed with you recently,,,, you are seeing the reality on the ground,,,,,, i know for sure has PF young energetic money managers who could have done this 1year or 2years old,,, the is question why are these PF money managers not given a chance,,, even just advise ba chikwanda???
a few days ago Panji kaunda was saying how these chinese contractors employed by the PF govt are milking out the dollar from Zambia to china,,,, thereby making the situation worse,,,,,, we dont need mr mbita to make this statement for us to open our eyes,,,,,, inhouse PF experts should know this without question
Mbita Chitala, I only agree with you on one point and I quote “It is important that the bad image that our economic managers at the Ministry of Finance and the Bank of Zambia (PF POOR POLICIES) are responsible for” for this mess we are in.The countries you have listed and period is way back and these countries had or were growing their manufacturing base,which is not the case in Zambia.If MMD for 20 years had to do way with the forex controls and this resulted into the country’s economy growing,why should we introduce the system that failed and brought untold misery to Zambians during the UNIP reign.Its you people who were looking for jobs from PF who have landed us in this mess.Because you Chitala yourself you
were aware and even now that SATA can not run the country and its…
spot on – I agree with you totally: “Its you people who were looking for jobs from PF who have landed us in this mess.Because you Chitala yourself you
were aware and even now that SATA can not run the country and its…”
Spot on! Mbita knows very well where the problem is coming from but wants to point at bad image that our economic managers at the Ministry of Finance and the Bank of Zambia (PF POOR POLICIES) are responsible for, yet he sounds to scared to hit the nail on the real problem, which is having an extremely incompetent and insane President. Could it be that Mbita is trying to eat with both hands?
I don’t understand all that economic jargon but common sense tells me that Dr Chitalas argument this time is plausible. Lets not fool ourselves that our economy will prosper if we leave everything to market forces and some good Samaritan foreign investors while we sit back like a retiree and wait for them to pay taxes. It is not possible for a baby to eat from the same plate as adults and compete fairly on the dinning table.
Well said.It can`t get better than this
The bottom line is this and the axis of the guagmire in the fx market and confidence of the local unit rest on one and only one matter: bad, poor, hopeless, failed and incorrigible PF policies, practices and ‘vision’.
The President is no where; now you see now you dont. The PF borrows Kaloba and takes country back to HIPC. The Ministry of Finance and Sata accelerate printing of money.
All this means, something familiar. Heading towards Gono-Sekuru Zimbabwe shortly. Sata is a curse to this country. Levy and Chiluba must be turning at Embassy Park.
The problem with this whole quagmire is lack of consistency. No country can afford to be changing policy every other day.
A president who can’t understand basic economics cannot develop a country to prosperous,Zambia needs a president who can ask challenging questions to those technocrats at Boz,Mof and commerce.A president should spend a good time with his economic advisers pondering as to why most essential goods prices are high,depreciation of kwacha. The economy is fast deteriorating and sata has never opened his mouth on the state of our economy,but he has time for court drama.its good to revisit and change course if u notice that your party policies are not working than to stick to them…leadership entails compromise not stubbornness.mr chitala should know that we are in liberalized market and his suggestions will worsen the situation.next presidential election,Zambians vote with your head .
@chikubabeniso, you’re spot on. Our president has been hijacked by people who want to achieve their own theories because he doesn’t understand the details. Yaba! Alexander and the team are trying all sorts of things and this Derick Chitala is talking about UNIPist policies in 21st century!
Twenty years MMD didnt use controls but kept kwacha in check these kaponyas have just failed to run the economy.chanda chimba III tried to educate you but you didnt listen you even went with your own pens to make sure you vote for your own misery stop complaining.
Welensky type of economics. In this day and age you want to reverse to the failed archaic economic paradigm!
How many time do I need to say Gondwe and uncles (Chikwanda) must take a ride – they have failed miserably!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
“….market-determined (termed floating) exchange rates where the value of the Kwacha is determined by market forces..”
This is brilliant. It allows the investor to take his money out of the country the minute he smells the fart. The countries he quotes as having successfully managed forex controls have ended up the losers, example Mark Shuttleworth has moved his money out of South Africa, because RSA has been stup^d enough to insist on this archaic policy. What Mbita should be harping on is to have a Zambia that has multiple sources of forex, not just copper. copper provides almost all the forex Zambia has, this is very very stup!d! Countries like Japan for instance, because they have massive and diverse sources of forex, they can afford even to incur a debt to GDP ratio of over 60%
…the last paragraph is debatable….sometimes investors like financial manager like the ones managing our finances right now…managers who have interest of the investor and their families only and not Zambians at large….the easily connived, corrupted…. compromised…
its us Zambians who are supposed to be worried and concern on how the economy will turn around with the same managers who put us in this situation….
In China, control of FOREX has worked very well. You cannot buy more US$500.00 as a foreigner per day. This information is shared in all the Banks including Postal Banks in China. If you attempt to go to another Bank, you will be informed that you have already bought your entitlement for a day. In Zambia, you can go from one Bureau to the other and buy up to US$100,000.00 or a million dollars in a day. Wake up.
@Nihao, you have said it all!! That is real source of the problem! How can anyone take in or out any amount of money with out adequate monitoring? The bureaux d’echange,commercial banks and the BOZ are NOT interlinked in one money trading system to have an on spot check on the global transactions so that there is a quick way to monitor situations and policy effects!!Even SIs 33 and 55 meant well as far as the strengthening of the Kwacha and management of forex is concerned but the two instruments lacked an enforcement mechanism as everything was manual and there is no electronic link among commercial banks,ZRA and BOZ for real time record reconciliation for quick and accurate accountability. Who has time to audit millions of paper records? Hence the failure and the forex hole we in…
Nangu ni u bootlicker mwati ni ifi?
I am generally suspicious of people who flaunt titles ati “Dr.” so and so and chakuti chakuti! We should learn to stick to simpler things and avoid theatricals …
Countrymen, there is no such thing as a policy or set of policies left on their own
that can save or serve you without your active participation in their execution as manager!
MR CHITALA,YOU CAMPAIGNED FOR THE PF,WHY CAN’T YOU GO AND ADVISE MR SATA INSTEAD OF WRITING WORTHLESS ARTICLES IN THE MEDIA.HAS THE DOOR TO STATE HOUSE BEEN CLOSED FOR YOU?
Chitala is inconsistent. First he cites the SIs Number 33 and 55 which introduced some form of exchange control as being partially responsibly for the current crisis. How can he , in his very next breath, advocate for exchange controls as a solution to the Kwacha depreciation crisis.
I am however in full agreement with the last paragraph calling for the resignation of the economic managers over whose watch this debacle has occured.
The basic problem is that SataN and his PF minions dont understand how the Economic Fundamentals actually work.
It is unrealistic for anyone to imagine that SataN, Fossil Chikwanda and Gondwe can ever put up a credible modern economic policy – that will never happen even in a million years because these chaps are neither educated nor skilled in these sorts of things. BUT we have people like Magande, Musokotwane, Fundanga, etc who can do it in no time and like a child’s play BUT are not given the opportunity to help the country because they belong to wrong tribes and have different political beliefs!!
Meanwhile, the Kwacha will be falling like over ripe mangoes daily and capital flight will continue. We brought it on ourselves by putting PF monkey thieves in Govt so let Chitala CRY…
This is constructive criticism at its best….. where you offer or suggest alternatives to problems
This is constructive criticism at its best….. where you offer or suggest alternatives to problems
yes
You do not stop a fire by pouring petrol into the roaring flames….you will only create an explosion.
If Chitala’s crazy ideas were to be implemented it would only encourage the creation of massive black markets for foreign exchange and simply stop the much needed capital flows that Zambia requires from pouring into the country.
Zambia’s FX problems are linked to stupid fiscal policy. Don’t blame MMD for the present woes, you can’t increase civil service wages by 40% and not expect it to have an impact on the economy…you can’t increase budgetary spending by 30% in two consecutive years and expect it not to have any impact.
The problem is not the monetary policy regime, it is the poorly thought out fiscal policy. People like Chitala are a danger to the country.
Bitter Chitala. Yakunyokola njala. You just want to be heard. It is you and Penza. And dean.and chiluba that brought libefal economics. For now it all depends on when Sata dies. And chikwanda and Michael Gondwe going back to the farm.
It is our Kwacha after all.It us who will suffer and we are the ones who should put it right.
We are not really talking enough about it and many people are just playing the blame game. We actually should be offering solutions to what is a now a national problem. I think we should be a bit more positive and be loud about it. Let us engage the Government more professional until we reach a point we say enough is enough they just have to go. Am challenging the Economic Association of Zambia,ZICA ,LAZ to come up with a think tank and engage Government with intelligent well researched solutions
and come out and discuss this issue publicly..
Great. Let us create thriving forex illegal market. Next step weekly forex auction by the Bank of Zambia? That is how you will help economy to develop?
Where are the figures? How much capital flight? Who is selling their assets? Blah blah… No research just yapping like fish out of water!!!
While I agree with Dr Chitala that there should be an invisible hand in the direction our financial market should head, I also would like to add that the political acrimony in our country should be addressed. The tide against democratic freedoms in form of stifling the opposition particularly the singling out of a particular tribe (tonga) as being unfit to govern the country, reversal of constitutional change and even the handling of the BA64 have not only brought about loss of confidence but fear of strife at national level. In their risk assessments, investors, especially small businesses, may be concluding that storing value in capital goods and bank accounts in Zambia could be too risky and have decided to slowly but surely transfer their money to offshore accounts & stocks for…
Man of action at the helm driving our economy down the abyss. Trial and error is the order of the day in pf govt.
Doc,
I really appreciate your concern and the disappointment you are going through.
However do you really know the pitfalls of forex controls at the expense of efficiency. The trade off effects are very parsimonious, but with massive devastations on the same poor people you are trying to protect.Developing nations, much as you aware Doc are imported input oriented ones, and once you bring in the forex controls, this leads to inefficiency and shadow pricing of critical inputs necessary for the development of our nation. Further, often,foreign exchange controls can result in the creation of black markets to exchange the weaker currency for stronger currencies. This leads to a situation where the exchange rate for the foreign currency is much higher than the rate set by the government,…
When developing strategic plans, PESTEL analysis is usually used in addition to SWOT analysis. P in PESTEL stands for POLITICAL. The politics of a country should be right contextually if the strategic goal is to be achieved. So, whatever Dr Chitala and Dr Muma (blogger 26) have written can only work if the politics are handled well. The PF in power (and not UPND which has been trailing #3 in elections and may not rule the country according to PF cadres!) should realise that tribal talk has reached alarming levels since coming to power in 2011 and do something about it. It is tribal politics which led to genocide in Rwanda and not economic decline (alone) if at all.
EXCHANGE CONTROLS WILL NEED TO COMPLETE DRYING UP OF FOREIGN EXCHANGE AS WE EXPERIENCED DURING THE ILL-FATED KAUNDA DAYS!!!
CHITALA JUST SHUT UP.
SEE WHAT THE SI 33 DID!
EXCHANGE CONTROLS WILL LEAD TO COMPLETE DRYING UP OF FOREIGN EXCHANGE AS WE EXPERIENCED DURING THE ILL-FATED KAUNDA DAYS!!!
CHITALA JUST SHUT UP.
SEE WHAT THE SI 33 DID!
true – i was there – queuing for US$100 ati travel allowance – after applying and waiting for weeks!!!! shithouse!!!
Real Exchange rates tend to gravitate towards their normal long run equilibrium values reflecting the strength of the fundamentals that hold the economy no matter what artificial interventions are made Its like addressing the symptoms and not addressing the core sickness at heart
As long as FDI and the economy gains and reserves are not enshrined to cement longterm,any exchange rate reshime will be artificial and shorterm and very volatile
Understanding the mean value of the kwacha tranquil periods will help make well thought decisions understanding the negative correlations in asset classes to invest in as an alternative to policies addressing the kwacha indirectly especially we as an emerging market
learning lessons from the mexican pesso including the Rand and the crisis of our neighbours here in Zim and the Germans
Private and free citizen now at last yaa it has been tough and bad but thank God i am free now …….. i hope the kwacha does also it can be terrible my friend The kwacha needs to realise its potential like you also but thanks free from controls and pegging and realise its potential it can be bad and stressful???
THIS WONT WORK. WITH THE ADVENT OF FOREX CONTROLS ALL INVESTORS WILL PULL OUT AND WILL CREATE MORE PROBLEMS FOR THE COUNTRY.
ITS BETTER TO START USING us DOLLAARS AS THE CURRENCY……
On currency devaluation, which is what this is, forced by the IMF/World Bank in Malawi, and it’s effect on the economy and population – remember that it was President Bingu wa Mutharika who went against the IMF/World Bank, and that President Joyce Banda was the IMF’s darling:
(THINKAFRICAPRESS) Malawi: Paying the Price of Devaluation
Article | 26 February 2013 – 10:38am | By Lameck Masina
” The cost of basic goods rose dramatically and commentators warned of dire consequences unless the government devised measures to cushion the impact. Such predictions seem to have been vindicated, with the rising prices and falling living standards her predecessor had warned of becoming starkly apparent to ordinary Malawians. “
On who was behind it in the case of Malawi:
(REUTERS) IMF says Malawi should devalue kwacha currency again
By Mabvuto Banda
LILONGWE Tue Jan 10, 2012 7:03am EST
” LILONGWE (Reuters) – Malawi should devalue the official exchange rate further to between 230 – 250 against the dollar to address a foreign exchange shortage and stem a thriving black market, the International Monetary Fund said. ”
” The dollar crunch has worsened because of low tobacco earnings and after key donors, including Britain, withheld budget support.
The IMF’s visit in December was at government’s request for technical assistance in attempts to bring back suspended aid. ”
****
They withheld budget support because the government extended a loan to Zimbabwe, a country under economic sanctions.
Ati Dr. yaba. what nonsense is this?? coming from a Dr?! when you campaigned for pf, sacrificing capable leadership of hh at the alter, did you really think these clueless chimbwis would manage the economy any better??? you made your cake Dr. eat it. !!!
treat the disease and not symptoms. why are you failing to criticize the pf leadership for their inconsistency and undemocratic policies which are partly responsible for this quagmire?? next time don’t use tribe to think, you can’t eat tribe as you’ve seen!!!!
Ati Dr. yaba. what nonsense is this?? coming from a Dr?! when you campaigned for pf, sacrificing capable leadership of hh at the alter, did you really think these clueless chimbwis would manage the economy any better??? you made your cake Dr. eat it. !!!
treat the disease and not symptoms. why are you failing to criticize the pf leadership for their inconsistency and undemocratic policies which are partly responsible for this quagmire?? next time don’t use tribe to think, you can’t eat tribe as you’ve seen! God save Zambia!
Unless exports exceed imports….FOREX CONTROL IN AN IMPERATIVE
What is the Economics Association of Zambia saying? How about a paper on the behaviour of the Kwacha in recent months and what are the underlying factors and how might they be arrested?
The major problem in Zambia is that, most of the economists (including Chitala ) are still marinated in the 20th Century economics, and want to apply the old-fashioned economic theories to solve 21st Century problems affecting Zambia. Impossible!
I think both Chikwanda and Gondwe have no clue on whats going on i,e they have no answers. Its time to go back to the ‘blue eyed’ boys with their computers to ‘help’ them identify the problem and how it can be fixed. All in all I have never seen a party de-campaign itself with the opposition not trying. Its time to have a fresh look at our politics and the economy and develop a new position for tomorrow. Can the ‘opposition’ start talking? We are in manigi trouble.
Ba Chitala sure,why were forex controls done away with in the first place? We go back to create more confusion?
ati niba doctor mu economics….. Look let pf just lift the too many export bans they excitedly indiscriminately effected when the came to power. the bans have put pressure on our kwacha. where do you get forex when you are exporting less? unfortunately to get the desired results quickly they may need to consider giving incentives to exporters.