International trade and business consultant Trevor Simumba says the recent appreciation of the Kwacha is due to manipulation by the Bank of Zambia
Mr Simumba said since all the key economic fundamentals are weak, the Kwacha can only appreciate by manipulation which he said is not sustainable.
He observed that the euphoria surrounding the Kwacha appreciation is very premature and will come back and bite many pundits.
Mr Simumba said Minister of Finance Alexander Chikwanda was honest enough to state that the Kwacha appreciation is driven by monetary policy and has nothing to do with any productivity gain or increase in exports.
He said the key ingredients to the determination of an exchange rate such as the interest rates or economic growth, Inflation, Balance of payment or trade balance, capital flow and public debt including the budget deficit are all undesirable for Zambia.
“Economics is about causation- cause and effect. What they have done is to remove kwacha from circulation. when you look at the dollar as a product it is bought by somebody possessing kwacha. Too little kwacha chasing the dollar brings about the drop in the price of the dollar or exchange rate,” Mr Simumba said.
“And when this does not translate in the improvement of the well being of an average person, it will bring frustration. Prices have a tendency to stabilize and not to reduce. Moreover, the interest rates are too high bringing about the cost push inflation which will again act as a hidden tax for the poor. So this monetary policy is nowhere near pro poor it is actually pro foreigners and speculators.”
He said a few weeks of appreciation is not a miracle adding that this is a normal part of the cyclical nature of forex markets.
Mr Simumba said there has been a huge offloading of dollars by the mining and other multinational companies to fulfil their end of financial year tax obligations.
He said this coupled with tight monetary policy of the Bank of Zambia has sucked all the kwacha out of the system.
“The price we pay for this lopsided policy is higher interest rates and inflation which affects mainly the poor. In order for the appreciation to be sustainable over a period of at least six months we need to see further fiscal consolidation and some real actions to consolidate Government spending,” he stated.
He said this is a temporary appreciation that will only benefit speculators and foreign buyers of Government Treasury bills.
“Those with a good memory will recall a similar situation around 1993/1994 when we had a similar rapid appreciation which saw foreign buyers of T bills make huge profits from the exchange rate differential between when they changed their US dollar at high rate and after receiving their kwacha profit bought dollars at lower rate.,” he said.
He said that many experts including the World Bank and IMF have analysed this appreciation wrongly adding that it is unfortunate that the country has too many professionals that do not understand the reality on the ground.
“Many of these so called experts have never run a business in their life and have no understanding of the impact of Government policy on business. History always has a way of being repeated!”
He added, “There is a huge backlog in payments to contractors who are mainly Chinese and who will externalise their money as soon as they receive it. More importantly, Government is spending 100’s of millions of dollars on power imports and subsidies. Added to this are the debt repayments which are now estimated at over US$200 million per annum.”
“Significantly, there has been huge decline in economic output which means more job losses and reduced tax collection by Government. Whichever Government comes in after August 11 it will face a mammoth task of getting this economy back to stability similar to the struggle of the 90’s to unbundle the debt accumulated by the UNIP Government.”
Mr Simumba has since urged all businesses to tighten their belts and get ready for a rough second quarter of 2016.
“We should all be looking at our spending and change our ways,” he said.
It is very clear that the Kwacha is being manipulated. Edgar is the easiest person to l because he truly believes that economy is improving. as we speaks salaries for civil servants will be delayed, people with government construction contracts will fail to pay salaries as they are not being paid by PF govt 3 months running. Cost of living is too high, but for president Lungu, these are positive economic indicators.
This analysis makes more sense than even what the opposition leaders were trying to explain. Also, I cant entirely blame Government for trying to take measures to stabilize the Kwacha, however, this should be a temporary measure while Government is cutting on unnecessary expenditure, formulate consistent policies, and root out corruption from all Government sectors. Its a good feeling to see the Kwacha appreciate after doing so bad since last year. Nevertheless, this appreciation will be meaningless if it doesnt translate into better standard of living or lower prices for the common man. Overall, this article is brilliant.
It is no rocket science that the value is artificial. The factors of production in the economy are all pointing in the negative. For example the energy sector is in a bad state to say the least (both oil and electricity). To pick on only this factor of production, it implies manufacturing sector is in trouble hence some companies even relocating, agriculture is in trouble too (irrigation is next to impossible in the short to mid term) and small scale business like hair dressers and wielding or metal fabrication are down too. The only sector doing fine is politics for those in the ruling party. Who can complain when give 500 to 800litres of fuel equivalent allowances? At least not the ministers and their deputies.
Whether manipulated or not but for now we have the appreciated kwacha. BaSimumba just trade if you have kwacha cover… Viva ECL…. VIVA PF…
@hh
You’re not in Zambia, easier said than done for you PF sympathizers that are in diaspora
Just enjoy the foreign grounds while you can
when it losses value its political. When it gains its political. Shame!!!!!! i dont like it at all rather be quiet and enjoy the gain.
Ba Simumba jealous go and make your own currency with your Satanist HH. VIVA LUNGU
iwe ka simuumba, just keep quite and sit down.you sound too negative like you unza classmate hh.
Simumba is correct. This whole situation snacks of 1993/4 – dollars are coming for investing in Tbills that are now yielding 28%. PF gets excited about the strengthening Kwacha rate but the foreigners reap double benefits when externalising their money (more dollars from a stronger Kwacha and very high Tbills and GRZ bond yields). There’s nothing magical about this but the effect is devastating on Zambia, especially when there’s no underlying economic strategy, other than to win elections. At least in the 1990s, Penza was unshackling the economy from UNIP mismanagement.
This is the most concise and accurate explanation of the kwacha gain I have come across to date. Unfortunately this debate is colored by rabid partisan stance of the different commentators. Good to see an explanation from a technocrat rather than politically aligned experts!
Mr Simumba’s analysis is too big for some use1ess cadres somewhere to swallow. How i wish Kashimba Nimbwili could be given a serious lecture on this issue so that he can stop the premature mouth ejaculation. Only a f00l can dispel these facts. However, Mr Simumba expect insults and derogatory remarks from one set of cadres for this well thought article
Has the dollar not depreciated the last 2 weeks? Can this depreciation not be attributed to the kwacha gain?
Simumba is definitely daft. He doesn’t up to now know that the rich industrialized countries print money and offload it onto their economies. They call it QUANTITATiVE EASING. America did for over five years after the 2008 crisis. The Bank of England did the same thing to prop up the pound; and todate, the EUropean Central Bank is pumping Billions of Euros to save the currency, Euro. Simumba is just consumed by ignorance and hatred for ECL and should be ignored like the ZIKA VIRUS.
Actually the US prints about $US32m per day to sustain its economy…
Trevor.. couz, you always chat crap with no relevance at times. Would you rather have the Kwacha continue to devalue with inflation running high? I thot u economists encourage to “promote Zambian and buy our Zambian products and services”…
Its a pity u don’t even reside in Z, but speculating from outside
“”He observed that the euphoria surrounding the Kwacha appreciation is very premature and will come back and bite many pundits.”””
THE EUPHORIA IS CONFDENCE AND CONFIDENCE IS WHAT IS IMPORTANT IN TRADING THE CURRENCY AND IN THIS CASE THE KWACHA HAS APPRECIATED AND IF GIVEN THE CONFIDENCE IT WILL GAIN AND TRADE BELOW THE CURRENT 9 IN THE SHORT TERM GIVEN THE PROSPECTS IN OUTLOOK GLOBAL AND REGIONAL
A DEPRESSED CURRENCY LACKING CONFIDENCE WILL NOT APPRECIATE NO MATTER WHAT STERILE OR UNSTERILE INTERVENTIONS IT WILL NOT HELP BUT IN THIS CASE THE KWACHA HAS PERFORMED AND SHOULD BE SUPPORTED
The problem is trying to give an economic analysis while maintaining you political enclave. It does not workout. Thomas Sowell once said ”The first lesson of economics is scarcity: there is never enough of anything to fully satisfy all those who want it. The first lesson of politics is to disregard the first lesson of economics.” A fair analysis must look at the complete picture, both the external and internal shocks/factors to come up with an realistic and intelligent conclusion. Economics fundamentals are dynamic. Both internal and external factors keep on revolving and no permanent solution can be implemented in the short term. Sometimes working against each other, the cure for unemployment is the causer of inflation and vice-versa. What is crucial is to take timely action to…
What is crucial is to take timely action to mitigate the negative effects. its well known that the dollar has been depreciating significantly on the “Global” scale. this has translated into more dollars being cheaply offloaded on the local market. hence the kwacha gaining, prompting individuals/institutions who were holding the dollar to offloading it on the market for fear of losing out. This has mainly driven the kwacha appreciation. Recall that the kwacha depreciated “artificially” in the first place the economic fundamentals were still strong likewise tight monetary policy becomes effective to counter or maintain currency depreciation. Trevor stop embarrassing the profession by giving loop-sided analysis.
Mr Simumba make a difference between a trade expert and a currency trader on the sell side of the kwacha and promote sentiments in line
The implied confidence in the kwacha as a trade expert is not in the kwacha as per say the currency but in the goods and services in the trades composites ZAMBIA Remember simple economics like theory of the consumer firm markets elasticity’s then budgets then you move on to national aggregates You look at the money then the parities
You will remember that confidence is important to register gains implied in the Kwacha If you are pure currency trader You would wish depending which side that the…
the Kwacha under perform so that you can fill your carry trades but its not now the case you should just unwind and trade the confidence in the kwacha
When you then move into policy framework confidence is still there whether its monetary or fiscal environments global and regional
With Zambia’s weak but promising account balances confidence is very important and avoid dampening even those who may have seen the potential to exert positive cash flows so let the markets lead with ethical comments as they say
WITH THE SPREAD OF BETWEEN .2 AND .099 I HOPE SIMUMBA CAN SEE THE TACTICS THESE BANKS HAVE WE NEED MORE CONFIDENCE IN THE KWACHA NOTHING MORE
Access Bank Zambia Limited
African Banking Corporation Zambia Limited
Bank Of China (Zambia) Limited
Barclays Bank Zambia Plc
Cavmont Bank Limited
Citibank Zambia Limited
Ecobank…
WATCH THE VOLUMES AND TRADES TO EFFECT KWACHA POSITIVELY IN THESE
Finance Bank Zambia Limited
First Alliance Bank Zambia Limited
First Capital Bank Zambia Limited
First National Bank Zambia Limited
Indo-Zambia Bank Limited
Intermarket Banking Corporation Limited
Investrust Bank Plc…
Trevor is such a dull man. He doesnt realize that the Kwacha is appreciating because there has been increased supply of the US dollar on the market due to corporations converting their US dollars to get kwacha so that they meet their quarterly tax obligations. Besides, there has been reduced demand for the US dollar on the market because the of the tight monetary policy being pursued by BOZ. Instead of him politicizing the issue, he should be happy for Zambians that they will now be able to import goods and services cheaply
Mr Simumba should know that all currencies can fall and rise due to speculations in addition to other measures that the Government can undertake such as the control of monetary policies thru’ the Central Bank …Good example is when the Queen of England dies the GBP Sterling Pound will drop immediately even when all fundamentals will be in place, why its because of speculations, therefore speculations play a big role in the money market…So Mr Simumba stop the speculations and be positive for once…
I feel very happy to see comments of people in a very wild and divergent way. You see comrades, one thing we must understand is that Edgar Lungu is not the President of the whole world. He is the president of our Country Zambia which is part of the world. Last year the world economy went into depression i.e slow growth and in some instances negative growth this brought about serious problems to most of the countries as their economies’ indicators were very bad eg exchange rates, high interest rates, job losses and many more. Today the world economy is rebounding meaning that it has started to come out of depression and all the above problems will be opposite due to recovery. Its not only the Kwacha gaining but other currencies as well so let us not be negative about the positive…
When UPND forms Government, we will rename the currency. This is so that we can start all over again. People familiar with the topic say it will be called Zambezi. The idea will be to peg one ZAMBEZI (whose abbreviation will be (ZAZI) to 1US$. Coins will be called Nkumbula although we are still debating whether we shouldn’t call the coins Mazokas.
How much? 1 Zazi and 40 Mazokas replies the Retailer to the enquiring customer! Nah, doesn’t work!!