EconomyLetters

Kwacha depreciation worrying

Dear Editor.
WE are deeply concerned with the fast pace at which the Zambian Kwacha has been depreciating against major convertible currencies, which is now trading at around K21 to the US Dollar and having breached the K20 psychological barrier barely three weeks ago.

This scenario contrasts significantly with the fact that our major forex earner, copper, is trading at an all-time high of about US$7, 000 per metric tonne.
One would therefore generally expect an influx of US Dollars in the economy and therefore a significant appreciation of the Kwacha, but this is not the case. The question is; why?
Our belief is that the reasons for the Kwacha’s depreciation are several, but all manageable. The first major reason is Government’s failure to formulate and implement a policy that would compel mining companies to remit the gross proceeds of mineral sales back to Zambia and only be allowed to repatriate profits, as and when they are declared.
Currently, the scenario is that mining companies externalise the gross proceeds of mineral sales. Consequently, significant economic events such as an increase in copper prices or an increase in the volume of copper exported, do not have any positive bearing on the exchange rate.
This situation is totally unacceptable and must immediately be addressed. The Zambian people must ask their Government why it is failing to formulate and implement a policy that would compel mining companies to remit back to Zambia the gross proceeds of mineral sales. Additionally the people have a right to know wether high level corruption has a hand in Government’s inertia in this regard.
Our view is that the second major contributor to the continued fall of the Kwacha against major convertible currencies is the diminishing productive capacity of the economy due primarily to the unstable and unaffordable supply of electricity, which is a key production input.
Over the past two years, this country has seen the largest increment in electricity tariffs at the same time that it has seen the most unstable supply of the commodity.
This combination of adverse factors has caused our economy’s productive capacity to significantly diminish and several businesses failing and shutting down. To address this problem, it will not be enough to only increase the country’s electricity generation capacity, but there is also need to revise the tariffs downwards so that they can be affordable to an average local business.
The argument of seeking to compare our local tariffs to those in the region by first converting them to US Dollars is cyclic, because our continued loss of productive capacity causes the Kwacha to depreciate which makes our electricity tariffs appear to be reasonable in US Dollar terms, when in fact they are not.
We believe that the third major contributor to the continued fall of the Kwacha against major currencies is the inadequate leadership at the Bank of Zambia.
We therefore call upon the relevant appointing authority to consider beginning to search for a possible replacement at the Bank of Zambia because the current Governor will not take us anywhere.
SEAN ENOCK TEMBO,
President,
Patriots for Economic Progress.

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