‘Pass benefits of strong Kwacha’

Fundanga said the government’s consistency in policy formulation intended to strengthen the economy has forced inflation levels to drop to 9,4 percent this year as envisioned in the 2006 budget. Since last year, the annual inflation rate has continued to nose-dive, reaching 9,4 percent this month from 12,4 percent recorded in January. He said the appreciation of the local currency was based on various fundamentals like high copper prices and reduced spending on foreign currency to import goods and services. President Levy Mwanawasa said his administration has achieved low rate inflation since independence in 1964 because of prudent fiscal and monetary policies. He said the increased copper prices, surging above US$6 000 per tonne coupled with reduced external debt cancellation by multilateral and Paris Club creditors has raised hope for economic revitalisation. “We are riding high in economic development because of the good policies my administration has put in place to change the face of the country,” he said recently. He challenged interest groups, doubting the government’s ability to revitalise the economy through the applied policies, to rally behind the government and give hope to more than 65 percent of the people wallowing in poverty. “Some people are claiming that we are propping the Kwacha to gain against the other convertible currencies but those who have followed our policies, will agree that it’s for the betterment of the people who put us into power,” he said. The Zambian currency has since 2005 appreciated by more than 60 percent, spurred by the increased copper prices that raked in foreign currency. The cancellation of more than US$6 billion external debt by various multilateral and Paris Club creditors has pushed Zambia forward. The appreciation of the local currency, currently trading at an average of ZMK3, 000/US$1, coupled with reduced external debt obligations to the creditors has prompted a reduction in the provision of goods and services. The price of Zambian copper on the London Metal Exchange (LME) has surged mainly because of demand from China and countries in the Far East. However, some players have felt the pain of the appreciation and their businesses are being threatened unless the Kwacha was regulated. Tour operators contend that if the appreciation of the Kwacha continued to edge against other currencies they risked losing business to neighbouring countries. Flatdogs Camp operator, Adrian Coley said the appreciation has made Zambia an expensive tourist destination in the world. “Most tourists are finding it more expensive to come to Zambia because their currencies have low value than the Kwacha and are therefore opting not to come here.” He said though room rates had been increased to US$35 per night this year from US$30 in 2005, the change had done little to improve the matter. “Whether we price in Kwacha or dollar, it still remains expensive because our tourists use dollar or euro to do business and now they are paying more to visit Zambia,” he said. “Most of the tourists now feel safer to go to either South Africa and other countries where their money is worth something,” he said. He said despite increasing the room rates to meet overhead costs, the profit margins have been outweighed by the increased kwacha value. Garden Group of Hotels proprietor, Gaudenzio Ross, said it had become expensive for the company to pay its kwacha-earning workers because of the drop in revenue. Rossi, who has been a tour operator and providing hospitality business for more than 30 years, lamented that the high Kwacha value had frustrated employment opportunities this year. “We can’t employ anybody now because our workers earn in kwacha and the wage bill is more than other overheads put together,” said Ross, a member of the Africa Tour Association. In comparative terms, Zambia has relatively remained an expensive tourism destination because of disparities in exchange rates. Inflation has in recent years remained higher than 30 per cent and lending rates by banks on loans have fluctuated on average 45 per cent, making it expensive for business houses to borrow for expansion. Zambia’s largest farming group said the value of imports of wheat, cotton, horticultural and floricultural products has been reduced by more than 80 per cent. Ultimately, more than 1.5 million households that depend on farming related activities are under threat without countervailing measures. “We have lost out in profits because we can’t recover all that we are exporting because the real returns are lower than the cost of production. “We envision that more than 2 million people are likely to lose jobs,” said Zambia National Farmers Union leader, Guy Robinson.

May 2006
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