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Most Zambians do not pay particularly attention to exchange rates because they are able to conduct their business and make daily purchases in kwacha. For the typical Zambian, exchange rates only come into focus for rare activities such as a trip to Botwana, USA, South Africa etc and when making payments for imported salaula from South Africa. Zambians must know that the level at which the kwacha trades dictates Zambia’s economic fortunes or misfortunes if you like. As in the case of a dog wagging its tail, in the case of an economy vs its currency, the currency becomes the tail that wags the dog. But this is not to say a strong kwacha is any good. The common fallacy that a strong domestic currency is a good thing because it makes it cheaper to travel abroad or pay for imports is a fallacy just like that. Let me explain.
A strong kwacha simply means Zambian goods are more expensive outside the country and foreign goods are cheaper when bought into Zambia. People outside Zambia will not want to buy Zambian goods but will be willing to sell Zambia more goods. This means our export position will be weak and our Terms of Trade poor. On the other hand, a weak kwacha means that Zambian goods are cheaper when sold outside, and foreign goods are more expensive. Zambian will want to sell more of its goods to other countries. This will weaken our import position and give us favourable TOTs. In reality, neither weak nor strong kwacha is better or worse, they both just create different positions. For Zambia which is an import-industry oriented country though, the weak kwacha must inevitably spell doom.
The disadvantages of a weak kwacha are much more harmful than the possible benefits given that Zambia depends on imports. The most obvious disadvantage is that the weak kwacha makes us all poorer as a people. Most of our products are imported-cars, building materials, clothes, shoes, phones, etc are all imports. What it means when you have a worthless kwacha like we are experiencing now and you are importing is that all these imports become expensive. If, for example, in June 2013 you paid K500 ($96) for a crate of apples from South Africa, at the same dollar price of $96, the crate of apples will cost you K547. Another example, a DSTv subscription fee of K430 ($82.6) in June 2013 will now cost you about K470 at the same price of $82.6 for the same subscription. You pay more suddenly for the same dollar price of apples and DStv. Everything that is denominated in kwacha becomes more and more worthless by the day. This also includes salaries, shares, properties such as houses, copper and just everything. As the kwacha continues to lose its value, prices of essential commodities such as sugar, tea, bread, to name a few are adjusting upwards quickly to match up with the dollar value of the kwacha.
Those in the informal sector like business houses and individuals may make money through adjusting their prices immediately. But our friends in the formal sector employment suffer as it takes a long time for salaries to be adjusted upwards (it’s not until 2016 in the case of Govt workers). Amongst the poor jobless, price increases take their severest effect. While those in the formal employment can at least demand for higher salaries, those without jobs will be particularly hard hit. In their case, they have no way of increasing their own salaries simply because they have no income in the first place, yet their cost of living is increasing by the day. To add to our misery, economic growth will be low.
One can go on and on to talk about the negatives of the weak kwacha on foreign capital inflow and foreign investment but knowing Zambians and their poor reading culture, this is enough.