By Edmond Soko
Investors intending to do their business in Zambia can now insure their investment against the kwacha at JSE in South Africa.
I am really wondering what Zambia is trying to achieve by allowing the kwacha to be redefined like that on the world market.
Investors insure against any risks which can dwarf their investment. People insure their cars, houses or any property against very obvious risks such as fire, theft or accidents.
It’s a very good thing to insure against risks associated with fluctuations of any currency as any investor does so in any country including USA.
But why should we allow our currency to be listed on the foreign market, JSE as a risk? Why should we be so happy and see it as a milestone to picture our kwacha an Obvious risk which needs comprehensive insurance?
Is this move really going to improve our kwacha or attract investment? Will investors be attracted by this move?
Some people’s imaginations are like this…This move will attract Investors to this country that will create jobs and bring more money. Surely, this is queer and doubtful way of attracting investment in the country. There are many meaningful and safer ways of attracting investment than bill-boarding a Zambia currency as a risk.
POSSIBLE CONSEQUENCES OF THIS UNDERTAKING
Kwacha has now been portrayed as a definite and obvious risk to the business world. We are telling would-be investors that as they come they must worry about how risky our Kwacha is.
We have allowed our kwacha to be viewed by all potential investors as an obvious Risk which everyone with intentions of venturing into Zambia’s economy, should hedge against.
Kwacha has now become an undoubtedly obvious risk like fire or accident or theft.
Our officials are telling the world to stop trusting a Kwacha as a legal and safe currency to do business as it is obviously as risk in the hands as accident to the car.
It is like putting up this warning on the bill-board
BEWARE OF ZAMBIAN KWACHA – IF YOU DON’T HEDGE AGAINST IT, YOU ARE USING IT AT YOUR OWN RISK
Don’t you think any normal and rational investors will lose the confidence of holding on this obvious risk called kwacha? Are we not telling investors how useless our kwacha is which should be hedged against?
Do you know that the whole world will certainly know that our currency is an obvious risk just as any currency being used in radical islamistic prone lands like Nigeria and Kenya? In such areas where radical Islamists like Boko Haram and other Jihardists have been bombarding anytime, it’s justifiable to now attract investment using that method. They have to alert the investor that their currencies can deteriorate anytime due to the obvious confusions. When an investor is holding on a shilling or Naira, there are higher chances of experiencing serious depreciation stemming from terrorists attacks.
So it’s justifiable for these countries to expose their currencies as risk-prone. So, what about Zambia?
What are we telling the world in the absence of war or general terrorism? That we are generally a volatile nation? In terms of what? Or that we are unable to stabilize our currency hence advertise it as an Obvious Risk?
In my experience as an academician and economist, investors hedge against any potential threat including forex risks. It is up to the investor to do that and not a country like Zambia to move on the international stock market and portray her currency as a risk which requires investors to hedge against.
Investors will find appropriate institutions which offer foreign exchange insurance to hedge against any fluctuations of any currency.
Many commercial banks like Barclay’s Bank have been involved in hedging against foreign exchange risks such as Spot and Forward exchange rates. It is for the investor to willfully hedge against such risks using these banks
Every investor is aware of insurances involved on one’s resources including money. They are aware of risks associated with fluctuations of the currency they are using at that time. Rational investors know what to do before investing including assessing the strength of a Kwacha in using it for business.
They know that they have to hedge against any currency floated as potential risk or not
But then, when we advertise publicly to these investors like ‘Please hedge against our kwacha’ or make sure you insure your investment because our kwacha is a risk.
For sure you are giving a question mark to the investors. So I really wonder whether this issue was really debated or it was just another eye-blink decision coined by few individuals just to gain something from it.
Did we really take time to view its long term consequences? Zambians should learn to take time to allow technocrats debate and analyze critical national issues.
We are allowing politicians to make economic decisions and mostly these politicians scantly analyze the issue before adoption and force people to believe it would work perfectly.
Let economists analyze this move critically without bias…