In Zambia, Currency Depreciation Means Bedlam for Cross-Border Traders

 

Article Highlights

 
Amir Ngurumo, a trader at Comesa flea market sells traditional jewelry which he buys from Kenya and South Africa. Ngurumo says his business has been slow because he’s had to raise his prices to combat the kwacha’s depreciation. Prudence Phiri, GPJ Zambia
Zambia

A dip in copper prices, along with scaled back mining, have driven down the value of Zambia’s kwacha over the last year. Tens of thousands of cross-border traders have been affected and are advised to seek local business opportunities.

LUSAKA, ZAMBIA ─ Amir Ngurumo stands outside his fully stocked jewelry shop at the Comesa market in Lusaka. This is where traders from throughout sub-Saharan Africa meet to sell their goods.

Ngurumo beckons a group of women passing by his shop.

“We have jewelry for kitchen parties or office, we have everything,” he says, removing some jewelry from a display stand.

The ladies look at the jewelry, then leave. The prices are too high, they say.

Prices of Ngurumo’s jewelry have doubled due to the depreciation of the local currency, the kwacha, and sales have tumbled.

“In the last three months, my stock has not moved an inch,” Ngurumo says. “I have not traveled for new stock, because the kwacha has gone mad. It depreciates every minute.”

The cross-border trader buys traditional jewelry from Kenya and South Africa, and prices of his goods are heavily determined by the currency exchange rate.

The kwacha has over the last year lost value against major currencies. This has adversely hit businesses in Zambia, especially traders like Ngurumo who buy their goods in foreign currencies. The Bank of Zambia attributes the depreciation to declining prices of copper ─ the country’s main export ─ and a power deficit that has forced copper mines to scale down their operations.  To avert a further currency fall, the Bank of Zambia in 2015 sold more than $510 million in the foreign exchange market and raised the benchmark lending rate to 15.5 percent, up from 12.5 percent, says Bank of Zambia Governor Denny Kalyalya.

In the last three months, my stock has not moved an inch. I have not traveled for new stock, because the kwacha has gone mad. It depreciates every minute.

The kwacha was trading at 11.1 against the U.S. dollar in January, up from 6.45 in January 2015. Copper prices dropped from $6,307per ton in January 2015 to just over $4,300 in mid-January 2016, according to the London Metal Exchange.

“We have noticed that there is a strong correlation between movements in copper prices and our exchange rate. The kwacha always comes under pressure when copper prices fall,” Kalyalya says.

The U.S. dollar has gained strength globally as a result of a strong economy in the country.

The depreciation of the kwacha has pushed the inflation rate to double digits, hitting 21.1 percent in December 2015,up from 7.7 percent in January 2015, according to data from the Central Statistical Office.

Every time I want to travel, I find that the kwacha has depreciated such that my initial capital is always reducing.

The weakening of the currency has affected the business of more than 42,360 cross-border traders in Zambia, according to Charles Kakoma, secretary general of the Cross Border Traders Association.

Ngurumo says the value of his $4,000 business capital has depreciated by almost half.

When the kwacha was strong, his sales totaled $2,000eachmonth, and he traveled each month for new stock, he says. Now, it takes three months to sell stock that once sold in a third of that time.

Kezzy Mwansa, a trader who buys blankets from South Africa, says he can no longer afford to travel for new stock.

“Every time I want to travel, I find that the kwacha has depreciated such that my initial capital is always reducing,” Mwansa says.

To keep his business afloat, Mwansa buys stock from traders who can afford to travel. That means he spends more on the blankets.

“I used to make a profit of 150 kwacha[about $13]per blanket when I traveled. But now I only make a profit of 50 kwacha[about $4.40],” Mwansa says. “The people who bring the blankets have also increased the prices.”

Kakoma says the unstable kwacha has made business for most cross-border traders impossible.

“It is tough to do business, because every time you want to travel you find that the kwacha is selling at a different rate,” he says.

Chrispin Mphuka, president of the Economics Association of Zambia, says nothing more can be done to curb volatility of the kwacha.

“External factors like the falling of copper prices and the current load shedding are some the factors that the bank has no control over,” Mphuka says.

Load-shedding refers to planned power cuts.

Kakoma says the cross-border traders need to seek local business opportunities if they are to survive.

“We advise our members to look at other business opportunities locally, so that they can sustain themselves, until such a time when the currency will be stable,” says Kakoma.

His association has also approached some financial institutions that might provide loans to the traders to bolster their capital.

“We are trying to see how we can help our members with small loans to help them sustain their businesses,” he says.

 

Prudence Phiri, GPJ translated some interviews from Nyanja.