President Edgar Lunga has directed all government institutions and the private sector to reduce foreign currency related expenditures in order to save the Kwacha from further sliding. In a statement released to the media by his Special Assistant for Press and public relations Mr Amos Chanda, the President urged all entrepreneurs small, medium and large to increase production of various goods that can be exported to reduce the country’s trade deficits.
Below is the full statement
PRESIDENT MOVES TO GUIDE INTERVENTION MEASURES ON KWACHA, ENERGY SITUATION
LUSAKA (Friday, September 4, 2015)- Following the deterioration of the currency and energy situation in the country in recent months, His Excellency Mr. Edgar Chagwa Lungu, President of the Republic of Zambia has intervened to guide monetary and fiscal policy measures designed to stabilize the markets.
1.Developments in the foreign exchange market
The continued difficulties in the global economy and the unprecedented strengthening of the US Dollar has sent all currencies including our national currency, the Kwacha on a downward spin.
The Kwacha depreciation has in the recent past accelerated largely due to the trade imbalances that we are experiencing because the imports are in excess of the exports which have reduced both in volume and value. This is a major function of low commodity price levels globally. Total exports for the first half of 2015 are 26.9% lower than that recorded in the same period in 2014.
The President has therefore directed the ministries involved in economic management particularly the Ministry of Finance working together with the Bank of Zambia to closely monitor the situation and keep him constantly and frequently appraised.
The President wishes to urge all entrepreneurs small, medium and large to increase production of various goods that can be exported to reduce the trade deficits.
There should be a bold drive to increase the levels of production and processing of a wide range of things that are within the country’s reach to reduce on unnecessary imports.
A depreciating Kwacha to unreasonable levels has severe cost implications for a country like Zambia, which imports a lot of its requirements, some of which are excessive. The low Kwacha also compounds our external debt servicing.
The President has directed all government institutions to rationalize and minimize in all areas that engender foreign exchange costs. The President also enjoins the private sector to reduce foreign currency related expenditures. He makes a strong appeal to the Commercial Banks to be proactive and on the alert for the many leakages and other illicit out flows without being prodded or policed by the Bank of Zambia.
The President notes that following global economic developments over the past two weeks that have had adverse effects on many emerging and developing economies, including Zambia, the Treasury and the central bank have been closely monitoring developments to assess the resultant impact on the domestic economy and the local currency.
Growth in the global economy remains modest and uneven. According to the July 2015 International Monetary Fund World Economic Outlook update, growth for 2015 is projected at 3.3%, 0.2 percentage points lower than in the April outlook.
Growth in emerging markets and developing economies is expected to slow down to 4.2% compared with the outturn of 4.6% in 2014. China’s growth slowed down to 6.8% year-on-year in the first half of 2015 from 7.4% recorded in 2014.
In Sub-Saharan Africa, growth is projected to slow to 4.4% in 2015 compared with 5.0% in 2014, largely reflecting the drop in commodity prices that has led to deterioration in external sector performance, particularly for commodity exporters like Zambia.
Zambia remains vulnerable to developments in the global economy. In particular, the balance of payments position has deteriorated reflecting a widening current account deficit. Both traditional and non-traditional exports have declined significantly this year while imports have declined at a slower pace. As a result, the Kwacha has been on a depreciating trend.
In addition, global investors have been anticipating that the US central bank would begin raising interest rates before the end of the year for the first time since 2006. As a result, emerging markets like Zambia have experienced systematic net outflows of capital, creating pressure on their currencies to depreciate.
More recently, the Kwacha has come under immense pressure, largely emanating from global economic and financial market developments. The major factor has been associated with slow growth in China, the second largest economy after the US.
Chinese authorities recently announced changes to their foreign exchange management, a process that resulted in about 4% devaluation of the Renminbi (Chinese Yuan) against the dollar. Fears that the Chinese economy is slowing down have caused major global stock markets to plummet while emerging markets currencies experienced excessive volatility.
The regional currencies that have depreciated include the South African Rand, the Tanzanian Shilling, the Ugandan Shilling and the Ghanaian Cedi.
Commodity prices, including copper, have dropped with the Zambian economy impacted adversely through the decline in the price of copper, which has fallen to around US$4,900 per tonne from above US$6,500 per tonne in 2014.
These developments apart from underscoring the long overdue need for the diversification of our economy to reduce dependence on copper, they also provide an opportunity for the country to take practical measures to respond to the challenges of diversification.
Difficult as the situation is, it is an ideal time to actualise this structural transformation. The movements in the exchange rate are sending clear signals that our economy needs an expanded export base and a reduction in unnecessary imports.
“In recent days, we have seen an acceleration in the depreciation of the Kwacha against the major currencies. The increased volatility appears to be reflecting market panic more than underlying fundamentals,” the Head of State said.
“I therefore deem the Bank of Zambia’s current monetary policy stance appropriate in anchoring inflation expectations. I have to this effect directed the Minister of Finance who leads the fiscal policy team to work closely with the Central Bank (which is responsible for monetary policy), to assess additional market intervention measures to address the observed excessive volatility.”
The envisaged interventions are designed to calm the markets and allow fundamental factors to be the main determinants of exchange rate movements.
Owing to erratic rains last season resulting in low water levels at Kariba dam and Kafue Gorge dam, Zambia’s hydropower generation has drastically reduced leading to ZESCO’s massive load shedding to save power. This has adversely affected households, small businesses like barbershops, hair salons, poultry, welding dependent on electricity, big industries and other essential services.
“This is what I think about every day and I want you to know, I want the nation to know that no one feels the anguish of these disruptions more than I do. My Government is doing its very best to alleviate the suffering of our people.”
The President deplores the current power-cuts, which are adversely affecting industry across the board and have the effect of reducing our Gross Domestic Product Growth to below 5 per cent. The President therefore will require an improvement in areas, which are not acts of God such as in the areas of operations.
In the interim the President has sanctioned a series of remedial measures including importation of power to contain shortfalls.
For the medium and long term the President wants to see determined and expedient efforts to promote investments in alternative power schemes which have short gestations of six months to a year.
The President is hopeful and confident that the decisions to adjust the tariff to 10.35 cents per Kwh will spur investments.
With the transfer of shares on 24th August, 2015 at the behest of the President, from the Minister of Finance to the Industrial Development Corporation (IDC), the President expects IDC to spearhead the accelerated investment in the power sector.
The IDC will now be able to go to the market in the coming weeks to raise an initial US$500 million to invest in the energy sector and other related infrastructural development programmes.
It is necessary for both expedition and corporate culture to use IDC as a delivery vehicle. The President wants to see Zambia as a power exporter in the next one to one and half years when another 600 megawatts could originate from the thermal subsector.
The President wants to thank the Zambian people for putting up the inconveniences of power cuts. He assures that their agonies will not be inordinately prolonged.
“I now instruct ZESCO to quickly identify and contract firms that are offering the lowest cost of generation for solar and which will allow ZESCO to earn a profit considering the current retail prices for electricity until Zambia has rebuilt and owned its generation capacity to its actual base load.”
“I am fully aware of firms that have over the years been offering alternative energy solutions at prices lower than the current tariffs with the benefit of long term concessional funding which would allow ZESCO to own the facility upon finishing construction and not require subsidies from the Treasury,” the President said.
Government’s desire is a ZESCO that is profitable, reliable, self-sufficient and does not rely on expensive measures such as the importation of power from outside the country or buying power at expensive prices from independent power producers (IPPs).
The power deficit is not only peculiar to Zambia but is being experienced in the entire SADC region and therefore, due to the current generation deficit we are experiencing, the national power utility, ZESCO Limited is currently carrying out load management in order to conserve energy.
Government is working tirelessly in order to mitigate the impact of the power shortage, which has affected all sectors of the economy.
It is in this regard that the government is supporting ZESCO through the implementation of some medium to long-term measures to cushion the impact of power rationing on the economy.
The following are some of the measures that have been put in place:
(i) Government has signed a contract with an Independent Power Producer Aggreko for the supply of emergency power of up to 148 MW with effect from 1st September 2015. An additional 40 MW will be available from January 2016.
(ii) Government is currently negotiating with another IPP for the supply of an additional 150MW, which will be available by January 2016.
(iii) The 300MW coal fired power plant being constructed in Southern Province in Maamba will bring on board the first 150 MW unit by January 2016, whilst the last 150 MW is scheduled for commissioning by the end of the first quarter of 2016.
(iv) The 120 MW, Itezhi-Tezhi hydropower project is 87% complete. The first unit of 60 MW is scheduled for commissioning by December 2015, and the last 60 MW unit is scheduled for January, 2016.
(v) Further ZESCO has initiated a project to install distributed solar plants to the tune of 300MW and commissioning is scheduled to start in the fourth quarter of 2016.
(vi) ZESCO has continued securing power imports of up to 300 MW from EDM of Mozambique and the Southern Africa Power Pool Day-Ahead-Market during off peak periods.
(vii) The procurement process for the 750 MW power station at Kafue Gorge Lower is nearing completion. The shall keep the nation informed on the progress being made.
(viii) ZESCO is looking to spread the hydrological risk by exploring sites on the Luapula River.
The President therefore takes this opportunity to appeal to all users of electricity to practice energy efficiency during this period, and we also encourage the use of alternative sources of energy such as Liquefied Petroleum Gas and Solar for cooking and heating.
The President regrets there are citizens who have a field day when the country experiences difficulties which arises from external factors beyond our control. Nobody, let alone government, has magical solutions.
The challenges the country faces today are real and unprecedented and should not be reduced to mere political rhetoric. “While I take the lead in providing decisive solutions to these challenges, I ask all Zambians irrespective of political affiliation or any other interests to unite and come together so that we as a nation can pull through these challenges.”
The President wishes to state further that he will announce additional measures in his State of the Nation Address through the National Assembly on 18th September 2015.
The Head of State will provide comprehensive direction to the Nation on short and medium term interventions to cut costs, diversify the economy and reduce the nation’s dependency on copper and hydropower.
SPECIAL ASSISTANT TO THE PRESIDENT
(PRESS AND PUBLIC RELATIONS)