BoZ is selling dollars to boost Kwacha-Miles Sampa

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Hon. Mles Sampa
Hon. Mles Sampa

Opposition Democratic Front leader Miles Sampa says the recent appreciation of the Kwacha has nothing to do with an improvement in the state of the Zambian economy.

Mr Sampa said the Bank of Zambia is selling Dollars from the country’s foreign exchange reserves to shore up the Kwacha.
The Former Commerce Deputy Minister has since challenged the Government to deny that they have not used foreign exchange reserves to temporarily support the Kwacha.

He said Government must state what the reserves were at the beginning of the year which he said was around $3.4 billion and what the current figure is now.

“When those figures are availed, you will find that about $1billion may have been pumped into the market directly or indirectly. One wonders what will happen to the rate when they run out of reserves to spend,” Mr Sampa said.

He said while the recent Kwacha appreciation may be deemed as good for the Country, it is the means to the end that are neither ideal nor sustainable.

Mr Sampa added, “It’s like pushing a sponge downwards in a bucket full of water. Once the human hand is withdrawn, the sponge will spring back up with massive force within no time.”

“To put it differently, it’s like a poultry farmer slaughtering pullets to please children or guests. Sooner than later, the farmer will have no chickens or eggs for sustained existence of the homestead and in this case, our economy,” he said.

Mr Sampa who also worked as Director-Foreign Exchange Markets at Finance Bank Zambia said the other reason for the sudden gain of the local currency is that Government has opted to siphon Kwacha liquidity out of the banking system and financial market to support the exchange rate.

“As a result, the Kwacha lending rate has surged to over 20 percent and instantly put some companies and SMEs out of business. When companies have no access to affordable Kwacha loans, the next thing they do is scale down operations and lay off workers,” he said.

“Simplified, any current gain in the value of Kwacha using the ‘liquidity squeezing’ method, has equivalent huge job losses due to the ‘cash squeeze’ inside balance sheets of SMEs and various companies.”

Mr Sampa observed that Government’s approach of solely focusing on exhibiting a strong Kwacha for political expedience is therefore not worth the troubles it is causing in the economy.

“In business and corporate world, it said that ‘cash is king’ and if squeezed dry, no one survives. Their approach is a panacea meant to provide relief but not solutions to our monetary problems. It’s like taking Panadol to cure malaria. One feels better for a few hours but the potentially fatal disease is still there.”

Mr Sampa said the Kwacha appreciation of approximately 12 percent is more of a political gimmick than an economic gain in overall gross domestic product (GDP) of the Country.

He warned that mixing political and economic variables into the financial markets normally tends to backfire in no time saying he stands to be proven wrong in the next 4 months.

“The recent Kwacha appreciation against the US dollar and other major currencies is in my view is not sustainable. This is because it is not backed by any significant improvements in economic fundamentals. Exchange rates appreciate or depreciate based on an increase or decrease in the value of exports or imports.”

He added, “For the last year or so, Government has told us that the huge Kwacha slump was due to reduced global demand and reduced world market price of our main export commodity, Copper. The question is; has the price and demand of copper now improved significantly on the global market? I think the answer is no.”

“As of the end of 2015, London Metal Exchange (LME) Copper price $4800 per tonne and now fetching around $4600 per tonne representing a 5 percent copper price reduction in the 3 months period.”

“If Copper volumes and prices are still not favourable and if anything getting worse, the question is whether there is any other commodity that Zambia has suddenly exported worth influencing the Kwacha parity? The answer is no.”

He said, “Is there something Zambia was importing in huge volumes and now stopped doing so? The answer is no, as we are still importing fuel and other retail consumption goods. My take is that the appreciation of the Kwacha is simply due to interventions by the BoZ.”

Mr Sampa he could not help but laugh when he saw Information Minister Chishimba Kambwili on TV stating that the current appreciation of the Kwacha, is due to massive confidence in the Edgar Lungu administration.

“I guess conversely he is also agreeing that the massive depreciation (60 percent) in the last one year was due to a massive lack of confidence in the same administration. By implication, Kambwili is also telling us that any consequent depreciation between now and election time, will be a sign of lack of confidence in the PF government.”

He added, “In a nutshell, this appreciation is not genuine and will backfire sooner rather than later as it is not backed by an actual improvement in the country’s terms of trade. It is simply a charade process by authorities that is not sustainable and cannot be relied upon for the wellbeing of the national economy.”

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29 COMMENTS

  1. shollow thinking ba sampa.talking as if u’re not a technocrat.U’re not patient and u’ve gone too fast ba Sampa.Chapwa u’ll be buried in politics so soon after we defeat kalusa HH.Kabimba will be better after 2016.He’ll be the only opposition to challenge PF otherwise ba HH can destroy the economy and the country due to his pipo who are hatred with other tribes.

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    • Moscow (OP)
      You are stupi.d. Or you don’t send money home. I just sent money home and once again its less money but yet the price of goods hasn’t dropped to reflect the appreciation of the Kwacha. In real terms for me am not an economist its become more expensive. The sugar that was costing 2 dollars is now costing 2.9 almost three dollars. Zambians are paying more. If its genuine. Let the be products and the prices will come down. I don’t think manufacturing has improved

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    • Sampa has credibility, I am bound to believe him.

      The man was the heartbeat of most Zambian banks and he understands the whole scenario in my eyes – Great man MS is.

      Thanks,

      BB2014

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    • myopic analysis ba Sampa, you have to look at the complete picture, both the external and internal shocks/factors to come up with an realistic and intelligent conclusion. i agree with you on the local front not much has been done to warrant the appropriation of the kwacha against major convertibles. However, the dollar has been depreciating significantly on the “Global” scale. this has translated into more dollars being cheaply offloaded on the local market. Demand ans supply has meant the kwacha gaining, coupled with the individuals/institutions who were holding the dollar offloading it on the market for fear of losing out. This has mainly driven the kwacha appreciation. there is no hand of humans (Politicians) in this appreciation.

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    • In addition, on the local front the Govt. has tried to implement contractionary monetary policy- intervening in the market when its necessary and the effects are sustainable. Equally so the tight fiscal policy that the Govt announced last year (Coupled with austerity Measures) has in the short term “stabilized” the economic fundamentals, which have in turn remained stable and resilient such that the currency exchange gains from the foreign sector translate into meaningful gains in the kwacha. Hence the PF govt. is morally justified to claim that the kwacha appreciation is due to its prudent economic management.

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    • someone posted, ”Ba Sampa, economics is dynamic. Both internal & external factors keep on revolving & no permanent solution can be implemented in this world the way you are proposing. The cure for unemployment is the causer of inflation and vice-versa. They both keep on interchanging & are not fixed. What is crucial is to take action all the time once both internal & external factors move, unlike the way we have been complaining about the govt. If you are saying that UPND once moves in power you will not be acting, it may not be true. You have to keep on tuning until you find the best reception. Excellent statistics on prices of copper you have provided. Please, provide us with the exact statistics of withdrawn reserves since you Party which digs deeper but not assumptions which are…

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    • I am NO economic or Financial GURU, but even I can see gaps in Sampa’s analysis.

      Quotes:

      1) “When those figures are availed, you will find that about $1billion may have been pumped into the market directly or indirectly…”
      I think in the money market or financial world, this is called “QUANTITATIVE EASING.” A financial instrument famously employed by the US-CENTRAL BANK not too long ago. Now, since the USA owns the dollar, they simply printed more cash to pump into the economy during the financial crises. We can’t do that, so we have to rely on the little reserves we have—that is of course if the Govt has even done what Sampa is alleging. Otherwise what are reserves good for if we can’t use them in times of national economic difficulties?

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    • continue…

      2) “…As a result, the Kwacha lending rate has surged to over 20 percent and instantly put some companies and SMEs out of business. When companies have no access to affordable Kwacha loans, the next thing they do is scale down operations and lay off workers…”

      True to a certain point, but it is not entirely correct to blame high lending rates on the current economic situation, or the measures Zambia Central Bank has taken. Even in so called good times, Zambia has always been among the countries with the highest lending rates in the sub region—this is not new!

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    • continue…

      3) “…any current gain in the value of Kwacha using the ‘liquidity squeezing’ method, has equivalent huge job losses due to the ‘cash squeeze’ inside balance sheets of SMEs and various companies…”

      I think squeezing “excess” liquidity (money) out of the market is a proven method used by central banks all around the world. Remember, excess liquidity simply means there just too money in circulation, and when there is too much money chasing fewer good, what do you end up with? Yes, inflation! And i am sure sampa is very much aware that recently inflation in Zambia was getting out of control. So central bank (BoZ) did a prudent thing by siphoning liquidity (money) out of the economy/market to curtail runaway inflation. And, as a result, inflation has started to…

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      And, as a result, inflation has started to stabilize and even fall.

      I am not sure what sampa prefers, a buoyant kwacha with low inflation, or a weak kwacha with soaring inflation—but think if given a choice, most people would choose the former—and that’s what tight liquidity (less kwacha in circulation) is doing. Of course BoZ has to find a sweet spot where tightening doesn’t lead to unaffordable bank loans. But that’s where constant vigilance and agility comes into play on the part of the central bank. Nonetheless, there is nothing sinister about employing such financial instruments by the central bank (BoZ)!

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      4) “…Exchange rates appreciate or depreciate based on an increase or decrease in the value of exports or imports…”

      Not necessarily true, sir. Exchange rates are and can be influenced by a lot of things other than just the value of exports or imports. in smaller economies such as ours, what happens in the USA, Japan, Great Britain, China, etc. has way more effect on the value of our kwacha than anything else BoZ is able to come up with. Like what is happening now to the dollar (weakening), the effects of which can clearly be seen in the strengthening of many currencies around the world, including the Kwacha. Yes, for big economies like the US, exports matter more. There are also other factors such as insecurity (political and otherwise,) policy direction, debt, and…

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      …and investment (both foreign and/or domestic,) extra. all these factors can impact the value of any currency—not just imports and exports!

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      5) “…Is there something Zambia was importing in huge volumes and now stopped doing so? The answer is no, as we are still importing fuel and other retail consumption goods. My take is that the appreciation of the Kwacha is simply due to interventions by the BoZ…”

      One would think Sampa having worked in finance would welcome such a scenario: Weaker Dollar, stronger Kwacha since we import more than we export. Stronger local currency means that more mini/bus owners can now afford cheap Dollars to finally import new tires and suspensions for their vehicles which will translate fewer avoidable accidents on our roads. It entails more SME can now afford to cheaply import spare parts (which are rarely, if at all, manufactured in Zambia) and finally make those business…

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      …expansions and repairs they have been putting off due to the expensive Dollar. Yes, even Sampa himself can now cheaply import replacement taxi cabs for those call-boys in Matero if he intends to win back his seat. This is the importance and goodness of our local currency gaining its value because we mainly import than export when it comes to “essential capital” goods, as Sampa himself has put it!

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  2. Is that a problem. u r a bitter person ba Sampa… u r too childish… how on earth can you think of becoming President? leadership is not for dogs..

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    • If its not a problem where do you thing they are getting this forex from if it not from exports? they are getting it from your grand children’s already depleted reserves.

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  3. Whether its bogus appreciation or what ever, the thing is us importers will benefit and our business will flourish period.

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  4. Comment:@goverment this discourse is not abt dogs or being bitter.
    its abt economics and its dynamics.So if u dont understand economics jst zip up your mouth.Listen to what the experts are saying and then do some research and argue frm an informed platform.

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    • do you understand economics yourself? even Sampa ur leader dosn’t understand because when kwacha was on free fail he was part of the government.

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  5. Sampa may be partly right: In Feb 2016, the reserves were US$3.5bn. In March 2016 the reserves dropped to US$2.7bn. They dropped by US$0.8bn. What was the US$0.8bn used for? The other reasons is that globally the US$ has weakened on account of the effects of Fed rate hike, ECB and BOJ reaching limits of their Quantitative Easing!

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  6. SAMPA IS VERY SHALLOW IN ALL HIS ANALYSIS, I EVEN WONDER HOW HE ROSE TO POSITION OF TRESURY DIRECTOR IN FBZ. HE SPEAKS LIKE A GRADE 12 HOME ECONOMICS PUPIL. EVEN IF THE GOVT HASNT DONE ANYTHING, IF OTHER VARIABLE DONT REMAIN CONSTANT IN THE GLOBAL ECONOMY YOU EXPECT REACTION IN THE GLOBAL MARKET WHICH THE CURRENT SITUATION.

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  7. Sampa is sounding alarm bells but no one wants to pay attention. What has caused the currency to appreciate suddenly? Sampa has challenged the govt to deny they haven’t offloaded reserves in the system, so far no response meaning they know this is exactly what they have done. Cadres are already celebrating ati Lungu is working to improve the economy. People are easily fooled in Zambia.

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  8. This is the same article as yesterday’s but different photos of Sampa. Is it very popular to be repeated every day?

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  9. Sour grapes by ba Sampa…….politically you are finished my friend.Even the Matero seat you will never see it again.You are a very stupid man.

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  10. What a pity. This Sampa man is literally struggling to make himself politically relevant now. Someone should tell him; he got off the bus of politics, and now it’s driven away without him. People with inflated egos are a pitiful lot to watch.

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