By: Munyumba Mutwale
‘Confidence, not paper or digital money, is the key currency of any capitalist system’
Mal Fletcher – Australian futurist and social media commentator
A few days ago was August 20th, my mother’s birthday, and it was a day of joy, cake and presents. All to celebrate the life and journey of a wonderful woman in our lives.
That is the beauty of Birthdays. They always seem to be the happiest day in the world. I guess that’s why we put the word ”HAPPY” before the word birthday.
Once I got back to my desk to close out the day and run my daily market analytics, I saw another birthday coming, and boy was this one, not a happy one. You see, on that same day, the Kwacha turned 19. Now This birthday was not a day of joyous celebration but a day of doom, gloom and despair because deep down we all know that 19 was the final barrier between the simplicity of childhood and the rapid growth of adulthood, also known as your 20s. Anyone above the age of 30 knows that once you pass 20, it’s like the years fly by so fast. I’m 33, and turning 20 felt like it was just yesterday, but seven felt like it was such a long time ago. The same phenomena seems present in the world of currencies. It appears that they age, or devalue, faster and faster. Currencies are oddly like Children. You want them to stay five years and innocent forever because you know the older they get, the more complex they become to manage.
Yes, in March 2020 it did trade at 19, but there it just reached 19 in a quick and rapid devaluation. Still, this time has now settled at 19 in a slow and steady depreciation, meaning backtracking would be very difficult because this represents a market consensus of the currencies value.
Let me take you back ten years ago, in 2010 when the Zambian kwacha was trading at an exchange rate under K5. Yes at the beginning of 2010 the Zambian kwacha was an under 5. During the decade, the Kwacha had experienced its first minor devaluation of the period, that was back in 2013. Then, came another more significant devaluation, which took place during the period of 2014-15, and then finally, since 2018, it has been on a sustained devaluation path. All this has been mainly driven by a decline in confidence in the Zambian economy. This decline came from the fact that the source of geosynchronous global growth (geosynchronous is just a fancy way of saying most of the economies of the world are growing at the same time) and Zambian economic growth, that being China was starting to run out of gas, and with no economic growth source of its own, Zambia’s future was uncertain, and the currency was just reflecting that.
You see, currencies are funny in that people run so many technical and intense quantitative models to try and predict their movements but, to quote former CEO of Credit Suisse, Tidjame Thiam,
‘The Currency is nothing but the reflection of Economic Growth or the prospects of economic growth of a country. They act, move or behave almost like a listed company share price, totally driven by sentiments of growth.’
For all the eloquent blabbering we economists love doing, currency valuation is a very simple thing, we just like the sound of our voices and sounding like the smartest people in the room. The value and direction of a nation’s currency is simply derived from the level of local economic activity in a country. The more local economic activity there is in that country, the more transactions are needed to facilitate that level of economic activity. The more local economic transactions done in the country, the more a medium of exchange, namely that nation’s currency, is needed in order to facilitate those local transactions and that’s the demand for the currency. Simply put, the faster your economy grows the more money you need, and therefore your currency appreciates. THAT’S IT.
Now I am going to give you a brief Zambian economic history lesson. If one goes back into history, you will discover that Zambia was one of the first African countries to establish Bilateral economic relations with China under the administration of the Late President Mwanawasa and this reflected, almost instantly, in our economic growth prospects. This, in turn, was the actual source of the booming 2000s or the Golden Mwanawasa era as we all would like to remember it as. That age of economic prosperity was more because, since 2002, the Zambian Economy was actually chained to the Chinese economy, and China was experiencing rapid economic growth acceleration from 1999 – 2008.
![Economic Growth Rates of Both China and Zambia from 2002 - 2019 [Source - World Bank]](https://i0.wp.com/www.lusakatimes.com/wp-content/uploads/2020/08/gdp-1.jpg?resize=696%2C365&ssl=1)
As Chinese economic growth declined from its 2007 peak of 14%, simply because China has just run out of growth, so too did the Zambian economy. As the Zambian economy declined, the currency devalued. So with growth already on a downward trajectory, it appears a combination of load-shedding and droughts, further weakened us, and finally, the coronavirus just came to finish us off. However, the key underlying factor has always been that the Zambian economy has never gone through a period where it has created its own economic growth internally and organically.
As much as we link the 2000s to the late President Mwanawasa’s policies, who did, in all honesty, do a remarkable job on the economic stabilisation side of the equation, it was mostly a combination of China-driven geosynchronous growth and Chinese trade and investment in Zambia that did most of the heavy lifting. In reality, no Zambian administration has ever managed to work out the endogenous Growth side of the Zambian Economy. All the administrations of both past and present, have only worked on the strategy of making Zambia conducive to receiving or experiencing the benefits of externally driven growth, but have never managed to crack the code of making the Zambian economy generate its own economic growth through the rise of booming local enterprises.
Now, the period of 2010 to 2020 has simply given the people of Zambia a look at what’s underneath the hood of the economy and guess what, there was no engine in the car this whole time. Our economy has been like a car being towed this whole time, and when I say this whole time I mean since 1964, and the tow truck has either been the Global Economy, a specific trade and investment partner, such as China, or the Government. However from 2010 to now, our government has since maxed out on credit, and the global economy, along with China, has slowed down to such a grinding halt, that there has been no economic force remaining to pull us forward. But in this whole picture, there has never been a period where Zambia has been a purely local entrepreneur-driven economy to give global capital confidence in times where the global economy is not there to prop up the Zambian economy.
All this can be seen in last year’s quarter by quarter economic growth figures, in which the Zambian economy moved from 2.3%, in the first quarter, to almost no growth of 0.2%, in the 4th Quarter. So even without the Coronavirus economic slowdown we were heading for a recession. All the coronavirus did was give the economy an added nudge down the mountain it was already fiercely tumbling down, thus accelerating the process and exaggerating the immediate impact.
Now I’m gonna have to be brutally honest with you. The Kwacha hitting 20 is inevitable, and now it’s really about what we do after that, which will make the real difference. It’s this decision that will determine whether we go into free fall or whether we reign it in and avoid repeating the depression of the 80s and 90s. And Yes, we are in the exact same set of circumstances that led to the economic downturn that introduced the Zambian depression that lasted until 2002. There was a Global Recession in the 80s, there is a Global Recession now, which mind you was already coming with or without the Coronavirus. There was a declining Kwacha in the ’80s, and there is a declining Kwacha Now. There was rising inflation in the 80s and there is rising inflation now. There was growing unemployment in the 80s, and there is growing unemployment now, which has been growing for the larger part of the last decade. There was expanding and unsustainable public debt in the 80s and there is expanding and unsustainable public debt now. For all intents and purposes, it appears we have brought the 80s back.
So we are now at a crossroads, and we have a choice to make. We can either sit here cosmetically prettying our economy up while indefinitely for the next rising global economic superstar to come along and allow us to hitch a ride on its economic acceleration wave, a strategy, by the way, we have proudly been using since 2002, or we can finally decide to take control of our economy and start learning as a country how to create economic growth for ourselves by ourselves. We can choose to learn the hard lesson that an economy cannot sustain growth through a series of exogenous shock factors, but it can only do it through the growth and efforts of its own organic private enterprises. We have to recognize how unsustainable it is to run an economy like a car with a faulty battery that needs to be jump started every single time the world has a slowdown, and there we are stuck, looking for someone with jumper cables to help us out. We have to make the tough decision to finally end all reliance on the outside world. That would mean no more touring world like a musician with a new album in search of FDI, like we have been doing for the past three decades. We have to decide that we are no longer going country to country with a begging bowl asking for aid and assistance, Like we have been doing for the past three decades. Most importantly, and i cannot stress this point enough, we definitely must put an end to any and all reliance on external debt. Zambia has to behave as if the World has closed every door and avenue indefinitely and dig deep within itself to find its own organic sources of private-sector growth, namely from the innovations and enterprises of the people. Everything, and I mean absolutely everything, Every product, every input, every service, every supply chain, every innovation, you name it, has to start coming from within, and has to come from Zambia’s people. That’s if we don’t want to repeat the mistakes of the 1980s and the depression that came after.
Make no mistake, the Kwacha heading for its 20th birthday is just one of many warning signals of an imminent economic threat, and the next two decades of the Zambian economy are hanging in the balance of the decisions we make now.
The Author is a Financial Economist with over ten years of experience in the Zambian Financial and Capital Markets in and with companies and institutions such as the Lusaka Securities Exchange, Securities and Exchange Commission, Aon Zambia and many other participants. He is also a freelance economic journalist from Lusaka who writes about currency, commodities, macroeconomic policy and markets from the Global and Domestic Perspectives. He can be found on Twitter at @MutwaleM.
Infact by December it maybe turn 30.
What a junk of a currency ruined by Edgar Lungu!
PF must go!
The former BOZ Governor Kalyalya took over when the kwacha was trading at 5.3 to the dollar and it kept rising until it reached 19.2 on the right side during his reign. Isnt this Clueless man? The reason there’s this uproar over his firing is coz he is Tonga. The man was Clueless please. Give it a rest.
Zambia can ignore Economic Laws at its own Peril. Reckless Printing of Money,heavy borrowing and a decline in Foreign Exchange Reserves will lead to a sharp depreciation of the Kwacha to the USD. This will mean a sharp in the cost of living,higher prices of goods and services. The writing is on the Wall for Chris Mvunga.
Please open your ears for once, you can stimulate this economy by just throwing money at different sectors, it is the economic fundamentals which need working on. Alexander Chikwanda was advised over his reckless borrowing and his boss was supporting him, resulting in a failure to respond to an emergency like importing power from SA for 27 million dollars only. 27 million dollars for a country must be some small change on any day
From the time Kalyalya was appointed, he kept on preaching to stones. As BOZ Governor, you can only do what is within your limits. If your boss is a “Spendthrift on Steroids,” what else do you expect? But Kalyalya has played smart! He refused to do unprofessional things. Now that he is out of the pictures, expect Rat infestation worse than your Kitwe hospital scenario … Kikikiki
Lesson for Zambians, if one did not know how to recognize failure, this is the one. The way things are going is the same trajectory Zimbabwe under went before becoming a junk country. Our inflation,GDP and shrinking political space for our opposition is following the same path. These chancers should never use covid as an excuse. They grounded the country even before covid came. The noble thing to do is for them to vanish on their own without wasting anybody time any more
What I like about this article is that it avoids the political aspect. Brilliant!! Now Munyumba, internal growth will require financing. Our current banking and financing system is toxic to local enterprise. 90% of local businesses that borrow from local banks go bust. It’s like giving doom to a horse and expect it to carry your luggage on a journey. How do local entrepreneurs venture into the jewelry industry if the need to borrow finance to buy machinery for example?? Financial sector needs emergency reform in national interest.
Unfortunately, the most important audience is busy with 2021. PF does not care about what will happen now and August 21. Abene ati fikaisova after 21.
@popolyongo that is a very dull statement, BOZ Governor is not responsible for contracting the loans that have put us in this situation. Please do not expose your ignorance in public. Unfortunately the PF can not manipulate the the exchange rate.
The new governor is to take the kwacha to greater heights. Meanwhile “The Kaizar Zulu school of political science” coming soon. REMODELING THE PRIVATE SECTOR AMID THE NOVEL COVID-19. Just letting my haters knows in advance so that they don’t get heart attack when the school is open.
The new governor is to take the kwacha to greater heights. Meanwhile “The Kaizar Zulu school of political science” coming soon. REMODELING THE PRIVATE SECTOR AMID THE NOVEL COVID-19. Just letting my haters knows in advance so that they don’t get heart attack when the school is open. Kz
The new governor is to take the kwacha to greater heights. Meanwhile “The Kaizar Zulu school of political science” coming soon. REMODELING THE PRIVATE SECTOR AMID THE NOVEL COVID-19. Just letting my haters knows in advance so that they don’t get heart attack when the school is open. Kaizar
Excellent article Mutwale but you left out the elephant in the room as the major contributing factor to the Kwacha depreciation;you just glossed over it.There is no doubt that the Kwacha could have depreciated due to lack of economic activity(growth) influenced by China. But there is no way the currency would have depreciated by over 120% in 9 years.The major contributing factors to such massive depreciation are excessive debt,reckless expenditure,loss of confidence in economic management by the market and critical economic decisions driven by politics.The latest such decision is replacement of a competent and internationally respected Governor with an ill qualified and inexperienced non-economist with ACCA.I have a business degree,ACCA,CIMA but these qualification do not have…
Don’t worry. We will REBASE again. Once the Kwacha reaches 20 we will rebase. It will be K2 per dollar. Voilla! The Kwacha is strong again! This is PiFeconomics. In reality, it is now K19,000 per USD. Do not kid yourselves. It is not only Lungu’s government that has overspent, we all have. Look at the number of useless motor vehicles which cost $300 in Japan we have imported. Enriching foreign shipping companies by $2000 a piece! We import everything from hair to hair pins, lipstick to liquor. We are a consuming people. Our insatiable appetite for shopping and spending what we do not have is growing every day. So many of us are burdened with loans even from Shylocks.
Fastest :growing’ currency soon to be 20. Happy Birthday ZMW!
@ Popolyongo , being a cadre does not mean you dump your brains in a dustbin… You are seriously a LUNA..TEEK. You lack basic understanding of how the economy works..Now wait and see if the kwacha will gain value from now on wards…This video has explained issues in the most basic of all basics and you still cant get the message..How thick is your skull. @Zambian Citizen , where do think (from your SKULL if there is some semblance of even a little gray matter) money will come from. From Prayers.?? You are ALSO seriously a LUNA..TEEK… If you see no comment from KZ (Fake), just know that the article has hit them (PF) hard….Now with SHABA-DOO at the helm of BOZ, we are yet to see the “BEST”……
just shout ati am 19 years old today, chi 100% bursary muli iwe. mwana akula aziba nakani yochita apply for bursary.
To take the Kwacha to ‘higher heights’. You mean to 20 the Birthday and beyond? Ubupuba!!!
Lungun Made a big mistake to appoint Kalyalya. I had a feeling that the man is only educated on paper.He is the worst governer in the world.How could he allow the current to depreciate like that.The president thought he chose the best man alas he was there to pave way for HH.It was too late for ba Lungu.You never appoint people based on paper qualifications but on past performance and experience.I don’t know why people are crying for the worst governor in Zambia?I undertsand bcoz he comes from one region.We don’t keep people in key position just bcoz they come from a region.Put people who can perform.The president chance of winning election is to make sure whatever it takes the kwacha should appreciate.Make sure you guys in PF to push ministry of finance and bank of Zambia to manage…
Lungun Made a big mistake to appoint Kalyalya. I had a feeling that the man is only educated on paper.He is the worst governer in the world.How could he allow the current to depreciate like that.The president thought he chose the best man alas he was there to pave way for HH.It was too late for ba Lungu.You never appoint people based on paper qualifications but on past performance and experience.I don’t know why people are crying for the worst governor in Zambia?I undertsand bcoz he comes from one region.We don’t keep people in key position just bcoz they come from a region.Put people who can perform.The president chance of winning election is to make sure whatever it takes the kwacha should appreciate.Make sure you guys in PF to push ministry of finance and bank of Zambia to manage…
Lungun Made a big mistake to appoint Kalyalya. I had a feeling that the man is only educated on paper.He is the worst governer in the world.How could he allow the current to depreciate like that.The president thought he chose the best man alas he was there to pave way for HH.It was too late for ba Lungu.You never appoint people based on paper qualifications but on past performance and experience.I don’t know why people are crying for the worst governor in Zambia?I undertsand bcoz he comes from one region.We don’t keep people in key position just bcoz they come from a region.Put people who can perform.The president chance of winning election is to make sure whatever it takes the kwacha should appreciate.
Make sure you guys in PF to push ministry of finance and bank of Zambia to manage the kwacha.it pains me why it took years to fire that man.The economy is gone and ba Lungu the only chance he has is to manage the kwacha.If he can make the kwacha appreciate to 17 or 16 before elections then he gonna win.Please guys let us work on kwacha ba Bwalya Ngandu
What has failed to be mentioned is the Kwacha has never been floated it is a blocked currency that is pegged by the BOZ and govt, it is not traded on the international market, you can’t buy Kwacha outside of Zambia., anyway we will see 20-1 soon, but our new colonial masters the Chinese will look after us.
Moscow(OP) you don’t understand a blocked currency its set by the Govt and a meeting with the BOZ , tomorrow the bank can set the rate to 16 to 1 or even 3 to 1 if it wanted it to , since when is Zambia got more tax base and resources than South Africa and up to a few weeks ago the Kwacha was stronger than the Rand, however the Rand is floated on the International market but the Kwacha is pegged at what ever the govt wants it to be. if it was floated it would be around 100 to 1 USD
Time for me to transfer some dollars into into my Zambian accounts. Perfect time to grow savings.
In my own view the man who wrote about the currency picking up during the time of Levi Mwanawasa is total lies, remember when mr. Chiluba came to power in 1991 he found the highest note at five hundred kwacha. Then mr. Chiluba’s government introduced one thousand, five thousand and ten thousand kwacha respectively. From there when Mr. Mwanawasa took over from Mr. Chiluba he introduced twenty and fifty thousand kwacha respectively. Then Mr. Sata removed three zeros and the highest currency came to five kwacha to the dollar since then the kwacha has been loosing its value. Therefore the only solution to this problem is to tell oil explorers to speed up the work and discover the oil fields in northern province.
@Mubanga: seems you are blank anout economic matters. How does introducing and removing zeros have to do with gdp?? Then oil is at an all time low, how will this help our economy by investing in oil???
Like the lady in diaspora, I have started transferring my hard earned sterling into my account in Zambia. This is the best time to do it when the Kwacha is still going crazy. The more the Kwacha depreciates the better for the much hated diasporans.
Cogent! Add to the mix the polarizing effect of the dollar to the Zambian economy. Unsavory! Thank you Munyumba
@Mubanga Chipalo…. Thats PURE LUNA…CYYYYY…. Unfortunately we have millions more who think like you….Hence the mess we find ourselves in
The writer need not worry. With “John Okello “at the helm BOZ be rest assured that the Kwacha will trading at 1to 30 USD. The New Governor will be on a Mission to print both the Kwacha and USD and Zambia will prosper.Well ignorance is bliss. Welcome to Zimbabwe’s Casino Economy.
Very soon Zambia will just adopt the USD for daily use,