I think this new concept has not been clearly explained, probably due to its fancy technical name.
This measure is similar to SI33 which was introduced in the early days of the Michael Sata regime, which received severe push back to the extent that it was subsequently withdrawn.
So what is Export Tracking Framework?
All exports will be tracked and ensure that proceeds are paid into Zambian bank accounts. The current banking system allows businesses and individuals to open CFC accounts, which are dollar denominated accounts. So the export proceeds, more likely than not, will be routed into the dollar accounts and held in Dollars.
The crucial issue here is whether these dollars will be converted to kwacha or not. Also, it is important to note that Zambia does not have Exchange Controls, so the dollars in the CFC accounts can be held in dollars for as long as the account holder deems it fit. In other jurisdictions, there is an auto conversion period of say 60 days and if you don’t use the dollars they are automatically converted to kwacha which results in positively impacting the money markets as these dollars are now available for use in the money markets. Effectively improving dollar supply.
Holding import dollar proceeds in dollar accounts without conversion into kwacha has no impact on the exchange rate.
If anything, given that we have a liberal exchange control regime, more likely than not, once the dollars have been received, exporters, particularly mining houses, will externalise these proceeds to their central treasury. This results in a zero-sum game and completely neutralizes this policy. It becomes impotent.
It is highly unlikely that the local Kwacha needs for exporters, particularly mines will change as a result of this new policy. As such, funds will come in and then go out.
Also important to note is that VAT refunds to mines in Kwacha provide ready Kwacha for local expenses such as salaries and therefore negates the need to convert dollars from CFC accounts to kwacha.
Currently, CFC accounts have a consolidated balance of over $3 billion which has no impact on the money market until such time that conversion to kwacha happens. In previous years, CFC dollar account balances were around $2 billion. My conclusion is that businesses prefer to convert excess kwacha to dollars to hedge against currency fluctuations, not that trade in dollars has increased and therefore putting more pressure on the exchange rate.
We are highlighting this to CAUTION against pre-mature excitement and celebration as we saw with Debt Restructuring MoU, which was signed with official creditors in June 2022.
If conversions to Kwacha from dollar accounts do not happen, the exchange rate challenges will remain as is the case today. The real solution to the exchange rate still remains in increasing local production and manufacturing capacity and value addition. Export more and reduce dependency on imports.
As patriots, we are just issuing a cautionary statement, the policy framework is welcome, and it is our hope that it brings positive economic benefits to the country, and we will closely monitor the results. The devil is always in the details.
President of the Socialist Party