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Monday, 12 May 2014

Gondwe's Ineptitude

The Kwacha is hovering around K6.5 per $1 and K11 per £1. Well above the levels it reached before SI55 and SI33 were abolished. What everyone is asking is : what will be abolished now? Earlier this month the hapless Bank of Zambia Governor Michael Gondwe gave the following explanation on what has happened to the Kwacha in a speech at the Bank of Zambia Media Seminar :
The Kwacha has been relatively stable in the last few years. However in 2013, the Kwacha was characterised by a depreciating trend against most major trade partner currencies, except the rand. The Kwacha depreciated against the US Dollar by 4.9% to an annual average of K5.39/US$ from K5.14/US$. Similarly, the Kwacha depreciated against the Pound Sterling and Euro by 3.6% and 8.3%, respectively.

This was partly on account of the US dollar appreciation following the strengthening of the US economy during the latter part of the year. The Pound and Euro weakness moderated on the back of optimism that their economies would continue to rebound. The Kwacha, appreciated against the rand by 10.7% to an average K0.5596/ZAR, reflecting the slowdown in mining output, following continued labour unrest in the South African mining sector.

In the first quarter of 2014, the Kwacha depreciated by 10.0% to K6.09 per US dollar. This development was largely attributed to a high demand due to a higher growth in imports relative to exports, as well as investor sentiments associated with the tapering of quantitative easing in the United States of America coupled with falling copper prices on the global markets. Similar weakening of currencies was observed in most emerging market economies such as Ghana, South Africa and Turkey.

(Source : Bank of Zambia)
This is simply a case of intellectual prostitution. First of all, the Kwacha has been falling since 2011 not since 2013. Everyone can verify this for themselves. He ignores that.

Secondly, the sharpest depreciation Zambia experienced in 2013 was due to the credit downgrade which was caused by the worsening fiscal position. He ignores that.

Thirdly, though Zambia continues to suffer from liquidity tightening in the USA, like all frontier markets, it has performed WORSE than all other African economies. This is why the IMF has singled it out in its latest report. He ignores that.

Fourthly, if the effects of the Kwacha are purely external, then why is the IMF, World Bank and every economist with a basic diploma pointing to the worsening fiscal position as part of the problem? He ignore that!

Fifthly, GRZ's policy response is at odds with Gondwe's own superficial diagnosis. If the effects are purely external - why did the Government abolish SI55 & SI33? Why abolish an instrument that is so critical to monitoring our balance of payments position and deal with illicit flows? He ignores that!

Finally, given the external risks and the fact that many of us warned as early as late 2012, why did Gondwe and Chikwanda not heed those warnings? Why was the risk of falling copper prices, Chinese slowdown and tapering of credit not factored into the economic planning? Why did GRZ go ahead with fiscal recklessness and borrowing despite these early warnings? And why are they pursuing the same policies now? He ignores all these issues!

The country cannot move forward as long we have people like Gondwe in charge of sensitive institutions. His statements reinforce the view held by many that he lacks credibility. Look around the world and see the calibre of people who occupy central banks. People matter in policy making. And Gondwe is the wrong person.

Gondwe has only survived because of the poor journalism and party opposition in this country. He is a lucky man indeed!

Chola Mukanga | Economist
Copyright © Zambian Economist 2014


  1. All suggests he will not lay the blame at the door of his paymasters. It also makes clear he has no courage to tackle the problems from his key and influential post of money manager of the economy- again because of deference to his paymasters. He is a political appointee wanting a job no matter what. In fact things will get worse.
    This idea, that things will get worse, needs further focus. When the statements were made related to the abolition of instruments and also the adoption of more prudence in the management of the economy, I suggest that there was a temporary moderation of the problems. Things started to get less quickly bad. However I believe this is only temporary and the acceleration will return to the severe detriment of the economy. The reason given is that they have insufficient control of themselves and good will to the people of Zambia. The former means that some big spend will soon take place again. The latter is that although presented as for the good of people then it will be quite the reverse. Kwacha at $1=Kwacha7 by the end of the year.

  2. This is a simple case of basic and demand. For as long as the balance of payments is tipped in favour of imports, i.e. Zambia importing more than it exports, the Kwacha will continue to weaken! You are basically using more money than you're making. As long as the supermarket shelves are full of South African products with no trace of Zambian goods, the kwacha will continue to fall; as long as the farms and small holdings are not used commercially with some on farm agro processing, the kwacha will continue to weaken and finally as long as there is no critical mass of Zambian entrepreneurs not traders, as is the currently the case, forget about everything else.....the kwacha will continue to be under stress! At its starts with each and everyone of you Zambians being productive and contributing to the value chains in all economic sectors and getting into the mining, agriculture, agro processing etc for your currency to be strong! Unfortunately the tendency is to politicise everything instead of looking at the cause and not symptoms of the problems


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