The continuous depreciation of Zambia’s currency, the Kwacha, against major convertibles is causing serious problems for small and medium businesses in the country. The depreciation has resulted in higher operational costs, making it expensive to run a local business. This negative trend is impacting businesses at all levels, but it is particularly affecting small and medium-sized enterprises (SMEs) that employ a large chunk of workers (90%+) outside the formal sector.
Silavwe Jackson, President of Global Progressive Zambia (GPZ), stated that “The situation is quickly turning into a serious business nightmare. Local small and medium businesses are experiencing high operational costs owing to the upward swing of the Kwacha. If not arrested, it is only a matter of time local small and medium businesses start to close, unleashing more unemployed people to the already existing 8 million job seekers on the market.”
The issue is compounded by the fact that Zambia’s economy is import-based and consumer-based, which means that the country relies heavily on imports, and consumer spending drives economic growth. The depreciation of the Kwacha has made it more difficult for local businesses to import goods and materials, leading to a rise in prices and operational costs.
To address the issue, the GPZ has called on President Hakainde Hichilema and his administration to provide tax, levies, and statutory incentives to SMEs to reduce the cost of doing business and encourage production. “We call on President Hakainde Hichilema and his administration to provide tax, levies, and statutory incentives to small and medium businesses so as to reduce the cost of doing business and scale up production,” Silavwe Jackson stated.
Other measures proposed by the GPZ include capping the prices of fuel and electricity, government taking over gold and sugilite mining through ZNS to generate more dollars, and creating a new venture fund to support startups in agriculture, mining, manufacturing, technology, and creative arts.
Meanwhile, there are concerns about what would happen to the Kwacha if the country’s debt restructuring efforts fail. According to Dr. Situmbeko Musokotwane, Zambia’s Minister of Finance, the delayed debt restructuring is one of the main reasons behind the Kwacha’s depreciation. “If he were right, then what would happen to the Kwacha if this debt restructuring totally failed?” asked Fred M’membe, the leader of the Socialist Party in Zambia.
“Zambia’s debt is not new, it hasn’t just arisen. The Kwacha was, for some time, appreciating on the back of this national debt burden. It even went as low as K15.89 to the US Dollar under this government. But it is reaching K20.70 to the US Dollar under the same government,” he added.