Are Dollars The New Four Letter Word

One hears many reasons for the increased number of Dollars on the market. The good ones : copper prices and copper production is up; non-traditional exports are up; income from tourism is up; less foreign debt payments. And the bad ones: speculation by one of the banks who brought in an enormous amount of Dollars; flooding of the market with Dollars as we have a large payment to make for some commodity such as maize. And of course, the forthcoming elections cannot be ruled out.

I am no economist. Neither have I studied business or economics or any of those disciplines at one of the many universities around the world. But what I do have is a smattering of common sense. And my common sense tells me that, in what is a Dollar based economy (even though our legal tender is Kwacha),if people are getting less Kwachas for their Dollars and the Kwacha prices are not coming down accordingly, something has got to give.

First, let’s take into account the background realities of doing business in Zambia. It is the most expensive country in the region in which to do business. We have the regions most expensive fuel. Being landlocked, our transport costs to get our inputs in and our exports out of the country are astronomically high. Despite the improvements over the last ten years, we still have poor road infrastructure off the main trunk roads. The inefficiencies of Government takes its toll on operating costs (how many times must we run in and out of Lusaka chasing licences and permits, only to be told ‘he’s not around, come back next week’ or ‘he’s at a workshop, come back next week). We have one of the most expensive Public Switched Telephone Networks in the world; and in the rural areas, one of the most unreliable, where it exists at all. The same can be said of our electricity supply. Have you ever tried to run production machinery with constant electrical brownouts and blackouts? This causes havoc to ones expensive production machines. More cost for spare parts and repairs due to a ‘dirty’ power supply equals high operating costs. The bottom line : a lot of businesses in this country were already marginal, but were committed to making a success out of their small ventures, to the ultimate benefit of Zambia. These very same businesses now find themselves being hammered by exchange rates.

The first to give are going to be our exporters; first the small ones who employ only tens of people. They will be closely followed by those who employ hundreds of people. By the first week of December, I knew of at least one small exporter (in a remote area) who had closed down and laid off all but two of his staff. By the end of December, I knew of two exporters who had each laid off 400 workers. Total 810 workers, and take a very generous rule of thumb that each person employed supports eight people (I usually work on a 1:10 ratio), and you now have 6480 people without any means of feeding, housing and clothing themselves.

Next to give is the tourism industry. Already, this industry have published their international rates for 2006 and 2007, and in some cases, 2008. But most of their costs (salaries, fuel, food) are Kwacha based. Although I have not spoken to any operators who have laid off staff, all of those who I have spoken with are planning to do so. And the casualties will be the unskilled workers who are the easiest to replace if (note I say ‘if’ not ‘when’) things improve.

I do not even want to start counting the casualties in the mining and agricultural industry, but latest figures given to me by those in the know are beekeepers 200,000; cotton 300,000; tobacco 200,000, horticulture 16,000, coffee 10,000 plus. Total 726,000. And the 1:8 ratio 5,808,000. Approximately half of our population walking the streets.

So, in terms of businesses, the first casualties are going to be our exporters. And our exporters are generally those who employ large numbers of people. Large numbers of people out on the streets equals an increase in crime, which equals a breakdown in law and order which equals anarchy. Gone is the peace and stability we are so quick to shout about. And with this comes a reduction (or complete stop) on new investment into the country. After people out on the streets, comes a shortage of foreign exchange. Remember the 70’s and 80’s; the days of the pipeline; the days of FEMAC. How short our memories are!

And very soon, those that are coining it now, the traders and importers, will be affected. There will be no money for the population to buy the goods which they are importing. Which also brings to mind that because excise and duties are reduced, and thereby VAT, the overall income to the central treasury will be reduced. As people lose jobs, other taxes will also reduce. How is the Government going to meet its salary bill each month? Unfortunately, I cannot delay getting this edition to the printers, so cannot wait until the budget is presented to Parliament this Friday. It will be an interesting balancing act which our Minister of Finance is to perform.

The worst part of this entire debacle must be the reaction of some of our leaders and officials. “But the exchange rate is down”. This must brighten the hearts of the majority of the population; until they lose their jobs and have no nshima to eat that evening. That is when they will fully understand the implications. “Cars are now affordable” Again, something to brighten the heart of someone who can’t put food on the table. That is assuming they even have a table. How short sighted!

And where does the Bank of Zambia fit into all of this? Is it not the responsibility of the Bank to monitor the currency on the market? And, when deemed necessary, to buy up the excess Dollars to keep our exchange rate stable. An unstable exchange rate is the sign of a weak economy. And this was a perfect opportunity to build up our foreign reserves for the time when the copper price gets sent back down the shaft, as it did in the 70’s.

George Bernard Shaw once said “if all economists were laid end to end, they would not reach a conclusion”. Not being an economist myself, I am therefore able to reach a conclusion or more than one conclusion. And the conclusions are very, very simple. Firstly, we have not even started to feel the effects of this. The effect will more than likely only begin to show towards the end of 2006. Just in time for the elections. And hungry voters are not good voters. The second is that 2006 is going to be a very difficult year for our country.

Now is the time for some progressive and forward thinking, followed by action, for the benefit of this country rather than for the benefit of a select few individuals.

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