Showing posts with label exchange rate. Show all posts
Showing posts with label exchange rate. Show all posts

Friday, August 5, 2016

Zambian Election Issues

It is always interesting to get into an election and evaluate the various issues of importance to voters. Well, if at all there are issues that are being offered. This year's elections have the same things that leave a bad taste in my mouth and I thought I should bring out what I consider to be issues for me to make a good elections for a country among the "longest period of democratic elections in Africa" - Zambia!

There elections come with the bad elements of name calling, ego promoting, terrible coverage of candidates, "busitele" campaign songs (if only our musicians produced such songs for the night clubs - we would groove for sure, and this year something worse was added - violence! We cry for issue based politics, so maybe we have different definitions of issues so I thought I could bring this out as I expect the issues to touch on economy, human development, achievement of national goals, etc. Here are my "issues" which I think would have made me enjoy the campaigns.

Human Rights
This covers all areas of human rights that us as a people should solidify and ensure are protected. They cover not only the rights that are supposed to be given to me through the Bill of Rights in the constitution, but should have all aspects of human development perspective and what the candidates will do to ensure we have these, or not have them. This is more so, with the fact that without knowing who is backing them, and the element of "donors" to impose what they consider should be the rights of Zambians, we need them to spell and commit to what they will do on this angle. It is critical. I don't want to wake up and be given rights that the western world consider rights. We as a people must ensure we decide what these rights are. So what is the stand on this issue is a basis for my vote.

What will be the position on gender based violence, equal employment on basis of gender? What will be the policy for the disabled? What initiatives will be used to achieve equality among citizens of different gender, race or tribe? How can we see you achieve this for us to follow your progress? What policy are you going to employ to achieve this?

This being the case, what is your stand on the referendum - in particular the Bill of Right. What is your message on the referendum vote and why? What rights do you hold as priority and why?

Education
What education should be given as compulsory to all children of this country. What is the plan that is setup to ensure this is attainable. Again, I don't want to wake and be told my children who are English speaking at home will have to learn in a language they don't know because someone at the Ministry of education misinterpreted a report on "familiar language" as a base for education or instruction and replaced it with "local language of the area". So imagine what a Child born of two different tribes and leaving in a different area will get when the child brings homework in that area's language! Such policies which did not even attempt to ask parents has to be enforced as policy. Worse still when the world (including China) is aiming at teaching the children English as a critical language for development, we are teaching them local languages and in local languages! What is the use of the child learning a language they will never use at home or in their life? Is this the type of policy that will continue? So what happens to the right for the children to be educated in a universally accepted language or official language? This is an issue I expected to be addressed for early childhood learners - none of the candidates has brought it up. Not a single one!

The introduction of computer and IT education is commendable. We also have had a policy that allows importation of Computers, Phones, Network items, etc without the payment of duty. This is a policy which shows a good planning behind it. We should however expect an improvement and encouraging of IT development skills on a very serious level as it would ensure a great competitive advantage in the world. We can't claim to have a large labour force to compete in the world with the likes of China, but if we educate our children well in IT and ensure competitiveness, we already have an advantage of English to be able to easily enter the world (assuming they this wont be destroyed by the language policy mentioned above). We could have software engineers and software developers which could well do as good and hope it goes into circuit board development - we have the copper! This is the greatest form of employment with the purpose of entering the world. But which candidate or party has such ideas? Who has even taken a leaf on what the world development challenges is the country facing regarding education in IT? We are a small population which can't compete in labour and cheap labour with the likes of Asian countries, however, we can use our highly educated people in IT to take over the bigger portion of the money in IT developement - just research on how much China gets for each iPhone (which is labeled "made in China" compared to the countries that make the software for it). So what is wrong with thinking of sending the hardware to China but developing the software here?

Developing of bursary loans has been on the lips of many for university students. We try to find a way to fund the public institutions and prevent student riots, yet we can't see the importance of such a loan will do. Which student will riot when they know they will be paying very soon for the loan they obtained? Ever wonder why the only ones who complain after a closure of an institution are self-sponsored students? In addition, the loan scheme would also enable the universities meet its obligations of paying lecturers on time and avoid the strikes. It is easy to look in the region of the most successful universities and see what policy has done to ensure they offer the best education and best conditions for its lecturers. We are not an island and we can learn easily.

Media
The time Chanda Chimba and ZNBC went on to create a program on one Micheal Chilufya Sata (MHSRIP), some people where so happy and rejoiced on this. They were happy that they will ensure he won't be voted into power. I don't think this worked, it might have even enhanced his chances of going into being the president of the nation. All the possible "evils" he did were so to speak "exposed", but he got the vote. The problem then, which still is, is that people did not fight to end this. There is no program now (hopefully wont be), but the issues of the "national broadcaster" being a propaganda tool for the government has continued. Now we have people complaining because they are now facing the same thing that Sata faced through Chanda Chimba's program. Should we leave it as that - a tool to be used by any government that comes into power? Has anyone addressed this?

I don't want to address the issue of the Post Newspapers as to me this issue has two wrongs and we can't take one and leave the other. I have said it before in many forums that, if you owe government in any way, you have to make good or something will follow you regardless of how it comes. I have also asked the question, if the Post paid the "owing" would they be in this position today. The law allows one to pay and then seek legal means on the so called "debt". That is an issue for another day.

Apart from hearing the issues of what the law provides for and how one candidate will address the two issues above, I think I have only heard a promise of re-opening the Post - what will be the stand on the debt? Was a law broken in the closure? These are issues we need to hear. I for one would love to hear one look at the issue of protecting government revenue and handling issues of how companies should handle they issues pertaining to government debt and payment of taxes.

Most critical, Zambia was one of the first countries to hand television, we have nothing to show for it. We are constantly being exploited by foreign companies in pay-tv since the death of CASAT. Does any of them even thing of promoting such business? Why for instance should Zambia which pays a lot on football channels not have a local company to provide the football leagues? We can't even watch our own league on our channels. Yet we wonder why we constantly come out losers in competitions? There is need to promote media and Zambia's own content, not only for adults, but children as well. Our children are being exposed to "pornographic" forms of children programs or ones filled with gay themes. We as parents even pay for this. We read "Tona" cartoon some time back or Kalulu what policy is being taken to bring this back? Imagine having a Maliogo's adventures as a series (I know Banja and such are being produced but I'm talking about free programs for our children with Zambian cultures being exposed to them). I don't think Nickelodeon has any Zambian theme for the children, why should I not ask for Zambian content?

Further, what is the stance on piracy? I know of a song for one party which was "pirated" by another one. I expected this to ignite the debate on what it means to piracy in Zambia. Are our musicians getting their pay for their creation? This is a presidential campaign level that a song is copied and it dies just like that? Really? I serious wanted a stand, we even have musicians standing as MPs, they should be addressing these issues. Every campaign creates an unforgettable song, what happens to the artist after the elections? They will only be remembered when another election comes along? To some, this is a life and only source of living, we need to do something. Why shouldn't Zambian music be exported? We are a small population which can benefit from exporting and making our music "international", we need policy to ensure that. Most importantly I want a party that thinks in that line. 

Foreign Policy
What is the stand on foreign policy (SADC, COMESA, AU and the world)? What is the stand on trade with outside world as a country and not a trading bloc? What are we benefiting from the trade blocs we are in? Are we even gaining anything in SADC apart from being an open market for SADC goods? What is the gain of having the China LDCs PTA for Zambia? What are we doing or plan to do to ensure we benefit from this? What should be our priority? What is the stand on Double taxation agreements or taxation of foreign entities and in that, the expected stand on tax evasion and tax avoidance for foreign companies?

These are issues the presidential candidates are supposed to answer. I see more "South African malls" than local ones. Are we a dumping ground for their "potatoes" for instance? Are they paying the right taxes and declaring profits? We have very little in form of contribution from our own enterprises in consumer goods and media. We seem to be a market for one country than our own companies. It is sad enough we don't own the mines, but what exactly do we own as a country. Even creations made in Zambia are now owned by some Dutch companies who we must pay for use, yet we wonder why we don't make any returns on the companies in this country.

Realistic Perspective
Sadly, following the debates around, I would add "rainfall" under foreign policy as it suits politicians to ignore what is happening and use the opportunity to blame others for low water levels - after months of rejecting and refusing that we had low water in our dams. They still blame the copper and closing of mines on this. I dislike that idea with a passion - it implies they think of me as being so dull that I can't read and analyse the global economy. When issues are so obvious, they say you should have planned for the rainfall and load-shedding! Yes, so should have been all of us when we left the country for 50 years with no improvement on power, mining, roads, rail, infrastructure in general, etc. If you need to blame, pick something within the term of the person. The moment you become unreasonable, I don't think you can help the country much. This is what is leading to what someone calls "over-procurement", there has been nothing, you bring it in the shortest possible time - Kwacha falls and people still want you to bring in other things immediately while this should not affect your current account balance! We should know what will happen when we correct one thing. This will entail a certain reaction in the economy - we need to hear what you would have done differently - that is a basis for a vote. If it was a mistake - explain where/why it was a mistake and what would have been done differently. A mere statement of no planning is what caused this, without an accompanying method of what your plans would be, is bad enough as it indicates you have no idea what you would have done. I don't even know what is worse - knowing the mistake but having no way around it. It may as well mean, you would have done nothing in the first place. Further, if a mistake is made and people point it out to you, you either give us alternative plans you had of which you chose one, or what you would do to ensure this is not repeated through your plans. That way, we know the issues are being addressed with plans you provide to us as voters.

Overall, we need to take stock of what we have, what we don't have and we choose a leader on the basis on what they will bring in. Expecting of miracles should be left for the pulpit. We need people with details of plans of addressing our plight as a people. What I have heard are unrealistic goals which contradict economics which cannot fall in one action - lower taxes, better infrastructure, no borrowing, introduction of incentives. This is not only impossible - its unrealistically not attainable in any economy on this planet. Better infrastructure is only attainable through higher taxes or borrowing. A reduction of expenditure (for infrastructure development) is contraction fiscal policy which would reduce economic activity, but a reduction of taxation is expansionary - so what will be the net result of these activities? How will you bring about better infrastructure development with the combination of lower taxes and no borrowing for example? I have heard of reduction in "unnecessary expenditure", a definition would be good of what is unnecessary and the amounts saved for infrastructure - these are issues, I look for in the statements. What will be my PAYE over your term in net basis?

The problem is that none of these is provided which lead me to believe we are in the same situation of having the exactly the same methods with different people leading the methods - at their benefits. So should we vote on the basis on having different people benefiting with no clear idea of what they will do or how they will do it?

Each candidate should give us the realistic plan and how it will be achieved. This would be a better place to gauge the outcome of who we pick. A realistic perspective is critical to assessment on my part.

Agriculture
The iron law of development says as the economy develops, people involved in agriculture reduces as they enter the secondary and tertiary sectors. So what is the stance on agriculture as it will spell the position of secondary and/or tertiary sectors. 

Africa has been said to have missed the green revolution. What is your stance to ensure Zambia passed it and got the benefits? Are we utilizing the land to the fullest possible gain for output? What is the stand on GMO - in so doing, what is the stand on organic farming we have. Have we taken advantage of this? Do we know the demand for organic agricultural output? Can we gain from exporting and promoting of organic output to the world. Stopping GMO but not fully gaining from such a move is a loss on our part as we can gain from this. What are we doing?

Marijuana has been legalized in some countries and one presidential candidate has clearly indicated out advantage in growing it. So what is your stand? Will you address the issue and aim at legalizing it, or exporting it while it is still banned in the country? Will you just continue with current policy?

These are issues that stand to be addressed in agriculture. They need to be spelled out and explained to the voters so we know what to expect from you and judge you on that basis for the vote.

Industry
What is the stand on industry. Are we aiming at still being an agriculture focused country? Are we aiming at looking at the secondary or tertiary sectors? What will be priority on each of these sectors and where do you see Zambia after your term? 

What is your stand on tax incentive and role of ZDA in industrialization. What will be of the State companies through industrial cooperation? Especially that this institution is under the presidency. We need to know what you will do. Should we expect an economy pushed and directed through state companies? What role will state companies if any, would plan in knowledge acquisition and meeting social obligations?

Employment
How will you ensure employment for the youths? What policies do you have which will bring about employment?

Which areas are more related to employing youths in Zambia. How will you help the youths in employment. Is there any promotion of self-employment? Are they tax incentives for companies or individuals who bring about employment? What are the thresholds for these incentives if they are part of your plans? Is there a direct policy of employing youths by government? What of social security system if any? 

What is your policy on statistical data for such plans on employment? How will you track the unemployed and employed? What is the policy on street vending and revenue for government considering that shops that pay taxes have to compete with street vendors both for space and customers. In this line, what of cleanness of the cities with street vendors. What plans have been put in place?

Taxation
Much as it has been mentioned above, what is the overall direction of the taxation policy in the country. Local or international taxation. What will be tax incentive and what will motivate that "incentive". What gains should we expect from compliance or the penalties from non-compliance? How will non-profit organisation be treated for tax purposes? What of those organisation that are under non-profit but are merely abusing the system?

What will be my PAYE before, during and after your term. Are you realistically implying a reduction in your promise?

Social
What is your plan on social security, Health, and all issues that relate to social elements? What are your plans on citizen empower programs? How will you ensure you will avoid policy that promotes tribalism, nepotism, etc?

What is your plan for political cadres and violence that is related to it? What will you do on the existence of political party cadres? How can we track your progress on this?

Overall, how will you unit all these policies to ensure there is a linkage and no contraction of policy? How will they work together to achieve your objectives as a political direction of the country.

As you ask for my vote as an employee, you need to prove your worthy to that office and how you will deliver what you have promised. If I feel you fail to achieve some of these or I see your plans failing short of proving you can do it, why should I vote for that particular candidate? 

These are issues I expected to hear and read about. Not words which mean nothing on how one will govern. I need to be convinced, not entertained on the basis on what happens on the street today and you change your mind on it tomorrow. Or worse, giving me a list of what this one promised without your list of promises and how you will ensure they are delivered. 

My interest is economics - your plan should make economic sense and practically achievable. 

Friday, August 1, 2014

Has The Kwacha Stabilized?

I would like to apologize as I have been out and about to blog on a few things that have been happening. Sadly, the kwacha was the main issue that has been happening and a blog with that name should surely have been providing the needed updates. Nonetheless, I will try and make up for the lost time.

There are many stories that surround the dive that the Kwacha took and many of these are close to the truth. Kwacha economics has a perspective which I feel is closer and need attention to all that are concerned.

To begin with, there are many factors that can lead to a currency to fail that quick in such a short time. Many of these can be explained not necessarily immediately but after careful analysis of the happenings. 

Monetary Policy and Only with Fiscal Policy
I am a firm believer that monetary policy and fiscal policy should work together to affect certain desirable positions in the economy. The Kwacha's fall once again proved that better than any text book would do. We all remember the amounts of dollars that were off-loaded on the Zambia markets, the effect they had on the falling is as good a guess as any. Check this [here], [here] and [here] Maybe a series of analyses can look into a it but we need to examine how things changed when the fiscal policy was called to the war.

So why was the offloading of dollars so ineffective? 
The simplest form of understanding exchange rate market (that some senior made me to believe way back), is that you have a basket of dollars (or any other foreign currency) and another one with Kwacha (or any local currency), and you are comparing the values. If there is less dollar than the local currency, the value of that foreign currency will appreciate as there will be more local currency than the itself at any value. So for every dollar that exist in that basket, more and more of the local currency will be needed to equalize the status quo. 

So from the above, a depreciated currency will entail there is a lot more of that currency that the foreign currency. So the two things that can happen is to flood the economy with the foreign currency - which the Bank of Zambia did, or suck out the local currency! I believe the two are better handled using the different policies of monetary and fiscal. Monetary policy can flood the economy with foreign currency effectively and efficiently while the fiscal policy can suck out the local currency very efficiently.

Our handling of the fall in the first few weeks was a 'flooding of economy with foreign currency' strategy which did little too late. The use of both flooding and sucking out worked!! Monetary policy and fiscal policy produced wonders!

Why this should be have been expected!
It is interesting that this was not expected! But having little history of this, maybe we should not expect people to realize what was happening. So lets look at the signs on the ground.

Zambia has not been in a position where they have invested so much in infrastructure development in long time. Lets just look at roads for the time being. I don't remember a time that so much money has been put in road construction. Specifically "Link Zambia 8000" or even Lusaka's "L400". Before these projects started, the only other "major" road construction was the election linked "Formula 1".

The two projects of "Link Zambia 8000" and "L400" have had a major cash injection for materials, equipment, employees, etc. The materials and construction equipment are imported. So no matter how much Kwacha is dished out, the contractors will need the Dollar to import the materials and equipment to be able to undertake the construction. So there is a leakage of Dollars and this is not in small amounts, but huge cash outflows from the Zambian economy. Such outflows will put a strain on the local currency and will serious lead to its depreciation. Its a simple demand and supply phenomenon.

Taking into account all such flows of money, the Kwacha was bound to be severely hit. 

So the counter measures to this scenario was to ration the disbursement of road construction funds or plan the release in such a way that the Fiscal  and Monetary policy worked on that issue together. Of course we have to remember that such happenings are new to everyone around and in institutions that are handling these policies. So a future happening can be handled much better.

If All Else Falls, Get Your Money Back!
The last kick in the system is when all else fails, the fiscal gets its money spread around in commercial banks back to the Central bank and let the invisible hand be helped with a loaded dice. It always works. No one can have more money that the fiscal machinery unless there is a sick economy arrangement or there is need to spend.

Sweeping of fiscal related accounts produces good results for the entire economy when there is need to control the exchange rate depreciation, but works against expansionary fiscal happenings. Banks will have no money to create more money with, and the fiscal can be assured of a greater demand for the local currency in a short time period that other methods. The opposite stands true when an appreciation is needed to be controlled.

The current arrest of a free falling Kwacha sums up the rules of the game - Monetary policy and Fiscal policy are different sides of the same coin. It just depends on which side you picked to start the tossing of the coin!

So now has the Kwacha stabilized for good?

Thursday, March 20, 2014

Kwacha Depreciation

I have always looked at the way we handle the depreciation of the Kwacha and the panic that is associated with it in wonder. There is nothing wrong with an floating exchange rate to float! That is why it's called floating.

Let the Kwacha Depreciate
If it needs to, let it depreciate. However, just ensure that there is stability on this depreciation path. It's safe economics.

The worst thing that can follow such a move (which mostly has happened in the past in this country) is to come up with funny policy changes and falling into the trap of the people you had been trying to catch. There are a lot of theories on what can happen and why it is happening. The safest is to look at the decisions that need to be done and then work your way in ensuring that those do not negatively affect the economy.

I love it when there is so much work on the background by people affected by one measure and how they convince the world that is we do this, things would change. The interesting part is that, that same thing has absolutely nothing to do with the other. You feel like you are watching leverage season "Zambia".

Why is it Falling?
Why is the Kwacha falling? That is easier to find than MH370! We surely don't even need the satellite. There is tones and tones of statistics that can be used to gauge this. We even have SI 55 as a tool to use for extra input into our analysis. We just need people seating on it and working through. If there is nothing major but supported by the expected economics that we are bringing less and less of the dollar into the economy, we simply go out there and work our way into correcting that. That is how it works. If we see a policy not related to this and no major economic explanation, we may have used politics over economics - the worst possible way out of this.

Kwacha Economics will watch this unfold and will surely love to write on the outcome of this issue.

Friday, March 7, 2014

The Kwacha Dives!!!

This has been a sad week for this blog. The Kwacha has been given a serious beating. I have been running some analysis on how bad this has been. As usual, my analysis includes looking at data that has been provided around the environment of the Kwacha. To ensure I present only facts, I have to take my time and look at the details surrounding the issue. As usual it is not a good thing to be doing when you want quick answers. It still needs to be done properly.

All economic talk in Zambia has been on the exchange rate (Just to be on the same page - An exchange rate is the current market price for which one currency can be exchanged for another). The Kwacha has depreciated beyond all manner of psychological barriers. Currently selling at K6.0443 to a US Dollar and K10.1214 to a GB Pound (zanaco.co.zm - 7th March, 2014. Checked: 10.00hrs CAT). 

What are the causes is the biggest topic in this dive. The answers are still being looked at, but the politics associated with that "answer" are disturbing to say the least. Online media has done their "online analysis" and it has gone as far as looking at the appointments at the Central Bank. I like many friends of mine are hoping that Monday proves the online media houses wrong  and the appointed Deputy Governor is no way close to what they have been publishing. I don't think there will be anything to talk about if the seriousness that is required in the appointing of people charged with looking after the Kwacha and related to that, goes to levels of mere patronage. You can read some articles here and here. Many other online media houses have touched on this subject, but I have not linked some articles which I feel are not respecting the profession of giving information as it is and choose to take the political stand instead. Feel free look them up on google.

What really causes our currency to dive like this I still ask. I have written on this issue (in serious foras which I cannot quote), and I still believe the argument I have had still stands - we don't produce demand for our Kwacha. With a few in the lines of Maheu and Sweets exports, little value is sent to the world for them to demand our Kwacha. The mines would have been the best option, but the Swiss connection seems to take us out of the equation.

Over the past years, according to Trading Economics, the Kwacha against the dollar has been on a rather bad trend. One which should make us re-think our development agenda and encourage us to build what will make our Kwacha stable.

The trend has not been good against the dollar over the years. On average, the Kwacha is depreciating at an alarming rate.

Source: Trading Economics

That's a jump from around K4.7 to K6 in a period of less than four (4) years. The depreciation has been worse since 2012 on average.

I am alarmed to see that the dive in the past week is shockingly higher than any other time in the past three (3) years. I will monitor this and get information on the possible causes in the next few days for an update.