FINANCE Minister Dr Bwalya Ng’andu says ZCCM-IH’s acquisition of Mopani Copper Mines will help cushion the kwacha’s depreciation because the inflow of foreign exchange into Zambia is expected to improve.
The Minister was speaking in Parliament, Tuesday, in response to a question by Moomba UPND member of parliament Fred Chaatila, who asked Dr Ng’andu what the cause of the kwacha’s sharp depreciation against major convertible currencies was; and what measures were being taken to avert the local currency’s further depreciation.
In response to a follow-up question by Chama South PF member of parliament Davison Mungandu, who wanted to find out the extent to which the acquisition Mopani and Konkola Copper Mines (KCM) would cushion the kwacha’s depreciation, Dr Ng’andu argued that with ZCCM-IH owning the mining companies, more value was expected to be seen coming to the country.
“Thank you, Mr Speaker. At this point in time, it might be speculative to say exactly the impact that the acquisition (could have) on the exchange rate. But the thinking is that with Zambia owning, ZCCM-IH owning the mines, we should see more value coming to this country because as it is right now, most of the foreign exchange that is generated doesn’t come to Zambia, it stays outside the country, at the banks of the mining companies. And they only bring to this country what they need to bring in to meet the requirements like paying for power, paying salaries and also meeting their tax obligations. So, with us owning and controlling the mines, there are very good prospects that if we run these mines profitably, we should be able to see the benefits of foreign exchange coming into this country and, therefore, help in cushioning the value of the kwacha,” Dr Ng’andu said.
And in response to Chembe PF member of parliament Sebastian Kopulande, who wanted to find out why mining companies were still banking outside the country 56 years after independence, Dr Ng’andu explained that forcing mining companies to bank locally would not change their contribution to foreign exchange because their expenditure remained limited to electricity, salaries and tax obligations, among others.
“Mr Speaker, the issue is not where the money is banked, the issue is what happens with the money that the mining companies earn. If we assumed for the purpose of argument that we made a law tomorrow that, ‘mining companies must bank all their money in our banks here that when they have sales, they must bring their money here…’ They will probably oblige us and bring the money and put it in their bank here. But the fact that the money is sitting in a bank here doesn’t mean it has an impact on economic activity until that mining company begins to spend. Now, what do mining companies spend on? They spend on electricity; they spend on salaries; they spend on taxes and so on and when they have paid those salaries and taxes, they will probably take the money and take it back. The fundamental problem is that the mining activity in this country is what we refer to as enclaved; they live in a community of their own where they have very little impact with the rest of the economy, that’s the structure of mining companies and that is what is fundamentally wrong,” he explained.
“If the mining companies were buying a lot of things from the community, you will see the linkages with the rest of the community, but they don’t. The other part of the challenge is that we have very little to sell mining companies, we don’t produce equipment and machines on which they spend a lot of their money. These are the structural problems that we are faced with. But one hopes that as this economy becomes more productive, it will be able to do more in terms of offering to mining companies opportunities to spend more money here.”
Meanwhile, Dr Ng’andu said that the country’s sovereign debt alone was not the cause of the kwacha’s rapid loss in value because it remained only one aspect of several over the years.
He was responding to Liuwa UPND member of parliament Dr Situmbeko Musokotwane, who wanted the Minister to “come clean” and state whether huge debt repayments were the primary factor of the kwacha’s depreciation.
“Mr Speaker, I did labour to explain that the movement in exchange rate is caused by the effect of a combination of factors on the supply side and factors on the exchange rate. And I did also mention that debt servicing is one of the factors that has contributed to creating the pressure that the kwacha faces in the market, but to attribute the entire movement in the exchange rate to the servicing of debt is completely wrong! It is inappropriate because if we just take one factor, which is the price of copper, if you go back to 2011, 2012, the price of copper at the time was around US $8,000 per tonne. I think at some point it went as high as US $11,000 per tonne. What that translates to is increased inflow of foreign currency into this country, when the inflow increases through taxation to the mining companies based on their turnover, when it comes into the country, it helps to boost the exchange rate,” replied Dr Ng’andu.
“So, I think the long and short answer to the question is that the attribution to just the servicing of debt alone is wrong! It misses out all the other factors, which I belaboured in my presentation as the main causes of depreciation of foreign exchange. But more fundamentally and I think the question I will accept is that, the way our economy is structured where we import so much and export so little, in the long-term can only drive the exchange rate into a weaker position, which is why we are taking all the effort that we are doing now to ensure that we become more productive so that we import less of the things we can produce and also begin to be more proactive in the foreign exchange market by exporting more if we produce in this country.”