ZCCM-IH’s takeover of Mopani Copper Mines will not have any meaningful benefit on strengthening the kwacha because the anticipated injection of foreign currency will still be targeted towards settling statutory liabilities, says the Bankers’ Association of Zambia (BAZ)
Last week, Finance Minister Dr Bwalya Ng’andu had argued in Parliament that ZCCM-IH’s acquisition of Mopani would help cushion kwacha’s free-fall against major currency convertibles because the inflow of foreign exchange into Zambia was expected to improve.
But in an interview, BAZ executive director Leonard Mwanza said that the anticipated foreign exchange inflows into the country’s economy was not possible because Mopani would have to create kwacha liabilities to their suppliers and employees to have any real impact on the local currency.
He explained that Mopani’s dollar earnings would still be targeted towards settling statutory liabilities, rather than a direct injection of dollars on the interbank due to the structure of the mine’s contractual obligations, a situation that would leave the local unit largely unaffected by a change of ownership.
“Firstly, the kwacha responds to the demand and supply dynamics in the market. Therefore, projecting the movement of the kwacha only serves to reinforce negative sentiments and drives speculative behaviour. However, for a while now, demand has been persistently high against available supply, which has led to long demand pipelines and this is unsettling supply chains, especially for import businesses. The kwacha will, therefore, continue to be subjected to demand and supply dynamics. While to some extent the acquisition of Mopani can inevitably increase the dollar inflows into the Zambian economy and the banking system if Mopani chooses to use Zambian banks for all their copper sales proceeds, this may, however, be subject to existing obligations under the sale agreement with Glencore. In addition, the kwacha can only benefit if Mopani or other mines and exporters in the long-run creates kwacha liabilities to their suppliers and employees, aside statutory obligations, which are sufficient to offload a sizeable chunk of their dollar receivables or holdings to match or reduce a significant portion of the existing pipelines,” Mwanza explained.
“There are two things. For Mopani, most of its proceeds were going to Switzerland, to the parent company, Glencore. Now, in Switzerland, if you look at the sales agreement, it shows that Glencore had borrowed US $1.5 billion from their local market so they were able to pay back that loan using the receivables coming from the Zambian market. Now, the issue is a good portion of Zambia will be receiving debt and will have to be channelled back to pay off that debt. But for simpler explanations, here is a scenario: if I, as Mwanza, I export, for whatever I have exported, the money goes into Leonard Mwanza either in the dollar or kwacha account. So, if it comes to my account, it’s my money, so we would not say that the money will be able to go to the intermarket bank. So, whenever Mopani is paying taxes, they compute in kwacha and pay in dollars. So, the dollars are paid directly to government. Previously, those dollars would come to the market.”
He added that Mopani’s incoming new management needed to restructure how local suppliers were contracted if the local currency was to truly benefit from a change of ownership following the sale.
“So, from the time government said they should be paid in dollars directly, 40 per cent of that money has gone out. So, that traditional source of foreign currency is not there and, therefore, it cannot be guaranteed that the purchase of this mine will directly impact the kwacha. The banks are now struggling to find a new source of supply so when you say, ‘Mopani will come on board,’ the statutory obligations are still paid in dollars to government, so unless Mopani contracts Zambian suppliers, who are supplying Mopani in kwacha so that when they are paying them, they would need the kwacha, which will force them to sell the dollar. Unless this happens, you cannot say that, ‘the purchase of Mopani will directly impact kwacha’,” said Mwanza, a former Natsave managing director.
“And finally, the closure of branches is a choice matter informed by individual bank strategies on their preferred channels. We are in the digital age and technology has changed the way we work, learn and transact. The future of banking is not in brick and mortar, it is anchored on digital payment solutions, which allow online onboarding of new clients and affording agents to improve their livelihoods and to create employment in communities they live. For every branch closed, an opportunity is created for a fintech or mobile payment agent.”