ECONOMIST Chibamba Kanyama has projected increased portfolio investments as well as foreign direct investment in the country as inflation continues to drop.
And Kanyama says the monthly fuel price reviews proposed by the Energy Regulation Board are not good for business.
Last week, the Zambia Statistics Agency announced that the annual inflation rate for January 2022 had dropped to 15.1 percent from 16.4 percent recorded in December last year.
Commenting on this in an interview, Kanyama said there was a strong relationship between investor confidence and inflation.
“There is a strong relationship between investor confidence and inflation and that is why the Central Bank is hugely focused on tackling inflation. Can you imagine the entire Central Bank, much of its work is to manage inflation. Why? It is to inspire investment, what we call investor confidence because investors don’t want an environment where the macroeconomic variables particularly inflation are not predictable, they keep on rising. With the inflation which has been announced and if we keep that trend, I can project an increase in investment. I predict growth in investment for both portfolio investments as well as foreign direct investment,” Kanyama said.
Kanyama attributed the drop in inflation to increased productivity among most companies and the increased monetary policy.
“You quoted me in your newspaper where I was asked a question on fuel increments, will they have an impact on inflation? I said yes, it will but not as feared largely because there have been two large major responses to inflation. First one, Covid is still here but more less been out of it and what that means is that businesses are coming back into full production so output is increasing which we call the supply side. The supply side has steadily been increasing. Some of the companies were able to access the Covid fund offered by the Central Bank which was aimed at stimulating the economy so most of them are beginning to respond positively. So whenever output is positive, you expect that price movements begin to stabilise, inflation increases but not at a rate it was at the time of low production, that is the first thing,” he said.
“The second factor is the monetary policy rate. We know that it has steadily increased now by over 100 basis points to 9 per cent. So it has on the other hand affected liquidity and that has been the intention of the Central Bank – manage liquidity because the focus of the Central Bank, by virtue of its existence, is to manage inflation because if you don’t do that, it has impact on other things such as interest rates, exchange rate. So when you see the inflation coming to 15 per cent, it doesn’t mean that the prices are not going up, it simply means that the rate which the price movements is being experienced by consumers is at a slower rate than it has been and that should be the case because when you do that, you are focused on stimulating investment that is what you want to do,” he said.
And Kanyama said the monthly fuel price reviews proposed by ERB were not good for business.
“The announcement by ERB that they will be revising prices of fuel every month, to me it should concern many investors. It should concern the private sector, if not the public. Fuel is the key ingredient in production just as much we appreciate the fact that government is being affected by crude oil prices on the international market as well as exchange but if the revision every month will be inclined towards raising the price of fuel, that will be dangerous for growth, that will have an impact on inflation, that will have an impact on the projected growth rate for this year, that will have an impact on investment, because many companies have already planned their cost structure for this year, they have already done that and you want predictability of the environment and if the environment which is such one key input in production is changing every month, especially if the change is an increase, then it should concern the government about the kind of output we should expect in 2022,” said Kanyama.