Economist Professor Oliver Saasa says the mismanagement of the country’s mining sector has contributed to the kwacha’s depreciation.
And Professor Saasa has said Zambia is playing games with the mining industry.
In an interview, Professor Saasa, who is also Premier Consult managing consultant, has wondered why “the goose that is producing the golden egg is left in shivers”.
He wondered why the mining sector in the country is being mismanaged despite it being the country’s major foreign exchange earner.
“Even the case of KCM, definitely KCM had committed transgressions and may not need to be supported to continue but the how aspect, we are actually doing it so clumsily to a level where you actually even make the transgressor to appear to the world that he is being tormented. We just have to manage things differently. I do not believe that we have done that and yet 80 per cent of foreign exchange in Zambia comes from the mines…let’s do the right things, there is still some work to be done within the mining tax regime. We need to start dialoguing with them. While we are allowing the kwacha to worsen because there is no foreign exchange, the guy who is producing the goods, the goose that is producing the golden egg, is actually in shivers. We have to do something about that. But beyond that, we cannot just depend on copper for foreign exchange, we need to diversify,” Prof Saasa advised.
“There is a host of factors that explain the appreciation or depreciation of the currency. Firstly, of course, you know that if you have something in scarcity, automatically there will be higher demand because there will be more demand than supply. We just have to beef up our foreign reserves, we have to beef up our capacity to export in order to get the greenback…that is the bottom line. Right now, the mining sector is not doing very well, we are playing games with the mines if I have to be very frank with you. We have been taking a course with the mining sector that is not in the interest of the Zambian people if you ask me.”
He said the mining sector currently requires leadership that will stabilise it.
“Right now, there is an impasse that I have not seen the sort of leadership that we need in the mining sector…to bring some level of comfort for all those who are partners in production in the mining sector. We are demonizing the mining sector in a manner that sometimes I wonder: why are we doing this?” Prof Saasa wondered.
He partly attributed the depreciation of the kwacha to reduced portfolio investments and capital flight.
“One of the reasons why the kwacha is not doing well is that for me, investment, especially portfolio investments, are no longer coming in to the level that we needed them and there is capital flight. So those that are supposed to buy, whether you are talking about the treasury bills, the appetite to get our instruments is not there and therefore, you are seeing foreign direct investments dwindling, especially the portfolio and that means that we have limited foreign exchange, the greenback in our coffers and because of that, the demand for foreign exchange is very high and the third parties have to also understand. Right now, the foreign exchange reserves are very low. I don’t know whether they have increased but a month ago, we were talking about only six weeks of import cover,” Prof Saasa said.
“What it means is that if the kwacha declines, the ability of the Central Bank to intervene by injecting a little bit more foreign exchange on the market in order to stabilize the kwacha is restrained because the money is not there. So the last thing that you will expect my friend Denny Kalyalya to do is for them to resuscitate where it is because the problem is in the fiscus, it’s not monetary. So if you look at these three factors, you cannot, unless you believe in magic, you cannot expect the kwacha to remain stable. How far it can go will be dependent on the sort of things we do but I would not be surprised myself if it worsens beyond K14, not that I would want it to happen that way but things must be done to bring the level of comfort to the market.”
He further called on the government to re-examine the manner in which the country conducts tourism for it to get the much needed foreign reserves and a stable currency.
“When you look across the borders where I was just recently and you look at how much they have invested, a very small town of Kasane, and if you look at how they are managing tourism and the influx of foreign tourists who are just flocking in their to look at the same lions, the same elephants, the same buffalo, you just can’t believe it and how much we are paying. And for me, it sort of like fails me. Yes, of course, tourism is a very important thing. The question is: have we invested enough? If we have to re-examine the institutional framework, the structure, the manner in which we actually conduct tourism, how the ministry functions, how we have embedded or brought in the operators, is it easy to get a tourist license in Zambia? You go through a bureaucratic nightmare just to have a license to go and look at animals,” Prof Saasa added.
Meanwhile, Professor Saasa noted that political stability is very important for determining a country’s attractiveness to outsiders.
“Mind you, some of the things that make investors nervous has nothing to do with whether the economic fundamentals are right or wrong, it’s perception. And perception is sometimes fuelled by the politicians. If you are continuously fighting each other, continuously calling yourselves names, you are scaring the people that want to be your friends. So politics as well is important, political stability is very important for determining whether the country is perceived to be attractive to outsiders, including investors. So for me, it’s a combination of factors, but definitely there is room to improve on some of these things,” said Prof Saasa.