FOREX Africa: Zambia’s Kwacha Resurrects As World Best Performing Currency In 2016
By Kevin Mwanza Published: April 18, 2016, 8:31 am
Image: zambiareports.com- See more at: http://afkinsider.com/123534/forex-africa-zambias-kwacha-resurrects-as-world-best-performing-currency-in-2016/?utm_source=AFKInsider+Newsletter&utm_campaign=3a8ea9ef30-AFKInsider_Newsletter_4_19_164_19_2016&utm_medium=email&utm_term=0_0aff70cb26-3a8ea9ef30-132949841#sthash.ThjafU3e.dpuf
Zambia’s kwacha has emerged from being the third worst performing currency in the world in 2015 to being the best so far this year, beating more than 150 other currencies tracked by Bloomberg.
The kwacha has climbed about 20 percent in just four month of 2016, cutting its last year’s loss by half, and ahead of the Russian ruble, the Brazilian real and precious metals like gold and silver.
The jump is on the back of a strong monetary policy taken by the Bank of Zambia and other government interventions in the economy, such as a review of fuel subsidies, the state-owned Zambia National Broadcasting Corporation reported.
The currency has also benefited from an increase in metal prices, news of increased mining investment and proposed changes to mineral royalties seen to be more investor friendly.
Zambia accounts for 70 percent of Africa’s total copper production and the metal, which is widely used in wiring and electrical devices, makes up 60 percent of Zambia’s exports.
Copper prices have gained 11 percent on the international market from the seven-year low they hit in mid January.
“We continue to see the kwacha relocating with the copper price,” Gareth Brickman, an Africa analyst at ETM Analytics, told Bloomberg. “There is still room for several percent’s worth of gains.”
The kwacha’s slump last year was caused by a severe power crisis, falling copper prices and a ballooning budget deficit.
Some analysts and Zambian opposition members have said the rise in the kwacha could only be a flash in the pan and all indicators are that the central African currency will resume its fall by mid this year.
“We do not see value in the kwacha [even] given this rally. There’s a lot of factors pointing towards kwacha weakness towards the middle of the year,” Irmgard Erasmus, Zambia expert at South Africa-based NKC African Economics, told Newsweek.
In a statement, the main opposition party UPND said the recent gains on the kwacha were illogical since the underlying factors that made it collapse have not changed.
Some like International Trade and Business Consultant Trevor Simumba say the recent appreciation of the Kwacha was due to manipulation by the Bank of Zambia, since according to him all the key economic fundamentals are weak.
“What they have done is to remove kwacha from circulation. when you look at the dollar as a product it is bought by somebody possessing kwacha. Too little kwacha chasing the dollar brings about the drop in the price of the dollar or exchange rate,” Lusaka Times quotes Simumba saying.
Bloomberg reported that some companies were converting their dollar holdings to kwacha on fear that they could lose out on the rally, something that was helping the local currency strengthen further.
Sign up for the AFKInsider newsletter — the most compelling business news you need to know from Africa and the African diaspora, delivered straight to your inbox.