Currently, Zambia’s kwacha is the best-performing currency in the world, a resurrection from last year’s failure where it was ranked third worst performing currency. With the improving copper prices, the currency is expected to bloom even further.
Zambia’s kwacha has climbed from being the third worst performing currency in the world in 2015 to being the best this year, outshining silver and gold and 150 other currencies and precious metals, according to Bloomberg.
The report says that kwacha’s value against the US dollar has risen 19. 9 percent since the beginning of January, cutting its last year’s loss by half. Last year, the currency fell by 42 percent due to poor copper prices, one of the country’s main exports, as well as continuous power shortage.
The positive record is on the back of a strong monetary policy taken by the Bank of Zambia and other government interventions in the economy, including a review of fuel subsidies, the state-owned Zambia National Broadcasting Corporation reported.
The currency has also benefited from an increase in metal prices. Further, news of increased mining investment and proposed changes to mineral royalties have been seen to be more investor friendly.
With copper prices continuing to recover, kwacha is also expected to thrive even higher in the coming months.
About 70 percent of Africa’s total copper is produced in Zambia. It also makes up 60 percent of Zambia’s exports.
“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.”
Some analysts and the Zambian opposition are not very optimistic about the rise of kwacha. According to them, the currency could 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.
The main opposition party the United Party for National Development (UPND) said in a statement that the recent gains on the kwacha were illogical highlighting the fact that the underlying factors that made it collapse have not been addressed.
According to Trevor Simumba, an International Trade and Business Consultant, the recent appreciation of the kwacha was due to manipulation by the Bank of Zambia, because according to him all the key economic fundamentals are weak.
He says that the Bank removed kwacha from circulation leading to the drop in the exchange rate with the dollar.
“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 quoted Simumba as saying.
Fearing they could lose out on the rally, some companies are converting their dollar holdings to kwacha, something which according to Bloomberg is further strengthening the local currency.
Speaking on the future of the country’s economy, Neville Mandimika, Africa strategist at Rand Merchant Bank in Johannesburg said, “in the short term, we see the currency strengthening, but the economic fundamentals of electricity shortages and drought still pose notable threats”.
Image Credit: Mackson Wasamunu/Reuters
Are you impressed, have any concerns, or think we can improve this article? Comment below or email us.