CUTS notes that the Kwacha has continued to depreciate against the United States dollar (US$) since last September from post-election period, which was K4,800 to now K5,300. This is contained in a statement issued by CUTS Lusaka office last week.
CUTS attributes the depreciation of the Kwacha to the scarcity of the foreign exchange currencies such as US$ on the market and the nervousness that characterised the investment market before and after the September 20, 2011 tripartite elections.
“Government can enhance the country’s trading capacity (utilising the market access opportunities of export goods) and ensure that trade strengthens the Kwacha,” reads the statement.
CUTS says the manufacturing companies should import their inputs from other countries in foreign currency adding that, “This being the case, the cost of these inputs is likely to go up hence leading to the increase in the cost of production.”
It adds that, “To illustrate more, both state and non-state actors are busy promoting and building capacity among smallholder farmers to improve on their productivity and ultimately increase their outputs,”.
CUTS also says the tobacco farmers, who are faced with prices fixed in US$ by various companies, might face a reduction in the profit margins due to the loss in the value of the Kwacha. “This outcome might also reduce demand by reducing real income, reducing wealth, and raising real interest rates; it can reduce aggregate supply by raising the cost of imported inputs, capital goods, or working capital, or by interrupting the supply of credit.
“The major goal of producers is to maximise profit, hence they transfer the cost burden of depreciation to the consumer by increasing prices of goods and services. This increase in prices of goods and services leads to reduction in consumer welfare,” explains CUTS.
It says that such a development steers a reduction in savings among the consumers, which in turn leads to a reduction in people’s investment and prospects of future investment hence affecting the levels of development of the country.
CUTS says the increase in prices of commodities ignites employees to pressurise their employers to increase their wages and by doing so, there is reduced workforce to strike a balance with the profit level.