Kwacha appreciation: The implications for Zambia

By Pelekelo Liswaniso

Is the appreciation of the Kwacha a “fluke”, a political motivation or as a result of changed economic fundamentals? This is the million-dollar question posed to Dr Denny Kalyalya, deputy governor – operations at the Bank of Zambia (BOZ) during a lecture at the American center in Lusaka recently.

Dr Kalyalya explained that one factor largely unobserved is that over the years, there has been continuous and fundamental changes in the economy generally and particularly to the operating environment in the foreign exchange market.

The continuous change with respect to authorities’ commitment to a comprehensive economic reform program culminated in reaching the enhanced Highly Indebted Poor Countries (HIPC) Initiative in April 2005 whose effect has had a major spill over effect.

Dr Kalyalya who was speaking at the Zambia Fulbright-Humphrey Alumni Association (ZFHAA) lecture reviewed the background to the development of the Zambian foreign exchange market, economic developments and explained the recent appreciation of the Kwacha and the implications for Zambia.

ZFHAA is an association of Zambian scholars trained in the United States of America that aims at developing a network of graduates of the Zambian American Center for Education and Cultural Exchange (ZACECE)- Fulbright program.

The association is committed to public service through first –rate multidisciplinary competence of its members and their presence in Academia, and many public and private institutions. Dr Kalyalya, who is an economist at BOZ, is an alumnus of the Association.

Not long ago in 2004 Zambia’s external debt was a staggering US $ 7.1 billion but has now been reduced to less than US$500 million.

Dr Kalyalya pointed out that it was important to understand that improved macroeconomic management is an essential criterion in reaching HIPC noting that macroeconomic management in Zambia has remained on course since June 2004.

Furthermore, in 2005, there was the implementation of the fiscal and monetary policy and money supply growth was kept under check at 0.4 per cent while domestic budget deficit was at low levels in many years at 1.9 per cent of Gross Domestic Product (GDP).

Reaching the Completion Point under HIPC Initiative unlocked disbursements of budget and balance of payments support from Zambia’s cooperating partners.

He said US$ 155 million was received in 2005 of which 58 per cent was in the fourth quarter of the year.

The country’s profile and attractiveness to foreign investors also improved resulting in US$120 million recorded foreign portfolio investments in government securities at the end of December 2005. A total of US$264 million investment pledges were also recorded last year.

Dr Kalyalya noted that other recent economic development included debt service, which reduced dramatically. For instance, IMF debt service due was US$251.1 million but the IMF provided US$238.9 million relief under the enhanced HIPC Initiative and resulted in net payment of US$12.2 million.

“Total debt service in 2005 to various bilateral and multilateral non-IMF creditors amounted to US$133 million,” Dr Kalyalya explained.

Other recent economic developments included the record high copper prices and continued improvement in non-traditional exports (NTE’s) performance, which largely contributed to the overall improvement in merchandise exports in 2005.

Giving a breakdown of exports, he said, in 2005 there were: US$2,186 million; in 2004: US$1,779 million and in 1983: US$1,052 million. Dr Kalyalya said there were also a number of green and brown mines coming on stream.

In addition, following the resolutions of the Gleneagles G8 summit, Zambia qualified to the Multilateral Debt Relief Initiative (MDRI) resulting in 100 per cent cancellation of the multilateral debt owed to the IMF, World Bank and the ADB. The IMF delivered a total of US$581 debt relief in January 2006.

“It is clear from the above that the supply of foreign exchange on the market has been largely higher than the demand for it, particularly during the second half of 2005,”he said.

Also confirming this is the growth in foreign currency deposits at commercial banks saying in June 2005: US$436 million was deposited while in December 2005: US$551 million was deposited.

Dr Kalyalya pointed out that underpinning the operations of the foreign exchange market is a system of dealership, which was introduced in 2003 with the aim of broadening and deepening the market.

The system has so far performed well in promoting transparency in pricing and information flow so that the exchange rate at all times reflects the underlying market conditions.

“The system is anchored on a code of conduct that conforms to international standards. We have two-way quotes without advance knowledge of whether the customer would be buying or selling foreign exchange,” he said

Pointing out the implications for Zambia, Dr Kalyalya said the attainment of HIPC Initiative Completion point indicates that prudent and forward-looking macroeconomic management is possible in Zambia.

“Inflows of foreign currency to take advantage of interest rate differentials between Zambia and other jurisdictions is indicative of the confidence outsiders have in us as an economy,” he said, adding that the system of dealership in the foreign exchange market also allows the foreign exchange rate to reflect the underlying market conditions.

The decline in Zambia’s debilitating external debt stock from US$7.2 billion in December 2005 to less than US$500 million after delivery of HIPC Initiative and MDRI relief has triggered an improved sovereign rating and motivated higher private sector investment.

Dr Kalyalya said Zambia has now joined the league of progressive nations and unfortunately subject to the unenviable but inevitable scrutiny of every policy announcement and socio-economic developments.

The exchange rate of the Kwacha against the US dollar is increasingly becoming sensitive to developments in global commodity markets particularly copper.

He said the exchange rate of the Kwacha against the US dollar will increasingly reflect developments in the global commodity markets and influenced less by developments in domestic markets.

Another implication is that market participants’ now have a better appreciation of the issue of competitiveness particularly the role played by exchange rate fluctuations and the need to implement market based solutions devised by market participants themselves and not direct government intervention.

Dr Kalyalya stressed that there is an urgent need to develop new products and services that would offer some measure of protection to individual market players.

The Central Bank, he said, stands ready to collaborate with other market participants, as was done in the period leading to the introduction of the current system and to develop the system further to better manage currency volatility.

“On the question of competitiveness of our exports, emphasis needs to be placed on increasing productivity and adopting superior management techniques and systems for production and supply chain management”

There is need to use the available resources or emerging opportunities made possible by the appreciation judiciously, (since appreciation has come with increased supply and availability of foreign currency, low inflation and declining lending interest), to expand further our production frontiers, Dr Kalyaya said adding:

“The irony therefore, is that given the right mindset, a strong currency environment can stimulate exports with greater sustainability.”

Mainstreaming HIV/AIDS and Gender in water plans

By Pelekelo Liswaniso

STAKEHOLDERS in water resource management in southern Africa have been urged to come up with strategies to integrate and mainstream HIV/AIDS and Gender into the Integrated Water Resources Management (IWRM) plans.

The call was made at the just ended two-day Annual Consulting Partners meeting of the Global Water Partnership-Southern Africa (GWP-SA) held at the Gaborone Sun hotel.
Botswana’s Minister of Minerals and Water Resources Charles Tibone officially opened the meeting and stressed that the SADC region could meet the Millennium Development Goals and fight poverty and disease by applying the principles of IWRM.

IWRM planning is a process which promotes the co-ordinated development and management of water, land and related resources, in order to maximise the resultant economic and social welfare in an equitable manner without compromising the sustainability of vital ecosystems.

It is simultaneously a philosophy and an implementation strategy to achieve equitable access to, and sustainable use of water resources by all stakeholders.
In the past water resource management has been fragmented in its approach. However, experts say integration has to occur in all the sectors including HIV/AIDS and Gender as they all cut across all economic sectors.

HIV/AIDS has also become the biggest individual killer in sub-Saharan Africa and it is important that the partnership of the water sector in the region comes up with strategies at all levels to fight the pandemic.

“The partnership should discuss ways of how this can be done, develop and adopt tools that can be used to strengthen the partnership,” GWP-SA Executive secretary, Ruth Beukman said this when reviewing progress the partnership has made over the years.

The human toll and suffering due to HIV & AIDS is already enormous. AIDS is now the leading cause of death in sub-Saharan Africa. Since the beginning of the epidemic more than 20 million Africans have died from AIDS. During 2005 an estimated 2 million adults and children died as a result of AIDS in sub-Saharan Africa.

Many countries in Africa have failed to bring the epidemic under control. Nearly two-thirds of the world's HIV-positive people live in sub-Saharan Africa, although this region contains little more than 10 per cent of the world's population.

There is a significant risk that some countries will be locked in a vicious cycle, as the number of people falling ill and subsequently dying from AIDS has a tremendous impact on many parts of African society, including demographic, household, health and the water sector, educational, workplace and economic aspects.

GWP-SA chairman, Kenneth Msibi pointed out that water, like air, is a vital resource without substitute. Its supply, allocation, and disposal present numerous challenges, all of which must be met to support the growing populations in southern Africa, which is also slowly being ravaged by HIV/AIDS. The provision of clean water and sanitation in the region therefore poses a significant challenge.

“As consulting partners of this poverty stricken region, we have to re-examine our strategies if they are meeting the MDGs among other things to improve lives of the poor. Our regional leaders have declared HIV and AIDS a regional disaster, hence there is need to constantly remind ourselves of this single greatest enemy of mankind which is rapidly eroding the little and scarce human resources capacity,” he said.

“There is need to mainstream HIV and AIDS in our programmes. HIV and AIDS is everybody’s problem. It is our problem. If you are not infected you are in one way or the other affected by it. However, there exist an opportunity to turn the situation around as it has happened in some countries in our continent who were badly affected,” Mr Msibi said.

During a session chaired by Noma Neseni from the Institute of Water and Sanitation Development in Zimbabwe, it was clear that HIV/AIDS dramatically affects labour in all sector including the water sector, setting back economic activity and social progress. The vast majority of people living with HIV/AIDS in Africa are between the ages of 15 and 49 - in the prime of their working lives.
AIDS weakens economic activity by squeezing productivity, adding costs, diverting productive resources, and depleting skills. Also, as the impact of HIV/AIDS on households grows more severe, market demand for products and services can fall. The epidemic hits productivity through increased absenteeism. Comparative studies of East African businesses have shown that absenteeism can account for as much as 25-54 per cent of company costs.

A study in several southern African countries has estimated that the combined impact of AIDS-related absenteeism, productivity declines, health-care expenditures, and recruitment and training expenses could cut profits by at least 6-8 per cent.

NamWater, Namibia's largest water purification company, reported that HIV/AIDS was hindering its operation as absenteeism rose and productivity dropped. A study of a sugar mill in South Africa put the cost per worker per year at R9,500 (about £800). Of this, the cost of replacement of workers, lost productivity, and absenteeism account for about a quarter each.

Company costs for health-care, funeral benefits and pension fund commitments are likely to rise unexpectedly as early retirement and deaths rise. A study of a commercial agricultural estate in Kenya showed that AIDS-related medical expenditure exceeded projected expenses by 400 per cent. Funeral costs are also provided by a number of employers in Africa and they are rising sharply.

However, GWP-SA has been able to bring IWRM into the national development agendas in the planning processes in Zambia and Malawi. Both countries have succeeded in convincing senior policy makers from across the different national ministries that national development goals including poverty eradication can only be met through addressing integrated water management and development approaches.

Significant achievements have been the active engagement of the ministries of Finance in both countries in the IWRM processes, creative involvement of parliamentarians and the media. Mainstreaming HIV/AIDS and gender in the water plans, however, remain a challenge.
Mainstreaming HIV/AIDS and Gender in IWRM comes in the wake of calls last September by Heads of States at the Millennium +5 Summit who stated that IWRM plans should be integrated into national development processes.

Furthermore, IWRM was seen to be an effective strategy in the achievement of the Millennium Development Goals and in the economic growth of southern Africa.

The World Summit on Sustainable Development (WSSD) in Johannesburg in 2002 also called for all countries to craft IWRM and water use efficiency strategies by the end of 2005. Such strategies are meant to support countries in their efforts to meet development goals, such as reducing poverty, increasing food security, fostering economic growth, and protecting ecosystems.
The strategies were also meant to tackle specific water challenges such as controlling flooding, mitigating the effects of drought, expanding access to water and sanitation and addressing increasing competition for water and water scarcity.

Following the Summit, the Global Water Partnership (GWP) has meanwhile received funds from the Canadian and Dutch governments to support the development of IWRM plans in 11 African countries; Senegal, Mali, Kenya, Malawi, Zambia (supported by CIDA) and Cape Verde, Eritrea, Benin, Cameroon, Swaziland and Mozambique (supported by Dutch) This support is under the umbrella of the Partnership for Africa’s Water Development project.

The overall purpose of the Partnership for Africa’s Water Development is to contribute towards the achievement of water related MDGs and WSSD targets supporting sustainable water resources management in Africa by facilitating action oriented planning and implementation in these African countries.
GWP-SA is facilitating these processes in Malawi, Mozambique, Swaziland and Zambia through respective Country Water Partnerships.

Capacity building is an integral part of the PAWD programme and forms one of the outputs at regional and country levels for IWRM planning and implementation.
In order to ensure coordinated capacity building at regional and country levels, GWP-SA has developed a regional capacity building programme to support both the planning and implementation of IWRM plans.

The programme will be implemented in partnership with GWP-SA regional partners and institutions nominated by countries. GWP-SA and WaterNet Secretariats will jointly coordinate the capacity building programme and develop strategic frameworks for capacity building on identified training needs.

HIV/AIDS and Gender mainstreaming in the IWRM planning process was identified as a one of the issues that should be considered for the regional capacity building programme.
At a regional capacity building-planning workshop held in March 2005, the Institute of Water and Sanitation Development (IWSD) was identified as one of the institutions to lead the regional Training of Trainers (ToT) on HIV/AIDS and Gender mainstreaming in IWRM planning.
The nominated institution will partner with IWSD in adapting training materials and also in delivery of the ToT.

The institute has also partnered with Southern Africa HIV/AIDS Information Dissemination Service, a regional organisation whose mandate involves responding to HIV and AIDS through the employment of communication and information strategies, including mainstreaming and capacity building of development sectors