April 25, 2002

Economic struggles - Cholera outbreaks

An attempt by the Zambian government to restore economic stability and stimulate growth appears to have backfired, throwing investors into a flurry of concern and stimulating the underground currency market, analysts said on Thursday, April 25. They said recent significant gains in the exchange rate of the kwacha, a unit well known for its propensity to slide, were a response to official controls rather than a return to macroeconomic stability. The kwacha gained 6,6 percent against the American dollar two weeks ago and continued to strengthen in the days that followed.

Analysts said that was unusual in an environment in which the unit was under pressure from an exceptionally high grain import bill and from growing investor unease over the country's economic prospects. Market watchers attributed the kwacha's sudden strength to a new central bank directive compelling commercial banks to post their buying and selling rates at no more than two and four percentage points respectively above its own dealing rates. They added that the bank's intervention had already begun to revive the black currency market, which all but collapsed when the reformist government of former president Frederick Chiluba lifted exchange controls in the mid-1990s. Citibank Zambia reported that the formal foreign exchange market "remained comatose" as dealing rooms became "increasingly reluctant" sell their convertible currencies following the central bank directive. "This has been exacerbated by the emergence of a parallel market for corporations and individuals that is trading at 4,300 kwacha against the greenback," Citibank said in a daily market bulletin. "Generally traders in most dealing rooms are twiddling their fingers and hoping for the Central Bank to intervene ... But so far, the Bank of Zambia dealing window has remained closed for almost two weeks now and the formal market is becoming increasingly short," it added. The kwacha was selling at slightly below 4,000 per dollar on the formal market.

Economic observers say the government's intervention in the currency market is symptomatic of - and as futile as - its overall response to the harsh economic realities the country is caught up in. They warn that many of the economic policy reversals the new government has effected, including a partial return to protectionism, may prove counter-productive or unsustainable. The government announced early in April that it would ban a range of Zimbabwean goods, including cigarettes, alcohol and agricultural products, that it said were being dumped by Zambia's more powerful neighbour. An unprecedented economic crisis across the border brought on by investor and donor capital flight have seen the Zimbabwean currency trading on the black market for as little as seven times its official rate. This has enabled Zambian traders to buy dollars and purchase Zimbabwean goods for less than they cost to produce in Zambia. The Zambian government says it is determined to curb the dumping. "Before the end of this month we will put in place a statutory instrument to ban some imports from Zimbabwe because they are harming our local producers," Agriculture Minister Mundia Sikatana told reporters.

While the Zambia National Farmers Union and the Zambia Association of Manufacturers have applauded the government's plan to curb dumping, some other observers fear it would be retrogressive. "We totally condemn the ban of imports from Zimbabwe. The ban will just deprive the consumer of affordable products and access to a variety of products," Zambia Consumer Association executive director Muyunda Illilonga said. The average consumer certainly has cause to worry. According to studies by the Jesuit Centre for Theological Reflection (JCTR), a church-backed NGO, most Zambians already cannot afford essential commodities. A JCTR report released this month reveals that, whereas a family of six in Lusaka requires about 823,000 kwacha (about US$205) for basic items per month, most workers earn less than that. Many, including some police officers and security guards, earn as little as 120.000 kwacha.

Mwanawasa's government has, in its first four months in office, taken some concrete steps to alleviate the plight of the poor - estimated at around 80 percent of the country's 10,3 million people. Among other things, it has scrapped cost-sharing fees in primary schools and set aside resources for free inputs for the poorer peasant farmers. Whether or not it will be able to raise the required resources remains to be seen. Recent unpredicted events, including a shock decision by leading mining house Anglo American to cut back on its investment in the country, are expected to shrink the economy further as job losses mount and export earnings drop. At the same time, a severe grain shortage will compel the government to divert much of its scarce resources to importing food. Zambia is facing a maize shortage after a crop failure in the 2000-2001 season when output fell by an estimated 30 percent, falling well short of the 700,000 mt needed annually. The Zambia National Farmers Union anticipates more grain shortages this year following erratic rains in the 2001/2002 growing season. Maize is the staple food for millions of Zambians.

Earlier this week it was reported that a cholera outbreak in northern Zambia has killed 13 people and infected at least another 120. „Thirteen people have so far died since the disease broke out," the spokesman for the central board of health, Ben Chirwa, said. "We have had 120 cases reported since the disease broke out recently." The infections were reported in the northern Zambian districts of Mbala, Mpulungu and Mambwe, situated near the border with the Democratic Republic of Congo (DRC). Chirwa said the ministry of health had set up centres to treat people who had contracted cholera to avoid the disease spreading. Lack of clean drinking water in the affected areas has been identified as the major factor behind the outbreak. (IRIN / THE NAMIBIAN)

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