Exchange rates’ looming effects in Zambia
Published On March 22, 2023 » 811 Views» By Times Reporter » Business, Columns
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THE business model has changed dramatically in the last three decades because the world has become interconnected and has propelled globalisation and the wider markets for products and services.
Zambia is one of the countries whose exchange rate has not been consistent compared to countries with strong economies and as such the import market has consistently been affected adversely.
This impact decreases international trade considering that the number of commodities coming into the country for trade becomes limited because few enterprises can afford to conduct business in such an environment.
Currency appreciation or depreciation can have impact in many aspects of the country. It can affect travel and tourism, competition and the economy at large.
The current scenario in Zambia has affected a lot of small international businesses that depend on imports due to the devaluation of the local currency.
It is difficult for people that deal in foreign exchange to plan when the exchange rate is unstable.
Many small businesses have opted to put their businesses on hold because of the looming prices of goods and services.
Todays’ article gives insight on the effects of the volatile currency exchange rates on Zambian businesses, investments and individuals that rely on foreign exchange respectively.
Exchange rates have a huge impact on the performance of the investments, interest rates, inflation as well as the job market.
When the domestic currency is weakened, it triggers inflation, when the price of imported goods goes up therefore the purchasing power for consumers is affected causing a negative impact on businesses.
The cost of production goes up when you rely on imported raw materials, fuel goes up and the cost of imported food is also negatively affected.
This effect may decrease the volume of imports when entrepreneurs take a step back.
Generally, the shock of exchange rates for domestic currency pushes up the cost of imported goods.
When this happens, entrepreneurs can take advantage of domestic products which often have a high demand and increased profits as well as increased local jobs.
This increases competition considering that more enterprises resort to domestic products.
Alternatively, entrepreneurs can source for goods from foreign countries with favourable prices for business continuity.
For example when you have a loan, the interest rate you pay for it may go up. A weak domestic currency stimulates economic growth by boosting exports while making imports very expensive.
In Zambia most of the commodities are imported as a result international trade becomes very difficult when there is a fluctuation in foreign currencies.
Planning becomes difficult because of inconsistent exchange rates which automatically drive changes in the prices of imported goods.
However, exchange rates are relative and are expressed as a comparison of the currencies of two countries.
Currency appreciation or appreciation can impact tourism and where people travel to.
On the contrary, if a currency is weak, it attracts tourists and other travelers.
Currency depreciation is expected to worsen the balance of trade in the short run because of the disequilibrium and expected to improve in the long run.
Entrepreneurs are advised to study the impact the exchange rate has on the business in order to trade carefully.
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