In this week’s topic, we look at the record low  exchange rate of the Zambian Kwacha to the American dollar, as one of the major convertible currencies which we use to transact with the outside world and its effect on the Small and Medium-scale Enterprises (SMEs), especially with those whose entities are import-oriented.
We have been told by our economic experts that the reason why the Kwacha is not performing well against the major convertible currencies like the dollar,  is due to a  combination of the internal and external factors.
Internally, the demand for  foreign exchange on the market outstrips the in flow of the convertible currencies like the American dollar, for example.
And these attributes come from the fact that the demand for copper at the London Metal Exchange (LME) has dwindled resulting in the declining  inflow of the dollar in the country.
The reported sluggish growth  in the Chinese economy which is seen as the major buyer of the Zambian copper,  has been observed as the external  influence that is   lowering  the power of the kwacha against the dollar.
The United States Federal Board’s decision to reduce the Dollar’s circulation has a telling effect on the Zambian economy whose external  trade depends on such a major convertible currency like the dollar.
Since the beginning of 2014, the Zambian kwacha has not faired well against the dollar and this has sent shivers in the Zambian economy, posing serious questions of the way forward from the number of various economic stakeholders.
However, my main concern as usual is the effect this trend is registering on SMEs.
As  most of the readers of this column are aware, 50 per cent of the SMEs in this country are involved in trading and the description of  the business in this context is the buying and selling of  finished goods.
In this category of business are the importers of finished goods  which involves the changing of the kwacha into  major convertible currencies and prominent among these is the American dollar.
The SMEs whose nature of business borders on the importation of manufactured goods from abroad,  are already posting exchange losses in their businesses due to low exchange rate which has crossed the  Six  kwacha per dollar mark already.
The Kwacha which remains sitting in the accounts of the SMEs across the banks that is kept locked in safes are slowly losing value due to the depreciation of the kwacha at the fast rate.
The amount of goods imported by the SMEs five months ago for resale using the same amount of  kwacha will not be the same as at now due to the depreciation of  the kwacha.
However,  this column has been on song in encouraging the SMEs to  also engage in businesses that border on value addition using the locally obtained materials and target the foreign market to counter such instances like the one we are passing through now.
The low exchange rates being experienced  now will enable export-oriented businesses in the SMEs category to post exchange gains in their businesses in the sense that  the dollars earned from  exports will attract huge sums of  kwacha in their business accounts.
When the Chinese currency loses value in this fashion, it gives an advantage to the businesspersons to post exchange gains in their businesses because of the huge volumes of the exported goods.
However,  having said this, Iam equally saddened by this trend because most of  the  SMEs businesses will be affected, forcing  others to close down because of the hardships which will come in  due to high bills of importing the goods for resale.
While it remains  the  Government’s duty to ensure that the lasting  solution is found to halt this unfortunate trend in the short term, the SMEs sector should also regroup to ensure that it helps to offer the lasting solution to this trend in the long term.
This can only be done if  value addition industries using locally-obtained materials are enhanced and the production of these goods is attached with quality to survive international competition, thereby attracting exports which in turn,  will increase the inflow of foreign exchange in our country.
Let us shift the  over dependence on copper as number one earner of the needed foreign exchange and encourage the non traditional  exports(NTEs) in which the SMEs should fully participate and make major contributions to the earning of foreign exchange.
China, 40 years ago,  was a closed economy but after its economic  revolution, it has seen the participation of the private sector and this has given rise to various exports of goods manufactured by different categories in the economy,  earning huge amounts of foreign exchange.
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