THIS week, I want to tackle an important issue that has not possibly drawn as much debate in society as it should; the Kwacha “listing” on the Johannesburg Stock Exchange (JSE) in South Africa.
A week ago today, the local and international media carried articles that JSE had listed three currencies namely the Kenyan Shilling, Nigerian Naira and the Zambian Kwacha.
This development boggled my mind at first because not too long ago, the Kwacha was labeled among the underperforming currencies in Africa as it had depreciated against major convertible currencies such as the British Pound and United States Dollar.
It was from this background that I thought it imperative to delve further into the topic, understand it and with the help of experts, explain exactly what the presence of the Kwacha on JSE means for Zambia.
JSE launched what it terms as a Currency Futures (CF’s) contract, an instrument that investors, travelers, importers and exporters can use to hedge themselves against fluctuations in the exchange rate.
JSE general manager-capital markets Warren Geers explained in a statement on the JSE website recently that the CF’s contract was an agreement that gives the investor the right to buy or sell and underlying currency at a fixed exchange rate at a specified date in the future.
One party to this agreement agrees to by the future at a specified exchange rate and the other, agrees to sell it at the expiry date.
“The underlying instrument of a CF’s contract is the rate of exchange between one unit of foreign currency and the South African rand, this means contracts are cash settled in Rands and no physical delivery of the foreign exchange takes place,” Mr Geers adds.
Lusaka Stock Exchange (LuSE) chief executive officer Brian Tembo in an interview with Beyond the News last week said trade between Zambia and South Africa had soared by 400 per cent over the last decade and the CF’s will be a defence to currency shocks.
The massive trade between Zambia and South Africa that Mr Tembo is talking about has taken place amid fluctuations in the exchange rate and this has hampered trade as it has pushed the cost of doing business up.
Hence, South Africa through the JSE quoted the Zambian Kwacha through the CF’s to circumvent fluctuations in the exchange rate thereby maintaining the cost of business within optimal levels.
What does this mean? This means that business entities between Zambia and South Africa who subscribe to the CF’s will be repulsive to fluctuations in the exchange rate.
There are little or no exceptional benefits of the Kwacha being quoted on JSE except for the fact that now, there is a shield that business entities between the two countries can rely on in case of currency fluctuations.
The same is the case for people doing business between Kenya and South Africa and Nigeria and South Africa.
They too will only enjoy the cushion against currency fluctuations when the Shilling or Naira trades badly in comparison to the Rand.
One can register as a client to the currency future with an authorized JSE currency derivatives member by depositing a required initial margin and selling and buying to specific needs.
Any tangible benefits of our economy will only be visible and felt when stakeholders address issues dealing with policy formulation and reducing the cost of doing business in Zambia.
Some of these include stiffening tax measures for importers to promote locally manufactured products as well as addressing the high cost of production tools such as electricity and fuel.
So far, the country is on the right path in this regard as evidenced by its improved ranking on the ease to do business global ranking by the World Bank.
Feel free to send your comments and contributions on this edition and many others to jameskunda91@gmail.com or call and text 0973182006.