Thursday, February 19, 2009

Zambia’s Forex reserves under threat, says Sichinga

Zambia’s Forex reserves under threat, says Sichinga
Written by Chiwoyu Sinyangwe
Thursday, February 19, 2009 7:44:24 AM

ZAMBIA’S foreign exchange (Forex) reserves remain under threat as long as the Central Bank continues to maintain an irresponsible monetary regime that does not regulate amounts of US dollars being externalised, business consultant Bob Sichinga has observed.

In an interview in the wake of a revelation by Citibank treasury market report that Zambia’s Forex reserves have declined from US $1.350 billion in December 2008 to the current level of US $1.157 billion due to the government's intervention in the exchange rate, Sichinga said there was need to review the country’s policy on 100 per cent externalisation of profits for all investors.

Sichinga, who described the current monetary policy in the country as “porous”, said most investors in the country were externalising beyond profits and at the expense of depleting the current Forex positions.

He explained that declining country Forex position had further been compounded by reduced earnings from copper sales as the international price copper continue to tumble and also increased capital flight as investors remove their US dollars from local markets to less riskier economies.

“It can’t be business as usual in times like this when the business environment globally is unusual, and that is why I have been advocating for an economic task force in periods like this when we have this crunch. The Bank of Zambia (BoZ) can’t continue to have a very porous Forex regime which is irresponsibly managed,” Sichinga said.

“BoZ keeps telling us that they will not interfere with the ( Forex) market, fine. Nobody is asking them to do so but all we are saying is that the markets should be regulated. It should not be free for all…even in developed economies like the United States and United Kingdom, you can’t just take out cash like that.”

Sichinga also said even investments incentives provided for under the Zambia Development Agency (ZDA) were not helping matters because they depended so much on pledges without a strong mechanism to keep a tab on how much money was actually brought into the country.

“Foreign investors would come in the country and promise to come and invest, say, US $ 5 million but may just bring US $1 million and the remainder is borrowed from the local market but when it comes to externalising, there is no control of how much they will send out. We need to review whether the practice of 100 per cent externalisation of profits by investors has actually worked to the benefit of the local economy or not. It is my considered submission that it hasn’t,” said Sichinga.

“So, in the long run, it is the money (Forex) from our cooperating partners which they will externalise. I am concerned because even big companies like KCM don’t declare what their earnings are vis a vis what they were externalising, and BoZ says it is okay! I don’t understand that kind of economics. So, BoZ needs to give us data on how much money is coming into the country through investments compared with what is being externalised on a quarterly basis. Even some Zambians, especially of Asian origin and some indigenous people, are very active in flying Forex to Western markets.”

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