Job cuts loom as kwacha gains against dollar

A surge of more than 27 percent in the value of the local currency, the kwacha, against the US dollar since October is both good news and bad news for Zambia's economy. The good news is that a strong, stable kwacha could attract foreign direct investment and allow local businessmen dealing in kwacha to plan more efficiently; the bad news is that the strong kwacha has hurt exporters in the agriculture sector. They are now planning to cut more than 500,000 jobs because their earnings have been slashed as a result of the strong currency, increasing the country's already high percentage of people living in poverty. Rickard Larkin, chairman of Dunavant Cotton Zambia Ltd, the country's largest cotton buyer and grower, said the company would stop supporting up to 300,000 farmers. "If this exchange rate prevails into February next year," Larkin commented to IRIN, "Dunavant would be forced to cease trading, as it would be unable to secure seasonal banking facilities used to purchase the seed cotton crop from the farmers - we support up to 300,000 farmers, who in turn support about 1.2 million people." Tobacco Association of Zambia spokesman Dave Gordon said the sector might cease support to up to 200,000 tobacco growers because its earnings had dropped due to the strong kwacha. "There is no chance that the majority of tobacco growers will pay back their bank commitments, let alone make any profits," Gordon remarked. The president of the Zambia National Farmers Union (ZNFU), Guy Robinson, pointed out that export earnings from agriculture had dropped by more than $51.2 million. "We want the government and the central bank to bring about stability, in order to help us plan and compete [internationally]," he said. But Central Bank of Zambia governor Caleb Fundanga told journalists in Lusaka that the bank would not intervene to reduce the value of the kwacha. "The only strategy for stability would be the free market which currently exists, and nothing else," Fundanga asserted to IRIN. In October the kwacha was trading at 4,502 to the US dollar, but this week it went to between Kwacha 3,200 and 3,500 to the dollar, mainly as a result of rising demand for copper, Zambia's major foreign currency earner, by China and the United States. Chief government spokesman Vernon Mwaanga commented that another reason for the kwacha's recent gains against the dollar was the fact that Zambia had qualified for a 100 percent debt write-off by the Group of Eight industrialised nations in June, "meaning we are paying less and less in debt servicing - in fact, our foreign debt stock now stands at below $500 million, compared to about $7 billion before the write-off". Agriculture makes up about 14 percent of Zambia's GDP and employs more than a million people. Agro-organisations warned that a decline in the sector's contribution to the $4.5 billion economy could be dire.