Strengthening kwacha brings consumer joy and exporter woe

Zambia's annual inflation rate has fallen to 12.2 percent, the lowest level in four years, providing some rare good news for struggling consumers. Its strengthening currency, the kwacha, pushed inflation down by 6 points from 18.2 percent in January 2005, according to the Central Statistical Office (CSO). "The decline in inflation has contributed to a fall in the cost of fuel, bus fares and new imported motor vehicles," CSO director Buleti Nsemukila told IRIN. "Food, beverages ... [and] rentals have also declined as a result of the strength of the kwacha." Nsemukila said annual food inflation in Africa's top copper producer dropped to 12.8 percent in January this year, from 17.5 percent in December 2005. Non-food inflation also fell to 11.5 percent from 14.0 percent in December after the price of fuel was slashed by more than 11 percent by the Energy Regulation Board (ERB). Consumers are cheering, but exporters have warned that the strong kwacha, buoyed by a debt write-off in November 2005 of up to 100 percent by the G8 group of industrial nations, was affecting their profitability. The Zambia National Farmers Union cautioned last month that the kwacha's performance, which has gained 34 percent against the US dollar, would hurt exports of fresh vegetables, cotton and tobacco. Richard Larkin, chairman of Dunavant Cotton Zambia Ltd, the largest grower and buyer of the fibre in Zambia, said his company would stop supporting up to 300,000 out-growers this year if the government did not act to weaken the currency. Tobacco Association of Zambia spokesman Dave Gordon said 200,000 jobs were also threatened in his industry, as exports were priced in US dollars. Finance minister Ngandu Magande said he expected Zambia to achieve single-digit inflation in 2005 due to reduced debt service obligations. The G8 decision is predicted to slash foreign debt to about US $1.5 billion from more than $6.8 billion. World prices for copper, Zambia's main forex earner, have also reached an 18-year high on the London Metal Exchange.