Zambia: Businesses struggle as weak currency hits profit

Taj Pamodzi Hotel · Lusaka, Zambia
Taj Pamodzi Hotel · Lusaka, Zambia

Increasing costs are pressuring Zambian businesses, as they cannot incease prices without losing customers

by Francis Maingaila

LUSAKA, Zambia – The weak kwacha is hurting profit all across Zambian business, experts told Anadolu Agency on Monday.

The Zambian kwacha has lost more than 50 percent of its value against the dollar since the beginning of this year, pushing up the cost of input for Zambian manufacturers, retailers, and services. This has cut profit by more than 50 percent  at many Zambian businesses, according to the Zambian Chamber of Commerce and Industry (ZACCI).

ZACCI President Geoffrey Sakulanda told Anadolu Agency in an interview that, while some big companies, including manufacturing industries are curbing operations or are pulling out completely, domestic businesses are struggling to adjust marketing and stocking practices to alleviate the pain.

“The price distortion on imports is raising prices for Zambian consumers sharply,” Sakulanda said.  As a result, businesses have to make a decision on whether to hike their  prices to consumers, and lose customers, or to reduce the prices, and see profit margins shrink.”

“A growing number of companies have opted for reducing prices, because they would rather make losses and remain in business than to seek profit and lose clients. In this way, many businesses have not only downsized production, but also made great losses,” Sakula pointed out.

Lusaka-based meat producer Zambeef Chief Executive Officer Francis Grogan said that the depreciation of the kwacha is expected to impact negatively on the company’s results.

Zambeef Products is involved in production, processing, distribution and retailing of beef, chicken, pork, milk, dairy products, eggs, stock feeds and flour across Africa, and is the largest integrated agribusinesses in Zambia.

Grogan told Anadolu Agency in an interview explained that the weak kwacha led the company to record losses of about 15 percent in the first three months of 2015. Between September and March, it fell 22 percent.

“The increased competition and a highly price-sensitive market, particularly in the retail sector, have put further pressure on the profit margins. This entails additional costs, mainly on food and imported raw materials such as fertilizer and chemicals which cannot readily be passed on to consumers. Also, there has been a reduction in the cropping division despite good yields resulting in the reduction of soya bean prices to $500 per ton from $600 per ton,” Grogan said.

At the Lusaka-based TAJ Pamodzi, which runs a hotel business, director Ayan Paul told Anadolu Agency in an interview that the continued depreciation of the Kwacha is making it difficult for the industry to operate as the prices of essential goods have skyrocketed within a short time.

“The depreciation of the kwacha has made the price of things we order from outside the country to increase. The operational costs have also increased, but we haven’t increased our prices,” Paul said.

“The unstable exchange rate has made everything very expensive. We are doomed as an industry,” Paul complained.

For suppliers of goods and services, the picture is also grim, as Blackson Singoyi, president of the Goods and Services Suppliers Association of Zambia (GSSAZ) told Anadolu Agency.

“Profit margins have fallen drastically. At every level, we are making great losses,” Paul said.

“In 2014, we did supply goods and services when the dollar was about K5. At the current price, you will find over 50 per cent has been swallowed up, so that makes everything very bad,” he added.

Importers are suffering the most.

Dixon Malambanyama told Anadolu Agency that his company, which specializes in importing hardware and other consumables, that imported goods are priced too high to sell.

“Generally people don’t have more money to spend on imported products. At the moment, people are trying to cope with the weak currency. This has cut my business volume by almost 45 percent.”

Some importers said they are simply deciding to get out of the business.

The Zambian central bank on Nov. 3 raised interest rates to 15.5 percent from 12.5 percent. But it is not yet clear that the move has served to stabilize the kwacha.