In recent weeks, the Zambian Kwacha has recorded significant gains against major convertible currencies such as the US dollar, British pound, and Euro. This development has been welcomed by policymakers and market observers, as a stronger local currency often suggests improved economic stability, increased investor confidence, and potentially lower costs for imported goods.
However, while the appreciation is evident in the foreign exchange markets, the average Zambian consumer has yet to experience tangible benefits in their day-to-day living expenses. Prices of goods and services remain stubbornly high, raising the question: Why is the stronger Kwacha not translating into relief for households?
One of the main reasons is the time lag between currency fluctuations and retail price adjustments. Many imported goods currently in the market were purchased when the Kwacha was weaker, meaning importers are still working through higher-cost inventories. Price reductions will only be possible once new stock purchased at the stronger exchange rate arrives a process that can take weeks or even months.
Zambia continues to grapple with inflationary pressures driven by high transport costs, energy tariffs, and local production challenges. Even with currency gains, these cost drivers often offset potential price reductions. For instance, fuel prices influenced by both global oil prices and domestic policy have not seen a proportional decrease despite the stronger Kwacha.
Some suppliers and retailers may be reluctant to adjust prices downward quickly, preferring to maintain higher margins. In markets where competition is limited, this can lead to “sticky” prices that resist downward movement even when input costs fall.
Exchange rate movements also influence expectations in the business community. If traders believe the appreciation is temporary, they may hold prices steady to avoid losses should the Kwacha weaken again. This cautious approach can delay consumer benefits.
While the stronger Kwacha reduces the cost of imports, many essential goods in Zambia are produced locally with imported inputs machinery, fertilizers, packaging whose prices are tied to earlier, weaker exchange rates. This diminishes the immediate pass-through effect.
The Kwacha’s current strength is a positive sign for the economy and could, over time, ease the cost of living. However, the benefits will only trickle down to consumers gradually, as market dynamics, inflationary pressures, and supply chain realities play out. For lasting impact, the appreciation must be sustained, complemented by policies that enhance competition, improve market efficiency, and address structural bottlenecks in production and distribution.
By Victor Sikombe
CUTS Consumer welfare Officer