Government challenged to investigate Banks over high interest rates

Association for Micro Finance Institutions in Zambia –AMIZ- has underscored the need for government to interrogate the private Banks regarding the high interest rates, and examine what can be done to reduce the costs.

Interest rates have been increasing, and current ranging at about 25%, making it difficult for people to access capital.

AMIZ Executive Director Webster Mate noted that when asked, Micro Finance Associations will say the operating costs are high, noting that the interest rate is a factor of the operating cost, cost of funding, and other economic variables such as the inflation rate. He said there is need to investigate how high the operating costs are, and the areas. “When you look at the break down of operating costs, you also need to identify which particular ones are a problem and maybe look at ways of trying to address those issues” said Mate.

In an exclusive interview with the Zambian Business Times –ZBT, Mate said Zambian banks are charging much higher as compared to banks in other markets. “A good comparison is East Africa. You would be shocked that banks there would be charging in the region of 13%, Micro Finance are the ones charging in the region of 25%, 30%” said Mate. He said when compared with Zambian banks, it is double of what East Africa is charging, and worse for Micro Finance Institutions.

Mate has therefore underscored the need for government to interrogate the private sector , and find out why the rates are high, and which particular operating costs are high, as well as what can be done. He noted that with the coming of digital banking services such as mobile money, and digital finance, the expectation was that some of the costs would be lowered as a result of digitalisation, but noted that the reduction is very insignificant. “There is need to have a more robust and candid discussions with the private sector on why these rates are like this” said Mate.

Mate further emphasised that the major thing government can do is to stabilise the macroeconomic environment by having stability in inflation, interest rates, and the exchange rate. He said if there is stability in the variables, interest rates would also be relatively stable.

He however noted that this is an age old problem in Zambia. Mate referred to a period between 2013 and 2015 when the Patriotic Front PF regime decided to cut interest rates with the intention of lowering the rates, but noted that the policy did not work. Mate explained that when interest rates are cut, lenders stop lending to people, and start investing in other areas where they will make money as opposed to giving their money to people they consider a risk. “So if the interest rate cap did not work, the question should be, what other measures can be used? And that is why I am saying an engagement with the private sector to find out whether their claim that the operating costs are high is true or not, and which particular expenses are those” said Mate. 

He is of the view that such kind of discussion would be more logical, and would help everyone, particularly government to understand whether they are telling the truth, and if so examine what needs to done. Mate noted that the interest rate is a price for money, and may be a case of people wanting to keep their rates of profit at a certain level, and can use the pricing to do that. He said it is a discussion that it is important, and urgent.        

Association for Micro Finance Institutions in Zambia

High fuel prices blamed for surging inflation in Luapula

The Luapula Chamber of Commerce has attributed the rising inflation in Luapula province to the high cost of fuel.

Chamber’s president, Emmanuel Musanje, explained that the province is located near the border, and people have to use expensive modes of transport like vehicles to travel to places like Nakonde, Lusaka, and Livingstone to buy goods and services which in turn, leads to high prices for these goods and services thereby increasing inflation.

The provincial inflation for Luapula has been increasing for the last four months and currently stands at 13.9% in October, up from 12.4% in September, 11.4% in August, and 10.7% in July.

Munsanje explained in an exclusive interview with the Zambian Business Times –ZBT that the cost of transport is then passed on to customers, thus contributing to the high inflation.

“For example, traveling by bus from Luapula to Lusaka costs about K400 for an individual, and if one has a consignment of goods, it is charged separately. When people unpack their goods, they consider the cost of transport, goods, and accommodation, which leads to higher prices of goods and services.”

 Musanje further added that the shrinking number of people in business due to the high cost of doing business is also contributing to the increase in inflation in the province.

“A reduced number means there are very few suppliers who can dictate the price, leading to a monopoly that raises profits. However, if fuel prices start coming down, inflation will follow, though traditionally people are good at increasing, but not good at reducing when things are okay.”

He said a very small number of people in the market tend to monopolize the market to raise their profits. “But if there is way off the fuel prices to start coming down, even the inflation will follow, though traditionally people are good at increasing, but not good at reducing when things are okay,” said Musanje. In regards to this, Musanje said inflation may be hung on for quite some time up until there is that very strong indicator of stability in terms of fuel prices.

Musanje further disclosed that people in Luapula are self-sustained, though at a subsistence level as almost every household has something to eat such as Cassava, and Maize among others. He however noted that these food commodities are moved from the fields to town and other outlets which require fuel for transportation. “So despite production being within, and despite having every household almost self-sustained in food, the movements, hiring of trucks to go down in the field, those truckers will need fuel, and the increase will be justified,” said Musanje.  He said it all comes down to the issue of fuel as everything is done, be it moving oneself as a human being to provide services, or vehicles are used thus the fuel component is factored into the services and goods provided.

The Luapula Chamber of Commerce has attributed

Economist disputes Zamstats inflation figures “inflation is around 20 – 30%”

Lusaka Economist Yusuf Dodia has challenged the Zambia Statistical Agency – ZAMSTATS, to start releasing inflation statistics relevant to the general Zambian citizenry.

Dodia said the current 12.6 percent ZAMSTATS inflation rate as of October 2023 does not reflect the true picture of what is on the ground adding that the Zambia’s inflation is hovering around 20 -30 percent if the key consumer products are considered.

Speaking in an exclusive interview with the Zambian Business Times -ZBT, the Economist explained that, “When you look at our society what are the key consumer products? we are looking at mealie meal prices, minibus and taxi fares, the price of vegetables, meat, commodities such as clothing and so when you take these and decide to use these as parameters for calculating inflation, you find that inflation rate is running at about 20 to 30 %. So the question is which one of these inflation rates reflects what the people on the ground are actually facing? Consumer pricing index is the one that hits the nail on the head. So I am of the opinion that ZAMSTATS is not using the consumer pricing index as their mechanism in calculating inflation. The inflation rate they are giving us is not wrong but it might not be relevant to our general Zambian citizens, “ Dodia said.

“We are being informed through the ZAMSTATS office that inflation rates for October went up to 12.6%, but one wonders if this is reflecting the true picture on the ground. Inflation rate is very much a subjective mechanism and depending on the one who is calculating the inflation rate, they choose the parameters that they want to use when calculating it and that is where the subjectiveness comes in, “ said Dodia.

Dodia explained that Consumer pricing index is the one that hits the nail on the head and is of the view that ZAMSTATS is not using the consumer pricing index as their mechanism in calculating inflation.

“If we were looking at Zambia and wanting to select three criteria for calculating inflation which would be the cost of primary and secondary education in Zambia, the cost of medical care in Zambia and the cost of commercial retail premises in terms of rentals. If we use those as our parameters to calculate inflation, we would see an inflation rate of 1% or 2% because we all know that education is free from grade 1 to 12 in Zambia unless you choose to go to a private school. We all know that under NHIMA the cost of medical services is almost free, children are not paying anything, retiree’s are not paying anything and those that are working are paying a token of k30 to k60 which is almost free. So that gives you a low inflation rate, “

“And when you look at commercial retail premises such as shopping malls you will that many shopping malls are under subscribed in terms of customers renting, rental prices are falling down and when you do a calculation on these three parameters you get a very low inflation rate. So one asks a question that how then do you calculate inflation? The most useful mechanism for calculating inflation that the public can appreciate is the consumer pricing index where you look at consumer prices. What are the most important consumer prices which impact on the people in a given society, “ said Dodia.

Dodia emphasized that if we have low inflation rate that has not improved the lives of the people, then that inflation is simply an academic discussion and is meaningless to the average Zambians.

“if you get an inflation rate that is based on parameters that have very little influence on the day to day economy for every Zambian, you can hit the target of 6% by the end of next year and you prove to the people of Zambia that you have achieved that inflation rate but has it improved the lives of the people? If it hasn’t then it’s an academic discussion and it’s meaningless to the average Zambians. So for me the most important thing to do is to get the inflation rate calculation correct. In other words, use the formula for consumer pricing index to calculate the inflation rate for Zambian people and from there find out how expensive it is to do business in Zambia, what markets do we have in Zambia that we can exploit for the Zambian economy to grow, find out how we can support our small and medium enterprises to become the largest enterprises of tomorrow.

“These are the mechanisms that will grow the economy and bring down inflation rate but if you start with an inflation rate which is calculated from an academic angle, it becomes impossible to improve the economy, ” said Dodia.

Lusaka Economist Yusuf Dodia has challenged the Zambia