In his recent MPC statement of August 2017, Dr. Danny Kalyaya stated that during the quarter under review, the exchange rate of the Kwacha against the U.S. dollar remained relatively stable. He further stated that there was an appreciation of 4.5% against the green back. This he indicated was largely supported by improved supply of foreign exchange from the mining sector and non-resident investors in Government securities.
But who is a non-resident investor? A non-resident investor is an individual who mainly resides in one region or jurisdiction but has financial interests in another region (in this case Zambia). According to the central banker, non-resident investors’ holdings of Government securities increased to K7.5 billion in Q2 from K6.9 billion in Q1 2017. The pattern is even more interesting. From September 2016, Non-resident holdings of government securities stood at K2.8 Billion in bonds. Fast forward to present day, investors have pursued bonds aggressively and the amount stands at K7.5 billion. That’s approximately 168% increase in just under 11 months. The desire for government bonds lies at the return investors are getting from them.
Although the weighted average Government bond yield rate has declined to 19.3% from 20.4%, they still offer investors a stronger return hence why many of them have crowded this arena. According to Ben Bartenstein and Aline Oyamada in their Bloomberg article of August 8 2017, “Hedge funds may be getting pounded in most corners of the world — suffering outflows and forced to trim fees to appease clients. But there’s one place they’re still turning a hefty profit: emerging markets”. They indicate that hedge funds are enjoying returns of as much as 14 percent in emerging markets. This is the best performance of investments in these regions since 2009 where they enjoyed returns of 20%.
It is clear that the financial universe is influx as return on securities remain low in Europe and as the Federal Reserve Bank continues to ponder on additional rate hikes which have been known in the past to fuel the exodus of short term investors back into the US market.
Dr Kalyaya is fully aware of this. Therefore his team will ensure that the portfolio of investments inspires long tenure participation. If nonresidents are a variable that can affect the exchange rate, minimizing that impact is paramount. That is why he indicates that growth is expected to emanate from: increased agricultural output, increased generation of electricity, higher mining output, construction activities and manufacturing activity.
