The impact of kwacha depreciation on small and micro enterprises (SMEs): Case study: SMEs in the central business district (CBD) of Lusaka city
Lungu Dryson, Marvin Kabubi
This report assessed the economic impact that the depreciation of the Zambian currency has had on the Micro and Small Scale enterprises (SMEs) in the Lusaka central business district (CBD). The study investigated the potential business impact of the depreciation on SMEs during the period 2012 and 2017.
One of the objectives was to assess short- and medium effects on SMEs operating from the Lusaka’s CBD. The research was carried out in Lusaka’s CBD area using stratified and random sampling. The methodology consisted of business houses survey in which questionnaires were distributed to respondents. The methodology of the direct assessment approach used direct loss by which it estimated the cost attributed to the loss of value by the kwacha. The direct assessment method is an economic appraisal tool that estimates the cost of the devaluation of the kwacha.
This report was organized in three main sections. The first section analyzed the potential economic impact of the loss of value by the currency on Micro and small-scale enterprises. Secondly, uncertainty that surrounded the timing of power cuts and the damage done by the unplanned electricity cuts.
The negative impact on SMEs was greater in the short term than in the medium or long term. However, there might be long-term consequences of businesses being forced to adjust to a sharp decline in the value of the kwacha. Examples included the reduction in sales, Inflation, cost of raw materials and imported products, increased transportation costs, and job cuts by the direct assessment.
The paper presents the analysis of the direct costs incurred by SMEs that went beyond inflation and increased cost of imported products for resell. In addition to reduced sales, other direct costs were the negative impact on transportation costs and complaints from customers with regard to a sharp increase in prices of products.
The exact impact was a shift in prices of imported goods, rise in inflation and an increase in the cost of airtime and internet data bundles. Respondents gave their solutions to the current depreciation of the kwacha such as diversifying the economy into finished product export and the exportation of finished products. Trading directly with China Yuan (ZMK/YUAN) exchange rate, other than by first buying the US Dollar with Zambian kwacha and later use the US Dollar to purchase the Yuan.
Lungu Dryson, Marvin Kabubi. The impact of kwacha depreciation on small and micro enterprises (SMEs): Case study: SMEs in the central business district (CBD) of Lusaka city. International Journal of Multidisciplinary Research and Development, Volume 4, Issue 9, 2017, Pages 04-17