The effects of depreciating Kwacha on the financial performance of Small and Medium Scale Enterprises (SME’S) In Zambia

This study aimed at investigating the effects of the depreciation of the Zambian Kwacha against the US Dollar on SMEs in Lusaka Central Business District. The base line of the study was 2017 to 2023. This study employed the quantitative research design and data was collected using a closed ended-structured questionnaire. Statistical Package for Social Sciences (SPSS version 22) was used to analyze quantitative data. A descriptive research design was used employed in the research. A total of 70 SMEs whose core business was importation of goods such as phones and clothes for sell were sampled. The first objective was to establish the effects that the kwacha depreciation had on SME’s decision making in Kalingalinga area and the study discovered that 20 (29%) of respondents indicated that access to foreign capital was heavily influenced, highlighting the challenges SMEs face in securing funding amidst currency fluctuations. Increased import costs affected 16 (23%) of the respondents.. Financial planning and budgeting were impacted for 13 (19%). Price adjustments and inflation were acknowledged by 12 (17%). Lastly, 9 (13%) of SMEs reevaluated their market strategies, suggesting that businesses are adapting to the new economic environment to remain competitive. The second objective was to understand the extent to which depreciation of the Kwacha affects the SMEs financial performance and position and the study revealed that 13 (19%) said sales revenue, 18 (26%) said cost of raw materials and imported products, 22 (31%) said transportation costs and 17 (24%) indicated that job cuts and employment stability. Overall, these findings highlight the multifaceted impact of currency depreciation on SMEs operating in Kalingalinga area, affecting various aspects of their operations from revenue generation to cost management and workforce stability. The third objective was to recommend copying strategies employed to avert the effects depreciation of the Zambian Kwacha against the US dollar and the study established that 12 (17%) said increasing foreign exchange supply, 22 (31%) said enhancing export performance for SMEs, 18 (26%) said boosting economic activities, 10 (14%) said strengthening current account balance for SMEs and 8 (11%) said debt restructuring.. The recommendations of the study were that SMEs needed to reassess their investment plans and prioritize on projects or businesses that are less exposed to currency risks or export oriented.

In conclusion, there is need for SMEs to explore strategies to hedge against currency risk. Policymakers also play a critical role in providing a conducive economic environment that ensures the stability of the local currency and supports SME development.