A Study of the Effect of Foreign Exchange Rates on the Financial Performance of Power Utility Companies in Zambia: A Case of Copperbelt Energy Corporation Plc

Abstract

Just like other sectors, energy sector in Zambia has faced exchange rates volatility for a long time. Research has shown that Zambian kwacha has been unstable and that it has been depreciating. This study aimed at assessing the effect of foreign exchange rates on the financial performance of power utility companies in Zambia as a result of the devaluation of kwacha. It was an empirical study as the researcher sought to gain knowledge by using quantitative data. Purposive sampling was used in selecting Copperbelt Energy Corporation Plc and secondary data used in the study was extracted from the company’s published audited financial statements. Regression analysis using GraphPad software and Microsoft tools were used to analyse data and findings were presented in tables and graphs.

The main results of the study showed that foreign exchange rates had an effect on the financial performance of CEC Plc. Whenever kwacha depreciated, financial performance of the company went down and vice versa. The results further, suggests that there was a medium positive relationship between foreign exchange rates and key financial performance indicators. Henceforward, it was recommended that CEC Plc should ensure that foreign exchange risk management techniques such as money market hedge, exposure netting and hedging with invoice currency are used to minimize foreign exchange risks. It was also recommended that further studies be done in this sector using other financial performance indicators which were not employed in this study to increase the knowledge base.