This study investigated the impact of kwacha fluctuations on the financial performance of Micro, Small and

Medium Enterprises (MSMEs) in Choma District, Zambia, specifically on how demographic characteristics,

sectoral distribution, and managerial strategies influence enterprise resilience to currency volatility. Using both

descriptive and correlation analyses, the study found that MSME operators are mmostly male (59.6%) and the

majority aged between 36 and 45 years, with most possessing only primary or secondary education. This

demographic structure significantly constrains financial literacy and the capacity to apply sophisticated risk

management tools such as hedging. The findings revealed that 98% of MSMEs are import-driven, making

Correlation analysis confirmed significant relationships between currency volatility, pricing strategies, import

reliance, and profitability, as well as a positive association between education level, enterprise size, supplier

relationships, and hedging adoption. The findings affirm theoretical perspectives from the Resource-Based

View (RBV) and Purchasing Power Parity (PPP), emphasizing that internal capacity and market exposure

determine enterprise resilience.

The study concludes that MSMEs in Choma District face systemic vulnerabilities to exchange rate instability

due to import dependence, weak financial management practices, and limited macroeconomic awareness. It

recommends targeted financial literacy programmes, improved access to hedging instruments, promotion of

local value chains, and macroeconomic stability as crucial pathways for enhancing MSME resilience and

sustainable growth in Zambia’s volatile economic environment.

Among these, exchange rate fluctuations particularly the volatility of the Zambian Kwacha represent a critical

external factor affecting costs, revenues, and overall business performance.

Globally, several studies have explored the effects of currency fluctuations on business performance, a study

by (Belghitar, et al., 2021) examined post-Brexit currency effects on MSMEs in the United Kingdom, while

similar investigations have been undertaken within the European (European Union, 2015), and India

(Kahunde, et al., 2021), (Kahunde, et al., 2021). These studies predominantly emphasize macroeconomic

outcomes and global trade dynamics, with limited focus on firm-level profitability within MMSMEs .

Regionally, (Metumara, 2023) explored the impact of Naira volatility on SME profitability in Nigeria, while

local investigations by (Kuntashula, 2020), (Nyirenda, 2020) and (Lungu & Kaubi, 2017) examined the effects

of exchange rate fluctuations on trade and SME operations in Zambia. Additional work by (Chilufya &

years (Sikabbwele, 2024), driven by inflationary pressures, shifts in economic policy, and fluctuations in

global commodity prices (Kuntashula, 2020). Such instability introduces uncertainty for MSMEs, often

resulting in rising input costs, inconsistent revenues, and challenges in maintaining competitive pricing

(Nyirenda, 2020). Despite the centrality of MSMEs to Zambia’s local economic development, little empirical

evidence exists on how Kwacha fluctuations affect their profitability, particularly in Choma District, where

import reliance amplifies exposure to currency risk.

This study aligns with several United Nations Sustainable Development Goals (SDGs) which includes: SDG 8

(Decent Work and Economic Growth); The study supports the promotion of sustained and inclusive economic

growth by examining how currency stability can enhance MSME performance and employment generation;

SDG 1 (No Poverty): By improving understanding of MSME profitability, the study contributes to poverty

methodology; Sections Five and Six present the results and discussion, while Section Seven concludes and

provides recommendations.

Exchange rate volatility significantly influences macroeconomic stability, trade performance, and business

operations. Previous research by (Chilanga & Kunda, 2025) (Chilufya & Mwewa, 2022 ). has shown that

exchange rate volatility is associated with asset price distortions, financial uncertainty, and credit risks. In

Zambia, key macroeconomic fundamentals including inflation, interest rates, GDP growth, and balance of

payments are the principal drivers of exchange rate movements. Broadly, currency instability affects both

developing and developed economies by disrupting business activity and reducing competitiveness.

materials. Studies across sub-Saharan Africa show that MSMEs experience sharp increases in production costs,

reduced import volumes, and disrupted production continuity during depreciation periods. Local evidence

confirms similar trends in Zambia, where rising import costs compress profit margins and destabilize

operations., (Chitambala, 2019)

Currency instability undermines MSMEs’ ability to maintain consistent pricing. As a consequence, weak

market power, most firms cannot fully pass on increased costs to consumers. Thus, they frequently adjust

prices to remain competitive, although such dynamic pricing often reduces customer loyalty. A Regional study

by (Kuntashula, 2020) indicate that firms resort to short-term contracts and ad-hoc pricing as a way of coping

with mechanisms, which contributee to revenue unpredictability.

Profitability is one of the most affected components of MSME performance. Rising input costs and pricing

access to foreign currency. Exchange rate depreciation can function as either a constraint or an opportunity.

A depreciating Kwacha can attract foreign investors due to relatively cheaper property values. However, local

developers face higher costs of imported building materials, narrowing profit margins despite increased foreign

interest (Kuntashula, 2020).

Short-term depreciation may attract outsourcing contracts, but over time, increased import costs for hardware

and software reduce profitability. Inflation erodes consumer purchasing power and makes long-term pricing

difficult, creating revenue uncertainty (Lungu & Kaubi, 2017).

Manufacturing is highly exposed due to reliance on imported machinery and raw materials. Depreciation

Retailers and wholesalers many of whom import from South Africa, China, and Tanzania (Common Market

for Eastern and Southern Africa, 2020). Who face immediate cost increases during depreciation. Passing these

costs to consumers reduces demand, while absorbing them leads to liquidity challenges. Profit margins in this

sector are among the most volatile.

Depreciation can make Zambia a more affordable destination for international tourists. Nonetheless, higher

costs of imported supplies and operational inputs reduce profitability. The net effect depends on whether

materials, laboratory equipment, and pharmaceuticals. Increased service fees reduce accessibility, particularly

for lower-income households. Currency volatility also complicates tuition and operational planning for private

institutions. (Hambayi, 2020).

The conceptual framework of the study characterizes the comprehension of factors of kwacha fluctuation that

influences profitability of MMSMEs , encompassed in the conceptual framework representation is: The

Independent Variable (IV), which classically shows Kwacha Exchange Rate Fluctuations,

Depreciation/Appreciation Volatility and Uncertainty and the Rate of fluctuation (Chigozie, 2021); Moderating

Variables, which includes operations such as procurement, pricing, revenue; Internal Capabilities (RBV)

which depicts intrinsic factors such as Financial management, skills, Use of hedging, risk mitigation and

experiences regarding currency volatility. This design provided both statistical reliability and contextual

understanding, thereby enriching the analysis of how exchange rate movements influence MSME performance.

Greenwich, and latitudes 16° and 17°45′ South of the equator, situated on the plateau of Zambia’s Southern

Province. Choma serves as the provincial capital and a commercial hub, hosting a diverse range of MMSMEs

engaged in retail, agro-processing, hospitality, manufacturing, and service delivery. The district has

experienced notable economic fluctuations linked to currency volatility, making it a suitable site for examining

e = desired level of precision (0.04)

Calculation:

Numerator = 3.8416 × 0.24 = 0.921984

Denominator = e² = 0.0016

Therefore, n₀ = 0.921984 / 0.0016 = 576

profitability. Trends in currency movements were also analyzed using Microsoft Excel to visualize sector-

specific effects.

To integrate qualitative and quantitative evidence, a convergent mixed-methods design was adopted.

Qualitative data from interviews were transcribed, coded, and organized into thematic categories that captured

participants’ perceptions, coping mechanisms, and experiences with exchange rate volatility. These emergent

themes were subsequently compared with the quantitative results to explain, validate, or contextualize the

observed statistical patterns.

The study sought to describe the demographic characteristics of participating Micro, Small and Medium

managerial maturity (Chirwa & Odhiambo, 2017)

female, indicating a gender imbalance in MSME ownership within the study area. Similar trends have been

reported in other studies, which attribute this disparity to unequal access to start-up capital and sociocultural

norms that limit women’s participation in entrepreneurship (World Bank, 2022). (World Development Report,