How competent are Zambian graduates? (Guest Blog)

November 15, 2013, 10:00 am

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I think it is highly presumptuous to accept, on the basis that many believe it to be true, that Zambian graduates are losing out to foreigner graduates [as suggested in a previous blog]. I think the key here is competence which we must not confuse with ability.

The world over intelligent “educated” people are incompetent, either down to poor education and training or their own attitudes or the environment in which they operate. We need an open discussion about competence because having a degree does not confer competence and does not entitle one to anything – but it should demand “professionalism” of the holder.

I believe professionalism encompasses competent performance of one’s job, being honest, and working for the best interests on the employer within the law. It means working until the job is complete whatever it takes, remembering one’s duty to one’s client or customer or patient. It requires maintaining and always striving to improve standards, proving oneself, humility and co-operation.

Professionalism means accepting responsibility even in the face of disaster. Above all having an opinion or position that one can defend but change or adapt in the face of a valid counter-argument. A professional is ultimately paid for one’s opinion and one’s willingness to accept responsibility for it. The key to a professional opinion is comprehending the issues and alternative opinions, applying critical thinking and then communicating one’s opinion so that it is understood.

Competence comes from using a degree, applying the knowledge and skills acquired, and accepting that a degree is merely a starting point on a life-long road of inquiry to find relevant solutions. If the knowledge imparted in a degree is incomplete or no longer relevant or even questionable and if one is NOT encouraged to continually inquire but rather one is expected to parrot the lecturers’ positions, then one’s degree places one at a disadvantage in the competence stakes.

If one’s communication skills (reading comprehensively and writing articulately) are limited because of poor education from Grade 1, one’s competence is compromised. If one’s society demands unquestioning respect for elders and those in senior positions, discouraging inquiry and innovation, then competence is compromised. If one assumes that a degree entitles one to anything, that is complacency and has no place in professionalism. So one may be perfectly intelligent and able but poorly educated (in the holistic sense) and therefore incompetent as a professional.

I know when I graduated I was not competent and even now I daily question my competence. I know for example that the School of Mines at UNZA was (maybe still is) teaching a geological model of the Copperbelt that was discarded ages ago. I know the UNZA School of Law had limited access to academic texts, law reports (whole voumes of law reports were missing from the library) and academic journals when I was there.

I have sat through professional practice lectures here where we were told we were the “noble” profession and therefore somehow above all others, without telling us how to ensure we were noble and superior, except to avoid some social behaviours that may bring our profession into disrepute (quite a lot of emphasis placed on this), with little mention of our professional competence.

I have sat through lectures where questioning the lecturer leads to some uncomfortable moments even if one is merely seeking clarification. I have been told by some lecturers that to pass professional qualifying exams the key is understanding the mind of the lecturers (not the course content it would seem!). I have seen documents from professionals across the board that are incomprehensible because of poor language usage.

I think we need an open and frank discussion about competence without people feeling they are being judged as “stupid” or discriminated against because of course it is not one’s fault if one has been incompetently educated and incompetence is not peculiar to Zambia.

AUTHOR

Sue Clayton | Guest Writer

↧

A Development Blueprint for Zambia

November 17, 2013, 11:00 pm

≫ Next: Who will weep for our street children?

≪ Previous: How competent are Zambian graduates? (Guest Blog)

Editor’s note: This is a guest post by Michael Chishala, a Zambian writer and regular contributor to the discussions on the ZE Facebook page. Follow him on Facebook.

Many armchair critics rightly observe that many other armchair critics complain about problems in Zambia without offering solutions (ironically, they equally offer no solutions either). So today, let's debate some ideas about what specific steps a government of a poor nation needs to do to produce prosperity. I shall do things in reverse. Steps first with explanations, and then the main reasoning behind.

THE SOLUTIONS

Year One

a) Drastically cut the size of government to ten Ministries and get rid of all Deputy Ministers (we do not need 70 ministers). Reduce some ministries to small departments. A Kwacha in private hands produces more than a Kwacha in government's hands (they are driven by politics of the belly and the desire to remain in power forever).

Ministries Remaining:

1. Finance

2. Justice

3. Commerce, Trade and Industry

4. Defence

5. Home Affairs

6. Foreign Affairs

7. Health

8. Transport, Works and Supply

9. Lands

10. Local Government and Housing

Ministries reduced to small departments:

1. Information, Communication and Broadcasting

2. Education

3. Labour

Ministries Abolished:

1. Gender and Child Development

2. Chiefs and Traditional Affairs

3. Tourism and Arts

4. Natural Resources and Environmental Protection

5. Mines, Energy and Water Development

6. Youth and Sport

7. Community Development, Mother and Child Health

8. Agriculture and Livestock

Big government = Big taxation = Big waste, theft, abuse, misuse, disuse.

Smaller government = Lower taxes = Better use of resources.

b) Completely and totally privatize everything under the sun, starting with the biggest companies like ZESCO, Zampost, Zamtel, Zambia Railways, etc. Simultaneously liberalize the economy more, removing tariffs and regulatory barriers to entry (eg expensive licensing fees). This produces competition which leads to cheaper higher quality goods and services, translating into higher standards of living since the same money will now be able to buy more.

More disposable income = more savings and more credit = faster economic growth.

c) Change the Land tenure system back to freehold from leasehold. Convert all traditional land that is unused into free land up for grabs. Enforce land ownership with title deeds. Land ownership makes access to credit easier.

More credit = More business = More economic activity

d) Reduce the powers of the Executive. There should be mandatory parliamentary oversight of any major appointments like Chief Justice, DPP, Attorney General, Police Commissioner, Army/ZAF/ZNS chiefs, etc. Other positions should be advertized (ZNBC Director General, Board Chairmen, etc). Simultaneously amend contentious laws one by one, instead of wasting money on another useless constitutional review process. Public Order Act, Electoral Act to add 50%+1 system, Presidential running mate, Cabinet chosen from outside parliament, Freedom Of Information, etc.

Less political interference = More certainty = Better credit rating.

e) Simplify business procedures and make licenses dirt cheap.

Lower costs of doing business = more investment.

f) Remove the monopoly of ZIALE in admitting lawyers to the bar (allow other competing bodies). Reform legal system with ICT's (computers and online databases) and KPI's (eg set a time limit for judgements to be written).

Better judiciary = Better Rule Of Law = More business between strangers

g) Begin outsourcing to the private sector some government functions like tax collection, garbage collection, border processing, passports, NRC's, drivers and other licences, etc. Use a competing franchise system like in fast food restaurants.

More competition = Lower costs = Better Services

Year Two

a) Cut ALL taxes and introduce FLAT tax rates. 25% Income Tax, 20% Corporation Tax, 10% VAT/WHT, 5% Excise duty, 10% Import duty. No more tax tables or zero-rated items while others are 60%. This cuts administrative costs and make things more predictable.

More money in people's pockets = faster economic growth.

b) Go into PPP arrangements for schools and hospitals/clinics with a view to eventually make them self-sustaining through widespread medical insurance schemes and school vouchers.

c) Offload other assets like state farms, government houses, idle government land, etc. Lease all national parks.

d) Cut more fat from government by abolishing some bodies or turning them into small nimble departments. eg ERB, FRA, ZICTA, etc.

e) Privatize state media or else make it completely independent with no political appointees (eg BBC).

Year Three

a) Cut taxes even further as more irrelevant government functions are trimmed and the economy grows (eg FISP, Maize marketing, etc). 20% Income Tax, 15% Corporation Tax, 10% VAT/WHT, 5% Excise duty, 5% Import duty.

b) Start process of turning the nation into a Federal state, complete with Governors, Mayors and State Legislatures. Abolish Provincial Ministries and District Administrators.

c) Increase budget significantly for police force and Judicature in general.

d) Begin removing subsidies.

Year Four

a) 15% Income Tax, 10% Corporation Tax, 10% VAT/WHT, 5% Excise duty, 0% Import duty.

b) Continue removing subsidies.

Year Five

a) 10% Income Tax, 10% Corporation Tax, 10% VAT/WHT, 0% Excise duty, 0% Import duty.

b) Remove all remaining subsidies and other freebies.

c) Begin the privatization of schools, Collages/Universities and Hospitals/Clinics by selling them to the Teachers/Lecturers and Doctors/Nurses running them. If an MBO cannot work, open it up to outsiders.

REASONING

Economic and political policies implemented by a sitting govt have a far greater impact on a nation than relatively short-term external shocks (eg export/import commodity prices). Perpetual poverty or prosperity is predictable based on empirical evidence we now have about what works and what does not. Centrally-managed economies (Socialist or Communist States) tend to do poorly compared to market-driven ones. Zambia started off as a more Capitalist nation, delved into Socialism and lost half its GDP per capita. After reversing course, the figures improved from 1999 by about 40%, though still below the 1965 peak.

THE WRONG POLICIES

In order to implement the correct policies, we must recognize the bad decisions made by previous governments and their root cause. In my view, the specific actions and policies that were disastrous to Zambia between 1964 and 1991 were:

a) One party state and state of emergency for 27 years. This created a bloated political monopoly which turned citizens into virtual slaves.

b) Nationalization which created inefficient wasteful monopolies that went bankrupt when economic liberalization was introduced.

c) Excessive expenditures due to dishing out freebies (free education, free health, etc, even though many Zambians could afford these things).

d) Pouring money into liberation wars which drained the treasury.

e) Zambianization which replaced competent white people with half-baked black Zambians.

f) Printing money in the late 80s which produced over 100% inflation in the 90s.

g) Politicization of the civil service which turned it into a bloated appendage of the ruling party UNIP.

h) Intolerance of dissenting views which made it impossible to correct these very gross errors.

FUNDAMENTAL CAUSES - WRONG IDEAS

The core philosophy of the freedom fighters was Collectivism, as opposed to Individualism. They thought by draining the treasury and spreading the money around for free, everyone would be happy. They thought by controlling the means of wealth creation (companies), they could milk them and spread the money around. By putting unqualified Zambians to run these nationalized companies, they thought citizens would be empowered and have better lives. They thought that a centrally managed economy was better. They thought that controlling citizens would make it easier to govern. Of course every one of these backfired and we are where we are today, much poorer than in 1964

AUTHOR

Michael Chishala is Zambian writer and regular contributor to the discussions on the ZE Facebook page. Follow him on Facebook.

↧

Who will weep for our street children?

November 20, 2013, 10:00 am

≫ Next: Free Falling Kwacha

≪ Previous: A Development Blueprint for Zambia

Whenever I watch a documentary about child slavery, I can't help but wonder how many of Zambia's street children probably end up in one form of slavery or another. Child slavery and our growing number of street children are invariably linked. As long as children are on the street they remain vulnerable to all sorts of abuse.

For girls on the streets especially it is like a death sentence. It's too dangerous. When you add in the problem of AIDs it makes one despair. A theme touched on in Princess Kasune Zulu’s remarkable book ‘Warrior Princess’.

It is no surprise we continue to witness a growth in human trafficking. Sadly the problem has not commanded as much public attention as it should. The closest information I am aware of is the very rough 2006 Central Statistical Office survey which revealed that 22% of girls and 20% boys reported knowledge of human trafficking. 15% reported knowing someone who had been trafficked. But those statistics did not specifically sample street children.

As every Zambian knows street children are a huge problem in our country. Some estimates place the figure well above one million, and this is growing every day. The current phenomenon has largely been attributed to the MMD liberalisation policies of the early 1990s when we saw the number of children double over that decade. The MMD's market fundamentalism coupled with globalisation led to the erosion of the extended family safety within a cocktail of high poverty levels and rampant HIV / AIDs.

Thats the past. The real issue is what should now be done to tackle this stain on our collective conscience. At some level we all know the solution : street children need to be fed, given a home and an education. Therefore at one level the issue of street children is one of child poverty. Reduce child poverty and AIDs and you are on your way there.

And yet it is not that simple. Research by Alessandro Conticini (Global Research Poverty) on street children in Bangladesh gives a more nuanced picture. The analysis suggests that that while most researchers and observers have explained the street children phenomenon in terms of economic poverty, the Bangladesh research suggests social factors are more important for understanding why children move to the street.

Street kids don't always come from economically poor households. Conticini's work found that moves to the street are closely associated with violence - emotional/psychological, physical, sexual or all three - and the breakdown of social relationships within the family and/or local community.

Now of course AIDs/HIV in Zambia contributes significantly to these "Conticini factors". But what is clear is that policy prescriptions and economic solutions should not just aim to reduce poverty, but also ought to incentivise greater cohesion of the family unit. This point should immediately be obvious because even richer countries have lots of street kids. Our own history testifies that as a country we were poor from independence and yet we had fewer proportion of street children!

I believe one the reason why this situation has become worse in Zambia is the weakening of certain social institutions e.g. the traditional family unit. Whilst HIV/AIDs has contributed to this erosion, equal blame must be laid on the lack of national leadership. I believe that since colonialism we have not fully solved how our culture relates to our development agenda. Simply eliminating poverty without emphasis on the social institutions may not eliminate the problem. We need to look at whether our governance structures and economic policies are working hand in hand to address the challenges facing Zambia.

Unfortunately, we continue to remain silent on fundamental questions e.g. how can we support the "family" through our economic policies, including tax policies? We treat economic agents as individuals rather than members within a family unit that we wish to promote, which limits our mitigation options in tackling these kinds of problems. It also continues to undermine our social fabric.

Is it not shameful to call ourselves a Christian nation when we have a large population of children living on our streets and in danger of rape, abusing and trafficking?

We must confront this shame head by preventing more children ending up there in the first place. For those children already on the streets, we must do all we can to protect them from potential slavery through stronger governance, combined with more emphasis on police departments to take the issues of child slavery seriously.

Unless we address this issue we are robbing our nation its future, and all of our policies will be ultimately be ineffective. If you want to see how Zambia’s social and economic will look in 20 years just look at its children today! There are no short cuts to social development.

AUTHOR

Chola Mukanga | Economist

↧

Free Falling Kwacha

November 20, 2013, 11:24 pm

≫ Next: Explaining Zambia's Poverty

≪ Previous: Who will weep for our street children?

This chart is quite revealing because it shows the clear trend of the Kwacha over the last 3 years. Whilst some of the Kwacha’s current slide is seasonal, as retailers tend to buy most of their importants in advance of Christiams to avoid a slowdow in shipping activity, it is clear that the factors driving its decline are much more substantial.

Over the last month we have seen the Kwacha experience it's sharpest fall since PF came power and the lowest value in five years, if not more. The currency has substantially eroded in value since PF came to power in 2011. It is also clear that the ban in use of dollars, Kwacha rebasing and exchange control restrictions have not stemmed this substantial decline.

A number of things are clearly moving against the Kwacha. Top of the list is declining confidence in the Government’s ability to manage national finances. A recent IMF statement warned that GDP growth in 2013 is weaker than expected (2013 growth is only 6% against the 7.3% in 2012).

But more worrying is that Zambia faces significant economic challenges in the fiscal area as concerns escalate over the inherent weaknesses in our macroeconomic fundamentals. It is noticeable that the current fall in the Kwacha has coincided with the Fitch downgrade and the worsening economic outlook by Standard and Poor.

The credit agencies have picked up on the fact that Government finances have deteriorated sharply with projected deficit (8.5%) in 2013 twice the target level, and GDP much lower than forecast. Spending is likely to significantly over-run again in 2014, reflecting the cost of the public service wage increase and higher debt service costs. The GDP outlook for 2014 is quite bleak.

The problem for Zambia are also international. Despite our expansion in copper output the forecast of copper prices is negative. Zambia remains vulnerable to China’s ongoing adjustment which has seen copper prices fall by $3000 per tonne over the last two years. There’s a high likelihood of further fall in copper prices as supply expands off the back of new mines and expansions in Chile, Mongolia, Indonesia and Zambia. The lack of diversification of Zambia’s economy means a significant fall in copper prices may negatively affect the economy. These and other factors means that the Kwacha is increasingly now looking "less safer".

The bottom line of course is that there's no right or wrong level for the Kwacha. Whatever level the Kwacha finds it will have its pros and cons. The policy goal therefore must be to let the Kwacha find its 'natural' equilibrium in line with prevailing market forces. The goal of exchange rate policy under our current exchange rate mechanism is to aid stable adjustments. Zambia has a flexible floating exchange rate system. Indeed at our level the real exchange rate has made Zambian uncompetitive.

What we need is to ensure that BoZ continues to minimise currency volatility as the currency adjusts downwards. That requires prudent use of foreign reserves. Unfortunately, the reserves are dwindling. They are currently just at 2 months of import cover. This is below the Government’s 2013 target. International reserves have continued to fall over the last year as the Bank of Zambia has been directly funding Zambia's oil import bill and debt-servicing obligations. The Government has recently moved to halt the practice in an effort to stabilise the reserves.

What does this all mean for all of us? A weaker Kwacha means GRZ debt repayments become dearer. And of course with its inevitable credit downgrades going forward the cost of repayments will be higher.

At the individual level, the short term impact of weaker Kwacha is higher cost of imports, mostly for consumption purposes, but some significant ones for production as well! The elasticity of imports becomes crucial here, but needless to say, oil is a critical input for mining production costs, and a weak exchange rate, means higher domestic production costs for other sectors not least general transportation.

That said, a weaker Kwacha opens a window of competitiveness for non-mining sectors especially agriculture produce. The real question is whether the Zambian economy has diversified enough in recent years to take advantage of this window. We have seen some signs of diversification, but in general this remains aspirational.

GRZ cant change the fate of the Kwacha, but they can work to restore confidence in its finances and project to investors some degree of credibility. Recent policy initiatives have sent all the wrong signals. The deportation of investors, confusion on export taxes, media corrupt allegations against Chikwanda, political infighting and reckless borrowing all sends wrong signals.

They also need to use this "window" to encourage more diversification. But that requires money, which is a problem because GRZ is broke! So it plans to borrow! There’s talk of $1bn bond issue before Christmas before the Fed tapers QE. PF are in a rush for more debt to balance its books, but at what cost? That of course is a question to discuss another day!

AUTHOR

Chola Mukanga

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Explaining Zambia's Poverty

November 25, 2013, 2:39 pm

≫ Next: Rogue Investors or Whistle blowers?

≪ Previous: Free Falling Kwacha

I have previously noted that there's a poverty of papers and books on Zambia's economic history. This new paper by Alan Whitworth is a welcome addition to the little information that currently exists! Those who don't learn from history are bound to repeat the mistakes. And according to this paper the current PF government appears not to have learnt the lessons of the past. Well worth the read!

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Post by Zambian Economist.

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Rogue Investors or Whistle blowers?

November 26, 2013, 10:00 am

≫ Next: Reviving Kapiri Glass Factory

≪ Previous: Explaining Zambia's Poverty

Government recently revoked the work permit of Konkola Copper Mines (KCM)'s CEO Kishore Kumar over KCM’s plans job cuts. The move has been celebrated by some who see this as a strong stance by PF against foreign investors. What has been worrying is that no one has yet pointed out that GRZ's recent actions appear to be part of its addiction to cancelling "work permit" in dubious circumstances.

Of course PF is not the first to be obsessed with bundling foreigners out of the country. An historical glance suggests that the recent actions are merely a continuation of the selective shameful practices of the past, when any foreigner who did not toe the party line was unceremoniously bundled out of the country on flimsy grounds. Why shouldn’t a foreign CEO take decisions that safeguards the financial viability of his company? Why should they be victimised for merely doing their job?

My concern here is not the KCM situation per se. Rather it is the general behaviour of the Immigration Department which continues to be constantly used by politicians to fix foreigners for reasons usually that have nothing to do with their business competence. More worrying it seems under PF dubious deportations have become the order of the day. Many foreigners have been targeted for deportation either because they are perceived as whistle-blowers or have not cooperated in cutting deals with influential individuals in government.

To many neutral observers the Immigration Department, following instructions from politicians, continues to use its ‘powers’ to throw some foreigners out of the country by cancelling their visas, not renewing their self-employment permits or simply by declaring them prohibited immigrants. There are many such cases involving foreign investors contesting the Immigration Department’s decisions not to renew their self-employment permits.

For example in April Armcor Security MD Jan Paxton was allegedly deported back to South Africa without a deportation order issued and no proper procedures followed. Government claimed the deportation was over tax evasion by Armcor. And yet up to now we have not heard about the outcome of any investigation in the alleged "colossal sums in tax evasion" by Armcor. If these people are evading taxes why not try them and put them in jail?

Before that five other foreign business people from Nigeria, Italy and Egypt were deported. Egyptian Shafik Mohammed owned a hospital in Livingstone before he was deported in March. According to GRZ, Mohammed was arrested and convicted for unlawful possession of restricted drugs. He was deported under the Immigration Act. But other reports said he was deported as his wife would not join the ruling Patriotic Front. We will never know the truth except that due process appear not to have been followed!

Two Italian citizens — the operations director and the marketing director of Zambezi Portland — had their residence permits revoked and cancelled. GRZ said the work permits were not renewed, following reports of abuse of workers. The Home Affairs Ministry official position is that the business environment in Zambia remains supportive to law-abiding investors and those doing genuine business need not worry. Again if these people are engaged in illegal activities why not arrest them and put them on trial?

The truth is that there appears no legal basis for some of the actions in these cases. As we have seen over the last year some foreigners have been thrown out without following the due process of the law or the state has simply ignored decisions of the courts. And sometime even Zambians have been “deported” or dumped abroad because of a personal quarrel with some high ranking politician! Many of them being accused of being foreigners when they gave lived in Zambia all their lives.

The KCM and other such cases serve as perfect illustration of how government’s poor administrative and regulatory capacity is often abused with a high-handed approach in the treatment of some foreigners. Instead of PF owning its policy mistakes it has resorted to using businesses as scapegoats for government’s policy failures. Bundling foreigners out of the country and cancelling visas arbitrary is not the way to restore the current dwindling confidence in Zambia as an investment destination.

AUTHOR

Chola Mukanga | Economist

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Reviving Kapiri Glass Factory

November 27, 2013, 10:00 am

≫ Next: The PF and Intra-Party Violence

≪ Previous: Rogue Investors or Whistle blowers?

Kapiri Glass Factory is allegedly set to reopen its operations in July 2014 under a new local investor Chimsoro Milling Company Limited. This follows the recapitalization and re-investment into latest machinery and technology at the once defunct company and will operate under a new name called Kapiri Glass Manufacturing (KGM) Limited.

KGM General Manager Sunil Malik says the equipment is currently being installed at the factory to replace the obsolete one will enable the company produce over 75 tons of glass per day. This will translate into 21,000 tons of glass per annum or 20 million bottles per year. The glass factory will cerate employment to over 200 local people once fully operational.

KG believes there is huge demand of bottles and glass products locally and internationally adding that the company has already received business delas to supply bottles to Zambian Breweries, Pepsi and SAB Millers of South Africa. It has allegedly already secured market for its products with "international and local liquor and beverage manufacturing and packaging companies".

The revival of the defunct Kapiri Glass factory was first announced August 2012. The construction was meant to take 16 months to finish. But clearly things have slowed down a bit. It is good to see the project is still going ahead. Previous estimates suggested the KGM plant would cost in excess of US$22 million. The funding sources include PTA Bank, Development Bank of Zambia and Chimsoro Group of Companies (owned by Costain Chilala).

AUTHOR

Chola Mukanga | Economist

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The PF and Intra-Party Violence

November 28, 2013, 10:15 am

≫ Next: Policy Chaos at BOZ

≪ Previous: Reviving Kapiri Glass Factory

Editor’s note: This is a guest post by Henry Kyambalesa, an Adjunct Professor in the School for Professional Studies at Regis University, Denver, USA, as well as an Independent Business and Management Researcher and Consultant. He is has written a number of books and regularly reflects on issues facing Zambia.

There is an urgent need for the Patriotic Front (PF) to show leadership in addressing the increasing levels of political violence among its members, otherwise we risk having political hooliganism entrenched in our country’s democratic institutions that will eventually be difficult to address.

It is hard to understand why political cadres threaten to harm or kill other citizens who have different political views and/or those who support different individuals or political candidates!

There is a need for each and every Zambian to learn to engage in politics without physically assaulting others, or threatening others with violence. We need to remember that we are Zambians first in spite of the different political parties we belong to, the 73 different tribes to which we belong, the different languages we speak, or the different politicians we support within or outside our political parties.

We should not allow politics to create divisions amongst us to the extent of battering each other during campaigns and whenever we have differences in opinion over intra-party politics, inter-party politics, and/or national issues. We should avoid acting savagely toward one another. And we need to pray for one another, and for our beloved country.

After all, we are one and the same people – we are members of the Zambian family! “How good and how pleasant it is for brethren to dwell in unity!” ─ Psalms 133:1.

We should always remember that the real enemies of our beloved country today are not any given individuals, political parties, non-governmental organizations, or foreign countries. Rather, they are poverty, hunger, ignorance, illiteracy, disease, widespread unemployment, crime, corruption, and moral decay.

Lack of Employment Opportunities

To digress somewhat, it is important for the PF government to make a more serious effort in bolstering the creation of jobs in the country. The fact that political cadres are readily available to be used by their leaders to engage in violence on a regular basis attests to the unprecedented lack of employment for them. As an old maxim tells us, “An idle mind is the devil’s workshop.”

The creation of jobs can easily be facilitated through lower taxes and interest rates designed to stimulate investment, consumption, and savings, and by pouring more financial resources into the small-business sector.

Small and medium-sized enterprises are particularly instrumental to sustained socio-economic development. They, therefore, need to be aggressively promoted for the following specific reasons:

(a) They can create employment opportunities for talented Zambians and family members who cannot find jobs in large business establishments;

(b) They can collectively function as a vehicle through which the government can economically empower its people by enabling them to participate actively and directly in their country’s commercial and industrial activities;

(c) They can facilitate the generation of wealth for all sectors of our country’s economy and thereby reduce existing income disparities;

(d) They can function as the backbone of our beloved country’s economy because they would be both indigenous and permanent especially if they would be operated by Zambians; and

(e) They can participate in elevating their host communities’ social and economic welfare through the provision of various kinds of needed goods and services.

Meanwhile, our beloved country continues to face a catalogue of very serious socio-economic woes. For instance, the healthcare system cannot meet the basic needs of the majority of citizens, a critical shortage of decent public housing has compelled so many of our fellow citizens to live in shanty townships nationwide, public infrastructure and services are still deficient, the majority of citizens have no access to clean water and electricity, and, among many other socio-economic ills, crime and unemployment are still widespread.

As we seek to improve the livelihoods of each and every Zambian, therefore, we should put our political alignments, tribal identities, religious convictions, and professional affiliations aside and work together as a nation. As one Biblical verse advises us, “a house divided cannot stand.”

AUTHOR

Henry Kyambalesa is an Adjunct Professor in the School for Professional Studies at Regis University, Denver, USA, as well as an Independent Business and Management Researcher and Consultant. He is has written a number of books and regularly reflects on issues facing Zambia.

↧

Policy Chaos at BOZ

November 29, 2013, 12:32 am

≫ Next: Zambia on Strike

≪ Previous: The PF and Intra-Party Violence

Policy confusion continues to rock the Bank of Zambia (BOZ) as the Kwacha slides further. BOZ is struggling to halt the depreciation of the currency which is now at its weakest level in five years. And they do not know what to do.

Media interviews with leading figures at the BOZ suggests that the Bank is lost for options. BOZ's Financial Director Emmanuel Pamu says the Kwacha is merely on a “random walk" and that BOZ is not "concerned too much" because it expects "some correction.” He believes that the kwacha will be in “equilibrium” at a rate of 5.30 to 5.40 per dollar. A surprising hint that PF is now resigned to a Kwacha at that level at best. Is this the new policy?

Pamu's position contradicts the BOZ Governor Gondwe who admits the political problems associated with the sustained sharp slide. He us promising that BOZ is "looking at mopping up liquidity in the economy and a lot other measures". He assured journalists this week that BOZ will intervene to reverse the situation.

As I have recently noted, there's actually nothing that BOZ can do apart from reducing volatility. This is for two reasons. First, Zambis'a foreign reserves are dwindling. They are currently just at 2 months of import cover. This is below the Government’s 2013 target. Reserves have continued to fall over the last year as BOZ first tried to keep the Kwacha at strong level, then started directly funding Zambia's oil import bill and debt servicing. GRZ has recently moved to halt these practices in an effort to stabilise the reserves. Any return to artificially maintaining of the Kwacha will erode the reserves substantially!

Secondly, the factors eroding the Kwacha are on the fiscal and political side. The Kwacha has substantially eroded in value since PF came to power in 2011. There is little confidence in the Finance Minister Chikwabda's ability to manage national finances - or PF macroeconomic policies in general. A recent IMF statement warned that GDP growth in 2013 is weaker than expected (2013 growth is only 6% against the 7.3% in 2012).

But more worrying is that Zambia faces significant economic challenges in the fiscal area as concerns escalate over the inherent weaknesses in our macroeconomic fundamentals. It is noticeable that the Kwacha's current sharp fall has coincided with the Fitch downgrade and the worsening economic outlook by Standard and Poor.

Political we have significant chaos which has diminished confidence in the long term economic and political direction of the country. Recent policy initiatives have sent all the wrong signals. The deportation of important investors, confusion on export taxes, corrupt allegations among PF ministers, especially against Finance Minister Chikwanda, political infighting among ministers and reckless borrowing without sustainable plans to repay all sends wrong signals.

Put your seat belts on - 2014 is looking very bumpy indeed. Unless Chikwanda starts heeding the advice that I have been pumping out throughout the year. How worse do things have to get for him to listen?

AUTHOR

Chola Mukanga | Economist

↧

Zambia on Strike

December 1, 2013, 1:42 am

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The Government is facing increasing industrial strikes by public sector employees. Nurses and midwives in many parts of the country, including major cities of Lusaka, Livingstone and Ndola have been on strike again just over a month after calling off a 7-day strike. The workers resumed work last month believing that government had promised to address their grievances, only for Health PS Peter Mwaba to refute any promises. (Source: ZNBC, MuviTV)

The nurses alongside other public sectors workers who were promised by GRZ wage increases of up to 200 percent. But somewhere along the line the political promises and the final written bargaining package did not match. What politicians hailed the "unprecedented rise" in public sector wages, for some people it turned out to be a mere 4% rise. That is what sparked off the protest. According to Leonard Hikaumba (ZCTU) the workers are willing to go back to work "as long the government comes out clearly on the position of what they had promised".

Workers at the Luapula Water and Sewerage Company (LWSC) went on strike this week over delayed three months salaries. LWSC Managing Director Sebastian Chilekwa says the reason workers have not been paid their salaries is because the company is not collecting enough revenue to meet the wage bill. He has requested GRZ to assist the company with a grant of K1.9 million to clear the outstanding wage bill. (Source : ZANIS)

Government has also been facing more strikes in the legal world. This week it announced that it has dismissed 18 state advocates for engaging in what it described as an ‘‘illegal industrial action’’ demanding K3,600 non practicing allowance which is said to have been abolished. Of the 18 dismissed state advocates, 16 are female lawyers. For the past two weeks the state advocates were reporting for work but did not attend to cases or go to court which resulted in cases being adjourned and piling up at the ministry. ( Source : Daily Nation)

The public sector wage demands are a huge problem for the PF government because having blown the fiscal deficit this year, it agreed with the IMF important cost cutting measures to restore fiscal credibility as part of its Article IV consultation. The 2014 Budget optimistically projects a 6.6% deficit next year, off the back of a budget 30% larger than the 2013 budget.

To meet this 6.6% deficit projection, Chikwanda is planning to borrow substantially abroad most of it going on towards meeting the wage increases from last year. A $1bn Eurobond is planned before Christmas. He also promised to implement a wage and hiring freeze to keep a lid on spending. But this is problematic because the pressures on wage increases are becoming difficult to contain. So the borrowing surely must now rise substantially.

Many sector employees are not happy with what has been delivered from the last wage increases. Especially havIng now seen GRZ increase ministerial and presidential salaries again. Private sector wage increases in mining (at 25%)and other sectors to competitive wage bargaining, as expectations are wage inflation revised upward. In addition, some workers expect GRZ to tread softly with their demands given its stance with Konkola Copper Mines.

The other pressure on the wage bill is coming from future policy plans. GRZ is planning to build 220 new primary and secondary schools, 3 new teacher training colleges, 5 new trades training institutes, 650 health posts and infrastructure for new districts and provincial capitals. These things require hiring workers on higher wages than currently (the new demands affect future employees).

The upshot of all this pressure is that Zambia is becoming increasingly in debt, even as the Kwacha weakens, credit rating worsens and debt repayments go up. Zambia will definitely break the 10% fiscal deficit barrier in 2014, and of course missing the fiscal target two years in a row. Wherever you look the macroeconomic fundamentals are being eroded. It is important that PF and Zambians realise that there's much to economic policy than merely infrastructure development.

AUTHOR

Chola Mukanga | Economist

↧

List of Prominent Zambians For A "Windfall Tax" On Mining

December 2, 2013, 11:00 am

≫ Next: Windfall Tax Debate Returns

≪ Previous: Zambia on Strike

This post is regularly updated with quotes from leading analysts and public figures urging the government to reintroduce the windfall tax. Please scroll to the bottom to see the latest contributor :

"It is an injustice for the government to only collect US$ 77.6 million from copper exports valued at US$2.9 billion. And I do not see that the mines themselves in their heart of hearts would consider it an injustice to pay extra more"

ANDREW SARDINIS
(Author, A Venture in Africa)

“Why would any patriotic citizen or leader stop that windfall tax? That issue is so crucial such that the civil society and ordinary citizens will continue to argue they must impose that tax...I am also urging Parliament to reintroduce this topic and even if they get defeated, they must ask for a division and we must know which people are supporting the government over this failed and imprudent manner of taxing the mines. They should be named during the campaigns that these are the people who refused to have taxes imposed on the mines and let them go to the Copperbelt and campaign on that basis.”

BOB SICHINGA
(Economic Consultant)

“The government seems to have deliberately chosen to allow Zambians to continue wallowing in poverty. They are not showing that they are listening to the people. The copper that is being mined will run out one day. Even the investors whom they are being protective about, look at the poor types of jobs and wages that they are giving our people. If they say they won't re-introduce windfall taxes because this would scare away investors, in whose interest are these investors existing if Zambians cannot get any meaningful benefits from their investments?"
- PATRICK MUCHELEKA
(Executive Director, CSPR)

"His attitude that he doesn’t care and no more questioning of removal of windfall tax, is retrogressive. He is a President who does not care about the welfare of his people. The wealth of his country is taken away by other people"

- PATRICK CHIBUYE
(Mpika Catholic Diocese)

Update (19 November 2010) :

"It has become a joke in the West that foolish Zambians will give you everything you ask for while they humiliate themselves by walking naked. This quote is from a so-called good investor in Zambia....I have heard numerous rubbish from the government that if they increase the taxes, they will deter investors coming to Zambia. This is nonsense and a sign of lack of ability as they do not grasp the world climate on the economy...."

"So the prices will keep high and going up. The newcomers will be many, perhaps we, ourselves under ZCCM-IH can join or takeover and approach the mining sector as a business this time. If somebody tells you the investors will pack up and go from Zambia, they are either making false statements or they simply do not understand the word economics especially as it relates to supply and demand of copper in the open-market.."

"Nobody will do it for us. Before, we gave everything to the British and now it is the so called "new investors". Good investors with a heart will accept tax of eight per cent on royalty and 25 per cent on windfall. I will bring in another local tax for local communities of two per cent on mineral rights that goes directly to the development of the Copperbelt and other areas. For investors, these are peanuts, but mean a lot to us Zambians. We are rich on paper but still run a kitchen economy. Why?"

- CLIVE CHIRWA
(Professor, Bolton University)

Update (26 November 2010) :

"This is scandalous, to say the least, to get less than ten per cent of the total revenue from a commodity which is not replaceable. What these people who are calling for windfall tax are saying is very important. Let Honourable Musokotwane forget the name ‘windfall tax’. If they are so scared and are afraid of windfall tax because it came in Mwanawasa’s speech, because it came in Magande’s budget, let them find other names that are suitable to their ears and their tongues, as long as it earns more money out of what is being extracted and leaving holes for us.."

- NG'ANDU MAGANDE
(Former Finance Minister)

Update (26 November 2010) :

"It is hard to understand why Dr Musokotwane is coming out so strongly against the re-introduction of windfall tax when that is what Zambians want. In fact, I have not heard any mining company oppose windfall tax as strongly as Musokotwane and President Rupiah Banda"

- SIBANZE SIMUCHOBA
(Lawyer)

Update (26 December 2010) :

"The windfall tax should be reinstated with some modifications to accommodate the concerns expressed by mining companies but not to the detriment of Zambians...Zambia should get a fair share, 50/50 share because we are partners with these investors. Zambia’s contribution is the resources, and the investor’s contribution is the investment....f this is what he said, I am sorry to say that it was a misrepresentation of facts. To the best of my knowledge, at no time did president Mwanawasa make a decision to scrap the windfall tax. What had happened was that the mining companies did not object to the windfall tax. They had concern with the method of calculating that tax"

- JACK KALALA
(Former State House Special Assistant)

Update (2 January 2011) :

“The MMD under president Mwanawasa made some reforms with the introduction of the minerals taxation Act which introduced the windfall tax, but with Rupiah’s arrogance, calls for the re-introduction of the windfall tax are falling on deaf ears...”

- CHARLES MILUPI MP
(ADD President)

Update (4 January 2011):

“Granted they are in power today, they should make sure they do according to the will of the Zambian people who put them there... In fact, the Zambian people are the owners of the land and the copper. If they make a decision which is not in favour of Zambians, then this should be justification to kick them out this year when the election comes because they have failed to do the will of the electorate....It is sad that this irresponsible government of the MMD must continue to argue that we will benefit through the corporate tax and not the windfall tax....We in the PF are saying posterity will judge these people harshly and those who will not survive will be hiding in shame.”

EMMANUEL CHENDA
(PF National Treasurer)

Updated (8 January 2011):

"Can you imagine Nigeria is a far much greater economy than Zambia but they have introduced windfall tax on their oil, but here we don’t have? The people in front of us (leaders), they have eyes but they can’t see, or they can see but are not just interested...They are indifferent, because if we have more money we will put up another university in Namushakende. We will build bridges. People are living in squalor in Misisi; we will build new houses as our friends are doing in other countries. But somebody is sitting in an air conditioned office at the Ministry of Finance and says ‘we can’t collect windfall tax’, and the President is watching."

EDITH NAWAKWI
(Former Finance Minister, FDD President)

Updated (13 January 2011) :

“I know it is important to safeguard investments but the large corporations should also not be allowed to milk the country instead of helping it to grow....If they the government don’t like the word windfall tax, let them replace it. It doesn’t matter if they change the name, but whatever they will come up with should translate in increasing revenue collections to improve the lives and welfare of the people.”

LOVE MUTESA
(Ambassador, Chairman CUTS International - Zambia)

Updated (19 January 2011) :

“We pushed for the introduction of windfall tax in 2008 because we realized that it was time for Zambia to benefit from its on mineral wealth but the government thinks otherwise and believes that we can still make enough money from variable taxes, which are not enough because miners pay a fraction.”

SAVIOUR CHISHIMBA (DR)
(President, UPP)

Updated (11 February 2011) :

"This report is very damning on the part of the mines and should be seen as a wake-up call to government....And this should not be politicized. This report means the problem may not only be confined to Mopani, but it maybe symptomatic of more complex, much longer and wider problems in the mining sector. Although this report maybe preliminary, it shows the inadequacies of our tax system.

The government has not really, maybe them mines, realise that compliance to the country’s tax policy is important....When you had the former president late Mwanawasa announce the windfall tax, a number of them foreign mining firms refused to pay. Now, you are talking about the government negotiating with the mines to pay that tax obligations. Where do you hear negotiations on that policy? Now, they are even refusing to have them auditors access to valuable information.

In light of the revelations of the audit, the windfall tax is the only tax that can secure what the government can get"

OLIVER SAASA (PROF)

Update (13 February 2011):

"If not properly checked, multinational companies such as Mopani and many other mines will continue to under invoice and under price for purpose of tax avoidance and evasion. So it is time to come up with a tax regime that is easier to enforce and collect revenue and also to compel the mines to do more on corporate social responsibility since copper is a waste asset and soon we shall very negative environmental liabilities"

FRED MUTESA (DR)
(ZED President)

"The unpleasant thing is that we have lost money because of the adamancy by Situmbeko and Mwale who insist that the mines are not making profit. In 2008 during debates to amend the mines and minerals Bill, I proposed the establishment of a Minerals Accountability Directorate which should monitor from extraction to finished products and come up with independent figures and then advise ZRA on how much to collect as revenue since ZRA lacks capacity to genuinely tax the mines."

MWENYA MUSENGE MP
(Nkana Constituency)

Update (16 February 2011):

"This government's tax regime is not providing enough [revenue]. I am condemning the investors for failing to even pay what is due to Zambians...This high price of copper at US$10, 000 per tonne will only be there for a short time and after that the Zambians will have nothing to show what they benefited from it. We need to have something to show to our children when copper is gone that this is what we built from the copper taxes."

YAMFWA MUKANGA MP
(Kantanshi Constituency)

Update (3 March 2011) :

“People are not benefiting enough from the mining sector compared to the people who run these mines. The resources that are obtained from the mining sector are not trickling down to the poor people of Zambia. Out of the whole mining revenue we are only getting about three per cent which is totally unacceptable…Other countries like Chile are getting more than US$40 billion from the mines. That is why we are calling for the windfall tax in order to bring the benefits closer to the people. But what we are dealing with is a government that is siding with the mining companies; a stubborn government that does not want to listen to its people. It is clear that they are not on the side of the Zambian people”

WYLBUR SIMUUSA
(Nchanga Constituency)

Updated (1 October 2011) :

"Allow me to thank God, the genuine church leaders, The Post and the people of Zambia for the success of the just-ended elections. However, there are many things in government that need overhauling promptly. The new government should as soon as possible tackle windfall tax, labour issues, investment policies and decentralisation."

FATHER MWEWA
(Catholic Church)

Updated (21 November 2011) :

Many people were demanding that the Zambian people should benefit from the country’s mineral wealth. They were expecting the PF Government to adequately tax the Mining Sector to generate financial resources in order to provide better roads, schools, hospitals and other infrastructure. The people were calling for the re-introduction of windfall tax on copper revenue. With copper prices remaining above US$7,000 per tonne, the mines are still gaining unexpected income which is above the planned threshold of US$2,500 to US$3,000 per tonne to make profit. The PF campaigned on the platform of re-introducing the windfall tax. What has changed?

UNITED PARTY FOR NATIONAL DEVELOPMENT
(Response to 2012 Budget)

Updated (27 March 2012) :

"We shall never be tired to call on the government to introduce windfall tax. We live in one of the richest countries in Africa amidst some of the poorest people in the world. This paradox of poverty is simply unacceptable"

PHYLLIS CHIKULA
(Platform for Social Protection Zambia)

Updated (27 March 2012):

"The Council of Churches in Zambia is one such organisation which has maintained that windfall tax was one way of ensuring that fair taxes are paid by investors in mining companies so that the proceeds could be used to develop the nation and make Zambia a better place for all but to be referred to as 'lunatics' and to dismiss the opinions of others with such strong words is unfortunate because it reduces the intelligence of others. At that time, it was our hope that they knew and they understood and fully appreciated the complexities and intricacies of the matter for them to come to that conclusion. It is unfortunate that six months down the road this campaign issue has become an issue that is only discussed by lunatics which sweeping statement may include some of the PF campaigners of windfall tax before the elections"

- SUZANNE MATALE
(Council of Churches General Secretary)

Updated (26 May 2012) :

"It is betrayal of its people for a democratically-elected government to set conditions that support or favour the investors. The story about ensuring that the goose is not killed should be viewed also from the point that we should not let the geese become so powerful as to start dictating how many eggs it should contribute. Any investment should not disadvantage locals….A walk to the Copperbelt tells the whole story; all roads leading to all major mining towns are in deplorable state and are death traps….The government needs to start governing instead of protecting the interests of investors…..Our greatest challenge is the unclear tax system for the country. Firstly, there are so many taxes in the sector, some of which are conflicting, and are responsible for the misunderstanding that is created when companies start giving their total contribution to the treasury. We need tax policies and systems that can be understood by all; at the moment, there is a system that works for and is only understood by government and sector investors…..Zambians are justified in their speculations and cannot be blamed for concluding there is corruption and abuse of authority in the whole process”

NSAMA CHIKWANKWA
(CCZ Social and Economic Justice)

Updated (3 June 2012):

"The PF government should consider introducing windfall taxes...The benefits of a windfall tax include proceeds being directly used by governments to bolster funding for social programmes. The profits that will come from the tax should be reinvested to promote innovation that will in turn benefit society as a whole"

- MAUREEN MWANAWASA (Former First Lady)

Updated (8 June 2012):

“One of the things that we have not been good at is demanding answers. We have been told it is not practical to introduce the windfall tax and I think we haven’t really asked the question around what practicality they are talking about...Can somebody break it down for us in figures so that we are able to understand that what we are calling for is indeed ridiculous…can they (PF Government) demonstrate to us so that when we look at these figures we will be able to say there is something truthful in what they are telling us. We shouldn’t be content with answers like ‘you are lunatics’. Yes we are lunatics but even lunatics sometimes get to a level where they want to know"

PAMELA CHISANGA
( ActionAid Country Director)

Updated (12 June 2012):

"Mr Sata was on the Copperbelt asking people to give him more time; who told him to talk about the 90 days when he had a five-year mandate? That's corrupting people's minds. It is sad for Zambia to have leaders who keep on changing goalposts. Let them concentrate on fulfilling their promises to the people of Zambia. They should put more money in people's pockets, lower taxes, create jobs for the youths, and do something about the windfall tax and the Barotse issue."

EDITH MATAKA
(MMD Chair Copperbelt)

Updated (30 October 2012):

It is time those things which were put in place to help the mines survive the 2008 crisis are reversed so that the sector begins to benefit even the ordinary people....after analysis and reflections this year, where we tried to look at other possibilities of the government raising more revenues, we still arrive at the same position and this position is that we should have reintroduced the windfall tax years ago...We still feel windfall tax is the best option as copper prices are currently still high. We feel that the windfall tax as a matter of agency be reintroduced. This is in view of other taxes which are not performing as much as they should; and this is the variable profit tax.

SYDNEY MWANSA
(Civil Society for Poverty Reduction)

Updated (7 November 2012):

The country has lost another opportunity to get benefits from the country’s endowments. Introducing windfall tax is the only way the Government can get revenue instead of ordinary citizens subsidising the mines..

TOMMY SINGONGI
(Consumer Unit Trust Society)

Update (8 November 2012):

The witnesses that appeared before [parliamentary committee on estimates] expressed concern on the low tax contributions to the budget by the mining sector despite high copper prices, yet the sector constitutes three quarters of the country’s exports...The low tax contribution by the mines in the midst of high copper prices has kept the call by people to continue advocating for windfall taxes.

HIGHVIE HAMUDUDU MP
(Chairperson, Expanded Parliamentary Committee on Estimates)

Updated (1 December 2013):

For us to have money to do everything we want to do, windfall tax should be reintroduced, and that's the only way we can get money from our copper. We cannot tax them Pay As You Earn tax; they will always declare losses, so there is no tax on that. So the only way these resources are taxed is by windfall tax. Anywhere in the world, whether it is in Botswana or America or Norway, it is that turnover tax which is done, even in the oil industry...Minister of Finance Alexander Chikwanda called those calling for the reintroduction of windfall tax as lunatics, but he is wrong. All over the country, all the economists have said it should be done...Even the PF in their campaign they advocated the same thing.

MBITA CHITALA (DR)

(Executive Director, Zambia Research Foundation)

Updated (2 December 2013):

We have time and again asked the government to introduce windfall tax, if you need to raise revenue, tax those that are creating massive wealth in this country...Tax the mines because we all know that when they create wealth, this wealth goes out of this country, we all know that when a poor person creates wealth in Zambia, they will use it to increase productive capacity of our economy.

CATHERINE NAMUGALA MP

(Mafinga Constituencey)

The mining sector appears to be the only option to avoid over borrowing because what is coming out from this sector is not enough..It is very sad that the PF government campaigned on the premise to come and restore the windfall tax, but that has not happened...People are pretending as if they are irritated by what is happening. You all know where the tax avoidance is coming from; you all know the under-pricing that is taking place in the mining sector and you know what you are supposed to do, but you are not doing it...This is why the perception out there is that there are some people who seem to be benefitting from what is going on in the mines and that is unacceptable.

PATRICK MUCHELEKA MP

(Lubasenshi Constituency)

↧

Windfall Tax Debate Returns

December 2, 2013, 1:53 pm

≫ Next: Politics of Windfall Tax

≪ Previous: List of Prominent Zambians For A "Windfall Tax" On Mining

Mbita Chitala has joined an increasing band of people that have resumed the call for the reintroduction of the windfall tax on minerals to capture large profits being made by mining companies. He is urging Zambians to continue demanding the reintroduction of windfall tax if we want the country to develop :

"For us to have money to do everything we want to do, windfall tax should be reintroduced, and that's the only way we can get money from our copper. We cannot tax them Pay As You Earn tax; they will always declare losses, so there is no tax on that. So the only way these resources are taxed is by windfall tax. Anywhere in the world, whether it is in Botswana or America or Norway, it is that turnover tax which is done, even in the oil industry...Minister of Finance Alexander Chikwanda called those calling for the reintroduction of windfall tax as lunatics, but he is wrong. All over the country, all the economists have said it should be done...Even the PF in their campaign they advocated the same thing." (The Post, November 2013)

Many people have called for the reintroduction of the windfall tax but nothing has been done [See the regularly updated post - List of Prominent Zambians for A Windfall Tax on Mining]. Earlier this year Finance Minister Alexander Chikwanda signalled that Government was considering introducing new "tax measures" in mining to boost revenues :

"We will introduce measures and relook at the tax system in the mining sector. Our mining sector has not contributed much compared to the rest of the region. So we want to engage local experts and ensure we have the statistics on mineral production and exports, and then we will find modalities to effect new tax measures to increase revenue collection..." (Times of Zambia, February 2013)

Dr Chitala is right that many people continue to call for reintroduction of the windfall tax nothing has been done, including leading PF ministers when they were in opposition. But nothing has been done. If anything what has happened is that mining companies have been in secret negotiations with Government to reduce burden of taxation. It was out of those secret negotiations that the mining companies seemed to have to have secured the removal of the 10% export levy introduced last year on unprocessed mineral exports. Only of course to be recently stopped by President Michael Sata who appeared to have been blind sided in the discussions. KCM has been one of the leading companies pressuring government helped by the Chamber of Mines, Economics Association of Zambia and Mines Minister Chris Yaluma.

Chris Yaluma has not stopped just with support them. He recently announced that plans to cede control of ZCCM-IH. “We are not looking back, but looking forward and getting the mining houses TOTALLY into private hands...We have gone past nationalisation and we are not going back.” (Bloomberg, October 2013). Government currently owns about 87.6% of ZCCM-IH which in turn owns minority shares in a number of mining houses, including KCM. Yaluma’s wants not merely a reduction to shares in ZCCM-IH below 50% as some have suggested, but potentially completely selling its shares and allow individuals (most of them likely to be foreigners) to purchase shares in ZCCM-IH. He wants KCM to run its mines without a government share! Mr Sata actions in recent days suggests that he does not share that view.

In short the government’s position on mining is very chaotic and contradictory. They do not know whether they are coming or going. The fundamental problem in Zambia as far as mining is concerned is a very simple problem which is always missed by everyone. The problem with our mining policies is that they are party political policies, not policies of the Zambian people. Everyone needs to remember that to have good mining policies, it is not just about changing taxes or laws, it is how they are changed. Policies forced by politicians without a Green or White Paper - and therefore without public consultation - will do nothing to build a lasting environment for growth because it will have no full buy-in of all Zambians. Lack of consultation and unilateralism is hurting our country in many areas.

We talk about "one Zambia, one nation", but in my view right now there's nothing "one nation", as far as mining policy is concerned because successive governments have treated it as personal to order without the participation of the people. As long as that continues every government that comes along will constantly change its mining taxation policies because we are making policies in dark corners rather than with full consultation. Zambians are crying for a Zambian solution to our problems, not a PF or NAREP or MMD solution. PF and mining companies have to realise it is in everyone's long term interests to push for transparency within a publicly agreed framework. Anything else is not sustainable. The approach should be consultative and transparent. Only that will deliver stability in mining policies and facilitate long term investment. But they won't do this because they only think of today and their pockets!

So in as much as I am sympathetic to Dr Chitala on the need for the reintroduction of the windfall tax, I believe a better approach is to push PF to set out a comprehensive national policy on mining. And let them consult with the people for a good period of time. Let us all comment and debate on it - what mining policy do we wish to have? And then let it be implemented after parliamentary scrutiny - and let it stand the test of time. Mining is too important to be left to the care of few individuals no matter how smart or well intentioned our politicians may be. It is a national issue - and the way PF and previous governments have approached it is a complete disgrace.

AUTHOR

Chola Mukanga | Economist

↧

Politics of Windfall Tax

December 4, 2013, 3:55 am

≫ Next: Policy Direction on Transport and Communication

≪ Previous: Windfall Tax Debate Returns

MMD MPs led by Catherine Namugala are now crying for the windfall tax that they worked very hard to scrap against the wishes of all Zambians :

"We have time and again asked the government to introduce windfall tax, if you need to raise revenue, tax those that are creating massive wealth in this country...Tax the mines because we all know that when they create wealth, this wealth goes out of this country, we all know that when a poor person creates wealth in Zambia, they will use it to increase productive capacity of our economy."

A bit of history might help us to put things in perspective. In January 2008 President Levy Patrick Mwanawasa (LPM) announced that Zambia was breaking the huge milestones hung around her neck by the Chiluba administration. Mining Development Agreements (DAs) were going to be abolished and replaced by a new fiscal regime. Under the LPM changes the corporate tax rate for mines was set at 30%, mining royalties on base metals at 3% of gross value (up from 0.6% in most DAs), and withholding tax on interest, royalties, management fees and payments to affiliates or subcontractors in the mining sector were set at a rate of 15%.

While many of these measures, especially the increase of royalties had largely been anticipated, the introduction of a windfall tax on base metal revenues and the profit variable tax – took the mining companies by surprise. The windfall tax was to be triggered at different price levels for different base metals. For copper, a price between US$ 2.50 – US$ 3.00/lb attracted a windfall tax of 25%; between US$ 3.00 and 3.50, 50%, and 75% for prices above US$ 3.50/lb. At the time of the changes, copper prices were around the US$ 3.60 level, sufficient to trigger the maximum windfall penalty. The reaction of the mining companies was total uproar, threatening Zambia with legal action and other bullying tactics. LPM stood firm.

Fast forward to November 2008. LPM has died and Rupiah Banda (RB) is the country’s fourth president. His narrow ascendancy was greeted with cheers by the mining companies and their supporters, predicting gleefully: "It appears that the onerous tax rates enacted into legislation in Zambia earlier this year are likely to be significantly watered down”. It wasn't long before the global downturn was going to be used by RB to justify removing the windfall tax, “we must ensure that we do not kill the goose that lays the golden egg. There is little point in taking in a few million dollars in tax if thousands of jobs are lost as a result".

The ministerial chairs were shuffled accordingly to pave way for the changes – out went the Minister of Finance Ng'andu Magande and the Minister of Minerals Kalombo Mwansa was moved to Home Affairs. In January 2009, the Banda administration reversed the LPM changes following what the UK’s Financial Times described as ‘intense lobbying’ of the government by large, foreign owned copper mines. Windfall taxation which at the time was not binding due to low commodity prices was scrapped.

The government also allowed hedging income to be included as part of mining income for tax purposes. A serious setback to our people as it is relatively easy to demonstrate a loss on hedging (and move any profits offshore), allowing companies to further minimise their tax payments. Banda also went further and allowed companies to write off 100% of any investment against tax as depreciation in the year in which the expense occurs – well beyond the international norm.

These changes engineered by Banda and his cronies were a serious act of betrayal to the Zambian people. They removed a tax that was not binding at the time, but which mining companies knew soon would be a big boon for them when base metals prices resumed the expected upward trend. What was left is the standard corporate tax, a mineral royalty of 3 per cent of gross value, and a variable levy on profits. And shortly after the removal copper prices rose and even breached $10k per tonne.

In November 2010, it was announced that following the acrimony of the new fiscal arrangements with mining companies, the government has carved a new development agreement. Mining companies were offered a new fiscal stability period as part of the deal for them to pay legally mandated tax revenues owed to the Zambian government from previous windfall taxes. The then Finance Minister Dr Musokotwane was on hand to declare “it has been agreed that a fiscal stability for a period of ten (10 years) be given to companies that will accede to the new tax regime. The stability will apply to corporate income tax, capital tax allowance, mineral royal and profit variable tax”.

The action was against the spirit of the Mines and Minerals Development Act 2008 which calls for greater parliamentary say in such arrangements. It continued much secrecy regarding new DAs and the status of existing ones (e.g. Lumwana). To many Zambians, it is bad enough that new DAs were signed, what was even more shocking is that they remain secretive.

The PF in opposition along with many people supported the reintroduction of the windfall tax. Zambian Economist keeps a list of people who have supported the windfall tax. These include such names such Andrew Sardinis, Bob Sichinga, Mwenya Musenge, Clive Chirwa, Ngandu Magande, Charles Milupi, Oliver Saasa, Wylber Simuusa, Hakainde Hichilema, Edith Nawakwi and Maureen Mwanawasa among many others. On this list we can add think tanks such as JCTR, CSPR and other groups.

To everyone's shock immediately PF won and came to power, the new Finance Minister Alexander Chikwanda started calling people who wanted the windfall tax lunatics : "There is a misconception by external people who feel that we can get more money from the mines. Even internally, they have been many lunatics who think we should involve windfall tax…but the production costs in the mines are very high". I would hardly call this group one made up of lunatics or people who have no access to basic facts. Some people may say the current economic shambles at Finance and BOZ definitely shows where lunatics can be found!

Despite all these concerns, the PF administration continues to defend its intellectually bankrupt position through employing a range of incomplete and often incoherent arguments. Alexander Chikwanda in Dec 2011 said, “It would be unwise for the government to introduce a windfall tax when metal prices are unstable and are usually trending downwards" . A clearly foolish argument because the windfall tax is not binding at low prices!

The cautious joy many Zambians felt with the LPM fiscal regime has now given way to feeling of despair and anger, especially given the strong commodity prices. The strength of this anger stems from an acute recognition of the injustice of the status quo particularly in relation to all the revenue. Billions of dollars are being lost due to ineptitude and unwillingness to act decisively for the poor.

The MMD's new support in the struggle to end injustice in this area is welcome. But Zambians can no longer afford to rely on shifting politicians on this issue! Our history shows that we must cease the economic future on our own. As long as we rely on self appointed political messiahs no change will happen in this area.

AUTHOR

Chola Mukanga | Economist

↧

Policy Direction on Transport and Communication

December 5, 2013, 10:00 am

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This speech is a useful resource on the current policy direction of the government on transport and communication. There are a number of projects I was not aware of until I read this.

Policy Direction of The Ministry of Transport, Works, Supply and Communication for 2014 ; Speech to the National Assembly by Minister Hon Yamfwa Mukanga MP, National Assembly; National Assembly; November 2013

Thank you for giving me this opportunity to outline the policy direction of the Ministry of Transport, Works, Supply and Communication for the year 2014.

As the House may be aware, this ministry is charged with the responsibility of facilitating the construction and maintenance of public infrastructure. It is also responsible for promoting the development of the transport and communication sector in order to contribute to the socio-economic development of our country. It is further responsible for the control of Government transport, office equipment and Government printing. It also provides meteorological services.

Part of the priority programmes for my ministry are as outlined in the Speech given to this august House by His Excellency, Mr Michael Chilufya Sata, the President of the Republic of Zambia during the Official Opening of the Third Session of the Eleventh National Assembly. Further, these are in accordance with the priority programmes in the Revised Sixth National Development Plan (SNDP). Therefore, my ministry’s approach is to ensure that the commitments made by His Excellency the President on infrastructure development projects are implemented through budgetary allocations.

Before I go on to outlining the priority programmes for 2014, allow me to highlight some of the key achievement, for 2013. In 2013, this House appropriated K539,808,010 for my ministry. The following were some of the achievements of the ministry and its agencies:

(i) completion of almost all Formula 1 projects;
(ii) completion of the modernisation of the Harry Mwaanga Nkumbula International Airport in Livingstone;
(iii) commencement of the implementation of Phase I of the Link Zambia 8,000 km Road Project, under which 1,500 km of roads is being constructed;
(iv) commencement of the Pave Zambia 2,000 km Road Project;
(v) construction of housing units at border posts to ease housing problems for immigration and other personnel in the border posts at Katima Mulilo and Nakonde;
(vi) commencement of the Lusaka 400 km (L400) Road Project;
(vii) completion of the National Heroes Stadium in Lusaka;
(viii) construction of One-Stop Border Post at Katima Mulilo and Nakonde Border posts;
(ix) establishment of eight automatic observing weather stations in the Eastern, Lusaka, Muchinga and Southern provinces;
(x) commencement of the E-governance Programme which aims at improving Government services to the public and lowering the costs of doing business;
(xi) starting of the pilot project for the National Addressing System/Post Code;
(xii) rolling out of the 169 communication towers by the Zambia Information Communication Technology Authority (ZICTA) countrywide in chiefdoms;
(xiii) procurement of two dredgers for the dredging of canals countrywide;
(xiv) introduction of 20 per cent local contractor access;
(xv) improved services offered by the Zambia Postal Services (ZAMPOST);
(xvi) introduction of a logistics company at ZAMPOST;
(xvii) commencement of sim card registration; and
(xviii) revamping of the Zambia Railways Limited (ZRL) and Tanzania-Zambia Railways (TAZARA).

I wish to thank the hon. Members of Parliament for supporting our Budget for 2013 which has enabled my ministry to successfully implement these important programmes and I look forward to the same support for the 2014 proposals.

Let me now focus on the 2014 Budget for the ministry. In 2014, we are proposing to spend K864,138,902. That is an increase of 37.5 per cent from the 2013 Budget due to the massive infrastructure development projects to be embarked on in 2014.

A good road network is a recipe for sustainable development. It is, therefore, pivotal for fostering trade, economic growth, production and social development. My ministry will, therefore, continue to implement the various road network projects, such as the Link Zambia 8,000 km Road Project, Pave Zambia 2,000 km Road Project and L400 Road Project, to ensure an improved network. The implementation of the road projects will continue to contribute to job creation as well as enhance local trade and regional integration.

The Government will fully implement the Pave Zambia 2,000 km Road Project that will see 540 km of the road network covered in 2014. The project is designed to create jobs for the people of Zambia in accordance with our PF Manifesto.

The ministry will also facilitate the implementation of the L400 Road Project to upgrade the roads in Lusaka. The L400 Road Project will see the construction and upgrading of 400 km of the road network. These road projects outlined above, will contribute significantly to job creation. About 40,000 jobs will have been created by the year 2014 from this sector alone.

In order to ensure the sustainability of good road conditions, my ministry intends to construct a number of toll gates on selected major roads. As we roll out the road construction, we shall prioritise road safety awareness and sensitisation, as well as implementation through the Road Transport and Safety Agency (RTSA).

My ministry recognises the important role that the aviation sub-sector plays in promoting trade and investment and, in particular, its contribution to the tourism industry. Consequently, the 2014 Budget will seek to support the procurement of radar systems for the Harry Mwaanga Nkumbula and Kenneth Kaunda International airports to ensure safety in air navigation. To enhance access to tourists’ destinations across the country, my ministry will prioritise the rehabilitation and upgrading of aerodromes in selected districts to ensure that we focus on a few projects and achieve results, given the available resources.

My ministry has initiated measures to establish a national flag carrier. We intend to actively pursue the objective of securing the necessary partnership and equipment required to achieve our desire for a national flag carrier. Already, consultative meetings with selected stakeholders to ensure the establishment of a national flag carrier are being held. My ministry has also accelerated the transformation of the Department of Civil Aviation into an authority to ensure professionalism.

The water transport sub-sector has received very limited attention in the past despite its huge potential for the transportation of both goods and people. This coming year, we intend to prioritise this sub-sector and develop and manage water infrastructure across the country so as to increase the utilisation of water bodies. The Government intends to procure additional dredging facilities and to distribute the equipment to various major water bodies. This will improve the state and condition of the waterways. Further, my ministry will procure large water vessels for Lakes Bangweulu and Tanganyika to ease water transportation on these large lakes. In addition, programmes to improve handling facilities at the Port of Mpulungu and other harbours will be implemented. It is my firm belief that the development of the Mpulungu Port will contribute to increased trade with the Great Lakes Region. The Government will also construct and rehabilitate a number of marine infrastructure such as landing jetties, quays, passenger shelters and warehouses on a number of harbours across the country.

To ensure the efficient utilisation of water transport across the country, especially on Lakes Bangweulu and Mweru, my ministry will recapitalise the Bangweulu and Mweru Water Transport boards and transform them into commercially viable water transport companies. In this regard, the Government will also purchase passenger and cargo vessels for the Zambezi Waterways and Lakes Tanganyika, Mweru and Bangweulu. In order to bring marine transport services closer to the people, the Government will, in line with the Decentralisation Policy, establish harbour administrations for selected water bodies. This will ensure that the Government monitors the vessel operators to ensure that they comply with safety standards as prescribed in Chapter 466 of the Laws of Zambia. To ensure compliance with this legislation, the Government will procure a number of patrol boats for law enforcement officers.

The Governments of the Republic of Zambia and Angola will soon sign a Memorandum of Understanding (MoU) for the development of the canal which connects Shang’ombo District in Zambia to Livungu District in Angola. On the Zambian side, the Government will construct a modern port at Shang’ombo. During the construction and operationalisation phases, a number of jobs will be created for the local people of Shang’ombo.

The Government, in partnership with the Government of the Republic of Tanzania engaged TAZARA to review its corporate strategy aimed at revitalising its operations. In 2014, the Government will accelerate its effort to ensure that the two railway systems improve their efficiency and contribute to the movement of the bulk goods, thereby preserving the road infrastructure. The Government will also commence the rehabilitation and upgrading of the Mulobezi Railway Line. Bearing in mind the huge capital investment requirements in the rail sub-sector, the Government will continue to engage the private sector through the public-private partnership (PPP) initiative to open up the critical rail line corridors of Lobito, Nacala, Benguela and Walvis Bay.

We also have a regional obligation under the Southern African Development Community (SADC) and Common Market for Eastern and Southern Africa (COMESA) as a member State to facilitate regional trade and develop transport corridor infrastructure. In this regard, I am happy to inform this august House that the construction of the Kazungula Bridge between Botswana and Zambia will commence in 2014.

Information and communication technology (ICT) is an important ingredient in building and facilitating increased productivity and competitiveness. It will always play a key role in achieving sustainable economic growth. My ministry is, therefore, determined to ensure that related infrastructure and services are evenly distributed countrywide, and become more affordable for the majority of the people. To this end, the Government, through ZICTA has implemented a programme to roll out, at least, 169 communication towers across the country in the coming year. As a way of introducing efficiency and reducing costs in the delivery of public services to our people, my ministry will introduce and implement a secure electronic e-Government platform which will enable citizens to electronically transact with the Government. This programme will be rolled out across Government departments and agencies.

The availability of accurate weather information is key for agriculture development, infrastructure maintenance and development as well as the alertness of the citizenry of Zambia. Thus, the ministry will, in 2014, continue investing in the procurement of meteorological equipment and the rehabilitation of meteorological stations, including the headquarters. My ministry will also continue to implement awareness and sensitisation programmes across the country. We will also go into researching on how we can be paid for the services that we provide.

In terms of works, my ministry will prioritise the completion of projects that were initiated in 2013. I wish to point out that the Buildings Department is overseeing the construction of new infrastructure in the new provincial centres of Choma in the Southern Province and Chinsali in Muchinga Province. Further, new infrastructure, including schools, health centres, roads, housing and office blocks, will be built in the newly-created districts. I also want to mention that, as a ministry, we have observed that there is a need to strengthen our capacity to supervise and monitor these projects at all levels. Consequently, the Buildings Department will be strengthened and decentralised to district level so as to ensure that it carries out this very important mandate. Additionally, my ministry will develop and implement an infrastructure maintenance policy to ensure that our investments are protected.

The recapitalisation of the Government Printing Department is one of the main programmes that will be implemented in 2014. My vision is to ensure that the Government Printing Department is strengthened to enable it to print the ballot papers for the 2016 General Elections.

We have made progress towards the achievement of this vision through the procurement of state-of-the-art printing equipment. The ministry will also construct a perimeter wall fence and procure closed-circuit television (CCTV) cameras to enhance security for the Government’s printing department. It is my belief that once this department is fully operational, all major printing jobs will be carried out within the borders of our country, resulting into huge savings. These savings will be reinvested into our economy. This will ultimately result in job creation for the Zambian population.

In conclusion, allow me to call upon all hon. Members to fully support this Vote and ensure that the 2014 budget proposal for my ministry delivered to this House becomes a reality.

↧

Zambia on Strike, 2nd Edition

December 5, 2013, 3:51 pm

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Government has fired more than 250 nurses and midwives for going on strike. Health Minister Joseph Kasonde has informed Parliament in a ministerial statement that the dismissal of nurses and midwives is a lesson to other workers. He says normal operations has been restored at all affected hospitals in spite of the dismissal of some workers as new nurses were being recruited. (Source: The Post)

Those affected are from UTH, Kasama General Hospital, Livingstone General Hospital and Levy Mwanawasa. The nurses, who staged a 10-day strike are demanding 100 per cent salary increment, as opposed to the 4 per cent that was awarded by government. They also want equal work and equal pay, and extra patient allowance, K2,000 monthly housing allowance and K2,000 night duty allowance as well as harmonisation of salaries in comparison with other classes of health workers.

It is a rather interesting development because as we have previously discussed the country faces a gigantic shortage of medical staff. Although progress was made in 2012 to recruit more people, we are still 24,000 short of meeting WHO recommended human resource support. The problem is acute across all areas. There's a long way to go because this sector has been overlooked for so many years.

In terms of nurses alone, we have 0.7 nurses per 1000 population. With a shortage of around 8,000 staff across the country. We have 0.2 midwives per 1000 population. The shortage is estimated at around 3400. And of course the government is constructing 650 health centres around the country that require nurses. Zambia continues to struggle to keep good nurses because of the brain drain to other countries. Firing the nurses is clearly not going to help!

The problem is that these health strikes have become very frequent. And there's a real danger that we may return to the 2009 situation when hospitals shut admission wards and sent many patients home following a strike by nurses over an extended period. In many countries, certain essential staff (e.g. medical staff, police) are not allowed to go on strike because they are so integral to the welfare of the nation. Those who get those jobs go in knowing they can't strike in the event of a pay dispute. The level of pay is set via other nationally agreed criteria.

There were hints last week that this is what the President had in mind when he said:

"If you ask [Labour Minister Fackson Shamenda] nurses did not declare a dispute for them to go on strike but we understand they have children. Those nurses who are strking, they are human beings, they have relatives in hospitals and some of their relatives are dying with them going on strike; probably they would have helped someone who is dying. But I don't want to use this channel to tell you what government is thinking, I will leave it to the MPs to deal with them." (Source: The Post)

The last sentence implies that there may be a law that comes in to stop nurses, police officers and other sensitive "front line" staff from going on strike. I am broadly in support of such a law for this category of workers provided it comes with automatic membership in a single union that represents employees. What I do oppose is firing nurses when the country has a severe shortage.

↧

A Note on Mining Taxation Policy

December 5, 2013, 3:54 pm

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Editor's note: This is a guest post by Kaela B Mulenga (PhD), a resident contributor to Zambian Economist. He is an economist and development consultant based in Canada. You can find him on Facebook and via email

Mineral taxing issues for Zambia have been exhaustively discussed in several of my previous articles. I normally make comments to complement the excellent tax debate found on Zambian Economist (ZE). But somehow the message I propound hasn't sank in with our taxing authorities. Let me elaborate.

I do realize that copper prices do sometimes rise and other times they fall. And that consumer preference does change. Indeed things do happen. With no investors and when customers turn away from buying copper, we lose revenue. I know that. Therefore I am quite concerned about the dependence on copper, which after all one day may no longer be in demand.

In this situation, the solution according to me – would be to diversify away from copper now, and develop a more balanced and integrated economy. But you cannot diversify if you do not have the financial resources. Therefore apart from user fees of all sorts – borrowing and taxing seem to be the main options available to governments for raising revenue.

I prefer that we go the taxing route rather than borrowing money from abroad. I totally agree with Zambian Economist's position [available on Zambian Economist site] – that the biggest drawback Zambia faces is the lack of a long-term tax strategy, which should transcend different Zambian administrations. Zambia is not the only country producing copper – so models on which we can base our taxing policies are already available else where.

In developed market economies, taxing issues are used to sway voters. Lower taxing doctrines are identified with countries where ideologies tend to be socially conservative or Republican. In these countries, household and corporate taxes are lower. On the other hand, liberal or social democratic governments tend to favour higher and progressive tax rates – for, they argue that – that is necessary to encourage national income redistribution.

In fact the two-party political system in USA and UK for example, is driven by tax regimes.

In developing countries like Zambia, where the economies are still weak, and that survival is in general based on raw materials and natural resources – mineral taxes and royalties together with commodity export taxes become important. Rather than selling policies to voters as they do in DCs [Developed Countries], LDCs [Less Developed Countries] politicians have to demonstrate to the investors, the fairness and attractiveness of their tax regimes. Otherwise nobody comes to invest.

In addition, although only a small portion of populations in poor countries have formal jobs, nevertheless, everybody is affected by the taxes levied. Surely even those who are unemployed reap some benefits from roads or flour milling plants once built. In short developed or not, the decisions government makes regarding taxes, therefore, become crucial. Government needs huge amounts of resources to get rid of poverty.

In Zambia we need a taxing policy which can remain in place regardless of which political party or leader is in power. This helps to remove confusion. So far every government which comes in thinks that it knows what is best and has all the solutions. In the meantime while this anomaly persists, foreign investors have a field day extracting all the profits they can get from the country. The differences over the inclusion of windfall tax in the government's revenue making tool box, is a typical example.

The government of Pres Patrick Levy Mwanawasa managed to introduce the windfall tax without any uproar from investors. But Pres Rupiah Banda's (RB) administration reversed it. And Pres Michael C. Sata's PF government, in spite of the fact that in 2011 they campaigned to support it - refused to re-introduce it. This sends a confused message to the investors.

An explanation why Zambia behaves this way is not clear, but there are some hints we can consider. First, I do not believe that Zambians are convinced that minerals – as non-renewable resources will one day get exhausted. Or maybe they fail to visualize that once these resources vanish, it is imprudent not to be ready for that fateful day. Indecision has contributed significantly to the prevailing instability.

Second, we seem not to be convinced that – even though our largest copper consumers would not dump us, China and India like everybody else are also subject to business cycles. This means that their economies too are vulnerable. Irrespective of commodity prices trend, they too will have to be dictated to by the booms and bursts pattern. As the prices rise or fall, they make adjustments in consumption, which means that at some point, their economies would also stop growing. As they reduce purchases of copper, we go down with them.

As sellers of the raw commodities, our goal then should always be to take advantage of boom times. Hence, during periods of good commodity prices, that should be the time when we can maximize revenue and in return economic development. A diversified, balanced and integrated economy should be the priority then.

Third, in spite of Zambia being in the mining business for over 100 years, we seem not to have all the necessary information and critical knowledge on which to base important (production or financial) decisions. Consequently each new investor who comes along continues to bully us because they know that we lack data or info to counteract their actions. The pomposity of Mr. Kishore Kumar of KCM demonstrates this. Although we're living in an information age, facilitated by the arrival of internet, unless one is aggressive, mining information – on mineral prices, costs, inventories, etc., remains a challenge.

Given accurate price and cost information, this could assist Zambia in designing clever tax policy/laws and/or working out effective compliance strategies.

When agreements are being entered into, investors irritatingly continue to manipulate cost information to get favourable terms from our authorities. This is in addition to the false promises they (investors) make concerning job creation argument to get operating licenses.

During negotiations, somehow, the investors' demands overshadows – their access to untapped resources, cheap labour, use of local infrastructure and the large profits they end up reaping during boom years. These people would raise anything they can get, pointing to issues like the cost of doing business in the country and others as a way to demonstrate that they're making sacrifices on our behalf when in fact not.

What I am trying to point out here is that – from the outset, investors' exploitation techniques never stops. Fearful of losing investments, which in turn admittedly is the source of jobs for the people – our governments soften up and give in. Licenses are granted and soft, instead of fair tax codes are imposed.

Thus to please investors, we keep on dancing to their tune. Avoiding windfall tax together with charging lowest corporate taxes, from our point of view, lowers government revenues and hence, brings in fewer resources for development projects.

As if that was not enough, foreign companies, through various means dodge paying taxes. Sometimes they cook books or use tax heavens or schemes to manipulate accounting reports to avoid taxes. In some cases they simply use advanced digital technologies when transferring funds abroad, which our unsophisticated officials fail to detect.

It is against this background I hope that our Finance Minister should reshape Zambia's taxing codes. Some of the things government must address should include: -

(a) A plan to raise sufficient tax revenues during the booms so that we can buffer the valleys of the business cycle. I hope it is not too late. Reliance on foreign borrowing, especially when we are approaching a valley, comes with a lot of disadvantages. One obvious one Zambia has experienced before is that – once the public debt gets too large, the little foreign exchange the country earns goes towards paying only interest rates. This leaves the principal as a burden on the future generations.

We also know that, although a small portion of what is borrowed might go towards infrastructure development, the bulk of it is consumed and not invested.

And by its very nature, foreign debt ties in a country's hands, making "sovereignty" difficult to manage. When we were fighting against colonial domination, I never knew that we would surrender control of the economy back to them in less than 50 years. The benefits of the 7% economic growth are accruing to expatriates and foreigners rather than the local Zambians.

(b) If Zambia is to make ends meet, fair rewards must be reaped from the natural resources we possess, at least when the commodity prices are good. This means putting in place fair tax codes (emphasis on fair) and plugging all tax loopholes so that everyone complies and pays what is due. Otherwise Zambia will never earn its fair share from its natural resources.

(c) We also need knowledgeable locals who can challenge investors when it comes to cost structures, commodity movements and trends, and international mineral and royalties' regimes. Some of these competencies are available around the globe – but it is now becoming doubtful if PF government has an interest in reaching out for them. A lot of brains in Diaspora are being wasted. The consequence of this is that – expatriate influence will continue to dominate policy direction.

(d) Otherwise if we continue on current policies, we'll never get rid off tax policy headaches, that is, allowing foreign investors to continue taking advantage of our weaknesses. Being resolved to attain fairness is noble. Failure to challenge investors where challenge is due, is weakness. And we should not forget that these foreign investors will always be backed by not only their powerful home governments, but also by the World Bank. For us, none other than ourselves will cover our backs. Let us put self- interest above being nice and civilized.

KAELA B MULENGA (PHD)

(Guest Author | Zambian Economist)

↧

Zambia on Strike, 3rd Edition

December 5, 2013, 4:00 pm

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The Zambia Congress of Trade Unions (ZCTU) has warned that President Sata's decision to fire nurses that took part in a recent strike may soon plunge us in an industrial crisis that could paralyse the entire country :

"Let it be made clear that the labour movement is not weak. We have chosen the option of negotiation rather than industrial action but government should not take us for granted...Whoever advised President Sata to fire the nurses made a huge technical error which they will regret....It is highly immoral for Dr Kasonde to start attacking us in Parliament knowing fully that we cannot defend ourselves. If he thinks we are irrelevant, let him not push us. We will not be intimidated. The labour movement does not answer to anyone expect the worker"

It was always obvious that if you fire one worker, others will rightly feel they will be next next time they go on strike. More importantly as long as the fired workers are unionised the union must defend them. Otherwise the unions are not worth the membership.

In general the decision to fire them is tactically poor politically for three reasons. First, it has allowed the ZCTU to reclaim some of its "old magic". Since liberalisation the power of trade unions has been eroded with many of their leaders politically captured. This crisis is ready made for Mwaba to recast himself alongside old ZCTU firebrand leaders. And who knows where that may take him in the future!

Secondly, it has presented UPND a unique opportunity to draw further urban support. HH's decision to fight for the nurses and midwivespresents an opportunity to present himself as a champion of the worker. This was after all Mr Sata's tag not too long ago! PF does not appear to include women workers in its electoral strategy!

Finally, the opposition, trade unions and civil society are now increasingly finding common ground. The current health crisis is against the backdrop of increasing discontent against PF on the u-turn on the constitution, intra party fighting, rampant foreign borrowing, a free falling Kwacha, and allegations of corruption among its ministers.

Dialogue in this instance would have served PF better than rather the "strong man" tactics which are aimed at bullying these women. But I suppose when you are broke as a government it does call for desperate measures. No matter what happens government cannot actually increase the wages being demanded. It is facing a fiscal crisis.

↧

Annual Sabbatical

December 5, 2013, 4:20 pm

≫ Next: MF - Zambia Watch (January 2014)

≪ Previous: Zambia on Strike, 3rd Edition

Dear Friends,

As is customary since I started this blog in 2007, I am taking one month off to recharge the batteries and switch off from social media and active blogging. Over the years I have come to value this period.

This means that I wont be reached through this website, Facebook or Twitter. I also will not be able to respond to non-urgent emails or queries or requests for interviews until 6 January 2014.

Many thanks for your continued readership. Particularly thankful to those who actively take time to feedback on which articles have been helpful / not helpful - and those who always sending across important information. Special thanks to those who have supported the website through donations! The contributions go a long way in keeping this blog going!

It's never too late to help! If you share the vision of this website to provide independent analysis and information on pressing economic issues facing Zambia and want to make it sure it continue, please feel free to contribute towards via the "donate" button on the right.

Wishing you a very special Christmas!

Chola Mukanga | Economist

↧

MF - Zambia Watch (January 2014)

January 16, 2014, 11:09 am

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≪ Previous: Annual Sabbatical

Always good to start the year with a recap of where we left things in 2013. There's no better summary than the press release below from the IMF on Zambia which was released on 19 December 2013 and the Article 4 Report embedded below. The general picture is that GRZ has a lot of work to do in 2014. It faces significant challenges which urgently need addressing. We will pick up the details as we look at the Article IV report in more detail in future posts :

IMF Executive Board Concludes 2013 Article IV Consultation with Zambia
Press Release No. 13/535
December 19, 2013

On December 11, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Zambia.

Zambia has achieved strong and sustained economic growth over the past decade due to improved macroeconomic management and increased copper production; however, risks have over the past year increased with rising fiscal imbalances and lower reserve coverage. Robust output growth continued in 2012 at slightly above 7 percent, driven by agriculture and services, but is slowing in 2013 due to a weaker harvest. Expansionary fiscal policies, mainly from spending on subsidies and wages, have raised the projected 2013 deficit to about 8½ percent of GDP. Rising imports together with weakened copper prices are expected to move the current account into deficit, and international reserve coverage has fallen to 2.3 months of next year’s imports.

Inflation has remained contained as monetary policy has been gradually tightened. With the Central Bank having raised its policy rate in two steps of 25 basis points each, consumer price inflation is projected to stay broadly unchanged at 7½ percent in 2013 despite the withdrawal of fuel and agricultural subsidies earlier this year, as well as the more recent increase in civil service wages. The nominal exchange rate has depreciated recently, but has remained broadly in line with inflation differentials to trading partners.

The banking sector has grown steadily and remains profitable and well-capitalized. Private sector credit growth has started slowing down in 2013 from a rapid increase in the second half of 2012. Nonperforming loans declined to 8.2 percent of total loans in mid-2013 from 15 percent in 2010.

Over the medium term, economic growth is expected to stay strong, averaging about 7½ percent a year. However, this is premised on significant policy adjustment to restore fiscal sustainability and preservation of the investment climate. The authorities are targeting a 3 percent of GDP deficit over the medium term with no more than 1½ percent of GDP net domestic financing. In order to help achieve this, the government is planning a wage and net recruitment freeze for 2014 and is aiming to limit the cost of agricultural subsidies. The central bank aims to build up reserves gradually with the aim to reach 4 months of imports over the medium term.

Executive Board Assessment

Executive Directors welcomed Zambia’s strong economic performance over the past decade, which was underpinned by prudent macroeconomic management over much of this period. Nevertheless, they noted that the outlook is subject to significant risks from the recent widening of fiscal imbalances, reduced external buffers, and volatile copper prices. Directors therefore recommended containing the fiscal deficit, accelerating public financial management reforms, strengthening external buffers, and improving the business environment to help diversify the economy away from mining and accelerate poverty reduction.

Directors called for comprehensive policy actions to address the unsustainable fiscal position following the spike in wage and subsidy spending last year. Noting the rapidly rising public debt and substantial downside risks to the budget, they recommended fiscal consolidation through increased revenue mobilization and a reorientation away from recurrent spending, to create fiscal space for infrastructure investment and control of the public debt. Directors welcomed the authorities’ plans to freeze wage spending in 2014 and limit the cost of agricultural subsidies. They advised that raising the tax-free threshold on personal income taxes runs counter to fiscal consolidation efforts and recommended accelerating revenue mobilization through changes in tax policy, enhanced mining tax administration, and broadening the tax base.

Directors called for strengthening public financial management through improvements in budget planning, fiscal reporting, expenditure controls and debt management combined with stricter oversight and accountability. Strengthening debt management and project assessment capacity is critical, given the planned rise in infrastructure spending and recourse to non-concessional borrowing. Noting the inherent risks, Directors advised against issuance of the proposed sub-national Eurobonds in favor of sovereign bonds, and stressed that all external borrowing should be subject to project appraisal and screened for consistency with macroeconomic stability, debt sustainability and the overall debt management strategy.

Directors agreed that rising inflationary pressures warrant a tighter monetary stance. They welcomed progress in transitioning the monetary framework toward utilizing the policy rate and recommended improving liquidity forecasting and management. Directors advised rebuilding external buffers through enhanced exchange rate flexibility and further reserve accumulation.

Directors welcomed recent improvements in Zambia’s ranking in the World Bank’s Doing Business Index, but called for improved policy consistency. They cautioned that the imposition of lending rate ceilings, restrictions on the use of foreign exchange, and rapid increases in minimum wages could undermine external competitiveness and erode investor confidence. Directors advised that financial intermediation could be better strengthened through enhanced competition and improved efficiency. Directors also recommended that the remaining exchange restrictions on current account transactions be removed expeditiously.

(Source : IMF, Dec 2013)

ZAMBIA 2013 ARTICLE IV CONSULTATION

AUTHOR

Chola Mukanga | Economist

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Debtmania Zambia

January 18, 2014, 4:47 am

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The planned $1bn Eurobond before Christmas did not materialise. It is due any moment in the near future. In meantime GRZ has already been very active on borrowing from other sources. Last month alone Zambia borrowed over $200m. The publicly announced borrowing include :

A loan agreement with European Investment Bank (EIB) worth $102 million (€75m) to support improvement to water and sanitation infrastructure in the Copperbelt where most existing water infrastructure is more than 50 years old. The money will go to Mulonga Water and Sewerage Company (Source : New Europe).

A $38m loan with the African Developmen Bank (ADB) to support to farmers who have been affected by “climate change” to improve their yield. GRZ estimates that the loan will benefit over 800,000 households in six districts across Lusaka, Central and Southern Provinces over the next five years. Daniel Munkombwe worryingly believes “the project will help turn Southern Province into a food basket of the country”. (Source : ZNBC)

A mixed loan and grant agreement with China worth US$66m to be repaid over a period of 20 years. The deal was heralded by Alexander Chikwanda as an effort “to accelerate development". China's Zhou Yunxiao was more circumspect by suggesting how the money is used is to be "discussed by the two governments" (Source: ZANIS)

These borrowing agreements demonstrate the many challenges the country is facing. We are desperate to borrow because we are in a deplorable condition. One only needs to look at the desperate state of our water supply to see that it is on life support. And yet, it is also clear that endless foreign borrowing is not sustainable because we can't borrow our way out of all our problems! There are essentially at least five governance problems with PF's rampant borrowing.

First, it is not evidence based. Securing debt is not necessarily a bad thing if we are spending money on projects subjected to cost benefit analysis (CBA). Unfortunately, we seem to borrow at every opportunity. The causes may appear good on paper but the there's no clear assessment of how various projects compare within a given portfolio. Nor is it clear the extent to which foreign borrowing is a better approach than other policy / finance choices (e.g. raising taxes or private sector funding). Just how are decisions made about what, when, where, why and how to borrow?

Secondly, it is based on flawed understanding. There are people in Zambia who think borrowed money is free. We need to realise that debt incurred today means higher taxes. So no one should be deluded that foreign borrowing is free money. We are taxing future generations by borrowing today! How do we think that external debt will be paid back? It is never wise to build an economy on large foreign borrowing because it makes us poorer in the long term. Especially when many of these loans go on things that are mere enablers of development with no direct short or medium term financial benefits.

Thirdly, it is not transparent. The terms of these loan agreements are not made public. Apart from the Eurobond no one really knows the detailed terms of all the loans we have. This is especially the case for loan contracts between China and Zambia which are essentially agreed by the Finance Minister and President. This lack of transparency makes it difficult to assess how much debt is being contracted and on what terms. It also increases the risk that funds will not be used for the intended purposes and might turn out to be cases of illegitimate debt in the future.

Fourthly, it is largely foreign driven. Many of the debt acquisitions by Government actually are forced on the Zambian people one way or another. Whether through political capture or just general ignorance of the public. This is usually done by foreign governments who lend money to Zambia to achieve their geopolitical goals. When the Chinese give you a loan to buy their fighter planes, it is usually on their terms and for their purposes. This is why Mr Zhou Yunxiao always likes to add that where money is to be spent depends on "discussion" with Beijing.

Finally, lack of oversight. Zambia's debt acquisition rests solely in PF hands and not the Zambian people. There's zero parliamentary oversight because no legal framework in form of a proper Debt Management Bill exists. Government after government has rejected it. Right now the PF government has not published its Debt Sustainability Analysis. So how do MPs really know it is sustainable to borrow? How do they know Zambia can afford to pay back without significant cost cutting in other areas?

All of these points to the need for an overhaul of the debt contracting system. If we have learnt anything from the bad mining development agreements saga is that the Zambian people should have a greater say on long term financial arrangement that their children and grand children will eventually have to pay back. There should be a halt to all external debt procurement by public bodies until that is resolved - not least because Zambia has not fully capitalised on leveraging domestic sources of revenue. We must keep demanding change in this area and never tire! It is our future!

AUTHOR

Chola Mukanga | Economist

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