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Wednesday, 23 December 2015

A new constitution rises!

We have hesitated to comment on the recent passing of the Constitution of Zambia (Amendment) Bill because the final document is not yet public. It awaits presidential ascent.

We do want to make it clear that this is a tremendous achievement for Zambia. The members of parliament are to be congratulated for achieving this impossible milestone.

Most importantly it is good to see that most all the clauses we consistently opposed in various incarnations of the draft constitution were removed. We especially note the following :

BILL OF RIGHTS - The NGOCC famously said, “The Bill of Rights is simply the core reason why a Constitution is needed”. That argument has never made any sense at all! A simple reading of the Bill of Rights section shows that many of them are impractical and unaffordable. There is also a legitimate question whether the constitution is a right place to have such rights!

Thursday, 10 December 2015

Electricity goes down and up!

Government last week increased electricity tariffs for residential and non-mining commercial customers.  Prices to residential consumers have increased by 205%. Non-mining commercial prices have increased by 180%. Social services consumers such as schools, hospitals, orphanages and churches face a 190% increase.

The largest consumer of electricity, mining companies, are exempt from these changes. They do not get their power directly from Zesco. They get it from Copperbelt Energy Corp (CEC) which buys electricity from Zesco in bulk and in turn sells it to mining companies including the local units of Vedanta Resources and Glencore.  CEC already has agreements in place which ZESCO cannot change.

The Energy Regulation Board (ERB) claims the new tariffs are necessary to bring electricity pricing to "cost reflective” levels in order to attract investment.  It suggests that the increases would generate revenue that may facilitate an investment of up to US$3.7 billion in power generation projects. 

However, these figures look more like guesswork because no analysis or evidence has been offered by ERB to substantiate the claims. A point conceded by the IMF who recently noted, “the [increase] on its own, does not ensure full cost recovery in electricity provision”. So we are far from encouraging investment in the future.

The main reason for the latest huge increase is that the current electricity deficit has led to import of emergency power at a huge cost to government. A falling Kwacha, high inflation (19.5%) and high interest rates (15.5%) means high operational costs for ZESCO. Unless the prices rise the government's budget deficit will get worse.

What does this all mean for ordinary Zambians? The cost increase will not stop the constant load shedding. It is also not clear how much new investment will be generated in the long term because much of the increase is designed to ease operational costs on ZESCO not move us to cost reflective levels.  

What the increase will do in the short term is massively increase costs for small and medium businesses. What we now have is reduced supply of electricity at substantially greater cost. This will make life very difficult for farmers, traders, manufacturers and many social sectors. The result is higher unemployment and higher inflation. 

So not only will residential consumers face higher electricity prices they will have to meet these higher costs in the context of ever rising joblessness! 

As we recently noted, Zambia is facing "supply shocks" which should not be met by increased austerity measures of the kind being taken forward. It needs to focus on boosting supply not constraining it by increasing the cost of doing business, especially given the high prevailing interest rate. It fiscal response needs to focus on moving spending away from unproductive sectors to more productive areas. 

It has to tackle its fiscal deficit challenges in a way that does not turn Zambia into Venezuela. The latest move by ZESCO is another policy that has some merit but is in fact poorly timed and badly executed. 

It is poorly timed because though we certainly need to move toward increasing electricity prices in the future to cost reflective levels, in order to encourage long term investment in generation and transmission, now is not the time for reason explained above. 

It is badly executed because the new prices are still below cost recovery, and hence are unlikely to attract levels private sector investment. Most importantly, simply increasing prices is not the answer! 

Any move towards cost reflective prices must be put forward as part of an overall policy package that includes renewed obligations by GRZ to settle its own debts to ZESCO on time; undertake privatisation reforms for ZESCO that sees it only retaining monopoly over transmission (generation and distribution should be privatised); and wider public ownership of energy policy.

Saturday, 5 December 2015

Pricing in dollars

The government is apparently considering reintroduction of suspended Statutory Instrument (SI) 33 of 2012 which prohibits quoting prices in dollars, according to the Ministry of Finance.

Times of Zambia’s James Muyanwa in a recent summary of President Lungu’s press conference reported that the President as saying the “dollarisation of prices is illegal and unjustifiable, hence it should be stopped with immediate effect”.

Wednesday, 2 December 2015

Zambia's Tinbergen Moment

A reader recently asked for more explanation on the precise challenges facing Zambia. This is a huge question! We have already said much about this subject through many posts, especially on our Facebook page. But we appreciate that there is a lot more to be said than we have said.

Simply put, the situation facing Zambia is one of having many policy objectives (problems) but insufficient policy instruments (solutions), in face of serious external supply shocks. Zambia is failing the "Tinbergen Rule".

The rule reminds us that the number of policy targets (objectives) demands at least the same number of policy instruments. In simple english, you can't solve three problems with one or two solutions! You need at least three solutions.

Saturday, 28 November 2015

Good news on the constitution

The big news in Zambia this past week is that the Constitution Amendment Bill passed the second reading in Parliament. 106 PF and MMD MPs voted in favour defeating UPND and its small UPND leaning MMD faction. 

This is a monumental victory for the Zambian people. There was no reason for UPND to oppose the Bill at second reading given that the Bill contained exactly the same clauses as the Draft Constitution. 

The Bill now goes to Committee Stage where a simple majority will be sufficient for it to come back to Third Reading. That is when the real hard work begins. And it is at that stage where UPND should have concentrated by positively working to keep the contents, rather than opposing for opposition sake!  

If PF decides to get rid of some clauses and insert their own, then MMD may not support the Bill at third reading which may mean the whole thing collapsing. If ECL and NSM play well and patriotically together Zambians may finally have a better Constitution that has elluded us for two decades. 

The public mood in Zambia is broadly is strongly in favour of the Constitution Amendment Bill. The support among Zambians abroad is overwhelming. Not everything in the Bill is perfect, but it is vastly better than the status quo. 

So we are urging all our readers to get behind this process so we can end decades of constitutional inertia that has only benefited politicians and the so called civil society. Together these two groups have enriched themselves through many allowances in various disguised forums at the expense of the poor. 

Most importantly Zambians have endured a difficult year. The potential implementation of the Constitution Amendment Bill gives us something positive to look forward to in 2016 in the midst of dark times. It will begin a new journey for our country. A new hope for the future. This is the leadership Zambians want from our politicians.

Chola Mukanga
Copyright © Zambian Economist 2015

Friday, 27 November 2015

Zambia suffers mining job losses

Konkola Copper Mines has suspended operations at its Nchanga underground mine in Chingola with effect from Friday, 27th November 2015. The mine will be back in operation "when market conditions improve".

The decision means that all "contracting firms operating at Nchanga will be released". This will result  in immediate loss of around 1,675  contracted employees. A further 825 will be laid off over the next three months. 

KCM has already laid off 150 employees. This brings the total job losses to around be around 2,650. It  has advised that "pensionable KCM employees and permanent staff" from the Nchanga underground will be redeployed within the business.  

KCM's decision comes off the back of Glencore, an Anglo-Swiss commodities company, cutting 4,300 jobs at the Mopani Copper Mine. The Chinese-owned company CNMC Limited has also suspended operations at the Baluba mine in Luanshya, laying off 1,600. 

The jobs losses are now galloping towards 10,000. But as we indicated this week that focusing on that figure underestimates the scale of unemployment. It is not just mining workers being laid off, mining contractors have also already lost a lot of businesses which has resulted in more unemployment in other areas. 

We should also keep in mind that those who are being laid off will in turn lay-off others. Some workers employ house servants. Now that they no longer have a job or contract in mining companies they will in turn not be able to employ other people. 

Most industry forecasts suggest that copper prices will not rebound until late 2016 / early 2017.  It is very sad situation Zambia finds itself in. What is even worse is that it could all have been avoided. 

We have been predicting this scenario for three years now. We strongly advised that there was need to slow down borrowing and ensure sufficient fiscal space to enable more expansionary policies in the highly likely event that copper prices collapsed. We were told that we were foolish!