It is interesting and most welcome that His Excellency called on BP yesterday to do more to invest in energy infrastructure. Today's Post newspaper notes the President's words:
"The infrastructure requires renovation and sometimes replacement. This will require the effort of the private sector because, you see, without fuel the economy collapses"
Its goes on to say…
"President Mwanawasa also said BP plays a very pivotal role in the social sector. 'You have assisted the nation in sport plus other good causes you have supported,' he said"
The private sector does indeed have a role to play in such ventures, but this role should not be restricted just to the sector they operate in. We need to find creative ways in which new investment in the country can be tied to broader local investment in other sectors especially transport and housing. The model that is needed is similar to the framework that the UK has adopted under Section 106 of the Town and Planning Country Act (1995). This UK legislation basically makes it a condition that any new investment in any local area of the UK should be conditional on providing some minimum level of investment in schools, transport and other things, if the local authority deems necessary.
If we have a similar and more robust act in Zambia, it would mean that when BP or another investor come calling we can ensure not only do they invest in their relevant activity but they also tie that new investment to providing schools, adequate transport schemes and so forth. The advantage of such a system is that it relieves pressure on local resources and helps tackle local poverty by linking the investment to the local needs. From an economic stand point, it also helps raise the costs of reneging by the new investor by making it that much costly for him/her to cut and run, like others have done in the past! So while I commended His Excellency for calling for investment in the energy sector, I do sincerely believe that we need a much broader framework along the lines I propose. It's not just the energy sector, but a much broader way of addressing local infrastructural provision!
Wednesday, 14 March 2007
please Your Excellency, it's broader than that!!
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" If we have a similar and more robust act in Zambia, it would mean that when BP or another investor come calling we can ensure not only do they invest in their relevant activity but they also tie that new investment to providing schools, adequate transport schemes and so forth. The advantage of such a system is that it relieves pressure on local resources and helps tackle local poverty by linking the investment to the local needs. "
ReplyDeleteThe question is - how much money do they 'invest' (is it really investing when there is no Return On Investment?) in the community, versus the money they make and take out of the country?
Now if they paid proper taxes like Zambian companies, they wouldn't need any of this 'social investment' stuff.
Unless of course Mwanawasa trusts BP more than he does his own government.
Yes I agree that much of the "investment" is not investment at all.
ReplyDeleteBut I am not in full agreement with you when you say
"Now if they paid proper taxes like Zambian companies, they wouldn't need any of this 'social investment' stuff. "
The reason why a S106 style system would be good is because we want to link ANY type of local investment to the needs facing the people. The system would raise the costs of cut and run and make "investors" more committed to the cause! But I agree the whole issue of taxation needs to be addressed.
I do have some sympathy with our position. We want to encourage businesses to come to Zambia so the temptation is to offer minimal costs. This has meant zero taxes. But such policies ignore the business models these "investors" have. If we do offer low taxes to induce them to come, they must be couple with measures that raise the costs of them running away!! My view is that an S106 system could do that...and at the same time actually DELIVER something whether they run or not!!
Great discussion!
ReplyDeleteI tend to agree with Chola on the issue of “social investment”. If a foreign investor is to enjoy the benefits of zero taxation etc they must as a minimum engage in some kind of “social investment” within their host nation. There has got to exist a give and take scenario, those mandated with the responsibility of brokering deals to entice investors into the economy must appreciate this central principle. The idea of “social investment”, I believe, falls in the reals of Corporate responsibility, something these Western organisations are fully conversant with, within their own countries. We must be able to insist on these terms albeit our precarious bargaining position as a nation.
Chola, Chipanta,
ReplyDeleteI think that special privileges for foreign companies is falsifying economic competition.
With all the Zambian expertise in the mining sector, we shouldn't be importing Australian and Canadian mining companies, let alone hand them the mines.
Their exemption from paying taxes; the prohibition of Zambians nationals to bid on privatized parastatals.
This is not capitalism. This is the handover of Zambian national assets, under the direction of the World Bank and IMF.
By the way, I have looked into S106 and the Swiss commune system - thanks for those points. I think the Swiss system is on a much smaller scale - I was looking at 350 units of 30,000 people each.
" The reason why a S106 style system would be good is because we want to link ANY type of local investment to the needs facing the people. The system would raise the costs of cut and run and make "investors" more committed to the cause! But I agree the whole issue of taxation needs to be addressed. "
To me, just benefiting from the expenditures of foreing companies just doesn't seem enough. It doesn't maximise the impact of economic development and national resources on either the local people or the country as a whole.
Here is my provisional manifesto.
ReplyDeleteI have a suggestion to turn Zambia around though. It isn't going to be 'easy', and it isn't going to be quick, but it will be dramatic.
1) Government Reform
Decentralize government. Most modern nations funnel half of their revenues into local government. Unlike the Mwanawasa government, which seems to think a lot of unfunded mandates, budgets as well as responsibilities should be decentralized. I imagine a government system, where there are 350 local government units, of 30,000 people each, receiving $1million (or more) per year, to do the following:
a) education
b) healthcare
c) policing/security
d) public amenities
e) administration
Apart from making sure that 1/3 or more of national revenues ($1.1 billion in 2004) are spent all around the country, and boosting local economies, there are many, many advantages over the current system. The 30,000 people size means that any notion of region or even tribe are done away with. 30,000 people is simply too small to pander to any of Zambia's 72 tribes, 9 provinces or 4 regions.
I would say that money should be collected and disbursed to both local and central government by the ZRA, which should have it's own financial police, and should routinely monitor all local government expenditures.
There should checks and balances in the system, like monitoring of local government expenditures, but also by democratically electing council leaders.
In two words, the Zambian government is top heavy. There are (I have counted) 29 ministries. Every ministry has 1 minister, 2 deputy ministers, a permanent secretary, etc. The Ministry of Local Government receives more state money than all local councils combined. And to what end? Do these 29 ministries make Zambia the bests governed country in the world? Or are 80% of the people living on less than a dollar per day?
The massive concentration on central government and government from the ministries must end, and make place for government through local government. I hope people will bring this up whenever a president creates another ministry to cater to some political hot topic issue.
2) Economic Reform
The state should own all natural resources. The time for the colonial era practice of selling concessions should be over. In fact, it would be best if selling concessions was banned all over Africa. Because this is how neocolonial elites are created and sustained. It doesn't just pander to corruption, it is corruption. Instead, the state should maintain ownership of the mines, while exploitation should be done by private companies, preferrably Zambian, but international if necessary. These companies must run without politial appointments, and should be payed on a cost only basis, with small incentives as benchmark payments.
However, the present situation, where foreign companies own Zambia's wealth, are simply leaving the people and the country poor, and standing on the world's economic sidelines. As we all know and can attest to. This has to change. Selling off the mines was a criminal act, treasonous, and should be reversed immediately. (A massive windfall tax, strict enforcement of labour laws and environmental laws, go-slow actions on companies that will not comply, there are a myriad of legal and non-violent options for getting the mines back.)
I estimate that every year, Zambia is missing out on $1.6 billion in lost copper and cobalt sales. Compare that to the government's income of $1.1 billion in tax revenues (mostly from the huge PAYE sweated out of the workers of the country and massive, stifling taxes on legal businesses), and $600 million in donor money (now there is a humiliating term if ever there was one - Zambia is giving much more to the world than it is receiving, and yet one would never know it looking at the size of donor aid in the national budget; and forgetting the implications for national sovereignty that go with it).
Indigenous business is being stifled by massive taxation, yet foreign companies are given decade long tax hollidays to set up shop in Zambia - which neatly gets back to the original issue of the braindrain, and why this is a symptom, not a cause.
3) Land Reform
80% of Zambia's agricultural land is not under cultivation. We should strive for a position where every present day subsistance farmer has access to 100 hectares, instead of the present 2-3 hectares.
One hundred hectares allowes a farmer and his family to earn $10,000 per year or more, from just growing staple crops, using only 50 hectares.
(Good land produces 2 tonnes of maize per hectare, which I think is still sold for $200 per tonne. 2 x 50 x $200 = $20,000, and presuming half of that is spent on operating costs, that would leave a family with $10,000 per year; compare that with the average annual wage of $280 and that would be a huge step up.)
This would have the effect of distributing wealth and wealth creation into the country side; it would eliminate poverty; it would create the need for for semi-professional jobs (doctors, laywers, accountants, mechanics, veterinarians, suppliers of inputs, teachers) in the countryside; it would slow or stop urbanisation; (in combination with a good food storage/distribution network) it would eliminate famine; it would turn Zambia into a food exporting country.
Obviously, these farmers would need some startup help, mainly with access to machinery and some education, but these businesses would be inherently profitable. There would also be more than enough room for expansion into dairy farming, cattle herding, agroforrestry, etc.
Also, only a tiny percentage of arable land is irrigated, with the rest depending on rainfall. There are two sustainable alternatives to rainfed agriculture. One, riverine irrigation - Zambia has 10% of Africa's fresh water resources. Two, rainwater catchment systems. I would suggest something like Keyline, as well as the use of swales (strategically dug shallow ditches), which slow the movement of water across the land. If you compare a rainforrest and a desert, what you are looking at is not good soil versus bad soil, but slow movement of water versus fast movement of water across the land. Plants are great at absorbing water, but the soil (humus) is even better. If land is systematically logged with water, drainage becomes very slow, vegetation can grow and protect the soil even more, and poor soil becomes rich soil.
This could be a huge works project, that would do a lot to alleviate the massive unemployment.
To get back to the land issue - the whole issue at the ministry of lands is I think hugely important, but it is also a minor issue when compared to actual land distribution. Is the situation in Zambia really so different than that in Zimbabwe - or Malawi, Tanzania, Kenya, Botswana, Namibia or South Africa? There has to be a distribution of (unused) land to the poor subsistence farmers, and without pay. This would be a near instant solution to a lot of economic problems. Obviously, there would have to be a continuous monitoring of possible bottlenecks in the agricultural production process (land, machinery, fertilizer, marketing, transportation, etc.) but it would be a huge new beginning.
Lastly, I think that the rest of the state's money should be used to create infrastructure - roads, bridges, large scale irrigation, etc. This would make business in the country much more feasible, and it would create huge mass employment opportunities. And none of these will come from 'foreign investors'. As the MMD, UPND and even PF seem to believe.
Conclusion
The above have cronicled most of the Zambia's inefficiencies. This is where the real opportunities lie. The waiting is only for someone who will put all of the above into action.
NOW, WHO IS GOING TO MAKE POLITICAL CAPITAL OUT OF ALL THESE OPPORTUNITIES??? :)
You have 4 years to set up a party, and run on this simple 3 point platform for the 2011 elections.
For some miraculous reason, none of the political parties are willing to go this far. Which is why people cannot make a real distinction between them.
Chola,
ReplyDelete" The reason why a S106 style system would be good is because we want to link ANY type of local investment to the needs facing the people. "
The way I see that, is by stimulating local investment.
Or if there are foreign corporations, let them pay taxes to local government. Or, share profit. How about BP depositing some of their shares in local government bank accounts?
(And I'm still 100% against foreign ownership of Zambian mines. They are the people's birth rights, and should always belong to the state 100%. I do differentiate between the mines in a country like Zambia, and ordinary business.)
" I do have some sympathy with our position. We want to encourage businesses to come to Zambia so the temptation is to offer minimal costs. This has meant zero taxes. "
I say what we need is a government and mentality that stimulates local business. With unemployment being as high as it is, there is no moral or ethical justification for doing anything else.
This chasing after FDI is itself a neoliberal dogma that comes from the IMF and WB. It makes absolutely no economic sense.
But such policies ignore the business models these "investors" have. If we do offer low taxes to induce them to come, they must be couple with measures that raise the costs of them running away!! My view is that an S106 system could do that...and at the same time actually DELIVER something whether they run or not!!
And last question, what do you think about LETS? There is one theory in the African American community, that their old neighborhoods were much more successful economically, because money kept circulating inside the neighborhood. (If I recall correctly, a dollar would change hands inside the community 36 times, before leaving it.) This is how wealth is not only generated, but maintained. And that takes the building of local economies, so that people make use of their neighbors skills and demand for goods and services. And this is not only true for neighborhoods, but cities, countries and regions.
Chipanta,
" The idea of “social investment”, I believe, falls in the reals of Corporate responsibility, something these Western organisations are fully conversant with, within their own countries. We must be able to insist on these terms albeit our precarious bargaining position as a nation. "
I never understood how a nation that exports 1/4 of the world's copper can claim to be in a precarious bargaining position. I think this was just the MMD trying to cover up for their lack of aggression and interest in standing up for their constituents.
It is a failure of leadership.
Just like when they say 'limited resources'. They don't seem to mind that much of the Zambian government resources are being wasted. In 2004, they had $1.1 billion in revenues, plus $600 million from donor aid. That is't very limited. It is what the state does with that.
I think there are 29 ministries? $386 million went to 'personal emoluments', wages and salaries? $111 million to 'recurrent department charges'.
Social responsibility does have a place, but more in the realm of environmental pollution, labour conditions, etc. When the president of a country asks a corporation to build local infrastructure, I have a problem with that.
And I thought that these companies were offered zero taxation in order to make it cheaper for them to set up shop in Zambia? So why come with later extra costs of building roads, schools, etc?
This makes no sense to me. Besides, if the government really wants to attract business, they should present business with a beneficial environment, meaning the government itself takes responisibility for building infrastructure, enforcing labour and environmental laws, etc. Also meaning, that the environment should be beneficial for local business first.
The problems I see with this government, is that they don't want to do anything themselves. They don't want to be frugal (and close their ministries), they don't want to stand up for Zambia and demand that proper taxes are paid, etc.
How can the chief executive hand over the responsibility for the nation's infrastructure to a foreign corporation?