Find us on Google+

Monday, 9 July 2007

The Solwezi Model

ZNBC have put more flesh to the story emerging towards the back end of last week on Kansanshi's deal with Solwezi local council. It appears that not only have the locals managed to get an MoU on tax rebates, it appears that they have now succeeded in getting a viable development programme.

Kansanshi Mining has approved K1.3 billion for the construction of a Modern market in Solwezi, North Western Province. The mining company has also offered to upgrade Solwezi airstrip to transform it into an International Airport to meet the increasing business in the province.

Kansanshi Business Development Manager, Annie Kahingu said that the company is ready to upgrade the airport and that work will start as soon as paper work is concluded. She said the cost of the rehabilitation will be determined once the bids and tenders have been done.

Ms. Kazhingu said Kansanshi has so far spent over $50,000 rehabilitating laboratories at Solwezi Technical High School.


The President has recently "expressed his appreciation for the public facilities provided by NFCA, the largest Chinese investor in Zambia, saying that Chinese companies are not only important players in Zambia's growing economy but also responsible investors with tremendous contributions to the welfare of local people". To most people, those pronouncements would be easier to take if at the very least the "Solwezi model" was adopted elsewhere. Government has a role to ensure that where local authorities are particularly weak relative to the investors, it provides a framework that gives greater certainty for socially responsible investment. It cannot leave this simply to the local councils to act. Not every local council will have the political will and negotiating skill demonstrated by Solwezi local council.

8 comments:

  1. Government has a role to ensure that where local authorities are particularly weak relative to the investors, it provides a framework that gives greater certainty for socially responsible investment. It cannot leave this simply to the local councils to act. Not every local council will have the political will and negotiating skill demonstrated by Solwezi local council.

    Even the government itself did not seem to have had the will to get good deals on the mines.

    Having said that, there should be a model that gives councils some leverage when negotiating with mining companies and other companies/corporations. If they were legally bound to receive 51% of profits/shares, it would ensure that local councils would benefit from business they attracted. It would also give them an incentive to attract as much business as possible.

    How are Bernard Ross' books?

    ReplyDelete
  2. Kansanshi is a new mine so it's reasonable that they get a tax break for the first years.

    $50k is not that much. The mines can sneaze and $50k will come flying out of their nose.

    Still it's good that the mines are reaching out to the local population. Especially helping the schools. Goodwill all round.

    I worry that Zambia is beeing run like a charity organization. It can't be "Free concert. Donations accepted" basis. Zambians are good at making deals but when it came to the mines what happened? Some of them were sold for 1/10 of the fair price and it seems like some were just given away...

    And really the deals should be negotiated in public so that everything is above board. Why has no one seen the mining agreements?

    ReplyDelete
  3. Zambians are good at making deals but when it came to the mines what happened? Some of them were sold for 1/10 of the fair price and it seems like some were just given away...

    Which is why it is a good idea to have either profit sharing or a continuous windfall tax instead.

    And really the deals should be negotiated in public so that everything is above board.

    There should have been long discussions in parliament, so at least MPs could have had a say as well.

    Why has no one seen the mining agreements?

    Some of them are available here:

    http://www.minewatchzambia.com/agreements.html

    ReplyDelete
  4. MrK,

    "If they were legally bound to receive 51% of profits/shares, it would ensure that local councils would benefit from business they attracted"

    The "legal requirement" is the key for me. I just don't understand why this is not being proposed.

    The other issue is that I completely distrust Government to spend money in local areas. Even if Government had a large tax on the mines, they would just keep the money in Lusaka. Very little would trickled down to the poor.

    I have no problem with the local authorities getting 51% because money actually goes to the people not some bureaucrat. But we would need to reduce it by 1% :) You know I always prefer a 50-50 model like Bots have. 51% means the local authority owns the mine.

    By the way, you model of smaller local authorities with equal populations
    ....which we have previously discussed..does that assume that all mineral revenues goes to Central Government which then redistributes it?

    The Ross books are on the way....haven't got them yet...
    Hopefully should arrive by the end of the week via Amazon.com...the Waterstone bookshop I went to didn't have them.

    ReplyDelete
  5. The other issue is that I completely distrust Government to spend money in local areas.

    They pretty much don't track their own finances, which is why there is so much opportunity for corruption.

    By the way, you model of smaller local authorities with equal populations.... which we have previously discussed..does that assume that all mineral revenues goes to Central Government which then redistributes it?

    Ideally, the government's revenues should be handled by a semi-independent state agency.

    If the ZRA was independent, it should distribute revenues and other income directly to local government, and central government.

    I would imagine the ZRA as huge, because it would take up a lot of new tasks. Collection and distribution of revenues and state income, as well as policing and monitoring it's use. It would have it's own financial police, and internal auditors. Combined with transparancy and accountability (including fast and severe penalties), opportunities for corruption can be eliminated.

    Also, state and government should be computerized, so finances and decisions can be tracked in real time.


    But we would need to reduce it by 1% :) You know I always prefer a 50-50 model like Bots have. 51% means the local authority owns the mine.

    Now how did that slip in there? :) I have no problem with the council having a narrow majority of the shares. It gives them some power in negotiations, getting rid of poor contractors, etc. In the end, we have to trust our own government. When they are corrupt, when they are inefficient, there should be immediate consequences, but it is better to have Zambian councils be in control, than some foreign corporation, whose only interest (and legal obligation) is to maximize profits for it's shareholders.

    Plus, the more shares they have, they more they can use to leverage other deals. They can use income streams from the mines as incentive schemes, etc.

    Also, they should have the option to buy a greater number of shares (at a low price if possible) in the future.

    This is what the Saudis did with Saudi ARAMCO. They started out with a small number of shares, but because they received the profits, over they years they bought out 100% of shares. Interestingly, they bought most of the shares when the world economy was in a downturn. They started with 25% in 1973, and built up to 100% in 1980.

    ReplyDelete
  6. "They pretty much don't track their own finances, which is why there is so much opportunity for corruption. "

    Its much worse than that. Even without there would still be problems.

    Central governments align their spending with the "voter" in mind.
    Spending a lot in their strongholds.

    The other problem is that they time their spending with elections.

    For these reasons, I always prefer models that gives local people control over their resources than models that put revenue in the lap of central Government.

    "I would imagine the ZRA as huge, because it would take up a lot of new tasks. Collection and distribution of revenues and state income, as well as policing and monitoring it's use. It would have it's own financial police, and internal auditors. Combined with transparancy and accountability (including fast and severe penalties), opportunities for corruption can be eliminated"

    Sounds like a towering bureaucracy! Lol!
    No lean, just meaner then?
    The fight for political control of such an organisation would be huge, and would require careful drafting of its roles and responsibility.

    "In the end, we have to trust our own government. There should be immediate consequences, but it is better to have Zambian councils be in control, than some foreign corporation, whose only interest (and legal obligation) is to maximize profits for it's shareholders. "

    Trust implies we are putting faith in their humanity to act according to the rules.
    Its desirable but we have been here before post independence. What we need is a system on which trust is not an issue. We simply need to ensure that whoever is in charge their incentives to act are properly aligned with what Zambians need.

    Of course there's still a role for empowerment - but we have to be careful than in empowering ourselves we are not sacrificing greater production and so forth…. I think a 50% - 50% share for a limited period would provide the platform the local council to gain enough revenue and diversify.

    Diversification is important. We don't want local authorities to sit on their mining revenues and do nothing to look at other opportunities. Also we need to specify clearly that it is not local authorities themselves that would share these revenues with the mines, but local delivery vehicles acting on behalf of the local authority for the people. Sort of a quasi local development corporation.

    ReplyDelete
  7. Sounds like a towering bureaucracy! Lol! No lean, just meaner then?

    It would be the only ministry/agency that I would expand. No towering bureaucracy, but lots of checks and balances.

    It wouldn't even take that many people.

    - 350 local councils
    - 1 ZRA accountant per council
    - 2 secretaries per accountant

    That would be a total of 1050 people monitoring council expenditures. They would have some police officers at their disposal, in case they had to move in.

    With all these councils computerized, all the council leader's office would have to do, is scan and e-mail all their receipts.

    If the receipts and the council's ZRA money line up, they get the ok for another year. The accountants can even check prices paid against regionally and nationally prevailing prices.

    Also, most councils are going to play by the rules anyway, freeing up personnel to focus on problem councils.


    Its much worse than that. Even without there would still be problems. Central governments align their spending with the "voter" in mind. Spending a lot in their strongholds. The other problem is that they time their spending with elections. That is a major problem, and I think one reason why there is so little attention paid to real issues during elections. Instead of voting Labour, Conservative, Christian, etc. they are supposed to vote with their region.


    This is very dangerous, because it makes tribalism attractive at the national/political level.

    And one main reason why there is no discussion of the issues facing the nation during the elections. Implicitly, people are encouraged to vote with their region, so the politician from their region will direct national resources to them.

    People should not depend on who gets into power, in order to receive basic services that are the right of every Zambian.

    The handing over of a fixed amount to a local government unit (and monitoring all their expenditures) would sidestep that issue.

    ReplyDelete
  8. "Implicitly, people are encouraged to vote with their region, so the politician from their region will direct national resources to them......The handing over of a fixed amount to a local government unit (and monitoring all their expenditures) would sidestep that issue. "

    Very good point.

    The voting patterns reflect the lack of trust in the central system to deliver services equitably accross board.

    If as you say decentralisation can side step this issue, then ironically we could have a more cohesive society.

    ReplyDelete

All contributors should follow the basic principles of a productive dialogue: communicate their perspective, ask, comment, respond,and share information and knowledge, but do all this with a positive approach.

This is a friendly website. However, if you feel compelled to comment 'anonymously', you are strongly encouraged to state your location / adopt a unique nick name so that other commentators/readers do not confuse your comments with other individuals also commenting anonymously.