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Wednesday, 12 September 2007

Pessimistic Zambians?

Zambia's latest blogger Pandwe Nobi Champo poses the question Where are all the Zambian optimists?. The problem according to Pandwe is that :

.....listening to some Zambians, one is left with impression that: all we are is a lazy and corrupt nation with little prospect for social and economic growth or cultural change. Of course one is aware that it would be naive not to consider the implications of the economic decline and resultant poverty of the past twenty years on the national psyche( it is impossible to feel good about yourself on an empty stomach!) it would also be churlish to ignore the impact of HIV/Aids on families, education and other social structures. Furthermore, the sheer incompetence and economic mismanagement of successive governments hardly inspire confidence and national pride
What's Pandwe's cure?
I believe that as a nation we should shake off the despondency, defeatism and fatalism that has engulfed us for so long and start to believe in ourselves as a PEOPLE and as a NATION.
I am willing to accept that there's some positive relationship between optimism and income. However, I am not convinced by Pandwe's proposed cure since it ignores the very relationship on which his broader argument rests. If optimism is driven by income levels, then Pandwe's cure is incorrect. Zambians cannot simply get up one day and feel confident about the future. Do something to their incomes and may be your might just get them to be optimistic!

33 comments:

  1. start to believe in ourselves as a PEOPLE and as a NATION.

    I think that even the MMD is moving away from total veneration of 'foreign investors' and I'm extremely impressed with professor Chirwa's statement that foreign companies should help build local supply chains.

    If the MMD became far more economic nationalist, they would make the other parties redundant. And they are in power and have the infrastructure.

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  2. Cho,

    You're the development economist. What do you think that a development plan for local economies would look like? Something that could be implemented in every region and town?

    Just a few thoughts. If businesses were obligated to spend their costs locally, and if the everyone else was obligated or strongly enticed to spend their money locally, it would have a huge impact on local economies and collectively, the national economy.

    Here is the Community Reinvestment Act, which forces banks to deliver services to all local people.

    http://www.policylink.org/EDTK/CRA/

    African American buying power in Georgia ($48 billion)

    http://www.npr.org/templates/story/story.php?storyId=12596354

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  3. as an economist in my own right. the solution lies in giving the people the power,and power is the ability to do what is within law,and this comes about when you are able to pay for what you want.

    we should move away from taxing investors but create a tax base from our citizens from the salaries. this will come about with gov. dictating a minimum wage so as to make the people a power house for buying products.

    the one who decides the color of a product is not the producer but the consumer.

    this thing of business spending their profits locally is rediclous haven't you heard of hadge funds,the purpose is to gain profits for the depositors so why should they spend their profits in your country when this money is needed to pay for mortgages/holidays????

    we have to find our position in the equation or will be fighting invisible forces.

    we need real economist to balance the equation.if we reduce taxes from 40% to 20% where do we tap or where do we create the income for this 20%shortfall. if we tax businesses 20% what is the impact of their operations on the overall economy or do we CHANEL this reduction in company taxes to HIGHER SALARIES and increase the employees SPENDING power? do we let this money float in the atmosphere or we create a net to capture it?

    my favourite is if we let zesco/zamtel subcontract a company to collect the bills,how much effecience do we create,how much taxes do we collect from profits,how much taxes do we collect salaries,how much employment do we create and how much does this increase the spending power of people.

    i believe in working with numbers of people whether sick/fit resources as minerals are just to help in starting the engine.

    can you tell me where the market will be for new zim farmers? this has been bugging me.

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  4. Allow me to scribble abit of my opinion. What i have noticed about zambians is that we have mis interprated alot of things. Firstly we do not understand our economy. I have noticed that all the comments above come from economists, am not. I am an Accountant.

    one thing i have noticed is that our economy right now does not need people to be hiding behind their different status in society. I believe we all need to work harder than we have imagined. It seems we have always waited for Govt. to give out handouts. We sold the mines and now the mines are doing very fine with copper prices going as high as US$8000/mt. when we ask that the purchase agreements be revised so that the ordinary zambian may benefit from the sales,the excuse they( mining companies ) have is that the copper prices were hedged at prices as low as US$2000/mt, so they are also not benefiting from the high prices.so we get back to our lazy chairs and wait for aid which will never come.

    i feel we all need to get to the field and do business. when i say business i mean those businesses which require low capital. yes the businesses you economists and professors are ashamed to do. the businesses you were avoiding by going to school studying hard and hoping never to be one of those people who run those businesses. unfortunately i feel zambia needs a foundation built by these businesses. these will help the average zambian to mgt resources. i will give an example of the Mine local Suppliers on the copperbelt. once they get the first payment for their supply they simply rush to the nearest show room and buy the most expensive car. reason being they do not differenciate between capital and a salary. why not reinvest that capital in the business? Why not use that money to start a business which does not depend on the Mining sector?

    I hope you get my point, am not saying people should just rise up but i am emphasising the point of people undesrtanding that even with the little they have, they can start up a better life.

    DP

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  5. (Anonymous, 13 September 2007 11:33)

    can you tell me where the market will be for new zim farmers? this has been bugging me.

    The very first market has to be domestic. The nation's staple food is made from Maize. And yet, maize is selling for $200,- per tonne, while in South Africa it is selling for $140,- per tonne.

    That is your market right there. If people can afford $200 per tonne, they would love to pay $140 per tonne. You would be growing maize, helping yourself, lowering the price of food and helping poor people, and increase the amount of food people can buy nationwide.

    Basically, whereever you look and find that a price for a good or service in Zambia is (substantially) higher than in the surrounding countries - that is your market and opportunity.

    we need real economist to balance the equation.if we reduce taxes from 40% to 20% where do we tap or where do we create the income for this 20%shortfall.

    Hmmm... The mines? :) We should not take the mining companies word for anything, and I think that is pretty clear now.

    Nobody 'fixed the price at $2000' and now they're not making a profit because it is hovering between $6000 and $8600.

    That is just more mining company bs.



    DP, (Anonymous 13 September 2007 13:27)

    the excuse they( mining companies ) have is that the copper prices were hedged at prices as low as US$2000/mt, so they are also not benefiting from the high prices.

    Well that is just garbage. What did they do, sell futures or write naked call options at $2,000? 5 years ago?

    That is just bull, and more evidence that the mines belong in the hands of the state. I think these companies should be prosecuted for issuing false statements and defrauding their shareholders if they come up with that stuff.

    Why not use that money to start a business which does not depend on the Mining sector?

    Looking for a 'competitive advantage' cannot be an excuse for running away from the mining sector.

    The mining sector has to start making a complete contribution to the economy, or it must be nationalised. We cannot in all seriousness turn our back on $3,000,000,0000 worth for exports in copper and cobalt. And soon uranium, and maybe oil.


    Now, to get back to my original question, what would a good model for local economic development be?

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  6. "What do you think that a development plan for local economies would look like? Something that could be implemented in every region and town?" - MrK

    I assume you mean national policies that empower local economies.

    I think there are lots of things that Government can do. Your question is literally broad!! However, the key is to look for synergies. I have reached a view [and so has Yakima] that effective policy proposals need to always look for synergies. Ideas that sing along together and reads across other areas. That is what is missing from Zambia's current approach. We have developed some examples on this blog - the 'big ideas' so to speak and hopefully more to come.

    But on your direct question.

    The key is to look at the "sources" of development and them ensure those sources are working in an harmonious way.

    These sources include FDI, local entreprenueurs, local Government players, etc...

    So taking FDI as an example - I would ensure that FDI had sufficient incentive to deliver community infrastructure i.e. schools etc.

    Another area is knowledge transfer. Linking FDI to technological transfer is VITAL for the development of local economies. Partnerships and so forth with local producers.

    As I said, we just scratching the surface! Its a very broad question!

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  7. "we should move away from taxing investors but create a tax base from our citizens from the salaries. this will come about with gov. dictating a minimum wage so as to make the people a power house for buying products." -Anonymous

    Is this a bit of contradiction?
    You want to broaden the tax base, but you propose measures that may discourage investment?

    I assume you are talking about RAISING CURRENT MINIMUM WAGE. Zambia already has a minimum wage.
    How much do you want to raise it by?

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  8. "..if we reduce taxes from 40% to 20% where do we tap or where do we create the income for this 20%shortfall."

    I believe there will be a rush to spend the extra income and VAT will kick in.

    We can also learn from the experience of Zambia Breweries who successfully argued for a reduction in exercise duty on beer some years ago. I have never heard anyone complain that the government recorded a loss of revenue

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  9. So to summarize:

    - synergies between FDI - local investors - government
    - infrastructure building by FDI
    - knowledge transfer from FDI to local businesses

    Professor Chirwa already talked about forcing FDI to help set up their own supply chains - which is a great idea, because it will increase the amount of money that remains in the country. At least they will be forced to spend their costs locally. And this isn't the case right now.

    One theory of local development looks at identifying community assets - land, their specific location, a river, a tourist attraction, existing industries, etc.

    What I think parliament could do, is take away a lot of the legal constraints that exist on land ownership, setting up businesses, need for licenses, taxation on startups, etc.

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  10. MrK,

    I think there are several separate but inter-related questions.

    1. What can Government do to help small local businesses?

    2. What can Government do to help the local economy?

    3. What can Government do help deliver local development?


    Question 1 has only been discussed tangetially. Only in so far as the NABARD model has been discussed and the whole issue of credit. This is where I think a fuller discussion is needed and the issue of supply chains and technological transfers are key as well.

    Question 2 has not been discussed -its a step above 1!

    Question 3 has been discussed a lot e.g.institutional change, the Dupleiss proposal, other areas (including your manifesto and so forth).

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  11. Cho,

    Here is an organization out of Kenya doing some interesting things with regard to supply chains and tech transfers for rural smallholders: http://www.drumnet.org/news.htm

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  12. What we lack is INSPIRING LEADERSHIP. Of course it takes more than words to change a nation but it certainly begins there. I think one of the reasons the evil of Nazism succeced was that Hitler was able to inspire and convince his followers to the extent that they acted on his words.
    Even in American democracy Leaders such as Ronald Regan used words to paint a hopeful future for his country and inspired action on the part of his people.
    It all begins with words and then followed by bold, decisive and intelligent decisions by our leadership.
    What are our Leaders saying? Are they able to inspire us to fight inspite of economic hardship? Can they inspire us to go the extra mile and begin to rekindle the Zambian Spirit?
    This is what we need and not just an increase in income. Even if we had income increased, what percentage will inspire optimism in a Zambian unless its a 100% increase?

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  13. Yakima,

    Great link, thanks, I'll add it to my blog.

    Campbell Lumbila,

    Anyone who will develop agriculture by making it relevant to ordinary people is fine with me. I think 100 hectare farms are the way to go to do both.

    Two quotes from Adam Smith:

    "The great commerce of every civilized society, is that carried on between the inhabitants of the town and those of the country."

    And...

    "According to the natural cause of things, therefore, the greater part of the capital of every growing society is, first, directed to agriculture, afterwards to manufactures, and last of all to foreign commerce. This order of things is so very natural, that in every society that had any territory, it has always, I believe, been in some degree observed."

    Adam Smith
    Natural Progress To Opulence
    Book III, Chapter I
    The natural progress of opulence
    The Wealth Of Nations


    I am not saying that Zambia should or even could turn it's back on the mines at all, however, it is also obvious that much of the development of a sound economy will be a consequence of the development of agriculture.

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  14. Yakima,

    Very interesting!
    Thanks.

    The emphasis on 'low cost' operation seems critical. More information is need there I think.
    But the model really improves INFORMATION thereby reducing the search costs and of course increasing better matching.

    We know that improvements in ICT can have these kinds of effects (see the blog here ) but this does really push the frontiers.

    Coming back to cost, the Link Zambia approach seems to emphasise that as well. I can see how Drumnet / Link Net hybrid being increadibly beneficial for local communities!

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  15. To have inspirational leaders, you need to create the conditions for those leaders to emerge...And who will create those conditions? Inspirational leaders...

    So we are stuck...

    Actually this is why political scientists have created the 'critical juncture hypothesis' - nations are what they are because of key critical junctures in their history rather than alternative explanations like the modernisation hypothesis that links higher levels of income to democracy and vice versa. A new paper by Acemoglu et al provides further evidence to reject the modernisation hypothesis - see the new blog .

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  16. "PESSIMISTIC ZAMBIANS"

    I believe the central premise of my piece has been misrepresented.
    My comment was a form of informed social observation, they are based on personal analysis of what I FEEL is a sense of pessimisism in our country.

    It is not an indepth economic analysis and neither do I propose any 'cures'

    I would like to emphasise that my comments were also insipired by the need to counter current 'afro-pessimism' in the media.Books such as 'the shackled continent' or 'blueprint for africa' seem to blame the african 'character' for all of Africa's ills.

    I went out of my way to point out that there is nothing wrong with us(Zambians) as a people, that we are indeed a well-endowed nation.

    I just wish that as a NATION ,we could be more confident , forward looking and have a 'can do' attitude.

    You can read my entire piece on my blog.Thank you.

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  17. Pandawe,

    I just wish that as a NATION ,we could be more confident , forward looking and have a 'can do' attitude.

    It is to the politicians to create a climate where people can realize their ambitions.

    They can do it, because for a large part it has to do with legislation, or can be influenced by legislation.

    A few examples.

    If we want to see more people take up commercial farming, we need to redistribute land, which can be done by changing ownership laws or by instituting a tax on unused arable land.

    If we want to see people view politics as having a direct impact on their lives and see a dramatic improvement in service delivery, we have to decentralize government. Government reform should create more local government units and spend half the government's budget at the local government level.

    If we want to see far less in corruption, we have to track our government's money.

    If we want to see less emphasis on individuals and more on the process, we have to share power between the president, parliament, the civil service, civil society organisations, and local government. In other words, the separation of the powers of state.

    If we're going to benefit from the mines, the government needs to renegotiate the mine agreements.

    The role of the citizen is to move government to act. That is what activism should be about for a great extent. We should be lobbying the government of the day every day of the year, not allow them to limit the political process to once every 5 years.

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  18. Cho,

    1. What can Government do to help small local businesses?

    2. What can Government do to help the local economy?

    3. What can Government do help deliver local development?




    1. What can Government do to help small local businesses?

    1. a) Localize services

    Make sure that all the paperwork, the buying of land, can be done locally, so no one has to wait months or years for the ministry to respond.

    1. b) Reduce Paperwork

    If there was one national entrepreneurial license that would allow you to set up a business in any zone in the country that a local authority had designated as an entrepreneurial zone, that would do away with a lot of licenses, and wasted time.

    2. What can Government do to help the local economy?

    2. a) Infrastructure

    The state should be connecting up all major and minor population centers by road, so producers and farmers can get their products to market quickly and cheaply. Local authorities should be creating local infrastructure, or at least prioritize it.

    2. b) Identify major constraints on the economic process

    The governemnt should identify what the major limitations on the economy are, and then be creative enough to provide workable and effective remedies.


    3. What can Government do help deliver local development?

    a) eliminate taxation for startups
    b) coordinate with the local chamber of commerce to get projects going
    c) increase the number of local colleges and polytechs to create an educated local workforce
    d) connect local infrastructure to regional and national infrastructure
    e) set up public works programmes to alleviate unemployment and create infrastructure (FDR, Hoover); especially irrigation could use a lot of work, as only 3% of arable land is under permanent irrigation

    In fact, if you would set up a national development plan that could be rolled out point by point, it could be:

    1) create works projects to build infrastructure and irrigate more arable land
    2) create hundreds of thousands of 100 hectare farms
    3) create businesses to use the surplus produced by these farms and turn them into finished goods

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  19. MrK,

    Interesting ideas.

    If I could just put myself in the Government's position for a second.

    The response might be something along the lines of - we are doing it already but we have not got MONEY...

    Where is the money going to come from to deliver all the roads and other infrastructure you are suggesting. Crucially for a nation whose budget is underwritten by donors, can we afford tax cuts?

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  20. Cho,

    The response might be something along the lines of - we are doing it already but we have not got MONEY...

    My response would be - make money available by

    - eliminating ministries
    - eliminate political positions
    - increased tracking of government money
    - renegotiating the mining contracts

    Zambia has 29 or so ministries, including 9 provincial ministries. All those ministries have budgets, ministers, deputy ministers, etc.

    Money can be made available there.

    Also, by creatively using labour, the government can reduce costs on infrastructure building, like road maintenance. Unemployed people could be paid in food and a little money, maybe with education thrown in for their children or themselves. Brickmakers or stonemasons could be employed in areas of the country where it makes sense to make roads from local rocks. There could be a week of national service, where people could help with construction.

    Crucially for a nation whose budget is underwritten by donors, can we afford tax cuts?

    On companies other than the foreign mining companies? :)

    These would be exemptions from taxation on startups, companies that do not even exist yet. So the government isn't losing anything.

    This is the problem too - the government depends a lot on heavy taxation of the few people who are formally employed and the few businesses that are part of the official economy. If they allowed these businesses to reinvest and expand, their tax base would be much wealthier, and the tax burden for everyone (who pays taxes) would be much lighter.

    And of course, taxation is also a form of punishment. Governments heavily tax things they want to discourage - tobacco, alcohol. Taxing startups is discouraging startups. Taxing labour and especially formal businesses is in a real way punishing productivity.

    The question should be - is this what the government wants? Or does it want to increase economic activity across the nation?

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  21. MR K you mention a market of maize and SA. it's either am confused or it's confusing,which place can you buy maize $140/tonne and $200/tonne?

    one thing you forget to mention is what determines the pricing of maize. it could be cheaper so as to kill off the other competitors or low cost of production e.g mechanized farm,no storage costs,transportation?

    the other i find disturding is this thought of keeping people POOR by giving them cheap products instead of empowering them to afford.

    with this idea of providing cheap products,do you think about the producers and their profits? or are you still stuck in the humanizm era of providing almost free stuff? we get cheap products from the far east but do we question who makes them and how much they get paid? this is our lovely thinking of hypocritical advantage. the people producing these prodcuts are almost slaves.

    the problem with education is you become too good in that field and think it's the only way.

    have you ever wondered why people never question abuses in certain quarters but can't tollerate it in others.
    "they know the finger that feeds them"

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  22. the purpose of donor funding what is it? do you even understand why a white man in europe who wakes up at 4am give you free his money while he can't even buy his friend a pint,have you ever asked what is the purpose of this fund.

    you want to fight the mining investors, that eventually is using the money from cooper to give you as AID. if we understand anything about negotiation then this dream of renegotiiation should be thrown out.

    the more time we focus on we don't have money the fact remains that we will never come out of this.for staters we will never have alot of money to solve our problems.

    you talk about using stone/bricklayers to build stone roads. we can't give our skills for less why do we expect our friend?

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  23. Anonymous (18 September 2007 13:42),

    MR K you mention a market of maize and SA. it's either am confused or it's confusing,which place can you buy maize $140/tonne and $200/tonne?

    Google it. I do. :) Interesting page:

    http://www.lifenets.org/zambia/zambiajuly06.htm

    Here they list the official government price (in 2006) as $225,- per tonne. (Apparently 'traders' paid as low as $93.75 per tonne and sold it as high as $375 per tonne.)

    Part of it is supply and demand - maize is the staple crop in Zambia, not in South Africa. Another is exploitation during the procurement process - these traders speculating with maize. An answer to that would be to take out the traders and have a national or regional electronic system where people can sell their maize at market prices. The government could also collect maize itself at a cost only basis - just to take speculation out of the process.

    the other i find disturding is this thought of keeping people POOR by giving them cheap products instead of empowering them to afford. with this idea of providing cheap products,do you think about the producers and their profits? or are you still stuck in the humanizm era of providing almost free stuff?

    Neither, actually. In fact, providing cheap imports and opening borders is what neoliberalism is all about. As you may have guessed, I'm not a neoliberal.

    And although I completely identify with the old nationalist leadership, I think they were also caught in their time, and their economic policies need redirection. However, I am 100% for free education and healthcare - which can only benefit the country on a human level, as well as a long term economic level. Full education and a healthy population will translate into a healty and well educated workforce in the future.

    If the government is to stimulate manufacturing, it is going to have some protection for Zambian manufacturers, and some import tariffs for anything that isn't made in Zambia and that whose producers are heavily subsidized.

    What I think we need to see, are policies that will create a huge middle class - 90% of the population or more.

    An economy where everyone either owns a home, or a piece of land, or a car, or a (semi-) professional job or skillset.

    That is the only way that economic growth can be relevant to the people themselves.


    To check out everything I believe on the economy and governance, check out my manifesto:

    http://maravi.blogspot.com/2007/06/my-manifesto-for-economic.html



    anonymous (18 September 2007 14:04) wrote,

    you want to fight the mining investors, that eventually is using the money from cooper to give you as AID. if we understand anything about negotiation then this dream of renegotiiation should be thrown out.

    And it's a bad deal too. In 2004 Zambia received $600 million in donor aid. My guess is Zambia lost $1600 million in lost copper and cobalt sales.

    I would say - renegotiate the mining contracts now. They were done in such secrecy (no involvement from parliament, the press, the public) that I have to wonder how legal they even are.

    There are alternatives:

    - partial government ownership through joint ventures; where the government owns (for instance) 51% of shares

    - nationalisation; the government either owns 100% of shares, or all minerals could by an act of parliament, be declared property of the state (in the same way all land is now legally owned by the President, on behalf of the people)

    My guess is that the mining companies will do a lot to avoid nationalisation. :) That is leverage right there.

    Also, share ownership could be expanded over time. See the example of SAUDI ARAMCO, the Saudi's national oil company. They started out with a 25% share ownership, and over time (in the 70s) acquired 100% of shares.

    So no matter what anyone says, there are plenty of alternatives to the present situation.

    And the prerequisite for government ownership of course would be that the mining companies start listing their profits any other companies, and not discount their profits against future costs, as is the case today.

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  24. MrK,

    "My response would be - make money available by

    - eliminating ministries
    - eliminate political positions
    - increased tracking of government money
    - renegotiating the mining contracts"


    I definitely agree with your position (and Prof Kyambalesa's) that there's much inefficiency in the system. I also agree with that measures to track finances are ideal, as is the pursuit of a better deal on the mines.

    The problem is that the mining deal aside, the approach however noble is likely to stiff resistances.

    The monitoring issue may be expensive for a state like Zambia to implement without donor assistance. But the real problem is that the people who use the system may oppose - that would make it difficult to bring about no matter how desirable.

    The question of ministries would almost certainly meet internal party positions. Crucially the proposed constitution seems to insist on having deputies and provincial ministers. In short public sector reform is desirable but takes time.

    The question is therefore - are there other measures of creating local wealth fast, and in a cheap way.....where Government can play a limited and non-distortionary role?

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  25. mr K i like the way you explain certain things in plain english.

    on the 100% free education and health care i agree but what you must provide me with is the source of funding for these sectors.

    when you say 90% of the population being middle class is the right concept,what i want to believe is that a middle classs citizens can afford to pay for services,you and me know too well that when coffers are healthy the projects are possible.

    on the maize prices with the middle men and price fixxing,that is hard to control without proper legislation and law enforcers that are motivated to do the job.

    mr cho what do you think is the way for corruption in wetsern world? can you explain to me about the pricing of houses which are built on the fraction of the market price.

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  26. "mr cho what do you think is the way for corruption in wetsern world? can you explain to me about the pricing of houses which are built on the fraction of the market price" - Anononymous

    Interesting question!

    There are a number of reasons why the price of housing in the West, especially the UK, does not reflect the cost. The problem is to do with availability of land. In the UK there's little land being released for development because a large number of develops keep "land banks". Basically huge estates of land which they have refused to release on the market hoping that they will do so in the future when the price of land increases.

    The holding onto this land has meant that as the population expands and people demand more housing, very few houses are being being built to meet the levels of demand. So the price actually goes up.

    So who benefits from this situation? The people who benefit are either those who own the land banks or the people who build houses. These two aren't necessary the same people. But often they tend to be one and the same!

    So the consumer in the West or in England suffers not because the cost of constructing a house is cheap, but because the space where that house needs to be built is precious! Or rather some greedy landowner is sitting on it waiting for a better price for his land!

    There are a number of things a Government can do to encourage people to release the land including taxes e.g. development gain taxes, derelict land taxes etc . I can explain these in more detail if you are interested!

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  27. Cho,

    The monitoring issue may be expensive for a state like Zambia to implement without donor assistance. But the real problem is that the people who use the system may oppose - that would make it difficult to bring about no matter how desirable. -- Cho

    Fire anyone who obstructs. In the end no one is above the law. And I am sure there are tried methods of changing administration or the civil service, even when the civil servants are reluctant to do so.

    And donor pressure can be effective too. One thing they can't justify to their populations, is the corrupt use of their funds. So there is a clear role for civil society organisations there to popularize the issue. Jubilee Zambia, Women For Change, etc. are very effective in bringing these issues to public attention.

    The question is therefore - are there other measures of creating local wealth fast, and in a cheap way.....where Government can play a limited and non-distortionary role? -- Cho

    Thanks for asking that question, because it made me cristallize the issue. The one big thing the government can do, is legitimize the unofficial economy. Taxation. Legal protection for businesses from arbitrary government action or interference, maybe by creating special business entities, that could be free from taxation.

    In the rural areas, the government/parliament could create royal companies or development trusts, which would give chiefs an income from the business/agriculture in their areas, and which would exempt their employees from income tax. (Instead, 20% of the employees incomes would be payed to the the development trust - only the trust itself would pay taxes to the state or local government.)

    In the cities, the government could do more to make the informal sector official, which might help make them more elligible for financing. In general, the government can do a lot to take away the barriers that exist for small business. They could eliminate or consolidate licenses, reduce or eliminate taxes on SMEs - those are just things the government could do that wouldn't cost much.

    Effective land redistribution. Considering that most people still live in rural areas, and most farmers are subsistence farmers (and 80% of arable land is not under cultivation, while the country owns 10% of Africa's fresh water), I would say agriculture offers a lot of opportunity for wealth creation. And it doesn't hurt that in traditional economics, agricultural surpluses are seen as a springboard to manufacturing.

    To get back to your question - the most low cost and efficient way the government could help job creation, is to consolidate laws to reduce paperwork (licenses) and pass laws that would reduce the amount of money that is paid to the state (taxation, levies, charges, especially from local government).

    After that, they could also work with the banks to make sure credit is made available to SMEs.

    ReplyDelete
  28. Anonymous (25 September 2007 11:16),

    on the 100% free education and health care i agree but what you must provide me with is the source of funding for these sectors. -- Anonymous

    Remember the Vulture Fund saga? The (former) advisor to President Mwanawasa stated that for $40 million, he could put half the children in the country in school.

    Also, remember that some time ago, finance minister Magande found $250,000,000 of government money idling in domestic accounts? A quarter of a billion dollars. Obviously, the government programmes that the money was intended for weren't missing it that much. I think there is an enormous amount of money that can be saved by just tracking government money, and procurements.

    I don't think that universal education is beyond the possible. Kenneth Kaunda managed to do it.

    In fact, if Zambia is to modernize it's economy, there should be a mininum school leaving age - 16, or even 18.

    And to come back to it, Zambia (after all only a country slightly larger than Texas and half Texas's population), doesn't need 29 ministries. It would be perfectly well off with 10 or 12, and have most of the basic services provided by local government, which would also receive half of the nationally collected revenues. Local government should provide:

    - healthcare
    - education
    - policing/security
    - public amenities
    - administration

    That's it. Central government should have the tasks of national defense, national/regional infrastructure and foreign affairs, tourism, etc.

    ReplyDelete
  29. on the housing issue, mr cho you mention land and all it's ingredients. how about the rich paying less taxes by using property tax lapses or designed for just this purpose.

    mr K you talk about money in billions, i guess one reasons this money has not been used is we are not good enough,unlike KK who didn't have financial reasoning but human reasonig for equal access to education. when this money is realised it's going to go in peoples homes and the businesses that take money out of zambia.until we can have a system that will track and get back this money through taxes,it's best to keep it.at the moment when government releases money very little or none is retained and sources of resources have dried a dit.it's like trying to feed wild animals when another person will hunt a fat buffalo,when you did all the work.

    when i asked about corruption i was looking into hiring cheap labour by recruiting agencies which are indirectly owned by the same owners of construction companies,it looks as though the cost of building is high but labour is costing half and the recruiting agency pockets almost half the salary.

    so when we talk about corruption i am of the view it's hard to change a human mind.

    i have this view that the BANK owns everything. am right to assume that the bank owns the company am doing business with,my house,my car,my furniture,my business. this is a good idea bescause the risk is left in the institute unlike the situation in zambia where people take risks with their life savings.

    ON A DIFFERENT NOTE,HOW WAS IT POSSIBLE IN GREAT BRITAIN TO HAVE A MERIDIAN BIAO BANK ALMOST HAPPEN,WITH ALL THEIR CHECKS HOW DID NORTHERN ROCK REACH THAT STAGE.THERE IS A LITTLE FIRE THERE BUT THE SMOKE IS BEING COVERED UP. IT WAS GOING TO SHAKE THE MARKETS TERRIBLY.

    ReplyDelete
  30. Anonymous (26 September 2007 10:42),

    There are ways to stimulate production over consumption.

    Also, there are ways that investments can be made, so there is a lot of re-investment of costs and even profits.

    For instance, companies can get lower taxes, or pay less for electricity and water, if they only use supplies from local companies.

    I suggest you check out how the Japanese companies work - they are called Keiretsu, and they help make the Japanese economy very impenetrable for foreign businesses.
    keiretsu

    http://searchsmb.techtarget.com/sDefinition/0,,sid44_gci518852,00.html

    ON A DIFFERENT NOTE,HOW WAS IT POSSIBLE IN GREAT BRITAIN TO HAVE A MERIDIAN BIAO BANK ALMOST HAPPEN,WITH ALL THEIR CHECKS HOW DID NORTHERN ROCK REACH THAT STAGE.THERE IS A LITTLE FIRE THERE BUT THE SMOKE IS BEING COVERED UP. IT WAS GOING TO SHAKE THE MARKETS TERRIBLY.

    Or how was it possible that Nick Leeson brought down Barings Bank (writing naked straddles on the Nikkei 225), to the point where Barings would be bought for 1 pound sterling by ING.

    And of course Leeson was a bad trader - he never cut his losses, and added to a bad position in the hope it would turn in his favour.

    These things happen, they just happen a lot less when checks and balances and balances are in effect. The system learns and improves it's regulations.

    ReplyDelete
  31. MrK,

    "To get back to your question - the most low cost and efficient way the government could help job creation, is to consolidate laws to reduce paperwork (licenses) and pass laws that would reduce the amount of money that is paid to the state (taxation, levies, charges, especially from local government)."

    In other words the key is reduce the costs of doing business? All makes perfect sense. The world bank runs yearly surveys on the cost of doing business. Won't suprise you that the responses on Zambia are pretty poor. Zambia remains one of the most unfriendly places to doing business. Atleast now you can register a company much more quickly than last time. Except you can't do it online!

    The only thing I would say on reduction in taxes - is that these would need to be properly targeted.

    ReplyDelete
  32. In other words the key is reduce the costs of doing business?

    It would be very important, and something the government could do by just convening a research project and pass legislation in parliament.

    It always strikes me how governments in developing countries force their own business community to go underground into the informal economy, just to avoid punitive taxation levels.

    It isn't for nothing that FDI comes to Zambia because they don't have to pay taxes. Instead of tax holidays for them, have tax holidays for indigenous businesses.

    The only thing I would say on reduction in taxes - is that these would need to be properly targeted.

    At startups, SMEs, and not foreign owned companies or non-indigenously owned mines.

    I think there is a place for royal companies owned by chiefs, where people pay 20% of their earnings to the fund and are tax exempt where the state is concerned. That would certainly create an incentive for investment and wealth retention in rural areas.

    ReplyDelete
  33. MrK,

    A timely discussion!

    Check out the new blog that points to latest rankings on ease of doing business.

    ReplyDelete

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