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Sunday, 30 March 2008

Election Special - Claims Vs Threats (Reuters Report)

Insights from Chiefs (Chief Chisunka)

Chief Chisunka of the Luapula Royal Foundation has some important revelations on how corruption by local court clerks is damaging the quest for justice in Luapula :

“They [court clerks] are in the habit of ‘eating’ clients’ money. When one brings money to court after being charged, the officers get it. When an inquiry is made, they run away. The provincial local courts office was recovering money through a salary from one of the clerks... They have run away from the centres due to debts from the clients. Others have run away with millions of kwacha. It’s like they were born from one parent....Its too much. There are a lot of cases that are pending due to lack of court clerks. We want justice minister George Kunda so that he can hear for himself what the people have to say......We have been submitting this report to the provincial local courts officer but nothing has been done. I even wrote to the Permanent Secretary at the provincial administration office in Mansa on 23 March 2007 over the same matter but no change has taken place.."

Saturday, 29 March 2008

Election Special - Zimbabwe Polls Open (Reuters Report)

Quote of the week (Michael Sata)

"....We are not in favour of variable tax or windfall tax based on gross revenue. We therefore suggest that these two taxes be abandoned.....".

- Michael Sata (Post 29/03/2007)

The Leader of the Opposition articulating a "reformed" position on the mining issue, in his letter to President Mwanawasa. The problem with the government approach to the mining question is the lack of consultation, not just with the mines but the people. Up to this day, the government has never released the analysis that underpins its decisions. Interestingly, Sata notes that Zambia should avoid unilateral action and become a lawless state like Zimbabwe. Is PF now trying to reposition itself as a centralist party?

Update :

The Minewatch blog has also picked up on this issue.

Election Special - Zimbabwe's Economic Woes (Sky Report)

Friday, 28 March 2008

Zambia Statistics - March 2008

The CSO March Edition can be found here. Inflation has continued an upward trend with the inflation rate for March recorded at 9.8 per cent. The February inflation rate represents a 0.3 per cent increase compared to February's 9.3 per cent, largely driven by the increase in the cost of increase in the cost of non-food products. As always, the CSO continue to provide interesting briefings on various aspects of the economy. Three pieces of info caught my eye (click images for clarity):

Access to safe water: Surprising to see my home province top this chart, with so much water in the province. This seems to suggest that government bizarrely struggles to ensure safe water in provinces where there's plenty of water!

Informal employment: The data appears to confirm that Zambia's largest informal sector is in agriculture. Measures to tackle informality need to bear this in mind.
Meals per day: Was intrigued by the high scores of northern and southern provinces in the "2 meals a day category". Is this further evidence that it is better to be a farmer than a fisherman?

Thursday, 27 March 2008

Election Special - Zimbabweans flee for Botswana (CNN Report)

Is it all over?

Bloomberg are reporting that parliament has approved the new Mines and Minerals Act that will increase taxes and abolish existing agreements between the government and mining companies. Zambian outlets are not reporting this yet.

Intellectual Poverty (David Panabantu)

David Panabantu reckons that he has stumbled on something regarding the DAs that has not crossed anybody's mind. I have always said there's a thin line between poor analytical thought and intellectual dishonesty. I think he has just crossed it, though am not sure from which way:

Naturally, the move in this year’s 2008 budget undermines the entire DAs between the Zambian Government and the mining companies. But the unknown economic and political risk of altering DAs need not be encountered, as Zambia can still benefit from the DAs.

The current legislative practice that is outside the DAs, is that exporters can have 100 per cent direct foreign currency retention of their proceeds according to the directive of the BoZ and not the DAs.
There is nothing alarming about remitting foreign currency as all Zambians can do it, but how it is done is defined by the BoZ and not DAs. The DAs do not outline the process how those proceeds are to be remitted, only that the mining companies have to have free and unlimited access to the foreign currency.

If the BoZ foreign currency retention policy allowed for 100 per cent retention of foreign exchange through Kwacha purchases, it would not violate the DAs. It would only mean that US$4.2 billion, based on last years exports, would be in Zambia’s banking system long enough to have a positive effect on the economy before mining companies using their Kwacha revenue can externalise it right up to the 100 per cent limit within the scope of the DAs. That is what every ordinary Zambian does, using a Kwacha to buy forex.

It means basically that copper merchants have to sell their US dollars on the Zambian money market for Kwachas and use those Kwachas to buy Zambian copper in Kwacha and the mines in turn can use that Kwacha revenue if they wish to externalise it by buying US dollars off the Zambian market.

This translates in having US$4.2 billion staying longer in the nation to add value to the Kwacha and hence the economy. The impact of US$4.2 flowing through Zambia’s commercial bank system would have an extremely positive effect on the Kwacha and thus lower import costs, especially for fuel and capital goods.
Now its not that David is wrong about the ability for BOZ to put the restrictions in place. The problem is that David seems to present a possible Kwacha appreciation as a positive benefit without consequences for anyone else. When are our economists going to have the honesty to inform the public both sides of the story? Does David really think the public are too ignorant to realise that an appreciation of the Kwacha, despite its questionable "benefits", also has severe consequence for agriculture and other manufacturing exports? How can he really compare the benefits from appreciation of a currency to actual revenue in the hands of government? The truth is that whatever action is taken it has some uncertainty attached to it. As economists our job is to present ALL the facts to policy makers and let policy makers make the decision. Misrepresenting outcomes or telling only one side of the story is pure intellectual dishonesty and must be discouraged if Zambia is to progress forward.

Wednesday, 26 March 2008

Election Special - Mugabe : 28 years in power (CNN Report)

Can toll roads answer Zambia’s road network woes?

Bruce Chooma assesses the case for toll roads on the Zambian road network. The article is extremely useful in sparking the debate, although it fails by not looking too deeply into the "cons". I suspect this might be due to the heavy influence of the Economics Association of Zambia (EAZ), with their dubious suggestions like this one:

According to the EAZ, urban sprawl is the direct result of under-pricing of roadways. If drivers were required to pay the true cost of using a roadway, there would be less incentive to keep moving further away from job centres. Therefore, such a measure would go a long way in addressing the issue of urban sprawl.
The key problem with toll roads is that if your aim is to raise money, then the toll charge should be low so that it does not reduce demand, since your aim is not to price people off the road but to maximise revenue. The problem with that is that toll roads simply become a new new tax on road users. If your aim is to tackle congestion then the toll charge needs to be sufficiently high so that you can price people off the road. The problem you face there is one of alternative modes. Zambia's public transport is non-existant. You cannot contemplate toll roads unless you have an adequate public transport system in place. So we are back to railways and how those need to be funded. See blogs here and here.

Monday, 24 March 2008

Proflight on Jet Fuel Pricing

Good to see Proflight pushing for jet fuel pricing reform, something we have strongly argued on this blog. What is interesting is that Proflight are linking this to competition between foreign and domestic carriers. Higher jet fuel prices most certainly puts domestic carriers at a disadvantage since regional foreign carriers have access to cheaper reserves. Emphasis on "regional" there such as Kenya Airways and South African Airways. The argument is less applicable to British Airways who inevitably have to refuel in Lusaka given their long haul operation. Excerpt:

And Kabungo said the increasing number of airlines flying into the country’s main airports was an indicator of the buoyancy of the country’s aerospace.

He said it was important that the government lowered the cost of business and ensure foreign airlines did not get an unfair edge over local operators.

“At the moment, there are enough customers to carry and this is quite encouraging. For a long time we have been appealing to government to look at the cost of Jet A1 fuel. as at now, it is US $1.10 cents per litre whereas our neighbouring countries it is close to 70 cents,” said Kabungo.

“And in this industry we are competing with other operators around us, and so our operation costs are high and that means our fares are also high. If the question of fuel can be looked at, it means it will trickle down to the passengers by way of reduced fares.”

The challenges of "rural-urban drift"

Fresh from a brialliant piece on rural women and development, the excellent Doreen Nawa returns with a thoughtful piece on the rural - urban drift. A topic we have previously touched on within the context of housing. Nawa's piece focuses on the implication it has for youths, and ultimately for the nation at large.

Sunday, 23 March 2008

The State Vs Mining Companies? (Part 4 - Case for Negotiation)

Dan Haglund argues strongly against the government taking unilateral action through the new mining tax regime at the Mine Watch blog . Excerpt:

To sum up, I believe government is doing the right thing reforming the fiscal framework, but it is also adopting a strategy which appears, on the face of it, somewhat risky. Finding a win-win situation which improves (significantly) the tax receipts from the mining sector whilst signaling that it does incorporate concerns of private investment. An amicable solution to all of this would also engender more open state-firm relationships, on the back of which greater long-term transparency of the mining sector can be sought, for instance through the Extractive Industries Transparency Initiative.

Saturday, 22 March 2008

Quote of the week (Levy Mwanawasa)

The New Zambia Weekly Quotables return for 2008:

“We have taken what appears to be harsh measures. We attained the HIPC (Highly indebted Poor Countries) completion point and we had all our US$ 7 billion debt written off.....We would rather be remembered as having performed.....Now it does not matter whether you are a minister or not; you will be exposed and prosecuted....We know a good number of cases have been exposed and it appears our opponents are taking advantage (to say) that there is corruption,”

- Levy Mwanawasa (Daily Mail 21/03/2008)

The President recognising that a key threat to his "legacy" is the rampant corruption that we have seen in many ministries. If its any comfort, ultimately Zambians would judge him not by how many ministers got jailed for corruption during his tenure, but on the amount of food on the table. Its the "ends" not the "means" that will define his legacy. The puzzle for him is whether he has got the "means" right to deliver those "ends".

Friday, 21 March 2008

From bad DAs to new shambolic loans?

A new Norwegian NGOs report on the Zambia - China Relations paints a bleak picture of Zambia's weak external debt control mechanisms.

According to the report, loan contracts between China and Zambia are not open to public scrutiny, leaving a lot of power in the hands of the President. The new post-HIPC loans are often made at the highest political level, and because of the lack of transparency the agreements are not available to parliament, civil society or media.

The 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. The report concludes that in order to prevent irresponsible loan contraction, there is a need for responsible lending practices
to be put in place.

Addressing Parliament in January,
President Mwanawasa signalled the possibility of a "new debt policy":

You will recall that this Government took Zambia out of a serious debt trap. Our challenge now is to strike a balance between maintaining sustainable debt levels while still accessing new financial resources for accelerating socia-economic development in our country. In this regard, my government has begun the process of developing a debt policy which will guide acquisition of new loans in the future.
The President's "promise" did not go far enough. He never indicated that he will consult on this "debt policy" or when the Zambia people can expect it to come on stream. Crucially, he failed to address the fundamental problem, which is Zambia's debt acquisition rests in his hands and not the Zambian people. What we need is an overhaul of the system enshrined in law, not some cabinet level paper seen and drafted by the few. 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.

The recommendations from the Norwegian NGOs report should provide a starting point for the way forward :
  1. Oversight and watchdog institutions such as Parliament, the Auditor-General and the Attorney General must have clear mandatory authority over the borrowing process.
  2. The Zambian public should have a right to know about and question all borrowing, from both new and old lenders, before loan agreements are signed. This right should be incorporated in the Bill of Rights.
  3. There should be a law relating to borrowing detailed in one Act of Parliament and authorised by the Zambian Constitution.

Easterly on the MDGs....

William Easterly has a new paper - How the Millennium Development Goals are Unfair to Africa. Here he summarises his position:

Thursday, 20 March 2008

Valuable lessons for aspiring 'foreign investors'

Those aspiring to break into economies at the bottom of pyramid (e.g. Zambia) face the main challenge of how build a business model that would adequately 'sell to the poor', through the acquistion of resources at a cost below their potential and deploying these resources into capabilities that create higher than average benefits for constomer. Simply put the poor are poor and therefore you need to find ways of stimulating demand, and while at the same time navigating your way around the endless list of trouble spots e.g. corruption, undefined property rights and so forth.

The the winners of the
Second Annual IFC/FT Essay Competition provide valuable insights on how such problems can be overcome by 'foreign investors' (or multi-national companies as they call them) building strategic alliances with local social entreprenuers. The paper presents the following example:

In the late 1990s Norway’s incumbent telecommunications company, Telenor, was facing saturation in its home market and needed a strategy of expansion that would open up new opportunities. It entered into a joint venture with the Grameen Bank in Bangladesh to provide mobile telephony to one of the world’s least developed countries. The Grameen Bank, founded in 1976 by Professor Muhammad Yunus, for which he was awarded the Nobel Peace Prize 2006, provided microfinance to millions of poor in most villages of Bangladesh, and had set up a number of other enterprises to create economic opportunities for the poor. What made Telenor eventually decide in favor of the joint venture in a country known for its political instability and corruption was the excellent reputation of the local partner in Bangladesh. The joint venture between Telenor and the Grameen Bank led to the formation of two separate organizations. Grameen Phone, the commercial company was operated by experienced Telenor managers and its strategic objective was to maximize financial returns. Grameen Telecom was set up as theadministrative interface to the existing Grameen Bank BOP model. Its strategic objective was quite different – to maximize the numbers of jobs created for the rural poor – and it had a very different organizational culture and management structure.

When it started out in 1997, Grameen Phone was one of four companies to receive a license to operate a mobile network in Bangladesh. It became profitable in 2000, and had more than two million subscribers in late 2004, and 6 million in February of 2006. Grameen Phone is now one of the largest private companies in Bangladesh and the second largest tax-payer reflecting significant profit levels. In 2006 it had a market share of over 60 percent in a country of 150 million people, which signifies the potential for further growth. By 2006, Grameen Telecom had created more than 250,000 jobs for micro-entrepreneurs, or better known as “Village Phone Ladies.” These are poor rural women who, despite being illiterate, quickly learned how to operate a mobile phone and to generate income from these phones. Grameen Telecom is financially self-sustainable and provides more than 10 percent of the revenues of Grameen Phone.

In achieving this spectacular growth, Telenor was able to access important capabilities and resources through collaboration with Grameen Bank. These included both tangible and intangible resources. An important tangible resource was the existing fiber optic network that had been built with funding from the Norwegian Agency for Development (NORAD) for the internal communication of Bangladesh’s national railway system. The fiber optic network was never used to anywhere near its full capacity. Consequently. Telenor and Grameen Bank were able to acquire jointly a key asset relatively cheaply, which significantly reduced their investment risk. The Grameen Bank’s social objectives to bring employment and other benefits of economic development to the rural areas of Bangladesh opened up funding avenues that would not have been available to a private company. In this way, the joint venture was able to leverage funding from organizations such as NORAD, the Asian Development Bank, the IFC and the Commonwealth Development Corporation. These agencies absorbed some of the market risk of the venture, in return for efforts aimed at social and economic development, thereby lowering Telenor’s cost of capital.

However, tangible resources were by no means the most important in allowing Telenor to overcome significant hurdles in doing business in an emerging market. In fact, factors such as public trust in the Grameen name, the high level of brand awareness and the impeccable reputation of Mr Yunus, founder of Grameen, which allowed the partnership to shun corruption -- were crucial intangible resources and key factors in the success of the initiative. First, to protect Telenor’s reputation it was imperative to find the right partner that could resist the corrupt practices prevalent in low-income countries. Second, the existing brand equity and high level of trust in the Grameen name were critical in obtaining a licence and also in the generally costly process of building the consumer market and in consolidating the new brand, Grameen Phone. Finally, Mr. Yunus’ prior success and experience in building the Grameen Bank and other Grameen initiatives, contributed important local knowledge, reduced uncertainty and search costs, and enabled agreement on economic and social objectives.

Wednesday, 19 March 2008

Mineral Royalties Watch (RSA)

Reuters are reporting some interesting developments in RSA, where the Government wants a larger share of the cake, but the Mining companies are worried. Excerpt:

CAPE TOWN/JOHANNESBURG (Reuters) - South Africa's government may review a draft bill that would increase royalty payments for mining firms after complaints from companies and unions, the minerals and energy minister said on Monday.

"The reality is that stakeholders are not happy with the provisions of the bill as it stands and indeed as government we must pay attention to what they have raised with us," minerals and energy minister Buyelwa Sonjica told reporters.

Mining companies have said the draft Mineral and Petroleum Resources Royalty Bill would hit output and make the industry less competitive than other countries at a time when an electricity shortage has already hurt the sector.

Unions fear possible job losses.

Mining production in the world's largest platinum producer fell 16.5 percent in January after the power shortages closed mines for five days that month, Statistics South Africa said last week.

Sonjica said the National Union of Mineworkers, the main labour federation COSATU and the industry had spoken out against the bill in its current form.

"Their main concern is that it would be tantamount to double taxation for the companies involved and I think if there is a basis for that indeed, that is a reason for us to review," she said on the sidelines of an oil and gas conference.

"We have not spoken with the national treasury yet, but the position that I'm taking would be the possibility of a review."

A broader energy strategy?

Zambia does not currently have a broader and coherent energy policy, beyond the call for ZESCO to cut costs, asking the mines to pay higher costs for energy and the pursuit of a stalled rural electrification plan. Part of the problem is the IMF and World Bank preoccupation with the need for ZESCO to raise its tariff charges, couple with the occassional blame game. Whatever the IMF / World is preoccupied with at the time tends to capture the Government attention. At the moment, its ensuring ZESCO raises its tariffs and moves towards commercial (they have abandoned privitisation calls).

Its comes as a relief therefore to see that Government is now considering broader spectrum of measures to address the current energy crisis. The proposal for a new coal-fired power station and the decision to scrap import duty for power-saving electric appliances are not ground breaking measures, but they offer some hope that policy makers are at least now thinking broader. What the country now needs is to develop a new energy strategy consistent with its current economic trajectory. It goes without saying that should include some discussion on whether the new revenue from mining should be specifically set aside in the next ten years for energy infrastructure.

In the meatime, the private sector is showing interest in developing the Kafue Gorge Lower power station. CEC and KCM have apparently indicated to Government their willingness to to develop the power station at a cost of $1 billion.

Tuesday, 18 March 2008

Malawi's Brain Drain

Africa is in the grip of a medical crisis as its doctors are lured away by lucrative jobs in Europe. Malawi now only has one doctor for every 50,000 people. "We are working under very difficult conditions. It's like we are in a war", laments Robert Lapyam Ayella, the only doctor at Mulanje District Hospital. He's one of the few African doctors who hasn't moved to the West, where they can earn 200 to 300 times more. Making matters worse, approximately 25 percent of Malawi's health staff are expected to die of HIV/AIDS in the next decade. Facing these problems, it's not surprising entire medical classes decide to emigrate to the West. As one expat Malawian doctor states: "I earn a good wage in England. Why should I go back to Malawi to suffer?"
Watch the powerful documentary recently shown on CNN's Untold World Stories here.

Sunday, 16 March 2008

Radar-less Lusaka International Airport?

It appears things are much worse at Lusaka International Airport than I realised. Read more here.

Saturday, 15 March 2008

A flawed vision for Zambia?

Presidential hopeful Professor Chirwa has a vision for Zambia in the 21st century. It includes the following:

“When I am elected, I will re-introduce Zambia Airways which was sold for no prudent reason by the prior government. Zambia Airways was not making any loses at the time of the sale...I have already initiated talks with Sir Richard Branson, the owner of Virgin Airlines, in regards to forming a partnership to create a new national airline for Zambia to and bring back Zambia Airways”
Presumably the Prof wants to directly challenge Zambian Airways? Instead of looking back to what Zambia Airways was, why don't we look at what Zambian Airways and others (e.g. Zambia Skyways) in a properly supported aviation sector. It strikes me that the Prof's vision is not for the 21st century. It appears to be a vision of a bygone age. Even the current government has had the sense to realise that the pursuit of a national airline with some form of tax payers money involved is not a way forward. It is backward.

As I have previously stated there's absolutely no case for a national airline. If Prof Chirwa has any vision for aviation, it should be to focus on creating an enabling environment through greater liberalisation of air travel and reducing the the cost of jet fuel.

Instead of duplicating government efforts to get Richard Branson to look at the Zambian market, the Prof should be spending time finding out why the likes of Virgin and other airlines are not looking at Zambia? The answer surely must be the problems I have mentioned above, and the poor state of our infrastructure.

Our airport infrastructure can definitely do with a lift. Especially provincial airports to enable the development of tourism. We have four international airports managed by National Airports Corporation Limited (NACL) - although with Solwezi Airport due to be built by the mines that make it five (see the post called Solwezi Model). NACL is aiming to fully commercialise its operations (the Zamtel problem) so that it could invest in more infrastructure. Provincial airports come under the Department for Civil Aviation. Encouraging private sector involvement there is critical.

The other critical infrastructure is Airport Traffic Control (ATC) infrastructure which is maintained and operated by NACL. Zambia has a civilian radar system and is limited to procedural air traffic control. Overflight incomes from ATC services are quite low, particularly given the fact that major overflight routes pass through Zambia. Furthermore it is difficult for NACL to negotiate higher fees because we lack adequate surveillance infrastructure. With increased traffic, we will need to invest in new surveillance technology. There's a role for Government to take the lead here - and look at the Automatic Dependent Surveillance-Broadcast (ADS-B) for example. I am told that this is a cheap technology, easy to maintain and suited for countries in the developing world such as ours. Tanzania has it.

We also need to invest in soft infrastructure - human capital. The Zambian Air Services Training Institute for example must be considered as critical to aviation development. I think the institute should be privatised to allow it to expand and grow. It has good staff and good students. We can become an exporter of pilots in the region if we made it private.

Now in light of all these things we can do, and should be doing, why do we keep ourselves obsessed over a lost airline? Why are we looking back and not forward? There's nothing that I find more disturbing that hearing those that want to offer an alternative vision repeat the same old failed ideologies. Atleast, I must thank Prof Chirwa for atleast articulating his vision for aviation, albeit, a flawed one. Debating ideas is a positive thing, and the Lord knows we need more of that in Zambia.

Who’s the Most Corrupt of All?

Malawian blogger Steve Sharra has a fascinating piece 'International Thieves': Western Corruption and the Third World Financing of the Rich. Well worth the read.

Reciprocal madness?

When the Zambian government took reciprocal action and increased visa charges for British residents (among others), I am sure they did not have this in mind.

Free riders...., 2nd Edition

Henry Chipewo (Chartered Institute of Logistics and Transport) has weighed in on the problem of infrastructure free ridership. Henry's radical proposal is for government to come up with a policy framework that will restrict the movement of cargo above a certain tonnage on roads in order to avoid damage to infrastructure :

The roads, railway and air transport have to complement each other. What the roads can’t do, we expect the railway to do the job and what the railway sector cannot provide, the airlines are expected to offer the service.....Now what government should do is come up with a policy framework that will restrict the transportation of bulk goods on roads but through railway. This will reduce on
the depletion of our road network which is already in a bad state...It is unreasonable to carry a bulk of copper, sugar or any other goods by road when that can be done using the railway lines.....There is no time that government will be able to reconstruct 80,000 kilometers of the road network in Zambia. For the country to be competitive in terms of trade, we require strong rail infrastructure because this is the most appropriate for the transportation of bulk goods"
Its an interesting proposal, but freight will always need the road system, not only to get to those "rail stations" but also in terms of wider distribution of bulk. So presumably what Chipewo has in mind is restrictions focused on the mines. That would require forcing the mines to invest heavily in rail use - they would argue thats discriminatory.

Friday, 14 March 2008

ZESCO maths...

Monica Chisela (Zesco Limited’s PR Manager) provides some figures to ease our understanding of Zambia's energy problems:

“The installed capacity of the Zambian electricity grid is 1,600 Mega Watts, of which 450 Mega Watts has been taken out for rehabilitation and up rating. Two machines from Kafue Gorge, each with a capacity of 150 Mega Watts and one machine from Kariba North Bank Power Station with a capacity of 150 Mega Watts, giving a total machine outage of 450 MW....The current maximum demand is estimated to be 1,300 MW and it is anticipated to reach 2500MW in the next five years. We also need to keep a reserve of 150 MW as a safety measure to prevent total black out in the event of system disturbance. During the evening peak, 300 MW has to be shed off in order to save the machines from total collapse should the demand exceed available supply".
So whats the position on the 450 Mega Watts that 'has been taken out for rehabilitationa and up rating'? Well, that requires more maths from Christopher Nthala (ZESCO Director of Transmission and Generation):
"By June this year, we are going to bring on stream two generating sets number six and seven at Kafue Gorge with additional generating capacity of 330 Mega Watts. This will result in restoration of full capacity of the power station but this will only last for about two days because later, we will remove generator number two which will knock out 150 Mega Watts from the system. And later we will remove another 150 Mega Watts generator set for about two months. So as we will restore 330 Mega Watts in June, we will take out another 330 Mega Watts, so the full capacity of gthe plant will be restored after December".
Not sure why the 30 Mega Watts is being lost in the ZESCO narrative, but hopefully you now have some confidence that ZESCO has a plan!

Thursday, 13 March 2008

A SADC Schengen?

Interesting comments from Tourism Deputy Minister Todd Chilembo that the SADC region will soon introduce a single visa that will allow foreigners access to all 14-member countries for tourism purposes.

Full article from the Post below:

SADC to introduce single visa for tourists, says Chilembo
By Kabanda Chulu
Wednesday March 12, 2008

Tourism Deputy Minister Todd Chilembo has said the SADC region will soon introduce a single visa that will allow foreigners access to all 14-member countries for tourism purposes.

Addressing the International Tourism Bourse (ITB) held in Germany over the weekend, Chilembo stated that the Southern Africa Development Community (SADC) through the Regional Tourism Organisation for Southern Africa was promoting the concept of the Univisa.

“This concept will be a visa for foreigners in the line of the Shangen Visa (being undertaken in Europe), but will allow foreigners to access all 14 SADC member countries for tourism purposes,” he stated.

Chilembo also clarified the Zambian government’s withdrawal of tourist visa waivers because there was need to streamline the administration of visas as well as to adhere to the principle of reciprocity.

Chilembo stated that government had enacted the Tourism and Hospitality Act and the Zambia Tourism Board Act to support tourism development based on the principles of a free market economy.

He stated that the government had also introduced fiscal incentives that would be applicable to investors investing not less that US$500,000 in a priority sector such as tourism.

“Other incentives will include company tax to be charged at 50 per cent of the profits earned for a period of five years starting with the first year of profitability and dividends shall be exempted from tax for five years from the year of first declaration and the investors’ equipment and machinery will be customs duty zero rated for five years,” Chilembo stated.

Last year, Zambia recorded an increase in direct tourist receipts from US$177 million in 2006 and US$188 million in 2007. The tourism sector also had steady growth in tourist arrivals from 690,000 in 2006 to 730,000 in 2007. Of this figure Europe contributed 189,800 while Germany’s share was 7,000.

The Univisa proposal should make the SADC region more attractive to tourists , relative to other regions, as it expands the choice available to them. The extent of these benefits will depend on the extent to which air travel in SADC can be further liberalised to allow tourists to move much more easily across countries. SADC appear alert to this issue as well. Will Zambia benefit? That would depend on a number of things, including the price of the Univisa relative to the Budget 2008 Visa Changes. If the Univisa comes out cheaper than the latest changes, that would be good news. But the critical issue in the long term is whether Zambia can significantly improve its hotel and airport infrastructure to compete with other SADC nations. The Univisa as well as making SADC more attractive, will in the long term intensify competition among SADC states. Is Zambia ready?

Tuesday, 11 March 2008

Monday, 10 March 2008

Important new bills....

Parliament Online have now uploaded important new bills that have been the subject of much discussion in the media. You can view new material here.

Due to the unreliable nature of the Parliament website, I have uploaded the individual bills for New Zambia readers.

Mines and Minerals Development Bill 2008 - An Act to revise the law relating to the prospecting for, mining and processing of minerals; and to repeal and replace the Mines and Minerals Act, 1995.Mines and Minerals Development Bill 2008

Income Tax Bill 2008 - An Act to amend the Income Tax Act, with new provisions for mining windfall taxes etc.
Income Tax Bill (Amendment) 2008

Customs and Excise (Amendment) 2008 - An Act to Amend the Customs and Excise Act, with new measures that will apply a 15% export levy on copper concentrates, from the beginning of April 2008.

Value Added Tax 2008 - An Act to amend the Value Added Tax Act as laid out in the Budget.

Roaming for profit...

Making an international call in Zambia is extremely expensive, thanks to Zamtel's control of the international gateway and the high interconnection fees they charge mobile providers. Celtel Zambia is now trying to work round these constraints. Full article below:

Celtel to launch one network system
By Kabanda Chulu
Friday March 07, 2008

CELTEL Zambia will soon launch the one network system where customers will make international calls using local rates.

Company marketing and operations manager Kennedy Mambwe yesterday said Celtel Zambia would soon engage the government into discussions to review certain policy matters in order to address the issue of international roaming.

“The one network system currently in place in some selected countries in East and Central Africa has helped to reduce costs because customers are able to make international calls at local rates and we want Zambia to be part of this system,” said Mambwe.

And newly appointed Celtel International chief executive officer for Africa Chris Gabriel stated that the company would become one of the top 10 mobile groups in the world by 2011 through market

He stated that the telecommunications industry in Africa was growing at a phenomenal rate and Celtel must seize the opportunity to utilise the massive potential which the continent had.

Saturday, 8 March 2008

Are rural women the 'missing link' ?

Doreen Nawa has written a powerful piece in The Times on rural women and the crucial role they can play in the development process, if properly empowered, especially as smallholder farmers.

There's general analytical concensus now that rural poverty alleviation programmes are most effective when they are "agriculture based" (hence the current uproar over the slash of agriculture spend in the 2008 budget ). But increasingly the literature also beginning to recognise that for these rural programmes to be effective, we need to recognise that crucial role of rural women, and the fact that they face different challenges to rural men. There are signifcant "gender inequalities" in terms of access to land and credit. Until we begin to address these problems, even land redistribution and rural agriculture programmes will not be effective in reaching the poorest in our society. As Doreen says "They grow, gather and catch the family meals, bring home water and wood, and prepare and cook the food. Where the rural poor get enough to eat, it is most often largely through the efforts, skills and knowledge of mothers, wives, sisters and daughters. Despite this, these women are often the last to gain access to resources, training and financial loans".

Friday, 7 March 2008

A Zambian Shenzhen or just another DA?

Reuters reports that Zambia & China are now on verge of signing a deal that would see fifty Chinese companies invest over $800 million in the Chambishi tax free economic zone within the next five years. According to Felix Mutati (Commerce Minister), in addition to removing tax restrictions, the Zambian government would also "build roads and set up telecommunications, and water facilities in the [multi - facility economic] zone".

Zambia of course is not the first nation to go down this route. China and India have been pursuing this policy of MFEZs for a long time. The successes of Shenzhen and Pudong (in Hong Kong and Shanghai respectively) are certainly worth noticing. Both have become huge urban agglomerations of concrete and steel, and both have generated huge amounts of cash. The Indian government has over 170 export processing zones and many more are in the pipeline. In both cases, the most debated issue has been about land and those displaced from it. Zambia of course is already facing problems in this area. See the blog here. But some would question whether MFEZs are value for money for the Zambian tax payer. We have to remember that MFEZs means zero direct revenue to government (beyond employment taxes and so forth), and of course in Zambia's case we are also planning to spend money on MFEZ related infrastructure, effectively going in the opposite direction of what MFEZs have been doing in other countries, where they provide the infrastructure (part of the reason other governments have supported MFEZs is because of precisely the reason that they deliver infrastructure). So there's a genuine question, which I think has not been debated among the Zambian analytical community, on just what Zambia will get for the tax breaks and infrastructure spend. We know the Chinese firms will get $900m per year in non taxable profits!

On the positive side, the benefits of MFEZs seem pretty obvious. In the words of Felix Mutati (Commerce Minister), "...the Chambishi zone, which should be fully functional within five years, would initially create 6,000 jobs and offer incentives such as tax relief and easing customs duties on imported equipment and machinery...We are looking for a cocktail of companies that will add value to our raw materials to use the Chambishi zone. China is helping to attract other foreign companies on our behalf" . The main benefits appear to be coordinated employment creation and diversification of the Zambian economy. Indeed beyond the Chambishi zone will be a host of firms providing services to those firms within the free tax zone (generating catalytic employment).

In terms of value for money, the real question is whether new economic activity generated by the Chambishi zone would more than compensate the government for revenue lost from tax-breaks and expenditure on new infrastructure. The economic analysis underpinning the Chambishi zone deal needs to be made available so that we can check whether this question has been addressed (we are still suffering from mining DAs). A key element of the analysis is the issue of what would happen if the tax - breaks and concessions are not made? Would Zambia get the investment anyway from other players? The government analysis presumably has also factored in the costs of displacement for those that have lost the land. What are these costs?

But of course there's an even more profound question that I hope those in opposition and think tanks (like ZIPPA, JCTR etc ) are thinking about - are MFEZs the right way to attract investment and can they really make any serious dent on poverty? It strikes me that we have moved from abandoning development agreements on the mines (with their zero taxes!) to creating new ones with the economic zones. My inclination is that Zambia needs policies that introduces a bureaucratic hands-off approach, the freedom to invest across sectors, and promote contestable markets (with import competition, and privately financed infrastructure being two of the key factors - see the blog here). This is the only way to ensure that investment reaches every province and district in Zambia and ensures that we tackle rural poverty.

Thursday, 6 March 2008

The Lumwana Story.....

The Financial Post has a nice piece on how Equinox Minerals secured Lumwana, and are now poised for greatness. Excerpt:

Lumwana was discovered in 1961, but there was no serious work done on it until Equinox got involved in 1999. At the time, the property was controlled by Phelps Dodge Corp., a major producer that showed little interest in it. Mr. Williams formed a joint venture with Phelps in which Equinox could earn 51% of Lumwana by investing US$10-million and completing a feasibility study. Later, he struck a deal to buy Phelps out for a laughable US$5-million. That contract is framed on the wall at Equinox's head office today.

"You have to put it in context," Mr. Williams says. "Copper was 63¢ [a pound]. Frankly, Phelps Dodge was struggling at that point and selling assets all over the world. We just hit them at a good time."

Equinox eventually identified a measured and indicated resource of about 13.8 billion pounds of copper and 21.8 million pounds of uranium. That is big enough to be a world-class resource....

Wednesday, 5 March 2008

Zambia Statistics - February 2008

The CSO February Edition can be found here. Inflation has continued an upward trend with the inflation rate for February recorded at 9.5 per cent. The February inflation rate represents a 0.2 per cent increase compared to last January's 9.3 per cent, largely driven by the increase in the cost of food products, rent and household energy (electricity tariffs and charcoal), furniture and household appliances.

Tuesday, 4 March 2008

Free riders....

Interesting comments from Enoch Kavindele last week vis-a-vis the weak incentives for mining companies to support development of North West Rail Line:

.....As it stands, the [road] repair and rehabilitation costs are borne entirely by the government and cease to be their problem. In the next three years, both Kitwe to Chingola road and the Kitwe to Lumwana road will be completely damage.....All this heavy traffic combined with all other road users will place an extraordinary strain on all services, utilities and infrastructure....the combined Democratic Republic of Congo (DRC) and Zambian mines related freight volumes in 2010 would be 2,400 000 tonnes of copper ore per annum..... In Chingola, this will translate to having a truck on the roads every three minutes to and from. Roads in the town will become completely congested with the route between Chingola and Kitwe becoming almost impassable not to mention the hazardous conditions that will be faced by normal motorists and pedestrians,”
Two observations spring from this.

First, the people of Zambia should stop irrational expectations that mining companies would behave in the nation's interests when it comes to the delivery of new infrastructure. There's no such as thing as "social responsibility" because mining companies are motivated purely by profit and will always act in the interest of their shareholders. If using an existing road is cheaper than building a new one, then they use the existing one. The same goes for local schools and hospitals. When they occasionally provide a new school or fund the local football team, they "appear" to be socially responsible. Their true motivations is always those of the company. It follows that we should not expect these companies to invest in local infrastructure unless it was legally mandated.

Secondly, Government's failure to put in place a coherent framework that leverages private sector investment into delivering local infrastructure has created perverse incentives in other areas. There's no doubt that many mining companies are free riding local infrastructure and therefore have no incentive for investing in inter-urban infrastructure such as rail or motorways.

Zambia is projected to receive over $3bn in foreign direct investment this year. Very little of that amount will be spent on transport infrastructure beyond the immediate requirements of a particular mining venture. Most of this investment will rely on existing inter-urban infrastructure to make their business work. Now is the right time for new legislation that basically makes it a condition that any new investment, in any local area, should provide some minimum level of investment in schools, transport and other things, if the local authority deems it necessary. Failure to take this approach will result in road and rail network that mirrors our crippling electrical situation. As the IMF noted, Zambia's infrastructure is lagging behind the rate of investment.

There's another reason for tackling the free riding of transport infrastructure. If new investors are mandated to contribute to transport provision (where they are proven to contribute significantly to transport demand), it would strengthen the bond with the people. At the very least, local people would appreciate that the firms are contributing in a direct way and are not simply exploiting the existing system. Public acceptability of foreign investment is critical in signalling Zambia as an attractive and secure place to investment.