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Thursday, 13 November 2008

Has Zambia missed the windfall?

This IRIN article paints a bleak picture of the future of copper mining in Zambia. If the 'doom merchants' are correct, it appears that not only was the government too late in implementing the fiscal regime, but also the little additional revenue it projected now appears to be in tatters. To make matters worse, Fred Bantubonse and Co appear primed to push for reversal in the fiscal regime.

24 comments:

  1. From article:

    "But even if it lasts longer than anticipated, government is currently working on measures to ensure there is a steady flow of investment ... and that the situation does not ground our economy."

    Therein lies the answer, projects such as Special economic zones attracting investment and increasing employment and policies such as lower visa fees to increase tourism (and employment). Not everyone is interested in working in mining and agriculture. A modern economy should be well diversified to withstand problems with any particular sector. A look at the western regions of the U.S. shows many ghost mining towns where the population moved on after the minerals ran out. A well diversified economy would reduce the adverse impact from any one sector.

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  2. Kafue001,

    Therein lies the answer, projects such as Special economic zones attracting investment and increasing employment and policies such as lower visa fees to increase tourism (and employment).

    There is only one 'special economic zone' and it is called Zambia.

    Economic diversification through special zones is a joke, and so are the number of jobs (58,000) in the mining industry compared to the billions of dollars lost to the economy through privatisation and development agreements.

    Why are you so interested in not seeing the mines contribute their fair share to the economy?

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  3. Mr K,
    "Why are you so interested in not seeing the mines contribute their fair share to the economy?"

    If you are saying that the mines should be confiscated from the private mine owners under the guise of "contribute their fair share to the economy" then I am totally against that, since not respecting property rights is a major factor in the destruction of an economy.

    http://www.blurtit.com/q603976.html

    Mr K,
    "Economic diversification through special zones is a joke"

    They have hardly started in Zambia, so your judgement is premature.

    Mr K,
    "Economic diversification through special zones is a joke, and so are the number of jobs (58,000) in the mining industry compared to the billions of dollars lost to the economy through privatisation and development agreements."

    The private mining companies kept the mines open and invested in them when they otherwise would have been closed resulting in major hardships in Zambia-unemployment and shortages of foreign currency to buy fuel and medicine. They should be thanked for investing in Zambia. The mines had been run down by the government when they ran them after nationalizing them previously:
    "Today, the mines that were supposed to ensure that security are in shambles, neglected for years by the state mining company, Zambia Consolidated Copper Mines, known as ZCCM."

    http://query.nytimes.com/gst/fullpage.html?res=9B02EFD71738F933A25752C1A9669C8B63

    Rather than taking their profits, focus on obtaining revenue from future new mines (state owned if you wish) and creating new jobs through special economic zones and tourism.

    Agriculture can only provide a limited improvement in people's lives, because machinery can produce more crops efficiently than manual labor. This is why only half a percent of the population in America is directly employed in agriculture:

    http://en.wikipedia.org/wiki/Agriculture_in_the_United_States

    Besides, people like to live in urban areas where there is easier access to services - it is not possible to have a university, department store, library, hospital, fire station, school near every village in Zambia.

    In conclusion, there is a difference between theoretical economics and practical economics.
    Theoretically your economic proposals can create high wages (say 60 cents per hour against the current 20 cents per hour), however they are harder to implement and endure. My practical proposals will increase wages to say for example, 40 cents per hour, it is less than your proposal, but a big improvement over the current 20 cents and much easier to implement.

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  4. Mr K,
    "Economic diversification through special zones is a joke"

    They have hardly started in Zambia, so your judgement is premature.


    They have been tried and failed in Jamaica years ago, and there is no reason to presume they would have a significant impact in Zambia either.

    You don't have give things time when you already know the concept is flawed.

    What is your proof that these zones work?

    Mr K,
    "Economic diversification through special zones is a joke, and so are the number of jobs (58,000) in the mining industry compared to the billions of dollars lost to the economy through privatisation and development agreements."

    The private mining companies kept the mines open and invested in them when they otherwise would have been closed resulting in major hardships in Zambia-unemployment and shortages of foreign currency to buy fuel and medicine.


    Would have or could have? What is your proof that there is any merit in keeping mines open through recessions?

    With only 58,000 people employed in mining, these people could easily have found jobs building infrastructure and farming.

    The jobs argument is the only thing the neoliberals can mention, becaus everyone can see that under their theories, these foreign corporations are here only to take and contribute nothing of substance, certainly nothing like they could be contributing if they were heavily taxed, or forced to use or train local suppliers, or forced to pay a minimum wage.

    We've heard the 'they'll bring jobs' argument from Levy Mwanawasa, and what has it left us with? Nothing. Below minimum wage jobs, no savings, no surpluses by government, just billions of dollars of corporate profits.

    Rather than taking their profits, focus on obtaining revenue from future new mines (state owned if you wish) and creating new jobs through special economic zones and tourism.

    Why are you so interested in protecting the present mines from paying their fair share of taxes?

    You don't work for the mining companies, by any chance?

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  5. Kafue001,

    Besides, people like to live in urban areas where there is easier access to services - it is not possible to have a university, department store, library, hospital, fire station, school near every village in Zambia.

    The MINISTRY of local government receives more money from central government than all local governments combined. That alone tells you why there is such an imbalance in the services available between rural and urban areas.

    We cannot have a lobsided economy that depends only on the copperbelt and tourist destinations.

    Or agriculture that is in the hands of a few corporations.

    The very point of economic diversification is that you make it possible for people to make a living in many different parts of the country, instead of concentrating both the population and the economy around the Copper Belt and Lusaka.

    Lobsided economies are vulnerable economies, and your suggestions are a recipe for making the people, the economy and Zambia itself extremely vulnerable to the vagueries of crop failure (monoculture through large agribusinesses), the global economy (by depending on 'jobs' from mining industry instead of revenues for diversification and international companies in 'special economic zones') and the creation of an ever expanding urban proleteriat (instead of a stable class of rural commercial farmers/employers).

    On the issue of the mines. If donor aid dries up - and believe me, donor aid to Zambia is the first that is going to be cut when Western governments run out of money themselves - the government will not have a choice except to renationalize the mines, just to fill the $600 million (in 2004, more this year) hole the absence of donor aid is going to leave in their budget. Or they seriously have to start firing government employees, which will increase unemployment and incomes.

    Neoliberalism has failed. No more free ride for the mines, no more special economic zones but works projects, agriculture and beyond that, manufacturing.

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  6. Mr K,
    "What is your proof that these zones work? "

    Here is an example:

    http://www.spiegel.de/international/spiegel/0,1518,412237,00.html

    Mr K,
    "What is your proof that there is any merit in keeping mines open through recessions? "

    That depends on the mining companies outlook on the severity of the recession. If they believe it will be short lived, they may continue with their expansion plans to be ready to sell more metal at higher prices once the recession is over.

    Mr K,
    "With only 58,000 people employed in mining, these people could easily have found jobs building infrastructure and farming."

    Due to specialization of labor, miners are better at mining resulting in lower output cost and farmers are better at farming also resulting in lower output cost, so while it is possible to switch occupations, better efficiencies make it preferable that they stay within their occupation if the expectation is for a short recession.

    Mr K,
    "foreign corporations are here only to take and contribute nothing of substance, certainly nothing like they could be contributing if they were heavily taxed, or forced to use or train local suppliers, or forced to pay a minimum wage."

    Forcing corporations to do this or that may work in countries with more leverage such as China with access to a huge market or Saudi Arabia with their oil wealth. However with poorer countries like Zambia, companies will simply move to other countries with less regulations. Much better to give foreign corporations incentives to start operations and employ people.

    Mr K,
    "We've heard the 'they'll bring jobs' argument from Levy Mwanawasa, and what has it left us with? Nothing. Below minimum wage jobs, no savings, no surpluses by government, just billions of dollars of corporate profits."

    You are expecting too much too soon. As economic growth absorbs the labor supply, this will eventually result in the bidding up of wages (something that is happening in China now). Meanwhile more companies should be encouraged to set up operations in Zambia for this to occur faster.

    Mr K,
    "Why are you so interested in protecting the present mines from paying their fair share of taxes?

    You don't work for the mining companies, by any chance?"

    I will agree with whatever the courts decide is "their fair share of taxes", not with your definition. No, I do not work for the mines. I believe in the protection of property rights, whether they be farm owners, factory owners, oil companies, house owners, etc. Once property rights disappear, then investors and economic growth will disappear.

    Mr K,
    "The very point of economic diversification is that you make it possible for people to make a living in many different parts of the country, instead of concentrating both the population and the economy around the Copper Belt and Lusaka."

    I agree. I would recommend something like focusing development on provincial centers. What I am saying is that it is necessary to consider the limited resources available when making development plans.

    Mr K,
    "Lobsided economies are vulnerable economies"

    What I am saying is that while it is okay to give fertilizer packs to prevent starvation, the focus should be to make the population grow economically on its own. This has come about historically through specialization of labor. In other words the population should focus their activities on high income occupations such as engineering or nursing rather than subsistence agriculture which is subject to the vagaries of nature (weather, pests, disease).

    Mr K,
    "On the issue of the mines. If donor aid dries up - and believe me, donor aid to Zambia is the first that is going to be cut when Western governments run out of money themselves"

    Western governments can always print money. The Great Depression ended when the Second World War began and government began massive spending, effectively creating full employment and full demand for goods and services. Once the economy recovers, then they can reduce expenditure, otherwise it will result in inflation.

    Mr K,
    "Neoliberalism has failed."

    Not at all.

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  7. Mr K,
    "Neoliberalism has failed."

    Not at all.


    Perhaps some proof, next time? Meanwhile, I'll demonstrate why it is bad to rely on a service based economy, where the main economic sector is, say, tourism, at the detriment of agriculture and manufacturing:

    Peter Schiff Radio Show 11-12-08 6/6

    ReplyDelete
  8. Peter Schiff: a compilation of his predictions:

    Peter Schiff - Former Ron Paul Economic Advisor 2006-2007
    http://www.youtube.com/watch?v=z74vPQzhSLI


    Last Wednesday's show:

    Peter Schiff Radio Show 1/6
    http://www.youtube.com/watch?v=Gdg0HdCotkU

    Peter Schiff Radio Show 2/6
    http://www.youtube.com/watch?v=RhWEn6aj7hw&NR=1

    Peter Schiff Radio Show 3/6
    http://www.youtube.com/watch?v=7yLzahcqDPo&NR=1

    Peter Schiff Radio Show 11-12-08 4/6
    http://www.youtube.com/watch?v=OPK-IO92mN4

    Peter Schiff Radio Show 11-12-08 5/6
    http://www.youtube.com/watch?v=kdo0WJ4DVvI

    Peter Schiff Radio Show 11-12-08 6/6
    http://www.youtube.com/watch?v=qc-jAWnlFk0

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  9. Kafue,

    "Therein lies the answer, projects such as Special economic zones attracting investment and increasing employment and policies such as lower visa fees to increase tourism (and employment). Not everyone is interested in working in mining and agriculture. A modern economy should be well diversified to withstand problems with any particular sector. A look at the western regions of the U.S. shows many ghost mining towns where the population moved on after the minerals ran out. A well diversified economy would reduce the adverse impact from any one sector."

    MFEZs are based on led growth model which are susceptible to the global slowdown. If this crisis has taught Zambia any lesson it is that a strategy built solely on attracting FDI is extremely vulnerable to external shocks. Normally government insulate themselves to these through STABILISATION FUNDS..but Zambia has not had enough of the "windfall from mining" to create such a fund.

    No have we had enough "windfall from mining" to allow investment in infrastructure that would power a "domestic led industry" that also becomes critical in time of external pressures...

    The bottom line is...Zambia's short and medium term solution requires some significant revenue from mining, without which we cannot become a middle income country...

    ReplyDelete
  10. CORRECTION:

    First sentence should read - "MFEZs are based on export led growth model which are susceptible to the global slowdown."

    ReplyDelete
  11. Cho,
    "If this crisis has taught Zambia any lesson it is that a strategy built solely on attracting FDI is extremely vulnerable to external shocks."

    True in the short term. Any sector will usually have some short term crisis. In the long term MFEZs are a good source of employment. What I am saying is that MFEZ's are a fast way of reducing employment, as compared to home growing industries which require achieving competitive advantage (good coordination between government and home institutions).
    With Zambia having so many unemployed and underemployed people, the focus should be on quickly reducing unemployment and then later worrying about how to diversify employment.

    Cho,
    "No have we had enough "windfall from mining" to allow investment in infrastructure that would power a "domestic led industry" that also becomes critical in time of external pressures...
    The bottom line is...Zambia's short and medium term solution requires some significant revenue from mining, without which we cannot become a middle income country..."

    Look at Mauritius, GDP has increase from $200 to $7,000 per capita in the past 40 years without mining revenue:

    http://www.economist.com/world/mideast-africa/displaystory.cfm?story_id=12436181

    Here is another suggestion, restore the minimum investment amount for foreign investors back to $50,000 where it was a couple of years ago before it was increased to $500,000 presently. This should help attract investment.

    http://english.peopledaily.com.cn/200612/02/eng20061202_327479.html

    ReplyDelete
  12. It seems Kafue001 relishes very artificial economic theories. They don't work. This major financial meltdown which has engulfed the entire globe, has put to rest Thatcherite, Milton and Reaganomics. Basically the whole neo-con premise is under threat. The threat is so comparable to the fall of communism. So I can't see your basis of supporting abnormal profits.

    I don't teach a class presently, but those who are teaching basic economics I am sure are confused. This is because all major assumptions have been violated. Genuine profit making must be based on geunine costs and genuine earnings. Mullahs influenced oil shocks, hedging, computer calculated derivatives, speculation and pure greed are not part of conventional economic theories. They are shocks or exogenous variables which is not part of normal. In any case so long as these do not behave per assumptions, then we have a problem.

    Kafue001 you seem to be a faithful adherant of foreign investments. That these investors are entiltled to profits. Sure, but not from the first day and in any amount. If they do then all those foreign investors are exploiters - who want locals to work for free and on top of that want to be allowed to dig minerals witout charge. Because that is what they're demanding.

    Note that, if they didn't come, you can't go to their towns and demand to use their money for free or cheaply. Their conditions would be so prohibitive that you're likely to come back empty handed. Therefore, anyone who supports free rides/concessions for foreign investors coming to us is completely off. Minimally, that person either hates himself or suffers from a major complex.

    Now that we know what is happenning we have to demand a fair price on our resources. Never mind Mwanawasa who was handing out concessions in exchange for political support. Chinese and Indians got good deals from him because to consolidate his power he needed quick carrots to show Zambians that he was making quick economic progress. To rectify that, that is why we have to levy those resources now heavily. Let the investors take it or leave it. But we know that regardless of the price, they'll not leave because of high demand. So Zambians should not be afraid to charge what they think is due to them. Because if they don't, they would incur opportunity costs. Moreover, if the investors left - should they not be replaced by others, the better, because then - for survival Zambian people would be forced to turn to other things among them agriculture. And given huge minerals' demand, Zambians themselves would be forced to start mining their stuff.

    Anglo-American ZCCM was another imperialistic scheme. To control us they purposely ran it under so that we could fall flat on our tummies and go begging. And indeed they succeeded by bluffing our shortminded leaders like FTJ who went on a spree dishing out assets to anyone who called him intelligent. Foreigners came even with food tumps money to come and buy mines in Zambia. All these came in the name of investors. Indeed as Sata puts it, China sent to Zambia unemployed Chinese as self employed, who then qualified as investors. You can't call that sensible. Neither can you praise investments (mines) which only employ less than 100,000 out of a possible 10 million people. What do you do with rest of people?

    And finally, regardless of how much you shun down agriculture, all the major developed economies began there. USA, Britain, Canada, France, Germany, Sweden, Japan, Brazil, Russia, South Africa and now China have all had to begin by developing their agricultural sectors first.

    So Kafue001, please do not support foreign investors blindly. If they need those minerals, believe me they'll find ways to pay for them. And as we wake up - given a pro-people government, we will have to charge wind fall taxes. We can't afford not to - for as soon as those minerals are exhausted (a fact even Kafue001 recognises), they'll run away to somewhere else leaving us with the envirnmental mess.

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  13. Kaela,
    "This major financial meltdown which has engulfed the entire globe, has put to rest Thatcherite, Milton and Reaganomics."

    Not true. Every once in a while a new situation arises due to a new set of circumstances. For example, when the Great Depression of the 1930's arose, governments continued their with their traditional economic policies, not understanding that in modern economies when there is a fear of of spending and lending, this feeds on itself and the economy declines. In such a situation the government needs to intervene itself with massive spending and lending until this fear is removed. Similarly we currently have a new situation where there is fear of spending and lending caused by the impact of a major relatively new financial instrument - credit default swaps. So it is necessary to understand the situation and handle it correctly rather than condemn long term conservative policies.

    Kaela,
    "So Kafue001, please do not support foreign investors blindly."

    What you fail to realize is that we live in a world of specialization of labor and pools of capital. I don't view foreign investors as "foreign" but rather as investors. Due to specialization of labor, a mining company in South Africa would be interested in opening a gold mine in Mali, but not a textile factory, because they know how to mine, but not make textiles. Similarly Sasol, a South African coal to liquid fuel company, is in China to build such facilities because they have expertise in this area and not to build tractors where they don't have expertise.

    http://www.busrep.co.za/index.php?fArticleId=3305588&SectionId=612&fSetId=662

    Foreign investors also have access to bigger pools of capital and thus able to construct facilities which will employ more people in Zambia.

    The biggest constraint to growth in Zambia, is the same problem other countries have, i.e. sufficient experienced and skilled labor. If you look at Germany, at the end of the Second World War the country was in ruins, yet within 10 years the economy was booming and well on the recovery. Not because of the Marshall plan, although that did help, but because it still had the experienced and skilled labor force necessary for a successful economy. So the focus in Zambia should be on education and developing the business environment (which includes foreign investors).

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  14. Kaela,

    " So Zambians should not be afraid to charge what they think is due to them. Because if they don't, they would incur opportunity costs. Moreover, if the investors left - should they not be replaced by others, the better, because then - for survival Zambian people would be forced to turn to other things among them agriculture. And given huge minerals' demand, Zambians themselves would be forced to start mining their stuff. "

    I completely agree. Zambia is a major worldwide exporter of copper and cobalt. Now, uranium has been found. People will always come to Zambia to mine those or pay for it after we mine it ourselves, and it is outrageous that the mines are not taxed to the maximum to develop the rest of the economy.

    " If they need those minerals, believe me they'll find ways to pay for them. And as we wake up - given a pro-people government, we will have to charge wind fall taxes. We can't afford not to - for as soon as those minerals are exhausted (a fact even Kafue001 recognises), they'll run away to somewhere else leaving us with the envirnmental mess. "

    And these mining companies are dishonest. They hide their company's data, hide their profits, and refuse to pay their taxes.

    They have shown again and again that they do not deserve the benefit of the doubt or any goodwill.

    And I'm very confident that even though China will also feel the effects of the recession (through reduced income from exports to the US for instance), they also have a stimulus package which they will wisely put into infrastructure, which will benefit Zambia's copper exports to China.

    I think that as the dollar collapes because of the US's $700bn plus stimulus (and the multi-trillion dollar war in the Middle East), copper and other commodities will make a very strong comeback - not that I am hoping for anyone's misfortunes, but that is just what it looks like to me at this point in time.

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  15. Kafue001
    “Similarly we currently have a new situation where there is fear of spending and lending caused by the impact of a major relatively new financial instrument - credit default swaps. So it is necessary to understand the situation and handle it correctly rather than condemn long term conservative policies”.

    The major tenet of Thatcherite & Reaganomics and by extension Washington neo-con school is that - markets are always right, left alone they can correct themselves when there is a shock or abnormality. With this conviction, Thatcher & Reagan policies promote non-intervention. The operators/players in the market such as corporations, investment banks, financial & commodity brokers, housing market, etc., should not be interfered with by regulations. They can and should regulate themselves. The meltdown has thrown this premise out of the window. The capitalists’ greed (encouraged by free for all games), eventually came to a halt. Regulation and tax payers’ money has to come in to save the day.

    The $700bn package and other measures being considered in Congress, UK, German, UK, China and every where – complemented by the recent meeting of twenty in Washington, D.C. is nothing but a discussion on how best the world can use regulatory framework without damaging capitalistic traditions. But nevertheless, you have to accept that the conservative school has failed us. In fact when confronted, Allan Greenspan the Fed Chief for decades and believer in non-intervention doctrine was shocked and almost cried at the extent of the failure. In fact some radicals are even suggesting that he should apologize to the world for leading us to a dead end. With an open mind, you’ll find evidence that even hardcore Wall Streeters privately admit this astonishing market weakness (or imperfection).

    Kafue001 –

    “Foreign investors also have access to bigger pools of capital and thus able to construct facilities which will employ more people in Zambia”.

    Yes, I agree with labour and capital mobility. Globalization along with minimization or elimination of borders encourages free movement. However, this does not legitimize illegal transactions or exploitation of any kind. It is mostly the later we are opposed to – for the crooks target weak or underdeveloped countries like Zambia. It is here where you and I can contribute to safeguard Zambia’s interests.

    Further, why should those ‘bigger pools of capital’ only be available to foreign investors in today’s global environment? Had our government and the Zambian institutions not been biased against indigenous experts, we wouldn’t need those so-called foreign investors. We can rely on our own. Principles of running a business are now well known.

    Believe me we have a pool of trained Zambians roaming about in the world. If you claim that Sasol of South Africa is in China because by inference, whites are involved, is the complex I believe Zambians should get rid off. I know former school mates - black South Africans who have contributed to the success of that co. and others like it. Besides it is being managed by a black South African. If they can do it, we can do it too. The difference only lies in the quality & vision of the South African government. Mbeki’s overseeing is what lies behind those successes. In our case, 40 years down the road we still have illiterates in our Cabinet. How can you compete? Unless of course if what is tabled in those meetings are discussions on ifinkubala.

    As you can see, I always end up by doubting the competency of our crop of government leadership. Had KK not been drunk with power, he at least had the right attitude. We at least would not be moving in circles and may be by now we might have become a middle income country. Unless we are behind the development of that country by ourselves – we’ll continue remaining a cottage country, supplier of raw materials and even risking losing control over our resources. Who aims for that???

    MrK – “I think that as the dollar collapses because of the US's $700bn plus stimulus (and the multi-trillion dollar war in the Middle East), copper and other commodities will make a very strong comeback….” You bet!

    Let no body doubt the dominance of copper as the best metal for conductivity. Because of addiction to profit making in West and now China (lacing milk or toys etc, for wanting to make more money), copper will continue to be the cheapest raw material for expanding infrastructure in China and else where. Cheap Alloys have not yet been invented. It will take a while although they are working on it. Moreover, GM, Ford and other international car manufacturers have already designed electric cars. That is today’s direction because of the push for the Green-Car (due to climatic change), and to beat Mullahs with their fossil fuel. As you can see in the near future the potential for copper is even greater.

    If I was a Zambian government, I would go back to re-introducing companies like ZAMEFA a company which was aimed at adding value to copper before it is shipped out. Therefore, rather than less, we need to raise more money from copper before it loses its usefulness. We need someone who can play chess with our “mukuba”, like the Talibans are playing domino with the West using their Opium. That someone should be tough enough and not compromise our position. That’s my take on things!

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  16. Kaela,
    "The major tenet of Thatcherite & Reaganomics and by extension Washington neo-con school is that - markets are always right, left alone they can correct themselves when there is a shock or abnormality."

    Even in the time of Thatcher and Reagan there was regulation. Regulation is a pendulum that swings from more to less and vice versa. With the introduction of new financial instruments such as credit default swaps, new regulations need to be introduced to handle them and monitoring mechanisms to forecast their impact. The financial and economic systems are dynamic in nature, always changing and evolving.

    Kaela,
    "Further, why should those ‘bigger pools of capital’ only be available to foreign investors in today’s global environment?"

    Pools of capital are owned by companies that have specialized knowledge which used it to generate them. That is why we have foreign mining companies in Zambia, because they can use their knowledge and capital to generate high returns. Similarly there are many software companies in America because there are many software engineers there and there is a huge software market. If you want to attract these pools of capital to a country to create jobs, then you need to give them a reason to be there.

    Kaela,
    "Believe me we have a pool of trained Zambians roaming about in the world."

    Okay, get organized, pool your savings or make presentations to investors. If you can convince them that your venture will earn good returns, then you will get funded.

    Kaela,
    "If you claim that Sasol of South Africa is in China because by inference, whites are involved, is the complex I believe Zambians should get rid off."

    Not my claim nor inference. I am saying Sasol is in China because they can generate high returns there based on their specialized knowledge. In today's world there is high specialization of labor and products, so it is not possible for a country to develop everything itself unlike two or three hundred years ago. Similarly companies need to go where they can generate a high return on their knowledge and capital, that is why they go to other countries.

    This high specialization of labor is associated with high incomes. Unless a country has a small population like one of the Gulf countries, mineral wealth will not produce high incomes. Therefore it is better to focus on developing these specialized skills rather than subsistence agriculture. This can be done through education and by attracting foreign investors who have these skills. Foreign investors who don't have these skills but can create jobs for unemployed Zambians by bringing in capital should also be attracted.

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  17. Kaela,

    They can and should regulate themselves. The meltdown has thrown this premise out of the window.

    But this is it - these periods of deregulation always seem to result in catastrophe. The banking crisis of 1907, the Crash of 1929 (preceded by the Florida mortgage bubble) and the resulting Great Depression (encouraged by the idea that the US government should let farmers, banks, etc. fail in the name of economic 'survival of the fittest'), the Crash of 1987 and now this bearmarket of 2008 have all been caused by Republican/Conservative deregulation.

    The capitalists’ greed (encouraged by free for all games), eventually came to a halt. Regulation and tax payers’ money has to come in to save the day.

    To quote Gordon Gekko (aka Michael Douglas) in Wall Street (released 21 years ago):

    The point is, ladies and gentleman, that greed -- for lack of a better word -- is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms -- greed for life, for money, for love, knowledge -- has marked the upward surge of mankind. And greed -- you mark my words -- will not only save Teldar Paper, but that other malfunctioning corporation called the USA.

    When I first saw that movie, I did not believe there were really people out there who believed that. Little did I know, that the chairman of the Federal Reserve believed exactly that, and believed that markets could be regulated by the greed ('selfinterest') of it's participants.

    I think the world should permanently turn to demand side economics. Let's build local markets and protect them as much as they need. Let's encourage reinvestment of profits and spending of costs locally, instead of having money zip around the world.

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  18. Kafue,

    "What I am saying is that MFEZ's are a fast way of reducing employment, as compared to home growing industries which require achieving competitive advantage (good coordination between government and home institutions)."

    I think you are ignoring that government actually pays for those jobs in the short term through infrastructure spend. The Zambia MFEZ is not well structured. So I agree with you that in principle MFEZs can deliver real additional jobs and even infrastructure but that is not the model we have adopted.

    "Look at Mauritius, GDP has increase from $200 to $7,000 per capita in the past 40 years without mining revenue:"

    I have discussed this issue with Random before. The comparison with Mauritius is not helpful because countries with natural resources are unique. Having these affects your institutional set up. Mauritius is on the top of the governance chart because it did not have to negotiate the same set of resource curses...
    If you had said Botswana I would have jumped! But even I would have quickly pointed out just how different the Botswana or Namibian models are to our approach to export led growth.

    "Here is another suggestion, restore the minimum investment amount for foreign investors back to $50,000 where it was a couple of years ago before it was increased to $500,000 presently. This should help attract investment."

    Agreed, but Zambia should also be doing more to attract investment from THE DIASPORA. Why are we not advocating free duty, free tax breaks for Zambian investors who live abroad???

    http://english.peopledaily.com.cn/200612/02/eng20061202_327479.html

    ReplyDelete
  19. Cho,
    "I think you are ignoring that government actually pays for those jobs in the short term through infrastructure spend."

    It appears that the Chinese will be providing $70 million for infrastructure spending for the special economic zone probably through loans:

    http://english.peopledaily.com.cn/90001/90776/90883/6526223.html

    ReplyDelete
  20. Cho,
    "The comparison with Mauritius is not helpful because countries with natural resources are unique. Having these affects your institutional set up. Mauritius is on the top of the governance chart because it did not have to negotiate the same set of resource curses..."

    Would it not be easier to alter the governance/institutional setup to attract foreign investors ( for example one stop investment center)

    http://www.nipc.gov.ng/onestop.html

    rather than running state owned enterprises which require the achievement of competitive advantage?

    ReplyDelete
  21. Kafue,

    You probably have me wrong here. I am not an ideological proponent of state led capitalism. I am merely pointing out the flaws with Zambia's current export led growth model.

    Like you, I think the key is to create the conditions for markets to flourish, but where I differ perhaps is that I have a natural appreaciation of the limits of markets, and neither do I think growth should always be the answer for everything. There are important issues regarding equity and general principles of fairness and there the role of government becomes paramount.

    On reflection, and after reviewing the blogs I have written, it dawns on me that I have never really articulated my ideology...perhaps because I have none! I take every issue as it comes...

    ReplyDelete
  22. Another way of increasing skills among the workforce:

    http://www.washingtonpost.com/wp-dyn/content/article/2008/12/08/AR2008120803747.html?hpid=topnews

    ReplyDelete
  23. In Zambia such investments are difficult for companies because they can hire cheaply elsewhere.

    We'll see how the new Mulungushi University pans out..since it is being done as PPP with the mining companies...

    I suspect you need not only to offer companies strong incentives to do such things (assuming you can minimise any pervese outcomes) but also ensure that workforce is not lost through the brain drain...somehow...

    ReplyDelete
  24. Good to see that the minimum capital requirement for establishing businesses has been abolished. This should increase business activity and thus increase employment in Zambia.

    http://www.zda.org.zm/sites/zda/files/attachments/Zda%20Spotlight%20Issue%2014_0.pdf

    ReplyDelete

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