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Friday, 29 February 2008

Restoring Zimbabwe ?

Simba Makoni (ex-ZANU PF) has produced a manifesto for transforming Zimbabwe. It wont take you very long to read, but it also won't leave any clear impression of what he plans to do if elected. Do read it nevertheless, if only because MDC have failed to publicise theirs in electronic format and ZANU-PF apparently are still mulling on whether to publish one at all!

Thursday, 28 February 2008

IMF- Zambia Watch (February 28, 2008)

Statement by the IMF Staff Mission at the Conclusion of a Visit to Zambia
Press Release No. 08/34
February 28, 2008

An International Monetary Fund (IMF) mission to Zambia, led by Mr. Francesco Caramazza, released the following statement in Lusaka today:

"An IMF mission visited Zambia during February 13-27, 2008 to continue discussions on an economic program that could be supported by the IMF. The mission met with Hon. Ng'andu P. Magande, Minister of Finance and National Planning; Dr. Caleb Fundanga, Governor of the Bank of Zambia; and other senior officials, as well as with representatives of the business community, civil society, and Zambia's cooperating partners.

"The discussions were fruitful and the authorities and the mission reached understandings on an economic program that could be supported by a new three-year arrangement under the IMF's Poverty Reduction and Growth Facility (PRGF). The overarching goal of the program is to assist the authorities in achieving the Fifth National Development Plan's objectives of boosting economic growth and reducing poverty by creating an environment conducive to private sector growth through sustained macroeconomic stability, public sector efficiency and accountability, and creating fiscal space for increased investments in infrastructure and the social sectors while maintaining debt sustainability.

"The Zambian economy continues to perform favorably. In 2007, economic growth remained robust, inflation stayed in the single digits, and a strong external position allowed a further buildup of international reserves. Implementation of fiscal and monetary policies was not without difficulties, however. The fiscal stance was tighter than planned, partly owing to setbacks in the execution of capital spending, while the bunching up of fiscal spending made maintaining an appropriately tight monetary stance a challenge, particularly toward the end of the year. We welcome the steps the authorities are taking to strengthen budget execution and liquidity management.

"Looking ahead, Zambia's economic prospects remain good, although not without risk. Real GDP is expected to continue to expand at 6-7 percent per year over the medium term on continued investment in mining and manufacturing, a modest recovery in agriculture, and buoyant construction and telecommunication sectors. The main risks to the outlook would spring from a sharper-than-assumed decline in international copper prices and the intensification of the ongoing shortages of electric power.

"The 2008 budget maintains the prudent approach to fiscal policy of recent years. Despite increased spending, including on capital projects, the fiscal position is expected to strengthen with rising revenue from the mining sector. The projected modest government recourse to domestic financing should allow ample scope for private sector credit growth. Monetary policy will aim to reduce inflation further.

"The proposed fiscal regime for the mining sector is expected to generate substantial additional government revenue. In implementing the new regime, particular care needs to be taken to maintain Zambia's attractiveness as a destination for mining investment. Also, it is important to ensure that the additional resources are used transparently and effectively. The IMF mission welcomes the government's intention to set aside in a special account revenue accruing from the new regime in 2008 for spending in subsequent years when greater capacity for capital spending would have been built up.

"The electricity situation in Zambia is grave, with available generating capacity falling well short of demand. This situation is compounded by the general power shortage in the region. Urgent action is needed to ensure that additional power generating capacity can come on line as soon as possible. External borrowing will likely be needed for investment in additional capacity but should only be undertaken for economically viable projects so as not to undermine debt sustainability. An increase in electricity tariffs to levels that reflect costs as well as reform of ZESCO, the state-owned electricity company, are critical for the economic viability of new power generating projects.

"The mission will continue its work in Washington, D.C., in close consultation with the Zambian authorities, with a view to bringing the new program to the IMF Executive Board for its consideration in May."

Wednesday, 27 February 2008

No Gateway Liberalisation

The ZNBC reports that the President has no intention of liberalising the international gateway. In addition to the "security concerns" argument that we have heard before, it appears LPM has found a new one :

....President Mwanawasa also noted that in countries where the gateway has been liberilised, communication is now worse off than it was before.
Unfortunately, since the President has chosen not to consult on his position, we do not know whether he really has done a thorough review to support his strange assertion.

Tuesday, 26 February 2008

The State Vs Mining Companies? (Part 3 - Missing Information)

Abi Dymond (SIAF) makes a very important point, which this blog has repeatedly noted, but has been overlooked by those in government and many other stakeholders.

Commenting on the resistance to paying new taxes and threats of using legal means to block the new taxes, Scottish Catholic International Aid Funds (SCIAF) policy analyst Abi Dymond, stated that it was difficult to indicate the direction of the process in the absence of documents associated with the original development agreements especially that it was not clear how the government arrived at the new taxes and who had been involved and at what stage.“ Without knowing this, it is difficult to predict whether international arbitration will happen and what the outcome will be....,” Dymond stated.

The Post (19/02/2008)

Monday, 25 February 2008

Retrospection - Part 2 (ZAMTEL & Competition)

One of the most heated exchanges on this blog has been the future of ZAMTEL. In particular, whether there's still a place for a monolithic and inefficient government player in Zambia's telecommunication industry. When I flagged up the proposed ICT Bill 2007 , I noted that it was a positive development because it appeared to strengthen the capability of the CAZ, especially with respect to economic regulation. The role of the Zambia Competition Commission (ZCC) is also clarified. It was therefore refreshing to see that ZCC are pushing for further changes that would further ensure that it was able to keep the likes of ZAMTEL in check.

State-owned companies shouldn't be exempted from competition law
By Kabanda Chulu
Friday January 11, 2008

ZAMBIA Competition Commission (ZCC) has submitted draft proposals to government which recommend that state-owned companies should not be exempted from the competition law.

ZCC acting executive director Thula Kaira yesterday said the draft proposals would result in amending the 1994 competition and fair trading Act in order to make it more responsive to the challenges facing the Zambian market.

He said certain areas in the current Act were not clear hence the commission found it difficult to enforce the law.“The position currently obtaining whereby the Act states that government must be exempted from the competition law must be stopped because it is not clear to what extent the exemption must be applied to public owned companies especially when these companies are dominant,” Kaira said. “The exemption clause in the Act is not clear, for example, Celtel can be punished for anti-competitive practices but it becomes difficult if similar cases are raised against Zamtel since it is government-owned and must be included in the exemption clause.”

Kaira said there was also need to have a competition and consumer tribunal to be put in place to ensure quick dispensation of cases.

He further noted that the consumer law was not adequate to protect people because it was too fragmented, resulting in higher cost of enforcement.

“Need has arisen to have law covering all sectors in order to ensure full protection for consumers because consumer rights are synonymous with human rights and another challenge is that the commission has no powers to punish offenders administratively through fines and penalties but just recommend to courts of law, which is costly to prosecute hence we are proposing the creation of a tribunal to arbitrate cases in a quick and fair manner,” said Kaira.

The draft proposals were compiled by ZCC together with various stakeholders and have been submitted to the Ministry of Commerce so that the minister can present the bill to parliament for amendments.

Saturday, 23 February 2008

Towards a single bloc?

As WTO presure grows for countries to choose which single bloc they belong to, COMESA's position appears to precarious. Understandbly most of its members appear more loyal to smaller regional blocs like SADC and EAC than COMESA. COMESA's response? Lets swallow them both! Read more here.

Friday, 22 February 2008

Zambia Budget 2008, Analysts respond....2nd Edition

Standard Chartered's assessment:

In search of a copper windfall

In recent years, Zambia has enjoyed new-found macroeconomic stability, with GDP growth of around 6% and inflation in single digits - courtesy - initially at least - of the sharp appreciation in the ZMK, but also improved economic management. Gains in metals prices globally have been beneficial for Zambia, leading to increased activity on the copper-belt and a significant rise in FDI. Despite this, the perception that Zambia was not extracting as much as it could from its copper endowments has been widespread. Although copper makes up over 60% of the country's exports, its contribution to government revenue was negligible. The reasons were mainly historical. Following the exit of the largest foreign mining investor, Anglo American, in 2002 (low copper prices as well as the prohibitive costs of developing the Konkola Deep project were blamed), Zambia was forced to seek new investors. At a time of copper price weakness, several development agreements were negotiated with new investors, which typically offered tax concessions, including the setting of mining royalties at 0.6%. According to IMF data, in 2007, total tax revenue from the mining sector was equivalent to only 1.5% of GDP - a low ratio in comparison with other resource-rich countries .

With the dramatic recent rise in copper prices, the issue has become politically charged, with Zambia's populist opposition leading calls for a revision of these agreements. That Zambia needs to create more fiscal resources for spending on infrastructure in order to drive future growth and diversification is a given. Net inflows of donor support - on which the country had traditionally been reliant - were unlikely to be scaled up beyond 5-6% of GDP over the medium term. With a future decline in donor flows more probable, and Zambia's entire macroeconomic adjustment premised on a reduction in domestic borrowing, the country faced few options other than to revisit the mining sector. It had long been encouraged by the World Bank and the IMF, as well as other bilateral donors, to do so.

Unsurprisingly then, the theme of this year's Budget ('Unlocking Resources for Economic Empowerment and Wealth Creation') was to revise the fiscal regime for the resource sector, in order to achieve greater consistency with international standards. Under the new proposal, effective 1 April 2008, the corporate tax rate for mines will be set at 30%, mining royalties on base metals are to be set at 3% of gross value (up from 0.6%), and withholding tax on interest, royalties, management fees and payments to affiliates or subcontractors in the mining sector will be set at a rate of 15%. While many of these measures, especially the increase of royalties had largely been anticipated (having been the subject of previous negotiations), an additional element - the setting of a windfall tax on base metal revenues - appears to have taken mining companies by surprise. Under the budget proposals, a windfall tax, to be triggered at different price levels for different base metals will be introduced. For copper, a price between USD 2.50 - USD 3.00/lb, will attract a windfall tax of 25% from April; between USD 3.00 and 3.50, 50%, and 75% for prices above USD 3.50/lb. At the time of writing, copper prices are around the USD 3.60 level, sufficient to trigger the maximum windfall penalty, generating an additional level of controversy around the proposed changes.

Mining companies have been critical of the revised plans, claiming that they were not fully consulted (especially the proposed treatment of 'windfall profits'), and that any move to a new regime would infringe the legally-binding original agreements. While some mining companies hope to re negotiate with the government, others have threatened legal action. Many have claimed that the promise of a 15-20 year tax holiday was the reason they had invested in Zambia to begin with, and that the promise of preferential tax treatment was key to their ability to raise the financing. Zambia's Chamber of Mines has since argued that the country's ability to attract future FDI has been compromised.

For its part, the government has in recent weeks sent mixed signals on its willingness to negotiate, at times adopting the view that it did not need to seek tax-payers' agreement on the changes. Much rests on the question of whether the development agreements are legally binding, and following the expected approval of the Budget by parliament, some form of international arbitration looks increasingly probable. Ultimately however, it is the government that decides which companies it chooses to licence. With mining corporates already having heavily invested (both Zambia's FDI and trade data is testament to this), the authorities appear to be taking the view that significant withdrawal by mining companies is unlikely. Also, in contrast to the years immediately after privatisation, when the sector was dominated by a single large investor, there has recently been a relative proliferation of private sector investor interest. The authorities are now in a much stronger position to negotiate revised deals, especially since bilateral and multilateral donors are backing revisiting initial agreements. But the most compelling reason for the government to stand firm is the increasingly vocal call by both the political opposition and civil society, to ensure a 'fairer' deal is struck. So what are the likely economic effects?

Zambia's balance of payments looks relatively healthy. Despite booming export prices, imports have risen faster, reflecting increased investment in the mining sector. The current account is in deficit, the result of a substantial deficit in the income account (meaning that Zambia pays more to foreign investors than it earns on its income from abroad). However, this deficit has been easily financed by FDI flows. Even if new FDI flows are now put at risk, it is likely that the deficit on Zambia's income account will improve, providing some offset. Overall, there are few grounds for believing that the macro-economy is vulnerable. Although private sector external debt has been rising (again, reflecting the intensity of new investment in plants and machinery), at USD 980.7mn, in comparison to metals exports of USD 3.4bn annually, export cover is not problematic. The new fiscal regime - if adopted - will reduce mining profitability, but the structure of the tax changes (apart from royalties at 3%, profits are taxed) suggests that most companies can still be profitable. Zambia's low level of external debt in the wake of debt relief (USD 1,054.5mn at the end of 2007) also compares favourably with FX reserves of USD 1,080.2mn, equivalent to 3.6 months of import cover. Moreover, despite booming metals prices, it is Zambia's non-mining, non-traditional exports that have been growing fastest (albeit off a low base). Although many have questioned the benefits of the recent copper boom, Zambia has come a long way since 2002. Its economy is now more resilient to potential shocks.

Thursday, 21 February 2008

Looking for Mr Li

Radio Netherlands are doing a special series called Looking for Mr Li, documenting China's rising influence around the world. Jacqueline Maris is the reporter covering Zambia, with some fascinating pieces. Well worth the read.

Wednesday, 20 February 2008

Linking Zambia (ZNBC TV)

You can watch ZNBC live here. Please bear in mind that ZNBC closes at 10:00pm GMT and opens around 10:00am GMT or slighltly earlier.

Tuesday, 19 February 2008

Restrospection - Part 1 (Corruption & The Poor)

Over January I read a couple of fascinating articles in the press that touched on some areas we have discussed on this blog. I thought it was worth sharing these full articles under the "retrospection" theme.

In Corruption Wars - Part 2, I argued that corruption is likely to be most harmful where it “hits people twice”. Some authors have suggested that there are instances where people pay bribes in connection with misfortune or adverse events they experience, with the consequence that the expense and possible disutility of bribery compound the original problem. In this article, Nevers Mumba recites the story of a woman who seems to have been "hit twice".

Electoral corruption is Africa's greatest sabotage, says
Nevers
By Speedwell Mupuchi
Friday January 11, 2008

Electoral corruption is the greatest sabotage Africa faces today, Reform Party president Pastor Nevers Mumba has said. And Pastor Mumba yesterday said without clear policies, strategic institutions, and a constitution that demands accountability, Zambia’s fight against corruption would always only be good rhetoric.

Commenting on the disputed Kenyan elections, Pastor Mumba said Africans were tired of the abuse of their votes. The disputed elections in Kenya saw President Mwai Kibaki being declared winner.The opposition leader, Raila Odinga, claimed President Kibaki stole his victory. “We must work to ensure that electoral offenses are heavily punished by completely disqualifying those implicated in vote buying,” Pastor Mumba said.

He said the recent Kenya experience was a big lesson for Africa.“The permissive
electoral processes of Africa will, henceforth, only accelerate violence and rob us of true and lasting development for the continent. As we march towards the 2011 election, Zambia would do well to reflect on the Kenya experience. We can together avoid loss of life by doing our homework now,” he said.

“The days of electoral theft are over in Africa. Zambia is privileged to have the ongoing Constitutional Conference. This is an opportunity to ensure that the electoral act is cleaned up and sealed against abuse.” Pastor Mumba said Zambia must rise and lead the way in the vicious fight against corruption.

And Pastor Mumba noted that corruption was not a political problem, but a heart problem embedded in selfishness and greed. Pastor Mumba said Zambia would remain stigmatised by its ranking as number 11 most corrupt country in the world.“The goal of the government should, therefore, be to change this perception by sustaining an aggressive fight against corruption,” he said.

Pastor Mumba said corruption was in effect a tax usually imposed by the privileged few and usually, affected the most vulnerable members of society. “A retired lady once narrated her ordeal to me concerning the effect and extent of corruption in Zambia. She has been waiting for her retirement benefits for close to 10 years. Her frequent visits to the Ministry of Finance have yielded no success. Recently a friend of hers advised her on how to obtain her money in record time - to promise the responsible officer a percentage of her benefits. When she made this offer, the officer demanded that he gets K200,000.00 from every million kwacha she will get. This is 20 per cent tax on the principal! In desperation the lady collected the money minus the 20 per cent ‘tax’ which was pocketed by the public officer. I asked her why she did not report the officer to higher authorities. Her answer was; “everyone in the department is corrupt, and you will only end up implicating yourself further,” Pastor Mumba narrated.

Pastor Mumba said Zambia could break the shackles of corruption by creating a new environment that was hostile to corruption
.

Monday, 18 February 2008

Zambia Budget 2008, Analysts respond...

A number of important analytical pieces have been written on the Budget 2008 that may have escaped your radar.

PWC Zambia recently published their Beyond Figures : 2008 Budgetary Changes. A great read if you want to quickly get a handle on the changes and what they mean for the economy going forward.

The JCTR have produced an interesting piece - Analytical Paper on the 2008 NATIONAL BUDGET.

Neo Simuntanyi has written a fascinating piece in the Post, on

2008 Budget - Scratching the Surface, which raises some important questions on whether the budget succeeds in "unlocking resources for economic empowernment and wealth creation"

Agriculture is critical to increasing economic growth and fighting rural poverty. Following the
The 2008 Agriculture Budget presentation, a number of pieces have appeared in the press on this. The Daily Mail have a piece called Budgetary funding to agriculture reduces . The Post Business also run some interesting pieces on this, which I have uploaded here.

Sunday, 17 February 2008

Weekend watch!!

Interesting videos from a relief program making a difference on the ground - Zambia Scholarship Fund. I rarely upload videos, but I thought these three are worth sharing!





Saturday, 16 February 2008

Are Remittances a Curse?

A new paper challenges the conventional view that remittances are generally a good thing. Apparently, remittances can lead to deterioration of institutional quality - specifically, it can lead to an increase in the share of funds diverted by the government for its own purposes. Using statistical techniques, the authors show that higher ratio of remittances relative to GDP is associated with higher levels of corruption.

At this stage, you may be wondering whether the money you send home is responsible for the very things you complain about (corruption, ineffective government, break down in rule of law, etc). According to the authors you should be concerned, but its worth bearing in mind that while the paper shows that remittances are associated with higher levels of corruption, it is difficult to say how much remittances contribute to weaking institutions relative to other factors (e.g. unconditional aid, copper / oil wealth, etc).

Does it this all matter? I think for Zambians we probably have other stronger causes of "curses" than remittances e.g. our copper has for years proven to be an infinite source of corruption in government, and will most likely get worse with the new tax regime. But if you are Zimbabwean, this should certainly worry you. It is often syggested that remittances are keeping Mugabe in power. I think this paper provides one way in which that might be possible.

Friday, 15 February 2008

A contestable London - Lusaka route?

Some interesting developments this week for the Zambia's aviation industry. On Wednesday, Zambia and the UK signed a Bilateral Air Services Agreement to allow European and Southern African airlines to enter their respective markets without restrictions. The Daily Mail has more on this.

ZNBC are also reporting that Virgin Airline owner, Sir Richard Branson is studying the request by Zambia to introduce a continental and domestic air service is receiving active attention. We shall know more on this in the next few months.

Both developments are critical as they raise the possibility of other airlines from the European union flying to Lusaka, and perhaps challenging BAA on the London - Lusaka route.

Thursday, 14 February 2008

Cell phone powered agriculture...

We know that that cell phones can dial out poverty. We also know that Zambian farmers are being powered by SMS. Now, a new paper has created a model that predicts that cell phones will increase traders' reservation prices and the number of markets over which they search, leading to a reduction in price dispersion across markets:

The results provide evidence that cell phones reduce grain price dispersion across markets by a minimum of 6.4 percent and reduce intra-annual price variation by 10 percent. Cell phones have a greater impact on price dispersion for market pairs that are farther away, and for those with lower road quality. This effect becomes larger as a higher percentage of markets have cell phone coverage. We provide empirical evidence in support of specific mechanisms that partially explain the impact of cell phones on market performance. Robustness checks suggest that the results are not driven by selection on unobservables, nor are they solely a result of general equilibrium effects. Calculations of the four-firm concentration index suggest that the grain market structure is competitive, so the observed reductions in price dispersion are not due to greater market collusion. The primary mechanism by which cell phones affect market-level outcomes appears to be a reduction in search costs, as grain traders operating in markets with cell phone coverage search over a greater number of markets and sell in more markets. The results suggest that cell phones improved consumer and trader welfare in Niger, perhaps averting an even worse outcome during the 2005 food crisis.

Wednesday, 13 February 2008

Mobile use and culture

UNCTAD have released the annual Information Economy Report, with special focus at the way science and technology drive long-term economic growth. The report has a special chapter on Mobile Telephony in Africa. It makes this fascinating observation on mobile penetration rates:

Both Sinha (2005) and Meso, Musa and Mbarika (2005) explain that lower absolute penetration rares of mobile subscriptions in developing countries must not be taken literally, and consequently their impact on society should not be understimated. In developed countries the operational model for mobile telephony is one of individual ownership of one or more subscriptions. However, in developing countries, because of their portability and ability to function using prepaid subscriptionsm mobiles can be shared in terms of access and payment, with the positive side effect of reinforcing community linkages.

Its an interesting observation, but I think the report overstimates the positive side effects because of possible reverse causality. In Africa, its possible that it is the culture of close kinship and community that leads to greater mobile sharing. In that sense the 'reinforcing community linkages' may well be minimal.

Tuesday, 12 February 2008

The State Vs Mining Companies? (Part 2 - Threats Galore)

The resolve of the mines appear to be hardening. They have now openly threatened to use legal means to block the government from implementing the new mining fiscal regime. Appearing before the extended parliamentary committee on estimates yesterday, the mining companies urged the government to use the instruments within the development agreements to effect the proposed mining tax regime before it is passed into law. Read more here.

The Minewatch Blog has an excellent article on the likely / unlikely prospects of international arbitration.

Monday, 11 February 2008

Protecting our environment....the EPF & New Mining Tax Regime

The Daily Mail reports that Government will put in place an Environmental Protection Fund by April.

Mine safety experts from Canada are in Zambia to validate mines safety audits conducted by a local consultant. And Government will effect the operations of the Environmental Protection Fund (EPF) by April this year after receiving a comprehensive report from the expatriate experts.

Ministry of Mines and Mineral Development director of mines safety, Mooya Lumamba, said yesterday in Ndola that the team from WorleyParsons Komex in Canada was in the country conducting checks on the mines based on recommendations of the audit reports from the local consultant. He said the experts wanted to ascertain whether the findings by the local consultant were in line with what was obtaining at the mines. Mr Lumamba said the experts arrived in the country last week and were expected to complete the auditing exercise within two months.

He said EPF was now law and was supposed to be implemented by Government. Mr Lumamba said his department would only come up with the amount mines would be required to contribute to the EPF when the validation exercise was completed. “We will only come up with the amount after the completion of the exercise. But by April this year, the fund should be operational, if we do not encounter any problems,” he said.

Of course, it goes without saying that the principle of tackling environmental and safety concerns is welcome, especially with the proposed tax regime for the mines. There are four fundamental reservations I have had over the new tax regime. They all hinge on the underlying incentive for the mines to keep the new tax regime revenue neutral.
  1. The possibility that mining safety and environmental damage could get worse.

  2. The possibility that the service conditions of workers may be affected.

  3. The possibility that they could cut down on social responsibility.

  4. The possibility of an amplified "resource curse" effect. I have long argued that additional tax revenues without making sure that mechanisms are in place that transfer the revenue directly to locally affected areas could simply incentivise greater corruption. This is why I favour the human approach to mining debate.
It appears that government is moving forward in ensuring that (1) does not happen, but the announcement raises more questions than answers. We know that more detail is expected on the amount of contributions, but surely government should be able to tell us on the intended formulae for contributions? Is there any government contribution to the fund? Is it all funded by the mining companies? Will the mining companies' contribution be deducted from other taxes they pay? Is this a form of an environmental tax on the mines? As for (2) - (4), we have yet to see what measures government propose to ensure that those fears do not materialise.

Sunday, 10 February 2008

Linking Zambia (Afriwomen Blog)

I discovered another fascinating Zambian blog called Afriwomen. The blog is focused on the progress of African / Zambian women and their place in a changing society.

Saturday, 9 February 2008

Poor Zambians Vs Foreign Investment?

IRIN News are reporting that Zambia's open-door investment policy is coming under criticism from rights activists for passing on the real cost of development to the poor, who are being evicted to make way for the new prestige projects. In the words of Joseph Chilengi (Africa Internally Displaced Peoples (IDPs)):

"Zambia's IDP situation is actually even worse than in conflict-prone areas..........[At least these] populations have the potential to return to their places when the situation stabilises."
In the eyes of one IDP, George Salano (aged 57) who informal settlement in Lusaka is located on land that has been allocated to the Chinese government for the construction of a multimillion dollar Chinese economic zone:
"I have personally lived here for many years; my children were born here. Some
of my friends have lived here even longer. Now we have been told to relocate to
Chongwe town [about 50km east of Lusaka], but we have nowhere to start from - we have no houses there, and we have no farms there"
The main problem is the lack of integration between various policy areas - housing, planning, land reform and promotion of foreign investment. The Fifth National Development Plan pretty much treats these areas in isolation. A vision of development that is not coherent is likely to have many unintended consquences, of which the IDPs is just one of many. For further discussion of housing, urban migration and other areas please see the blog A complex web of puzzles…

Friday, 8 February 2008

The State Vs Mining Companies? (Part 1- Opening Shots)

There's some questions in the mind of some people on whether the new mining tax proposals are legally robust. Could the mining companies successfully bring a lawsuit against the Zambian government for abandoning the development agreements? Its one for the lawyers, but The Times are reporting that government believes it is on solid ground.

Attorney-General Mumba Malila said the mining firms should understand that the Government was doing this in good faith. He said the Government at the time it entered into these DAs might have been in a state of desperation. "We hope the mining companies will understand where we are coming from. We want to handle this amicably," he said.

Mr Malila said the DAs could not stop the Government from making a law and said all the good things in the DAs would be captured in the law. He said in an event where the mining companies dragged the Government to court, Government was ready to proceed and defend its position.

He said the legislative committee looking into the new tax regime in the mining sector had completed the draft report, which would soon be presented to Parliament for enactment.
The same article sheds more light on how the $415m has been calculated:


And Dr Mulungushi [Acting Secretary to the Treasury], told the committee that additional revenues expected as a result of the new measures was U.S.$415 million and the estimates were based on a projection of $3.2 per pound and annual production of about 600,000 metric tonnes.
I am still trying to get my head round on whether they really mean "additional". I think the $415m is not additional to existing revenue government gets, but possibly the total revenue it would get based on the above assumption. The marginal increase from the current arrangements may well be in the region of $300m. I guess we have to wait for the promised report to know more. The good news is that by 2010 Zambia should be producing well over the 1m tonnes mark, so the amount could well be just under $1bn. Unless of course, you are First Quantum Minerals Ltd. Apparently they are not convinced Zambia's future is bright following the new regime. Reuters report that First Quantum Minerals Ltd said on Wednesday new mining taxes in Zambia were "unattractive" and could deter new entrants or further investment.

The new tax proposal in Zambia is exercising our minds. It doesn't look very attractive right now," Clive Newall, president of First Quantum, told a mining conference in cape Town. "Certainly it won't be attractive for new players, and may stop new developments, which is an unintended consequence....
Update 09/02/2008:
There are more reports on the possibility of legal action, and the government's view on its chances. Extracts from MiningMX article:

ZAMBIA’S government will not change its fiscal regime and has warned international investors not to pursue the matter through the courts, a path signalled by mining companies today. Mines minister Kalombo Mwansa said in an interview that international arbitration would probably "come to nothing" and asked mining companies to accept higher taxes. The mining community, however, has expressed deep unhappiness, especially firms who already have development agreements with the government.....The fiscal regime “won’t change,” Mwansa said on the sidelines of the Africa Mining Congress in Livingstone, Zambia. “We’ll have dialogue with the mining companies, but we will not change the fiscal regime”. “Nobody likes to pay tax, but that shouldn’t stop them from investing,” Mwansa said, adding Zambia had attractions other copper provinces might not, including a stable government and a sound legal system.

..... A senior mining executive, who declined to be named because of the sensitivity of negotiations with the government, pointed out there was the option of international mediation if the contracts were changed without the consent of both parties. “We have development agreements in place and they still have a decade to run. We will go ahead with international arbitration if this fiscal regime goes ahead, but we trust it will not come to that,” the executive said.
Mwansa said international arbitration would be the least favourable course of action. “I’d appeal to them not to do that and to not get into an antagonistic situation that will lead to nothing,” he said. “It is in their interests to work with us and stay in our good books.”

Another mining executive speaking on condition of anonymity said the fiscal regime was now one of the worst in the world. It could prevent new entrants into the market, particularly given the jitters in the global lending market and a change in the risk perception of Zambia for the worse, he said.

Thursday, 7 February 2008

Blogging Zambian politics......in pictures

I recently discovered an interesting Zambian blog, thought might be interest to New Zambia readers. Its called Picture Monger, and the author mostly blogs in pictures. It has some good pictures from the on-going Kanyama bye-election.

The neverending Celtel surge, 2nd Edition....

A follow-up to the December the neverending Celtel surge... which reported that Celtel was on course to achieve its 2007 target of 2m users. Apparently Celtel have just reached the 2007 target - so says the Daily Mail:

CELTEL Zambia Limited has attracted two million subscribers since the company’s inception. Managing director, David Venn said the two million mark was reached on Monday last week.

Mr Venn was speaking at the dialogue forum on, Transformation For Jobs, hosted by Ministry of Commerce, Trade and Industry at Lusaka’s Taj Pamodzi Hotel on Tuesday. Mr Venn said through the company’s investment, it had installed 540 towers across the country.

He said the company had employed 700 people and 10,000 dealers who have in turn employed 30,000 workers. He urged business houses to create sustainable businesses if they were to create more jobs. Mr Veen also said the company paid K350 billion in form of taxes to Government last year. He said most of it was paid in excise duty and corporate tax. The Celtel boss said the figure represented 40 per cent of the company’s total earnings.

Wednesday, 6 February 2008

Better Policing (Corruption)

Zambia's Police Chief Ephraim Mateyo has some harsh, but truthful things to say on corruption in his organisation:

“I believe we are leading in that race [corruption] that will send us into jail.....Why should you complain when I remove you from traffic section? Is it because of nicekeleko?... You stop a vehicle and half your body is in the car. And when you remove your person from the car, you fail to wave using your right hand because the other hand is holding the bribe and the poor constable just looks on at the inspector. It’s embarrassing. Let us stop it....”
Its difficult to say for certain whether the police are the most corrupt, but they are definitely fighting for top spot with other corrupt institutions like land and education. I know from my recent vacation in Zambia that by far the most well known corrupt bunch are traffic officers. At every turn they strive to obtain money from anyone on the road. It doesn't matter whether your driving licence and road tax are in order, they'll always try and find an excuse to extract cash from you. Apparently their great source of income are truck drivers bring expensive goods from outside! I have noticed that whenever you get near a road block, the length of time the police officer will spend on you is inversely related to the amount of big trucks in the queue!
The other thing to bear in mind of course is that, even if police corruption was on par with other institutions, police related corription is likely to be more damaging than other forms of corruption. As I argued previously, corruption is likely to be more damaging to society where it affects those institutions that are there to prevent it. Corruption in institutions which are tasked with combating corruption is likely to encourage corruptions in other areas, since the possibility of detection is reduced. For this reason, many people have emphasised that any fight against corruption must begin with eradicating corruption in the police force and the various watchdog organisations. In many ways the current levels of corruption in the police are more likely to damage the fight against corruption than any corruption taking place in education or elsewhere. Criminal activity in the police force sends the wrong signal to other areas of society.
So how do we fight corruption in the force? Certainly not through Mr Nixon Banda's "refresher courses" on corruption. Eugene Sibote's suggestions that "that traffic officers who misconduct themselves on the road should be reverted to other functions", just condones corrupt activities and must be discouraged. It seems to me that, all things being equal, for corruption to exist an "opportunity" for corruption must exist. Take away the opportunity and you eliminate corruption. For traffic officers, its clear that the existance of road blocks provides an ideal source of income for these chaps. If Zambia wants to tackle corruption on the road, we need to seriously consider removing the unnecessary road blocks that litter our nation. I do not think the many roadb locks on our roads serve any credible purpose. Seriously, do we really need 10 road blocks just for travelling between Ndola and Lusaka? Take the opportunity away and the problem will go away.
Another method we should seriously consider is more undercover work by the Anti Corruption Commission. Why can't the ACC go undercover and actually catch some of these traffic officers who exort bribes from defenceless citizens. They can do this on a random basis. A major part of the problem of course is that the ACC is a weak watchdog. We need to take the ACC away from the Ministry of Home Affairs and turn it into an autonomous board reporting to Parliament, with powers to investigate, arrest, and prosecute without reference to any other authority. This in my view is the only way to strengthen their independence. If we really are serious about tackling corruption in the police, we need to give the ACC more powers to arrest police officers on the spot.

Tuesday, 5 February 2008

The Great Zimbabwe Debate

A fascinating debate is raging among Zimbabwean economists on "dollarisation". Zimbabweans of course use the dollar and the South African rand as unofficial currencies, the debate is on whether they should adopt one of the foreign currencies as theirs!

The proponents of dollarisation, include my friend's dad Dr Ndlela and another Zimbabwean economist called Robertson. An article in the Zimbabwe Standard set out their position -
'Dollarisation' - Killer Or Cure for Economy?

It (US$) is actually the currency of the nation," said Daniel Ndlela, an economic consultant with Zimconsult.

Ndlela said the economy has to be dollarised: the country should officially adopt the US dollar for all financial transactions, except perhaps the need for coins -- to arrest the super-inflation rate of 24 000, the highest in the world.

"In this environment, it (dollarization) will be a positive thing because you will arrest high inflation which is driven by foreign currency shortage and the printing of money," he said


But not everyone is optimistic. Terrence Kairiza (Zimbabwe Economics Society), last week wrote a very fascinating piece Official Dollarisation - Can Country Really Do It? reflecting on the feasibility of dollarisation.

Theoretically, official dollarisation is very easy to implement. Three questions arise however, (without going into the merits and demerits of dollarisation) pertaining to the feasibility of this scheme for Zimbabwe.

Firstly; Does the Zimbabwean government posses sufficient foreign reserves to undertake official dollarization? This question is critical if Zimbabwe seeks to dollarise unilaterally. If Zimbabwe wants to enter into a negotiated solution with the anchor country the issue will not be very relevant because the anchor country can provide the initial foreign currency endowment for dollarisation (as the ECB did for Kosovo). The latter route however, is unlikely to materialise in practice as any prudent anchor country is bound to impose political pre-conditions, which are most likely to be rejected by the Zimbabwean government.


In general Zimbabweans appear willing to accept the loss of monetary policy control associated with official dollarisation in order to bring normality to the proceedings. I guess when inflation is running 26k%, anything is worth a try. A Zimbabwean friend was keen to point out the following advantages of official dollarisation - here are his unedited reasons:

1. Currently its cheaper to buy goods and services in US$ than in Zim$. This is because the Zim$ prices are inflated to account for inflationary pressure and the price of obtaining the US$. E.g. a bag of cement today costs $12. In Zim$ it costs ZWD 150m - the black market rate today is $1 = ZWD 6m, therefore if you pay in ZWD, you have to folk out 100% more to cater for middle man costs and inflation.

2. If the economy is completely dollarised, then Government cannot print money anymore - no need for the nuisance Monetary Policy! Government would have to review services and charge market prices - most likely regional prices - for goods and services.

3. Industry and commerce would have to start doing work to earn forex, not the current speculative tendencies rife on the stock market.

4. The black market will disappear - no more middle men. Even if it remains in terms of goods and services, it will be forced to become more competitive as the regional prices will control the pricing structure.

5. There are good examples where dollarisation or free trade in currency of choice worked. Mozambique is one of them, and I presume Zambia too ? To this day you can trade freely in your currency of choice and no one gives a hoot. And these economies are now stable and the people accept local currency !

Monday, 4 February 2008

Towards Open Skies?

BuaNews Online reports some renewed interest from SADC / COMESA/ EAC to boost air travel off the back of South Africa 2010. SA 2010 provides a unique opportunity for developing good air connecting services and appropriate investment in airport infrastructure across the region. The agenda seems ambitious, especially the possibility of a fast track Open Skies Policy:

A shortage of human resources such as pilots, aircraft and navigation agencies in the air transportation industry were among challenges identified by the officials, at the Zambia-Zimbabwe border town of Victoria Falls. The meeting cited the capacity of the airline industry and its ability to meet an ever increasing demand as another challenge facing the region. SADC Secretariat said delegates stressed the need to provide an efficient and cost effective air transport service that is affordable to the people of the region, with emphasis on the introduction of direct city-to-city flights. The meeting also resolved to establish a number of Work Teams comprising three collaborating sub-regions, namely SADC, COMESA and the EAC, tasked with the responsibility of developing and implementing among other interventions, a fast track Open Skies Policy.

Saturday, 2 February 2008

Undiplomatic Writing....

Ambassador Mbita Chitala has been sacked for his piece in the Tripoli Post titled The Federal Union of African States Must be Established Now. The official line of why he has been sacked, as articulated by President's Chief Press and Public Relations adviser:

"In the course of that article, Mr Chitala advocates ....policies which are contrary to those of Government and attacks the majority of African leaders for not adopting such policies and establishing a union government....[Mbita Chitala] argued that it was a lame excuse as some of them have arguments that they have to consult their people and there is need to integrate the regional economic communities....This article has caused untold embarrassment to His Excellency the President and the Government of Zambia and a Foreign minister of a country whose leader was described in very unkind words has intimated that he will send a note of protest to the Zambian Government"
In truth, Mbita Chitala really should have been sacked for his poor understanding of African issues. The central argument of his essay is that political integration should come before economic integration, but he fails to point out any historical precedent when political union, on the scale proposed, has worked without prior economic convergence.

Friday, 1 February 2008

A fourth mobile phone provider?

The Communications Authority of Zambia (CAZ) has publicly declared the intent to invite bids for a fourth mobile phone provider:

The Communications Authority hereby informs the general public of its intention to licence a fourth national mobile service provider during the course of this year. This decision follows extensive consultations with government and other stakeholders as well as numerous expressions of interest from local and foreign potential investors. This is also with the view to enhance competition, investment, industry standards, employment creation and address issues of quality and cost of services among other issues.

The Communications Authority has also paid attention to the general concerns of the public with regard to issues relating to cost and quality of services. In this regard, the Communications Authority is of the view that sustainable improvements in quality of services, reduction in tariffs, and extension of services in rural and remote areas will best be achieved through effective competition. Issuance of the fourth national mobile service licence is also intended to promote Government’s policy for economic empowerment of citizens. In this regard, the Authority wishes to encourage Zambian entrepreneurs to actively participate in this process. In due course, the Authority will be issuing a formal public tender invitation. No verbal enquiries will be entertained.

Increase in providers is always good for competition, but CAZ is guilty of intellectual dishonesty to suggest that Zambia's current problems in the telecommunications market will be solved by additional players. The problem lies at the door of CAZ. It is a weak and ineffective Regulator that has failed to keep Zamtel and Celtel in check. What we need is proper and effective economic regulation from CAZ. CAZ should focus on ensuring the pending ICT bill is passed, so that it has more powers to regulate tariffs. There's some hope that this might happen following the President's opening speech to Parliament , but we need CAZ to continue pushing for this rather than focusing on new entrants. In addition we should be pushing for liberalisation of the international gateway and necessary break up of Zamtel in two as we have argued here.

Interesting to note also CAZ's emphasis on "Government’s policy for economic empowerment of citizens". Does this mean that bids by Zambian's of similar quality to non-Zambian bids stand a better chance of getting through? The CAZ should be more specific on this matter.