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Saturday, 29 November 2008

African Economies & Financial Crisis

A bleak assessment from the World Bank financial specialist Samuel Munzele Maimbo on the impact of the financial crisis on African financial systems.

The Impact of the Financial Crisis on African Financial Systems, AccessFinance, Samuel Munzele Maimbo, World Bank Group, Commentary :

Conventional wisdom has hitherto suggested that the impact of the financial crisis in Africa will be limited because the transmission mechanisms between the financial systems in Africa and the rest of the world are weak. African financial institutions, it has been argued, are not exposed to risks emanating from complex instruments in international financial markets because most of the banks in Sub-Saharan Africa rely on deposits to fund their loan portfolios (which they keep on their books to maturity); most of the inter-bank markets are small; and the markets for securitized or derivative instruments are either small or nonexistent. Exceptions to this position are then made for countries like Nigeria and South Africa which are seen as the only countries having meaningful transmission mechanisms with the global financial systems.

Increasingly, this conventional position is being questioned for the following reasons:

Weakened local investor confidence in equities and bonds on African Stock Exchanges

Expectations that investors weary of the markets in developed countries will seek opportunities in African and other developed economies are misplaced. The small size and illiquidity of Africa’s stock markets (partly a reflection of the low levels of economic activity) is likely going to be amplified rather than overlooked as both international and local investors adopt more cautious investment strategies. Thus, while the price-earnings ratios for many African stock markets were above their sectoral equivalents in mature markets in 2007, the ongoing fallout from the subprime mortgage crisis in the US will dampen investment plans. Already, examples are emerging. The market turnover on Uganda’s bourse dropped 60 percent during the third quarter (Busuulwa, 2008). In South Africa, Kenya and Ghana, the stock markets have also been bearish.

This is disappointing. Up until the recent crisis, African stock markets were displaying resurgence and an energy that had not been seen for years. Prior to 1989, there were just five stock markets in sub-Saharan Africa and three in North Africa. Today there are 19 stock exchanges ranging from starts ups like Uganda and Mozambique stock exchanges to the Nigeria and Johannesburg stock exchanges. With the exception of South Africa, most African stock markets doubled their market capitalization between 1992 and 2002. Total market capitalization for African markets increased from US$113,423 million to US$ 244,672 million between 1992 and 2002. Ghana had five new equity listings in 2004; the Kenya Electricity Generating company IPO in 2006 – the country’s first in five years attracted strong demand and enormous public interest. Since then, the 2008 cellphone company IPO’s of Safaricom and Celtel in Kenya and Zambia respectively have both been oversubscribed. This emerging confidence in the African stock markets is going to be negatively affected by the on-going financial crisis.

Slowdown in private sector lending

Unfortunately, it is not unimaginable that in the near term banks will have seen the results of the sub-prime market and decide to ease their hitherto aggressive loan book expansion. Real private sector credit, in particular, has been growing at an accelerating rate, and its median value has doubled in the past decade. Even as a share of GDP, it has turned the corner, with the median share approaching 18 percent in 2007, about a third higher than at its anemic trough in 1996. Much of this increase was on the back of innovative non-collateralized lending practices. Salary and other cash flow based lending have been on the emergence with positive outcomes for customers in the form of consumer loans. In October 2008, the Pan-African micro-lender Blue Financial’s loan book grew 236 percent and posted earnings growth of 167 percent in the six months to August 2008.

The possibility of overreaching their adoption of conservative credit appraisals processes and procedures does not bode well for the growth of private sector lending on the continent. Trade finance will come under tremendous pressure. With high fuel and food prices, foreign exchange constraints will persist on the continent for a while. A reluctance to lend by commercial banks will make it even harder to find trade financing sources. Of equal concern is the impact of the current crisis on the sources of long term funding. Where credit is still available, banks have already started in increase the cost of long-term finance. Shortening tenure of such loans is equally likely.

This is disappointing after recent years when funds were starting to enter African markets looking for both equity and portfolio investments. This slowdown will increase the need for domestic financing – pensions funds, insurance firms and domestic savings to fill the gap.

Weakened balance sheets and possible bank failures resulting from economic slowdown

In countries where the fall in investments is simultaneous coupled with drops in export earnings, a slowdown in GDP growth, and a sharp drop in domestic asset prices e.g. a local housing market correction, weakened bank balance sheets could result, including in some cases, bank failures. As the financial crisis surges into all parts of the real economy in developed economies, African countries will experience a substantial decline in exports as the rapid pace of trade expansion in this decade decelerates sharply. The IMF now projects that growth in world trade volumes in 2009 will be 4.1 percent compared to 9.3 percent in 2006. A notable part of this fall will be African. In Zambia for example, the economy is likely to take a hit from a share decline in copper prices (-24%ytd).

In this environment, large projects in Africa that require external financing to complement shorter term bank financing will face difficulties in attaining these finances, and where they do, will face higher interest rates, because of flight to safety and greater risk aversion of lenders. At the same time, portfolio outflows will put pressure on currencies for devaluations. Reduction in ODA, remittances and tourism receipts will also have a negative impact on the economy. As investments falls, some projects will not be completed making them unproductive and saddling bank’s balance sheets with non-performing loans. Lower commodity prices, combined with a credit crunch and increased risk aversion will make it more difficult to finance and develop capital investments. The economic downturn will result in pressure on the balance sheet of some of the weaker banks in the systems as non-performing loans in some sectors increase. For some banks, failures will occur.

Renewed debate on the role of governments in the financial system

The government bailout of financial institutions in developed countries will be abused by those keen to entrench government involvement in the financial sector – even when such entrenchment is detrimental to the financial system. While many government led programs in the financial sector have been well intentioned, the unintended consequences have often been severe on the level of interest of the private sector in investing in the financial sector as well as the credit culture of beneficiaries. Global experience suggests that despite the seeming advantages of government intervention in broadening access to credit, especially through government-owed banks, public banking services in developing countries have generally not been successful.

There is a close association between such participation and lower levels of financial development, less credit to the private sector, wider intermediation spreads, greater credit concentration, slower economic growth and recurrent fiscal drains. Despite these arguments, the recent massive government purchase of shares in financial institutions will in some cases not be seen as a short term remedial measure, but rather a long term repudiation of government exclusion from the sector – the unintended consequences of this position in the 1970’s and 1980s may yet again revisit the continent if this view finds traction with policy makers for existing and planned government owned financial institutions (Scott, 2007).

Conclusion

The present financial crisis will affect financial systems in African countries differently depending on the present quality of the financial sector. To each there is a litany of policy and technical options for the governments on the continent to consider. These include implementing: management takeovers ; blanket guarantees on all deposits reduce reserve requirements; offering to buy bad loans from commercial banks and revise deposit insurance guidelines to name but a few that were exercised by various governments during the month of October 2008 alone. Most of these options are for countries that are directly affected by the crisis and are in need of immediate assistance. For longer term financial sector reform options, the governments in Africa may wish to consider longer term options.

Three such options include: (i) strengthening local investor confidence in equities and bonds on African Stock Exchanges by enhancing, though legislative reforms, the participation of local institutional investor. Pension funds, especially state control pension funds will need to be instrumental in sustaining the development of the market; (ii) encouraging private sector lending, especially for SMEs, by attracting new sources of trade finance by, in some cases, rethinking support for new and existing export promotion facilities, and facilitating Risk sharing facilities in a bid to not only restore confidence in the financial sector, but also sustaining private sector enterprise, and; (iii) putting in government ownership policies that ensure that such ownership only takes place when; it is necessary to strengthen the capital base of banks to remove fears of insolvency; the managers have proved unable to raise equity capital from private sources; the bank is essential for the payments and credit systems, and the bank can reasonably be expected to be made viable in the long term. Importantly, governments must have policies in place that ensure that the government’s ownership is temporary and aimed at disposing of the investment once the financial system returns to normal operations and when it is commercially suitable.

Mine Watch (RSA)

Another victim of the global slow down. The world's third largest platinum producer, Lonmin has announced the plans to cut a total of 4,000 jobs in South Africa due to the worsening global economic climate. Lonmin has blamed the cuts on a drop in demand for platinum from car makers, the biggest user of the metal, which has sent platinum's price diving by more than 40 percent this year.

Mine Watch (DR Congo)

FT reports that industrial activity in China has slowed so quickly that demand for cobalt has ground to a halt, spelling bad news for the DRC. Cobalt is mostly mined in Congo’s Katanga province and 64 per cent was processed in China in 2007. Except :

The freezing effect of the end market on the source market was further confirmed last week when Katanga Mining, a copper-cobalt miner in Congo, suspended its cobalt operations. Like Camec, it will meet reduced demand by selling from current stocks.

Mr Groves described Camec’s cobalt mine as only one victim in a global production chain that is seizing up. Companies such as Samsung have cut production of mobile phones in China, he said, causing a “massive drop-off” in orders for phone batteries that use lithium cobalt oxide, in turn halting metal orders from Chinese buyers in Congo.

Cobalt
stockpiles are building up in China and further depressing the price, he said. Trading in cobalt concentrate is opaque but, according to Reuters, the import price in eastern China fell 16 per cent in the week to November 14 and has halved since March. In the week to November 21 it plunged further to about $12 per pound, Metal Bulletin reported.

The cobalt price’s collapse is in line with other industrial metals such as aluminium, zinc, nickel and copper. Miners of these metals daily face crises similar to Camec’s and mothballing mines around the world to save cash as they wait for a price recovery.

Friday, 28 November 2008

To import or not to import, 2nd Edition

I have been reviewing that fantastic FRSP paper blogged in the 1st edition, on the short term policy options available to GRZ in face of rising maize prices. That paper helpfully set out four broad objetives to keep in mind :

  1. Avoid the very high costs to GRZ and consumers of delayed imports. Decisions to import late would involve greater competition for transport with other countries and thereby entail higher transport costs. Late importation could produce the more extreme result of widespread hunger if local scarcity starts to manifest before needed imports arrive.
  2. Maintain incentive prices for farmers to stimulate supply response in the 2008/2009 production season.
  3. Keep maize grain supplies available in rural markets during the lean season for rural grain consumers and traders, and thereby help protect urban/rural net buyers of maize against much greater than normal seasonal price increases for maize meal.
  4. Find options for positive roles for both GRZ and private traders/importers.
It then goes on to articulate three possible policy responses :
  • Policy 1 : The GRZ would allow private maize imports by issuing permits now or decontrol maize imports for this season so traders can lock in relatively lower grain and transport prices to be in a position to supply millers later in the season. Public sector (FRA) maize imports would not be needed if GRZ and private traders can work together to produce sustainable solutions.
  • Policy 2 : GRZ would reserve/dedicate a major part of FRA stocks to sell to local traders and custom milling clients with maize grain in the outlying provinces during the lean season. FRA could also contract with Zambian commercial farmers for “early maize”.
  • Policy 3 : GRZ and Donor partners would work together to create a workable special emergency fund to subsidize the cost of grain or perhaps roller meal in the months of November 2008 through March 2009 in order to allow millers to pay traders/importers market prices but not pass these full costs on to low income consumers in Zambia.
It turns out that GRZ has opted for Policy 4! Policy 1 was the idea, but the weak currency has forced the government to purchase the maize from abroad. This in turn reduces the incentive for further private imports. I guess thats academic now because the Kwacha is not about to rebound significantly any time soon to reduce the cost of imports. An important footnote of course is we are very much in a worst case position. The "second best world" would have seen the FRA buy the maize imports shortly after the RB victory, when the Kwacha appreciated significantly. So not only has the public sector forked out significant cash for imports, its subsidy is now significantly larger than it could have been in a second best world. We can say with confidence that objective 1 (avoid the very high costs to GRZ and consumers of delayed imports) has not been fulfilled.

Satonomics, 2nd Edition

The Leader of the Opposition has a very good knack for identifying where the incentives of individuals conflict with the public good. Here is another excellent example :

"...My advice to government is to scrap the NCC for the time being and save K400 billion, because NCC won't produce the Constitution tomorrow. And since there is so much money involved, it can go up to 2020, because the people who are there would like by the time they come out they are billionaires..."

He applied a similar argument in our 1st edition. The problems are similar, though the NCC situation appears to lack a neat solution! In paying NCC members money to do what is effectively a patriotic act, you are hoping to incentivise effort. However, as Sata correctly observes, doing so can have the perverse incentive of prolonging the NCC process. The more the delegates deliberate the more they get paid! We are basically paying people to talk for as long as they like! [A full discussion on the size of NCC allowances here].

A possible solution is to create a definite end to the NCC process. Unfortunately this "solution" prematurely assumes the NCC deliberations don't break down and get restarted again (or rather you can accurate foresee a "reasonable" time frame for concluding negotiations) - so effectively you could end up with a series of finite continuous games.

The other problem with definite timetables is that it requires someone credible to pre-commit to an end date. As we have seen George Kunda has hinted on it being ready by 2010, but the statement was heavily caveated with pronouncements on how complicated the process is, and how no one can say for certain when it can end. This is the "reasonable" time frame argument in another form, though in truth what Kunda is hinting at, is really getting at is another problem - the political cost of setting the timeframe may be too great. In theory government can set the timetable and even threaten to close down shop, but that would be too risky. If it pulled the plug on the NCC, civil society would condemn government with huge political costs. In short GRZ has become a prisoner of the NCC process! It can only watch and "hope" the NCC moves swiftly. The other problem is that government also faces its own incentive not to conclude the NCC process. Many of the proposals being banded about clearly would impact negatively on the MMD prospects (e.g. 50% + 1). It is probably correct to say that it may not be entirely in the MMD's interest to conclude the NCC proceedings, if the outcome would damage their prospects in any way in 2011, or would significantly redistribute power from a seating government.

Ironically, the "white knights" who may have saved the NCC process from dragging on forever, is the very people who are not taking part! An effective solution would require that those who take part in the NCC (and incure the financial benefits from doing so) also significantly bear the costs of prolonging the process . Many participants of course would claim that they qualify under that criterion, but I am convinced that by and large, only Pf would be able to reconcile the incentives for getting paid on the NCC and delivering the constitution in a timely and affordable manner. The Pf are desperate for a new constitution that would ensure fair play, more than any grouping at the moment in or out of the NCC. If the Pf were to take part in the NCC, it would face two diametrically opposed incentives : continue to get paid to sit on the NCC for as long as Zambia can afford or each a conclusion swiftly to enable a constitution in time for new elections or God forbid, another unforeseen bye-election. It is likely that the incentive to deliver the constitution quickly would outweigh their financial return. Incidentally, under that scenario it may not even be necessary to pay Pf delegates - since the incentive to conclude the process quickly would be enough incentive to work hard at the NCC. But as things stand, Pf is outside the process, and for that reason its no surprise that this process will continue to drag on forever because the incentives of those within the NCC are too weak to quicken the process. To put it starkly, a new constitution will not make New Generation Party (or other small parties taking part in the NCC) win a seat at the next election. So can you really expect them to bother getting a new constitution speedily, when they can get the huge financial return from delay?

Ministerial Statement : Mealie Meal Prices

Last week's Ministerial Statement on mealie meal prices by Minister of Agriculture and Co-operatives Dr Brian Chituwo :

Madam Speaker, I would like to thank you for allowing me to give the maize stock levels and their impact on mealie meal prices in the country.

The House may be aware that the country produced about 1.2 million metric tonnes of maize for the season 2007/08 compared to 1.3 million metric tonnes for the previous season, 2006/07.

Given the increasing consumption rate of maize products in the country, there has been an overwhelming demand for the product. This has resulted in the speculation as to whether or not the nation has enough maize stocks to last up to the next harvest. This speculation has resulted in most mealie meal traders quoting very high prices of maize meal, in some cases to as high as K70,000 per 25 kg of breakfast meal. Our view, as a Government, is that these high prices of mealie meal are not justified in reaching such high levels.

The verification exercise by my ministry on maize stocks held by millers in Lusaka, Copperbelt and Northern provinces shows an exaggerated picture of the mealie meal prices in these areas. As we will be seeing from the schedule which I will lay on the Table for study and record, in Lusaka, the wholesale price of a 25 kg bag of breakfast mealie meal ranges from K50,000 to K54,000 while that of roller meal ranges from K38,000 to K44,000 between visited milling plant.

The recommended price for retail for breakfast range from K52,000 to K57,000 per 25 kg while that of roller meal ranges from K44,00 to K47,000. It is on the Copperbelt where the prices are higher. It is clear from the figure that whereas millers in Lusaka have lower recommended retail prices, it is the traders that exaggerate these prices. Even the transport cost should not normally push the prices to these unjustified levels.

The ministry has the responsibility to present factual figures on the current maize stocks in the country in order to remove unnecessary speculations. The national maize stock position as at 13th November, 2008 is as follows:

Millers Association of Zambia : 47,000 tonnes

Grain Traders Association of Zambia : 45,000 tonnes

Food Reserve Agency : 116,000 tonnes

Total : 208,000 tonnes

When maize held by other millers and traders who are not members of these associations is added, the country has sufficient stocks which will last up to four months given the national monthly consumption rate of 60,000 metric tonnes of maize. This national consumption has taken into account human, stock feed, breweries and other industrial use requirements.

The Ministry of Agriculture and Co-operatives is satisfied that the maize stocks available will last up to February, 2009. Meanwhile, the Food Reserve Agency has been directed to offload appropriate quantities of maize from the reserves to the millers in order to stabilise the prices of the commodity. However, in order to forestall any possible deficit in maize stocks to be experienced, my ministry has directed the Food Reserve Agency, further, to facilitate importation of about 100,000 metric tonnes of non-GMO maize together with millers and grain traders. Further, the ministry is currently issuing import permits for this purpose.

I would also like to inform this august House that there is very little non-GMO maize available in South Africa and, therefore, this imported maize may attract a high premium price. However, it should be noted that there is no duty on maize imported from the SADC or COMESA Region.

In order to lower the landed price of maize and make the price of mealie meal affordable to the consumers, the Ministry of Agriculture and Co-operatives will makefurther consultations with the Ministry of Finance and National Planning on the duty waiver on all maize stocks that would be sourced from outside the region. The Ministry of Agriculture and Co-operatives has put in place measures to monitor the GMO status and other pytosanitary requirements on the imports.

I wish to assure this august House that my ministry will continue to monitor the maize stocks and price situation with a view to taking necessary corrective measures whenever this is required. This country is assured of food security at affordable mealie meal prices.

The Movement for Multiparty Democracy (MMD), through the newly elected President, His Excellency Mr Rupiah B. Banda, is committed to ensuring that the food security for the Zambian people, particularly the vulnerable and poor, is sustained at affordable prices. The Presidential Speech clearly focuses on the priorities of the MMD Government as being on education, health and food security in order to improve the lives of our people.

The above measures are meant to translate the Government’s commitment towards this goal. Working together with all stakeholders, I am sure we can achieve this goal – yes we can.

Thursday, 27 November 2008

Path to Independence : Part Two - Struggle and Unity

In this second edition (first part here), Breeze FM looks at the emergence of African politics and the struggles—both internal and external—that had to be overcome for a unified movement towards independence to emerge.

Mining and the "global slowdown"

"According to our numbers, 286 workers have been retrenched at Bwana Mkubwa since there has been no production, Kansanshi wants to send home 50 workers and the story is generally the same at all mines..."

National Union of Miners and Allied Workers (NUMAW) President, Mr Mundia commenting earlier this week on what appears to be a gathering storm over mining jobs. A thread on this now appears in order to track how this plays out, and in particular how government responds. I warned here, on how not to respond.

Wednesday, 26 November 2008

Nchelenge! 2nd Edition

Turn outs that this story which brought much excitement does have some sort of legs to it. Unfortunately, the $80m investment by Biomax now reads as K80m. I am still pinning my hopes on it being $80m, I fail to see how a bio-fuel project of the size indicated can run on £10,000!

Tuesday, 25 November 2008

The State Vs Mining Companies? (Part 5 - A new round?)

New reports that some mining companies are still threatening the government with legal action over the new tax regime. We went through this cycle earlier in the year, with the government appearing to bow to mining pressure, it appears mining companies are getting impatient with the "negotiations".

Broke institutions (Local Government Commission)

Interesting to see the recent Parliamentary Committee Report on Local Governance, Housing and Chiefs' Affairs pick up the theme we have been discussing here for a while - the curse of broke institutions (reform is meaningless without sufficient funding) :

Dr Kalumba [Committe Chair]: Sir, your Committee attach enormous importance to local authorities as a cornerstone of the country’s democratic system of governance and delivery of service as well as other public goods. Allow me, therefore, to comment briefly on the Decentralisation Policy. Your Committee are disappointed that despite the decentralisation policy being an initiative of the Government, there has not been enough political will to implement it. Your Committee are of the view that if the Government has difficulties implementing the Decentralisation Policy, they should provide another policy direction instead of leaving the local government system in its current state.

Sir, your Committee are alive to the fact that the decentralisation process, in seeking to democratise and transfer powers, often threatens many actors who are reluctant to implement it. They request the Government to provide leadership on the matter and come up with a clear stand on the way forward.

Mr Speaker, may I also say something about the importance of employing quality staff in local authorities. It is the belief of your Committee that without dedicated professional staff that also have a sense of vision, local authorities cannot achieve anything. They, however, note that local authorities in Zambia lack adequate resources for them to recruit and retain qualified staff in order to deliver decent services to the people. They note, therefore, that the proposed establishment of the Local Government Service Commission, though welcome, will not have any meaningful impact on the performance of the councils in the absence of adequate resources to attract and retain qualified staff.

Your Committee, therefore, urge the Government to take a holistic approach to challenges facing councils by implementing the Decentralisation Policy which, in their view, will increase resources available for development and service delivery at local government level. It is only when this happens that qualified staff will be
attracted to work for councils.

Monday, 24 November 2008

Saving mining jobs?

Interesting report in the Times that Government plans to engage managements of the mining companies and the unions to chart the way forward on the "pending retrenchments" in the mining sector following the falling of copper prices on the world market. Not waiting to see which way the copper price wind may blow next, National Union of Miners and Allied Workers (NUMAW) is already flexing the muscles :

"National Union of Miners and Allied Workers (NUMAW) president, Sikufele Mundia said the unions were still discussing with managements of the mining companies and the Government to find a solution that would prevent job cuts.
Mr Mundia said in a separate interview that even if the copper prices on the world market were falling, there was need to ensure that miners were not laid off. He said the union would not accept the notion of retrenchments and called on the mining companies to find another solution to sustaining the mines in the light of the falling copper prices.
Are we trying to save jobs or are we trying to save mining jobs ? Mr Mundia certainly is only interested in the latter. Unfortunately, Zambia has used that route before - its called a "Development Agreement". A side deal with the mining companies in exchange for "keeping the mines alive". We have been there before, and those mistakes must never be repeated. We need to realise that job creation centred around mining may not be sustainable in the long term. Its what happens when your growth strategy revolves around large tax breaks to foreign investors. When the storm comes, you only have unemployment stats to show for it. Or worse, you dig yourselves in deeper holes with more tax agreements that are too incomprehensible to the average politician.

Africa Market Watch (October 2008)


ZIPPA on 'Wealth Creation'

Zippa Journal Oct - Dec 2008

Get your own at Scribd or explore others:

Sunday, 23 November 2008

NCC Discussion Updates (New Timeline)

The New Vice President, George Kunda has set out a new deadline for the NCC to conclude its work. Apparently the NCC will now complete its work by December next year so that the country can have a new Constitution before the 2011 elections, in the process guaranteeing quite a steady stream of income for the participants.

In the meantime, you may have heard that the NCC has finally realised that a website is necessary. Last month, Mr Chifumu Banda (NCC Chairman) announced that the NCC was planning to launch its website to provide downloadable information on anything concerning the NCC including its mandate, composition and verbatim debates in order to enhance public participation. In his words, “Through this website, stakeholders including members of the public will be able to make their views and demands known through the ‘have your say’ window". Not sure it will solve the
fundamental problem with the NCC , but it should hopefully allow some sort of archive for people to dig in at their leisure!

Saturday, 22 November 2008

Quote of the week (Reverend David Kasupa)

"We call upon the government to be very honest in the sight of people. They should realise that they are the servants of the people and they should have the interest for the people first before they serve their interest. We say so because we do realise that right now, people are crying over high prices of mealie-meal. An ordinary person is getting less than K250,000 and cannot afford to buy mealie-meal...It would have been better for government to ensure that they first of all bring the prices of mealie-meal down and cushion the shocks of poverty levels in the country. Right now the people of Zambia are breeding out of poverty."

Reverend David Kasupa, ICOZ President

Friday, 21 November 2008

A resurgency of chiefdom led capitalism?

Regular readers of Zambia Economist will not have missed what appears to a growing movement of local chiefs to secure a share for their subjects (or perhaps just for themselves). Senior Chief Kalilele is the latest to join the ranks (in contrast to Chief Sinazongwe's method):

Senior Chief Kalilele of the Lamba people of Solwezi has appealed to the Government to grant him a licence for small-scale mining in his chiefdom. The traditional leader, who has formed a mining company, Fyesu Minerals Limited, said in an interview at his palace that he planned to start mining copper.

“There are copper deposits all over my chiefdom, but people are not mining it because of the difficulties faced in the acquisition of small-scale mining licences,” the chief said.

Chief Kalilele was hopeful that he would be granted a licence two years after Chief Chizela, of the Kaonde in Mufumbwe, became the first traditional leader to get a full-scale mining licence. The chief, who also wants a timber licence, said he needed to earn extra income as money received from the Government was not enough to support his family and subjects.

Chief Kalilele is certainly not alone. A friend of mine recently explained to me how a Chief in Northern Province has worked to develop a "tribal corporation". They have set up a "company" run by the Chief and has his sub-headmen as partners. Their main goal is to encourage self reliance through agriculture and tourism. The ground is good in the area, so the Chief has been soliciting for funds through the company from donors, locals and people in the diaspora, as well foreign investors. At the moment, on the agriculture side, they have establish smaller subsidiaries or enterprises where subjects are able to source for seed and fertilizer. Their produce is first supplied to the locals and the excess is exported. They have also collaborated with a few NGOs. On the tourism side, there is much work required but the plan is to exploit the vast natural scenic locations the area offers from bush to hot springs . The intention is to structure the deal in such away that the locals have control but through the enterprise. This has all been the vision of one Chief in Northern Province, and with no government help! There has also been one or two recent developments where Chiefs have entered into partnerships with foreigners with regards prospecting for minerals e.g. Chief Chizela's deal:

"As part of the consideration for the transaction, Mayfair Mining & Minerals, Inc. will pay US$50,000 to Chief Chizela IX within 14 days of the date of signing the agreement. Upon completion of all preliminary due diligence and preliminary geological survey work by Mayfair, estimated to take three months from the date of the agreement, and if Mayfair then decides to proceed with the projects, the Company will loan the Chief an interest-free sum of US$500,000, which will be repaid only from any future dividends paid as part of his 40% shareholding in Mayfair Kalengwa Limited."

All of this has led to interesting questions in my mind on why chiefs who clearly have so many advantages in developing their own mining companies and other business have all of sudden just started moving towards that direction. Related to this is the question of what is preventing others. Is it because there's no perceived advantages or simply poor access to funding or lack of technical know how or may be some other unexplained factor ? As I have explained in the past (and other contributors have highlighted) certainly land and other resources is not a constraint. Chiefs also should be able to borrow since they have access to land and their "legal position" should serve them better to influence other players.

The obvious, and most natural, explanation is history! As I note in the blog Traditional Authorities - Part 1 : Chiefs in colonial Zambia , during colonial times chiefs worked well within their constraints and were local engines of growth. Certainly many of the local stores that emerged were led by them. They used the "native treasuries" to their advantage, investing in a lot of profitable activities whose revenues partly funded the independence struggle. After independence, with the One Party state reforms, that entrepreneurial spirit was restricted (the land reforms did not help), and perhaps Chiefs are only again beginning to realise the opportunities that exist within their chiefdoms!

Of course there's the question of whether this resurgency of Chiefdom led capitalism is a good thing. I'll side step that for now, as that will require a blog on its own (a side effect could be the impact on land reform, and the delicate issue of traditional boundaries). For now it suffices to say that those who wish to see the current resurgency not simply fade away face two challenges.
First, the lack of a coherent framework from government that is understood by chiefs, and even one government can encourage them to take up. Secondly, increasing "foreign influence" , as Zambia become more and more open, may leave many chiefs vulnerable, unless government takes the lead in regulating these interactions, and encouraging them in a positive direction.

Government can certainly do more, especially in the area of "market discovery" and reducing other transaction costs. It was quite instructive reading the views of Chief Chibesakunda on the subject - Insights from Chiefs (Chief Chibesakunda). His views appear to be that chiefs are ready to engage and become engines for development, but they need government to do their bit in terms of infrastructural investment. But all of this depends on whether government truly believes, as I do, that there's no coherent rural development strategy that can emerge without dealing with how chiefs can be useful agents for economic change. Crucially, that model needs to first identify how best to widen this resurgence in chiefdom led capitalism.

Oil exploration (status)

A very revealing exchange in Parliament early this week on oil exploration :

Mr Tembo (Nyimba) : To ask the Minister of Mines and Minerals Development what the current position was regarding oil prospecting in Chama and Lundazi Districts.

The Deputy Minister of Mines and Minerals Development (Mr Nkhata): Mr Speaker, my ministry, through the Geological Survey Department, undertook a survey of the North Luangwa Valley by using a microbial technique for oil and gas exploration. A total of 153 soil samples were taken from the subsurface. Subsequently, a follow-up infill soil sampling was done in the western part of Chama District covering an area of about 200 square kilometres. A total of 211 samples were taken and the results indicated the area was prospective for oil and gas. Now that the Petroleum Exploration and Production Act 1985 has been repealed and replaced, the Government is in the process of inviting companies to determine whether there are economic sizes and grades of the oil and gas deposits in the areas. The areas have been demarcated into twenty-nine blocks and companies will be invited to bid for tenders to undertake investigations leading to feasibility studies and petroleum development.

Mr Tembo: Mr Speaker, I would like to find out how soon the Government is likely to invite those companies for bids and tenders.

Mr M. Mwale: Mr Speaker, as a Government, we are already in the process and by the first quarter of 2009, we will be inviting would-be bidders to carry out the works. I would like to request the hon. Members that they could be part of those who could take part in this exploration work rather than always complaining about the trickle-down effect.

Mr Simuusa (Nchanga): Mr Speaker, oil exploration is very straight forward and the hon. Minister said the initial exploration showed that we have oil deposits. I am wondering why the Government is talking about inviting other companies to explore, when we have all the potential and we have people who can tell us about the oil. In the meantime, one may form a company, but we were told by the former hon. Minister that it would be a parastatal to handle the marketing of oil. Why are you going around in circles?

Mr M. Mwale: Mr Speaker, if the hon. Member carefully listened to our response and I quote “the areas have been demarcated in twenty-nine blocks and companies will be invited to bid for tenders to undertake the investigations leading to feasibility studies and petroleum development”. This means that these companies will carry out these works which will lead to petroleum production. As it stands now, we cannot give a definite response that we have oil and gas, but there are positive indications
that there is oil and gas. Only when we have produced the first barrel of oil mshall we proudly say we are an oil producing country.

Mr Kasongo (Bangweulu): Mr Speaker, I would like to find out from the hon. Minister of Mines and Minerals Development whether the ministry has any plans to extend the oil prospecting activities to Lake Bangweulu in view of the escalating fuel prices in the country.

Mr M. Mwale: However, I would like to inform the hon. Member that the ministry has carried out works in Luapula and we have the information of the findings. I should mention here that Luapula has already been demarcated into blocks.

Mr Mbewe (Chadiza): Mr Speaker, I would like to find out from the hon. Minister which province the ministry will consider first because there are two provinces with oil prospects?

Mr M. Mwale: Mr Speaker, however, I would like to correct that him by saying that there are four provinces with oil prospects and these are North-Western, Luapula, Western and Eastern and Southern provinces. The works in these provinces are on going and we are just waiting for the findings.

Dr Machungwa (Luapula): It is a game of musical chairs. The question is what progress has been made in analysing samples from the Lake Bangweulu which is rumoured or reported by your colleagues to have some possibility of gold? What further information do we have on this prospect?

Mr M. Mwale: Mr Speaker, I think the results that we have from the sub-surface survey that was carried out are positive enough to show that some works can be carried out in the Luapula Province. I would also like take this opportunity to say that there is no preferred province in terms of starting the works. The works will be carried out across the whole country.

Zambia's stimulus package...

....has come in form of inflation bursting pay rises for the Cabinet and Parliamentarians , just in case the NCC allowances are not enough. (previous blog on this here).

Maintaining the cassava boom...

Figure 1: Trends in Food Staple Production in Zambia


Figure 2: Current market shares in the value chain
Cassava production has grown rapidly since the early 1990s, as farmers have sought to diversify their food staple production out of maize and into cassava (Figure 1). The removal of heavy subsidies for maize production and marketing coupled with the government withdrawal of a guaranteed maize market, from the early 1990s onward, reduced incentives to grow maize, leading farmers to look for other more profitable crops. At the same time new varieties have come on stream with wider appeal. Despite the progress, cassava remains extremely undercommercialised (Figure 2), and there are fears that unless the commercial market can be developed further it will all come to a stop. A new FSRP paper discusses the current policies affecting cassava and opportunities available for commercialisation. A key constraint identified is the price :

Low cost will be key to the viability of cassava as a carbohydrate source in prepared food, livestock feeds and industrial sweeteners and starches. Hence, rapid growth in cassava commercialization will require a lower price, not a higher one. Feeding trials conducted by the Livestock Development Trust (LDT) suggest that the cassava price must fall to 60% of the price of maize in order for cassava to become a viable substitute for maize in production of livestock feed (Simbaya 2007). Similarly, the market for composite flour hinges on the cassava price being lower than that of maize or wheat. Otherwise, substitution of cassava for wheat and maize becomes unviable, raising consumer cost rather than lowering it. Indeed, the FRA’s difficulty in disposing of its high-cost cassava stocks over the past three years suggests that high-priced cassava offers a sure means of preventing cassava commercialization.

Given the far higher onfarm productivity of cassava compared to maize, production cost and hence price of cassava can easily be brought lower than maize. In the cassava belt, cassava prices currently range between 50% to 60% of the price of maize. In the dual staple zone, cassava’s relative cost lies closer to 70%. And in the maize belt, the cassava price is normally higher than maize price because of the long distances cassava must transit from the cassava belt to the feed and food industries of central and southern Zambia. Given the high cost of transport in Zambia, it seems that increased cassava production in the maize belt offers the best likelihood of making low-cost cassava available in that zone. Given the confirmed high productivity of cassava in central Zambia, it is clearly possible to produce low-cost cassava in this region (Barratt et al. 2006).

Update : The new Agriculture Minister on the importance of cassava for food security.

Thursday, 20 November 2008

Zambia's rising external debt..

For those among tracking Zambia's external debt :

The latest report of the parliamentary committee on economic affairs and labour, states that the increase represents a 10.1 per cent.

“An analysis of the structure of Zambia’s external debt revealed that at the end of December 2007, 52.7 per cent was Government external debt while 47.1 percent was external debt contracted by the private sector,” the reports reads in part.

Government’s external debt increased by 5.9 per cent to US$1.1 billion last year from US$990.2 million in the preceding year. This was mainly as a result of disbursements from the International Monetary Fund (IMF) under the Poverty Reduction Growth Facility (PGRF) and from the World Bank.

Magande's position on borrowing was discussed here. No word yet on what the new Minister thinks. We have been promised new external debt monitoring arrangements, but so far nothing has been done. I suspect one day we may yet wake up and find ourselves in a pre-HIPC position. Regular readers will recall the JCTR Submission on Debt Legal Framework to the NCC.

In the meantime, JCTR along with other stakeholders are taking a more practical approach of actually monitoring how the money is being spent on specific projects. That may well be our best hope, in the absence of a clear national framework on external debt.

Wednesday, 19 November 2008

BOZ Quarterly Brief (Q4 2008)

The Bank of Zambia Quarterly Brief was released today. Much there in terms of statistics, but nothing real in terms of issues that we have not picked up in the last quarter of discussions here. That said it is interesting to note that the outlook for inflation is now worse following on from various freebies during the campaign, and of course continuous depreciation of the Kwacha. On the flip side, good to see FDI (or pledges of FDI) on the rise : "on a year-to-date basis, investment pledges amounted to US $4,249.6 million compared with the US $1,103.5 million recorded during the corresponding period in 2007."

Presentation:
Report :


Media coverage :
Reuters (19 Nov 2009): Zambia to miss additional 2008 copper revenue target
Reuters (19 Nov 2009) : Zambia c.bank says 7 pct GDP growth unlikely for '08

Supporting rural development - (Guest Blog : Sarah)

Hello!

I am a young woman from the United States who has recently lived in Zambia for close to three years. From 2005 to late 2007, I was a volunteer with the US Peace Corps serving as an extension agent for the forestry department; I worked with local farming and women’s groups to promote sustainable agriculture, gender equality, HIV and AIDS education and youth development. I lived in both the Eastern and Northern Provinces in villages outside of Chipata and Kasama and had a unique chance to get to know the culture, languages and people outside of the tourist trade. I was very moved by my experience and even returned on my own this past summer for 3 months to re-visit some of the projects that I had been working on.

Back in the United States now in Washington, DC, I have founded a non profit organization to support community led development within Zambia through the administration of micro-loans. We aim to bolster rural efforts to alleviate poverty by giving poor communities access to the resources that they need to begin small enterprises; the loans cover material start-up costs and each group is also required to participate in trainings on small business skills and group leadership.

Our priority is to support sustainability through focus on capacity building and environmental stewardship; each group will have the option of receiving loan forgiveness of one USD for every tree that they successfully raise in a nursery and transplant before the rains. We are currently working with local Peace Corps volunteers who are living in the villages to serve as a guide for applicants in select areas of the country and to assist with monitoring and evaluation for at least one year after inception of a program. Ultimately, I would like to afford our own staff within country to serve as monitors and trainers for our partner groups; until we have that financial capacity however, we will rely on NGO and government extension agents to volunteer their time to assist groups in the village, conduct business and skills related trainings, and to offer monthly reports on the status of the project (all transport to and from the work site for the volunteers will be paid by our organization).

I am looking for advice from Zambians and those with experience in the development sector regarding program planning and implementation. I have never worked with micro-loans before but after living in the village, realize how important it is to instill a sense of ownership amongst the community for their programs. One area I am struggling in is what to do when a group defaults on their loan since hardly anyone owns their own land to place as collateral, and so how so we hold people accountable for their financial payments? Also I am looking for as many contacts within country as possible since the bulk of our energy is going to be spent on quality monitoring of each project as well as support for capacity building trainings.

I offer the floor to anyone and everyone who might like to become involved or offer support. Our web site is still being worked on, however I can be reached at sarah.grant@helpcolourmein.org and will be happy to provide anyone with more information. Our name is “Colour Me In”, based on my experience one day when a group of young children drew coffins when asked to depict the uses of trees. I was struck, and the nature of our corporation is one in which we aim to help communities to paint a better future based on the vision that they have for themselves and who simply need help accessing the resources to fill in the lines.

Thank you for your time and I look forward to benefiting from a healthy dialogue and to learning from the expertise of this community.

All the best ndi zikomo kwambili,

Sarah Grant / USA

(Guest Blogger)

Mine Watch (Kitwe)

Konkola Copper Mines (KCM) has launched its new Nchanga copper smelter under plans to raise copper cathode output to 500,000 tonnes within two years. The Nchanga smelter, which has a capacity to produce 300,000 tonnes copper per year and cost KCM $500 million, is one of major projects the mining company has undertaken to raise copper production.

Mine Watch (Mwinilunga)

ZNBC on the possibility of a new copper mine for Mwinilunga :

North Western Province Permanent Secretary, Jeston Mulando says all is set for the establishment of a new open pit copper mine in Mwinilunga district. Mr. Mulando said Shungho Mining and Industry of Zambia has already applied for a licence from the ministry of mines to start operations. He said the company will start construction of a plant once the mining licence has been approved.

Mr. Mulando told ZNBC that the provincial administration has played its part by discussing with traditional leaders who have promised to offer land for the project. He appealed to the new Minister of Mines, Maxwell Mwale to help expedite the issuance of licenses to serious investors.

The new open pit copper mine is part of the K2 billion investment package by Shungho Mining in North Western province.

Tuesday, 18 November 2008

Mine Watch (Luanshya)

Luanshya Copper Mine (LCM) has suspended the building of the $354 million Mulyashi copper mine while it reviews the copper recovery process (previous edition here).

Powering 2010..

Mozambique continues its impressive power strategy (see here and here), with the latest announcement that EDM (Mozambique's utility) plans to build a new 680 megawatt thermal power plant in southern Maputo province to help cut energy crisis in South Africa ahead of the World Cup in 2010. The cost of the Moamba project, estimated at $1.3 billion, would be borne by EDM in partnership with Mozambican group Intelec Holdings and South Africa's Sasol.

Monday, 17 November 2008

In search of independent thinkers..

Prof Manengo Ndulo on the lack of "economic technocrats" in the public debate:

“In Zambia, we clearly lack opinion leaders who can meet in terms of promoting good ideas and not bad ideas. Good ideas can be very popular and can dominate but they won’t get you anywhere....But that can only be something which would come from a group of technocrats within society which cannot only promote those ideas but also transform those ideas in terms of implementation....It is this element of debate and especially in the economic management and policy that we lack…what you could call a class of technocrats and policy makers who can debate and argue policy choices which can be made.....The civil society organisations are part of the opinion makers but if you look at what I call opinion makers in Zambia, it is overburdened by political civil societies who are more than where the issues are and these are the economic policy issues.”

Saturday, 15 November 2008

Friday, 14 November 2008

Exit Magande, In Mwaanga

A dramatic reshuffle of government this afternoon has seen Magande lose his job, along with one of the most effective local government ministers in recent times, Silvia Masebo. Its unclear whether both resigned or were fired. No new jobs for Sakwiba Sikota and other leading "opposition figures" that endorsed RB. Also the government remains bloated as ever, although George Kunda now combines two functions.

The new cabinet :

  1. Vice President & Minister of Justice : Hon George Kunda
  2. Minister of Defence : Hon. George Mpombo
  3. Minister of Finance and National Planning : Hon. Situmbeko Musokotwane
  4. Minister of Home Affairs : Hon. Kalombo Mwansa
  5. Minister of Health : Hon. Kapembwa Simbao
  6. Minister of Foreign Affairs : Hon. Kabinga Pande
  7. Minister of Agriculture & Co-operatives : Hon. Dr Brian Chituwo
  8. Minister of Local Government and Housing : Hon. Ben Tetamashimba
  9. Minister of Gender and Development : Hon. Sara Safiyanda
  10. Minister of Commerce, Trade & Industry : Hon. Felix Mutati
  11. Minister of Communication and Transport : Hon. Dora Siliya
  12. Minister of Community Development and Social Services : Hon. Michael Kaingu
  13. Minister of Education Hon. Prof. Geofrey Lungwangwa
  14. Minister of Energy and Water Development Hon. Kenneth Konga
  15. Minister of Information and Broadcasting Services Hon. Ronie Shikapwasha
  16. Minister of Labour and Social Security Hon. Austin Lyato
  17. Minister of Lands Hon. Bradford Machila
  18. Minister of Mines and Minerals Development Hon. Manswel Mwale
  19. Minister of Science, Technology and Vocational Training Hon. Peter Daka
  20. Minister of Sport, Youth and Child Development Hon. Kenneth Chipungu
  21. Minister of Tourism, Environment, Natural Resources Hon. Cathrine Namugala
  22. Minister of Works and Supply Hon. Mike Mulongoti
  23. Chief whip VJ Mwaanga

Outlook for remittances

Growth of remittance flows to developing regions
World Bank piece on the outlook for remittances for the next two years. After several years of strong growth, remittance flows to developing countries began to slow down in the third quarter of 2008. This slowdown is expected to deepen further in 2009 in response to the global financial crisis.

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.

Wednesday, 12 November 2008

Fighting poverty...the Namibian way...

IRIN on an interesting Namibian approach to fighting poverty, that if it works may further reinforce confidence in cash based transfers. Excerpt :

There are no roads, no major industry and no historical landmarks in Otjivero, a village about 150km east of Windhoek, the Namibian capital and previously known for little more than its poverty. But in January 2008 it became part of one of the world's first basic income grant (BIG) projects, and now stands the chance of setting an international precedent in the fight against poverty.

About 1,000 villagers have been receiving a BIG of N$100 (US$10) as part of a trial project funded by contributions from international donors and private citizens and administered by Namibia's BIG Coalition made up of four major umbrella nongovernmental organisations. Community members say the money has gone a long way towards providing better nutrition, housing and even seed money to small businesses; project implementers say it has disproved aid industry myths about the feasibility of such a grant.

The issue of a BIG - an initiative to provide every citizen irregardless of wealth with a grant to insure a minimum monthly income - has been championed by its supporters as a low-cost method of redistributing wealth in societies such as Namibia, which according to the United Nations development Programme, have extremely high levels of income inequality.

While the idea of a grant has gained new relevance in recent years with innovations in aid distribution, such as cash transfers, opposition remains from many who have argued the grant will foster dependency, and that national budgets in developing countries are ill-equipped to finance such a large-scale intervention.

Despite a serious push for a BIG in Brazil, South Africa and Namibia, the project at Otjivero is the first time such a grant has been implemented.

Tuesday, 11 November 2008

Zambia and the EPA

Judith Fessehaie of the Ministry of Commerce Trade and Industry has written an interesting piece on the recent EU - Zambia interim EPA agreement :

Zambia and the EPA, Judith Fessehaie, Trade Negotiation Insights, Commentary

Zambia initialled its market access offer in the context of the Eastern and Southern Africa (ESA) interim Economic Partnership Agreement (IEPA) with the European Commission on September 30 2008. In completing these negotiations, the provisions of the trade in goods chapter and related annexes of the ESA IEPA now apply to Zambia.

Structure of Zambia’s market access offer

The final market access offer initialled by Zambia and the European Commission at the end of September will liberalise 79.62% of Zambia’s imports value from the EU in 15 years. (Ref : 1) In this offer, the exclusion list covers 20.38% of imports from the EU. A precautionary approach was taken, protecting potential or nascent industries and sectors with minimal levels of current imports, but in areas where the EU is increasing its competitiveness. The sensitive list broadly covers: agricultural products, processed food and beverages, plastic and rubber products, clothing and footwear, engineering and wooden products. Zambia’s market access offer backloads liberalisation on products that attract 15% and 25% customs duties. The effects of trade diversion will be partly offset by the launch of the SADC Free Trade Agreement (FTA) in August 2008, which will level the playing field between the EU and Zambia’s major source of imports, South Africa.

Other market access provisions

In order to minimize the impact of reforms resulting from the implementation of the IEPA, Zambia’s market access offer has taken into account several considerations. These include maintaining import prohibitions for environmental purposes, export taxes for industry development (copper concentrates, cotton seeds, scrap metal) and export restrictions on food security grounds. However, while the relevant tariff lines have been annexed to the market access offer, Zambia - and ESA - are renegotiating the provisions on export taxes and quantitative restrictions in the IEPA to ensure these measures can be applied in certain circumstances (in line with GATT flexibilities). Moreover, unforeseen events can be addressed by carefully tailored trade remedies - another area under renegotiation.

Zambia’s expectations on the way forward

The market access pillar is only one of many on which Zambia’s new partnership with the EU will be based. Several issues remain under negotiation including rules of origin and the adjustment of the tariff schedule to COMESA’s common external tariff. The delivery of Aid for Trade under the development component similarly remains unresolved. ESA negotiations on development aim to complement a Development Cooperation Strategy and a costed matrix. ESA and the European Commission agreed on the importance of adopting so-called ‘development benchmarks’ against which to assess the EPA process. The benchmarks should be coherent with national policy objectives and avoid ambiguity in measurement or interpretation. Equally important is how the development component will operate. Zambia is addressing this in the context of national institutional arrangements designed to implement Aid for Trade by setting priorities for intervention, stakeholder consultation, donor coordination and overall strategy formulation. The impact of additional Aid for Trade interventions on Zambia’s capacity to seize new export opportunities will ultimately determine the value of an ESA EPA.

Challenges and opportunities

The complexity and breadth of areas to be negotiated in the coming months present challenges and opportunities for Zambia. Challenges stem from the fact that regional integration in the area of trade in services, for example, has yet to be completed. EPA-level negotiations should not undermine existing regional agendas by skewing priorities for national bodies with limited resources. Also, it is difficult to draft EPA provisions in areas, such as intellectual property rights, where regional policies have not yet been agreed. This problem is less compelling in the context of competition and investment policies since regional regulations are in place and serve as a basis for
engagement with the European Commission (Ref : 2). Yet, only 6 out of the 15 ESA countries have national competition laws and existing regional frameworks are not necessarily a guarantee of national capacity. Zambia’s priorities are to build domestic and regional capacity to regulate sectors, enforce legislation, monitor investors and administer government procurement in a transparent manner.

Zambia has a direct interest in tackling beyond the border measures at the regional level to deepen the common economic area. Sequencing between national, regional and EPA frameworks and setting adequate implementation periods and accompanying measures in an EPA are critical. The level of ambition should not be measured by the depth of WTO+ commitments undertaken by ESA, but by the EPA’s potential to raise the regulatory and enforcement capacity of the region. If this objective is achieved, real economic and social benefits will trickle down to consumers, firms, farmers and the government treasury.

Effective negotiation

The restrictive role played by sanitary and phytosanitary measures (SPS), as well as technical barriers to trade (TBT) and rules of origin on actual market access opportunities is widely acknowledged. For Zambia, EPA negotiations are expected to result in SPS and TBT provisions that respond to the country’s needs. Moreover, relaxing rules of origin would increase the competitiveness of Zambian firms and boost their incentive to integrate into regional and global value chains. For this reason, regional cumulation with African countries is an important aspect of these negotiations. Finally, trade facilitation and developing Information Technology infrastructure will complement the regulatory aspects contained in goods and services provisions, by making it possible to move both across borders in a cost effective and efficient manner. To negotiate successfully, these pressing issues must be kept in mind.

Ref:

  1. Import values as an average for the period 2004-2006.
  2. Member States have finalised the COMESA Common Investment Area and the COMESA Competition Regulations and Rules. Work is ongoing on the draft COMESA Trade in Services Framework. No regional framework is being developed yet on IPRs, as efforts have been focused at the all-Africa level.
MrK's blog provides a good account of EPA issues affecting Zambia, including the reaction to the negative reactions to current deal.