At the word go – let me wish all the readers of this post, many hundreds, judging by the many feedback messages I get – A HAPPY AND PROSPEROUS NEW YEAR! Thank you for your support. Above all, let us all join in wishing the in-coming American President – our own, Barack Obama good luck in his tough responsibilities. The expectations placed on him are enormous, but I am confident that he is ready to face this new challenge. This is an historic moment!
The choice of my topic is therefore, directly related to America, which is the bastion of capitalism. We have an interest in analyzing a case of Zambia Airways (Q3) particularly because this company is owned by those who hate capitalism (by implication socialists) like Fred Membe of The Post, partnering with Nchito Brothers (Nchima & Mutembo) – who have been prosecuting Fredrick T Chiluba (FTJ) in essence, the introducer of liberal and free market system in contemporary Zambia.
Prof. John Lungu at the Copper Belt University (CBU) not too long ago issued a statement which carries a lot of truth. He said: “Zambians have embraced capitalism, but yet fail to act as one”.
Yes, if the country wants to use capitalism as a model for developing Zambia, those in the driver’s seat – both in government and private sector must learn to behave and act as ‘capitalists’ or else we should go back to the socialist system. Certainly if we pretend or fake our being capitalistic when we are not, that helps no one.
What are some of the implications for these murmurs?
When in 1991 ex president Fredrick T Chiluba took a sharp knife and cut-off literally all ZIMCO para-statals from government control as a way to liberalize the economy from Kenneth Kaunda’s (KK) socialistic humanism – he was sending a strong message to all of us – that, from then whence forth, Zambia had joined the world of competition. And as they say in the business world of competition, you either learn to compete or die.
It is against this background we must analyze the Zambia Airways’ (Q3) demise.
In order to see the link between the suspension of operations announced by Zambia Airways and capitalism – ask yourself this question. What is common between the Big Three American auto companies (GM, Ford & Chrysler); the Canadian Nortel Networks Corp; AIG (world’s largest insurer); and our Zambia Airways?
The short answer is – all these companies are either filing for bankruptcy or lining up for taxpayers’ money to give them a breathing space so that they can, so they hope, re-structure or re-organize their operations. And why are we in this situation? It is because a lot of these companies forgot (or neglected the importance) that they were operating in a globalized competitive miljó (environment).
Evidently too, these companies, though privately owned – kept on producing products and services which nobody wanted to buy. It is either that or they were not competitive enough on the market. Consequently they lost out to other more competitive companies. This is precisely as the capitalistic market is supposed to function.
So, let’s face it – the main reason why Q3 has been grounded is because the company began turning out losses instead of profits – violating capitalistic principles. That happens when the demand for goods and services being produced shrinks. In turn, this creates the inability of a company such as Q3, to settle its bills.
Also when the demand is weak, especially in a scenario where costs are going up – the natural tendency would be to pass some of that to the customers. Perhaps this is what Q3 was hesitant in doing, namely – increasing air-tickets. That was not done in fear that, it would result in customers’ attrition.
It is also widely known that – Q3 managed to survive partly because the late President Levy Mwanawasa ordered government business to be sent their way. This favor provided because of the cooperation Mutembo Nchito and The Post rendered in the campaign against corruption, gave Q3 a false economic security. When attacked about this nepotism, Mwanawasa often retorted by asking – “do you guys expect me to appoint or help my enemies?”
Given this fact that government assisted the airline where it could, therefore in my opinion, we must lay some of the blame for Q3’s failure, squarely on the shoulders of management and/or owners who tend to put undue influence on managements and board of directors.
Even though pure greed of Wall Street CEOs and the external shocks caused by high crude oil prices can take some blame – in the final analysis, those who have been running Q3 must be prepared to take some responsibility.
Let’s put the argument in a different way so that there is no misunderstanding. Toyota is now probably the most sought after car brand in North America. Why is that? Yes, it is because Toyota Company strives to produce models and features customers are looking for. Hence, it becomes a dominant automobile on the American market.
In the telecommunication sector – corporations like the Canadian Nortel Networks Corp got out paced by other companies. In the internet and cell phone (wireless) markets for instance, it could not compete with the Finish Nokia, Swedish Ericsson or Samsung models. Moreover, its Canadian cousin – Black Berry has taken a large chunk of its market. It is therefore no wonder that Nortel Corp’s share stock value shrank from a high yielding US$124 per share to a paltry forty-cents per share today.
Believe it or not, the same demise has befallen a privately owned Zambia Airways. This must be admitted.
For once, I have had to agree with one of Ruphia Banda’s (RB) Minister’s position being taken on this case so far. Hon Dora Siliya, Minister of Transportation, who surprisingly with clarity stated that, and I quote – “Zambia Airways suspension of operations would not negatively impact the tourism industry as other operators would absorb the demand”. That is right on!
It is true that tourism is an important component of the – diversification process of the economy from copper mining to other non-mining sectors such as agriculture. But that is not enough good reason to bail out an ailing company such as Q3. We recall that when another Zambian privately owned company – Meridian Bank was in the same situation, it sank. And nobody rescued it.
One reason why the “old” Zambia Airways was de-nationalized or disbanded is because it failed to operate efficiently. Even under government watch, it simply could not compete with other airlines. It became moribund. Thus, I am not sure if re-nationalizing an already loss-making Q3, a surrogate, would improve things. And giving it more money without a government watch dog is like throwing good money onto the bad ones.
Besides, that would be rewarding shoddy and inept decisions made by the boards. Thus, Q3 bail out lacks merit unless it was to be sold or operate under a new management.
If the Zambia Tourist Board (ZTB) under the chairmanship of Errol Hickey has done such a good job to attract tourists, the departure of Q3 would not and should not affect them negatively – because I am sure somebody else would be interested in shuttling those tourists around to tourist attractions. So long as there is lucrative business to be made – the vacuum would always be easily filled by somebody else. Those who intend to politicize Q3’s demise by preaching a dooms day if the current Zambia Airways was to die, is by itself, the toxic poisoning the investor confidence.
In the event that local entrepreneurs are not imaginative enough, be sure that foreign travel agents or other investors from outside would take the chance. These days communication and transportation technology is so advanced that nothing is impossible.
Mark that – in principle though, I am not totally against bailing out companies. But at least two factors have to be taken into consideration here. First, if President Ruphia Banda opts to assist Zambia Airways – I think that would be a significant departure from Mwanawasa’s economic policies.
Part of Mwanawasa’s success was a strategy to minimize government spending. He kept civil servants’ salaries in check. In that faculty President Banda has already agreed to the awarding of new salaries to Ministers and constitution office holders. Moreover, expanding government spending at this time would not be wise given the declining copper prices, which automatically limits government’s revenue base.
Further, many Zambians failed to see that – in congruency with his Chief Banker – Dr Caleb Fundanga at Bank of Zambia (BOZ), Levy Mwanawasa was in practice, a monetarist. Monetarists insist on balanced budgets (hence are tight spenders) and believe in limited or strictly controlled money supply. These twin actions worked well for Zambia under his (Levy) tutelage.
Also Mwanawasa’s tight fiscal policy – under the direction of his Minister of Finance, Ng’andu Magande – coupled with the taming of inflation by BOZ, won a lot of praise from overseas. That is why the Zambian government got a positive response in terms of reducing or being forgiven on foreign debts. So should His Excellency Banda reverse this, so early in his presidency – would not be sending a good signal to foreign investors.
Domestically, many people would also start reevaluating his intentions – judging any hand outs he gives as a precursor for the re-adoption of the UNIP School of socializing everything. With no doubt, that would start killing the private-initiatives Zambians have now become used to.
It is also wrong, as some people are suggesting, taking President Barack Obama’s pill in United States as a panacea for solving Zambia’s economic problems. You do not bail out just for the sake of bailing out. Bail outs which are being touted in the USA and other more advanced economies, are intended to ameliorate globally, the impact of financial meltdown and to prevent a probable total collapse of the world economy. Q3 is no such giant to compel government to come to its rescue, especially at this time when obtaining credit or liquidity assets is so tight world over.
Even if one was to ask John Menard Keynes the theorist behind encouragement of government interventions, through government expenditure - he wouldn’t advise us to spend a penny on a failing private company. But on the other hand, he would definitely support President Obama’s approach since Keynes is the one who first pointed out that – economies are not self-correcting perpetual motion machines.
Based on this observation, which has also been studied empirically, it is argued therefore, that some government measures would be necessary. Doing nothing or self-regulatory principle – like the G.W.Bush/Dick Cheney doctrine, does not always work. So long as of course, those medicines used are remedying the economy as a whole. Plus, we must also make sure that we do analyze real-time conditions accurately.
This is why I concur with Minister Siliya on the suspension of Q3. We have nothing to fear so long as tourists keep on coming. (Their attraction to Zambia is not determined by Q3, but the quality of tourist attractions). When there are no tourists coming, if there is sufficient interest for Zambians to travel to domestic destinations such as Solwezi, even in that case, other companies would be formed to take the place of Zambia Airways.
There is ample evidence to show that – usually monopolies (which Q3 is on the domestic market) – tend to be inefficient. Opening up for competition, not only improves operations, customers gain because goods and services (G & S) tend to become cheaper. This can be demonstrated by the arrival of more telecommunication suppliers and mobile providers on the Zambian market like Celtel. As a result, cellular phones became cheap enough such that anybody including ‘Ba Kaponyas’ could afford owning units.
The other important point is that – even though tourism is an important sector, Q3 by itself, is a very small part of the economy carrying a small number of employees. Therefore its closure would not be a doomsday for the country. Two-three hundred employees cannot even be compared to over two thousand jobs being lost at Luanshya.
And since it is highly doubtful – that the Nchito brothers and Fred Membe’s group would let go of that company so that an effective restructuring can take place under new ownership – liquidation should be the natural consequence.
If anything, it should be Baluba Mine which should be crying for help. Unlike Q3, closing a mine would certainly be impactiful. And quite frankly, the importance of Nchito brothers’ ZAirways Company is being overblown. This is partly because the owners and major shareholders – Nchito brothers and Fred Membe, are high profile names in the Zambian society. The former being prosecutors of an ex President Fredrick Chiluba and the later, is owner of an influential paper, The Post.
And should Q3 die/be faced out, as competitive marketing system mitigates – I am sure we’ll be treated with many nasty editorials in The Post. But in spite of that threat, my advice to Ruphia Banda’s government is this: in spite of the strong backing being given to Q3 by some stakeholders and interested parties – who are trying to win public sympathy for the airline, please go for a decision, which takes into account the bigger picture and not just narrow interests.
And always remember that any government intervention is not only going to be judged from Q3 customers’ viewpoint. You have other business investors and competitors’ behavior to consider. Some of these might be looking at this situation as an opportunity for new business. It is also quite possible that the new entrants, when the opportunity arises – because of increased efficiency, might come up with better and cheaper services. Shouldn’t that be a goal of everyone?
Also do not forget that Zambia is in Southern Africa, which includes South Africans and Kenyans who might be interested in filling up the vacuum – provided of course if they can acquire permits.
I further submit to all the readers of this column – that, it is not only economists who are aware that capitalism or market system has imperfections some of which can only be corrected by either regulations or an infusion of tax payers’ cash. But what must be avoided is the misuse of this thinking. This is especially dangerous in countries like Zambia, where the ideological divide or difference between political parties, is non-existent, as it is explicitly clear in USA for GOP (Republicans) and the Democrats.
In Zambia because this line is blurred, politicians as well as private citizens do unduly take advantage of this situation. Hence, instead of the allocation of development of resources or opportunities to be efficiently done in the market place – those are dished out through favoritism or on whom-you-know basis. This is an impediment to growth.
In closing, let me warn especially you my country men, that, difficulty times abound – we should not destroy private initiative fabric, after having worked so hard to introduce it. We cannot go back to the old INDECO LTD days. Thus, it is essential that – if our country stands a chance to prosper for the good of all its citizens and secure future for our grand children, we must remain focused on implementing the Mwanawasa economic strategy, which led us back to the six-percent annual economic growth. This is the only way we can get to the Promised Land.
We have dithered too many times before and hesitant to move on – in the process, managing only to enrich a few at the expense of everyone else.
Kaela B Mulenga (Guest Blogger / Canada)
e-mail: zbia@hotmail.com
