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Sunday, 8 March 2009

Government policy on MFEZs, 2nd Edition

A recent Ministerial Statement on the much talked about policy of MFEZs. Lack of time prevents me from unpicking the holes, but there surely many!

2 comments:

  1. Good to see that he mentions the Triangle of Hope concept which I had mentioned earlier:

    http://zambian-economist.blogspot.com/2008/09/is-export-led-growth-pass.html

    http://www.grips.ac.jp/forum-e/DCDA/Chapter08.pdf

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  2. Cho,

    I took a bit of time with the Ministerial Statement, and while the intention by the Ministry to implement the Act in full and as written into law is surely good, I am still left with some questions as to the particulars. Let me first apologize if any of the seeming misstatements in the report are not in fact accurately attributed to Minister Mutati, but are in fact clerical errors on the part of those who prepared the written statement in question. Misspelling the name of the Ministry in the title does not inspire me with confidence as to their attention to detail.

    The Statement claims that, "by the year 2011, this MFEZ [Chambishi] is poised to accommodate fifty to sixty zone enterprises with an output volume exceeding US$ 1.5 billion of which more than US$600 million will be exported while employing more than 6,000 locals." (page 3) According to these predictions, I presume that the Minister expects the average employee to generate a minimum of US$250,000 worth of output, of which at least US$100,000 will be exported. What will their average wage likely be, since that is the only portion of the output which will presumably be domestically taxable?

    I am left confused by the back-to-back, seemingly contradictory statements on page 4, where the Minister first described the Sub Sahara Gemstone Exchange Industrial Park as "the first Industrial Park to be wholly owned and developed by Zambians," and then immediately sought to, "clarify that all investors be it local or foreign have equal opportunities to invest in any of the aforementioned MFEZs and/or Industrial Park as the principal Act, the ZDA Act No. 11 of 2006 does not discriminate between foreign and local investors." So which is it really, Mr Minister?

    Page 5 contains perhaps the murkiest of all the statements made by the Minister, "there is no difference in terms of incentives for the zone enterprises and those outside the zones provided that they meet the eligibility criteria and are operating in a priority sector or producing priority products. The ZDA Act No. 11 of 2006 provides the same incentives to both companies operating in MFEZs and/or in a priority sector." I suppose that this is meant to calm us all down and reassure us that the Act is really intended to encourage producing priority products. Yet if that is the case, then why create the MFEZs at all, if not to also include companies which don't produce priority products? Will small manufacturing businesses, outside of MFEZs, new or existing, be able to avail themselves of the benefits under the Act, since the "simple requirement" for MFEZ eligibility is a minimum investment of US$500,000? Has the list of priority products and/or sectors been compiled yet, and how often would it be revised and on what basis?

    Finally, while the pictures and maps are a nice addition, and description of expenditure items in this year's budget informative, I was rather hoping for some sort of projection as to how all this development would affect the government balance sheet over the short and long term. A large increase in GDP without a correspondingly proportional increase in the government assets and/or tax base could lead to an improvement in the nation's credit rating without a corresponding improvement in the government's ability to pay. As we all have seen, that can be a very dangerous combination, for individual homeowners, for debt-financed commodity extraction companies, and for national or private banks.

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