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Tuesday, 30 June 2009

Press Release : Submission of 2010 Budget Proposals

Press Release by the Ministry of Finance and National Planning :

Lusaka, 30th June, 2009. The Ministry of Finance and National Planning reiterates the announcement made by his Honour the Vice President that a bill will be presented at the next sitting of Parliament to provide for the presentation of the National Budget in the last three months preceding the commencement of the Government Financial year in January. In this regard, the 2010 National Budget is scheduled for presentation before the end of the year, subject to approval of the proposed amendment by Parliament.

In preparation for this phenomenal reform, the Ministry of Finance and National Planning has commenced work on the 2010 National Budget and the 2010 to 2012 Medium Term Expenditure Framework [MTEF]. Substantial progress has been made to enable us present the budget within this year. In the spirit of continuing with broad-based consultations, the Ministry invites members of the public and all interested stakeholder organizations to submit Tax and Non-Tax revenue proposals for consideration for the 2010 National Budget. The stipulations for proposals towards the 2010 National Budget are as follows :
  1. All proposals must be straight to the point, clear and concise;
  2. Clear justification must be provided in terms of expected achievement of the proposed measures and the specific anomalies which are intended to be addressed;
  3. Suggestions on how the tax-base could be broadened;
  4. Impact of the proposed measures in improvement of tax administration, cost of doing business and revenue collection, if applied; and
  5. Contact details in form of postal address, telephone and email.
Through this consultative platform, the Ministry of Finance and National Planning is keen to ensure that objective and informed policy choices are included in the 2010 National Budget. In this regard, all citizens, state organizations, local businesses, non-state organizations, and both local and foreign investors are encouraged to exhaust consultations among their peers so that the submissions have the full support of stakeholders in the design of Zambia’s development affairs through the budget preparation process. The Deadline is Friday 17th JULY 2009.

Once again I take this opportunity to reiterate our appeal that all submissions must clearly state the nature of the proposal, demonstrate pitfalls of the current tax regime and indicate pros and cons of the offshoot measures. All proposals will be objectively scrutinized and assessed based on their merit and impact on tax payers, the economy, and the significance of the contribution to shaping and focusing of the Zambian tax policy orientation for the period 2010 to 2012. It is imperative that all Zambians, including the media, respond to this call for tax and non-tax policy review input.

Chileshe Kandeta
Public Relations Officer
Ministry of Finance and National Planning
P.O Box 50062



  1. Here is an opportunity for Dambisa Moyo to bring to bear, her prescriptions for Zambia's economic freedom and development.
    Let's have a free credit report on Zambia, find out how much we are approved to borrow from HSBC and other private credit lenders and prove if the source of budgetary funds can provide a different outcome.
    Whether Kapoko and his friends will be scared of stealing that money?


  2. It looks like MMD has run out of ideas and are now soliciting for them.

    FYI: MMD government budgets are for the most part approved at the IMF/WB,E.U. capitals and corporate offices of major foreign mining companies, south african retail store chains,foreign telecommunication companies,and Zambian and non-zambian commercial farmers.

    Any zambian who contributes anything to MMD is basically giving them ideas for talking points they need during elections and in newspapers. Decisions about budgets are decided in the above mentioned places

    If Dr.Moyo wants to contribute anything to budgets in zambia she should probably start lobbying the people who approve zambian budgets not sending proposals to GRZ

  3. This is a process that has been going on forever. It is normal for the MoFNP to request submissions from the public. If your submission can be incorporated, they include it. MAZ, PSDA, EAZ, ZCSMBA, ZICA, ZACCI, ZNFU, ZCTU, UNZASU, etc.. have all been making submissions for years and many have been incorporated because they fit into the bigger picture. Maybe this is the time for Cho to sway away from partisan polarization and prove his knowledge and worth, by submitting something positive (for once) which government can consider.

  4. Cho, as you can see. We all have faith in you and we know that you love Zambia enough not to turn down the offer made to you by our MoFNP. Show them you can do it.

  5. If they don’t incorporate your submissions, they usually write back to tell you why they didn't. This way it becomes a learning curve for you so that you understand under what conditions and constraints our government has had to develop its budget. It can turn out to be an eye opener for you and help you to delve even deeper in Zambian economic thought!

  6. Listen, we do applaud Kandeta and even the Hon Minister of Finance himself for interacting with us. But when it comes to soliciting for professional advice is another matter. Neither Cho nor any other professional in Diaspora should give free advice to the government. If they are seriously interested in that they can hire it.

    One reason for this argument is that - once you dish out free advice, they will not take it seriously. As a matter of fact those ideas would be dissected at a meeting attended by non-professionals and politicians who would I suspect simply pee on the ideas. Don't do it Cho unless they hire you. That is the only way you can know that they are serious. OK! Professional advice is not cheap. Zambian government must know that.

  7. Is that how the UK and the US became what they are today? I thought back in the day these whites asked not what they country can do for them but instead asked what they could do for their country. Is this not the patriotism that built the UK & the USA in to the economic giants they are today? You call yourself Zambian but you are more interested in money before you can think of securing the future of your people. It’s no wonder our people in Diaspora are not taken seriously by our government. Some of us help for FREE just to make Zambia a better place.

  8. In Zambia, we are trying to get our people to reduce on their demands so that the saved funds can be channelled toward development for all our people. You claim to be Zambian but it appears that the Nurses, Teachers, etc... who have called off their strike, have our nation at heart. After all the money that our country spent to educate you, you fail to reciprocate with service. Do you want to be classified as a wasted national investment? Come on brother; give to your country which you claim to love with all your heart!

  9. PF cadre,

    You need to understand the process of zambian decision making about national issues such as the budget in zambia. The office of national planning makes some good plans but they are not ultimately implemented by zambian politicians.If they did zambia would be in better economic shape.

    Decisions about zambia's economic policies are made by what was mentioned in the second posting.That is the situation as it is not as we want it to be whoever wants his resume look impressive can offer his advice.But decisions are made in E.U capitals, IMF/World bank,FDI stakeholder companies,large zambian and non-zambian commercial farmers.

    We need a structural and behavioral change in the policy making machinery at both the political level and to a small extent the finance ministry and national planning folks for any meaningful contributions by zambian citizens to the process of making budgets to be effective

    Otherwise you are all free to give MMD talking points for their re-election campaign in 2011 to zambians and in newspapers.Power to make budgets resides outside zambia
    That is the unfortunate situation.

  10. John Phiri, MSc Economics - Harvard1 July 2009 at 12:36

    Meanwhile, Dr. Francis Chigunta, who willingly gave advice to our government through EAZ, has been appointed Chief Policy Analyst - Political, at state house. He marketed himself and has sold his services to our government so that he can work to develop our country. When are we going to follow suit and start making positive strides instead of bickering over government’s failures on a blog?

  11. John Phiri,

    You are appealing to personal career advancement as an incentive to give MMD party taking points for their 2011 re-election campaign.There is an long list of intellectuals, businessmen, and upcomming politicians who have taken advantage of these incentives to advance their personal interests. Sadly, it has not resulted in any societal advancement.

    We have had different levels of political and economic opportunists who have used their personal advancement to the neglect of zambian interests.

    Otherwise, as mentioned earlier people are free to offer MMD party talking points that will look good on their personal resumes.They need to understand that ideas given will have little priority in the national budget unless Donor,FDI, and a few large commercial farmers in zambia approve.
    This is why I favor zambians to directly lobby donor,FDI, and large corporations in zambia when it comes to making budget proposals because that is where the decision making power lies.

  12. Dr. Simuyi - MoFNP - Budget Office1 July 2009 at 12:59

    The comments made by “anonymous” are incorrect.
    I work for MoFNP – Budget Office and we develop our budget based on submissions from the various ministries and cooperating partners. This does not mean that the cooperating partners dictate their demands and we follow blindly. The cooperating partners have their own agenda and we have ours too. The aim is to find a suitable mix that will increase the growth of our economy. This is where the likes of Mr. Cho come in. As economists, it’s our duty to assure Zambia gets the best deal without giving up the donor support that could cripple our economy (like we’ve seen in Zimbabwe). The submissions made to our office are all considered and debated by senior economists form the key ministries, cabinet and state house. If a submission can bring positive change within our national constraints, we include it. Furthermore, we can write to you to elaborate and even call you to sit in our committees, all paid for by our government. So for those of you who think you can contribute positively to our budget process thus accelerating growth, we offer you a chance every year between June & July to make the effort.
    You will be heard by our listening government.

  13. Anonymous,
    Its got nothing to do with MMD!
    Its about your country!
    Can't you see?

  14. we develop our budget based on submissions from the various ministries and cooperating partners.

    I didnt deny your processes of collecting submissions from GRZ ministries and cooperating partners.What I addressed was your prioritization system which is reflected by what is ultimately implemented in the national budget by the MMD politicians.
    I contend that you do not treat all cooperating partners equally. In otherwords, there are some cooperating partners whose voice and submissions are more important than others and the zambian national budget that is ultimately implemented by the MMD politicians reflects that.I have identified the three most powerful constituents of cooperating partners that have a huge power in influencing zambian budgets:

    a. Donors because they help finance it.
    b. FDI companies because they bring $billions in investments that align with the economic policies of MMD party.
    c. Zambian and non-zambian commercial farmers who grow food and contribute to food availability and constitute a small but important sector for the zambian economy.

    Ofcourse you welcome contributions from NGOs and individual zambians and you do incorporate some of these contributions but the weight is given to those three and most of them are at various with the real zambian interests. The outcome has been lack of economic development for 18 years because weight has been given to the more zambian stakeholders particularly in the manufacturing sector.
    This is why anyone who is genuinely interested in zambia should be talking to donors,FDI companies, and the few large commercial farmers in zambia. It takes less energy and most of them are interested in zambia's welfare but are just misinformed about how to go about it in a mutually beneficial way.

  15. The comments by Anonymous are clearly tainted with Political inclination. The fact is that if someone has been given a platform to make meaningful contributions, he os she aught to take that opportunity. This avenue given by govt is one that should be welcomed and not shunned. It is a convenient opportunity for govt critics to spell out the pitfalls and mistakes made yet an opportunity to offer alternative ideas and solutions. To take anonymous's stance is to pretend that partisan politics is about winning and losing. In this case, if a good solution is suggested by cho, it may give opportunity for the ruling govt to score points at the expense of the opposition. Such an attitude is petty to say the least.

  16. I see a lot of flip flopping here.

    Cho has clearly stated that this blog is "A non-political platform for exchanging ideas on the many issues facing our nation" yet I have not seen any non-political responses. Going by Cho's idea for the Blog, I expect people to make comments that are:-

    1. Non-political - do not focus on political parties or political feelings
    2. of economic ideas - that focus on economic debate and solutions
    3. Of other ideas - that focus on an economic perspective to other problems facing Zambia

    I dont see any of this. Instead what i see here is that Cho posts a comment and people respond insulting government, the MMD or President Banda.

    Even a simple idea like submitting a simple economic idea to the budget office ends up in "MMD are useless" or "MMD wont listen" or "you must charge".

    Yet if this was the USA or the UK, its citizens would have reacted very differently.

    I wonder now whether this Blog will live up to its expectations or become another collection of anti-government comments.

    Cho, I urge you to think out of the box and rise to the challenge offered by our Ministry of Finance and National Planning. This will definitely open your mind to the reason why our budget is developed the way it is and will educate you on the real economic problems facing our country from a more professional level.

    Sitting here and appeasing people who think our country is doomed will not develop your abilities and capacity to deliver.

  17. Dr. Simuyi,

    Thank you for your informative explanation of the process at work in the MoFNP offices. Certainly this year's budget process is likely to be more difficult than most, with such large swings occurring in the global markets over relatively short periods of time, and the world still very much in the midst of the downswing. Combined with the task of realigning the budget-year with the calendar year, the Ministry definitely has its work cut out for it.

    Indeed, let us try to get back to the question actually being asked by the Ministry in its Press Release. Can any of us think of any good ways for the government to raise more revenue? How much revenue, and with what side effects elsewhere in the economy?

    Now that the press has been released, I have been exposed to these communicable questions, and now am showing symptoms of contemplation which in rare cases may even lead to transmission of mutated or hybrid ideas to others. It's all quite messy, this democracy stuff. Even if I cannot think of anything particularly clever or precise on the subject, because I have been polled on the question, I now care more about the outcome.

    Obviously it will be best for the country if the Ministry gets some solid ideas on board and can muster the political backing to get meaningful changes implemented in a timely manner. Here are some ideas which have come up in other contexts which might spark some embers in the revenue area:

    Formalization of the Kachasu sector, with subsequent improvement in consumer safety and tax collections, both VAT from consumers and PAYE from employees of producers/distributors. Export potential is undeveloped, but possibly lucrative, and ought to be explored cautiously as the industry and standards develop. Government would have to increase revenues over and above the cost of administering product registration and testing, but this is typically not too difficult in the case of "sin taxes".

    Stimulate private sector SME and farm loans by leveraging the governments access to capital at concessionary rates to establish an Indian-style National Bank for Agricultural and Rural Development, which can in turn provide re-lending support to domestic banks engaged in qualified enterprise lending. Such a programme would require investment of government credit, and as such would have to be structured with sufficient safeguards as to reliably recover taxpayer assets from performing loans sufficient to cover losses from non-performing loans. The increase in the pool of capital available to entrepreneurs should contribute to job creation and infrastructure expenditures which in turn would generate increased tax revenues without rate increases.

    Create incentives for FDI corporations to source their capital either from shareholders or from domestic banks whose earnings are subject to Zambian revenue authorities. The highly leveraged nature of FDI assets through loans provided by banks outside Zambian jurisdiction, and the subsequent pre-tax payment of substantial amounts of interest to service these debts, is effectively denying the taxpayer its due share of revenues from the otherwise profitable activities of these companies. If these investments were funded by loans from Zambian banks, then the interest that they earn would be taxable. Alternately, if the capital is raised through sales of stock, then the investors are paid dividends (and/or accumulate share value) after the declaration of profits and appropriate taxes are paid by the corporation. Certain incentives may impose some costs on Government, others are potentially cost-neutral, the combined package cost presumably to be more than offset revenue derived by the increased access to corporate earnings as declared profits.

  18. Dr. Simuyi - MoFNP - Budget Office1 July 2009 at 20:01


    Kachasu is an dangerous substance which is capable of causing death to those who consume it. The Drug Enforcement Commission is responsible for assuring that this substance does not become a tradable commodity. Changing this would be as detrimental as legalizing Marijuana. We have laws in place to regulate the distilleries so that they produce substances which are less likely to cause permanent damage to consumers. I am glad to announce that there are over 10 legal distillers of spirits in Zambia. This market is open for investment and has very attractive tax incentives in order to stimulate export.

    As you might not be aware, our country once established the Lima Bank whose primary role was to stimulate our SME & Farming Sectors through concessionary loans. This programme failed because the funds were mismanaged due to political influence and the bank made huge losses whilst productivity was not stimulated enough to assure the investments were recouped. In our endeavour to liberalize our economy, we are looking at ways of how to establish an SME support system run purely through commercial banks. Currently, ZANACO are running a pilot project to support small scale farmers and their approach is purely commercial. This programme has been more successful than our Lima Bank project and our intention is to support ZANACO and other commercial banks in expanding their capital base for the product and providing lower interest rates to make the product attractive. Any suggestions in line with our liberalization programme aimed at supporting our commercial banks to support SME’s are very welcome.

    Unfortunately our commercial banks do not have capacity to cover the current FDI requirements for high end investments. Our local commercial banks, who are involved in supporting this sector, act as intermediaries and trade products sold by multinational offshore banks. These offshore funds have lower interest rates and are attractive because they are not affected by the various financing taxes that make borrowing expensive. We could pass legislation to force FDI to borrow from our local banks but this would have catastrophic consequences as funding would be limited and local interest rates will shoot up as satisfying demand fails. Our current model is based on taxing the profit generated through FDI rather than taxing the investment. This model has proved not to cause upheavals in our financial market and encourages investor tax settlement.

  19. Dr. Simuyi,

    Thank you for your detailed and extremely prompt reply! Your explanations are quite helpful. I certainly in no way intended to imply that Kachasu distribution in dangerous form should be considered. I appreciate the opportunity to clarify that! Any formalization of the industry would necessarily rely upon development of appropriate forms of dilution and/or purification so as to prove a consistent product equivalent to other regulated spirits on the market. I mention it because it is a distinctively Zambian product and therefore may offer greater niche marketing potential for export. I very much agree that increased investment in more traditional distilleries would have a comparable positive effect on revenue, and it is encouraging to hear about progress in that sector.

    I am likewise very pleased to hear about the programme underway to increase the supply of capital available in the commercial banking sector for SME development. I think that this will have a positive effect in parallel to more direct government programmes like the CEEC. It sounds as though the Lima Bank failure has not come without valuable lessons leading to a confident new project. I will certainly try to think about what might enhance it further.

    I understand that the relative under-capitalization of the commercial banking sector is not limited to SME or farm loans, and that the full credit requirements of all current FDI in the nation would far outstrip the available resource. I realize that elsewhere on the blog I have used widely divergent figures in order to draw attention to contrasts, however you are quite correct to point out that Zambia is in no way prepared to comply with a mandatory domestic loan policy even if it were desirable to pass one. I had in mind something far less ambitious, with a few positive incentives in other areas of enterprise taxation which might encourage an increase in certain sources of financing, which might then in turn add volume to that existing revenue stream.

    On the alternative increase in overall shareholder capital (i.e. reduced leverage, something which many companies are undertaking of their own accord already), I think that I may not have explained myself properly, as I did not intend to advocate for direct taxation of invested capital. Rather, I was simply pointing out that since the payment of interest on a bank loan is a corporate expense typically accounted for before taxes are levied, whereas profit dividends paid to shareholders are generally issued from the amount remaining after taxes are levied, thus any increase in the average ratio of capital raised from sales of stock against the capital borrowed by corporations would logically tend to increase the return to the treasury from the same amount of economic activity. This predicted increase could then be favourably balanced against an incentive package to encourage this sort of behaviour from investors.

    I understand that I am not in possession of all the information which is relevant to determining policy in these areas, so I take absolutely no offense if I am sadly mistaken in any or all of my assumptions. I am simply very pleased to have the opportunity to consider issues of import to real people, and to benefit myself from the instruction of the community. Thank you for taking the time and effort to seek and respond to our input.

  20. Even a simple idea like submitting a simple economic idea to the budget office ends up in "MMD are useless" or "MMD wont listen" or "you must charge".Yet if this was the USA or the UK, its citizens would have reacted very differently
    I do not know why you are implying partisan politics. I have merely stated that there are three major stakeholders that decide zambian national budgets are (you are free to counter them):
    a. Donors who fund a good chunk of the budget.
    b. FDI companies who invest $billions to support GRZ’s current policies on economic liberalization.
    c. A small commercial farming elite who are vital to zambia’s food security and export sector.

    It should not be considered an insult on MMD to imply that zambian budgets have undue influence of those three actors and I am arguing that they are the majority influencers and deciders of our budgets. Further, the first two are not zambian stakeholders and it contributes to poor implementation outcomes because they do not understand the real local zambian economic situation and interests. These are the facts and this is why our economy continues to fail to develop fully.

    The question of economic development of Zambia will continue to elude even our brilliant professionals in the ministry of finance and planning because the fundamental structural and functional policy models on which they are working distorts the structure of incentives necessary to induce a productive zambian private sector. MMD party just happens to be the political leadership which makes final decisions on these economic models that drive policies and decisions on national budgets. They also decide their prioritization system for stakeholder input and this is why they were mentioned.
    As economists, it’s our duty to assure Zambia gets the best deal without giving up the donor support that could cripple our economy (like we’ve seen in Zimbabwe).
    The Zimbabwean economic collapse offers lessons but we need to get the correct lessons from their economic collapse. Their economy collapsed because of atleast two of the following fundamental problems:
    a. They alienated their most productive citizens. The lesson is our economic planning needs to plan for developing and creating an environment for productive citizens. And we should make sure we do it broadly enough so that if any productive citizens decide to leave Zambia our economy does not collapse.
    b. They offended potential trading partners in western nations by their politics. The lesson is we need to learn to build global trading partnerships with western nations, African nations, Asian nations, Middle-eastern nations, and South American nations.
    Zambian economists and economic planners need to get ‘donor aid’ out of their vocabulary and conceptual frames replace it with ‘zambian entrepreneurs and industrialists and FDI venture captalists’. If we cannot get ‘donor aid’ out of our vocabulary and conceptual frames we need to set a time limit of when we need to stop thinking in those terms.

  21. And the GRZ can go even beyond revenue collection from interest of loans to FDI.

    Just as FDI can leverage their business through loans, so can the Zambian government. Why should the government not own a few mines itself, and run them in a way that ensures profibility? If the government ran a goldmine or diamond mine, the proceeds could directly benefit state revenues. In 2004, Zambia exported $4 billion in raw materials - why can't the government get a piece of that action?

    To ensure profitability, they should close the mine as soon as commodities prices are below cost, and redeploy miners as farmers in agriculture. Working in dual industries is an old practice, for instance in Scandinavia, where people used to farm in summer, and fish in fall and spring. Why not have people mine when prices are high, and become farmers when they are not? This would solve the issue of keeping unprofitable mines running to save jobs.


    A lot of money is lost through corruption - the other side of the revenue collection equation. Employ more people to oversee finances of government ministries and projects. This would save hundreds of millions - an extremely significant saving in renenues.

    The Mines

    The mines should be contributing much more to tax revenues than they are today, especially foreign owned mines. If I had my way, the government should scrap all taxes on the mines, except the royalty tax, and raise that from 3% to 20%, and collect it by confiscating every 5th load of ore leaving the mines.

    That would sidestep any games being played with actual income, costs, amortisation of loans, etc. that we all know multinational corporations engage in to cheat the Zambian state and increase the burdon on the Zambian taxpayer.

    The Size Of Government

    Why does Zambia have 29 or so ministries? (the provincial ministries are not listed on this page). How many ministries does a country of 12 million people need? The Zambian government could save a lot of taxpayer money through consolidation of ministries.

    For instance, why is education smeared out across the Ministry of Eduction, Ministry of Science, Technology and Vocational Training, Ministry of Sport, Youth and Child Development and the Ministry of Community Development and Social Services? (Source: Education In Zambia) Couldn't all their eduational services be put into a single (larger) ministry?

    In fact, the government should move away from administration and towards service delivery, by making budgets available directly to lower levels of government (municipal councils preferrably, but even district councils), and obligate them to provide healthcare, education, policing, administration and public utilities. Rural councils could also provide agricultural services and advice to (commercial) farmers on marketing, practices, services, etc.

    All of this would help stimulate economic activity, which would increase taxable revenues.

  22. Very true! A case in question is that of SAB Miller and Zambia Breweries in the late 1990‘s. In the contract of sale, SAB committed itself to setting up a drink canning plant for Coca Cola drinks and beers. When they took over ZB, they imported the new plant that was going to generate 2000 jobs through production and distribution of its canned products. Unfortunately, government decided to capitalize on the investment and refused to offer duty & tax free incentives on the importation of this new equipment. SAB Miller made a normal business decision and set up the plant in Swaziland where tax & duty incentives are offered in exchange for mass employment. Today, our very own Mosi is canned in Swaziland and exported to Zambia!

    Our government forgot that the investment market is wider than our borders. There are many countries who will bend over backwards to attract investment that will employ 2000 people, thus taking them one step closer toward alleviating poverty!

  23. Dr. Simuyi,

    Kachasu is an dangerous substance which is capable of causing death to those who consume it. The Drug Enforcement Commission is responsible for assuring that this substance does not become a tradable commodity. Changing this would be as detrimental as legalizing Marijuana.

    Personally, I think alcohol is a much more dangerous substance than marijuana could ever be. Marijuana has no known LD50, contrasting sharply with alcohol, or even aspirin.

    However, how about the potential for hemp to become a fiber crop, with an endless list of applications? It could be grown for land reclamation, needs less water and virtually no fertilizer and pesticides, and can be turned into numbers manufactured goods. Clothes, apparel, paper, biodegradable containers to replace styrofoam, car bodies can be made from hemp creating a chassis that is lighter and stronger than steel (see this example from a car body made from hemp by Henry Ford in 1941), the seeds are a highly nutritious source of vegetable proteins, etc. The uses of hemp are limitless, and it can be grown in very dry regions. Hemp is infinitely more enviromentally friendy than cotton, which uses much of the world's agricultural chemicals (both expensive to import and bad for the environment).

    Please check out this documentary: Hemp - The Environmentally Sustainable Alternative (part 1), part 3 Hemp Farming.

    Another crop that is interesting, is sorghum. It is highly drought resistant, tolerant of a wide range of soils, and sequesters huge amounts of carbon by growing a root system that is many times the size of the foliage. It can be use as food, as cattle and poultry feed, and in combination with irrigation and growing legumes, can make now dry soil suitable for growing maize, increasing the country's amount of arable land.

    Anonymous (01 July 2009 20:48),

    The Zimbabwean economic collapse offers lessons but we need to get the correct lessons from their economic collapse.

    To draw the right lessons, we need to know what the facts are, and those are very hard to come by because of the massive propaganda campaign against Zimbabwe.

    The essence is that the Zimbabwean government was put on a credit freeze by the Bush Administration. This is why high inflation lead to hyperinflation a year after the introduction of the Zimbabwe Democracy and Economic Recovery Act of 2001 in early 2002. The credit freeze is spelled out in that act very clearly. From ZDERA, section 4C:

    (c) MULTILATERAL FINANCING RESTRICTION- ... the Secretary of the Treasury shall instruct the United States executive director to each international financial institution to oppose and vote against--

    (1) any extension by the respective institution of any loan, credit, or guarantee to the Government of Zimbabwe; or
    (2) any cancellation or reduction of indebtedness owed by the Government of Zimbabwe to the United States or any international financial institution.

    In other words, the government's access to international credit was frozen (1), while their obligation to keep paying existing loans remained in place(2). That was a credit freeze, and had the same effect on the Zimbabwean economy as the current credit freeze has on the US economy. It had the purpuse and effect to drain foreign currency from the Zimbabwean economy. It is a clear abuse of the US's veto power in international financial institutions for political gain. These sanctions are illegal, but what's new for the Bush Administration, right?

  24. John Phiri, MSc Economics - Harvard - MFNP2 July 2009 at 09:34

    Government can not own mines because it does not have capacity to capitalize them. One of the major reasons ZCCM went under was because government failed to recapitalize the company. Government is supposed to govern and not to run private business. The idea of government running private business is a communist one common in very controlled countries like China. In Zambia, we need to stimulate the private sector to get involved in mining business. If Zambians do not have the resources to invest in these high cost ventures, then they must seek foreign partners with funds to pour into these projects. If this is not possible, then Zambians must build capacity locally over time.
    The idea of moving people from one trade to another is a communist doctrine. Zambia is a democracy with freedom of choice. People are free to choose their trade and government can not force people to do what it thinks is right. All government can do is make the desired trade attractive by giving various incentives.
    In Zambia corruption is systemic and cultural. People accused of stealing money from government ministries are considered heroes by many. Urban people generally feel that theft of government resources is heroic. The only sustainable solution to curbing corruption is to convince people that it is not worth it. They only way to achieve this goal is to prosecute all cases of corruption and make them clear examples of why it should be shunned. Our government has stepped up the fight against corruption and as our president has stated, there are no sacred cows. The ACC have been given a go ahead to function autonomously and now government officials know that when ACC comes calling, there will be no plea bargains.
    Zambia is not the only country with Copper but it is the largest producer of the commodity in Africa. The Congo has greater reserves but a lack of investor confidence has not exploited the commodity. Mining taxes were increased to bring them in line with other copper producers. Increasing taxes even further will not yield the desired result as we will be warding away investors in this sector. We could find ourselves in the same predicament as war torn countries were investor confidence is very very low. It is imperative that we tread carefully and do away with draconian thinking or we could find ourselves rejected by the people that elected us in to government, like Mugabe.
    The number of ministers or ministries does not have a catastrophic impact on government expenditure. Reducing ministries or ministers by half will only result in a saving of less than 0.05% of the total budget. The existing civil servants from closed ministries will need to be allocated to the remaining ministries because their services are required for government to function efficiently and effectively. Think of it like a school and what the impact of getting rid of a deputy headmaster will have on expenditure where 100 teachers are employed. The deputy head costs the school a fraction of the cost of the teachers and the school would be crippled if the number of teachers was cut in half! Ministers are appointed to make government more efficient by allowing them to represent and focus on specific areas of our economy. The ministries develop expertise in these specific areas and cabinet decides on well established development programmes prepared by experts in the ministry responsible for a specific area. 50% of our national budget goes purely to settling civil servants dues where as the total cost of maintaining all the ministers is a very very small fraction of this cost!

  25. John Phiri, MSc Economics - Harvard - MFNP2 July 2009 at 09:36

    Like stated earlier, ministries develop expertise in different parts of the economy. Ministry of Education deals with primary, secondary and university education and institutions. Whereas technical colleges are managed by the Ministry of Science, Technology and Vocational Training. In the past, all these institutions fell under the Ministry of Education but vocational training was lagging behind because of its specific requirements which are not common in the other type of institutions. MSTVT was created out of a division of the MoE so that the ministry could focus on developing vocational institutions. Today, our vocational institutions have been revived and many bricklayers, steel workers, wood workers, IT technicians, etc… have graduated from these instiutions and are working in the mines and other private sector companies. MSTVT is increasing our skilled labour force which almost stopped growing before.
    The MoSYCD and MCDSS are not major players in the educational sector. They focus mainly on special child and adult education. These are special cases like the Chibulu’s we had in primary school or night school for illiterate adults. This is a very specific issue which requires specific attention which MSTVT & MoE will not give because these areas are too small and will be overshadowed by mainstream responsibilities.
    Our government is working toward service delivery and detracting from administrative management. We are looking at how PPP’s can help our government deliver efficiently and effectively in line with the demand of the majority of our population. Currently, our government is providing agricultural extension services to rural communities through specialization. The MAFF provides professional assistance to farmers throughout the country which is something our councils would fail to provide efficiently and effectively.
    Hmmm increasing taxable revenue! This is a tough term because it clearly translates into increasing the cost of doing business which is something government wants to reduce!
    With regard to reducing donor aid, our president has directed that Zambia eventually does away with AID. We have been reducing our dependence on aid through a gradual "live within your means" process.

  26. There you go! So why dont you put pen to paper and make a formal submission to the MoFNP? Our government is asking for your expert views and advice which will help improve the life of Zambians. Lets put our education to work for the betterment of our country, our relatives and our future. Cho, make a submission for the love you have of your country!

  27. Cho, you have enough info here to generate a positive submission toour budget process. I second the motion and urge you to take advantage of it. Post the governments reply on the blog so that we can discuss it further. This will take your blog to a level you never envisaged.

  28. Mr K,

    So do you see now why our government has to agree with ALL stakeholders when it comes to budget preparation? If a country like Zimbabwe can collapse in one move, how dop you think a country like Zambia will survive radical economic action? Zimbabwe has Gold & Diamonds, Zambia has Copper only!

    I think the responsible approach is to work with stakeholders and agree on terms and conditions which benefit our people by accelerating growth.

    Our government is willing to hear our contributions and is keen on incorporating them into the budget, or they’d not have advertised the idea.

    Zambians in Diaspora need to take advantage and become part of the process instead of remaining critics of what their brothers and sisters are doing to take our country forward.

    This is why I applaud Dambisa for her poorly written book which has ultimately strengthened government’s position on retracting from AID dependence.
    Cho, make the effort and establish yourself like Dambisa has done on AID.

  29. FMD,

    So do you see now why our government has to agree with ALL stakeholders when it comes to budget preparation?

    I do not agree at all. The actions taken by the Bush Administration were clearly criminal, and constituted unilateral sanctions, whic by passed the United Nations.

    It is not legal for the United States to use it's position on various financial institutions to put a credit freeze on a country it disagrees with.

    The Obama Administration is highly unlikely to repeat this illegal behaviour.

    Secondly, it is also clear that SADC came to the rescue, and did so very effectively. Similar actions have to be taken through SADC and with collaboration of the Chinese if the West is obstructionist.

    To return to the original question - how can the GRZ raise it's revenues. Well if the mines must be in foreign hands as you insist, then they must be heavily and effectively taxed.

    I say - drop all mining taxes, except for the royaly tax, which is a tax on turnover, and raise it from 3% to 20%. If necessary, confiscate every fifth load of ore that leaves the mines. That will be much more easy to do that estimate how much profit they made, whether they are underdeclaring profits, etc.

    There is no excuse for not taxing the mines very heavily, and expecting the Zambian taxpayer to make up for the shortfall.

  30. John Phiri, MSc,

    Hmmm increasing taxable revenue! This is a tough term because it clearly translates into increasing the cost of doing business which is something government wants to reduce!

    The question is - who is going to pay taxes? The workers, or the corporations? Under the MMD's pro-corporate policies, there has been a clear shift in taxation, from corporate tax, and toward PAYE or income tax. The result is that the mines are heavily undertaxed. Back in 2004, they exported $4,000 million in copper and cobalt, but paid $6 million in taxes. This is why the Windfall Tax was introduced. However, the first thing this new finance minister did, was get rid of the Windfall Tax and even called it 'onerous' on the mines. Obviously, the mines have much better representation in parliament than the electorate does.

    There is nothing wrong with recognizing that the mining sector is a special sector in this stage of Zambia's economic development, and treating it as such. The mines must capitalize the other economic sectors, so the country's economy can diversify.

    Then - from 1964 to 1999, the Zambian government owned the mines. Obvously, government ownership wasn't that bad. The country didn't collapse, and the sky did not come falling down. There was universal education and healthcare. Let's not forget that even the MMD government held on to the mines. Bad management of parastatals does not mean that state ownership of the mines is impossible. The mines in China and South Korea are still state owned, and no one is saying that they are economic slackers.

    What Zambia needs more than anything, is legislation that separates the political class from the state - parastatals and the civil service. Parastastals need legislation that protects them from political appointments to management position, non-payment by government agencies and officials. The civil service needs to become professional, and make appointments and promotion from within it's own ranks, based on merit, not appointment by the President.

    That can be done through legislation - and I think the Constitution should have something to say about it, because this is way beyond the everyday decision making of parliament or the President. Right now, the Constitution is completely silent on the Civil Service or parastatals, other than that it must be dealt with through an "Act of Parliament".

    This is the basic government infrastructure of the country. It should be dealt with in the constitution, and the civil service should be independent of the executive and legislative branches of government.

    The President and parliament are dealt with at some length, but not the civil service and parastatals.

    With regard to reducing donor aid, our president has directed that Zambia eventually does away with AID. We have been reducing our dependence on aid through a gradual "live within your means" process.

  31. I don't think that moving to PPP's is anywhere near enough. And, PPPs are just more opportunities for corruption. It is very easy to sell out the country, not so easy to actually develop it. And we have already seen that you can have economic growth without development, when your economy is in foreign hands, which is what in essence this 'Public-Private Partnership' is.

    To come back to revenue collection - Zambia has enough revenues already, but it's politicians just refuse to collect it - that is the problem. This is why there was a shift in the tax burdon from the mines to the Zambian worker.

    The mine company's protection in parliament by politicians is the problem.

    The same with the waste of existing revenues in the ministries of Health and Works and Supply.

    If the government wants to increase it's revenue, give those ministries a good audit, and money will become available.

    And this mantra of 'the government is the problem' is old hat. No one around the world believes that anymore. Not in the US, not the UK, not the EU, and certainly such heavily state lead economies like Japan, China, Korea, Taiwan, etc.

    Quoting from:

    PSD bemoans lack of legal monitoring body for PPP projects

    PSD coordinator for the PPP Working Group Muondela Mukele also said the biggest challenge being faced in the synchronisation of public-private efforts in infrastructure development was the balance between commercial interests of private investors and government’s need to provide social services.

    Addressing journalists during a breakfast meeting in Lusaka yesterday, Mukele said lack of a legal framework has resulted in project implementation being tilted towards the private sector at the expense of public interest.

    So again, regulation is needed more than deregulation.

    The problem seems to me, that politicians put their private interests before the nation's interest, and 'protect' businesses, rather than use them to develop the country.

    I prefer government inefficiency over efficient exploitation any time. Which is why I say that we need to overhaul the parastatals, professionalize them, and enable them to make money or at least break even.

  32. Government can not own mines because it does not have capacity to capitalize them.

    Government owned the mines for 35 years, from 1964 to 1999, when the IMF forced the government of President Chiluba to privatise them. Of course back then copper was consistently below $1000 per tonne - today it is consistently over $3000 per tonne.

    And even then, the new foreign owners walk away from them in a heartbeat, when prices are too low for them. The government can easily have an arrangement to stop operations and re-employ miners in agriculture.

    The mining sector is the most inefficient in creating jobs of any industry - but they are excellent for capitalizing other economic sectors like agriculture, manufacturing and infrastructure. It generates over $4 billion in turnover per year, and an estimated $2.4 billion in profits.

    And that is how it should be used.

    So the government should:

    1) Own the mines outright - nationalisation

    2) Heavily tax foreign owned mines so they might as well be Zambian owned or

    3) Use money from mining taxes to fininance it's own mines.

    Looking for alternative sources of revenue, just so the mines won't be touched or taxes is trying to avoid the obvious, in my opinion.

  33. Lutombi Kawana25 July 2009 at 12:11

    My Budgets Submission 2010.
    Govt's shift to anti-fraud is right and will be more effective in tackling corruption. Anti-fraud measures should formulated and embedded in pre-audit measures to ensure that procurement is accountable and transparent.

    Secondly, we should re-think CDF to create recurrent dividends through provincial capital investment. Provinces can borrow against consolidated annual CDF and invest in Provincial Projects. Provincial comeptition, transparency and reinvestment would deliver long term benefits to local populations.

    Lutombi Kawana

  34. Lutombi Kawana,

    Please check out my Manifesto For Economic Empowerment

    I say we should directly hand 50% of national revenues to local government, and make them responsible for: education, healthcare, politicng, utilities and administration (licences, registration, etc.)

    That would do away with - MPs as redistributors of funds, Constituency Development Funds, etc.

    50% of national revenues (in 2004, specifically excluding 'donor aid'), was $550 million.


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