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Friday, 30 January 2009

Zambia Budget 2009

2009 Budget Speech



Update:
As for the early media coverage, its the windfall tax abolition that is making early noise :

....Musokotwane said the government reduced the windfall tax after consultations with foreign mining firms, which have complained of higher taxes, high electricity tariffs and fuel prices and falling global metals prices...

"In light of the impact of the global crisis on the mining sector, I propose the following refinements, to remove the windfall tax and retain the (15 percent) variable tax, which will still capture any windfall gains that may arise in the sector," Musokotwane said.

Musokotwane said the government would cut duty for heavy fuel oils from 30 percent to 15 percent and to remove customs duty on copper powder, copper flakes and copper blisters.

"These measures will reduce the operating costs of mining companies as well as encourage the utilization of local smelting capacity," Musokotwane said.

The move is seen as part of efforts to save jobs. Zambia's Luanshya Copper Mines (LCM) laid off all of its 1,740 miners after halting operations in November after copper prices fell. Prices have plunged 65 percent since record highs last July.....

....Zambia introduced the windfall tax last April during the commodity boom. It also introduced the 15 percent profit variable tax on income above eight percent. In moves backed by the International Monetary Fund, the country also raised mineral royalty to 3.0 percent from 0.6 percent and corporate tax to 30 percent from 25 percent.



And here goes the main tax changes :
2009 Budget Highlights

Quick Links

Zambia's Vulnerable Children Must Fend For Themselves : IPS on Zambia's children. Apparently there will be as many as one and a half million orphaned children in Zambia by 2010. A figure the government disputes, who reckon the number is about 85,000 currently.

UN urges African economies to diversify : The UN is calling on African countries to boost food production and diversify its economies into manufacturing and services to cut the impact of future shocks like the current financial crisis.

The Feeding of the Nine Billion: Global Food Security for the 21st Century : A new Chatham House report warns that recent falls in food prices are no more than a temporary reprieve and are set to resume their upward trend once the world emerges from the current economic downturn.

Global Slowdown Damages Progress in Low-Income Countries : Low-income countries, already weakened by high food and energy prices, are likely to be hit hard by effects of the financial crisis in advanced economies and the global recession, according to an IMF panel.

Thursday, 29 January 2009

Kuti waseka....

“Let us bear in mind that in Africa there is witchcraft and the vice-president might bewitch the Republican president in order to take over the presidency...”

Yes ladies and gentlemen, that is Presidential Affairs Minister Gabriel Namulambe putting his case across on why we should not have running mates. I fear the NCC has now descended into a farce. The quality of the contributions have been declining at an exponential rate, especially from those holding government positions. Well atleast they keep us entertained!

Competition in mismanagement (public theft?)...

The Immigration Department :

The Auditor General's report has revealed that Over K2.4 billion collected from five immigration stations in 2007 has gone missing. It said K1.8 billion collected from Ndola station has not been accounted for. Other monies collected from Immigrations Headquarters, Kasumbalesa, Chingola and Lusaka International Airport offices have also not been accounted for. It further indicates that 57 visa books, nine general receipt books and two visiting permit books have disappeared and could not be availed for audits for the year 2007. The missing documents are for Lusaka immigrations headquarters, Lusaka International Airport, Kasumbalesa and Victoria Falls offices. The report has also highlighted serious irregularities in the management of money collected at various diplomatic missions abroad.

The Foreign Affairs Ministry :

The Ministry of Foreign Affairs has not accounted for K9.6 billion used during the Southern African Development Community (SADC) heads of state summit in Lusaka in 2007. And the 2007 Auditor General's report has revealed that the Zambian mission in Brussels spent over K1 billion on school fees, but the payments were not supported by invoices and receipts.

According to the report of the Auditor General on accounts for the financial year ended December 31, 2007, the Ministry of Foreign Affairs had disbursed about K12 billion to various ministries for use during the SADC summit but only K2.3 billion was accounted for as at October, 2008. "Unaccounted for Funds - SADC Summit: During the period from June to November 2007, the ministry disbursed K12,004,448,000 to various ministries that were to render support service during the hosting of the Southern African Development Community (SADC) meeting in Lusaka," the report revealed. "It was however, observed that out of a total amount of K12,004,448,000 disbursed to various ministries, only an amount of K2,386,877,169 could be verified, leaving a balance of K9,617,570,831 unaccounted for as of October 2008."

The report revealed that contrary to public stores regulation number 16, there were no receipt and disposal details in respect of goods costing about K2.2 billion involving 120 transactions purchased during the period under review. It further revealed that contrary to financial regulation number 96 (1), imprests in amounts totaling about K45.7 million involving 13 transactions issued to various officers between January and December 2007 had not been retired as of October 2008.

Ministerial Statement : Fertiliser Support Programme

Ministerial Statement made to Parliament on 28th January, 2009 by the Minister of Agriculture and Co-operatives on the Procurement of Inputs under the Fertiliser Support Programme for 2008/2009 Farming Season. The Minister was doing well until he said "even after taking all the deficiencies in account, the Fertiliser Support Programme has been done successfully". Successfully? Okay, lets wait for the harvest.

Ministerial Statement : CIA Ghost Prisons

Ministerial Statement made to Parliament on 29th January, 2009 by the Minister of Defence on the Network of CIA Ghost Prisons. This issue has been heavily trailed in the media following the Guardian story.

Full international gateway liberalisation?

Apparently :

Zambia to deregulate international telecom gateway, Computerworld Zambia (28 Jan, 2009 )

The Zambian government has finally bowed to pressure to deregulate the country's international telecommunications gateway in order to promote competition and foreign investment in the sector and lower the high cost of communications.

Zambia's international telephone calls are among the highest in the Southern Africa Development Community (SADC) region.

The World Bank and private mobile service providers including Zain and MTN have been pushing the Zambian government to liberalize international gateways in order to reduce the high cost of communication and the cost of doing business in the telecom sector.

Minister of Communications and Transport Dora Siliya said his ministry has been carrying out comprehensive consultations and addressing all concerns from service providers before fully liberalizing the international gateway.

After the consultations, Siliya said, "We should be able to undertake the full liberalization of the international gateway. I'm therefore taking a bill to parliament that seeks to liberalize the gateway to help improve telecom service in Zambia."

International gateways for Zambia have remained closed since the liberalization policies were introduced for other areas of the telecom sector almost 20 years ago. Private operators have wanted to buy licenses to operate their own international gateway.

Last year, Siliya said the Zambian government could not liberalize the international gateway or give licenses to private operators because doing so would be compromising the country's security.

Later, the Zambian government said it had pegged the international gateway license fee at US$18 million, which service providers said was prohibitive.

The operators then petitioned the Zambian parliament to break the deadlock over the international gateway fees.

Now the deadlock has been broken and the Zambian government said it has resolved the objections for private operators to buy and operate their own gateway. The new cost of the international gateway has however, not yet been revealed.

Its been a long road arguing for decoupling Zamtel and full IG liberalisation. To see government signal both is quite something.

IMF World Economic Update

The heavily trailed IMF World Economic Update released yesterday. The recession appears to be getting deeper and only the emerging markets can rescue it.

Insights from Chiefs (Senior Chief Kapalaula II)

More insights from Senior Chief Kapalaula II. A new article from His Royal Highness on Poverty, A Deliberate Policy. It discusses the impact of the Chiluba administration policies on the rural areas.

Tuesday, 27 January 2009

Kundaisms...

" I believe that our government is of the right size, representative and effective. I know that there have been calls from many sections of society to reduce the size of our Cabinet, but I think it is the right size. As for seminars, they are a matter which can be resolved. It is a good idea to cut down on expenditure, but certainly not cutting down on Cabinet..."
Vice President George Kunda making the case for a bloated cabinet last week in Parliament. To be fair to him, one might plausably argue that the "right size" of government is determined ex post. To some extent, whether the government is bloated or not could largely be judged by how effective or efficiently it operates. Mr Kunda would have us believe that the current governmet is operating effective, and by extension it is necessarily the "right size". I think he would find very few supporters outside his inner circle. Incidentally, he has also fallen into the fallacy of 'tribal balancing'. The role for the Executive is certainly not there to be 'representative' that's the role for parliament.

Previous blogs have touched on these issues - see On the need for smaller government...

Insights from Chiefs (Chief Kapalaula II)

An important article from Senior Chief Kapalaula II on the reforming the relationship between chiefs and politics, within the context of the Draft Constitution currently being debated at the NCC.

Monday, 26 January 2009

NCC Discussion Updates (Foreign Missions, MPs, Presidential Health and Salaries)

A couple of belated updates on various NCC issues, in the last week or so.

The Legislative Committee of the National Constitutional Conference (NCC) last week rejected a proposal that appointments of ambassadors and high commissioners be subjected to parliamentary ratification. Among the reasons put forward is this mind boggling reason by Mr Mwaanga :

“Yes, that is the system that America uses when it appoints diplomats in foreign mission, the Senate will ratify the appointments but you should understand that here in Zambia, we belong to the Commonwealth which does not follow that system..."

As if that was not bad enough, the group also proposed that MPs should keep their seats in event of expulsion from their parties. A measure clearly designed to encourage defections from opposition parties. To be fair other nations have a similar system, most notably Britain. Except Britain's democracy has evolved over centuries, ours is more like a toddler learning to walk. We have previously touched on this issue - see Monkey business….

In competition for folly, the Executive Committe was not going to be outdone. It quickly rejected the establishment of the Emoluments Commission to determine salaries and allowances for the president and other constitutional office bearers, saying that would be costly on government. Are you sensing the drift?

Well, atleast they had the sense to let parliament to ascertain the health of a sitting President. Clearly the the uncertainty surrounding LPM was too much for many to take. Or may be they knew Parliament is weak anyway.

The NCC deliberates (ZNBC News, 20/01/09): The Executive Committee of the National Constitutional Conference (NCC) has resolved that parliament should be mandated to ascertain the health of a sitting President to continue holding office. The members agreed, that with one third majority, members of parliament should initiate a motion through the speaker to remove the President from office on medical grounds.

Committee members said in Lusaka on Tuesday that within 14 days after the motion has passed through parliament the speaker should request the chief justice to constitute a team of medical experts to examine the health of a President. The members said within seven days of the appointment of the medical committee the President should appear before the doctors failure to which they would constitute a ground for impeachment. During the debates commissioner, Daniel Monkombwe, argued that cabinet would not be the best group to determine whether the health of the President should be scrutinized. He said this is because cabinet members are Presidential appointees who may be victimised in the process.

Commissioners Richard Kapita and Ernest Mwansa fully endorsed the proposal for parliament to initiate the impeachment process on medical grounds. Reverend David Masupa also supported the proposal citing parliament's role of offering checks and balances to the executive. And Committee Chairperson, Michael Mabenga has appointed a sub committee to scrutinize the proposals for parliament to be mandated to initiate inquiries into the President's health.

Profiting from chaos?

The Washington Post reports on how Zimbabwe is losing the battle for Victoria Falls. Planted at the end is this interesting quote from Richard Chanter, "Not too many people in America can differentiate between the two places...In terms of overall marketing, surely it's better if the whole region can be visited." Certainly, there are significant advantages of marketing the whole place as one, provided both places have significant infrastructure to compete and collaborate. It appears Livingstone is getting there now and should have nothing to fear from a resurgent Zimbabwe, if and when that happens. (HT : Kafue)

ZIPPA :Call for Articles

The next ZIPPA journal will be on diversification. Something that we have discussed here at length. If you are interested to write a piece, do let me know and I can let Murray know. All you can write straight to Murray! ZIPPA articles tend to be very short, so should be simple to pen down down something quickly! Previous ZIPPA journal can be accessed here.

Linking Zambia (House of Chiefs)

I have created a new blog called House of Chiefs, which will act as a resource portal for the Zambian Economist on issues related to traditional authorities. The blog will collect news articles and analysis related to traditional authorities in areas of politics, economics and social affairs. Analytical pieces will naturally be duplicated/cited on the Zambian Economist, where relevant.

Sunday, 25 January 2009

Zambia First Investment Fund / Zambia Airways

Richard Mbewe and James Mwape are taking forward an idea is to set up an investment fund where funds (money, capital) will be invested in projects located in Zambia. Full Blog Talk Radio discussion on the fund below. The target is US$3m. The show also has some interesting discussions on the fall of Zambian Airways.

Saturday, 24 January 2009

Quick Links

Ethiopia has announced the first sub-sovereign corporate bond aimed at the diaspora. A release by the Ethiopian Ministry of Foreign Affairs says that the bond launched on December 23rd will provide funds to the Ethiopian Electric Power Corporation (EEPCO) for investments which will increase power supply to the nation. Good to see African governments taking a different approach to the diaspora, viewing them as resource rather than an hindrance.

Google and the developing world : Google have launched an SMS service that allows mobile phone users to request and receive information off the web free of charge. The service is currently only operational in Ghana and Nigeria. This could prove to be of huge benefit to growing number of mobile phone users in the developing world who don't have access to an internet connection.

China's GDP Growth Slowed to 6.8% in Fourth Quarter : Bloomberg on the slowdown of the Chinese economy. The economy grew at 6.8%, slowest pace in seven years as the global recession dragged down exports, increasing pressure for more government spending and lower interest rates to buoy growth.

Malawi and the Global Slowdown : IRIN on how the global slowdown is sending tremors through our neighbours to the east. Malawi has become the first recipient of the International Monetary Fund's Exogenous Shock Facility (ESF), designed to ameliorate adverse economic conditions beyond a country's control.

Something positive : Remittances by Kenyans abroad, a key source of hard currency for east Africa's largest economy, grew 6.6 percent to $611 million in 2008, according to the Kenya central bank. This is in line with expectation among "remittance watchers" that the crunch will not reverse remittances, but slow their growth. The diaspora are among the most durable source of revenue (Are you listening GRZ?).

Friday, 23 January 2009

Ministerial Statement : Mining Industry

Ministerial Statement made to Parliament on 23rd January, 2009 by the Minister of Mines and Minerals Development, Hon. Maxwell M. B. Mwale on the Impact of the Global Financial Crisis on the Mining Sector and how Government is addressing the Situation. Statement reproduced below for alternative preservation.

Ministerial Statement on the Mining and the Global Slowdown

Some free cheer ?

According to the latest World Freedom report, Zambia’s civil liberties improved in the last year "due to continuing improvements in judicial independence, including increased assertiveness by the courts vis-à-vis the government and the government’s appointment of highly qualified individuals to judicial posts". The bad news is that we are still only "partially free". Full sub-Saharan "freedom" map below.

Thursday, 22 January 2009

Presidential Speech (Full Transcript)

Parliament Online released earlier this week the full transcript of President Banda to Parliament. The speech is embedded for alternative preservation. The reader now has the opportunity to study it for themselves to judge whether indeed critics are correct, it was the "most uninspiring speech" of recent times.
Presidential Speech : Official Opening of Parliament (16 January 09)

Wednesday, 21 January 2009

A mid-week rant.....on the state we are in..

Figure 1 : Composition of Zambian Exports (US$ million and %)

Figure 2 : Share of Exports across African countries
I have been deeply frustrated by the failure of Zambian politicians and academics to recognise that although all nations are facing difficult times, thanks to the global slowdown, our problems are both unique and more severe than others. The charts above demonstrates why. Zambia has one of the highest shares of mineral exports on the African continent, making us extremely vulnerable to base metals shocks. But more importantly, a closer inspection of figure 2, shows that nearly all the countries to our right are oil producers, with significant riches to tap into. For example, Angola may be suffering from low oil prices, but it is still aiming for $40bn plus budget for 2009. When you have oil, diversification is less important. Zambia on the other has really blundered over its many decades. It has failed to sufficiently diversify and while there are some signs of hope, the global slowdown has come too early for us.

Incidentally, I find the discussion among Zambian policy makers mind boggling. Its almost like diversification has become a buzz word that they do not grasp. Surely before you call for accelerated diversification you should first ask the basic question : why has Zambia not diversified sufficiently in recent decades ? You cannot create solutions without a full understanding of your previous mistakes. The answer to that question provides significant clues on how to develop policies that would enable rapid and sustainable export diversification.

Other countries have sufficiently diversified their economies from resource dependence to low value manufacturing products coupled with service expansions. Chile successfully transformed itself from a low-income copper dependent economy into a stable middle income structurally diversified economy. So its not exactly impossible, but to achieve the same feat requires us not just to ask what Chile has been able to do well (and stands far better than we do in face of growing crisis), but why have we failed to sufficiently diversify? I would be interested to hear what others think, but two immediate mistakes come to mind.

First, foreign ownership of key resources diverted significant mineral wealth from the state of Zambia. Diversification requires significant access to sizeable pot of funds. Most emerging countries pursuing diversification use "resource wealth" to fund infrastructure and other industries. Chile is the case in point. They have used the mineral wealth prudently, not only in terms of keeping the exchange rate in check through a stabilisation fund, but have also used windfall revenues to enhance productivity in other sectors. Indonesia in the 1970s and 80s also stands out as another example. It used its oil revenues to pursue an agriculture-led growth strategy with investment in rural infrastructure, such as irrigation and roads, as well as in input subsidies for fertilisers and pesticides. Unfortunately, Zambia was unable to do any of these things because of our poor approach to issues. I am afraid to say, we have only ourselves to blame for missing the windfall and finding ourselves in this mess.

Secondly, the investment framework adopted by Zambia did not directly deliver infrastructure investment. In other words, not only did money from minerals flee the country at the height of the boom, leaving little to spend on other areas, we also were refused to compel investors to invest in significant infrastructure, as a second best solution. The GRZ was hoodwinked in the useless concept called "social responsibility". The people of Zambia developed irrational expectations that mining companies would behave in the nation's interests when it comes to the delivery of new infrastructure. There's no such as thing as "social responsibility" because mining companies were motivated purely by profit and always acted in the interest of their shareholders. If using an existing road proved cheaper than building a new one, they proceeded to using the existing one. The same went for local schools and hospitals. When they occasionally provided a new school or funded the local football team, they "appeared" to be socially responsible. Their true motivations was always those of the company. It follows that even now we should not expect these companies to invest in local infrastructure unless it was legally mandated. Had the government moved quickly to put in place a coherent framework that leveraged private sector investment into delivering local infrastructure, as I had previously proposed, Zambia would today be better positioned to withstand the storm. The pace of diversification would have been faster and other sectors such as agriculture and tourism would have been better positioned to expand, while copper goes through the downturn. My point is not that I was right, but that the GRZ approach to these issues continue to be characterised by incompetence. We are now paying the price for the failure to think ahead, and we have no one to blame but ourselves.

Ministerial Statement on Suspension of Zambian Airways

Ministerial Statement made to Parliament on 21st January, 2009 by the Minister of Communications and Transport, Hon. Dora Siliya, MP, on the suspension of operations by Zambian Airways. With thanks to the folks at Parliament Online for making this document immediately available.

Ministerial Statement on the Suspension of ZA

Dora's silent question...

The Transport Minister, Dora Siliya had some interesting things to say on Monday :

Govt is determined- Siliya (ZNBC News 22/01/09) : Communications and Transport Minister, Dora Siliya, has reiterated government's determination to improve the aviation industry in the country. Ms. Siliya says government will continue to rehabilitate facilities at the country's airports to ensure they meet international standards. She says the move will also help to promote tourism in the country as more tourists will be able to visit various attractions in the country. The minister was speaking in Lusaka at a cocktail organised by Kenya Airways. And Kenya Airways Chief Executive Officer, Titus Naikuni, said the airline is willing to partner with authorities in Zambia in the promotion of tourism. The Zambian government has indicated that efforts are underway to re-introduce a national airline.

Its no secret GRZ has little pot of money. The silent question that I believe Dora Siliya is asking is that, given the little resources at GRZ's disposal, should it spend it on bailing out Zambia Airways or spend it on airport infrastructure? She has clearly decided that it is better to spend the money on infrastructure and she has my tentative support, if that is indeed what she is thinking. My skeptism is drawn from the poor record of government on infrastructure spend. As discussed under that blog, the problem with GRZ is the random and unplanned spending patterns on infrastructure. In exchange for my support, I hope that she'll develop a better vision for aviation than what we have seen in the past. A previous blog lays out my view of this "better vision". The good news for Dora is that some of the suggested intervention require no money to be spent.

Quick Links

Global Risks 2009 : The World Economic Forum annual look at the risks, economic and other, that could emerge as the financial crisis continues to unfold. The report considers the implication of a sudden drop in China's growth to 6% or below; deteriorating fiscal positions; and further asset price falls. I particularly like the fancy cobweb charts !

Jestina Mukoko: 'Mugabe's henchmen came for me before dawn' : The Independent on the terrifying odeal of the Jestina Mukoko's. Murray Sanderson had brought her abduction to our attention, way before the story hit the main international headlines.

The State of the World's Children 2009 : UNICEF's annual report on world's children was released last week focusing on maternal and new born health.

Beauty and the beasts in Zambia : The Telegraph showcases Zambia's new safaris that are driving tourists wild. Its a fantastic promotion, with links to the appropriate websites. I shall certainly book my trip back home shortly!!

Tuesday, 20 January 2009

Towards lower mining taxes...

Quite surprising that this story never got much traction in the Zambia media. It appears the government is bent on giving in to the mining companies, despite the IMF position. Here is President Banda in his own words :

"The government is currently engaged with the industry to make sure that a beneficial financial environment exists for both the government and investors.. My government will do all it can to protect jobs and to safeguard the industry for the future. We must ensure that we do not kill the goose that lays the golden egg. There is little point in taking in a few million dollars in tax if thousands of jobs are lost as a result."

The argument has some merit (not necessarily sound), but it raises more questions than answers. Surely when GRZ developed the fiscal regime they considered that prices go up and down? Wasn't this framework developed by "foreign experts" hired by GRZ? Perhaps now is the time for the government to level with the Zambian people and reveal just how they arrived at the new tax thresholds? When is this government going to release the report from "foreign mining experts" they hired to advise us on the fiscal regime, at great cost to the tax payer ? Is the Government now receiving new advice from these "foreign experts" to reduce the taxes? How do we know the new proposed changes are robust, and not simply concocted in the corridors of power, where the mining companies maintain significant lobbying? At the very least we need answers to these questions before we can even begin to address the substance of what government is proposing.

Linking Zambia (Chanda Chishala)

Chanda Chishala (founder of Zambia Online) has a new blog. The articles are very much in line (duplicates?) with the material on Zambia Online.

A note on Zambia Online : That I am linking to Zambia Online should not be viewed as an endorsement. I had the misfortune of googling my name towards the backend of last year and found that someone was impersonating me on that website. After repeated emails to the owners of the website, I got very little in return apart from hapless explanations. I deduced that the owners encouraged name slandering. That is certainly not something I promote.

Reflections on Zambian Airways (Guest Blog - KBM)

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

Thursday, 15 January 2009

NCC Discussion Updates (Ministries)

The NCC has proposed that creation and reduction of ministries by the President should be ratified by Parliament. In theory this is welcome to avoid the sort of increase in the size of government that many of us have bemoaned (see here and here). In practice, the idea of ratification within the current legislative framework is pointless because the Executive has so much sway over the legislature. Parliament has yet to impose itself effectively over any appointments, and nearly always just follows what the President decides. So I doubt this will eliminate the sort of waste that the NCC presumably want to discourage.

That aside, atleast the NCC now appear to have eliminated one of the major flaws in the current
Mungomba Draft Constitution . The current draft stipulate the optimal size of Government for all occassions (see sections 152 - 157). The draft makes it clear that there should be positions of Deputy Ministers and Provincial Ministers. As I have argued in the past, it would be good to see some flexibility in the final constitution that allows any incoming Government to define for itself what it regards as the optimal size of Government - assuming it can justify those positions. Government structures need to be flexible and allow for positions to emerge as well as disappear.

Wednesday, 14 January 2009

A manifesto of solutions?

The Citizens Democratic Party Manifesto has now been uploaded. The Manifesto claims to distinguish itself from conventional manifestos by being "not a Manifesto of promises, rather it is a Manifesto of solutions". (HT : Campbell).

Linking Zambia (National Constitution Conference)

The National Constitution Conference website is now up and running. You can access the website here. I suspect the "official launch" has not happened yet. How else does one explain the empty forums? Well, atleast the diaspora now have a chance to vent their fury at being excluded from the process.

ZIPPA on 'Wealth Creation', again...

Zippa Journal Jan - March 2009

Monday, 12 January 2009

IMF to the rescue?

The IMF today came out in defence of keeping the current mining fiscal regime, after much bullying from the mining companies. The IMF is keen for Zambia to focus on infrastructure spend and diversification rather than focusing on tax breaks for one sector (see previous statement here).

A death blow to Zambian aviation?

The Post are reporting a breaking story on Zambian Airways :

Zambian Airways suspends operations (The Post- 10/01/09) : Zambian Airways has suspended operations with immediate effect. The company announced that the airline had suspended operations to facilitate restructuring of the company due to operational problems. According to the airline, the suspension threatens the jobs of 260 members of staff if the company does not successfully restructure and resume operations soon.

Aaron Leaf at the Lusaka Consensus blog has more on this unwelcome development, as one of the many affected (and angry) passengers.

Update : Reuters are quoting Zambian Airways that the problem may be due to the "high cost of fuel" :

The airline said in a notice to passengers at Lusaka airport that it had experienced difficulties after jet fuel rose 100 percent in the last 18 months, increasing its operational costs by 50 percent.

"This created a lot of problems for Zambian Airways as a growing business. In the interest of our stakeholders and our employees, we have decided with immediate effect to suspend all our operations until further notice," it said.

Update (11 Jan 2009) : The Watchdog reports that NACL plans to grab Zambian Airways planes :

NACL to grab Zambian airways planes (The Watchdog) : On Thursday January 8, the Zambia National Airports Corporation Limited (NACL) handed to Muntembo Nchinto, CEO of Zambian Airways court summons to settle a bill of US$200 million; on saturday, January 10, Zambian Airways suspended all operations leaving scores of passengers for local and international routes stranded.

In a memo at the Lusaka International airport, Mr. Nchito cited high fuel costs over the last year-and-a-half and the need to restructure its operations. He said the rise in the cost of jet fuel by 100 percent in the last 18 months, increased its operational costs by 50 percent.

“This created a lot of problems for Zambian Airways as a growing business. In the interest of our stakeholders and our employees, we have decided with immediate effect to suspend all our operations until further notice,” He said.

But the Watchdog has learned that the real reason for suspending operations is the court summons. The NACL, it has been learned that the Q3 has no capacity to settle the debt as it has been failing to do so for a long time now and the debt keeps on swelling.

It is rumoured that the airline started experiencing financial difficulties after President Mwanawasa died. It is said that, and was reported in the media last year that President Mwanawasa’s regime had ordered all people traveling on government business should use Zambian Airways. But the new government has since withdrawn this ’service’.

The NACL, it has been learned, wants a court order authorizing it to use bailiffs to seize and sell the planes to recover its money.

Update (12 January 2009) : We continue our rolling update on Zambian Airways, with the APA report on today's developments.

Minister: Zambian gov’t ready to save local airline - APA - Lusaka (Zambia) The Zambian government on Monday said that it was ready to come to the rescue of the beleaguered Zambian Airways which suspended its operations over the weekend.

However, the government has been criticised by various stakeholders, especially those in the tourism sector, for not bailing out the airline.

Transport and Communication minister Dora Siliya said that the government had not been able to assist the airline because its board of directors had not approached government with details of its financial difficulties.

She said the government was ready to meet with the company’s board of directors to chart a way forward for the airline.

Few will, however, accept the government’s position as sincere because the airline’s chairman and chief executive officer did meet with the minister and President Rupiah Banda with an urgent plea for help late last year.

The airline is a privately owned airline that was set up soon after the state-owned Zambia Airways collapsed in 1994. Since then the country has not had a national airline, but the void was taken up with the privately owned Zambian Airways.

However, the airline announced over the weekend that it was suspending its operations because of increasing fuel costs and other difficulties, and said it would try and re-organise its operations.

The airline also owes the state owned National Airports Corporation (NAC) that manages the country’s airports over two million US dollars in unpaid landing and parking fees.

The move by the airline left dozens of passengers holding tickets to various destinations stranded at various airports both in Zambia and in neighbouring countries.

Thursday, 8 January 2009

Mine Watch (Lumwana & Mokambo)

Equinox have announced they are delaying construction of a uranium processing plant at its Lumwana copper-uranium mine, due to low uranium prices and difficulty raising financing. Full press release here, which also carries an interesting statement on the fiscal policy :

Lumwana Uranium Project

In April 2008 Equinox released the results of a feasibility study on the design of a treatment facility for the uranium ore stockpile that will result from the selective mining of the discrete, high grade uranium zones within the Lumwana copper orebodies. Subsequent to the release of this feasibility study the Government of the Republic of Zambia ("GRZ") has implemented its guidelines for uranium mining, processing and export that are consistent with International Atomic Energy Agency guidelines and the Nuclear Non-proliferation Treaty. The GRZ has recently approved the Lumwana Uranium Environmental Impact Assessment. However, due to current difficulty in international project financing as well as current market prices for uranium oxide, the Company believes it prudent to defer the implementation of this uranium project until such conditions improve sufficiently to deliver appropriate shareholder value. In the interim, high grade uranium ore will be stockpiled at Lumwana in accordance with Zambian legislation and international best practice.

Fiscal Policy

As the Company has highlighted in previous guidance, it remains confident that the material components of its Development Agreement with the GRZ will be honoured. The Company continues to work closely with GRZ to secure the relevant incentives to ensure the fundamental economics of Lumwana remain intact. To that extent, the Company has recently secured a Statutory Instrument for exemption of the concentrate export tax recently legislated by the GRZ for Lumwana concentrate production that may be exported. The Company has previously been granted Statutory Instruments for exemptions from import duty and for excise applicable to fuel and electricity consistent with the Lumwana Development Agreement, and continues to work with relevant Ministries in realizing the remaining incentives as they may be required. The recent international financial crisis has reinforced the Company’s consultative approach with the Government as being in the best interests of its shareholders as well as the people of Zambia.

TSX Venture Exchange-listed ICS Copper Systems have also announced that they will walk away from the Mokambo property, after studies indicated that the prospect did not contain copper grades or tonnage that would support a mine. The capitalised mineral property expenditures and nonmoveable equipment related to Mokambo, totalling $7.9 million at October 31, 2008, will be written off.

Wednesday, 7 January 2009

Food security and trade restrictions..

A new FSRP explores the implications of removing import and export restrictions on maize for Zambian food security. It provides further support for A better vision for agriculture.... . Excerpt :

Opening up international borders to regional trade in food staples offers many advantages to the region’s consumers and farmers. Open borders offer a financially inexpensive means of reducing the domestic price volatility of staple foods. The import parity price sets an upper bound, while export parity sets a floor below which prices will not fall, assuming private traders enjoy the freedom to import and export maize when market conditions permit. The alternative policy of closing borders in small markets such as Zambia invites the prospect of significant price volatility. Under normal production fluctuations, a closed border can easily lead to price volatility in the range of 100% from one year to the next.

Consumers clearly benefit from reduced maize price volatility, particularly during drought years when price spikes can become particularly acute, particularly in thinly markets closed to opportunities for trade. Because poor households spend over half of their income on foods, price spikes in staple food markets risk forcing them into unsustainable short-term coping strategies, forced asset sales or migration, both of which may impair their prospects for building up the human and physical assets required to grow out of poverty over time. By capping price spikes, cross-border trade offers a means of moderating these pressures. Among smallholder farmers, many of whom are net buyers of food, reliable food supplies and reduced price volatility permit them to diversify into higher-value production, thus opening new pathways out of poverty.

Producers of staple foods likewise benefit from open borders. To maintain and sustain producer incentives, surplus farmers in surplus producing zones need access to growing markets, both internal and across national borders. Failure to allow regional trade in food staples risks stalling production growth and private investment in agriculture. In thin national markets, without export outlets, production surges lead easily to price collapses. In turn, these disincentives dampen long-term agricultural income growth. This suggests that both consumers and farmers stand to benefit from the reduced price volatility that results from opening borders to regional trade in food staples.

Update (8th January 2009) : The government's view is characteristically hostile at present.

Quick Links

Tuesday, 6 January 2009

Is government about to nationalise ailing mines?

Yes. Apparently discussions are underway on "when" this might happen. Not only that, but for the "vibrant" mines the government is now talking about "PPP" :

President Banda says government is considering taking over operations of mines that are facing operation difficulties on the Copperbelt province. President Banda has disclosed that government through the ministry of mines is having discussions as to when government would nationalise the mines.

He said government will not nationalise mines with vibrant operations because its vision is to encourage the private public partnership spearheaded by the Ministry of Commerce, Trade and Industry in conjunction with the ministry Mines Ministry.

The President was answering questions from Journalists shortly before departure for Kasama, in Northern Province where he has gone for a four-day official visit.

I am speechless....

Inflation Statistics - December 2008

The annual rate of inflation, as measured by the all items Consumer Price Index (CPI), was recorded at 16.6 percent as at December 2008. This rate is 1.3 percentage point higher than the October rate of 15.3 percent. The rise is primarily driven by food. Report embedded below.

CSO December 2008 Edition