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Saturday, 28 February 2009

A view from outside: the copper crisis, 2nd Edition

What future for monetary policy in Zimbabwe?

Peter Draper and Andreas Freytag argues that of the three options facing Zimbabwe policy makers to tackle hyperinflation (adopting a currency board, the South African Rand, or a crawling peg), “Randisation” deserves serious consideration – if South Africa will step up to the plate.

What future for monetary policy in Zimbabwe?, Peter Draper and Andreas Freytag, VOX EU, Commentary:

Zimbabwe is much in the news again with its newly minted unity government. It remains to be seen whether it will cohere and drive a concerted reconstruction process. Zimbabwe’s future monetary policy is of enormous importance, given the country’s infamous inflation rate.

Three monetary reform scenarios are being discussed – an ordinary or crawling peg to a basket of currencies, “Randisation” (adopting the Rand), and a currency board, i.e. a domestic currency with the money base 100% backed by foreign reserves. The latter two would entail Zimbabwe surrendering monetary policy sovereignty – an issue attracting considerable controversy

Dollarisation

The currency board or “dollarisation” option is closely associated with US scholar Steve Hanke (2008). In Zimbabwe’s case, he refers approvingly to the currency board Southern Rhodesia operated in the 1940s. However, the preconditions were very dissimilar to Zimbabwe today. Regardless of Rhodesian governments’ other failings, their administrative capacity, and therefore the credibility of any new institutions, was far more developed, whilst trade and capital markets were far less integrated than today.

Mr Mugabe and his Zanu PF party not only destroyed the economy thereby creating hyperinflation, poverty and starvation– they also eradicated a workable administration. The latest manifestation is the cholera crisis, now reportedly affecting 80,000 people and spreading rapidly into neighbouring countries. Critically, all kinds of economic institutions necessary for a country to develop are now lacking.

This does not imply that monetary reforms cannot take place. But it makes it clear that a currency board or dollarisation may be difficult to implement. Both regimes necessitate meeting a number of institutional pre-conditions, particularly fiscal stability, openness to trade and capital flows, and market flexibility. Another basic condition is trust in markets and in state agencies. If the central bank is not to be trusted, why should the ordinary Zimbabwean citizen trust a currency board (unless it is located out of the country)?

Furthermore, a currency board would require the Zimbabwean government to possess sufficient foreign exchange reserves to finance the monetary base. In January 2008, the date of the latest available data, the Zimbabwean central bank’s foreign assets accounted for approximately 0.1% of the monetary base. Clearly reserves are too small to finance the monetary base in a currency board without recourse to massive foreign capital injections from the donor community. But those are only likely to be forthcoming once Mr Mugabe and his securocrats have decisively left the scene – a prospect we find rather bullish under current political circumstances.

Over time, a currency board system requires the ability to earn the necessary money growth on global markets. Zimbabwe does not have the production structure (even before the meltdown) to generate the exports required nor the human resource capacity to sustain such a high rate of exchange (i.e. the US dollar) through rapid productivity growth, and the high rate of exchange would encourage imports (no bad thing if you have the foreign exchange, which Zimbabwe won’t) whilst discouraging exports. Hence Mr Hanke’s advice could penalise Zimbabwe’s recovery for a long time.

Finally, it is not obvious that the Zimbabwe Reserve Bank should lose its competencies, as the currency board solution would require. Those advocating
this path argue that the Zimbabwe Reserve Bank has become so politicised (correct) that it is beyond redemption (debatable). However, the same argument applies to other state institutions used as Zanu PF’s piggy bank. The situation is much worse than it was in Estonia and Lithuania when they adopted currency boards in 1992 and 1994, respectively.

Overall, a currency board may be the least attractive alternative.

Randisation

What about adopting the Rand, as recently suggested by South African President Mr Motlanthe, and rejected by Zimbabwe’s new Finance Minister from the Movement for Democratic Change, Mr Biti? For each South African citizen, 1000 Rands are circulating. Adopting the same ratio in Zimbabwe would require 11 billion Rands. Currently the total cash circulation in South Africa is about 73 billion Rand. An increase of 11 billion Rand would add 15% – a substantial increase.

This solution requires dismantling the central bank’s money-issuing function. Politically, this may be easier than having a crippled central bank. Randisation would more politically insulated than a currency board, as money issuance would require South African approval. Politically, this would be very tricky. On the other hand, Zimbabwe would gain the reputation of the Rand without requiring the backup of foreign reserves.

However, South Africa’s partners in the Common Monetary Area (Namibia, Lesotho, and Swaziland) may not support this path. Moreover, unless South Africa imposes stringent conditionalities on the reconstruction loans it undoubtedly will extend to Zimbabwe, the latter will be enormously tempted – especially in the likely absence of major donor funding – to deviate from the CMA’s strictures using fiscal policy, thereby destabilising regional currency arrangements.

A peg

What about the third alternative put forward by Mr Biti, a simple (or crawling) peg to a basket of currencies including the rand? This scenario, coupled with a Zimbabwe Reserve Bank and Finance Ministry with new leadership, seems possible and politically most feasible. It requires less ambitious policy reforms in other policy areas and does not require huge foreign reserves to sustain it. The question is whether Zimbabwean institutions would have the confidence in their people and foreign investors to sustain the peg. Like the other two scenarios, it is unthinkable without a ban on government borrowing at the central bank. This condition must be highlighted, as it is the sine qua non of any sensible monetary reform.

If the government can keep away from the money press, both the peg and the circulation of the Rand are sustainable. Overall, it is not clear to us which is more desirable. On political grounds the peg is more feasible, but if the economy is to be brought back on track, inflation has to be reduced quickly and Randisation proffers that possibility.

The really interesting question is – if Zimbabwe did move to adopt the Rand, would South Africa step up to the plate? It has the institutions to do so (a mostly independent central bank and strong development finance institutions), and Zimbabwe could join a reformed Southern African Customs Union to gain access to revenue - although we would worry about the impact on Zimbabwe’s trade policy. Unfortunately, South Africa’s track record with respect to Zimbabwe is not encouraging. Given South Africa’s rising budget deficit, pressing social problems, and escalating debate over the future of domestic monetary policy, Zimbabwean policy makers should exercise caution.

References

Hanke, Steve H. (2008), How to Kill Zimbabwe’s Hyperinflation, Global Dialogue, Braamfontein, August, pp. 23-25; 35-36.

Inflation Statistics - February 2009

The annual rate of inflation, as measured by the all items Consumer Price Index (CPI), reduced by 2.0 percentage points from 16.0 percent in January 2009 to 14.0 percent in February 2009. The decline in the annual inflation rate in February 2009 was mainly attributed to reductions in the prices of mealie meal, fresh vegetables, fish and kapenta.

CSO February 2009 CPI Press Release

Thursday, 26 February 2009

Quick Links

Corruption in Water Sector Makes Clean Water A Pipedream : IPS on the rampant corruption in the Zambia water sector.

New NGO Helps Zambia's Disabled Find Work : VOA on how group of disabled people are starting their own businesses, and helping to end unemployment and discrimination in Solwezi.

Shunned hydro may solve Southern Africa's power woes : making the case for hydro-power as the solution to Southern Africa's problems.

Land titles are hard to come by : MS Zambia on the elusive quest for land titles.

"Diamonds Are Not Forever'' : Its getting heated in Botswana as the diamond market crunch leads to job losses.

Using the Rand Makes Zimbabwe 'South Africa's Province' : IPS on Zimbabwe's on-going negotiation to be part of the Rand monetary union.

Wednesday, 25 February 2009

Talking up the battered Kwacha...

The Finance Minister Hon Musokotwane tried this afternoon to inspire some confidence in the Kwacha, after his Budget address failed to readdress the continuous slide. The full statement can be found here. He again reminded us the Government belief "that the economy going forward still remains fundamentally strong. This is because the fundamental strength of any economy is derived from the investments that it makes in building its own productive and intellectual capacities..."

And what are those "investments" for Zambia that the Government has made? Musokotwane should know that we not as foolish as he assumes. We choose not to share his John McCain moment. The fundamentals of the Zambian economy are weak. They have been weak for a long time. As my good friend says "Zambia has been in perpetual recession since time immemorial". Our economy is fundamentally dependent on copper, which in turn is dependent on world demand. We can hardly indpendently finance our national budget and rely on the good will of the world to deliver health care and education. Productive and intellectual capacities? Just who advises this guy? All the analysis I have see show that Zambia has low labour productivity and suffers especially in non-mining sectors. To be sure Zambia is an attractive place to invest but we are much more susceptible to political risk than Musokotwane would care to admit.

The real coded message I deduced from the statement is that Zambians should learn to live with a weak Kwacha, BOZ will do what it can to stabilise rate, but its difficult because we are at the mercy of foreign powers and dollarisation is a real danger. I do agree with him on one thing though :

...the current level of the Kwacha presents a number of opportunities for our economy. Firms that receive incomes in foreign currencies and face costs in local currency stand to gain significantly from a depreciated currency. This is particularly seen in the mining sectors and tourism sectors, where firms have tried to retain workers as much as possible as a result of improved cash flow rising from the depreciated Kwacha. Exporters also stand to gain, as their goods will now effectively cost less to buy. Local manufacturers are also urged to take advantage of this situation, as their goods will be more competitive on local and foreign markets...

I was one of the few, alongside the agriculture and tourism sector players, who bemoaned the strength of the Kwacha last year (see An even stronger Kwacha? 2nd Edition ; and the very graphical blog More stable...but in the wrong direction? ). If this helps with diversification of the economy that should be a good thing. I have my doubts even there though - see A mid-week rant.....on the state we are in... But here is my question to Mr Musokotwane : if a weak Kwacha is a "good idea" now, why was it not regarded as so, when the Kwacha was strengthening last year possibly even damaging the diversification, that we are now chanting?

Tuesday, 24 February 2009

Prepare for the "no" campaign! (Guest Blog - Yakima)

Last week Monday was President's Day in the USA, which got me thinking again about the formation of the original Constitutional Democracy. For one thing, the people writing that constitution had never dealt with things like Marxism, or multiculturalism beyond religious tolerance between different variations on Protestantism, or indeed even basic literacy rates among adult males above 5%. The American Founding Fathers were not a very diverse lot by any modern standard, which actually makes it easier to research how they came to the specific conclusions that they did. It also helps explain why in spite of the general success of the USA in the world, only a very few nations have actually used their system as a template for subsequent Constitutional Democracies.

At the core of democratic thought in the 1770's was a foundation in Ancient Greece and Rome as taught by English and French University Professors of the age. Their use of the term revolution contained an implied reference to the view fostered in Athenian Greece that the ideal governance of a city state was a cyclic process. By this view the very nature of internal and external pressures on leadership would serve to facilitate changes in government as the shortcomings of the old are in turn exploited by the strengths of the new. Thus like the guessing game, Rock, Paper, or Scissors, the indecision of democracies in times of crisis prompt the takeover by dictators, whose hold on power is ultimately dependent on the actions of trusted lieutenants that inevitably shift power away from the center into oligarchies, which by dint of individual success or failure within and without the ruling class tend to erode towards greater and greater extension of political franchise along democratic lines until crisis prompts calls for efficient dictatorship, and so on.

The American Revolutionaries wanted to replace an entrenched dictatorship supported by an increasingly emergent English oligarchy, with a new oligarchy ruled benevolently by themselves and supported by a nascent and largely symbolic "representative" democracy. They tried to freeze the cycle of revolution, in part by incorporating elements of all three systems into one structure, and in part by succeeding through public education in convincing the voting public that representative democracy is not oligarchy. This has limited outlets of pressures toward greater democracy largely towards extensions of the voting franchise to a greater percentage of the adult population, rather than any fundamental change in the composition of the ruling class as expressed via the representative system. It has also resulted in many of the inherent problems associated with classical oligarchies being viewed in the new american political vernacular as being the result of too much democracy, thus enhancing the role of the executive as dictator.

The steady expansion of executive power since inception is in my view a crucial flaw in the US system, and indeed arguably in all modern representative democratic systems. The Italian communist Gramsci wrote from prison that the reason his side had lost to Mussolini's fascists was by rejecting alliance with the petit bourgoisie, the academics and entrepreneurs, on the grounds that they had elitist, or otherwise oligarchical tendencies. By rejecting a supporting role for residual elements of the former ruling class schooled in organization and mobilization of resources, they left themselves open to the stark efficiency of military dictatorship.

I am by no means certain, I am still thinking about how all this might lend perspective to the Zambian Constitutional Debate, however it does seem to point towards philosophical underpinnings for both MrK's oft repeated call for greater decentralization of budget authority to local governments as well as Cho's efforts to call attention to the cultural importance and untapped potential of recognition and inclusion of traditional governance structures and customary property rights. Based on the global track record, the goal of a constitutional reform of a representative democracy should always be to minimize the power of the executive and maximize the power of the loyal opposition (i.e. people who seek to change government personnel, not fundamental government structure). Not because these things are necessarily good, but because they appear to be most susceptible to erosion over time, and most difficult to achieve once a constitution is in place.

From what I have seen from the NCC so far, we should all be gearing up for a strong NO campaign. The Office of the President should be getting weaker at every opportunity. One does not require writing a whole new constitution in order to enhance the powers of the existing rulers! They are perfectly capable of doing that from within their existing offices! The only conceivable reason to undertake this exercise at all is in order to place limits on the powers of the executive and legislative majority with the understanding that they will do everything in their power to get around, under or through those limits once in office. Instead we have hundreds of would-be 'king makers' all hoping to reward the sitting President with enough new powers to justify their own future demands for personal reward from the hand of the Big Man. I sincerely hope that each and every one of them is pressed for an explanation of their votes within the NCC once they return to their respective constituencies.

Yakima / USA
(Guest Blogger)

Linking Zambia (National Constitution Conference) again!

We blogged a while back that the National Constitution Conference website was "up and running". The website proved useless. Well, the "official launch" was yesterday, so let us hope there's more activity there and the website performs much better.

A view from outside : the copper crisis

IRIN report on how the fall in copper prices have led to significant loss in employment and are threatenging to deepen poverty in the copperbelt. Nothing new but always good see how the outside world is covering our current problems :

Copper loses it shine and Copperbelt its jobs, IRIN Africa, report :

The sharp fall in international copper prices is leading to huge job losses and deepening poverty in Zambia's economic heartland, Copperbelt Province. Luanshya Copper Mine, a joint venture of the Swiss-based International Mineral Resources and Bein Stein Group Resources of Israel, closed its operation in December 2008, resulting in 1,700 retrenchments.

"I am suffering very much. I got my [termination] package of around 15 million Kwacha [about US$3,000], but then I had a bank loan. It was supposed to run for three years, according to the agreement; they [bankers] deducted everything at once from the package and I remained with nothing. In fact, I still owe the bank," Geoffrey Mwape, a former Luanshya employee, told IRIN.

"Life is very hard. I have to pay bills and rentals. I am living like I don't know what tomorrow will bring, as if I was not in employment. My children have been sent back from school [because I cannot pay the fees]."

Copper is a key metal in the electronics and building industries, but the global economic slump in the demand for commodities has seen international copper prices tumble from record highs of nearly $9,000mt between 2005 and 2007 to about $3,000mt at present. In response, labour forces are being reduced, expansion projects put on ice and mining operations closed.

The Bwana Mukubwa and Luanshya Copper mines now have only maintenance staff, while the owners of Luanshya have also shut down their Chambishi copper smelter and suspended their $354 million Mulyashi mine project.

Our people are suffering, where is the government? They are being made paupers, where is the government? They can't take their children to school; they can't feed their families, where is the government? "What is happening is a very sad scenario - we can't have a situation where investors are just pulling out at their will and government is not doing anything; it's not right and it should not be condoned," said Chishimba Kambwili, the parliamentary representative for Luanshya who recently staged a one-man protest against mine closures outside State House, Zambia's presidential residence in the capital, Lusaka.

"Our people are suffering, where is the government? They are being made paupers, where is the government? They can't take their children to school; they can't feed their families, where is the government?" he asked.

Copper accounts for 80 percent of Zambia's foreign earnings and since 2003 has been the main driver of an annual economic growth rate of five percent.

Copperbelt is no stranger to unemployment: copper prices stagnated throughout the 1990s, and the latest round of job losses is expected to rekindle memories of those days.

Mopani Copper Mines recently announced it would retrench up to 1,000 of its 16,000 employees by the end of February 2009, and the country's biggest mine, Konkola Copper Mines (KCM), owned by the London-listed Vedanta Resources, this week retrenched 700 of its workforce of 15,000 after shutting down its smelting plant.

Many retrenched miners have resorted to informal trading to make a living. "I can't venture into farming now because I have no money to buy [agricultural] inputs and besides, I have lived my life as a miner," said Emmanuel Sampa, who has worked at three mines, the last being Luanshya.

"My children have passed [grade seven and nine examinations] but I have no money to take them to school. Last week, I went and closed my two [bank] accounts because maintaining them is very costly now," he said.

"I am selling my TV and sofa so that my children can go to school - I bought the TV at 1.2 million kwacha [$220}, but am selling it for 500,000 kwacha [$90]."

Zambia's mines were major employers in recent years when the copper price enjoyed a renaissance, encouraging expansion of the mining industry and creating jobs.

About two-thirds of Zambia's 11.7 million people live on a $1 or less a day, and only 500,000 formal jobs exist in the country, according to the Central Statistical Office.

"It's a problem how people are surviving, because it is not just people who were working for the mines that are losing jobs. Many companies that depended on the mines, like those in the construction and supplying business, are now folding because there is no more business for them," Peter Kahokola, a civic leader in Copperbelt, told IRIN.

"What this means is that the councils [municipalities] throughout the province are finding it very difficult to operate - the councils depend on these companies for survival through rates and other taxes. Now, most council workers have to go for two months without pay. We have started seeing a lot of crime because people want to survive."

The curtailed resources have also limited the capacity of local authorities to effectively provide public services: bad roads, heaps of rubbish and unreliable water supplies are now a common feature in towns across the region.

"Things are really bad; in most of these towns, including Luanshya, the mine hospitals and clinics were completely free for miners and even surrounding communities in some cases," Kahokola said.

"Now, it is mandatory that we should all pay 25 percent of the medical bills, so people are failing to go to the hospital because they simply have no money to pay, and we may see a lot of deaths over the next few months if the situation is left unchecked."

Zambia's president, Rupiah Banda, recently announced that the government would take over mines facing operational difficulties, but maintained the state would not consider nationalising all mines unless the private sector failed to sustain their operations.

Zambia is Africa's largest copper producer. At the peak of production in the 1980s, the country produced about 750,000mt of finished copper annually, before output dropped to 200,000mt in the 1990s. Current production is about 600,000mt annually, and a government projection of 1 million metric tonnes in 2010 is viewed as unlikely
.

Monday, 23 February 2009

Unbundling ZAMTEL...

Mjumo Mzyece has written an interesting article for Lusaka Times that largely rehearses many of the arguments we have had on this blog. His approach to "unbundling" is not as sophisticated as the model we have developed here, but atleast its sparking debate. I suspect the differences are due to our eagerness to harness the economies of scale and scope, within a wider model of consumer driven PPP.

Why is Zambia's development too slow?

Chrispin Ntungo reckons the absence of decentralisation is the dominant reason :

Why Zambia’s Economic Development Pace is Too Slow, Chrispin Ntungo, UK Zambians, Commentary :

Just after independence in 1964 the Zambian government inherited an economy with a powerful source of revenue - copper. The country was a major copper exporter and copper was highly priced. As a result, the country’s revenue flow was high, stable and assured. The government of the day made a wise decision to invest much of that revenue in building schools, colleges, a university and hospitals.

However, about a decade after independence, copper prices dramatically declined. Consequently, the country’s revenue flows also started to gradually dry up. Since then declining copper prices have been the main reason and the excuse politicians have given for Zambia’s slow pace of economic development and poverty. Every discerning mind interested in finding root causes of poverty and solutions to Zambia’s economic ills should ask at least two questions: Is this reason and excuse advanced by the government still valid today? Is there anything the country should have done different in the beginning to avoid the adverse impact of declining copper
prices?

The motivation for this article is to argue that declining copper prices should not be given as an excuse for Zambia’s slow pace of economic development. The article underscores that the main reason for Zambia’s slow economic development is the government’s inability to structure itself in such a way as to focus on pursuing development at grassroots level touching lives in places where people live. This implies the government failed to enact laws and establish policies that would have empowered local authorities at provincial and municipal level to make development decisions, raise revenue and work to develop their constituencies at grassroots level.

It was during the time of economic prosperity using copper revenues that the country opted to be under one party rule. One party rule of the country compromised much of economic development. Very few people if any see this. First, instead of people working to make economic development decisions, they worked to secure their positions within the ranks of the party and its government. Every position in the party, government and state owned enterprise was an appointed position. Hence, most of the revenues from copper were used for advancing the party’s interests. For example, each province was headed by a Member of the Central Committee and each district by a District Governor. Unfortunately, MCCs as well as District Governors were not empowered to make economic development decisions. As long as they demonstrated that they were loyal to the party and the president, they were perceived to be doing their job. There performance was not tied to local economic development by any possible measure.

Secondly, because the government had so much revenue it was able to build institutions that were party and/or state controlled. Most of these institutions were consumers of government revenues. Some of the institutions were justified given the political conditions of the day especially as related to fights for political independence in surrounding countries. One such establishment was the Zambia National Service. But others like the paramilitary police were a sheer waste of resources and were in place to advance colonial tendencies of squashing any political opposition.

Unfortunately, when Zambia re-introduced multiparty democracy in 1991, the same old structure of centralized government remained in place. To this day, the country has a government represented by ministers and permanent secretaries at provincial level and by district commissioners at district level. This structure looks great from only one perspective – that of a State House interested in power more than economic development. Reputable as these positions and titles sound, they are like white elephants or empty eggshells because permanent secretaries and district commissioners are not empowered to make decisions affecting local economic development. This author believes strongly that this is the number one reason why the pace of Zambia’s economic development is too slow, and not that copper prices are too low.

For a State House and Parliament interested in economic development, this author is strongly supportive of any efforts, strongly suggesting and proposing, to have the government establish itself at three levels – federal, provincial and municipal. Then the State House and Parliament should empower the provincial and municipal governments to locally plan economic development, implement their plans, including budgeting, raising revenues, and accounting for their achievements to people at grassroots level and to the federal government. If the government were organized like this from the beginning, provincial economies would have worked to strengthen themselves by focusing on areas where they have competitive advantages without relying so much on copper revenues. And when copper prices declined, other than the Copperbelt Province, most provinces would have been able to weather the storm of declining copper prices.

Did you catch the key words “provincial economies”? That is what Zambia must be emphasizing through out its agenda of economic development. Look at Zambia as a country with nine provincial economies. Empower provinces to develop their provincial economies. Some provinces like Northern Province will work to develop beans production, fishery and tourism as the main stay of the provincial economy. Other provinces like Southern Province will work to develop tourism, cattle, and maize production as the main stay of the provincial economy. Provinces like the Copperbelt and Lusaka would focus on mining and manufacturing as the main stay of their provincial economies. Together, all the nine provincial economies would make a strong Zambian economy.

A number of people have started pointing at the number of Zambians in the Diaspora and say it is another reason why Zambia’s economic development is too slow. Maybe not exactly that way. But the implication is if all the Zambians in the Diaspora were in Zambia, Zambia’s pace of economic development would be faster. First, the author wishes to remind all country folks that a decision to leave Zambia and find employment or establish a business in the Diaspora is a decision to run away from poverty. Poverty kills. And hence, it is a decision to survive. While some people may say our children will not forgive us for not remaining in Zambia during economic hardships. Other people will say our children will thank us for finding a better place for them to go to school and access health care.

Second, the brain drain may be a contributor to Zambia’s slow pace of economic development, but the contribution is minimal. This author begs to differ and argue that the brain drain cannot be blamed for Zambia’s slow pace of economic development. Just look at the list of the current permanent secretaries in Zambia. Majority of them have Ph.D.s. But even with such an impressive list of permanent secretaries Zambia’s economic development is still too slow. This means even if the current crop of Zambians were back home, most of them would be sidelined just by the way the system is structured. Few would have access to the decision-making table, let alone chance to influence policy, work at it and produce the desired results.

This author believes that accommodation of Zambia’s brains can only be effectively made if Zambia introduced autonomous provincial and municipal governments. Zambia’s brainy professionals would find positions on decision-making tables at provincial and municipal government levels. They would feel they are making significant contributions to Zambia’s economic development because they would have the power to observe problems, recommend solutions, make plans, raise revenue, implement plans, and see the results of their work at provincial and municipal levels. Cumulatively such efforts from all the nine Zambian provinces would result in nine developed parts of Zambia that would make every Zambian proud.

What this implies, therefore, is that Zambia needs an effective economic development system that includes the right government structure to be achieved through complete decentralization. A government structure that will empower provincial and municipal government authorities to be the drivers of economic development. The current structure of concentrating all the decision-making powers in the central government and from Lusaka is anti-economic development. This structure makes every district and town in Zambia number 53 and a 53rd priority. That means if Mwinilunga, for example, looks to Lusaka to make a decision to come repair a pothole, or build a school or pave a road, that request is a 53rd request, because there are 52 other towns ahead of Mwinulunga. And if you are a decision maker in Lusaka, such a request is not just a priority. But surely it is an important priority for people in Mwinilunga. If they were given the opportunity to repair the same pothole, or build a school or pave a road, they would do it as soon as they need it.

The central government, of course, will have its role to play. The roles will be in matters related to defense, immigration, monetary policy, employment policy, the environment, justice and foreign affairs. But matters related to education, health, transportation, water and sanitation, tourism should be left to empowered provincial and municipal authorities.

From the article, “Will decentralization solve ailing councils’ problems?” by Frederick Kaluba, one can sense that Zambians are not yet sure why Zambia is not developed today. The answer is simple. Zambia’s current governance structure is anti-development. And the solution lies in having a system that empowers citizens at both provincial and municipal level to develop their local areas. To say it again, this solution will be found in complete decentralization. Without decentralization, another 44 years will pass and the country will still be spinning its wheels. Be of good cheer, anyway!

There's much I agree with in the above article but I fear on the substansive question it suffers from the same problems I highlighted here. But may be this article has even deeper problems. To be sure we must avoid reductionism. There's no single reason why Zambia's development is slow, though institutional constraints are clearly part of the puzzle. Perhaps more disappointing is that this article ignores the issue of traditional authorities. Any solution to restructure must have a clear development framework and should consider how best to eliminate the current parallel institutions that exists at the local level. We have discussed the challenges of this many times and I hope to return to this on House of Chiefs blog.

Sunday, 22 February 2009

Can decentralisation solve our local problems?

Yes. Apparently once implemented the Government decentralisation policy can help empower local authorities, in more ways than one :

Will decentralisation solve ailing councils’ problems? Frederick Kaluba, Times of Zambia, Commentary:

Local authorities in Zambia are facing daunting challenges. For years now, the councils have learnt to accept the bitter fact that problems are part of their daily existence and wonder whether these problems will one day come to an end.

A number of factors have contributed to the problems currently haunting the local authorities, which have to an extent, rendered them non-existent or at least caused many people not to appreciate their importance.

Notable among these factors is the lack of financial resources. Most councils are beset with perpetual financial problems to the extent that they are not able to provide social services to the general population like collection of garbage, maintenance of feeder roads as well as good drainage and sewerage systems. This failure to provide basic social service has resulted in perennial outbreaks of cholera in most parts of the country thereby adding yet another problem to the local authorities.

So then, in the context of what is currently prevailing in the local authorities, could the decentralisation become a viable solution?

Since decentralisation is the transfer of resources, power and authority from the central government to the local authorities, it is often argued that the phenomenon can play a key role in ensuring better development of communities. This notion stems from the need for the citizenry to exercise control over their own local affairs and foster meaningful development, which would also help to reduce poverty at local level.

According to Local Government Association of Zambia (LGAZ) executive secretary Maurice Mbolela, decentralisation is the only optimistic way to put to rest the problems being faced by the local authorities. Decentralisation will improve efficiency and effectiveness in the delivery of public services because resources will be transferred to the councils through either grants or share of resources.

Currently, councils are facing financial challenges because some of the financial benefits they used to enjoy such as road tax and fuel levy were taken over by the Government, he said. It is often argued that once implemented, decentralisation could empower the local people to participate in developmental activities through the formation of area development committees (ADCs) in place of the current resident development committees (RDCs).

Decentralisation could also promote transparency and downward accountability of the Government by local communities which is why from both the political and administrative point of view, decentralisation undoubtedly offers hope that it could be a solution to most problems facing civic authorities today.

Others say it could improve the Government’s responsiveness to the needs of the local people, thereby creating a conducive environment for local economic development as well as enhancing the management of local resources in a sustainable manner.

Malawo Matyola, executive secretary for the Zambia Council for Social Development (ZCSD), an umbrella of organisations working for the upliftment said decentralisation would involve people in governance. “Decentralisation will enhance ownership by local communities because they will be involved in deciding what projects are to be undertaken. “Through this process the people will have some level of ownership,” Rev Matyola said.

The decentralisation policy once fully implemented will bring out the relevance of the existence of the councils.

Currently, councils do not have functions, authority and resources. They depend on the goodwill of central Government to exist.

It is an indisputable that certain councils have people at the helm of power that lack the necessary qualifications and are thus, unable to provide effective leadership in terms of management of the resources. This is often cited as the main reason behind non-payment of workers’ salaries, failure to provide social services and the inability to settle the huge debts to service providers.

There have also been reports of theft and misappropriation of grants and other financial support to the councils. These challenges have further resulted in the councils’ failure to maintain feeder roads or prevent the outbreak of cholera, which has become a perennial experience in most parts of the country every rainy season. But once the system is decentralised, and planning for development starts to take place at district or provincial level, most problems could be resolved.

The 1997 Food Reserve Organisations (FAO) report on technical consultation on decentralisation dubbed ‘Decentralisation and Local Government Performance' indicates that decentralisation enhances the performance of the local government system.

Research in Indonesia, Morocco, Thailand and Pakistan shows improvement in resource distribution, local participation, the extension of public services to rural areas, project identification and implementation, and employment generation after implementing decentralising reforms of the public sector, said the report.

It further states that studies of decentralisation in Algeria, Libya and Tunisia indicate that the performance of decentralised administrative units have been very positive. Devolution in Papua New Guinea increased popular participation in government, and has improved the planning, management and coordination capacity of provincial administrators. Reforms there do seem to have made the government more responsive, it reads in part.

In 2004, the late Zambian president Levy Mwanawasa launched the decentralisation policy following wide consultation between the Government and key stakeholders such as parliamentarians, labour movement, and non-governmental organisations. The policy, which was part of the third component of the Government’s Public Service Reform Programme, required all the Government ministries and departments to transfer some administrative power to the local authorities.

In view of this, many Zambians were optimistic that decentralisation was going to strengthen the councils’ capacity to provide goods and services and increase local people’s participation in developmental activities once fully implemented. Unfortunately, it has not kick-started despite the decentralisation implementation policy (DIP), a roadmap for the implementation of the whole process, being put in place.

Concerns have also been raised that the implementation of the policy may not be achieved by 2011, when the whole process is expected to fully mature, considering the slow pace at which the whole process is being handled.

Some sections of society have even deplored government for what they say is its lack of enthusiasm to quickly implement the whole decentralisation programme. Certainly, many people are wondering why government cannot implement the decentralisation policy because it is now four years down line since it was launched. Government had the zeal to implement the decentralisation policy.

Unfortunately, the zeal diminished at one point. So, our effort is aimed at bringing back that zeal after all it is decentralisation is the Government’s idea, said Rev Matyola whose organisation is spearheading the campaign to implement the decentralisation policy.

In his speech during the official opening of parliament recently, President Banda announced that the Government was committed to implementing this policy. It still remains to be seen just how soon that commitment will translate into reality to hopefully ensure the general citizens are fully involved in fostering their own development.

I found the article a little bit confusing. It treats decentralisation as homogeneous. Different countries decentralise in different ways. Also there's a difference between "administrative decentralisation", which according Mr Kaluba is what government has in mind, and "fiscal decentralisation" where councils have tax raising and spending powers. How local people engage also matter. Again here there are many models from "participatory budgeting" to "Swiss referendums" on every issue. I was also skeptical that he totally ignored "downsides" of decentralisation e.g. the possibility of corruption, the dominance powerful elites, etc. The assessment could have done with some balance!

For previous discussions on decentralisation see the here.

Saturday, 21 February 2009

Budget 2009 - Finance Minister Speech (Final)

Honourable Minister of Finance Musokotwane's winding up speech on the Parliamentary debate on the motion of supply for the 2009 Budget. The speech confirmed the decision to increase the CDF following pressure from stakeholders.

Finance Minister Musokotwane - Final Speech

Friday, 20 February 2009

The "dedicated fellows hypothesis", revist'd...

Another interesting Parliamentary exchange earlier this month :

Hon Kambwili (MP, Roan): Mr Speaker, the issue of examination leakages and malpractices is alien to Zambia. It has only been heard of in the last five or six years. What has gone wrong with the education system for there to be so many malpractices and leakages?

Professor Lungwangwa (Minister of Education): Mr Speaker, it is not the examination system which has gone wrong, but some bad elements within the education system. This includes pupils and teachers. These are the elements we are dealing with to ensure that we protect the integrity and credibility of our quality assurance system. We are working on this and taking measures to ensure that the integrity and credibility of our examination system is protected.


The "dedicated fellows hypothesis" rears its ugly head again (see previous variants here and here). So it is the pupils and teachers' fault that they find a strong incentive to cheat? Lungwangwa is meant to be an academic but he fails to recognise people respond to incentives. Pupils and teachers are acting rationally in face of a poor institutional framework that exists. Fix that and all will be well. So yeah, Hon Kambwili is correct, its the education system that has gone wrong.

Thursday, 19 February 2009

Quick Links

With thanks to Yakima for most of these quick links :

Cellphones tap wisdom of the crowds : The New Scientist describes a company called txteagle that pays people to complete short tasks via text message.

Pay Cut: How Helpful to Nigeria's Situation? : This Day reports on reaction to the announcement of salary cuts for Nigerian government officials.

Thousands of Refugees Suffer in South Africa : Catholic Information Services is reporting alarming conditions for Zimbabwean refugees being held in the Musina refugee camp in South Africa.

'We're Artists Now, Not Just Souvenir Makers' : IPS on Swaziland's House on Fire, a multi-purpose venue designed to provide artists of all kinds with a common platform by which to reach tourists and the general public.

Linking Zambia (Zambiana)

A new forum for discussing Zambian issues - Zambiana.

FSP Reform Report

A representative study team of major agricultural industry players and stakeholders was established by the Ministry of Agriculture and Cooperative (MACO) following a Cabinet directive to review the FSP implementation, with the view of coming up with recommendations for improved FSP future implementation, effectiveness and efficiency. Their report is set out below for your consumption and comments! This is a bit of a Zambian Economist exclusive as the report is not yet electronically available anywhere on the internet!

FSP Review Report for Stakeholder Review

RP Capital (Guest Blog - Yakima)

RP Capital rings alarm bells with me for several reasons.

First, there is only one reason to charter a Cayman Islands corporation, and that is to avoid taxes. While this may be appropriate for certain investors and in certain circumstances, it does not seem proper for a government agency attempting to ascertain the fair value of publicly owned assets to be sold to private "equity partner(s)", to trust, of all possible consultants, a company founded to avoid taxes.

Second, before anyone accuses me of tarring the RP Capital operation without knowing anything more about it than its corporate location, I find the background of the founders of the "Group" to be equally inappropriate to the task of accurately evaluating and securing full value to taxpayers of Zamtel privatisation. Rafael Berber, the Managing Partner, has his background in, get this, Structured Equity-Linked Derivatives! That's right, one of the principal architects of the current global mess (as head of Equity Structured Products Group for the Renaissance Group operating in Russia and CIS countries after serving as Head of Equity Trading at Merrill Lynch). His Partner, Petr Kellner, is the owner of PPF Group, a large Czech financial services firm, again specializing in credit and insurance.

The RP Capital Group describes itself as :

"....an alternative investment firm specialising in identifying superior intermediate and long-term investment opportunities on behalf of institutional investors and qualified high-net worth individuals. We have offices in the United Kingdom and United States.

"Our investment team has significant experience investing in regions such as Eastern Europe, the Middle East, Africa and Japan, using a wide variety of strategies. Of particular note is our unique merchant banking approach and our ability to structure a wide range of privately negotiated transactions."

Note that they do not specialize in rescuing ailing operations, nor in equity mergers between communications companies. They specialize in identifying opportunities for institutional investors and high-net worth individuals. Thus they possess no unique, desirable expertise to be applied to the Zamtel valuation which would explain the MoU signed by the Minister.

Third, we have as yet had no explanation as to how this lovely round figure of US$2 million was arrived at as an appropriate fee for the service of evaluating Zamtel's assets. Already there is indication that travel expenses and other operating costs will be bourn by the GRZ in addition to the quoted fee. How many experts are being contracted? How long would their work take? What does the hourly rate work out to be once all the costs are totaled?

The efforts by the government thus far to dismiss all questions about this deal as solely motivated by partisan politics is frankly insulting. I have never publicly endorsed any Zambian political party or candidate for office, yet I have been questioning Zamtel policy for years now. I am certainly not alone in this, and my concerns over this deal were raised by the Attorney General, not by the Post.

More questions and answers on Rafael Berber and RP Capital Group:

I don't have permission to reprint from Hedge Fund Alert, suffice it to say that they confirm that RPCG was in fact launching new hedge funds as recently as Feb 2007. By April 2008, the launch in question is described in passing as a non-contender for the EuroHedge Awards thusly, "RP Explorer, which had a very strong Sharpe and was also large enough to count, only failed to earn a nomination due to its 17% return failing to beat the median for emerging market equity funds in a very strong year for the group as a whole." There are also apparently equally underperforming regional brands, such as RP Japan Opportunities Fund, and RP Explorer Fund (Cyprus) Ltd. All of these funds show Merrill Lynch (Berber's former employer) as the principal distributor of shares.

Mr Berber also sits on the board of Atlas Estates Ltd., a service for which he has received in excess of EU$700,000 in stock grants according to their financial disclosure documents for 2006-7. The company reported an operating loss for the year, after reporting incomes slightly over 5 million euros and administrative expenses in excess of 16 million euros. Also on the board at Atlas Estates Ltd., is Mr. D. Saradhi Rajan, who is described as, "a Principal of RP Capital Group. Prior to joining RP, Mr Rajan had worked at Merrill Lynch in London and Hong Kong. Whilst in Hong Kong, he was responsible for the origination of corporate equity derivatives and private equity linked financing in South and South-East Asia. Prior to this, he worked as an investment banker at Lazard and Donaldson, Lufkin & Jenrette." Guess who bought 9.01% (as of June 11 2007) of Atlas Estates Ltd? Merrill Lynch.

Atlas Estates Ltd. "completed the acquisition of a number of corporate entities from the founder shareholders of the Group," including RP Explorer Master Fund and RP Partners Fund which received some 4.1M euros each in cash and stock in 2006. The documents go on to note that, "The RP Explorer Master Fund and RP Partners Fund are funds that are managed by R P Capital Group. The RP Capital Group is also the holder of 42.5% of the share capital of Atlas Management Company Limited."

According to reports from http://www.noalamina.org/, out of Argentina, which has tried hard to figure out who owns what in the global mining business, there may be some reason why these RP Capital people are familiar to Zambian Ministers after all. To quote a computer translation from the spanish original:

" RP Explorer Master Fund/RP MEF , is a London-based hedge fund, managed by RP Capital Partners Cayman Islands Limited . In May 2007, along with Glencore International AG , it set up an SPV "special purpose vehicle", along with three highly dubious private shareholders (Barry Steinmetz, the Gertner family and Dan Gertler), between them owning 72% of Nikanor PLC , in an attempt to buy out the company.

Nikanor PLC has a lease (though this is currently under review by the government of DRC Congo for alleged licence infringements) on what could be one of the he richest copper-cobalt deposits in Africa. The takeover failed - thanks to opposition by founding shareholders. ["Saved in the time of Nik?" London Calling, MAC website, 19/5/07].

A few months later, RP EMF stated that it was strongly opposed to a bid by a company called Camec (see Capital Group Companies ), to buy out Katanga Mining Limited - another suspect player in DR Congo, in which RP EMF had a major (15.72%) shareholding. RP EMF believed that "this unsolicited offer of Camec's shares undervalues the potential of Katanga and the quality of its assets"

The takeover was supported by a notorious 67-year-old Belgian national, George Forrest (of the Forrest Group ) – who himself held 24% of Katanga Mining [FT 8/11/2007].

The bid was probably also supported by Glencore, which had an exclusive contract to market the output from both Nikanor and Katanga's mines. An enlarged Katanga Mining could, according to the Financial Times, "become Africa's largest copper producer by 2011" - as well as "a future target for a big group such as the acquisitive Xstrata , which is 40 per cent-owned by Glencore." [FT ibid] (since reduced to 35%).

There it is, the missing link as to why these people would be trusted so by veteran cabinet ministers, they are the exact same chaps who cut all those wonderful mining deals we are all so grateful for now.

Yakima (Guest Blogger)
This piece was written as a response to Ministerial Statement : ZAMTEL and RP Capital.

Update (20/02/2009) : The Civil Society Petition to Acting Chief Justice Mambilima as reproduced in the Post.

Linking Zambia (National Archives)

The National Archives website has been operational for a while.

Wednesday, 18 February 2009

Luapula Manganese

Sometimes you read something that just blows your mind away. Consider this exchange in Parliment earlier this month :

Hon Mukanga [MP, Kantanshi]: Mr Speaker, the hon. Minister has stated that the price of manganese is above US$1,000 per tonne, is he aware that the miners in Luapula are being exploited because they are selling manganese at US$70 per tonne and the Government is losing revenue? What is the Government doing about it?

Mr M. B. Mwale [Minister for Mines]: Mr Speaker, the challenge that we have, as a Government, is in terms of inadequate power supply in Luapula so that we could have smelters in place which could produce finished products of manganese. As of now, the product that is produced from Luapula Province, is not processed manganese, hence the low prices that are obtaining.

So let me get this right. The extraction cost of manganese is below $70 per tonne (for the local miners to make some profit from sweat), this when refined costs $1000 per tonne. To make it worse around February 2008 it peaked around $4,000. Of course the government never made money out of this because there's so "abnormal profit" that it makes commercial sense to process it outside Zambia. Someone out there is making some serious money and it not GRZ.

Still pushing for DAs...

First Quantum has rejected the concessions given to the mining sector in this year's budget, insisting that government reverts to the Development Agreements (DAs). FQM is one of the mining companies who are still threatening government with litigation following the change in the mineral royalty tax, never mind that the whole regime appears to have unfolded and only two mining companies seemed to have bothered to pay last year.

Monday, 16 February 2009

Ministerial Statement : ZAMTEL and RB Capital

Ministerial Statement made to Parliament on 13th February, 2009 by the Minister of Communications and Transport, Hon Dora Siliya, MP, in response to a Point of Order raised by Kantanshi Member of Parliament, Hon Mukanga Yamfwa, MP, on the engagement of RP Capital Group and what Tender Procedures were followed to valuate Zamtel assets.

Ministerial Statement by the Minister of Communication and Transport on the engagement of RP Capital


Update : UPND are threatening to take Dora Siliya to court.

Update : A court complaint against Dora Siliya.

Capitalism 3.0

Dani Rodrik on the power of capitalism to reinvent itself :

Coming soon - Capitalism 3.0, Dani Rodrik, Business Standard, Commentary :

Capitalism is in the throes of its most severe crisis in many decades. A combination of deep recession, global economic dislocations, and effective nationalization of large swathes of the financial sector in the world’s advanced economies has deeply unsettled the balance between markets and states. Where the new balance will be struck is anybody’s guess.

Those who predict capitalism’s demise have to contend with one important historical
fact: capitalism has an almost unlimited capacity to reinvent itself. Indeed, its malleability is the reason it has overcome periodic crises over the centuries and outlived critics from Karl Marx on. The real question is not whether capitalism can survive — it can — but whether world leaders will demonstrate the leadership needed to take it to its next phase as we emerge from our current predicament.

Capitalism has no equal when it comes to unleashing the collective economic energies of human societies. That is why all prosperous societies are capitalistic in the broad sense of the term: they are organized around private property and allow markets to play a large role in allocating resources and determining economic rewards. The catch is that neither property rights nor markets can function on their own. They require other social institutions to support them.

So property rights rely on courts and legal enforcement, and markets depend on regulators to rein in abuse and fix market failures. At the political level, capitalism requires compensation and transfer mechanisms to render its outcomes acceptable. As the current crisis has demonstrated yet again, capitalism needs stabilizing arrangements such as a lender of last resort and counter-cyclical fiscal policy. In other words, capitalism is not self-creating, self-sustaining, self-regulating, or self-stabilizing.

The history of capitalism has been a process of learning and re-learning these lessons. Adam Smith’s idealized market society required little more than a “night-watchman state.” All that governments needed to do to ensure the division of labour was to enforce property rights, keep the peace, and collect a few taxes to pay for a limited range of public goods.

Through the early part of the twentieth century, capitalism was governed by a narrow vision of the public institutions needed to uphold it. In practice, the state’s reach often went beyond this conception (as, say, in the case of Bismarck’s introduction of old-age pensions in Germany in 1889). But governments continued to see their economic roles in restricted terms.

This began to change as societies became more democratic and labour unions and other groups mobilized against capitalism’s perceived abuses. Anti-trust policies were spearheaded in the Unites States. The usefulness of activist monetary and fiscal
policies became widely accepted in the aftermath of the Great Depression.

The share of public spending in national income rose rapidly in today’s industrialized countries, from below 10 per cent on average at the end of the nineteenth century to more than 20 per cent just before World War II. And, in the wake of WWII, most countries erected elaborate social-welfare states in which the public sector expanded to more than 40 per cent of national income on average.

This “mixed-economy” model was the crowning achievement of the twentieth century. The new balance that it established between state and market set the stage for an unprecedented period of social cohesion, stability and prosperity in the advanced economies that lasted until the mid-1970s.

This model became frayed from the 1980s on, and now appears to have broken down. The reason can be expressed in one word: globalization.

The postwar mixed economy was built for and operated at the level of nation-states, and required keeping the international economy at bay. The Bretton Woods-GATT regime entailed a “shallow” form of international economic integration that implied controls on international capital flows, which Keynes and his contemporaries had viewed as crucial for domestic economic management. Countries were required to undertake only limited trade liberalization, with plenty of exceptions for socially sensitive sectors (agriculture, textiles, services).

This left them free to build their own versions of national capitalism, as long as they obeyed a few simple international rules.

The current crisis shows how far we have come from that model. Financial globalization, in particular, played havoc with the old rules. When Chinese-style capitalism met American-style capitalism, with few safety valves in place, it gave rise to an explosive mix. There were no protective mechanisms to prevent a global liquidity glut from developing, and then, in combination with US regulatory failings, from producing a spectacular housing boom and crash. Nor were there any international roadblocks to prevent the crisis from spreading from its epicentre.

The lesson is not that capitalism is dead. It is that we need to reinvent it for a new century in which the forces of economic globalization are much more powerful than before. Just as Smith’s minimal capitalism was transformed into Keynes’ mixed economy, we need to contemplate a transition from the national version of the mixed economy to its global counterpart.

This means imagining a better balance between markets and their supporting institutions at the global level. Sometimes, this will require extending institutions outward from nation states and strengthening global governance. At other times, it will mean preventing markets from expanding beyond the reach of institutions that must remain national. The right approach will differ across country groupings and among issue areas.

Designing the next capitalism will not be easy. But we do have history on our side: capitalism’s saving grace is that it is almost infinitely malleable.

Sunday, 15 February 2009

NCC Updates (Vice Presidents, Ministers, Chiefs)

Vice Presidents : The Executive Commitee resolved to reject the draft constitution proposal of running mates. The agreed resolution keeps the status quo of the president appointing the vice president. An additional idea for the appointment to be ratified through parliament was rejected.

Appointment of Ministers : Another resolution from the Executive Committee to reject a proposal from the draft constitution that allows the Republican President to appoint ministers outside Parliament.And the legislative committee of the NCC has adopted a clause for the formation of a Parliamentary Service Commission.

Chiefs and Politics : They have also reached a somewhat confused position on chiefs. Chiefs should not be allowed to participate in competitive elections but can be nominated to become members become members of parliament citing the need for chiefs to be allowed to debate issues affecting them.

Saturday, 14 February 2009

Quote of the week (Dora Vs The Post)

"This House will recall that my ministerial statement in September 2008 over Zamtel indicated that the way forward would be found before the end of 2008. Many companies approached us with an interest to purchase majority share holding in Zamtel. Others applied for a whole new mobile licence. After various consultations, it was clear that the immediate task for the ministry was to undertake a valuation of the assets of Zamtel to ascertain the true value of the company on the open market....The House and the general public may wish to know that none of the companies alluded to earlier, expressed interest to undertake the valuation exercise except RP Capital. As provided for in the Public Procurement Act no. 12 of 2008 RP Capital Group was selected on the basis of limited selection tender process. Pursuant to circular no. 1 of 2009 effective 12 December 2008, the ministerial threshold for consultancy services is ZMK 7 billion. Members may wish to note again that the MoU was signed on 22 December 2008 after the new procurement Act came into effect."

Does she think that the Zambian people are fools and cannot see her lies? To say that she single-sourced RP Capital because they are the only ones who expressed an interest to value Zamtel is simply stupid. By the way, the word stupid is not an insult. It simply means "showing a lack of thought or a lack of good judgement", both of which definitions are true in relation to Dora. She is talking as though she were talking to children. If, as Dora suggests, RP Capital were the only ones who expressed an interest to value Zamtel, when did government invite expressions of interest for companies to value Zamtel? How did RP Capital just wake up in England and decide that Zamtel in Zambia needed valuation?

A memo to Minister Musokotwane (Guest Blog)

Dear Finance Minister Situmbeko Musokotwane,

I would like to comment on the 2009 Budget, and it's relevance to the present global economic crises, otherwise known as The Second Great Depression. I think the budget is not doing anywhere near enough, does not address the country's economic problems in an incisive way, and is distracted by too many side issues, such as the development of tourist attractions, in a time when the western consumer has as good as disappeared and is not coming back for many years, maybe a decade. As such, the emphasis should be on securing the food supply and creating gainful alternative employment for the thousands who are being laid off.

Agriculture

The very first priority in this budget should be increasing food production and availability. I don't see anything which addresses this issue directly, beyond fiscal policy. The government must go far beyond simply handing out fertilizer. What is needed is comprehensive agrarian reform. What is also needed is a sense of urgency, because the present global crisis can easily deteriorate into famine - the signs are there already not only in Zambia, but Malawi, Zimbabwe and many other countries - if people are not returned to the land and at least can grow their own food. At the same time, it is obvious that, rather than be at the whim of foreign investors making extortionate demands by threatening to leave and take jobs with them, miners can return to farming when copper prices are low. Let unprofitable mines close and reopen them when times are better. Agriculture would be a great way to mitigate the shock of joblosses.

Also, the dependence on chemical fertilizer should be phased out. There are many organic fertilizers which can be made inside the country. For instance, Southern Province has a strong cattle sector. Cattle bones can be ground into bonemeal and provide an organic source of phosphorus (K). Blood can be collected, dried and ground into bloodmeal, a very effective source of nitrogen (N). But beyond that, the use of nitrogen fixing crops (legumes) before nitrogen using crops (maize) can drastically reduce the need for chemical fertilizer. At a later phase, organic farmers can grow fertilizer through worm castings and large worm bins, which are easy to produce. Worm castings are a very high quality organic fertilizer, which does not burn plant roots.

Organic agriculture is more labour intensive and at the same time requires fewer off-farm inputs, which reduces both need for foreign exchange, creates jobs and helps secure the food supply, all at the same time. Because organic agriculture also creates a thick layer of humus, it can mitigate the effect of flooding by allowing more water to soak into the soil, in effect making the soil perform the same function as large reservoirs do. This is also why flooding often follows deforestation, as forests can store water on higher ground, for longer periods of time.

The government should :

  • Upscale the present subsistence farmers into becoming small scale commercial farmers : This can be done by comprehensively reforming the way agriculture is done. I would like to see the creation of thousands of (approximately) 100 hectare, organic farms, which can be the backbone of agriculture as a profession for subsistence farmers, as well as go a long way in securing the food supply, while at the same time maximizing job creation and create cashflow into the rural areas, where most people still live.
  • Secure property rights for subsistence farmers : We always hear about some investor coming in and throwing 'squatters' off the land. Even though these 'squatters' may have lived and worked on that land for generations. How is a farmer supposed to invest in anything, when their land can be taken away from them at the whim of an investor, chief, politician or just a competitor? There should be a way to create title deeds for indigenous Zambians, which have a limited saleability, so the land does not simply become subject to speculation instead of farming. Also, there should be greater legal recognition of the right of usufruct by farmers in communal areas, something nearly as strong as a title deed. These are all things the government can do through parliament, whithout incurring much cost.
  • Create works projects : With only 3% of arable land under permanent irrigation, agriculture in Zambia depends on rainfall, making the month of November a crucial deadline for farmers, extension officers, etc. This can be mitigated by creating irrigation works that make water available throughout the year. Adding to this is the fact that only 20% of arable land is in use, and 70% of the population live on less than $1/day and/or are not formally employed, and the solution seems obvious. There are roads to be upgraded, and small scale irrigation works can both create jobs and create irrigation for farms, making year-around agriculture a possibility and doubling agricultural output that way. At the same time, the annual floods which have such a high cost connected to them in terms of lives and property lost, can be completely prevented by storing water on higher ground and using it for gravity based irrigation. All this is relatively low-tech, which means it can be implemented on a large scale with limited costs.

I would urge anyone in government to take a look at the following methods:

1) Permaculture Water Harvesting

This use of swales to harvest water on high ground and let it seep into the soil has many advantages. It is low tech, all that is required is to dig ditches that are level and on the contour of the landscape. This can be done by the National Service, traditional authorities, the Army, and miners themselves as they already are experts at earth moving to begin with. The advantages are obvious - storing water in the soil prevents evaporation, it prevents erosion, prevents flooding, and it makes water available over longer periods of time for agriculture and consumption.

Zambia has massive water resources, however, much of it goes to waste because of absence of irrigation works. All the water that flows into it's rivers and lakes could be made to move across the landscape at a much slower rate, making it available for agriculture and human consumption. I would say this is the core of agricultural development.

2) Keyline Designs

Keyline Designs uses the idea of evenly distributing water across the landscape as it's main organising principle, from digging swales on contour, to plowing on contour, which also gives water the greatest amount of time to soak into the soil.

Mines, windfall tax, and the economy

With all the job creation potential in infrastructure and agriculture, the purpose of the mining industry is to capitalize the Zambian economy and development and not to 'bring jobs', as a former president used to say. Whereas mining only employs 58,000 people, agriculture already employs over 1,000,000 people out of Zambia's 5,000,000 strong workforce.

  • Instead of borrowing, why not use profits from mining to spur development?
  • Or, why doesn't the government create stocks of copper or other metals, as support for the currency? The state could mine them at a cost only basis, and sell them when prices rise. I don't understand why only foreign companies should mine Zambia's resources.
  • Why doesn't the government farm out the operating of the mines to privately owned mine management companies, while maintaining ownership of them and the minerals. These mining companies could be compensated with a small percentage of profits (say upto 10%), so the government can use most of the profits to invest in the economy? The government could shut down unprofitable mines until prices rise, and re-employ miners in agriculture or road construction.
  • Why doesn't the government demand that all a foreign company's costs are spent inside the economy, by requiring the use of Zambian suppliers only? Many suppliers would have to be trained up, but the raising of production standards and technology transfer would have a direct impact on the Zambian economy, both by raising wages and by creating a Zambian manufacturing sector.
  • Alternatively the government could only court foreign companies in sectors with large overheads and low gross profits, so most of the turnover is actually spent in the economy. This would have a large multiplier effect on the economy, an effect that was missing from the Development Agreements. The key to economic growth and wealth retention is the re-investment of costs or profits (or both) inside the local or national economy. If reinvestment works for Warren Buffett, how could it be 'socialist' or un-capitalist? The least the government could do is prioritize the multiplier effect when attracting foreign investors. Because of the principle of reinvestment, I am generally against attracting FDI, but it can be done in a way that maximizes the impact on the Zambian economy.

Emergency Measures

However, to ensure food security in the short term, there are other things the government can do:

Revamp the NCZ to increase fertilizer production. This would lower the price of fertilizer by making more of it available through increased production instead of price manipulation.

Revamp the old farm cooperatives to increase extension services to farmers

  • Create rural roads to open up farms and areas of the country so crops can make it to market
  • Increase storage facilities of the FRA

In other words, increase the hard and soft infrastructure of agriculture in the short run, and professionalize subsistence farmers in the medium and long run.

Just to get the thought juices flowing, I would recommend the following popular books:

Making Your Small Farm Profitable, by Ron Macher (publisher of Small Farm Today)

Powernomics - The national plan empower Black America, by dr. Claud Anderson (former Assistant Secretary of the US Department of Commerce under Jimmy Carter).

Sincerely,
MrK / Guest Blogger
The above memo was sent by MrK to Minister Musokotwane following his request that Zambians respond on the Budget 2009 via email to him.

Friday, 13 February 2009

Quick Links

Morgan Tsvangirai's Inauguration speech : The full transcript of Morgan's acceptance speech as Prime Minister.

Court backs S Africa exile vote : South Africans living abroad should be allowed to vote, according to a ruling by Pretoria High Court

Micah Challenge Zambia on 2009 Budget : An interesting response from the NGO to the 2009 budget.

Passport deadline extended : GRZ has extended the deadline for renewal of old passports from February 28 to May 31, 2009.

Women, children and illegal mining : An interesting set of photos from the Picture Monger of illegal mining in Kafue.

Thursday, 12 February 2009