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Sunday, 31 January 2010

A new vision for Zambia ?

A wonderful Op-ed from Michael Sata gives a glimpse of his vision for Zambia. A state led capitalism for adequately defined areas where the role of the state is paramount :

"a synergy between foreign investors, the government and local investors is one that can propel Zambia to the heights of South Africa and Ghana once well nurtured".
Interestingly, Mr Sata draws a direct link between lower taxation and greater state involvement in strategic sectors :
"we could lighten the burden on taxpayers by cutting down your taxes and become a healthier and happier nation if we had some other form of income other than squeezing the already squeezed formal sector by holding small shares in state companies just like our friends in the west do".
As for which sectors, the list appears comprehensive :
"It is through the partial ownership of state telephone companies, power companies, health funds, mines, pension funds and so on and so forth that they lead a quality life and they enjoy longer life spans than us".
Then comes the question of how this would be implemented.  There's the leadership hypothesis :
"Rupiah Banda on the other hand wants to auction the entire country in the name of efficiency when we can hire highly qualified private sector managers and pay them well enough to profitably run state enterprise: The British hired an American to turn around their railway underground system, Australians hired an American to run their billion dollar Telecoms company…we can join the queue..". 
Taken together Mr Sata's contribution is timely and well informed. A lot of people are asking what is the PF-UPND approach to economic management? What is their vision for Zambia? I think in this article he makes it very clear that he has a different vision for Zambia. A departure from MMD neo-liberalism to more state led capitalism. We have a clear break now between these two parties. A conflict of ideologies.  That said, I think there are some areas where we still need more answers regarding this vision of state infused capitalism.  While Mr Sata ably demonstrates the many flaws with the current approach and offers examples of where state owned companies have been successful,  difficult analytical issues remains. I appreciate he was not writing a manifesto, but it would be good if having laid the ground the next debate can now move to the tougher issues.

On this I have several observations.  First, in order to implement effective state led capitalism we need to be clear on what sort of ownership or organisational structures that would be pursued that would lead to successful state led / supported enterprises. We must understand why Zambia Airways failed but Singapore Airlines is very successful. Then there’s Mr Sata list of  "strategic industries". Secondly, we must be clear how one go about distinguishing areas where the state should or should not consider direct  production. For example, we should ask, why should the state look for partnership in mining and not tourism? Thirdly, there's need to resolve the complicated problem of government taking part in markets where private players already exists and the problems that has for regulation (a state funded ZAMTEL competing against private companies in a market regulated by ZICTA is not ideal). Finally, we must be more cautious on the "leadership hypothesis". It is true  in many parts of the world capable managers have been able to transform corporations, but as I have noted previously it is not as simple as simply picking a qualified person. There has to be political will to make these companies operate independent of political actors and there's need for effective contract designs.

These of course are difficult issues and highlight the need for good analytical input in decision making.  In short Mr Sata's vision can work but needs good economic and business advisors around him to translate them into effective policies. When Mr Sata said houses could be built within 90 days many people laughed, but everyone living in the West and the Far East have seen structures come into being in less than 30 days! This time round it must be hoped that rather than debate impracticalities we shall all start dreaming how to make some of these ideas into being. We shall dream solutions not why ideas cannot work. This applies to all ideas from either end of the political spectrum.

11 comments:

  1. I must say that Sata's ideas are pretty impressive on paper. However, the key thing, as you rightly point out, is the existence and execution of political will to have the ideas implemented. Previous governments have had similar excellent (to varying degrees of course!) plans but they have, more often than not, been sacrificed at the altar of political expediency.

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  2. I think the problem we have in Zambia is that successive governments have always avoided to do the basics. I believe we can lift Zambia's annual growth rate by 2.5 percentage points by the government focusing more on infrastructure development. We need to develop our road network between provinces and within them. This will help in reducing the cost of goods and services in Zambia which most visitors complain of in that the copuntry's cost structure reflects british prices than comparative economies in Africa including South Africa.

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  3. Let us not be seduced by visions of state capitalism earning the country large profits to replace unpopular high taxes.

    Experience should have taught us that state controlled companies are an irresistible temptation to dishonest politicians. High calibre chief executives are no protection against abuse of power by public servants, who always have ways to use their influence to benefit themselves or friends and relatives.

    Ownership by private shareholders ensures that mismanagement is exposed and penalised. But our publicly owned enterprises fall prey to all kinds of gerrymandering. They often do not even publish accounts.

    On 4th August 2009 you published a report submitted to the National Assembly in 2005, which showed how, when ZNOC was put into liquidation, top politicians stole $240 million. Incidentally, the Company had a high calibre foreign chief executive. The National Assembly ignored the report, and no action was taken. Such a thing could never have happened had the company been privately owned.

    A new vision for Zambia could easily become a new vision for unscrupulous politicians.

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  4. Brokenhill,

    I agree with you. Infrastructure is paramount though I think where we have failed is HOW to deliver such infrastructure. In recent times we have seen some innovative approachs - The PPP Act should hopefully help.

    The other point is that good infrastructure relies on effective planning. That is also another we have not done so well.

    Murray

    Your worries are NOT misplaced of course. The record of political capture of companies is plenty. That does not mean that we must place all of our trust in foreign corporations. Rather we must check whether we can achieve the same objectives (empowerment, lower PAYE) by alternative means.

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  5. Zambia’s failure is largely due to inconsistency and the inability to eccentricize development programmes. We have a habit of starting things and then abandoning them when they are half baked. We lack the consistency needed to keep a programme going right up to its fruitful vision. In 1991, we (70%+ of registered voters) decided that the socialist approach which dominated Zambia for 27 years, should be replaced with a neo-liberalist/ capitalist system where the private sector leads development competitively. Our people decided that politicians should be prevented from abusing parastatals at the expense of national development. Zambians wanted a level playing field and an enabling environment where everyone (even FDI) can participate and grow the country and economy.

    Unfortunately, pro-socialist thinking prevented Zambia from fully implementing this new idea as the opposition capitalized on capitalism’s failures and indoctrinated socialism, once again, in our people’s minds. Strong and developing countries consider this kind of flip flopping of ideologies as a threat to their way of life. The west sees it as terrorism. As a result, such wayward thinking is prohibited as it derails development progress. This is their backbone of sustainability.

    In Zambia, we consider this wayward thinking as “positive tension”. As a result, it has taken over 12 years since 1991 to see positive economic indicators such as the Kwacha appreciate and single digit inflation. Had we curtailed debate on these issues and directed the country’s focus purely in line with the 1991 vision, we’d have attained today’s economic strides within 5 years! African countries where debate of this nature is regulated have shown higher levels of economic and social development.

    As for Mr. Sata, his desperation to become president of Zambia is forcing him to take us back 20 years to UNIP ideologies which we clearly voted against in 1991. This back tracking will have a very negative impact on both local and foreign investor confidence, and capital and labour flight will be the order of the day.

    Zambia cannot afford to keep flip flopping every 20 or so years and expect to improve the lives of its people.

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  6. Wow, what a vision! The only problem I have with Mr. Sata's colourful vision is that he has been in government more than he has been in opposition. What was his vision, not to mention track record, then??

    Lest we forget, this is the man who was FTJ's right-hand man and supported his evil ill-fated 3rd Term bid up until it all fell apart. When FTJ realised the game was up, he then dribbled Mr Sata and handpicked an outsider as his successor, which sent Mr Sata fuming and storming out of MMD. He never quit MMD on principle; he only quit because the annointing hand missed him!

    Today he has a vision for the country, at what age, 72? Lol!

    Look, much as I think the PF-UPND alliance has a real chance of kicking out Rupiah's inherited empire, I am yet to be convinced Mr Sata at the helm would be any different to what we've had. After all, he is 'cut from the same cloth' as any other MMD cadre.

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  7. State Led Capitalism? Sounds interesting and I get the idea,and I must say am in support of such an approach to a certain extent.

    Direct government invlovement in the economy is warranted provided there are strong safe guards. I doubt that our political enviroment is mature enough to not infuse politics into the running of partially state owned companies. If this issue is not addressed by Mr. Sata or anyone advocating for this approach, then we should not trust their word. There needs to be a legally binding commitment from government that they will let businesses run according to sound business and economic principles without any political interfirance whatsoever.

    Secondlly, the government must have an exit strategy. For example if the state owns 50% of an enterprise they must give a time frame for when they will be begin reducing their shares so that in the end we could have comapnies that are totally privately owned. The best thing to do will be to auction at least 50% of state owned shares in a company to the Zambian public.

    Thirdly, partially state owned companies should aggresively pursue to go public and be listed on the stock exchange to ensure that Zambians have the opportunity to own a stake in them.

    I have always said that government cannot be a by-stander in the economy, leaving it totally in private hands. Government must be a catalyst and act to ensure that the private sector survives and creates jobs BUT doing so for the short and not long term.

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  8. I doubt that our political enviroment is mature enough to not infuse politics into the running of partially state owned companies.

    Zambia is going to make a great leap forward when it constitutionally separates the state and the government. State employees (civil servants) and parastatals should have promotion based on merit (exams) and not appointment by politicians. There should also be oversight committees to ensure transparancy and detect fraud.

    It can be done, if there is the political will to do it.

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  9. State capitalism? Going back to the UNIP days. Let Zambians just take up the opportunities available to them and put up private enterprises than think that government should start subsidising lose making companies. Please, lets stop this behaviour of making one step forward and one step backwards. Private enterprise is the best way of growing an economy and making progress.

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  10. Campbell,

    Thanks for your assessment.

    I have now posted it separately under - Progress Analysis

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  11. Campbell Lumbila,

    I completely support your approach.

    In my opinion, 'the commons' (infrastructure, basic services) should be publically owned, so they are available to everyone without a direct charge. At this state of development the mining sector should either be publicly owned or heavily taxed, to capitalize other economic sectors. Certainly public ownership of the mines would eliminate corporate capture of the mines and politics as well, to the point where the mines pay no taxes as we see today. If in future the mines are renationalized, the mines themselves have had a big hand in that because of the efforts they have taken to avoid paying taxes.

    Your version of state involvement in the private sector I can fully support. If the state kickstarts businesses and then privatises them when they reach maturity is a great way to get medium and large Zambian owned and managed businesses started, which would be extremely good for the economy.

    Certainly when it comes to the creation of Zambian corporations, we can learn from the examples of Korea's Chaebol and Japan's Keiretsu as well.

    A strong prerequisite for state corporations should be a clear separation of the state and the government by law. Much of the negative experiences with parastatals come not because they are innately inefficient, but because of outside political interference in it's operations.

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