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Friday, 7 May 2010

A shallow strategy...

A new report from the Brenthurst Foundation allegedly commissioned by the Government. It claims upfront :

President Banda invited a group of international experts to visit Zambia in March 2010 under the auspices of the Brenthurst Foundation. On the basis of preparatory fieldwork and research by Brenthurst staff, the group visited major sites of economic development, held discussions with a wide range of stakeholders and organised a threeday orkshop attended by key players from the public and private sectors. This Report is based on the delegation’s findings and was drafted by Dr Greg Mills, Professor Jeffrey Herbst (USA) and Dr Stuart Doran (Australia). 
The Brenthurst Foundation is a Johannesburg-based think-tank established by the Oppenheimer family in 2005. If the name sounds familiar, its because of one  Nicholas Oppenheimer the chairman of the De Beers diamond mining company and its subsidiary, the Diamond Trading Company. He also has a large financial interest in the diversified mining company Anglo American. Keith Snow and others believe there's a clique that control mining interests in the region through many channels. For our purposes it is simply important to note that this is a "big business" report and therefore worrying that the President would invite such a group to provide advice on the future of our country.

But as I said to one person, the reputation "good" or "bad" is in the summation of things neither here or nor there. What matters is whether it has any substance. As it turns out it is actually a pretty poor report and the President would have done well to ask qualified Zambians to advice him. In many areas it shows a very poor understanding of where we need to get to truly mobilise Zambia. Brief comments on the three key recommendations :

Mobilising Zambia
"[There should be] greater efforts to sell to Zambians the benefits of a free-market economy and accelerated growth, perhaps using the 50th anniversary of Zambia’s independence (2014) as a reference point"
The report does not present any single empirical support that Zambia needs a greater role for the market than the State. Many people have argued that what is missing in Zambia is precisely the strong role of government to ensure a more robust structural transformation on the production side. True development is both a process and outcome. The "process" of how Zambia achieves growth  is important. This naturally calls for a pro-active involvement by the State in channelling the energies of private actors to foster the transformational exercise. Markets alone wont get you there. We cannot just sign up to a free market ideology without a comprehensive vision of what it will deliver.

Mining Taxation:
"For the copper industry, a win–win for government and the miners might involve adoption of Chile’s tax system as a best practice model....The Chilean system is predictable and uniform for all industries except that for large mining companies (producing over 50,000 tonnes a year of copper or its equivalent in other products) there is an additional tax which is on a sliding scale, but which peaks at 5 per cent of net sales, after production costs."
Earlier in the report they nailed their flag to the mast, peddling the mining companies' story line that the abandoned windfall tax was "so steep beyond certain thresholds that it paid mining companies to slow or completely halt production". This is foolish analysis because it confuses the administrative problem of double application of the profit variable tax and the windfall tax, with the merit of the windfall tax per se.    In general, I have problems with importing taxation systems applied to countries which are in better financial position or operating within a different atmosphere of revenue sharing. Zambia's approach to mining taxation should be comprehensive as argued here. With regards to the profit based mechanisms, as cited from Chile, the flaws are well known as discussed here.

Tourism :
Efforts could be made to expand bilateral links with South Africa as critical first step. South African operators have indicated an immediate willingness to increase flights into Lusaka given the right conditions. 
This is probably the most disappointing part of the report. It recommends getting South African operators into Lusaka. This is a shabby strategy and does not go far enough. I have previously touched on the key areas that need to be addressed to move the country forward in terms of aviation. This principally involves creating an enabling environment through greater liberalisation of air travel;  reducing the the cost of jet fuel; improving our airport infrastructure; privatisation of provincial airports (more competition); investment in Airport Traffic Control (ATC) infrastructure; and  investment in soft infrastructure - human capital. The Zambian Air Services Training Institute for example must be considered as critical to aviation development.

There are many other detailed flaws in the report which I'll leave others to spot. Its only 17 pages, so good weekend reading! One comforting thought is that having read the report it struck me that on this website we have chronicled the key areas! Which bodes well for our Elections 2011 project!

1 comment:

  1. large financial interest in the diversified mining company Anglo American. Keith Snow and others believe there's a clique that control mining interests in the region through many channels.

    Actually the business model of the diamond industry is to create an artificial shortage. There are more than enough diamonds in the world, therefore the value comes from the ability to restrict diamond mining.

    And this is done through monopoly ownership of the mining industry. 90% of the world's diamonds come from South Africa and Botswana, and De Beers (Oppenheimer) own the monopoly.

    This is also why all sanctions legislation against Zimbabwe contains mention of the 'Blood Diamonds' - they desperately want to keep Zimbabwe from a) exporting their own diamonds and b) getting hold of diamond mines in the DRC.

    Anyway, there is an excellent 1994 documentary called "The Diamond Empire". Watch it. :)


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