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.

This Week They Said

“This man was here. He has just left but it was a bit embarrassing for him...He did not address the people"

Ben Nyirenda a Mufulira business man on Chiluba's visit to the town.

"The party spokesperson is from Rupiah's home, the new deputy national secretary is from Rupiah's home. All the ministers, all the MPs there and ministers from his home"

UPND President HH on the rise of wise men (and women) from the east.

"They have degrees but they are failing to show the nation that they have degrees. They don't give hope to those who are not educated. Can Rupiah Banda confidently say he has a degree in economics?"

Edith Nawakwi questioning the value of some degrees.

"If we vote for Mr Michael Sata and Hakainde Hichilema, they will destroy the nation because they don't have a heart for the country."

Former President FTJ on the campaign trail for Rupiah Banda.

"The pact is strong and will remain strong, that is why the MMD are not sleeping”

Hon Garry Nkombo (UPND, Mazabuka) on the strength of the Pact.

"You should not cry for me as my new home is extremely warmer and I will let you know its address at an appropriate time".

Clive Chirwa in a resignation letter to Katele Kalumba.

“As a country, we are at a stage where we won’t beg for assistance from the developed world”

Ambassador Mbikusita Lewanika (Japan) to selling Zambia abroad.

“They should not be scared of Chiluba, Chiluba is like a snake that cannot bite anyone. He is no longer a poisonous snake"

UPND's Elisha Matambo on the electoral impact of FTJ.

A Million Words

That is the name of the Zambian Economist New Year Resolution. This year our collective target is to read every piece of legislation passed in Parliament. As part of this exercise, we'll regularly review and summarise the key proposals.

As I reflect on previous years, I have been struck by how many poor laws we have. But even more puzzling was that not many people read these important pieces of legislation Parliament regularly churns out. In a small way, we are hoping to help change that attitude with the" million words project".

Top 5 Books of 2009

We have begun another great season of book reviews. A lot of wonderful books in store this year. But before we publish the new reviews, I thought its worth sharing my top  five books of 2009 (one or two published in 2008), if only to give a glimpse of what I read. I welcome any suggestions for titles of books to review (preferably published in 2010).

(5) Levy Patrick Mwanawasa : An Incentive for Posterity  by Amos Mapulenga (NISC) :

Extremely grateful to a friend who managed to get this book for me. I partly regret not formally reviewing the book. Indeed, it will certainly surprise my friend that I have listed in my top five books. Let us be honest : the quality of the writing was poor and at times selective in acquiring evidence. But I do appreciate the effort that went into the book and occassionally I do find myself going back to check one or two things. For that reason, I think it deserves to be in every library collection. For a more sympathetic review of Malupenga's efforts see this review.

(4) The Lost World of Genesis One : Ancient Cosmology and the Origins Debate  by John H Walton (IVP Academic) :

This is a remarkable book on the origins debate. When I first picked it up, I had no idea it was going to be as deep and refreshing as it turned out to be. Once I opened the few pages, I could not put it down. John Walton is a brilliant theologian but also a wonderful writer. I particularly liked his "propositional" approach to argumentation.

(3) One Zambia, Many Histories  : Towards a History of Post-colonial Zambia, Edited by Jan-Bert Gewald, Marja Hinfelaar and Giocomo Macola (Brill):

A wonderful departure from the "ego-documents" and "de-humanised and monolithic commemorative monuments" that are penned by Zambian politicians in their quest to shape our view of post independence history. This is as scholarly as it comes. I would encourage every student of Zambian history to pick up a copy. In these pages, you will delve in the mind of Harry Mwaanga Nkumbula, reflect on the Lumpa massacre, assess the public role of religion, and wonder  at the new and old forms of politics in the early days of the third republic.

(2) Bad Samaritans  : The Guilty Secrets of Rich Nations and The Threat to Global Prosperity, by Ha-Joon Chang (Rbooks):

The only book in the top five we formally reviewed. Its fair to say that Chang has helped shape my own view about how best to strike a balance between markets and state intervention. I never managed to get every Parliamentarian a copy but I did send it at least to one MP. A master piece!

(1)  Justice : Rights and Wrongs, by Nicholas Wolterstorff (Princeton) :

400 pages of mind blowing philosophical reflections on the question of "what is justice?". It took two months to read the whole book. I would read, stop, pause and reflect (and sometimes tweet quotes). Without doubt Wolterstorff is the leading moral philosopher of our time.  I keep checking Amazon for his next project on Love and Justice. What more can I say,  except to admit that I am Wolterstorffian!

Quick notes

World Cup raises HIV fears - The Botswana government is worried that alongside the good things the World Cup in South Africa may bring, it may have an adverse impact on the fight against HIV.

Intellectual Property Rights Do Not Assure Quality - IPS's Christi van der Westhuizen interview with IPR expert Sisulu Musungu on the growing anti-counterfeit laws and regulations that risk blocking legitimate generic medicines instead of fake products.

Rwanda's community courts: a unique experiment in justice : An interesting piece from the Guardian on on Rwanda's gacaca courts – the community trials set up to try those accused of taking part in the country's 1994 genocide.

Inverness driving instructor in quest to make African roads safer - A driving instructor from Scotland is passing on his experience to bus drivers in Zambia via the international development charity TRANSAID

India: Order heralds era of transparency - An innocuous query asking if judges declared assets to their chief justices has resulted in a landmark judgment empowering millions of Indians.

Linking Zambia (Chipembele)

Chipembele Wildlife Education Centre "is a fun, interactive and contemporary learning facility for Zambian children. It focuses its programmes on wildlife, the environment and conservation issues".
(HT : Lodgeblog).

Better Police (Corruption), 3rd Edition

An update to the K8bn Zambia Police scam . The Anti Corruption Commission (ACC), Drug Enforcement Commission (DEC), Zambia Police and Intelligence officers recorded a warn and caution statement from Inspector General of Police Francis Kabonde in connection with the investigation. The investigation appears serious enough to make Mr Mateyo cry, but this quote is very worrying :

Well-placed sources in the Ministry of Home Affairs confirmed over the weekend that a combined team of officers from the DEC, ACC, Zambia Security Intelligence Service (ZSIS) and Zambia Police set up to investigate the irregularities in the purchase of police escort vehicles, motorbikes, bullet proof presidential cars and traffic equipment wrote to President Rupiah Banda asking for permission to interrogate and take a warn and caution statement from Kabonde. The sources said President Banda granted the permission to the investigators to go ahead and investigate Kabonde.

Although the President "granted the permission" it would have been better for the investigating authorities to simply proceed without reference to the President. Part of the problem of course is the issue we discussed under - Rethinking Justice : Better Policing - the IG is a Presidential property. You don't touch without asking the President first.

In the meantime, pressure is growing for the IG to step aside and allow the process to unfold, principally led by Transparency International and the Opposition.

Qualifications for the Republican Presidency (Guest Blog)

I am shocked by the National Constitutional Conference’s adoption of articles requiring a Republican presidential candidate to have a bachelor’s degree as a minimum academic qualification, and to have been resident in Zambia for 10 consecutive years preceding any given presidential election.

It is abundantly clear that such clauses are designed to exclude certain individuals from contesting the Republican presidency, and are seemingly initiated by MMD members of the National Constitutional Conference (NCC) and their sympathizers.

I have argued below why it is undesirable to have such clauses in the new Republican constitution.

Minimum Academic Qualifications:

The adoption by the NCC of an article which requires a Republican presidential candidate to have a minimum academic qualification of a bachelor’s degree is outrageous for the following reasons:

(a) It is not based on evidence from Zambia or anywhere else in the world suggesting that a president’s competence is directly related to his or her academic qualifications. In other words, it is mainly based on hunches rather than on facts!

(b) There is no academic degree offered anywhere in the world which can equip an individual with the qualities that are needed in political leadership, such as emotional stability, patriotism, selflessness, fair-mindedness, patience, compassion, tolerance, respect for the rule of law, and the ability to make compromises with people who have dissenting views.

(c) Most academic degrees are not designed to equip students with the requisite knowledge and skills relating to political or national leadership.

(d) The Republican president appoints qualified advisors to provide him or her with decision inputs in dealing with legal, economic, political, and other matters.

(e) The Republican president is expected to appoint competent government ministers and charge them with the responsibility of advising him or her on matters relating to national projects and programs, and spearheading the implementation of such projects and programs.

(f) The clause, if it is eventually included in the new Republican constitution, will inevitably require all office bearers (including the vice president) who are constitutionally expected to take over the presidency under special circumstances to be holders of academic degrees. And

(g) The kinds of national policies, projects and programs a presidential candidate promises to pursue are more important than his or her educational attainments.

There is, therefore, a need to retain Article 123 (1) (e) of the Willa Mung’omba draft constitution, which states that a person would only be qualified to be a presidential candidate if he or she had obtained the minimum academic qualification of a Grade 12 certificate.

The 10-Year Residence Requirement:

What is really the rationale for a constitutional clause requiring a presidential candidate to have been resident in the country for 10 consecutive years preceding any given election? In other words, what is such a requirement supposed to achieve?

There are many reasons why Zambians temporarily reside in foreign countries, such as to pursue studies, to work for the Zambian government in foreign missions, to work at foreign-based branches of companies registered in Zambia, to pursue investment opportunities, or to seek employment due to the widespread unemployment currently obtaining in the country.

These are all good reasons why some Zambian citizens have, now and again, found themselves temporarily residing in foreign countries. Why, then, should their native country’s constitution deny them the opportunity to vie for the Republican presidency?

There is a need to remove this requirement because it discriminates against citizens who temporarily live in foreign countries for good reasons.

Over the years, the people’s call for a non-discriminatory Republican constitution that is expected to stand the test of time has been loud and clear. Unfortunately, those who are entrusted with the noble task of delivering such a constitution to the people seem to have personal and/or partisan stakes in the constitution-making process.

I wish to request each and every member of the NCC to heed the people’s call for a constitution that will meet their needs and expectations in order to save financial and material resources that are likely to be devoted to another constitutional review commission in future.

Henry Kyambalesa (Guest Blogger)

This Week They Said

"if somebody says ‘I’m going to rape somebody in future’, I don’t see how it constitutes an offence".

Inspector General of Police Francis Kabonde claiming that the threat by MMD cadres to gang-rape opposition FDD president Edith Nawakwi does not constitute an offence.

“Now this foolish Kabonde, can he please define the difference. If today I stood up and said ‘I’m going to shoot …,’ would he actually stand up and say it is not a criminal offence?"

Edith Nawakwi angrily responding ton Francis Kabonde.

"‘Ni ba Mateyo aba. Babachita chani ba Mateyo (Translated : This is Mr Mateyo. What have they done to Mr Mateyo?). People heard and saw him shedding tears. It was dramatic."

A Post Newspaper source on the reaction to former Inspector General of Police Ephraim Mateyo after he broke down during interrogation at the ACC offices in Lusaka.

“In today's Parliament, how many MMD MPs have degrees or are university graduates?...there are very few [MMD] members of parliament with degrees... VJ Vernon Mwaanga is not a graduate, including Shikapwasha, he is not a graduate. If Mulongoti has one then he just acquired it recently..."

Michael Sata reacting to the NCC adoption of the degree clause for presidential candidates.

“People were laughing at our chances and we were considered as the worst team here, but today we proved we are good enough to reach the quarterfinals,”

Herve Renard has the last laugh after the team moved from last place to first.

"If it is just a few people, we will offer them a roof and a patch of land...If they come in large numbers, we will give them a whole region."

Senegal's President offering to make room for victims of Haiti's earthquake to restart their lives on the continent from where their ancestors were snatched as slaves.

NCC Updates (50% + 1, Presidential Degrees)

The NCC process reached a crescendo this week. It all begun on Tuesday. The "government led punters" managed to pull off the victory  with 266 delegates voting against the 50% + 1 clause, but clearly not enough to reach the 297 threshold that would have killed the clause completely. This result has now forced a referendum.

The government was quick to remind us that such an exercise would be extremely costly.  Part of the problem is that any referendum must be preceded by a national census to ensure that we have accurate number of the eligible population. When that happens we can then check whether the turn out is genuinely more than 50% for the outcome to be valid. But even here confusion reigns.

A possible compromise would be to hold the referendum at the same time as the general elections - but that would be complicated for many people.

As if that was not bad enough. We had the misguided proposal of requiring a presidential candidate to have at least a degree from a reputable university (don't laugh!).  We have previously discussed why this degree proposal misses the mark on When mulongotism met sakism and Defending Mulongotism?  Politically, the controversial nature of this proposal puts another nail in the constitutional coffin.

So we have confirmed what everyone knew : the whole NCC process has been an exercise in futility. The delegates are laughing all the way to the bank - those who boycotted have been vindicated. It can only be hoped that lessons have been learnt from this expensive farce so that post 2011, a better and more efficient process will emerge.  I remain convinced that we can achieve some of the institutional objectives through piecemeal parliamentary reform, effective funding of watchdog institutions and new transparent policies.

Do we really need a constitutional change to make the Electoral Council of Zambia or Bank of Zambia Independent? Yet these are issues which have taken up valuable time.  Post 2011, we much focus on limited questions and allow other reforms to emerge through parliamentary reform.

The fog of diaspora remittances...

Evidence from a new paper on the impact of remittances in sub-Saharan Africa :

The findings on the impact of remittances on economic growth are less clear-cut. One resultof our analysis that is fairly robust across specifications is a negative coefficient ofremittances in growth regressions. This result would suggest that the adverse effects ofremittances on growth may dominate, at least in SSA countries. Remittance flows could verywell reduce the volatility of consumption or alleviate financial constraints. On average,however, the evidence would indicate that the combined effect of the resulting real appreciation of the exchange rate, the brain drain, or adverse incentives on labor forceparticipation offsets these positive contributions.

Of course what this suggests is that remittances have to be "managed" to get the best out of them. This appears to be the general truth with many other external drivers (FDI, aid, etc). These are better seen through the prism of the overall quest for development - the danger of counter-productive outcomes is forever lurking.

Building modern markets

Another interesting promise extracf from Government Assurance report :

Building Modern Markets in all Provincial Centres, Government Assurance Report, Excerpt :

On 30th March, 2005, the Hon Minister of Local Government and Housing made the following assurance on the floor of the House: “Mr Speaker, it is the intention of the Government to build markets like the new Soweto Market in all Provincial Centres and, also in big cities like Livingstone, Kitwe and Ndola.”

In his update , the Permanent Secretary reported that the Government had not commenced the construction of modern markets in all provincial centres because of inadequate budget provision to undertake the programme. He further reported that the exercise was a long term undertaking because of the huge sums of money required. Each provincial centre would require between K1.5 billion and K2 billion.

Committee’s Observations and Recommendations

Your Committee observe that it is taking too long to implement the assurance. They further observe that the request to close the matter, as advised by the Permanent Secretary, is premature and untimely as nothing has been achieved to warrant the closure of the assurance.

In view of the foregoing, your Committee urge the Government to urgently find the money to kick start this project of constructing modern markets in all provincial centres. Only when this is done will your Committee consider closing the assurance. A progress report is awaited on the matter.

The idea of having modern markets in provincial towns is noble. What I can't understand is why the Parliamentarians are looking to government footing the bill. Surely markets are no different from large shopping malls? This would seem to be an area where government should be encouraging the local councils to partner with the private sector. Indeed the vision should be private sector led markets with local councils regulating through setting appropriate rates.

Lusaka Basic Needs Basket - December 2009

The Lusaka Basic Needs Basket and the associated press release for December 2009.

Ethnicity and economic growth

A recent article revists the ethno-linguistic fractionalisation and economic growth debate. It presents new evidence that considers how fractionalisation changes over time and treats it as both a cause and an effect of economic growth. While fractionalisation is found to have a negative effect on growth, it also changes over time, contrary to conventional wisdom.

The growth effects of changes in ethnic fractionalisation, Nauro F. Campos, VOX EU, Commentary :

Over the last fifteen years, economists have started to seriously study ethnic, linguistic, and religious fractionalisation. The seminal papers of Mauro (1995) and Easterly and Levine (1997) seemed to show that greater levels of ethno-linguistic fractionalisation hinder economic performance, but this direct effect has been seriously challenged. Easterly (2001) argues that ethnic fractionalisation only slows down economic activity in countries with “sufficiently bad” institutions, while Alesina et al. (2003) show that such negative impact is strong mostly in autocracies. Garcia-Montalvo and Reynal-Querol (2005), meanwhile, argue that the effect of fractionalisation on economic performance is weak and suggest focusing on polarisation instead.

Following the recommendations of Alesina and La Ferrara (2005), my research with Ahmad Saleh and Vitaliy Kuzeyev contributes to this debate in two ways.

• Improving the measurement of diversity – fractionalisation is typically measured using secondary data compiled by Soviet researchers in the early 1960s.
• Modelling diversity as an endogenous variable – fractionalisation is often treated as a time-invariant, exogenous variable.

Improving the measurement of fractionalisation

Our research (Campos et al 2009) puts together a unique data set based on primary data from censuses and demographic surveys in order to capture potential changes in ethnic fractionalisation over time. In each country, collection was carried out by the same agency employing consistent methodologies. The sample covers 26 former centrally-planned economies in Central Europe and in the former Soviet Union from 1989 to 2007. The data contains the percentage of the population belonging to each ethnic, linguistic, and religious group in each country, for each of four time periods, generating a panel with 104 observations.

We then use this data to calculate a whole family of fractionalisation and polarisation indexes. Fractionalisation measures capture the probability that two randomly selected individuals belongs to different ethnic, religious, or linguistic groups. They take values between zero for a perfectly homogeneous country and one for a highly heterogeneous country. In addition, because fractionalisation measures increase in the number of underlying groups, polarisation measures were also computed. In this case, the maximum is reached with two groups of equal size.

Does fractionalisation change over time?

Figure 1 calculates the averages of ethnic fractionalisation indexes between 1989 and 2007 using this new data. Overall, these countries become more ethnically homogenous over a short period of time. Moreover, the Visegrad countries of the Czech Republic, Hungary, Poland and Slovakia have been consistently the most ethnically homogeneous, while the Baltic countries have been consistently the most ethnically heterogeneous group of countries in this sample. The Figure also shows that the countries in the Asia group have experienced more severe changes in ethnic fractionalisation than the other groups. The simple correlation between economic growth rates and the measures of fractionalisation and polarisation is negative and ranges from -.24 to -.37.

Figure 1. Ethnic fractionalisation in transition: 1989 to 2007
Note: Figure 1 plots average fractionalization for the following groups of countries: Asia (Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Mongolia, Tajikistan, Turkmenistan and Uzbekistan), Balkans (Albania, Bulgaria, Croatia, Macedonia, Moldova and Romania), Baltics (Estonia, Latvia and Lithuania), BUR (Belarus, Ukraine and Russia), and Visegrad (Czech Republic, Hungary, Poland, Slovakia and Slovenia).

These changes in fractionalisation suggest that there may be value in re-thinking the common assumption that fractionalisation levels are time-invariant. This also raises the question of why fractionalisation changes over time.

For this group of countries, one general cause is migration flows. These may be driven by better economic performance and opportunities in the destination country as well as by inferior economic performance and/or civil war and ethnic cleansing in the origin country. In developing countries, such a process could take decades to unfold. But there are circumstances in this sample of transition countries which allow for this process to take place in a much shorter period of time.

• First, with the collapse of communism, workers become free to move to other countries in search of better economic opportunities. While under communism, severe mobility restrictions were in place.
• Second, the ubiquitous Russian minorities seem to have been made to feel unwelcome and the new economic and political situation after 1991. This resulted in return migration, causing the share of Russians to fall in every country in the sample, with the exception of Moldova.
• A third important factor may have been violent conflict such as the wars in the Caucasus and former Yugoslavia. This particular conflict, for example, resulted in the share of Serbs in Croatia declining from 12.2% in 1991 to 4.54% in 2001.

New insight on the effect of fractionalisation

We treat fractionalisation as an endogenous variable by making use of this temporal variation and using latitude and lagged fractionalisation as instruments. Our results support the recent literature and show that static – exogenous – diversity is indeed not robustly correlated with economic growth. But, when accounting for changes over time and modelling ethnic diversity as an endogenous variable, we find that ethnic fractionalisation is negatively related to growth.

Once fractionalisation is instrumented with latitude and lagged fractionalisation, we find a significant negative effect on economic growth.

Does fractionalisation change fast in poorer countries too?

The dramatic changes in the ethnic composition over such a short period of time are caused by various characteristics of the transition countries. While we do not think it reasonable to expect a similar magnitude of changes to take place in other groups of developing countries over the next ten years or so, data is becoming available that will allow us to relax the assumption that the degree of ethnic homogeneity has not change meaningfully in poorer countries since 1960. This will be useful in re-assessing our results as well as the recent discussion about the channels through which fractionalisation affect growth.

It is also clear that the construction of census-based measures for larger samples of developing countries over longer periods of time is a task that still requires some concerted effort.

Conclusion

Our results support the idea that fractionalisation has a negative effect on growth. Crucially, our new methodology suggests that less weight should be attached to the widely held assumption that ethnic fractionalisation does not change over time – or that it is possible to safely ignore these changes.

References

Alesina, Alberto, Arnaud Devleeschauwer, William Easterly, Sergio Kurlat and Romain Wacziarg (2003), “Fractionalization”, Journal of Economic Growth, 8: 155-194.

Alesina, Alberto. and E. La Ferrara, “Ethnic Diversity and Economic Performance,” Journal of Economic Literature, 43 (3), 762-800, 2005.

Campos, Nauro, Ahmad Saleh, and Vitaliy Kuzeyev (2009), “Dynamic Ethnic and Economic Growth in the Transition Economies from 1989 to 2007”, CEPR DP 7586,.

Easterly, William (2001), “Can Institutions Resolve Ethnic Conflict?” Economic Development and Cultural Change, 49 (4): 687-706.

Easterly, William and Ross Levine (1997), “Africa’s Growth Tragedy: Policies and Ethnic Divisions”, Quarterly Journal of Economics. CXII (4): 1203-1250.

Garcia-Montalvo, Jose and Marta Reynal-Querol (2005), “Ethnic Polarization, Potential Conflict and Civil Wars,” American Economic Review, 95: 796-816.

Mauro, Paulo (1995), “Corruption and Growth,” Quarterly Journal of Economics, 110(3): 681-712.

ZIPPA on "Power to People"

ZIPPA Journal January - March Edition 2010

Better Policing (Illegal Detentions)

An update to the "Rethinking Justice : Better Policing" that highlights the urgency for further reforms. It is shameful that police would detain a wife just to make sure the husband turns up. The other day I was watching a Nollywood film with my wife and I deplored such tactics, only my wife to gently remind me that our country is no better at using such tactics. And right she was as the story report below illustrates  :

Police Breaking the Law to Prevent Crime, Zarina Geloo, ISP, Report :

Juniper Mwale was attending a funeral in another town when her husband jumped bail and fled the country. Despite not being aware of her husband's escape, police tracked her down and detained her illegally in an effort to force her spouse home.

Detaining someone without cause is against the law in Zambia. But the country’s police continue to do this, specifically targeting the female relatives of a suspect, in an attempt to gather information or force the suspect out into the open.

The practise is so common that Zambians have accepted it as an inevitable part of investigations. However, legal aid clinics are now trying to increase public awareness to stop this practice and demanding that the officers involved be charged with breaking the law.

Women and Law in Southern Africa (WILSA) executive director Matrine Chuulu says the illegal detentions are an abuse of power and a blatant violation of people’s rights. WILSA provides free legal aid to women and is now leading the campaign against illegal detention.

“It’s ironic that the very institutions that are supposed to protect are the ones violating people.” Chuulu says police have taken advantage of the power they have in society. “The police need to know that they are not above the law, they should be penalised like anyone else.”

Mwale says it is obvious that the police who detained her were aware their actions were illegal. She was released from detention soon after a neighbour threatened to go to the media and expose the police for unlawfully holding her.

Former police inspector Anthony Musamba, who is retired after 35 years in the police service, admits that as a junior officer he locked up female relatives of suspects because it was the easiest way of getting ‘a move’ on an investigation.

He says criminals often use the female members of their families to hide their misdeeds. For example a man usually hides stolen goods at his girlfriend’s or mother’s house, or will send a female relative to run errands for him. Musamba says the belief among criminals is that women are less likely to be suspected of criminal activity and are deemed loyal and trustworthy.

“When you are investigating a crime, your best bet when it comes to getting information is to apprehend the strongest link to a suspect, usually a wife, mother or daughter. They are also the ones that organise things like bail; they are also a (source) of much information. That is why they are picked up.”

A decade ago the Zambian police was known for using force and illegal methods in their investigations - including such practices as illegally holding relatives of suspects. But this started to change around the early 1990s. It was around this time that people became more aware of their rights. Civil society also became more aggressive in forcing institutions, especially the police, to practise good governance, explained Musamba. He is currently a fourth-year law student.

“That’s when we even changed from calling ourselves the Police Force, to the Police Service. We acknowledged human rights and service (as) part of our obligations.”

But police spokesperson Bonnie Kapeso is convinced that the arbitrary arrests of relatives of suspects are a thing of the past. He says officers are now more sensitised and mindful of people’s rights. He claims not to have received a complaint about police illegally detaining relatives in “a long time”.

“At every police station, the officer in charge holds weekly lectures and some of the (topics are) on human rights and the proper conduct during investigations. Police are told not to hold individuals who are not suspects.”

But this is not the reality, say police officers in the field.

Speaking anonymously, officers manning a police station in a crime-ridden township just outside the Lusaka Business District are unrepentant.

They say when investigating a crime, they will pick up ‘whoever they find at (the suspect’s) home’. The officers said they are happier if they find the wife of a suspect at home because they believe that her illegal detention will give them a break in the investigation.

It is because the woman is usually the one who holds the family together in the absence of her husband, the police officers explain. “There is more pressure to have her return home quickly so that she can continue to look after the family,” one officer says.

The officers interviewed by IPS insist that this is par for the course in all police stations. “We do what we have to do in order to get the job done,” one officer explains, adding that they do not detain just anyone illegally.

“It’s only when we have reason to believe they have information we need,” the officer says. “Most of our successes in apprehending criminals are achieved through detaining close relatives of suspects, especially female relatives. But human rights activists jump on our backs as though we are deliberately violating people’s rights, they do not consider the rights of innocent people being harmed by crime.”

Kapeso says if police still arrest or detain people for no reason other than that they are close to the suspect, then it is up to the victims to institute legal action against police. “The police are not allowed to do this, so if there are any officers still making false arrests, they should be prosecuted.”

Chuulu says this is easier said than done. More often than not relatives are afraid of suing the police because it might jeopardise the case of the suspects. “They feel that the police might use it to punish the suspect or just make the case difficult. It is very difficult because the police are in
such a powerful position.”

She gives the example of the case of the case of Mohan Mathews, a high profile businessman in jail for suspected murder. His mother was illegally detained for two days when he jumped bail. She was released when WILSA threatened court action. Mathews was eventually caught, almost a month later.

“The two days that Mathews’ mother was held while police were looking for her son or using her arrest to force her son to give himself up amounts to false imprisonment for which she can be compensated in a civil matter. But she has refused to pursue the matter for fear that it would call more attention to her son’s case,” Chuulu says.

Mwale agrees that suing the police is difficult. When she tried, she found that the police protected their own officers. Like many in her situation, the record of her ‘arrest’ was not documented in the police daily occurrences book where all incidences are reported.

“It was my word against theirs and they banded together to make me look like a liar. As I did not have a leg to stand on, I abandoned the action.”

Aaron Chumba, a paralegal with the Legal Resources Foundation (LRF), experiences the same frustration. The LRF, a non profit organisation providing free legal aid, receives about twenty to thirty complaints a month from people about rights violations. About half of these are of false imprisonment by police.

While the LRF has had some success with suits against police officers, the compensation is little, discouraging victims. In those cases the police officer was also allowed to continue working and in some cases repeated the same violations.

But there is hope, Chumbu says. The Zambian government plans to recover compensation awarded to victims of police officers found abusing the law by the courts, from the police officers concerned.

“This might act as a deterrent, as policemen are already underpaid, so cuts to their salaries would be unwelcome. But the most important thing is to change the mindset of police so that they are able to behave better, and to educate the public on their rights,” Chumba says.

In the meantime, Chuulu says WILSA will continue to seek justice against police officers abusing the law.

NCC Updates (50% + 1, MPs recall, 30% rule)

The National Constitution Conference (NCC) has resumed sitting and the madness never left over the long break. After some work by the committees, the main conference is voting on various proposals.

There was confusion last week after the 50% + 1 proposal previously adopted failed to gain the backing of the conference.

The delegates were more open to the 30% rule  which allows for greater gender represenation. We have previously discussed this in Angola and Rwandan contexts.

Opposition for 50% + 1 is largely led by the MMD (or is it "government"?) as exemplified by this contribution from Ronnie Shikapwasha :

"We shouldn't forget to see how this system being propagated has created chaos in other countries. Many democracies don’t use this system and you want us to use this chaotic system? The effects of it in Zimbabwe we are feeling it, we are feeding Zimbabweans...NGOs are the ones that created chaos in Zimbabwe by sponsoring this system…Chairperson, Zambia has always been known as a haven of peace and we are admired for this. Why are we going for a system that promotes chaos? Why is it that big democracies in the world have not adopted this system? I must appeal to my fellow delegates that we should not adopt this system because it is wrong."

Another Mung’omba Draft Constitution proposal came unstuck. The NCC roundly rejected the proposal which would empower people to sack their local MPs. A lot of hubris advanced ranging from causing anarchy to retarding development. But Daniel Munkombwe did hint at the underlying assumption : “If an MP does not work according to people’s expectation, the electorate will be free to speak through the ballot paper instead of petitioning their removal before the elections are held ”.

It seems to me that Munkombwe's reason should be the starting point for the debate. Are the "electorate free to speak"? If so, is five years too long to wait to "speak"? Why are MPs different from any employee who faces a sack if they under-perform? Would having this clause increase bye-elections or will it have the deterrent effect of making MPs more disciplined? Would corrupt elites hijack the process? Under what conditions would someone be removed? Is what we actually need for all this to work an Independent Regulator of Parliament?

These are some of the questions I expected to come from the NCC. There's been a lot of debate in the United Kingdom about having similar legislation in the wake of the expenses scandal. Interested readers may want to see this and this.

This Week They Said

"The point is not to have the ability but to have stability because you can't just bring up policies every year"

Guy Scott on the rampant reshuffles at the Ministry of Agriculture.

"There is no future in ULP. That is why I am rejoining my party the UPND"

Yusuf Badat (Former MP) defecting to UPND.

"So can he please drop this hot metal, let him throw it on the laps of Rupiah Banda so that he comes out clean. Otherwise he will face the consequences alone."

Given Lubinda on media reports that Energy Minister Kenneth Konga gave insider information to LITASCO to disadvantage other bidders.

"He must be arrested, that is an auxiliary to planning murder. To cut another person’s legs, where are you going to take those legs after you have cut them?...They can’t be saying ‘we are so powerful with 4x4s to terrorise the country’.”

Ng'andu Magande (Former Finance Minister) calling for the arrest of Works Minister Mike Mulongoti for allegedly threatening and justifying violence against George Mpombo.

“It is now more than seven months since the audit of ZNBC was done, but the findings have not been made public to date."

Zambia Union of Broadcasters (ZUBID) calling on government to make the ZNBC audit public.

“Parliament has collapsed. The tax office has collapsed. Schools have collapsed. Hospitals have collapsed..There are a lot of schools that have a lot of dead people in them.”

Haitian President Preval on the colossal tragedy that has unfolded on the most impoverished country in the Western hemisphere.

Climate Change : Zambia Story

A good video for faithful followers of the climate change religion (starring Namugala with a cameo appearance from KK).

Quick notes

Living conditions of migrants in South Africa “horrendous” – Migrants in South Africa are living under “horrendous” conditions and are struggling to access health services, according to Doctors without Borders.

Angola's MPs and business dealings - Revealing the "arrogance and complete disrespect for the law" of Angolan parliamentarians.

From clash to cash - The Financial Times reports that Nigeria is considering giving a portion of its oil revenues directly to citizens of the Niger delta, inspired by the Alaskan model.

How the web can bring abundance to Africa - The Independent Appeal on how computers and broadband have enabled Zambian weather forecasting to transform farmers' prospects.

White collar Syndrome in education sector in Zambia - An interesting short paper sheds some light on white collar jobs in education during the colonial era and the subsequent challenges faced since independence.

Broke institutions (ECZ), 3rd Edition

More on the funding difficulties facing the Electoral Commission of Zambia (ECZ). Justice Florence Mumba recently noted that the budgetary allocation for 2010 is insufficient for the commission to conduct the continuous voter registration exercise in all parts of the country. We have previously touched on ECZ's predicament here.

Legal systems and economic growth...

A recent article argues that the impact of legal systems on economic growth is not straightforward. While the two are related the precise effect of the legal system can change depending on the culture and political institutions of the country :

Agreeing on what really matters: The slow evolution of legal institutions toward efficiency, Carmine Guerriero, VOX EU, Commentary :

The “legal origins” project suggests that the lawmaking institutions are carried over from colonialism and thereby have an effect on economic outcomes many decades after independence. Evidence from this body of work suggests that “civil-law” countries have less efficient governments and courts, less secure investor rights, and stricter market regulation than “common law” countries (La Porta et al 2008).

Legal scholars, however, have recently documented a great wave of convergence of lawmaking institutions (Zweigert and Kötz 1998). This raises three questions.

• Are lawmaking institutions really evolving?
  
• If this is the case, what is the set of forces driving this evolution?
• Can we still trust the “legal origins” project’s results?

Civil law and common law

The law and the lawmaking institutions are deeply influenced by two basic models: the civil law tradition and the common law tradition. While common law entrusts the lawmaking power to appeal court judges using a rule known as case law; civil law puts the legislative power in the hand of the government, the legislature or the president using a rule known as statute law. The impact of these two traditions is ubiquitous. Common law, which originated in medieval England, has been transplanted through colonisation into England’s ex-colonies. Civil law, which has its roots in the Roman Empire, was imposed by Napoleon to Continental countries and then exported via colonialism to many nations in Latin America, Africa and Asia.

New evidence

In a recent paper (Guerriero 2009), I argue against the legal origins project. Transplanted lawmaking institutions have in fact been changing over time and this wave of reforms reflects the welfare maximising choices of societies. In particular, building on data detailing the history of the legal order of 156 countries, I find evidence that pro-case-law reforms – in nations where “statute law” was imposed by colonisers – are more likely with a weaker democracy and a broader cultural heterogeneity. On the other hand, moves toward statute law in England’s ex-colonies are found where the cultural differences among subgroups are the smallest.

Culture is the main driver

Several recent psychological studies suggest that humans have well defined preferences over the harshness of punishment for dangerous actions, and that these tastes are influenced by the cultural biases of the group to which they belong (Herrmann et al 2008). From a theoretical point of view therefore, the socially optimal rule should be the mean of the rules preferred by each cultural group.

Under case law, appeal court judges weigh their own bias along with the cost of changing the precedent. Thus, opposing biases balance one another over time leading toward the optimal rule but at the cost of everlasting uncertainty. Under statute law, by contrast, legal rules are selected by a legislator – the government, legislature or president. The legislator weighs the welfare of society against the benefits obtained from favouring a cultural group, but chooses the socially optimal rule when no group is willing to offer a bribe.

When the disagreement among social groups is limited, the organisational cost that collective action requires will discourage bribing. In this case, statutes are both certain and optimal, and statute law outperforms case law.

But when the cultural heterogeneity is sufficiently high, statutes become more biased the lower the quality of the political process. A low quality political process places a low value of society’s welfare compared to that of special interests. In this case, it can be shown that case law prevails over statute law when political institutions are sufficiently weak.

While case law is the optimal law-making institution in relatively heterogeneous and/or less democratic societies, statute law should prevail where cultural tastes are sufficiently homogeneous in the population and/or society is sufficiently efficient in holding their representatives accountable. My research presents data in support of this prediction.

A “new legal origins” project

My findings cast several doubts on the broadly-advertised “legal origins” result that common law is more efficient than civil law. In particular, two main criticisms arise:

The legal institutions used to assess the impact of the “legal origins” of a country on her economic outcomes are wrongly codified and incorrectly assumed as fixed over time.

The determinants of the observed reforms are also driving the performance we want to explain; this makes the estimated effects unreliable.
Such failure is particularly concerning given that the World Bank is advertising the advances of the regulatory reforms identified as key by the “legal origins” project (World Bank 2009).

Clearly, creating focus on reforms chosen on the bases of unreliable estimates could result in ineffective or even harmful restructuring being implemented. On the upside, taking into full consideration the origins of institutional changes and the fact that their driving forces also affect the economic outcomes we are interested in can dramatically increase the economists’ ability to correctly inform policy design. This approach will also help us in understand if, in contrast to the incomplete markets theory (Coase 1960), the legal order as driven by legal institutions has no first-order effect on economic growth, investment, and financial development as claimed by Acemoglu and Johnson (2005).

Embarking in this “new legal origins” project constitutes a key endeavour for the economic profession. This is especially true now that the financial crisis has revived the political and social interest for the regulation of markets that had previously been left to the invisible hand.

References

Acemoglu, Daron and Simon Johnson (2005), “Unbundling Institutions.” Journal of Political Economy, 113(5): 949-995.

Coase, Ronald (1960), “The Problem of Social Cost.” Journal of Law and Economics, 3(1): 1-44.

Guerriero, Carmine (2009), “Democracy, Judicial Attitudes and Heterogeneity: the Civil Versus Common Law Tradition”, Cambridge Working Papers in Economics, 281.

Herrmann, Benedikt, Christian Thöni, and Simon Gächter (2008), “Antisocial Punishment Across Societies.” Science, 319(5868): 1362-1367.

La Porta, Rafael, Florencio Lopez-de-Silanes, and Andrei Shleifer (2008), “The Economic Consequences of Legal Origins.” Journal of Economic Literature, 46(2): 285-332.

Zweigert, Konrad and Hein Kötz (1998), Introduction to Comparative Law, 3rd ed. Oxford-New York: Oxford University Press.

World Bank (2009), “Doing Business 2009”, Palgrave.

Incentivising whistle-blowers

Liberia's President Ellen Johnson-Sirleaf recently issued a decree to pay and protect whistle-blowers as part of her campaign to tackle corruption. Under the new measures, anyone giving information leading to money being recovered will get 5% of that sum.

A previous post touched on the need for whitle-blower protection, but I went on to add that "we don't want to give government employees rewards for whistle blowing because that defeats the overall objective of keeping government costs to the minimum". That requires some revision because perhaps the aim is not to "keep government costs to the minimum", but to ensure the overall policy of whistle-blowing delivers a superior outcome than no whistle-blowing (i.e. with rampant corruption). So any incentive that produces a marginally better outcome than the status quo must be better. The other advantage of a financial reward is that it mitigates the other danger we mentioned in that post - job loss. Although "job protection" would be legally guaranteed, some people may suffer psychic losses (lost friends, etc), financial reward goes some way to compensate for this.

Similar legislation already exists in the US - a qui tam lawsuit allows employees to bring cases on behalf of the federal government, and receive 15-30% of any damages paid out. Zambia of course does not even have whistle-blower protection, but when we do a legal and financial package would be a good place to start.

Linking Zambia (Judiciary)

Not a website I expect many to visit, but as we are doing a series on "Rethinking Justice", do visit the third arm of government when you have a moment.

Scott on Corruption

Reporters Uncensored Africa Correspondent Mwenya Mukeka interviews the Patriotic Front Vice President Dr. Guy Scott MP on government corruption :

On Chinese Investments (Guest Blog)

Of late, investments by Chinese corporations in Zambia seem to have become a topical issue among politicians and the general public. I have, therefore, found it necessary to make a contribution to the debate by citing some of the advantages and disadvantages of such investments to Zambia.

Foreign investment is generally regarded as an essential element in any given country’s quest for accelerated and protracted socio-economic development. It can bolster a country’s efforts to uplift a good segment of its poor people from squalor. Such investment may consist of “portfolio investments” (composed of investments in financial assets like bonds and stocks) and/or “foreign direct investments” in production facilities, real estate, inventories, and/or other non-financial assets.

Ordinarily, investments by Chinese companies take the form of foreign direct investment (FDI). Propo nents of this form of invest ment usually cite the po tential benefits of the multina tional enterprise (MNE) to a host nation in discerning the necessi ty of such investment, since the MNE is generally regarded as the vector of FDI.

They claim that MNEs can: (a) make it possible for a country to gain access to investment capital and advanced technolo gy; (b) cont ribute to the creation of employment opportu nities; (c) introduce a diversity of new products in a host country, thereby affording local consum ers a greater assortment of products to choose from; (d) make a contribution to the tax revenues of a host govern ment; (e) promote exports and, thereby, con­tribute to the generation of foreign exchange; (f) boost competi tion in the host economy and, thus, prompt local busi nesses to seek greater efficien cy in their operations; (g) promote local business es which supply inputs and/or render servic es needed by MNEs to support their opera­tions; and (h) contrib ute to the develop ment of technical and manage ri al talent in a host country.

For these and a host of other important reasons, the promotion of FDI has become one of the major components of the eco nomic policy regimes of appar ently all countries of the world today. In fact, even countries which already have strong economies (such as Sweden, Australia, and G-7 nations) and have histori cally relied mainly on local investment have gen erated ambitious policies de signed to attract FDI. It is, there fore, important for us to be aware that our country is competing for FDI not only with developing countries but also with the more developed and affluent countries in the world.

The operations of MNEs are, of course, not without costs or disadvantages to a host coun try like Zambia; critics of such enterprises often claim that they can: (a) contribute to the self-perpetu ating depen dence of a host country on foreign techno logy; (b) cause disloca tions in a host country’s balance of payments when they import raw materials, repatriate profits, and/or engage in transfer pric ing; (c) subject local business es which do not have the nec essary material and financial resources to compete effecti ve ly with them to unfair competition in industri al, consumer and labor mar kets; (d) contribute to the degradation of the physical environ ment through air, water and solid-waste pollution; and (e) introduc e foreign social values and/or consump tion patterns that are likely to dis rupt locally cherished moral and cultural practices.

For a country like Zambia, which has failed to break the bond age of the majority of its people to destitu tion, the potential bene fits of Chinese and other foreign investments certainly out weigh the poten tial costs of such investments. In fact, the costs often associ at ed with FDI and the MNE are normal effects of a live economy which Zambia could reduce to acceptable levels through regulatory and admin is tra tive mecha nisms.

But Zambia should not expect such investments to flow into its economy like manna from heaven, because a great deal of effort is needed to lure foreign investors. It is, therefore, essential to create an enabling invest ment environ ment that provides for attractive tax incen tives, adequate skilled labor, a network of business support services and institutions, well-developed infrastruc ture (includ ing energy, water, telecom­mu nica tions, and trans port facili ties), and protracted industri al harmony.

Besides, both local and foreign investors expect the Zambian gov ern ment to provide for the follow ing: (a) adequate public services, including police and fire protec tion; (b) adequate public facilities, including educa tion al, vocation al, recreational, sewage, and healthcare facili ties; (c) political and civic leaders who are fair and honest in their dealings with private businesses; (d) stable econom ic policies, inc luding a formal assurance against na tionaliza tion or expropria tion of private ly owned busi nesses; (e) a well-developed stock market; (f) less bureau cratic licensing, import, export, and other pro ce dures; and (g) adequate informa tion about invest ment and mar keting problems and oppor tu nities, such as that which is currently being provided by the Zambia Development Agency.

If they are adequately catered for, these servic es and facilities can boost investments by both local and foreign investors, as well as enable businesses to operate more efficient ly and eventually deliver economic and social outputs to society at reason able costs and prices.

The Zambian government should expect foreign investors to: (a) cooperate with local institutions in improving community life, and participate in programs designed to benefit less-advantaged citizens; (b) comply with stipulated laws and regulations; (c) respect local people’s traditional and ethical values; and (d) refrain from engaging in unscrupulous business practices.

Henry Kyambalesa
(Guest Blogger)

Growth Diagnostics : Malawi

A recent paper on binding constraints to Malawi's growth :

The authors find that growth in Malawi has been primarily driven by the domestic multiplier effect from export revenues. The multiplier effect is particularly pronounced due to the high number of smallholder farmers, which produce Malawi’s main export crop, tobacco, and consequently results in the widespread and rapid transmission of agricultural export income. Furthermore, despite changes in the structure of agricultural production from estate to smallholder farming and liberalization of prices and finance, a longstanding relationship persists between exports in real domestic currency and overall gross domestic product.

This central role of exports in creating domestic demand highlights the importance of the real exchange rate in Malawi’s growth story, which directly increases the strength of the export multiplier. The most pressing constraint to growth in Malawi continues to be the regime of exchange rate management. Despite good progress, there is compelling evidence that the rate is still substantially overvalued. Furthermore, it is also likely that the inflow of foreign aid—in excess of 50 percent of exports contributes to the overvaluation through its large component of recurrent expenditures.

I suspect the above conclusion and this outburst from Mutharika are linked. The constant drying up of foreign exchange certainly appears to point to an overvalued exchange rate. That said in general I was not confident the authors have fully demonstrated this is the "most binding constraint". Its one for further study, especially given the other constraints identified e.g. high cost of finance.

CDF Watch (Additional Funding, Misc)

We continue our CDF watch with last week's report that Government had increased the Constituency Development Fund (CDF) from K600million per constituency to K666 million. This is clearly a substantial increase, although its still no where near President Banda's electoral promise of K1bn per constituency. The government is also planning to revise CDF guidelines to take into account some challenges faced by councils in implementing past projects. The increased level of funding makes the case for addressing the concerns raised here even stronger.

Separately, Ndola City Council reported that it had completed projects worth more than K1.5 billion from the Constituency Development Fund (CDF) in four constituencies in the district. The list of projects certainly gives a very good indication of where this money is going. Aside from road repairs a lot of the projects are on things that are meant to be provided centrally :

The Ndola Central Constituency spent K220 million on the purchase of a compactor for road rehabilitation in the whole constituency. The constituency also spent K45, 385, 705 on the completion of the Dag Hammerskjoeld Police Post in the Dag Hammerskjoeld Ward. Another K22.8 million was spent on the completion of the Northrise Police Post in Yengwe ward and Riverside Market had been completed in Nkwazi Ward at a cost of more than K15 million. The maintenance of roads in Kansenshi, Kanini and Chipulukusu townships gobbled up about K76 million bringing the total to K380 million.

In Chifubu Constituency, over K80 million was spent on construction of the Kawama Market shelter and the completion of the ablution block at Pamodzi Market in Kawama Ward and Pamodzi Ward respectively. Kaniki Ward received about K80 million for the construction of Misaka Health Post, construction of ablution block at Kaniki Basic School and construction of a store room at Kaniki East School. On road maintenance, about K77 million was spent and from the 2007 CDF allocation, K10 million was spent on the construction of the foot bridge.

The major projects in Bwana Mkubwa Constituency was the construction of an ablution block at Katondo Basic School and piped water connection in Munkulungwe Ward at a cost of K104 million. Kavu Market construction gobbled up K82 million while road maintenance received over K44 million. All the other projects cost over K150 million.

Road rehabilitation in Kabushi Ward of the Kabushi Constituency took up K132 million and street lighting of selected roads cost over K92 million.

The quest for port capacity, 3rd Edition

We have previously touched on the potential of the Walvis Bay Corridor (here and here). News report over the festive period that CARGO haulage on the Walvis Bay-Ndola-Lubumbashi corridor grew by 66 % in 2009.

Committee Report : Youth and Child Affairs

The First Report of the Committee on Sport, Youth and Child Affairs for the Fourth Session of the Tenth National Assembly appointed on 25 September 2009.

According to the report nearly a million children are engaged in child labour. Government policy in this area has apparently been hampered by poor funding, which does not bode well for the call to "criminalise" child labour. Even ignoring whether such a move makes economic sense given the underlying causes of child labour cited in the report (poverty, health, etc), the police have inadequate resources and the jails are full. Not sure creating a new criminal offence will solve the problem.

Report of the Committee on Youth and Child Affairs 2009

This Week They Said

"I know who you are from the time you were young, since my relationship with your father. So, I'm happy that you are here to take up the appointment"

President Banda to the new Ambassador to Sweden Anne Mutambo.

“Mr Sata should humble himself and swallow the words because traditional rulers...are upset with him for comparing them to animals, it is unacceptable”.

Chief Jumbe reacting to PF President Michael Sata's comment over the construction of the Chipata-Mfuwe road.

"We believe that the best media regulation is already in place; it is called the law of defamation, which protects everyone"

Godfrey Miyanda on the Government media proposals.

"The pact has brought Tongas, Bembas, Lozis and other tribes...unlike the confusion in the ruling MMD where some tribes are viewed to be more superior than others"

MMD Dundumwezi Chairman Gideon Muleya after defecting to the UPND-PF Pact.

"For me the convention is not cardinal. What is important is keeping the party together.."

MMD Chairperson Michael Mabenga reacting to calls for the MMD convention.

The challenge of defaults, 3rd Edition

Another example of how lack of debt repayments pose significant challenges especially for parastatals. There's a general tendency for government and ordinary citizens to regard debt to parastatals less seriously.

Special Drawing Rights

An informative piece from the EAZ on SDRs raises some interesting questions on an issue that has not been fully debated (although Magande touched on this recently) :

Special Drawing Rights: the challenge of inducement, EAZ Member (Anonymous), Economics Association of Zambia, Commentary :

Recently the International Monetary Fund (IMF) through its mission Mr. George Tsibouris based in Washington D.C visited Zambia to among other things; assess Medium Term Expenditure Framework (MTEF) and to discuss the 2010 National budget. As part of the MTEF assessment, the Tsibouris team discussed the Special Drawing Rights (SDR) allocation to Zambia amounting to US$ 600 million, which is approximately 75% of Zambia’s annual budget. This allocation in the first instance will greatly expand Zambia’s international reserves and provides a ready source of investment funds which could be channeled to rural poverty reduction and development.

In these difficult economic times, when countries are suffering the effects of the economic and financial crisis, donors are under increasing pressure to justify support to third world countries, a big “one off windfall” needs special attention and citizen’s engagement to enable this money to have a positive impact on poverty reduction and wealth creation.

However, currently the SDR issue in Zambia is in the silence zone, which is worrying given the amounts and the opportunities which come with the SDR. In-spite the IMF announcing this measure prior to the finalization of the Zambian MTEF, the letters “SDR” like words gender and HIV/AIDS are missing in the green paper. Citizens have not engaged with government and IMF on the opportunities and threats of this condition-less financing instrument.

SDR: What is it? The SDR is a financing instrument created by the IMF in 1969. Its purpose then was to support the establishment of a fixed exchange rate system for the global economy. However, with collapse of the Bretton Woods system in 1973, the major currencies shifted to a floating exchange rate regime this development lessened the need for SDRs.

Today, the SDR has only limited use as a reserve asset, and its main function is to serve as the unit of account of the IMF. It is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. The value of the SDR was initially defined as equivalent to 0.89 grams of fine gold, which, at the time, was also equivalent to one U.S. dollar. However, the SDR is now defined as a basket of currencies, today consisting of the euro, Japanese yen, pound sterling, and U.S. dollar.

This current SDR allocation is unique in the sense that it arose from the Group of 20, (G20) summit resolution, which promised to offload $250bn value of SDR. Unlike other forms of finance, this particular financing instrument comes without “conditions” attached, but a country must still pay interest when it uses the instrument.

This round of allocation is not only limited to monetary interventions but also fiscal interventions which lead to the excitement around the world especially in third world countries were past IMF policy conditions have had more harm than good.

What opportunities does SDR bring?The recent period has presented the Zambian government with tough challenges but there now appears to be, at least on the macroeconomic side, a light at the end of the tunnel. The country was hard hit by global economic crisis, the collapse in copper prices, put pressure on the mining sector resulting in significant job losses and reduced inflows of foreign exchange which caused a steep depreciation of the exchange rate.

These windfall resources could be used to further enhance international reserves and foster stability in the exchange rate. The improvement and stability in exchange rate appreciation will help rein in inflation. As a result, inflation is expected to dip into the single digit range. However, particular attention needs to be paid to the potential impact on the exchange rate, which, as noted is already on an appreciating trend. As mentioned above this current allocation departs from the IMF tradition in the sense that it is not only for monetary inventions, meant to boost the country‘s foreign reserve but the recipient country has an option to trade the SDR with other countries to raise funds which could be used for fiscal interventions.

The SDR brings massive opportunities in the sense that these “big and onetime windfalls” can be used to meet revenue shortfalls to support development initiatives. Transaction costs accompanying the trading of SDR are low because nearly all countries in the world belong to the mighty IMF club. Thus government through the central bank, in this case, Bank of Zambia can exchange SDRs to raise funds to stimulate the economy, promote private sector development and improve public services in health and education. This can also be used to pay off domestic debt and reduce domestic borrowing, which clouds domestic investment.

Over and above, the US$ 600 million value of SDR could be used to cover the US$ 194 million from the general budget support for the 2010 budget if it is not committed due to certain developments, of direct relevance to the implementation of the Poverty Reduction Budget Support (PRBS) Memorandum of Understanding, which become of concern for the PRBS donors. These included, for instance, the decreased funding to the anti-corruption agencies and the Auditor General‘s Office, issues surrounding road sector investments, and notably the embezzlement of funds in the Ministry of Health which led to the suspension of sector disbursements by certain donors.

The donors decided not to commit US$ 194 million; not until government meets the targets embedded in a “Governance Roadmap”. Top on the list of conditions are to enhance prudent public financial management and good governance. Given the pressure from donor governments, Zambia maybe unlikely to receive the total PRBS pledges as scheduled, thus the SDR, could be used to cover general budget support disbursement.

What are the threats?Abuse, the traditional argument against such one-time “windfall” allocations to third world countries, still holds. Given that these resources are unconditional, no one could stop abusive and corrupt governments wasting these resources. This the biggest challenge.

This is a real danger for Zambia given that the country has inadequate public financial management system; this is worsened by a civil society which is passive, reactive and not proactive especially when it comes to economic management issues. The challenge also extends to having poorly equipped oversight institutions like Auditor Generals’ Office and Parliament.

There are many factors which account for civil society and Parliament’s inability to play an effective oversight role. Studies have revealed that at the core of the weaknesses of these oversight institutions in Zambia is a combination of factors which include poor institutional capacity, inadequate resources and lack of legal and institutional autonomy.

Its evident at the moment that civil society and Parliament lack sufficient information on the SDR, this is attested by the fact that this information is not in the recent published green paper and that when Tsibouris mission visited Zambia, he did not have meetings with civil society and Parliament. This is unfortunate because the importance of civil society and parliament in economic governance cannot be overemphasized. As Amina put it, “A virile Civil Society begets a free society”. This being the case, the dialogue between Government and IMF can not override Parliament and citizens’ role of inspection and scrutiny.

ConclusionThe government and the IMF mission had a groundwork discussion on the IMF’s recent allocation to Zambia of Special Drawing Rights (SDR) in an amount equivalent to about US$600 million, which, in the first instance, greatly expands Zambia’s international reserves and provides a stronger foundation for exchange rate stability going forward. Given that these resources are conditionality free, and not tied to monetary measures, these resources could be used for fiscal operations. The SDR allocation represents a one-time windfall to Zambia, and an unusually large one at that, that needs to be managed prudently. However Parliament and Civil society at the moment have not paid extra attention to these resources, the silence is worrying because without local citizens demanding accountability and transparency, these resources are prone to abuse.

Decriminalising would-be Mpombos...

I have been hesitating to weigh in on the Mpombo – Findlay cheque bouncing saga. In the end I found it hard to resist because yet again the deeper problem appears to have escaped general debate : we are a people addicted to poor laws often to our detriment. We have laws for everything, that only politicians and misguided bureaucrats understand the rationale behind them. The latest to come to the forefront is the criminalisation of cheque bouncers. Caleb Fundanga neatly reminded us of the danger :

”The total volume of cheques returned unpaid on account of insufficiently funded accounts fell by 8% to 5,117 cheques while the value decreased by 28% to K41.30 billion. This is an encouraging trend, which the Bank would like to see continue. The public is reminded that bouncing of cheques is a criminal offence under the National Payment System Act. Members of public should ensure that they have sufficiently funded accounts whenever they issue cheques to avoid facing criminal charges”.

Section 33 (1) of National Payments System Act 2007 states:

Any person who wilfully, dishonestly or with intent to defraud issues a cheque on an insufficiently funded account or causes to be issued a cheque to be drawn on that account and which cheque when it is presented for payment is dishonoured, commits an offence and is liable on conviction to a fine not exceeding one hundred thousand penalty units or to imprisonment for a term not exceeding two years, or to both.

It’s difficult to fathom how and why such a draconian law is on our statute books without minimal general opposition. To think it was drafted as recent as 2007! Do these MPs read before they sign things into law? I can see why any normal human being would consider it wrong for people to systematically and intentionally bounce cheques, but I don’t see why that should translate in a criminal penalty. In my view criminal penalties are there for offenses seen as injurious to the general population or to the State, including some that cause serious loss or damage to individuals. This is why they often result in custodial sentences. Bouncing a cheque is not in my view a crime against the state, nor are there serious economic foundations for treating it as a social problem, let alone a criminal or custodial offence. I reach this conclusion based on three reasons.

First, the social negatives (or “market failures”) are not obvious. On efficiency grounds alone, government intervention is warranted if bouncing a cheque in some way imposes costs on society that are not borne by the players involved in the transaction. It follows that if X issues Y a cheque dishonestly, and Y bears the costs (bank charges, lost income, etc), there’s no need for government to intervene. That Y has been duped by X is no crime against other members of society (represented by government), unless we believe there was systematic failures that prevented Y from properly taking the possibility of being duped into account when agreeing the deal with X. That is to say we regard the exchange between X and Y as sub-optimal. For example, we might hold that Y is insane and not capable of asking for the payment to be delivered in cash. But as long as Y made a perfectly rational and informed decision, the fact that it turned out to be wrong is no reason for government to intervene. In many cases cheques are accepted on trust, but where such trust does not exist people prefer more certain transactions, and so it should be! There's a good reason why supermarkets don't take a cheque without a cheque guarantee card! It is not government’s job to constantly police that Y gets the correct cheques from X. The point of course is that whether Y’s judgement is poor or not is irrelevant, what matters is that this is a deal between two private and rational individuals and therefore all the costs borne by either side are “internalised”.

Some might say, well that sounds fine but what about cost on the courts if Y had to be forced to pursue X to recover the debt? Surely, by having this draconian law we are ensuring such eventualities never take place – a sort of deterrent effect? That is true, but we have to remember that this is different point for a number of reasons. For one thing, the underlying questions raised is predicated on 100% deterrence. As Fundanga helpfully illustrates, we have many cases of these breaches. So in most cases what we have is more costs on the system with minimal deterrence. Indeed under the current minimal deterrence Y can always sue X with or without the criminal prosecution. So having the criminal sanction does not prevent the ensuing criminal justice costs. The more crucial point is that the question rightly focuses on the importance of the deterrent effect in reducing the costs on the justice system (e.g. court congestion from subsequent debt pursuits etc). If these are worthy goals then its better to take a more holistic approach to easing capacity constraints and not use specific laws as the way to achieve that. A piece meal approach is actually likely to have the opposite effect – far from easing criminal justice constraints we may add on top strain to our police officers as they chase Mr X rather than fighting real crime.

This brings us to the second objection: criminalisation of cheque bouncers has significant costs on society. Criminalisation is not without costs. I have already noted that there are likely to be significant costs to our justice system in form of costs to the police, possible legal aid provision for defendants, courts and other aspects. The worrying prospect of course is the potential for two year imprisonment and the likely costs that would have on prison population. But it is the costs to society for someone having gone through the criminal fraternity that we should worry about. It is well know that often jail is simply a training ground for later re-offending. It therefore begs the question why any responsible person would even contemplate sending people to jail in the first place for bouncing a cheque.

Efficiency issues aside, the measure is also misguided on equity grounds. It is hard to dismiss that the poorest members of society are the ones who tend to issue bounced cheques. It is they that often struggle financially as they fend for themselves. The poor also suffer because they have weak legal representation. As we will discuss more in future posts on “Rethinking Justice”, legal aid provision is insufficiently funded by government (and NGOs) and many of our poorest do not get high quality legal presentation, if at all. There’s significant likelihood that many innocent poor people are being sent to our crowded jails based on foolish laws and crimes they have not committed. This is a triple injustice : poor, foolish laws and incorrectly convicted.

The time has come for those who are proposing new laws to start thinking carefully about the various trade-offs involved. Not every small issue requires a criminal offence. Poorly thought out laws without any analytical basis can only cripple our capacity constrained justice system. And for goodness sake don't just implement laws because you have seen a similar law in India*! Think! We’ll return to these issues in due course.

*That I use India has nothing to do with my frustration that the recent visit by Indian VP piled more debt on our necks. It is purely because India has a similar law.