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Sunday, 6 February 2011

Sixth National Development Plan (2011-15)

The government launched its Sixth National Development Plan last week. We have embedded the Launch Speech and Executive Summary below. Being a details man,  I have yet to read both because I am waiting for the full SNDP when they get round to making it available. I was told by the Ministry of Finance that the document was too large to email.
Presidential Speech - Launch of Sndp 2011 - 2015

Sixth National Development Plan 2011-2015 - Executive Summary

7 comments:

  1. Before we even talk about Sixth National Development Plan (2011-15), it is wise to reflect on what we have done so far. Indeed, is privatization of the mines justified?

    The history of Zambia is about copper because without copper Zambia has no history. Copper production was on a steady rise from 1932 to 1971. Somewhere, in the early 70s, KK embarked on a partial nationalization of the mines in order to break the social classes and insure equity distribution of wealthy. The endemic poverty in Zambia was and still is so because the majority of people have no assets and if they do, it is not the wealth creating assets, and worse still, they do not believe they can acquire them because of historical and cultural constraints. Money was in the hands of a few white foreigners. It was against this background that KK made the Mulugushi reforms. The colonial government neglected the manufacturing sector development. Most finished goods came from Southern Rhodesia and South Africa. However, after Independence, the new Zambian government introduced policies that were intended for encouraging the manufacturing sector. Unfortunately, the KK government viewed with suspicion the private sector as it was dominated by white foreigners. Now we have learnt a lesson that It’s not by confining one’s neighbor that one is convinced of one’s sanity. Regrettably, large scale non-mining enterprises were nationalized through Mulungushi reforms of April 1968 where government equity holdings were peg at 51% in a number of key foreign-owned firms. By January 1970, Zambia had acquired majority holding in the Zambian operations of the two major foreign mining corporations. This coincided with decline of production of the early 70s. To add salt to the injury, copper prices on the international market went down in 1974 until LPM era.

    What is interesting is that there was a further steep decline in copper production in 1982 with complete nationalization forcing the government to start subsidizing the mines to overcome low mineral revenues against a huge mine labor force. Against such phenomena, there was no reinvestment in mining infrastructure. This lead to World Bank and IMF demands on the Zambian government to privatize the mines as a precondition for foreign aid.

    Now the mines are privatized and copper production is again increasing. From the statistics given above, it’s clear that low production was directly related to nationalization. Thus the best way to run the mines is to let them be in private hands.

    But how do we insure that the Zambians benefit from the mining sector? Well you might say that the mines should be paying taxes. It’s shocking that this economy whose GDP contribution mainly comes from the mining sector has mines paying less than they ought to. I have data that shows that Zain (now Airtel) paid more tax than any organization in Zambia in 2009 and 2010 financial years. The mines drag their feet to pay tax. If you don’t believe me read this:

    Mining companies have agreed to pay tax arrears and have pledged to start making the payments this year, Finance and National Planning Minister Situmbeko Musokotwane has said. Speaking in Parliament when he presented a ministerial statement on the status of mining taxation, Dr Musokotwane said that the tax arrears arising from the changes that were introduced in 2008 stood at K1, 426.16 billion. Of the tax liabilities, he said the Government expects that it would collect K458.5 billion by the end of the year while the balance of K967.6 billion would be settled next year. “The Government will ensure that all arrears are paid by June 30, 2011,” Dr Musokotwane said. [By State House on Friday 26 November 2010 http://www.zambia.co.zm/article9962]

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  2. Those of us who advocate for reintroduction of Windfall tax know that the mines evade tax by way of arrears and the cost of the amount overdue (interest) is not accounted for and worse still they can even cook figures to avoid paying correct amounts. Living in tax arrears for this long is like borrowing money from government at interest free. Listen, the mines don’t have to agree to pay tax. They have an obligation to pay tax.

    Privatization of the mines is not yet justified regardless in increase in copper production and reinvestment in the mining sector. Now copper price per ton has hit over US$10,000 while the exchange rate of the Kwacha is still stack at K4,800 per US1$. In those LPM days of windfall tax, the Kwacha would correlate with copper price per ton. The greater the price of copper per ton, the lower the exchange rate. My wild but educated guess would peg the Kwacha at K2500 to US$1 at the prevailing copper prices. This means we are not getting anything tangible from the mines. Remember this is an import based economy meaning more value for the notes and thus a higher purchase power for an average Zambian. I would have managed to do a side business or some farming while being in formal employment. I would have managed to buy a tractor and other high tech agriculture machinery. I would have been an employer and this would go well in diversification of the economy. Please let’s take advantage of the favorable high copper prices.

    I repeat, privatization of the mines is not yet justified. But by no means should we reverse privatization. However, it is a challenge on the part of government to make sure the mines pay appropriate tax and do their corporate social responsibility. The government should not be content with the current new tax measures through which it anticipates that the mining sector would contribute a meager 7% of the GDP while only contributing 2% to total ZRA collection. I would be proud of these figures if our manufacturing and agriculture sector were vibrant. I know that the Zambian government should introduce programs aimed at stabilizing the economy and restructuring it to reduce dependence on copper. But these low figures are not because of diversification of the economy but mainly due to an improper tax system. This proves that we are overburdening the middle income group through excessive income tax, VAT etc while we let the mines off the hook. And by the way, what is the future of Zambia when we finish mining copper while as at now we get literally nothing from it? Shouldn’t we be getting income from the mining sector and channel it to agriculture sector and value addition on all our exports? What should be government’s proper entrepreneurship policy to achieve wealth creation? How equitably distributed is our current US$12.7 Billion GDP?

    No, privatization of the mines is not yet justified, but can be justified if and only if we put in place mechanisms that force mines to contribute significantly to the national treasury and to the well being of Zambians and strategize by reinvesting what we ought to earn from the mines into other sustainable sectors of our economy.

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  3. Hi Potpher,

    Now the mines are privatized and copper production is again increasing. From the statistics given above, it’s clear that low production was directly related to nationalization. Thus the best way to run the mines is to let them be in private hands.

    I would say that is exactly the wrong conclusion. Not picking a fight, because I agree with the direction you're going in. Just setting straight a major misconception about the private sector versus the public sector.

    1) The increase in production has absolutely nothing to do with private ownership (or MMD governments stewardship of the economy, as they of course like to claim), and everything to do with the commodities price boom, including the boom in copper prices.

    See this chart at Infomine.com (change the date at the top to 1990 from 2010). From 1990 to 1998 it was between $2000 and $3000 per tonne. From 1999 to 2004 it was around $1500 per tonne.

    Compare that to today, when from 2004 copper went from $3000 per tonne to over $8000 per tonne. Today it is around $10000 per tonne.

    What is also significant, is that all when the mines were in state hands, they were in a price range that today's privately owned mines say is their breakeven point. In other words, the private companies also would not have been able to make a profit during those years.

    Profitability has everything to do with the price of copper on international markets. Not private or public ownership, or the alleged 'efficiency' of the private sector.

    No, privatization of the mines is not yet justified, but can be justified if and only if we put in place mechanisms that force mines to contribute significantly to the national treasury and to the well being of Zambians and strategize by reinvesting what we ought to earn from the mines into other sustainable sectors of our economy.

    2) I would say whatever makes it possible to collect the most taxes is the right way.

    I also (not in your case, just generally) have to say that whenever I hear someone say that taxes 'have to be fair' or be 'fair to both sides'. If you're in a game, you follow that games' rules. The rule of this corporatist game is - you get everything that isn't nailed down, and then some. The mines didn't think about being fair when they decided to drag $2.5 billion a year out of a country that has 40% of the people malnourished; or decided not to pay a road tax, even though their trucks leave the country's roads dangerously delapidated; or not to pay other than a traffic ticket fine for polluting major parts of the country; or pay their workers less than a minimum wage and make them work in appalling conditions or without protective clothing; or bribe the ruling party so they would be 'protected' from complying to any of the above.

    So let us not be fair to the mines. I understand that the MMD is bought and paid for, and probably a few members of the opposition as well.

    But we need to start being HARDCORE about negotiations. And a wholesale nationalisation of the mines would be a good starting point.

    ReplyDelete
  4. Today’s post (9th February 2011 Edition) makes interesting reading.

    [http://www.postzambia.com/post-read_article.php?articleId=18078]

    Now if the mine can cook books to say it sold copper at 25% the actual price, it means that it evaded 75% of tax since volume and selling price is lineally related to profit and consequently to tax on profit. Of cause it’s not as simple as that because the variable profit tax is an extra or windfall tax on mining profits. Variable tax is calculated as an extra 15% that companies pay on profits that exceed 8% of their overall income. This is in addition to the standard 30 percent corporate tax. All a cheating mine does is cook books by pushing up cost figures or by saying it sold at a lower selling price preferably under an “old” contract with copper buyers far less that the current London Metal Exchange prices. Such a mine can be hostile towards the auditors and postpone the audit exercise and refuse to answer queries despite the exercise being undertaken is in accordance with the ZRA Act. Now if you put this variable tax into consideration, it means the mine evaded paying more than 75%. This vindicates Matthias Mpande, lecturer in the School of Mines at UNZA who said the variable tax is not a good tax mechanism because the mines are making huge profits, but disguise the revenue in the consolidated financial results, and it is difficult for ZRA to calculate the actual taxes.

    This is the reason why we advocate for reintroduction of windfall tax because it’s easy for ZRA to ascertain the tax due and its self regulatory without chocking the mining firms as evidenced in Zambia’s revenue earnings from copper sales in 2009 which fell to $2.9 billion from $3.6 billion the previous year despite increased output. That decline in earnings was a direct result of lower prices for the metal, which plumbed a low of $3,000 per tonne in the first quarter of 2009.

    If my maths is correct, ZRA should be able to collect far more than $400 million in mining taxes annually through windfall taxes if reintroduced. But how much are we collecting now? Well around the same figure but most of it is an arrear from the windfall tax. So in essence, we are getting less than $40 Million. We are actually only getting 10% of what we could have got.

    How can we talk about development when government pays a blind eye to multinational companies that conceal the true value of their operations with a mixture of secrecy and flawed laws passed by parliament depriving our country of revenue? Doesn’t government need a sizeable level of revenue to run and also invest in the social sectors of the country? May be not. May be it needs a sizeable number of individuals with pockets to be filled in by kick backs from multinationals to run government.

    ReplyDelete
  5. Hi Potpher,

    Now the mines are privatized and copper production is again increasing. From the statistics given above, it’s clear that low production was directly related to nationalization. Thus the best way to run the mines is to let them be in private hands.

    I would say that is exactly the wrong conclusion. Not picking a fight, because I agree with the direction you're going in. Just setting straight a major misconception about the private sector versus the public sector.

    1) The increase in production has absolutely nothing to do with private ownership (or MMD governments stewardship of the economy, as they of course like to claim), and everything to do with the commodities price boom, including the boom in copper prices.

    See this chart at Infomine.com (change the date at the top to 1990 from 2010). From 1990 to 1998 it was between $2000 and $3000 per tonne. From 1999 to 2004 it was around $1500 per tonne.

    Compare that to today, when from 2004 copper went from $3000 per tonne to over $8000 per tonne. Today it is around $10000 per tonne.

    What is also significant, is that all when the mines were in state hands, they were in a price range that today's privately owned mines say is their breakeven point. In other words, the private companies also would not have been able to make a profit during those years.

    Profitability has everything to do with the price of copper on international markets. Not private or public ownership, or the alleged 'efficiency' of the private sector.

    No, privatization of the mines is not yet justified, but can be justified if and only if we put in place mechanisms that force mines to contribute significantly to the national treasury and to the well being of Zambians and strategize by reinvesting what we ought to earn from the mines into other sustainable sectors of our economy.

    2) I would say whatever makes it possible to collect the most taxes is the right way.

    I also (not in your case, just generally) have to say that whenever I hear someone say that taxes 'have to be fair' or be 'fair to both sides'. If you're in a game, you follow that games' rules. The rule of this corporatist game is - you get everything that isn't nailed down, and then some. The mines didn't think about being fair when they decided to drag $2.5 billion a year out of a country that has 40% of the people malnourished; or decided not to pay a road tax, even though their trucks leave the country's roads dangerously delapidated; or not to pay other than a traffic ticket fine for polluting major parts of the country; or pay their workers less than a minimum wage and make them work in appalling conditions or without protective clothing; or bribe the ruling party so they would be 'protected' from complying to any of the above.

    So let us not be fair to the mines. I understand that the MMD is bought and paid for, and probably a few members of the opposition as well.

    But we need to start being HARDCORE about negotiations. And a wholesale nationalisation of the mines would be a good starting point.

    ReplyDelete
  6. Hi Mrk,

    I referred to your chart and I noticed that the data only goes as back as 1989. However Copper production was on a steady rise from 1932 to 1971 but copper price was relatively constantly high up to 1974. The Mining activities were dominated by two multinational companies namely, African Agro-American Co-operation and American Metal Climax. But by January, 1970, in order to break the social classes and insure equitable distribution of wealthy, KK’s partial nationalization of the mines was complete with Zambian government acquiring majority holding in the Zambian operations of the two major foreign mining corporations. Interestingly enough, the following year (1971), it was noticed that there was a decline in copper production despite that copper prices were relatively high. This trend continued until 1974 when it was worsened by the decline in copper prices.

    ReplyDelete
  7. I do not deny the fact that copper output has increased steadily since 2004, due to higher copper prices and the opening of new mines. However I’m of the opinion that private ownership is more efficient than state run enterprises as evidenced by data of the period 1932 to 1980. Nevertheless parastatals are good for targeted development as certain areas seem too challenging for private sector to venture in. A good example is rural electrification.

    ReplyDelete

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