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Thursday, 15 December 2011

Merry Xmas and Happy 2012

Dear Friends,

As is customary since this website was founded, I will be taking 1 month off to recharge the batteries. Over the years I have come to value this period and I hope you agree that it has served us well. I am conscious though that we have not achieved everything I hoped to do this year regarding this project, so the break will be a good time for reflecting on how best we move forward.

Many thanks for all your support through this year. As always your encouragement and many website visits continues to be a great source of encourage. A special thank you to those who have financially contributed. Your funds are vital in helping with buying books to review, maintaining the domain and paying for some resources we need. I am always humbled that you consider the work worthy supporting financially given the myriads of choices you have!

Another huge thanks to our many Facebook and Twitter readers. Your contributions continue to be insightful and relevant. They provide a valuable source to steer the thinking and prioritise issues that need to be covered.

Wishing you all a wonder Xmas and fantastic 2012!!

May the Lord keep you safe and secure during the festive period.

See you on 15 January 2012, God willing.

Chola Mukanga
Founder, Zambian Economist
http://www.zambian-economist.com
Email : cho@zambian-economist.com
Twitter : http://www.twitter.com/cholamukanga 

Corruption in Zambia - The Quest for A Successful Struggle

By Chola Mukanga

The election of the Patriotic Front has thrust the fight against corruption firmly back on the national agenda. An agenda built around the commitment to “zero tolerance” on corruption in all areas of national life. President Michael Sata set out this direction in his inaugural speech to Parliament[i]:
I am sounding a timely warning that my Government has taken a zero tolerance against corruption in both the public and private sectors. Those who allow themselves to engage in corruption must know that they are taking a serious risk and that once caught they will be prosecuted irrespective of their status or position.
This new direction presents both an opportunity and challenge. It is an opportunity because we now have a clean start that appears to be winning accolades, as illustrated by the timely decision by the European Investment Bank (EIB) to resume funding to Zambia. The EIB observed, We are pleased to note the public statements by President Sata and his Government, declaring the fight against corruption a key priority…. [and] the numerous institutional changes aimed at strengthening corporate governance; including the changes in leadership at both ZESCO and the Anti-Corruption Commission….In view of these developments, I am pleased to inform you that the European Investment Bank has decided to lift restrictions on EIB’s activities in the public sector in Zambia.”.  
It is a challenge because we are still in the embryonic stage of this renewed quest. Zambia is awakening from an MMD era of unprecedented scandals in our young history.  The inevitable question on every Zambian’s mind is: will this renewed fight succeed where others have failed so miserably?

Defining success
The answer to that question naturally depends on what is meant by “success”. What are we aiming for? The new Government defines it as “zero tolerance”, meaning no corruption taking place in every sphere of Zambian life. But it should immediately be obvious that though the slogan is necessary in galvanising our attitude (and gaining international confidence) it tells us nothing about what realistically we are working to. Indeed, there’s a danger that without a proper defined criteria of success the slogan may be hostage to fortune.
This is particularly the case because the multifaceted nature of corruption[ii] means it will always be here. It is part of the total depravity of man. More importantly even if we are able to heroically reduce it to zero, it may not be financially or economically sound to do so.  By all means let us fight for zero corruption, but at what cost? Therefore there’s a pressing need in this early and enthusiastic stage the new struggle against plunder to develop deliberate and specific targets that the new Government should be aiming for to allow citizens to properly hold it to account on the level of progress being made.
As a starting point we should be clear that measures of success must be specific and not the vague promises we were accustomed to under the failed and corrupt regime of the past. Statements such “corruption is reducing” or “that institution is back on track” won’t do. Let us be clear about what sort of corruption we have in mind and where our efforts to should focus on. Zambia has very little financial resources. We need to be intelligent in our fight against corruption.
Economic intuition suggests that it is more efficient that the fight against corruption focuses initially on areas of corruption which may be more harmful in terms of growth and equity. Corruption is likely to be more detrimental where it is likely to disproportionately affect the poor compared to the rich, leading to larger income inequalities over time. Corruption is likely to be most harmful where it “hits people twice” e.g. in hospitals, schools and police. Corruption is likely to be more damaging to society where it affects those institutions that are there to prevent it.  Defining these areas as specific targets to reduce corruption would refocus our struggle and deliver tangible results that can be verified by all Zambians.
The indicators of success must be measurable. The problem with the MMD fight against corruption is that it had no real agreed measurable indicators. How do we know corruption has reduced in Mwansabombwe? How do we assess whether the civil service has increased in corruption? Key parameters must be agreed that are routinely measured and tracked by a specific publicly accountable body.  These benchmarks on national performance against corruption would include local and sector based perception indicators, financial leakage, number of arrests, timeliness of corrupt cases in court, etc. Such data should be kept in public and routinely updated document. In short, underpinning the struggle against corruption must be a clear public service agreement supported by hard and routinely collected data.
Of course it is not good measuring things that we are unlikely to do anything about. So it is vital that such targets are based on policy goals that are achievable and realistic. Realistic indicators of success give impetus to Government to strive to bring them about and allow the public to be justified in their disgust when such targets are not being met. People will not care about any outcome that they know full well will not be delivered. We must move from hollow promises of a better tomorrow to more timely and realistic commitments e.g. “traffic police bribery reduced by 10% by July 2012”.  These are the sort of milestones that we desperately need.

Prerequisites for success
Of course measuring success is only the beginning. Ultimately success in fighting corruption will depend on Government developing the necessary conditions to breed success. This is particularly crucial in the embryonic stage. There are three key indispensible conditions.
First, there’s need for sustained policy credibility. The fight against corruption must be a truly people driven agenda. A “Zambian Project”, not just the vision of the person in State House. One of the tragedies of the Mwanawasa administration is that the fight against corruption was personalised through Presidential Executive Orders which rightly conveyed the impression that it was a personal creation designed to fulfil whatever Mr Mwanawasa had in mind. Creating private presidential armies to fight corruption is not good governance, no matter how successful those armies might be.
Similarly, reliance on foreign donors for such an important struggle undermines Zambia’s sovereignty. Let us fight corruption, but let us not sell our country in the process. The new PF government deserves applaud, for now, for not reinstating the Task Force and shunning foreign funding in this area. Zambia must always bear 100% the burden of delivering justice because it is the foundation of our society. If the foundation is on borrowed capital, will the house stand? The Government must now go beyond that by creating an adequate legislative and political framework that will truly put Zambia on a credible and sustained path towards a low corruption and high growth equilibrium.
The second condition is financial sustainability. The fight against corruption must provide value for money over the medium to long term. It is true that there's no price that can be put on rule of law and justice in general, but we have to remember that the fight against corruption wont by itself deliver these things. It is only a part, albeit an important one. That means that any fight against corruption must, like all forms of policy, be undertaken within the context of an efficient and cost cutting government, with an eye on spending money where it is most needed.
Over the last two decades Zambians have seen initiative after initiative undertaken without being sufficiently underpinned by effective cost benefit analysis. This has led to grossly inefficient arrangements whose costs, if ever quantified, would outweigh benefits. Zambia is a country that relies on donor funding and external borrowing to feed its people. Each K1 being spent must rightly be evaluated against competing alternatives. More importantly, if the fight against corruption is to succeed the supply of funding must be sustainable. It’s the irony of life that we need money to stop money being lost. A new strategy for corruption must therefore be underpinned by the need for delivering solutions that that are economically efficient.
The third condition is that the fight against corruption should be forged as part of a holistic and broad struggle for development. Corruption is best addressed as part of a wider debate on what we think are key constraints to Zambia’s development. The days of long running editorials on one person are a distraction to real debate, which should focus on how we can make our institutions better and indifferent to the personalities of the day. Zambia's number one problem is that we have a "poor institutional framework” that exists only to serve the rich and corrupt elite. A credible institutional framework goes beyond simply tackling corruption. It is about introducing stronger governance and accountability structures. Participatory democracy and effective decentralisation are among those things that have been empirically verified to work. We simply cannot expect to win the fight against corruption if power is unnecessarily centralised.

Delivering success 
When the conditions are right, it becomes easier to take forward policies that deliver results. A top priority is that we need new policies that encourage greater detection of corrupt activities.  High levels of detection act as a deterrence to would be perpetrators. In short, information is vital in the struggle for corruption.
The prime source of such information is whistle blowers. The existing legislation on legal protection for whistle blowers unfortunately contains significant deficiencies[iii] that urgently need to be corrected by the new Government.  Although the current legislation claims to provide for "a framework within which public interest disclosure shall be independently and rigorously dealt with", it is quite clear that the framework is particularly inadequate in so far as it relates to investigating agencies. The legislation requires investigating authorities to investigate themselves which clearly does not encourage whistle blowing. Similarly, the current legislation contains no monetary incentive or financial reward for whistle-blowing, further diminishing of any prospect of whistle blowing.
The media has an important role in disseminating information. The media such as newspapers, television or radio are useful and often necessary methods of publicising corruption to the electorate, to empower the community to punish corrupt officials.  A key proposal therefore is that new Government should formally privatise Government controlled papers. Empirical evidence[iv] demonstrates that a government dominated press is positively associated with corruption. A free press provides greater information than a government controlled press to the public on government and public sector misbehaviour including corruption. The best way to encourage corruption therefore is to ensure Government owns the television and owns the main newspapers. World over, it is accepted: if you want to know how serious a Government is in fighting corruption, just look at how much media it controls.
Further media reforms must include having an established and trusted media outlet in the community and using media that can best reach the community based on its education level. Our local radio stations should be supported as avenues for greater and more localised detectors and publishers of malpractices. Though Zambia continues to see a significant rise in local radio stations many continue to face serious administrative and operational problems. Local advertising revenue is not sufficient to make such radio stations sustainable. Hence there’s need for Government to do more to supplement funding in these areas. A viable community radio station fund is needed. 
Of course the citizens can only do so much and that is why Watchdog institutions exist (Auditor General, ACC, DEC and Police Service) to help detect such vices. Unfortunately, these institutions are some of the most corrupt institutions in the country. Evidence increasingly shows that where auditors and policing authorities are corrupt, initiatives to tackle corruption, indeed monitoring in general, becomes toothless. It is for this reason that high priority should be placed on improving their capacity. This will include not just monitoring the monitors better but creating incentives within these organisations to avoid corruption e.g. through greater competition for jobs and improved pay packages. It cannot be denied that these Watchdog institutions have generally been the most underfunded in the country. As Director General, Rosewine Wandi recently noted, "the ACC faces several challenges such as lack of adequate funding from the Government to enable us execute our operations effectively...” Simply put the institutions are broke.

Improved detection must be accompanied by rapid improvement in prosecution. The current approach to prosecution is costly to the tax payer because cases take a long time. We need a new judicial process for convicting corrupt criminals that is swift and definite. No point of having long prison sentences and good detection, if you cannot actually convict people efficiently and at minimal cost to the tax payer. A corruption fight without an efficient court system has little deterrent effect on corruption and is therefore a pure social cost.

The Government should seriously consider setting up Special Corruption Courts, if necessary on a pilot basis. These would constitute specially selected judges and dedicated courts to exclusively handle corruption and economic crimes related cases. The experiences of establishing special corruption courts can be seen in Pakistan, Philippines and Kenya. There’s no reason why Zambia cannot be learn from such countries on pitfalls to avoid. Many international organisations support such initiatives and indeed recently Nigeria has initiated[v] a similar pilot for two years. The approach is to use a unified general system with judges who have already acquired expertise in handling corruption cases. These could be restricted to look at cases involving more than K100m.

The final jigsaw is increased punishment. There is need for introduction of stiffer penalties for corruption. Firing people is not enough to dissuade them from corruption because often such individuals are fairly mobile and would be able to find another job. Stiffer penalties in form of longer sentencing periods are needed. The problem at present is that not only do cases take long to resolve, but when these cases are concluded people serve short sentences. For justice to work, it is critical that people are not just punished but are seen to be punished. This policy prescription is in line with the stated intention of the President in his inaugural speech to Parliament[vi]:  “To restore public confidence in [the fight against corruption], the PF Government shall amend the Anti Corruption Commission Act to introduce much stiffer penalties for corruption offences, re-instate the abuse of office clause … ”.
Crucially, the three policy elements – detection, prosecution and punishment – must be treated as a unbroken trinity. Policy initiatives that utilise a combination of these three can prevent corruption by drastically increasing the expected cost for being corrupt (increasing the probability of being caught engaging in corrupt activities, and increasing the punishment for being corrupt). Detection on its own is ineffective, because the individual must face a punishment for being corrupt. Similarly, increasing the incentive to stay honest has no effect when the probability of getting caught is too small.
Zambia has a remarkable new political opportunity to wage a successful fight against corruption. This vision requires translating the President’s stated intentions into practical ideas to deliver a less corrupt Zambia. We won’t achieve this unless we are clear about what success looks like; the environment that will help create that success; and the practical initiatives needed to bring it about.


Chola Mukanga is an economist and founder of the Zambian Economist which provides independent economic perspectives on Zambia's progress towards meaningful development for her people

Copyright: Zambian Economist, 2013
www.zambian-economist.com

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Tuesday, 13 December 2011

Debt Watch (China), 4th Edition

The Government has entered into yet another debt deal with China. This week Alexander Chikwanda received an economic and technical cooperation grant agreement (free money) amounting to US$7m and then proceeded to borrow US$10m on top. We are told the the money will be used "in the fight against poverty and projects to be agreed upon by the two governments". So we are borrowing money that we do not even know where its going to be used? One assumes that China would have been content just to give the US$7m without lending the extra. 

Mr Chikwanda was also keen to reiterate that it is "Government’s desire to access Chinese financial assistance and technical expertise to extend the TAZARA railway line project to Angola".
 So more debt coming.  The problems with all of these loans (small or large) is that they are just arbitrary and without any clear audit trails. Our hope (faint) is that Mr Chikwanda will slow down a bit and put his thinking cap on.  It does not not make sense to keep on borrowing without a proper debt management strategy underpinned by appropriate legislation. Its my view that until that is done there should be no more borrowing, big or small.

Related Posts:

Debt Watch (China), 3rd Edition
Debt Watch (China), 2nd Edition
Debt Watch (China)

Monday, 12 December 2011

A Poor Statement

If this misguided statement from Mines Minister Simuusa on the current mining regime is anything to go by we are in for some problems on the mining front: 
"For now (the royalties) will stay, but if it becomes a crisis, if prices crash, we might have to review the regime... not in 2012 but for 2013, in the next budget..."
One assumes that Mr Simuusa is trying to reassure mining companies that the Government is sensitive to the global pressures. But this statement is misguided for a number of reasons.

First, it shows the current mining regime is not well conceived. A good mining taxation regime does not constant  adjustment. We were told by the Finance Minister Alexander Chikwanda that the new regime is sufficient to capture appropriate revenue. If that indeed is the case, why would the Government already be talking about possible scenarios that would require reversals? Isn't it better to design a tax regime that automatically adjusts in the low revenue years? 

Saturday, 10 December 2011

Top 5 Books of 2011

As we edge closer to the end of 2011, and our impending annual blogging break (due 15 December), I thought it was prudent to share our customary look at the top books released in 2011. Once again a difficult choice. As always the list reflects what I found interesting, fresh, challenging and inspiring. The list of course reflects my broader reading of new books. You will naturally have read other interesting new releases. Would be interested to see what you found eye catching.

Product Details(5) Dancing In The Glory of Monsters by Jason Sterns seeks to offer a narrative of the wars that have been raging in the Democratic Republic of Congo. It is particularly useful in terms of drawing out the various roles played by its neighbours, especially the Rwandan government. It is naturally graphic and certainly not for the faint hearted. I suppose if there's a downside is that it is often unbalanced and could have done with better polishing or story telling. But certainly one of the most important books released this year and a must read for students of African affairs. You can't understand Africa until you understand the Congo. The book offers a great start in that area.

Friday, 9 December 2011

Parastatal Madness, 15th Edition

More revelation of broken parastatals. Minister for Transport, Works, Supply and Communication Yamfwa Mukanga has demanded an explanation from Zampost management on its decision to renovate the post master general's house at a cost of K2 billion. To add to that the company owes Roraima Financial Services K12 billion for money transfer services and has other historical debts in taxes to Government and other parastatal institutions. 

Thursday, 8 December 2011

Why have farming subsidies failed to reduce poverty?

The past two years are a tribute to Zambian farmers: they have responded admirably to government efforts to promote maize production. Being the most important staple food in Zambia, maize surpluses contribute to food security and benefit the nation. But the smallest farmers in Zambia— those cultivating less than 2 hectares who account for over 70% of all the smallholder farms in the country —participated only marginally in the maize production expansion of 2010/11. These farmers received relatively little FISP fertiliser and sold very little maize, hence they were unable to benefit from the FRA producer price of 65,000 kwacha per bag. The farmers benefiting the most from the government’s expenditures on supporting maize prices were clearly those selling the most maize.

Wednesday, 7 December 2011

A Failure of Reason

An interesting development in Msanzala :
Msanzala independent member of parliament Colonel Joseph Lungu has allegedly resigned and has immediately joined the ruling Patriotic Front. Col Lungu said he had decided to join the ruling party in order to ensure development of Msanzala which had lagged behind for some time. Col Lungu said he felt he could not take development to the area as an independent parliamentarian. He hoped to be adopted by the PF and promised that he would continue with development projects for the area.
It is not often one comes across a complete failure of reason, but this is a good candidate. This appears foolish at many levels. There's much that can be said for the costly nature of his decision and the possibility of better alternative arrangements. For example, someone might rightly ask, why not just enter an arrangement with PF? Surely that would deliver the same results! It can't be job seeking because MMD MPs are already in government without switching sides!

But what I wanted to comment on is the report that "Col Lungu said he felt he could not take development to the area as an independent parliamentarian". There are two problems with this idea. The immediate one is that it promotes corruption among parliamentarians. There's a view being espoused here that one must have a strong relationship (nepotistic) with the current administration in order for your area to be developed. This is very divisive. Government exists to serve all people regardless of political affiliation. Unfortunately this is one of those cancerous vices introduced by the failed MMD regime with its promotion of regionalism (Lambaland, Bembaland, etc) and corruption based politics. George Kunda and Dora Siliya were notorious for suggesting that only by having an MP from the ruling party was development possible. 

A related and more serious problem is that it perpetuates the misguided view that the legislature only matters when the representatives in question are members of the current administration. This reinforces the huge misconceptions people have about MPs. The role of the MP is poorly understood, and  Col Lungu sadly does not get it. In fact neither does Silvia Masebo when she claimed she is now poised to "deliver development" to Chongwe. Unless Ms Masebo is relying on corrupt favours, she is incapable of delivering development. In fact it is not her primary job to deliver development to Chongwe. 

The primary role of an MP is to vote on legislation and make laws on behalf of their constituency (the "legislative function"). They also have an additional function of representing the views of their constituency to Parliament e.g. special problems they are facing which the executive branch has failed to address ("advocacy function"). It is not the role of an MP to bring economic development, since in a well functioning society such functions would be performed by an effective local government with appropriate support from central government. The MP's role is simply to ensure that the local preferences are fully reflected in national decisions. Once the MP brings the problem to the attention of the Executive, it is expected that they would follow through where they can. 

Unfortunately in our country, the local government is non-existent, due to ineffective capacity and molestation by the Executive (e.g. through large unpaid debts). So the MP has assumed the de-facto role of a leader. MPs have absolutely zero levers to deliver development, besides the Constituency Development Fund, which has its own problems. In fact many spend their personal fortunes to appease their constituency ending up in bankruptcy.

I should also point that to the extent that voting systems define the extent to which MPs are "connected" to their constituency, we can expect that the balance between the "legislative function" and "advocacy" to vary from one system to the next. Under the current system we expect that MPs are significantly tied to local communities, but where you have a national Proportional Representation system, the "advocacy function" is slightly diminished. Incidentally, I have previously advocated a different system that supports greater role for chiefs (enhances their "advocacy function") within a stronger decentralised framework. Under that system the role of the MP would be purely "legislative". A monthly essay is coming on in the new year. 

Tuesday, 6 December 2011

The Grand Inga Project, 2nd Edition

The Grand Inga Project is not dead. Last month President Zuma (RSA) signed a deal with President Kabila (DRC) in the first step of the project designed to "save Africa". The project could dwarf China's Three Gorges Dam  is meant to come onstream by 2025. Still in the feasibility stages, the Grand Inga, expected to generate 40,000 megawatts, could be a long-term solution to all our power problems, but investors have held back due to political risk and its $60 billion price tag.  A fascinating article explores whether the project could finally come fruition. 

Monday, 5 December 2011

Mine Watch (Muntanga)

Denison Mines Corp recently announced that it could potentially boost the resource estimate at its Mutanga project by 16 to 24 million pounds of uranium, based on exploration drilling completed this year. However, it has warned that though the results look promising, it has not done enough drilling to properly define an increase in the resources. Exploration at Mutanga will continue in 2012.

Denison produces uranium and vanadium in the United States. Denison is among other companies that have quietly corned uranium mining in Zambia with a range of small lucrative projects. We have been promised that its Mutanga and Dimbwe Deposits in Siavonga will create approximately 300 jobs in 2012. But everyone is silent on how much money will go into the national pocket. The old dreams of a uranium powered Zambia runs hollow indeed!

Investment Watch (Lime)

Lions Group Quarries (LGQ) Limited, a local firm is planning to construct a lime plant in Kafue district at a cost of US$30 million. The project is expected create 200 jobs. According to Environmental Impact Assessment (EIA) the new plant, which will be located next to its existing quarry and crusher plant located in Lusaka West, will produce 400 tonnes per day as start-up production capacity with production expected to rise to 800 tonnes per day after three years.

Mine Watch (Mimbula)

Konkola Copper Mines has announced plans to resume output at the Mimbula open pit mine as part of Vedanta'ss strategy to extend mine life at its operations. KCM plans to carry out activities at Mimbula including extension of the power line to the site as well as pit de-watering and de-silting as mining has not taken place there since the 1970s. The opening of the Mimbula mine, located on the Copperbelt, is still under evaluation with further details forthcoming.

Friday, 2 December 2011

Budget 2012 : National Budget for Agriculture

The ACF / IAPRI policy presentation on the Budget -  2012 Zambian Agriculture Budget Analysis. As the selected graphics below show (click to enlarge), there has been such deviation from actual allocations in previous budgets, that the word "budget" does not carry much meaning. We hope this will change under the new government.



Thursday, 1 December 2011

Equality through employment

Andres Velasco argues that the best way to tack rising inequality is through job creation. Focusing on evidence Chile, he argues that if poor households had the same access to jobs as the middle classes enjoy, the gap between rich and poor would narrow by half.

“Do you feel it trickle down?” ask the protesters occupying Wall Street and parts of financial districts from London to San Francisco. They are not alone in their anxiety. Income inequality is a top concern not only in tent cities across the United States, but also among street protesters in Taipei, Tel Aviv, Cairo, Athens, Madrid, Santiago, and elsewhere.