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Friday, 7 December 2012

Merry Christmas and Happy 2013!

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.

Many thanks for all your support through this year, especially those who have made financial contributions. A special thanks to our many Facebook (7900+) and Twitter (2500+) readers. Your contributions continue to be insightful and relevant.

Wishing you all a wonderful Christmas and fantastic 2013!!

See you on 7 January 2013, the Lord willing.

Chola Mukanga
Founder, Zambian Economist

Thursday, 6 December 2012

Constituency Development Funds, 4th Edition

Miles Sampa recently revealed via Facebook that the CDF budget has increased, "after strong submissions from all MPs in general; my Minister has Heard and adjusted the Constituency Development Fund (CDF) in the 2013 Budget from K1BN to K1.3BN per Constituency".  This represents an increase of K0.5bn because previously it was around K0.8bn. The new 2013 budget raised to K1bn and now they have raised it again as the budget is debated.

All of this is baffling of course. As we have noted previously. Not too long ago it was revealed that the Government by its own admission has not measured the impact of the CDF on the socio-economic development of constituencies from inception to date. Two major studies which were conducted by Caritas Zambia and the Economic Association of Zambia (EAZ) on the impact of the CDF which are in public domain have shown rampart corruption and misallocation of funds. So how can GRZ keep increasing this fund?

The better approach there is to abolish it! In its place a better fiscal framework should be put in place. Let councils have proper fiscal decentralisation. Let them spend the money they raise through local taxes. And please, let us ensure MPs stay out of money issues. It corrupts their proper functions : which is creating laws; representation; and, advocacy. Only in Zambia do Members of Parliament worry about local budgets! Such should be the job of a properly functioning council! Not MPs!

Wednesday, 5 December 2012

How reliable are our GDP numbers?

One of the questions we get often relates to Zambia’s GDP. Recently someone asked : are the GDP growth figures a true reflection of Zambia’s economic performance?

The simple answer is no because GDP has several limitations for a country such as ours.

First, GDP measures the value of output produced in Zambia. But only that which is officially recorded. It does not capture our large informal sector (believed to be around 40% - 60% of gross national income), where the bulk of transactions are not recorded. So countries which record transactions better will have higher GDP than Zambia but that does not mean our true national output is smaller.

Secondly, GDP does not take into account negative externalities. So if you produce more copper and you cause sickness to people around Kankoyo, they say GDP has increased. But that is only because we are not producing the 'right amount' of copper in a safe and humane way. The true cost of producing copper is not being included.

Which leads to the third point. GDP does not measure quality of life. It does not tell us whether Zambians today are better in terms of “quality of living” than we were last year. It is a pure measure of income. Quality of life should not be confused with standard of living, a measure of income. Quality of life includes other things e.g. basic human rights, freedom, good mental well being, wealth in general, education, etc. Things that are seen as building blocks of “real development”

And of course it goes without saying, money cannot give you happiness. Especially if societies are highly unequal, like we have we in Zambia. The few control all the resources, mine our copper and keep shuffling national jobs among themselves. We are deeply unequal and as a result deeply unhappy.

A word of caution.

GDP growth may be a potentially useful statistic. It tells us that measured GDP has grown. But we need to be clear what the changes may be signaling. If GDP grows it is not necessarily the case that the economy has grown. It could simply be that more and more businesses are becoming formalised. In short our growth may be due to the fact that we are now better at recording and we have fewer black markets! In practice very little may have changed!

Tuesday, 4 December 2012

Zambia's Lost Gemstones

By Chola Mukanga

Gemstones are among the most lucrative minerals in the world. They are also stones that Zambia has in abundance. It has the second largest deposits of emeralds in the world and accounts for about 20% of global supplies. The quality of these emerald stones is very good for colour and specific gravity. Zambia also possesses Africa's largest deposits of amethyst and aquamarine, with the quality of the former considered to be amongst the very best in the world. These deposits can be found in Copperbelt, Eastern and Southern provinces, with more discoveries being made in other parts of Zambia as exploration intensifies. 

Monday, 3 December 2012

No tourist visas?

Sylvia Masebo MP (Tourism Minister) recently signalled that Government may soon abolish Visa fees for "tourists" visiting Zambia. The proposal will be tabled before Cabinet, following appeals by some Lodge owners who are complaining that visits to Zambia have been dwindling due to "prohibitive tourist visa fees currently set at US$50 per person". She has promised to consult widely before taking the matter to cabinet for possible consideration.

The proposal will need to be much clearer. Is it no visa fees or no visas period? Logic demands that she must mean the latter because having a visa regime that does not recover costs would be costly to maintain. Presumably part of the visa fees goings towards administration and processing costs. But then again, abolishing visas to Zambia will have other implications. There's the question of losing the "security benefits" of a Visa regime. How much consideration will be given to that?

The obvious question of course is the extent to which the visa costs impacts on demand for tourism. Where is the evidence on this? Just how elasticity is international tourism demand to Zambia? Are the Lodge owners really correct that a US$50 waive will boost demand? It seems to me that what is important is having a common SADC Schengen system that is underpinned by a clear software system. Where individuals can be tracked across borders but would pretty much move freely.

This of course is not the first time these ideas have been proposed.

Sunday, 2 December 2012

Zambia Plundered!

The much talked about new documentary of the plunder of Zambia copper by multinationals is available on You Tube. Two things struck me. First, how pivotal the death of Mwanawasa was for the mining companies. If Levy had not died, the windfall tax would never have been reversed and Zambia would be a better country for it. Rupiah Banda was a perfect present for the mining companies. Secondly, I was struck by how we still do not have a public inquiry into the mining privatisation process. Surely that is the mother of all inquiries we need! Everything else pales in comparison!

Please share he video around.

Friday, 30 November 2012

The Scandal that never was

An interesting development occurred earlier this month when the courts concluded that the highly publicised scandal was not a criminal scandal. After another expensive investigation and prosecution that lasted three years, the Courts concluded that the Kapoko scandal, which damaged Zambia's international reputation, was not a criminal scandal after all.

Henry Kapoko and eight others were acquitted by the Magistrate Court for theft and money laundering involving K1.9 billion. The court also acquitted Mr Kapoko and a lodge manager of issuing cheques on an insufficiently-funded account. The acquittal brought to an end a 3 year court process during which time the accused lost their jobs and had property seized. Magistrate Kenneth Mulife said the prosecution had failed to prove the case beyond reasonable doubt.

There are still no indications on whether the State will appeal. One wonders whether this whole process has cost the nation more than the amount allegedly stolen by Kapoko. Sadly nearly a month down the line, the important questions are still not being asked by the media and general public. the trial is already being forgetten! But questions must be asked : was the prosecution politically motivated? Were the prosecutors incompetent? Why do these cases take so long to prosecute? And where does this leave the state of prosecutions in Zambia? Where does it leave public confidence in our judicial system? What should be done to ensure this never happens again? And why did Zambia pay back the money? Was money really lost, and if was, how was it lost in the first place? 

The failure to bring about the conviction follows a long list of incompetence by Zambian high profile prosecution failures. It appears Government prosecution team is in dire need of revitalisation. There are also broader questions about whether we need to reform how the Courts deal with corruption cases.

Thursday, 29 November 2012

What are the most problematic factors for businesses?

From the recent Global Competitiveness Report 2012-2013. No surprises there because the challenges of finance are well known. In rural areas the issues are largely down to lack of tenure security which increases the cost (or absence)  of borrowing. In urban areas general issues around credit defaults and lack of an effective credit reference systems continue to keep rates structurally high. Many solutions have been suggested ranging from subsidised credit to government banks, with little success. 

Wednesday, 28 November 2012

A Problem of Immunity

By Chola Mukanga

The First Draft Constitution provides specific provisions on presidential immunity. Article 96 states: (1) Civil proceedings shall not be instituted or continued against the President, or a person who is performing the executive functions, in respect of anything done, or omitted to be done; and, (2) The President, or a person performing the executive functions, subject to clause (6), shall be immune from criminal proceedings.

Parts (3) - (8) provides further detail relating to ex-presidents, including the possibility of Parliament lifting immunity after a two-thirds vote. These provisions of course are largely in line with the current Constitution with minor alterations. The bottom line is that all sitting presidents are immune from civil and criminal proceedings. Ex-presidents are permanently immune until parliament decides otherwise.

Tuesday, 27 November 2012

How do we solve this problem?

A friend has raised the question of why "open defecation" has been going up, even though improvements have been noted elsewhere. Answers on the post card please!

Monday, 26 November 2012

Is the Government subsidy to maize millers benefiting consumers?

The powerful graphic from this recent IAPRI paper clearly shows the answer is NO. Very little of the treasury costs involved in selling grain to millers at abnormally low prices are benefiting Zambian consumers. Particularly note worthy is that the reduction from M8 to M9 is not passed on irrespective of the cost level. The authors put this down to lack of competition in the commercial milling sector, which has paradoxically become more amplified with the rise in subsidies :
Maize subsidies are perceived as government’s indirect support to commercial millers. But it is a well-documented fact that even small millers (hammer mills) play a major role in ensuring competition in the grain milling industry in the country. Therefore, if the playing field is not levelled  their activities are hampered by selective subsidies and as a result lessening competition in the grain milling industry. The end results are high marketing margins between wholesale maize grain and breakfast meal retail prices.

The foregone analysis indicates that selective subsidies conferred to certain players in the market do not necessarily have desired consequences when the market is not fully competitive. If the market were competitive, then subsidies conferred to millers would be passed along fully to consumers, which appear not to be the case in Zambia. Subsidies to maize millers have instead proved to be a drain on the government treasury without trickling down anticipated benefits to intended beneficiaries – urban consumers in this case.

Friday, 23 November 2012

Monitoring Revenues

GRZ is pressing ahead with the proposal in the 2013 Budget to make it mandatory for ministries, provinces, spending agencies and revenue collecting statutory bodies to deposit all collections in form of fees and fines directly to the treasury from January 2013. All institutions would deposit money through revenue transit accounts at commercial banks. Commercial banks have already signed service legal agreements that would compel them to remit funds to the Bank of Zambia within 24 hours.

An interesting development alongside this is that GRZ is already rolling out a pilot that will allow people to pay fees for passports and other citizenship fees through Indo-Zambia Bank. This is intended minimise human contact with cash especially in areas where banking services are available. The pilot is would focus on Lusaka, Livingstone, Chipata, Kabwe and Ndola with view other provincial centres to follow.

Both initiatives are certainly long overdue. Particularly the Indo-Zambia pilot. The only problem there is how this is rolled out across critical areas like police fines, etc. It is there where corruption is rife. And then difficult questions follow : how was Indo-Zambia was selected? Was this through competitive bidding? Related to that, how much is Indo-Zambia making from the process? Is the public now going to pay more for these processes? Who pays? These questions are important especially if the idea is rolled out more widely.

Thursday, 22 November 2012

Timber License Suspension

Government recently suspended all timber licences "to protect the depleting forests around the country". Ministerial statement is embedded below. During the suspension period, no indigenous logs, cants or poles will be felled or transported to any destination. Any found will be confiscated and forfeited to the State. Natural Resources Minister Wylbur Simuusa says the move would NOT apply to exotic timber plantations or timber that is legally extracted, processed and was in timber yards, factories or markets.

Mr Simuusa says he has received many complaints : not all timber license orders are abiding by their terms; a lot of debris and branch wood is left on stumps affecting natural regeneration; many forest licenses have not demarcated their boundaries; poor or lack of fire management regimes; rampant local boundary disputes; and, over cutting and illegal purchasing of timber from local communities and chiefdoms.

Tuesday, 20 November 2012

Corruption Watch (REA, Prisons)

Recent corruption allegations.

The ACC is investigating rampant financial abuse worth billions of Kwacha at the Rural Electrification Authority (REA). This follows revelations from Auditor General who has just completed a 30-day audit of the institution. Earlier this year some concerned REA employees sent a confidential dossier to President Michael Sata cataloguing many abuses at REA by the CEO Wilfred Serenje (now fired), including general theft by public servant, nepotism, corruption and victimisation.  There are so many government agencies that exist just to waste public money. 

The ACC recently arrested two government officers for corruption and abuse of office involving K1.5 billion meant for rehabilitation of Livingstone Central Prison. Mwala Katundu a quantity surveyor has been arrested for certifying that works at the Livingstone Central Prison were fully done when in fact not. The other is Emmanuel Nguni an Assistant Director of Monitoring and Evaluation who received funds in exchange of awarding the contract. Both are at the Ministry of Works and Supply. The duo are remanded in custody and have denied the charge and will appear in court soon.

Monday, 19 November 2012

Intellectual Poverty (David Phiri)

Government obsession with establishing a national airline continues. Tourism D Minister David Phiri says the tourism sector would not progress without one :
The question of connectivity is a central factor in the development of Zambia’s tourism sector. This can only come about where there is a viable national airline. There is consensus in both Government and industry that Zambia needs a viable national airline..
This is economic folly. How is a national airline going to improve connectivity? Basic transport economics suggest that the reason we have limited connectivity from/to Zambia can only be down to three things : (i) poor passenger demand on certain routes; (ii) limited runaway capacity; and, (iii) regulatory constraints. The big one there is passenger demand. If there's long haul passenger demand many airlines will gladly put on the flights. But one thing is certainly true : supply won't create demand. 

As things stand there's insufficient demand on long haul routes to run a profitable airline. At present key destinations are already serviced. Where does Mr Phiri think there's demand gap that's yearning to be filled by tourists? His he planning to fly directly to the USA? All tourists coming to Zambia now have options with BA, KLM and Emirates. Where exactly are is hoping to fly this new airline to make money in tourism? Unless Mr Phiri expects the new government airline would run empty and subsidised routes - all paid by taxes of poor Zambians who will never dream of flying abroad!

Friday, 16 November 2012

A thumbs up!

Moody's last week issued a first public rating assignment to Zambia as it expands its rating of African economics. It has assigned Zambia a fairly strong rating of B1 (still far from investment grade though). According to Moody :
"The outlook on these ratings is stable. The B1 ratings reflect the following key factors: 1) Expectation of continued rapid growth, which should support economic diversification and over time increase the country's low wealth levels. 2) The country's track record of political stability, which benefits its developing institutional strength. 3) Zambia's low albeit improved financial strength, following debt forgiveness from official creditors in 2006"
The B1 rating puts Zambia better than some Eastern European countries and even some Latin American ones. It is a good indicator that things are broadly on track - as far as the markets are concerned. But of course markets think differently. More detail via Finanzen.

Wednesday, 14 November 2012

From China with debts

More borrowing from China - we are becoming ever more indebted to the Dragon in the east. Government earlier this month confirmed that it had obtained a US$150m (K750bn) loan from Exim Bank of China for a new water supply project with China Civil Engineering Construction to help boost potable supplies to homes and commercial areas in Lusaka. The pact signed this week would involve the construction of a new bulk water supply line from Kafue to Lusaka as well as upgrading the distribution system in Lusaka and neighboring areas to expand supplies over a two-year period. The project compliments the Lusaka water supply program funded for free by the U.S. government through its Millennium Challenge Corp.

More money is certainly needed. Lusaka Water and Sewerage Company needs about US$600 million (K3 trillion) in the next five years to improve water supply. So far it has secured, through GRZ and donors, US$350 million (K1.8 trillion). That said, this is a classic Chinese deal - you borrow from them and they do the work. One does not know how such deals work. Very little of it is made public. And therein lies the problem - GRZ continues to borrow endlessly without a clear legislative framework for managing debt. When are we going to learn as a people? We cannot trust politicians to manage public debt because they always want to borrow to get re-elected. There's nothing free - someone has to pay for the current debt we keep piling.

Tuesday, 13 November 2012

Chinese mining in Southern Africa

A recent fascinating report on the impact of Chinese firms and policies on extractive industries in Southern Africa. A useful read indeed that helps to contextualise Zambia's experience within the broader Chinese activity in the region - look out for the narrative on Zimbabwe in particular. 
China Southern African and Extractive Industries

Monday, 12 November 2012

Costs of Rebasing the Kwacha (A Response)

By Francis Ilunga

The article Costs of Rebasing the Kwacha, that was published on 7 November 2012, raised important questions, which cannot go without comment. Below are a few observations concerning the said article:

1. The author has alleged that businesses will spend a lot of money on reconfiguration of their IT platforms, and that most of these costs will be passed onto consumers in one way or the other. The author has however neglected to mention the costs that most businesses incur in reconfiguring/ customizing standard packages (accounting/audit, etc), that they acquire from time to time. You will appreciate the fact that the packages used in Zambia are developed in jurisdictions where values, at a maximum, tend to be in millions. The present situation in Zambia, where some organizations, especially banks record values in billions or trillions of Kwacha, requires further customization of such packages in order to widen data fields, which tend to be very costly. With the rebasing of the Kwacha, businesses will no longer be spending money on the reconfiguration / customization of newly acquired packages. The same goes for ATM machines, which have to be customized to dispense millions of Kwacha, as opposed to hundreds and a few thousands in jurisdictions where they are manufactured. Therefore, apart from this one off cost that businesses will incur in recalibrating their IT platforms to conform with the rebased currency, it is easy to see that businesses will stand to benefit more from rebasing than they will lose.

Friday, 9 November 2012

Sharing the Proceeds of Mining, 6th Edition

Mathias Mphande on the perennial question of mining revenues :
How to benefit from the mining sector depends on choices you make as a country and mining is capital intensive and requires sufficient investments which can take the entire government funding if nationalisation is put in place. So since mining capital is mainly foreign, the only linkage the mines have on the local economies is through taxes....So government should find ways of maximising revenue collection from the mines. But even when taxes are captured effectively, governments and its civil servants spend these monies in a greedy manner such that the social welfare of the people is not improved. What can Zambia show for the huge taxes the government gets when patients are still sleeping on the floor at UTH and university students are still squatting and learning with few teaching aids, yet advocates of better taxes are called ‘lunatics’ by government officials....Kenya, which predominantly doesn’t produce minerals, has better economic indicators than Zambia, and Peru, which is rich in minerals, is poor compared to Brazil, a non-mining country, while Ivory Coast doesn’t have minerals, but its economy is better than oil-producing Nigeria...
Part of the answer according to Mphande is for Zambia to create a mineral resource stabilisation fund that can be used to develop other economic sectors. I think a  stabilisation fund is a much weak idea compared to competing alternatives. Isn't part of real answer already in legislation - mineral revenue sharing with local areas? 5% of mineral revenues is meant to go to mining areas. Which the last administration failed to implement. The PF championed it, but they have gone quiet now they are in government. Perhaps they are working to increase that local contribution? At 5% the local contribution is certainly very low! 30% or thereabout would be ideal. But the key is enforcement as no actual revenues are currently being transferred - the process remains "work in progress" since we flagged it up last time. See related posts below.

Related Posts :

Thursday, 8 November 2012

Mining Watch

Latest developments in the mining sector

Zambia Environmental Management Agency (ZEMA) has approved the construction of the US$450 million second acid plant by Mopani Copper Mines (MCM) Plc in Mufulira as part of the current smelter upgrade project. The smelter upgrade project is aimed at enhancing the smelting capacity and the reduction of sulphur dioxide emissions by over 95 per cent. The acid plant has a design production capacity of over 850,000 tonnes per annum which is twice the capacity of the first acid plant which was installed in 2007 and currently captured and converted about 50 per cent of sulphur dioxide emissions.
The upgrade is scheduled to be completed by December 2013.

Mines Minister Yamfwa Mukanga MP says Government will introduce an Extractive Industries Transparency Initiative (EITI) Act that will compel all mining firms operating in Zambia to disclose their production figures and all material payments they make :
Zambia is considering improving the legislation so as to strengthen the legal framework by introducing an EITI Act which will among other things institutionalise, protect and ensure that all those institutions such as EITI are fully incorporated and protected....We want to see a situation where this revenue that will be generated as means of our compliance would go into creating more jobs because [this is] part of our campaign promises. As a new government we want to see more money in the pocket of our people and we want to ensure our people have more jobs" (Source : Time of Zambia)
The Government is also considering extending EITI to fisheries and forestry. It is important to get a handle on timber production in particular. Many African countries, including Zambia, are losing out on illegal smuggling and general exploitation.

Wednesday, 7 November 2012

Costs of rebasing the Kwacha

The costs of rebasing the Kwacha on businesses are becoming more clear. The benefits will always be less tangible. 

Standard Chartered Bank Plc revealed early October that the rebasing will cost it K5 billion in terms of systems and infrastructure upgrade. Part of the money will also go towards staff training in order to ensure a smooth transition to the new kwacha.  National Savings and Credit Bank (NATSAVE) revealed late October that it has so far spent K1 billion on the initial preparation of the rebasing of the Kwacha. The money has gone on reconfiguration of the IT platform and general implementation of the rebasing preparation in its 27 branches across the country. This is just for starters! A reasonable guess would be that the the proposal would lead to business costs over K1 trillion. Most of these are passed onto consumers one way or the other! Many Zambians have failed to grasp the simple point that most costs, if not all, of rebasing the Kwacha are paid  by consumers. Business will not simply take on the costs, unless the competition is perfectly competitive (and even then under only certain assumptions).

As for the benefits - there are no real economic benefits to society apart from "computational costs" to grand parents. In theory government benefits from reverse seigniorage - but that seems to be limited because Government will allow people to change up to 2015 in an effort to minimise "menu" costs. So government wont actually make that much money from the short fall in the old Kwacha exchanges for the new! Atleast we can say it is not intended to swindle. But it is still poorly designed.

It is sad that this was a purely political decision. No single economic assessment was done by GRZ!  This of course is largely due to the "blind faith" of ordinary Zambians in the ability of government to think through things. Too many Zambians are content with simply saying, "government has thought through it, so it must be true". It is 2012, it is shocking posture to hold that can only be explained by the psychological effects of the colonial legacy. More critical thinking is needed among our people. We are lacking this as a nation. Government is certainly not smarter than you. The reason no economic analysis was done in this instance is because it knows that real economic evidence will undermine its conclusions. As "intelligent customers" we need to hold it to account. Which of course is why this website exists - to give you the information you need, allow you to think through them and then influence the powers that be!

Tuesday, 6 November 2012

Transport Watch (Various)

Recent transport related developments :

Government is about to embark on ‘Pave Zambia 2000’, a programme with an initial budget of K150 billion, meant to develop township roads countrywide. It plans to pave about 2, 000 kilometres of township roads using labour-intensive paving blocks and cobblestone technology. The labour intensive technology would be piloted in 15 sites across the 10 provinces and that this would create more than 20, 000 short term jobs. The project is expected to be launched before the end of the year.

Transport Minister Christopher Yaluma announced recently that the completion of the most expensive road in Zambia, the K1.25 trillion Mongu-Kalabo road will be delayed again due to the "terrain in the Western province". The nation's most cost and inefficient road project is being constructed Chinese company, AVIC International. If the word "construction" is not an overstatement.

Ministry of Transport PS Francis Kamanga was fired last month. The President’s decision comes slightly over a week after he took over the running of the Road Development Agency (RDA), which falls under the Ministry of Transport. RDA is involved in delivering an ambitious programme Link 8000. Zambia plans to spend $5.6 billion on building roads over the next five years under a programme to modernise infrastructure. About 2,300 km (1,430 miles) of roads would be built at a cost of 7.9 trillion kwacha ($1.6 billion) under the first phase of the project.

RDA has awarded a K278.8 billion contract to Copperfields Mining Services Limited, a Zambian contractor, to tar the 70-kilometre Pedicle Road. RDA recently terminated the contract awarded to Fratelli Locci of Italy for the construction of Pedicle Road at a cost of over K300 billion.

Government has decided to engage a new contractor for the K420 billion Kasama-Mporokoso Road because the current contractor, Sable Contractors’ pace has been too slow. Sable Contractors was awarded the contract for the 163km stretch of gravel road a year ago but failed to meet the parameters set within the contract.

Monday, 5 November 2012

MF - Zambia Watch (November 2012)

Press Release No. 12/414
November 5, 2012

An International Monetary Fund (IMF) mission visited Lusaka October 25-November 5, 2012 to review economic developments and prospects. The mission had fruitful discussions with Hon. Alexander Chikwanda, Minister of Finance and National Planning; Dr. Michael Gondwe, Governor of the Bank of Zambia, and other senior officials as well as representatives from the private sector. At the conclusion of the visit in Lusaka today, Mr. John Wakeman-Linn, mission chief for Zambia, released the following statement:

The Zambian economy has performed well so far in 2012. Real gross domestic product (GDP) growth is likely to be around 7.3 percent, which is particularly impressive in the current uncertain global economic environment. Inflation is likely to slightly exceed the Bank of Zambia target of 7 percent for end-2012 as a result of food price rises, but remains well under control. The mission welcomes the fact that the budget deficit for 2012 is likely to be close to the targeted level of 4.1 percent of GDP. Revenue performance has been better than expected, a result of improved revenue administration. Total expenditures have been somewhat larger than budgeted, with spending overruns on wages and goods and services partially offset by a shortfall in capital spending.

Friday, 2 November 2012

Doing Business in Zambia (2013 Report)

The World Bank last week released the latest results of its Doing Business series. The report Doing Business 2013: Smarter Regulations for Small and Medium-Size Enterprises assesses regulations affecting domestic firms in 185 economies and ranks the economies in 10 areas of business regulation, such as starting a business, resolving insolvency and trading across borders. This year’s report data cover regulations measured from June 2011 through May 2012. The Zambia report is embedded below. Unsurprisingly given the time frame coverage very little reform took place over the period due to elections and subsequent concerns. Zambia slipped 4 places on the rankings (90 in DB2012 to 94 in DB2013) but this is not because it got worse, but because it undertook less reforms (not all the supposed reforms are necessary good!). 
Doing Business 2013 - Zambia Report

Thursday, 1 November 2012

On-line mining licenses?

Government is planning to introduce an online cadastre system for mining licenses in the first half of next year, according to the company developing the software. Cape Town-based Spatial Dimensions will develop an Internet-based system to improve transparency in applying for, awarding and paying for mineral rights. Apparently, the idea is to do all transactions online with no cash changing hands. The system will be in operation by late in the first half of 2013.

Tanzania recently launched an online mining cadastre portal, also using the Spatial Dimension technology. Mozambique also has one in an effect to bring transparency and root out corruption. If indeed it is true, this is a step forward. It would be great if the maps of all mining licences in the provinces could also be made available, so that people can check which mining company is operating or exploring where in there village! Such a move does not solve everything, especially land squabbles, but it certainly helps know who is doing what.

Tuesday, 30 October 2012

Constituency Development Funds, 3rd Edition

Charles Kakoma MP (Zambezi West, UPND) recently said the Government must increase the Constituency Development Fund to K5 billion, or the opposition will not support the 2013 budget. In his words :
"This is a 'don't kubeba budget' because they are not telling the Zambian people the truth about what they are going to do in this country. It is meant to be a campaign budget to cool down the youths who have no jobs. The CDF must be increased to K5 billion; without that we are not going to support this budget"
This is poor thinking. Mr Kakoma should know that not too long ago it was revealed that the Government by its own admission has not measured the impact of the CDF on the socio-economic development of constituencies from inception to date. Two major studies which were conducted by Caritas Zambia and the Economic Association of Zambia (EAZ) on the impact of the CDF which are in public domain have shown rampart corruption and misallocation of funds. So how can Mr Kakoma ask for such a fund to be increased five-fold? So that MPs can eat more?

The CDF should be abolished and in its place a better fiscal framework should be put in place. Let councils have proper fiscal decentralisation. Let them spend the money they raise through local taxes. And please, let us ensure MPs stay out of money issues. It corrupts their proper functions : which is creating laws; representation; and, advocacy. Only in Zambia do Members of Parliament worry about local budgets! Such should be the job of a properly functioning council! Not MPs!

Monday, 29 October 2012

New prison capacity

The New Mwembeshi Maximum Security Prison in Mumbwa is set to open next month. According Percy Chato (Commissioner of Prisons) around 90% of the construction works have been completed. The facility is being constructed at the cost of K65 billion and will have to accommodate six hundred inmates. The idea is that the New Mwembeshi will help decongest the appalling Mukobeko maximum prison in Kabwe which has overcrowding way beyond 100%.

The few prison places this will deliver of course wont do much to deal with appalling prison overcrowding in the country - currently estimated at 209%. Very little prison capacity has been delivered since the colonial era.  But even without additional capacity we are not doing well. We need to get  remand down! 1 in 3 prisoners are presumed innocent and being held on remand. If we can reduce on that through more efficient court processes we can reduce on remand. The recent ramp up in court capacity should be put to effective use. 

Also we need to row back on custodial sentences. There many custodial sentences which are churned out for minor offences like stealing a cob of maize, petty thieving, bouncing cheques has not helped. Its clearly much more effective to impose monetary fines and where they cannot pay, community based sentences should be explored. These ideas of course have "retributive justice" problems. The punishment clearly has to fit the crime and therefore government needs a better criteria for how certain offences are define as crimes in the first place rather than civil offences.

The Human Rights Commission has also helpfully noted the need for a serious look at the "rehabilitation agenda". In their words, "The Commission is greatly concerned that today, Zambian prisons still echo the times when such facilities were viewed as places of punishment instead of being centres for rehabilitation of offenders who would later be integrated back into society after serving their respective sentences". What they have in mind are initiatives like this donor funded project which is designed to help get prisoners back to school.

Friday, 26 October 2012

Mining Watch (Various)

Brazil’s mining giant Vale has begun producing copper concentrate at its Lubambe mine in Zambia. Production at the mine, which began on Oct. 4, is expected to lead to an annual output of 45,000 tonnes of concentrate, the company said on Thursday. The Lubambe mine is a joint venture with African Rainbow Minerals Ltd. and ZCCM-IH.

Human Rights Watch say work conditions at Zambia's Chinese-owned copper mines have improved, but the labour record is still clouding China's sizeable investments into the country.

Konkola Copper Mines is unsurprisingly not happy with recent reduction of capital allowance to 25% from 100% in the 2013 Budget suggerst the move will have an impact on the mines’ future projects. KCM says, The tax came as a surprise to us and it’s a matter of concern for the mining industry. The mine will engage Government on the matter through the Chamber of Mines of Zambia..."

The  Chamber of Mines of Zambia has been talking up Zambia's mining potential. It is "projected" Zambia will indeed hit 1.5 million metric tonnes of copper production in the next five years following new mining projects embarked on by mining firms. It is quick to note that mining firms have invested US$6 billion to date since privatisation in rehabilitation, expansion of new processing plants and housing projects.

Mines Deputy Minister Richard Musukwa says it is shameful that people living in mining areas were not feeling the benefit of the mineral revenue that companies operating in their localities pay to government. But the Minister does not go on to offer a solution to this predicament. 

Thursday, 25 October 2012

A Labour Agenda

The latest ITUC Frontlines Report 2012 on what needs to be done to create employment in Zambia and deliver a fair wage to workers. It has the usual things one expects from a trade union federation - some very good e.g. call for greater revenues from mining and a more clear industrial strategy. Other things are less clear e.g. the call for reduction in informality but at the same time advocating minimum wages and more comprehensive pensions coverage. In general, its thought provoking - here are the main recommendations : 
Given the widespread poverty and extreme high informality of employment with its consequent low wages, poor working conditions and lack of protection of rights, a strategy to formalise the informal economy should be among the main priorities in Zambia. Organising strategies, incentives for formalisation and social protection coverage are some of the steps to be taken to help this transformation.

The large size of the agriculture sector of which a substantive part is subsistence farming also accounts for high levels of poverty, informality, low or unpaid jobs and low productivity. A dual strategy to increase on the one hand productivity levels in agriculture and on the other the development of an industrial policy to stimulate manufacturing and higher value-added production is crucial for Zambia to get out of the dependence on agriculture and mining and to increase formal economy employment. Such an industrial policy should go beyond the current plans to promote low value added manufacturing linked to agriculture and mining, and should be far more ambitious with targeted investments in higher value added segments and creation of production, learning and research and development clusters.

Wednesday, 24 October 2012

Policy Bloopers (Various)

Interesting misguided policies that may have escaped your attention in recent weeks. We will try and do this more often, which in effect will try and pick on some of the main policy bloopers flagged up via our Facebook Page (do please "like the Page" to keep up with exciting debates there) :

Agriculture Minister Emmanuel Chenda announced earlier this month that GRZ has exhausted the K300 billion budgetary allocation for the crop marketing exercise. FRA has been authorized to BORROW money for buying maize from farmers. This happens all the time. We are borrowing to subsidise farmers and later export the maize at a loss. It's not good enough. The policy madness has to stop surely. It's totally unsustainable  How long are we going to continue?

Government is planning to establish a Civil Service Bank to enable civil servants access low interest loans, according to Education Minister John Phiri. The rationale seems very poor. There are many ways of getting loans to civil servants without creating a bank! It is also wrong priorities. Why only civil servants? Surely we should be trying to widen credit access to the 70% living on less than $2 a day?

Chief Registra Clement Andeleki says that Government will soon take forward new legislation that will ensure de-registration of political parties that "fail to gain political ground within two years". He thinks this can be done by an amendment of the Societies Act chapter 119 of the Laws of Zambia. He says that most political parties in Zambia are just there to endorse other parties during election time and also gain donor funds. Out of 47 political parties in Zambia he says only about six participated in elections. Andeleki's figures are actually  misguided. More importantly, though the idea of sorting out ghost parties is good in principle it is dangerous to make such an amendment through Societies Act and give a political appointee like Clement Andeleki such powers. It amounts to regulation of political parties - surely such principles ought to be laid out in the Constitution to start with? This issue requires significant public debate. What's the rush? People should reject any political regulation by the back door - even when it comes dressed as an angel of light!

Tuesday, 23 October 2012

The Landlocked Challenge

Paul Collier's Bottom Billion helped popularise the idea that countries like Zambia are trapped in poverty and failing to reap the benefits of globalisation because of our "landlockedness". Empirical evidence certainly does appear to support the notion that there's some sort of "curse" associated with being landlocked. To overcome the curse of course we need to know why "landlockedness" presents a development challenge - or the channels through which it "locks in" countries. The standard answer is largely based on evidence from "gravity models", which point to the negative impact of landlockedness on bilateral trade flows. The idea being that being landlocked reduces "trade openness". A recent paper explores this issue and tests for other factors, especially institutional quality. It finds a rather different conclusion :
The paper revisits and extends the evidence on the relationship between development and landlocked status. Development is here measured by the level of per-capita GDP. The landlocked status is allowed to affect per-capita income not just through trade, but also through its effect on institutional quality. A residual effect is also accounted for, which might pick the impact of landlockedness on proximate determinants of income (like human and physical capital or technology) and/or on cultural values. Estimates of a structural model of three equations indicate that: (i) institutional quality rather than trade openness seems to be the main channel of transmission of the effect of landlockedness and (ii) there is a negative residual effect of landlockedness on income after controlling for the transmission through institutional quality (and trade). These findings are generally robust to the use of different estimators and to the exclusion of the most advanced economies from the sample.
Simply stated the evidence points to the fact that being landlocked negatively affects the quality of institutions (governance), which is in turn affects our prosperity. The trade channel is surprisingly mild. Now the econometrics may be questioned, particularly the institutional variable seems suspect. But if the work is to be believed, and the best way to do that is to keep an eye for new research in this area, it does seem to offer hope. If the main channel through which landlockedness affects us is actually something we can control through internal policies then we should be working to overcome that. Let us work to sort out our institutions! On the flip side  it is clearly easier to implement trade openness than get people to appreciate the value of good institutions because it is not in the interest of the ruling class. So therein lies the mountain and the valley! Over to you!

Monday, 22 October 2012

Growth Prospects

A useful summary from Standard Chartered on the current growth prospects for Zambia. The general message is that though Zambia remains vulnerable to the current vulnerability in copper prices (China has been slowing down), it rightly concludes that the fiscal risk is not extreme. 
Zambia – Exploring copper price vulnerability; Razia Khan; Standard Charted Focus; Commentary:

The resounding success of Zambia’s maiden Eurobond issuance has focused attention on economic prospects in the copper-rich country. The order book for the 10Y USD 750mn Eurobond totalled USD 11.9bn, far exceeding expectations. With a coupon of only 5.37%, the lowest yet achieved by a frontier African sovereign, financing costs on Zambia’s Eurobond (the current yield is 5.26%, down from 5.625% on its debut) compare favourably with the cost of domestic financing (current yields on infrequently traded 10Y ZMK debt are c.14.75%). The success of Zambia’s Eurobond reflected in part a resurgence of risk appetite following the announcement of new easing measures in mature economies. However, it is mostly believed to reflect strong appetite for relatively limited external issuance by African sovereigns. Despite the subdued global outlook, Zambian prospects are still regarded favourably. The IMF expects 7.7% growth this year, following last year’s negative copper-sector growth, reflecting production declines (overall GDP still rose 6.6% in 2011). August CPI rose to 6.4% y/y on higher food inflation but remains in mid-single digits and still represents the best inflation outcome achieved in Zambia in decades. While the kwacha (ZMK) has weakened since the authorities released a new directive banning the use of FX for domestic transactions, it remains relatively stable.

Wednesday, 17 October 2012

Looking Beyond China

By Jessica Achberger

When it comes to relations between African nations and Asian nations, the focus is undoubtedly on China. We have had numerous posts and papers on Zambia's relations with China, in a variety of capacities and with a range of viewpoints. While the relationship between Zambia and China is no doubt of critical importance to understand, recent visits to Japan and South Korea by President Sata turn the spotlight in a different direction.

President Sata has just ended a five day working visit to Japan, with much of the newspaper publicity on his side-trip to take mass in a Catholic Church in Hokkaido. But what did he actually accomplish?

The biggest accomplishment of the trip was the signing of the Kazungula Bridge Deal between Zambia, Botswana, and Japan. The project will be financed jointly through the African Development Bank and the Japan International Development Cooperation, commonly referred to as "JICA." The total cost for the project is US$142.22 million and is intended to replace the pontoon on the Zambezi River at the border crossing between Zambia and Botswana.

In addition to signing the Kazungula Bridge agreement, President Sata is reported by the Times of Zambia to have "met several business people and representatives of various organisations." He also visited Hokkaido University, where there are seven Zambian students studying, with hopes to grow the cooperation with the University of Zambia further in the future.

Next up on President Sata's Asia tour is South Korea for the third Korea-African Economic Cooperation (KOAFEC) Forum, originally launched in 2006. The three-day forum, co-hosted by the African Union and South Korea, will discuss development, trade, investment, and security issues. Including Zambia, seventeen African nations are attending the event.

In addition to attending the Forum, President Sata has scheduled meetings with the Prime Minister of South Korea and several Korean businesses, including Samsung and IS Dongseo.

Friday, 12 October 2012

Zambia Budget 2013

Finance Minister Alexander Chikwanda delivered the Budget Statement 2013 today. Those interested in taxation only should see the ZRA Budget Highlights. Further analysis to follow, but the mining tax changes appear to have continued the tightening a few areas e.g. capital allowance reduced from 100% to 25%. Also the new tax on transfer of mining rights will help with the perverse situation in the gemstones industry. But closer study of the Budget is needed!
Zambia Budget 2013 - Budget Address

Zambia Budget 2013 - Tax Highlights

Thursday, 11 October 2012

Boosting Tourism

A World Bank  note embedded below explores the prospects for growth in Zambia’s tourism industry and estimates the potential contribution of a larger, more competitive tourism industry, as well the policies that may get us there. The data is a little date (pre 2010) and the policies largely echo what we have discussed before - but nevertheless it is a useful reference document to have. Key conclusions :
Zambia’s tourism industry is under-performing relative to those of other countries in the region, as well as to its own potential. By achieving a number of results, the industry can come closer to reaching its potential. These results include: a lower cost of supplies; improved labour productivity; easier access to and lower cost of finance; more extensive and more effective destination marketing; upgrading and diversifying Zambia’s attractions and locations; cheaper and more convenient travel to and within Zambia; a more stable and predictable regulatory environment; greater competition in tourism and related/supporting industries; stronger support for the tourism industry from Government and the wider population.

The scope for and potential benefits from improved industry productivity are substantial. They are also much needed as, despite sustained macroeconomic growth, poverty levels in rural Zambia remain high. Given the potential of the tourism industry, and the strong commitment of Government, business, civil society and donors to improve industry performance, there is a real opportunity for stakeholders to chart an effective way forward and to monitor their progress over time.

Wednesday, 10 October 2012

Local Funding, 2nd Edition

Deputy Finance Minister Miles Sampa continues to champion his municipal bonds. Last week he suggested that Lusaka City Council needs a municipal bond of about US$500 million for it to operate effectively and meet its obligations. The municipal bond would "not be a Government project but strictly that of the local authority". Mr Sampa says the money will be used to "construct high rise buildings in all the constituencies of Lusaka...we want to build at least 10 high rise flats like Findeco House which will benefit 200 to 300 residents of Lusaka... the council [would buy off] townships like Kanyama, Chibolya and Kalingalinga to create land for construction of high rise flats". The challenges of municipal bonds  as a mechanism of generating local funding is discussed in more detail here

Tuesday, 9 October 2012

Housing Crisis

By Jessica Achberger 

A recent article by the IRIN, via AllAfrica news, highlights the growing Zambian housing crisis. The article describes operations by the PF Government to eliminate illegal housing developments. According to the article, 
"In September 2012 about 100 middle-class houses were pulled down in Lusaka. Over 50 houses were demolished in the Zamtan shanty area of Kitwe, Copperbelt Province, and in Eastern Province, about 100 houses in a forest reserve of the provincial capital, Chipata, have been identified for destruction." The PF Government responded to outrage of the destruction by saying, "....constructing houses on private land and in undesignated areas should not blame the government for having their structures pulled down."
The housing shortage throughout Zambia, and particularly in Lusaka, cannot be ignored any longer. There is a huge shortage of housing for the middle class, as rents in the urban centres can be staggering. How can the average Zambian afford decent housing? This is what has led to this problem.

The solution is obviously not to construct illegal housing, but it should be a priority of the PF government to identify a solution on this issue that works for everyone. More affordable housing needs to become available, and this need will only continue to grow.

Zambia Policy and Institution Assessment

The World Bank recently published the Country Policy and Institution Assessment (CPIA) for Africa. The CPIA is a diagnostic tool that is intended to capture the quality of a country’s policies and institutional arrangements. Its focus is on the key elements that are within the country’s control, rather than on outcomes (such as growth rates) that may be influenced by elements outside the country’s control. More specifically, the CPIA measures the extent to which a country’s policy and institutional framework supports sustainable growth and poverty reduction. The outcome of the exercise yields both an overall score and scores for all of the sixteen criteria that compose the CPIA.

The  latest assessment (for 2011) is embedded below. The section on Zambia is on page 52. The general picture is that Zambia performs better than Sub-Saharan Africa average on all indicators, especially when compared against resource rich countries. But we need to remember that "average" does not really help us since all of Africa in these areas. What is more important is the change from year to year. It is here that we see no change between 2007 and 2011. It seems to me that according to these scores the Banda presidency was largely wasted. But that is just conjecture - one must look underneath the indicators, a task I leave to informed readers!

Monday, 8 October 2012

Corruption Watch (Justice & Defence Ministers)

The Anti-Corruption Commission (ACC) announced last week that it has launched preliminary inquiries into corruption allegations against Justice Minister Wynter Kabimba and Defence Minister Geoffrey Mwamba. This is in relation to complaints received from the public on the alleged conduct of the two Cabinet ministers. Mr Kabimba is the Patriotic Front (PF) Secretary-General, who is alleged to have influenced the procurement tender process so that Trafigura would be awarded the tender to supply Zambia with petrol and diesel for one year. Trafigura was awarded the supply deal at a cost of US$500 million for the one year period. Mr Mwamba is accused of influencing ZESCO to award his company and others where he had interests, a one-year contract for the supply and delivery of wooden poles.

Given the gravity of the allegation these issues actually need a Judge led inquiry as well. The ACC would not sufficiently get to the bottom of it. However, for the President to call for such he actually needs something to hand. Which is unclear at present. More detail on this via Times of Zambia and Daily Mail. We will keep this  post updated as the story develops. 

Saturday, 6 October 2012

The Logic of Floor Prices

By Kaela B Mulenga

When there is a restriction that prevents a price from falling below a certain level, it is known as floor price. Sometimes the government may feel that the market price is too low, hence it orders one above the market equilibrium price. This action normally causes a surplus. A simple graphical working of this price control policy is shown in the diagram below.
As we can see from the diagram above, the price flor (FP), which is above the market price (at point E) – the output demanded at that price is only Qd, which is well below the enticed output supplied (Qs). The excess surplus (shaded area) caused is the difference between Qs and Qd. When that occurs, the issue now becomes on what to do with these surpluses.

Friday, 5 October 2012

Mining Watch (Various)

Government is working on a legal framework that will compel all mining companies, including gemstones, operating in Zambia to disclose their production capacity and all material payments they make to the Government. Mines Minister Yamfwa Mukanga says this is part of an effort to promote transparency and accountability in the mining sector.

Australia-based Kaboko Mining is expanding its interest in Zambia by entering into an additional joint venture (JV) agreement to acquire an initial 51% of a manganese project, north of its existing Peco project. Kaboko has also secured a debt facility to advance its exploration and drilling activities in Zambia.

SA LIME and Gypsum Zambia Limited plans to set up a quarry and agricultural lime plant in Central Province. The project will have the capacity to produce 60,000 metric tonnes of agricultural lime annually. The proposed project will be implemented in three phases over five years.

Konkola Copper Mines (KCM) has set aside US$15 million for mineral explorations in the country with a view of extending the company’s footprint and enhancing production.

Mkushi Copper Joint Venture Limited is pledging to invest about US$62 million to develop a large-scale copper mine in Mkushi district as it seeks to reverse a default notice of its mining license by Government. The license was suspended earlier this year due to failure to develop the mine.

Thursday, 4 October 2012

Zambia : Good Copper, Bad Copper

A powerful documentary on the economic plunder of copper mining in Zambia and the associated environmental damage. These are issues we have discussed many times on this website but it is good to see them brought together in this video. The video was produced April 2012. Sadly, it takes non-Zambian journalists to put a documentary like this together. Where are our investigative journalists? 

Wednesday, 3 October 2012

Learning from Others

By Chola Mukanga

Rwanda's current stunning development results suggests real value to Zambia of learning from it and other countries on the quickest way to ensure high economic growth is accompanied with poverty reduction. While Zambia shares Rwanda’s high growth success, it does not share its poverty reduction results. Over the last five year’s Kagame's government has lifted one million Rwandans out of poverty, with poverty rates declining from 56.7% in 2005/6 to 44.9 percent in 2010/11. Zambia’s poverty remains around 70%, in some provinces even as much as 80-90% with inequality continuing to increase.

Analysis and evidence is vital for improving decision making and developing robust economic and social policies. At the national level, some effort has been made by Government in providing further support to the Central Statistics Office to ensure sufficient data exists on tracking progress on key MDG indicators as well as undertaking the economic census. More needs to be done with existing data by embedding economic expertise in all ministries. There’s a bankruptcy of cost benefit analysis which has led to costly proposals such as the Mongu-Kalabo road. But equally more urgent is the need to look beyond our borders for evidence. Governments around the world focused on ensuring better returns from policy interventions are increasingly recognising the advantages of complementing national evidence with international evidence.

Tuesday, 2 October 2012

Promoting Tourism in Zambia

By Jessica Achberger

In August next year, Zambia will jointly host the United Nations World Tourism Organisation (UNWTO) general assembly meeting with Zimbabwe in Livingstone/Victoria Falls.

In a recent article, the two countries were praised for their preparation efforts, as well as the quality of their tourism destinations.

It is an exciting opportunity and serves to highlight the wealth of tourism attractions in both countries. However, there are a few pressing questions we must be asking.

First, will the economic benefits of hosting the conference be greater than the economic costs for its preparation?

Second, how can Zambia promote its tourist attractions over those in Zimbabwe. Even despite sanctions against the country and international dislike of President Mugabe, Zimbabwe still has more visitors to its side of Victoria Falls. And many recent international guests of both countries have expressed that they were much more pleased with the customer service and amenities on the Zimbabwean side.

What should Zambia being doing to promote tourism? Should we be using the UNWTO as a platform in this effort?

Monday, 1 October 2012

Parastatal Madness, 19th Edition

We have long observed that the failure of parastatals to perform has largely been down to the failure by central government to pay parastatals the debt owed to them. Energy Deputy Minister Charles Zulu recently noted that Government Ministries owe ZESCO over K190 billion in unpaid electricity bills. To help address the situation, the government apparently intends "to settle the bill through the introduction of pre-paid meters in all government ministries... 40 percent of all electricity purchased will be going towards offsetting the bill". 

It is not clear how this will work in practice. One can imagine doing this for local offices and general buildings but not front line services e.g. hospitals, police stations. At the end of the day the real problem is that there are pervese incentives for Government to let ZESCO carry the loses because it is an easier way of hiding inefficiencies. The public does not understand that it is losing out on ZESCO. What it is actually told is that we have little capacity because as an economy we are growing, which is true but not the whole truth!

Friday, 28 September 2012

Green Paper - MTEF 2013 - 2015 and Budget 2013

The Government has released the Medium Term Expenditure Framework (MTEF) for 2013 to 2015 and the outline for the 2013 budget. This is the first MTEF that has been wholly prepared by the current Government. It is also the PF broad plan for re-election as the MTEF runs to 2015. 

Green Paper: 2013 - 2015 Medium Term Expenditure Framework

Thursday, 27 September 2012

Aid and Democratic Assistance

In recent times there has been a gradual reduction of donor aid to Zambia. The last budget had less than a fifth of donor aid contributions. A recent paper cautions against immediate donor exit from Zambia and suggests greater effort should be made on funding governance priorities in face of weak forces of restraint (opposition and civil society) :
The impact of aid in terms of democratic consolidation is linked to the development of the party system, the efficacy of key democratic institutions, and accountability in relation to tolerance of participation by the media and civil society in the political process. The study suggests that there are many good reasons for so-called traditional donors to phase out aid to Zambia. Zambia has recorded economic growth for the most part of this decade, but poverty levels still stand at near 70 per cent and both equity issues and poor human development indicators provide reasons for concern. The study cautions against an aid exit at a time when economic growth and new foreign partners may strengthen the executive office vis-à-vis civil society, opposition and agencies of restraint. The study argues for an enhanced emphasis on democracy assistance that may strengthen stakeholders and institutions with capacity to hold the executive to account for their policy actions in terms of development.
Whether donors heed the call for this reprioritisation is another question. The real question is how such “democratic assistance” is given. Any new support has to avoid the tainted and bloodstained approach as that undertaken by the Netherlands Institute for Multi Party Democracy (NIMD). Its funding for “democratic assistance” to MMD in 2009 only fuelled violence in bye-elections of 2009. Money given to MMD was being used to buy and ship cadres to electoral areas and breed violence and intimidate old people. Then there was the record of electoral fraud and general intimidation of voters in many parts by self-appointed cadres.

Wednesday, 26 September 2012

Road Carnage!

A fascinating recent article notes that with poor emergency care people injured on Zambia's roads often experience needless complications. There's a telling static :"There are more than 20,000 road traffic accidents every year in Zambia, resulting in an estimated 3,000 deaths and exponentially more injuries and disabilities. The country has less than 0.02% of the world’s registered vehicles, but almost 14 times the proportion of fatalities from road traffic accidents".  More detail via UK Guardian

Tuesday, 25 September 2012

Mining Watch (Various)

A unit of China Nonferrous Mining Corp has won ZEMA approval to build a $832 million copper mine that will add 60,000 tonnes to the country's annual output of the metal. This is part of NFC's South East Ore Body Project.

Caledonia Mining Corporation has been told by the Government it must meet a number of conditions in order to continue holding the mining licence covering the company’s Nama base metals project. According to a letter from the Ministry of Mines the company is currently not complying with certain requirements governing the licences it holds. It has been asked to give a written assurance it will remedy the situation.

Government plans to create the small-scale miners’ revolving fund to foster active involvement of ordinary Zambians in mining. According to Mines Deputy Minister Richard Musukwa the revolving fund is expected to be up and running by the end of this year. The idea seems interesting but it is lacking in details. Presumably this would be funded from ZCCM-IH funds rather than tax payers. It would be a tragedy for ordinary Zambians who pay more tax than mining companies to then end up funding yet more investment in the same sector sector.

Monday, 24 September 2012

Maize Policy : A Farmers View

By Ruth Henson

The ZNFU did a Maize study about 10 or 15 years ago. It showed that Zambia was the most expensive country in the region in which to grow maize. This was partly due to high transport costs for inputs and partly to low yields.

The study also showed that if the price is completely left to the free market it will fluctuate between import parity (in deficit years) and export parity (in surplus years). At the time of the study, the effective export price at the farm gate was Zero as the world market price was equal to the transport cost. The effective import price was equal to double the world market price, again due to the high transport cost.

Friday, 21 September 2012

A new tax for health?

Health Minister Joseph Kasonde says Government plans to set up a National Health Fund and that every Zambian will have to contribute towards the new health fund. He say the diminishing resources in the health sector have forced his ministry to find other means of raising funds to mitigate the problem.  The Health Fund will underpin what he calls "the creation of a national health insurance scheme". In other words this will be mandatory contribution. A tax by another name. Since Zambia has poor health infrastructure the scheme can only work if it is mandatory otherwise few would opt-in! 

Thursday, 20 September 2012

Should the Zambian Government invest in railways?

As Government seeks to spend a large portion of the recent $750m infrastructure pot on the financially beleaguered (and poorly mismanaged) Zambia Railways Limited - currently $120m but it could rise substantially, especially with TAZARA also in likely to take a share - there has been no meaningful debate on whether this is a top priority. Indeed whether it is necessary at all. The question remains, should the Zambian Government invest in railways? A recent paper by Raballand and Whitworth concludes :
With the poor economic and financial returns to railway investment and the uncertainty over Congolese traffic, public investment in railways in current circumstances appears highly risky. Few of the new rail routes proposed in the Sixth National Development Plan appear economically viable under any circumstances. While certain new routes could possibly be viable if mines are prepared to sign long term contracts, such decisions are best left to the private sector. Given its poor track record in railways and the under funding of essential public services, rather than investing in railways itself, the Government’s role should be to: (a) facilitate private investment in the sector; and (b) ensure that trucks cover the full cost of the damage they cause to the roads by enforcing appropriate road user charges.

Wednesday, 19 September 2012

Kwacha Rebasing Technical Paper

By Jessica Achberger

As we approach the rebasing of the Kwacha, there are still many unanswered questions as to the procedure. In a technical paper from earlier this month, the Bank of Zambia explains the outline procedure for rebasing. The paper is embedded below.

Tuesday, 18 September 2012

Mine Watch (Various)

The Mwekera Copper project in Ndola  is on track to begin construction next year, with initial investment of US$5 million already made on the mine’s groundwork. The Chinese led firm, Macrolink, had earlier this year been served a "default notice" by Government for being slow in taking forward the project. It appears momentum has now resumed. This is a vital project for Ndola.

The proposal by Australia’s Zambezi Resources Ltd to develop a $494 million open cast copper mine in a game reserve has been rejected on environmental concerns. Zambezi Resources’ Zambian subsidiary Mwembeshi Resources said in March it planned to start copper production at the Kangaluwe project in the Lower Zambezi National Park by 2015. But a spokeswoman for Zambia’s environmental management agency, which has to approve all huge infrastructure projects, told Reuters the project had been rejected.

Mines Minister Yamfwa Mukanga on the next phase of mineral development in Zambia :
We have 16 producing copper mines, three new ones coming on stream in two years, backed up by existing and new smelting and refinery capacity..and known reserves for at least 50 years of future production. However, we have reshaped our mining investment strategy as we need to intensify exploration for the development of new mines and mineral based exports to deliver a new level of long term benefits from our resources...This more intense focus includes required new investment in our oil and gas potential, boosting manufacturing capacity to process a wider spectrum of minerals, and to parallel that growth with new manufacturing capacity for mining industry consumables....There is a major gap in Zambia’s economy in downstream processing our gemstones industrial minerals and dimensional stone and there are few if any local manufacturers of mining equipment such as drill rods, bits, jack hammers and piping....On that basis, we need both junior and large mining companies and resources investment houses, to install Zambia on their high priority investment agendas.
Construction of the K250 billion Universal Mining and Chemical Industries Limited (UMCIL) Iron ore processing plant in Kafue, has reached an advanced stage and is scheduled to be completed in February next year. This is Phase 2 of the Kafue integrated Iron and Steel project, called the Direct Reduced Iron (DRI). It is expected to create 1,000 jobs. Phase 1 of the project (costing $120m) is already fully operational, producing 7,000 tonnes of finished rolled iron and steel products per month for the local and regional markets. It has been targeting the local market and has exported to the Southern Africa Development Community (SADC) and the Great Lakes Region. It employs 700 jobs.

Monday, 17 September 2012

Rail vs Road

The Chartered Institute of Logistics and Transport (CILT)recently expressed concern over the unfair competition between rail and road via Daily Mail :
Mr Chipuwa explained that the road transporter does not meet the full cost of the infrastructure and is able to charge lower transport rates to the shipper or traveller, whereas the railway operator who meets the full cost of the track maintenance is forced to charge high tariffs compared to road users in order to recover costs. "Roads are constructed and maintained by Government with very little contribution from road users in form of road user charges. On the other hand, railway infrastructure is funded fully by the railway operator. In the Zambian context, this is further exacerbated by the fact that the railway operators pay the road levy for the fuel consumed by locomotives. This is indirectly subsidising the competitor who is the road transporter. The two factors mean that the railway operators namely Railway Systems of Zamia (RSZ) and Tazara become artificially expensive and, therefore, uncompetitive compared to road transport", Mr Chipuwa said.

Friday, 14 September 2012

Zambia's International Bond Issue

Government this week sold a long-awaited $750 million Eurobond - the largest in Sub-Saharan Africa - in an effort to tap international capital to meet its infrastructure funding needs. The maiden 10-year dollar bond was issued with a 5.625 percent yield. A rate more superior than some Eurozone member states struggling with debt (e.g Portugal). More than $11 billion of orders were received for the issue - signalling the overwhelming confidence in the nation's future prospects. Full statement below - which sadly is vague on key areas e.g. need for a debt management strategy and the criteria for infrastructure prioritisation. Once again we are being let down by a poor opposition and civil society, which is failing to hold this government properly to account on the need for a proper debt acquisition policy. Especially given that Mr Chikwanda thinks there's further room to borrow more. The borrower is a slave of the lender. If we are to borrow more, the slaves (the people) surely need to have a greater say in the process. 

Thursday, 13 September 2012

British MPs on FRA Spending

British MPs have called on the UK Government to urge Zambia to stop subsidising maize growers after discovering the initiative cost Zambia four times the British aid it received last year. A report by the Commons International Development Select Committee found £225 million - 8% of Zambia’s government budget - was spent on trading maize at a loss in 2011. This figure dwarfed the sum received in aid from Britain, Zambia’s biggest donor, which stood at £55m last year. The committee dubbed the subsidy, which was introduced by the last Zambian government, as excessive. Abolition could deliver free secondary education to 300,000 children, build 50 new high schools and recruit 10,000 more teachers, it said. Currently, education is only free until the age of 14 for Zambians. The reports are embedded below.