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!

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.

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. 

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.

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!

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!

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.

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.

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

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.

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. 

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!

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. 

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.

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.

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? 

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.

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?

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!