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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.