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Wednesday, 13 November 2013

The Problem of Unemployment

Hakainde Hichilema (UPND) has responded poorly on the KCM crisis with this suggestion :
“The PF government has the responsibilities of lowering the cost of doing business, not just for KCM, but for other mining companies and businesses as well, so as to enhance employment creation. For example, the PF should re-instate the fuel subsidy which was removed and is now a burden to our people and business sector. There are many other ways a responsible government can institute to lower the cost of doing business to save existing jobs and enhance employment creation…” (Source: UPND)
This is a rather poor suggestion for three reasons. First, the government is broke and cannot afford to reinstate the fuel subsidies. Can we please move the debate beyond subsidies? They are not coming back and rightly so!

Secondly, giving a fuel subsidy as a bribe to KCM is simply subsiding jobs. If we want to subsidise workers it may be better to give them money directly. But clearly that would be foolish because presumably the retrenched workers will get a severance packages. If they don’t get a severance package, then the real issue lies with our labour laws. Why don't we actually focus on getting our labour laws right?

Finally, lowering the cost of doing business should not be entertained if it comes with lower mining taxation. Everyone knows that taxation is the biggest constraint to doing business. Equally no right thinking Zambia would ever advocate for low mining taxations. In short, Zambians have to realise that not every job is worth saving. If the economics don't stuck up for KCM let them close and jobs be created everywhere. Have we not read Schumpeter?

The job of government is not to save jobs but to create conditions that allows the private sector to create  new ones! Unemployment is part of the creative destruction process. Let the market decide what jobs we need and don’t need. Government's job is merely to create efficient and fair conditions. It is also wrong to ask poor people to subsidise jobs at KCM by reinstating other subsidies. It is merely cost shifting!

The problem in all this debate is a lack of appreciation of two issues. First, as VP Guy Scott has said before, it is not Vedanta’s job, or any company for that matter, to worry about employment levels in the country. It is a job for government.

Secondly, although mining generates significant revenues the transmission from growth in mining investment to jobs is not automatic because the sector is not labour-intensive. Relying on mining companies (even pressuring them) to create jobs is a wrong policy focus in my view. And this is the focus UPND wants to perpetuate here!

Jobs have to come from employment intensive sectors like agriculture and construction. The question we should be asking is what policies are needed to ensure these sectors become big drivers?

In terms of construction, not all construction is labour intensive. But one form of construction which will create jobs is housing : if Zambia's slums can be replaced by decent, low-cost homes it would create mass employment for young men. Housing is an asset that is relatively easy to collateralise: the homes for Britain's nineteenth century cities were financed by building societies.

A massive low cost housing driving can easily be funded by the banks and Government. Every Zambian can have a roof over their head by 2016. And unemployment would be massively reduced.

What we should ask from mining companies is simply taxes not jobs. Let us get the right money for our resources and use it to create employment. NAPSA has also been sitting on money which we should be using for this housing drive!

As far as agriculture is concerned we need to get the policy right by reviewing our agriculture policy. At present export restrictions and inadequate soft and hard infrastructure are preventing growth of this important sector.

We should also encourage more export led diversification and growth in tourism. That means we need to support a depreciation in the real exchange rate (the Kwacha needs to become weaker after accounting for relative price differences between Zambia and other countries).

Over the last decade the real exchange rate has appreciated leading to decline in agriculture's export competitiveness. Our politicians do not seem to understand the difference between real and nominal exchange rates.

Let us get away from this narrow and misguided debate and focus on the big question:

How do we create more jobs in Zambia?

Chola Mukanga | Economist Copyright © Zambian Economist 2013

1 comment:

  1. 1) Taxes are not the biggest constraint on doing business

    In fact, taxes imply turnover and profits. Meanwhile, the price of copper and other commodities remains high. Labour remains too cheap.

    The problem with the mining companies is that they want to maximize dividend payments to their own shareholders, and as long as we're not the shareholders, that shouldn't concern us. However, we have a lot of neoliberal economists who can't stop thinking as if they actually owned the shares to the mines.

    So much for Ayn Rand's doctrine of selfishness. Why do they empathize with the mines, when they don't own their shares?

    2) The state has to collect the windfall tax, or own the mines itself

    The state managed to keep the mines going when prices were $2,000 per tonne. Today they are still over $7,000 per tonne, and have been higher.

    3) The Windfall Tax must be used to diversify the economy

    That is the only way to maximize the number of jobs created - infrastructure, agriculture, manufacturing, free healthcare and education for everyone. All of that is supposed to be replaced - by mining jobs?

    As the mines have proven, mining is not the most efficient way to create jobs, and now they are automating their production anyway.

    There are no more excuses - introduce the windfall tax, and start collecting revenues from Zambia's own raw materials, instead of the middle class, and stop thinking about ways of taxing the informal sector.


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