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Sunday, 31 March 2013

More Money In Civil Servants' Pockets

Life has never been better for civil servants. GRZ has announced a new Public Service Microfinance Institution which will be giving loans to civil servants at less than 5% interest. According to Finance Minister Alexander Chikwanda the "mini bank" will become operational soon and is intended to "trigger downward movement in interest rates". GRZ has also increased salaries for civil servants with some (not all) getting as high as 200 percent effective September 1, 2013. This follows successful conclusion of negotiations with Civil Servants and Allied Workers Union of Zambia.


Details are needed on the new "mini bank". The idea was suggested last year but now appears to be materialising. The rationale seems very poor. It certainly won’t trigger rates downward! There are many ways of getting loans to civil servants without a "mini bank". Capping it at 5% creates a large gap to current high market rates. What is to prevent a civil servant borrowing the money and then lending it to someone else at a profit? It is also wrong priorities. Why only civil servants? Surely we should be trying to widen credit access to everyone, especially the 70% living on less than $2 a day?

Thursday, 28 March 2013

Are One Man Parties Doing More Than Good?

Another political party is born! The party is called Peoples' Party (PP) led by Mike Mulongoti. He plans to hold a convention in a few months time after "funds mobilisation and massive recruitment of members".

The last party to be formed was called 'People of This Way' led by Bernard Mumba. It has the Bible as its party symbol. That one disappeared. Before that N’gandu Magande created National Movement for Progress Party (NMPP) with the dea of becoming president in 2011. It's nowhere to be seen. In case you have forgotten there other one man / small parties : Mulipi's ADD ; Sondashi's FDA ; Saviour Chishimba's UPP ; the mysterious ZANC ; Chipimo's NAREP; and, let us not forget Fred Mtesa's Zambians for Empowerment and Development (ZED) party and the short lived Leftist Progressive Party which collapsed after its leader joined FDA.

Wednesday, 27 March 2013

What Next for Diversification in Zambia?

By Chola Mukanga

Economic diversification is the holy grail of Zambia’s economic policy making. And yet despite successive budgets placing it at the centre there has been minimal public debate on what it means for Zambia’s economic development. As a result the ideas and goals remain opaque. 

What do we mean by economic diversification? At its basic level, diversification is about expanding the diversity of existing products that are consumed at home and exported abroad. But it may also mean expansion in the range of markets into which existing products or services are sold. More common however is its traditional usage where diversification is seen as moving from mineral dependence to low value manufacturing products. In recent times equal emphasis has also been placed on understanding diversification as a process of moving from traditional areas into trade in services or ICT.

Tuesday, 26 March 2013

Cost of Rushed Policies

The High Court last week ruled that former local government minister Nkandu Luo breached the rules of natural justice when she banned Tujilijili - leading to damages to be awarded to the 15 liquor companies:
"I award damages to the applicants for loss of verifiable stock or equipment which must be assessed by the learned Deputy Registrar of the High Court in the absence of agreement. In awarding these damages, I am satisfied that if this was a claim made in ordinary proceedings by way of writ, the applicants would have been awarded damages as a remedy for the losses..."
- Justice Sichinga

Monday, 25 March 2013

Do We Need Good Leaders or Good Institutions?

The three Church mother bodies [CCZ, EFZ and ZEC)] recently released a press briefing with a critique of the current political and economic stitution. They also made the following observation on parliamentary bye-elections:
"Even though these elections are being held within the provisions and confines of the law, we are also increasingly seeing more and more by-elections being instigated or motivated by greed, individual interests and a selfish propensity for political dominance by the ruling party….Also we question the integrity of these by-elections. Who is really behind the current spell of elections? What value are these by-elections adding to our political environment? Why are our leaders so ready to waste such colossal sums of money in the campaigns whilst our hospitals still face a critical shortage of medical staff, equipment and essential drugs?”.....We therefore call upon our leaders to prudently exercise the power that the Zambian people have entrusted in them....”
The second set of questions seem pointless given that they have already said, “by-elections being instigated or motivated by...a selfish propensity for political dominance by the ruling party..”. So they already know PF is behind it. So why ask, “Who is really behind the current spell of elections?” Indeed, I doubt PF would deny this - rather they probably justify it as necessary given the 2011 electoral outcome. From PF's perspective the incentive structure in the system means they must act this way. They are trying to do what they can to have a working majority. That's their thinking whether people agree with it or not! 

Friday, 22 March 2013

Corruption in Court

A Solwezi magistrate was arrested recently for corruptly receiving K7000 (rebased). Henry Aongola aged 35, a Magistrate in Solwezi was arrested alongside other two individuals. He was charged with corrupt practices by public officer. It is alleged in April 2010 the magistrate corruptly received money from Joyce Nshindo as an inducement to pervert the course of justice in a criminal case concerning her son Justine Lukanga. Justine was facing a charge in the magistrate’s court.

We need more of such arrests. Corruption in the judiciary must be top priority. A clean judicial system can help deter corrupt practices. A dirty and corrupt judiciary encourages even greater corruption. Corruption in institutions which are tasked with combating corruption is likely to encourage corruption in other areas, since the possibility of detection and punishment is reduced. Any fight against corruption must therefore begin with eradicating corruption in the judiciary.

Thursday, 21 March 2013

Mulungushi Is Not Wanted!

Davies Mwila (Deputy Defence Minister) says government will lease the Zambia China Mulungushi Textiles in Kabwe if negotiations with the Chinese to re-open the plant fail. Mr. Mwila says government is keen to have the Textile Company re-opened so that local people are employed. It has engaged the Chinese Embassy to help. Government owns 34 percent of shares in the Zambia China Mulungushi Textiles with the Chinese holding the rest. The textile was basically closed in 2008. The Ministry of Defence is tasked with reviving it.

The goal should not be creating jobs per se. It is easy to create any jobs - the goal is to create jobs that are sustainable in the long term. In other words jobs that are not being subsidised by tax payers. If the Chinese don't want to run the project it may be that Zambia is simply not competitive in this area. Some companies have to fail so that energy is put in areas where value addition can occur. It is called 'creative destruction'. We should not seek to maintain ventures at any cost. Let Government sell the project and retrain the workers to found jobs elsewhere. We need to be decisive as a nation.

Copyright © Zambian Economist 2013

Wednesday, 20 March 2013

Is PF failing?

Dora Siliya MP recently wrote an interesting article on the "Tragedy of Perception". I am excited to see MPs writing more. Here is the bit that caught my attention :
Let me bring you back to where we are currently, a cross road of perceptions. Are we doing better compared to 5 or 3 or 2 years ago? Do we have the right to freely assemble and associate? Are human rights being respected? Do we get a sense that our Government is fair and reasonable? Is the discourse on tribalism in Government perception or reality? Does the opposition have the political space to provide the much needed checks and balances? Is the Judiciary and Parliament operating without interference? Have the NGOs been coerced? Is the media reflecting society or just passive while sections of it push a narrow private agenda? Is the declaration of Zambia as a Christian nation just a perception?...Are we happy with our Zambia today?
These are important questions. But sadly the answers are not as obvious as Ms Siliya thinks. On each of those questions a case can be reasonably be made that life is better today than under MMD. So I think she is using the wrong counterfactual. My view on PF vs MMD is very straightforward. PF is so far not worse than MMD. Indeed, MMD was so bad that it is difficult to imagine anything worse.

Tuesday, 19 March 2013

Where Next for Bank of Zambia?

By Chola Mukanga

These are busy times for Bank of Zambia (BOZ) Governor Michael Gondwe. The Kwacha continues to face a battering, it is now at its weakest position in 12 months and the second worst performing currency in the region. The Governor is struggling to bring it back to what he regards as a “more realistic” level. Despite throwing millions of foreign reserves it continues to slide with declining foreign investment. High food and import costs recently prompted BOZ to raise interest rates and increase the reserve ratios for commercial banks.

Gondwe seems to be a man lost at sea and fearing for his job. Last month he said, "the exchange rate needs to be right, because if it gets out of hand it has an impact on inflation....President Michael Sata has legitimate concerns because of the weaker currency and rising costs in the economy". Finance Minister Alexander Chikwanda added the pressure suggesting that a weaker Kwacha may lead to an inflation spiral and boost the government’s debt costs. He wants the kwacha to trade between KR5 to KR5.10 a dollar to hold back inflation. That seems like a tall order, with analysts predicting that that the Kwacha may fall as much as KR6.5 a dollar going forward.

Monday, 18 March 2013

Five Reasons Why NAREP is Failing

I recently asked our Facebook Page contributors for their assessment of NAREP and why it appears to be failing to make a mark with voters. More than 110 people responded in a well mannered and respectful political discussion. Here are the top five reasons they gave on why they think NAREP appears to have failed to make an impact. These are their reasons not mine:

(1) Lack of engaging leadership -  In one word NAREP’s leadership is described as “poor”. Its leadership is believed by many to be closely aligned to the PF government. This has resulted in NAREP leaders going abroad with President Sata and also being unable to hold Government to account with necessary boldness. Elias Chipimo’s leadership was particularly cited as lacking charisma and a common touch (in contrast to President Sata and other leaders). NAREP has not created a diverse leadership that compensates for Chipimo’s weakness as a result his failings are amplified.

Sunday, 17 March 2013

Zambia's Corrupt Media

By Chola Mukanga

Dietrich Bonhoeffer at the height of Nazi German asked of German literature, "Do you know a work of literature written in the last, say, fifteen years that you think has any lasting value? I don't. It is partly idle chatter, partly propaganda, party self-pitying sentimentalism, but there is no insight, no ideas, no clarity, no substance and almost always the language is bad and constrained".

I have been reminded of this quote as evidence has now increased that the Daily Mail and Times of Zambia have not reformed. They continue to be shamefully be one sided. When the murder occurred in Livingstone, the Daily Mail quickly run the headline on the website on 27th February - "UPND kill PF official”. It went on to scream further, "the United Party for National Development (UPND) cadres have killed a senior Patriotic Front (PF) official Harrison Chanda". We know the truth to be very different today.

Friday, 15 March 2013

Banda's Lost Immunity Is A Golden Opportunity

By Chola Mukanga

Parliament has lifted the 4th President's immunity from prosecution. Mr Banda will now be investigated and fully prosecuted if the case is strong. Historians and lawyers will be quick to remind us, that if the Chiluba saga is anything to go by, the process takes long and Mr Banda is unlikely to face jail. In the end it is all a 'storm in the tea cup'. It is all academic and the greatest impact is on Mr Banda's personal pride.

Every moment of course presents an opportunity for us as a people to move in a positive direction. The question this saga raises is a simple one. What is the future of presidential immunity in Zambia? Is Zambia consigned to perpetual wrangles over former President's immunity? Or should now be the time to end the madness?.

Dinner With Mugabe, By Heidi Holland (A Review)

By Chipo Muwowo

A family holiday in December 1996 took us to Kariba, the Zimbabwean tourist town located a few kilometres from the border with Zambia. It is home to Lake Kariba, a vast and impressive dam teeming with animal and plant life, favoured by tourists and vital for the supply of hydroelectricity. We stayed at a small lodge overlooking the lake and soon after arriving, realised that we were the only black family there. Everyone else was white. We stayed.

mugabeOn one of the days, my siblings and I went down to the pool to enjoy a swim. The weather was hot and sticky, typical for that time of year. We arrived to find a handful of other guests playing and splashing around in the water. Uncomfortable stares greeted us. I vividly remember how when we got into the water, everyone else started to climb out and clear up. In a matter of minutes they had all left. We were stunned. What just happened?

The mid 1990s were a relatively stable time for Zimbabwe. The country was still considered “The Bread Basket of Africa”, a well-known reference to its once-productive agricultural sector. Its government had prioritised education since Independence in 1980 and that had resulted in an admirable 90% national literacy rate. Compared to Zambia, Zimbabwe looked and felt better in many ways. But what lay beneath that veneer of stability was something complex and explosive with its roots in the country’s troublesome past thus creating a potent mix of mistrust, bitterness and selfish entitlement on either side of the colour divide. Perhaps the discriminative attitudes we experienced at that Kariba swimming pool were a small indication of that.

Thursday, 14 March 2013

An impossible task?

The Government's Chief Whip Yamfwa Mukanga MP (Minister of Mines and Energy) recently warned MPs against poor attendance in Parliament. In a letter to all MPs he observes:
There has also been noted, a growing trend of honourable members of parliament coming to the House briefly, registering their presence and thereafter disappearing for the rest of the day, thereby missing out substantially from proceedings of the day. This is not only unbecoming, but smacks of dishonesty and is, therefore, unexpected of a member of parliament...This serves to inform you that henceforth, you are all reminded of the fact that you are all duty-bound to attend sittings of the House punctually and be present throughout
Interestingly, some MPs quoted anonymously have said, it is difficult for them to be in the House the whole time because of "the parliamentary by-elections that were taking place in different places...". That seems like a foolish excuse. It is not like all MPs need to campaign or bye-elections are held everyday. The MPs need to stop passing the blame and face up to their responsibility.

Wednesday, 13 March 2013

Batoka Power Project

Zimbabwe's state utility ZESA says it has started paying a $70 million debt to Zambia, a necessary step before the two nations can embark on a joint 1,600 megawatt hydroelectric plant, which could help relieve a power shortage. The Batoka power project will cost about $2.5 billion.

Zimbabwe, which currently generates just over 1,000 MW of power or about half of peak demand, has struggled to get funding for new projects to expand capacity, largely due to concerns about President Robert Mugabe's handling of the economy. The resulting power shortage has paralysed mines and industries.

Tuesday, 12 March 2013

Cadre Diplomats

I have just realised that George Mpombo has been missing from national public life because he is a Deputy High Commissioner in Nigeria. From Defence Minister to Deputy High Commissioner? Wow! That is a bit of a down grade! I suppose a job is a job. The more important point is that Mr Mpombo is a good example of a what I call "cadre diplomats". He is there because he is desperate for a job. Giving jobs to cadres is a form of nepotism.

Monday, 11 March 2013

Cost of Ministers (MMD vs PF)

A number of people asked for a comparison of ministerial costs between MMD and PF Government. I asked Prof Henry Kyambalesa to update the figures he has made available in the past (e.g here). So we worked together to produce the tentative figures below. Please treat these as exploratory. Corrections are most welcome. All figures are on annual basis (in old Kwacha).

Friday, 8 March 2013

Zambia EITI Report 2010

Government revenues from mining in Zambia increased by almost 50% in 2010, to US $750 million. This was disclosed when Zambia published its 2010 EITI Report in Lusaka on 22 February 2013.

The 50% rise is explained by a 16% increase in copper production and booming copper prices worldwide (up 25% from 2009).

On launching the report, Zambia's Minister of Mines, Hon Yamfwa Mukanga said that being transparent about the Zambia’s revenues is necessary in order for “Zambian citizens to maximise benefits from the mining sector”.

Mining is a crucial part of the Zambian economy, with the direct contribution to GDP being about 11% in 2010 (US $590 million) and expected to grow to US $1.35 billion in 2015, according to the EITI report. The indirect contribution might be as much as half the economy. Copper exports of US $5.8 billion accounted for 78% of the Zambia’s total exports in 2010.

The largest source of revenue was corporation tax, which was 33% of total mining revenues. Mining royalties were 11%. The EITI Report goes on to note that almost US $3 million of the revenue went into an Environmental Protection Fund, which is set aside to offset pollution and other ecological costs of mining.

The 2010 report revealed a tiny discrepancy of 0.23% between what the government said they had received and what the companies said that they had paid, down from 1.2% in 2009.

The report includes an outline of the tax regime explaining that exporters of copper and cobalt are charged 30% corporate tax, and operators 3% royalties on their production. The report also covers production figures and an explanation and breakdown of the flows through the partially state-owned mining company.

The EITI Report itself can be found on the website of the Zambian EITI: www.zambiaeiti.org.zm.

To learn more about the EITI in Zambia, please visit: www.eiti.org/Zambia

Thursday, 7 March 2013

Zambia Open Budget Index 2012


In 2012, Zambia scored 4 out of 100 on the Open Budget Score, well below the average score of 43 for all the 100 countries surveyed. It is also below the score of all other countries in the region: Botswana, the Democratic Republic of Congo, Malawi, Mozambique, Namibia, South Africa, and Zimbabwe. Zambia’s score indicates that the government provides the public with scant information on the national government’s budget and financial activities during the course of the budget year. This makes it challenging for citizens to hold the government accountable for its management of the public’s money. Even worse is that Zambia’s 2012 is sharply lower than in 2010 score of 36. So things have got worse.

The Open Budget Survey assesses whether countries publicise 8 key budget documents (pre-budget statement, executive’s budget proposal, enacted budget, citizens’ budget, in-year reports, mid-year review, year-end report and audit report). In 2012, Zambia only publicised the enacted budget and the audit report, while it produced (for internal use) the executive’s budget proposal, in-year reports and year-end reports.

Wednesday, 6 March 2013

Chikwanda on BOZ, Mines

Finance Minister Alexander Chikwanda released a statement to Parliament last week with some interesting quotes.
#quote 1 - "In Zambia one would be over-stretching things to say the exchange rates are strictly a market determined function. The rates are determined by inter-bank arrangements and since the banks are, few and a cartel, there is quite clearly a pronounced element of manipulation"

#quote 2 - "There is currently before this House, the Bank of Zambia Amendment Bill 2013which will enable government to regulate the foreign exchange system and monitor the balance of payments. Once the Bill is passed it will enable the Government to issue detailed regulations, including the requirement for export earnings to be repatriated. It is important to note, however, that companies will retain unfettered recourse to their foreign currency deposits through commercial banks.

#quote 3 - "Zambia’s major earner of foreign exchange is the mining industry. Even on the basis of the current tax arrangements the country could earn enhanced revenues if the assessments were based on correct volumes of production. It is in this context that Zambia Revenue Authority is refining the monitoring systems of production in our mining industry"

#quote 4 - "My colleague the Minister of Mines, Energy and Water Development has also taken a welcome initiative to put together a broadly based technical committee to assist with the monitoring of operations on the mines. We want to do things in responsible ways and still maintain Zambia as a credible investment destination which has policy consistence and predictability"
(Source : Parliament Online)

On #quote 1 everyone agrees. But then we may ask - if there's a cartel why did Mr Chikwanda give the banks a large corporate tax cut in the last Budget? Has Mr Chikwanda only found out about this "cartel" recently? Also the word "cartel" suggests collusion and illegal activities by banks. What is Mr Chikwanda doing about that?

On quote 2# - it sounds like government is pressing ahead with compelling banks to deposit cash in Zambia. But they'll keep it in dollars. We are trying to get hold of this Bill. Currently chasing the Parliamentary Clerk's Office.

Great to hear quote 3#. This has also been flagged up in the latest EITI report. It is clear that mining production figures need sorting out ASAP. #quote 4 again underlines progress being made on the mining front. Better days ahead.

Tuesday, 5 March 2013

FRA's good loss making deal

Zambia has sold 20,000 metric tonnes of maize to Tanzania at a cost of US$7 million (or US$350 per tonne). This is under a special bilateral agreement that was facilitated by the countries’ heads of State. An agreement was signed in Lusaka last week at the Food Reserve Agency (FRA), which will allow Zambia to supply the commodity to Tanzania despite a ban of maize and mealie-meal exports. The transaction is meant to "assist Tanzania in meeting its maize shortages” . Tanzania responded, "We are really grateful for this show of love". This is a loss making deal, but it is a lot better than GRZ critics have suggested. Here is why. 

FRA buys maize from farmers at US$265 per tonne. Distributing and storage costs are around US$80 per tonne. Its total cost is therefore US$345. This rises to US$365 if exporting within SADC. So by selling this maize to Tanzania at US$350, we lose US$15 per tonne.

BUT compare this to selling it domestically. FRA sells the maize to millers at US$ 140 per tonne. In total it makes a loss of around US$205 per tonne. So in short, we lose more by selling it to Zambian millers than subsidising Tanzania consumers. Now remember that Zambia has lots of excess maize - some of it becomes rotten. So by selling it to Tanzania we are merely getting rid of the excess maize in storage which usually becomes rotten. When that is considered, the deal looks even better.

What about the maize shortages? Zambia has no maize shortage. It has a shortage of mealie meal in some areas. Not the same thing! That is a millers' problem. We actually have too much maize. The bigger issue of course is that we should not be making losses at all. It is important to get agriculture policy back on track along the lines I have previously suggested - see the post Securing our Food

Monday, 4 March 2013

Zambia and First Quantum Minerals

Zambia may own 10% of First Quantum Minerals (FQM), soon if ZCCM-IH presses ahead with its plan to convert its stake in the Kansanshi mine, for FQM shares. It could end up owning about 10 percent of the company - and become its second-biggest shareholder. Black Rock Inc the world’s biggest money manager, is FQM’s largest owner, with about 12 percent, according to data compiled by Bloomberg.

First Quantum Minerals says“We would be happy if ZCCM becomes a shareholder in First Quantum as part of a step in transforming ZCCM into a sovereign fund...it is something First Quantum would be willing to accommodate.” ZCCM said it is considering swapping its Kansanshi stake for shares in First Quantum in its strategic plan made public in December 2012. Kansanshi is worth around $6billion. GRZ stake (via ZCCM-IH) in Kansanshi is 20%. FQM is worth around $8bn. If the stake is converted it could even be higher.

This is potentially interesting depending on how it is done. It could give our people a large stake in an important global company. That said, there are four issues which need to be considered before the deal is finalised. 

First, the size of the potential offer. Miniority shareholders in ZCCM-IH (they own 12%) have suggested that the proposed deal  is potentially bad deal. They tell me that "owning 10% of FQM would be a scam". They say the minimum Government must demand is 15% - 20% ownership to become the largest shareholder. They are hoping "GRZ and ZCCM-IH will not be outsmarted by FQM and there will not be any bribes".

Secondly, adequate exploration of alternatives. For example, as an alternative some have rightly noted that a better solution Zambia is to define a better dividend policy between ZCCM-IH and Kansanshi and with other mines.  Kansanshi must reverse 90% of its profits (after investment) in the form of dividends to its shareholders. This way ZCCM will receive more than $150 million per year and more than $250 million in two years when Kansanshi produce over 400,000 tonnes of copper per year. Currently more than $500 million of the earnings for ZCCM from Kansanshi (the last 5 years) have never been received by ZCCM-IH. FQM has been using this money trying to buy Inmet Mining, which is clearly good business for FQM but not for ZCCM-IH. A new dividends policy would ensure the the future of ZCCM-IH and the country

Thirdly, the importance of widening ownership of ZCCM-IH. It is unclear who this initiative is designed to benefit because ordinary Zambians do not own shares in ZCCM-IH. There's an expectation that ZCCM needs to do more to widen the share ownership structure so that ordinary Zambians can get on board and benefit. 

Which brings us to the final issue -  it is important to be clear on what the goals of ZCCM-IH are in proposing ownership in FQM. Many remember ZCCM-IH having a stake in Lumwana which was lost after the takeover. A 20% ownership in FQM would not necessarily guarantee "ownership". So the question must be - what is the goal? And how does that goal sit with the aspirations and needs of ordinary Zambians? These issues must be clearly articulated so the public understands where the game is going. 

Friday, 1 March 2013

Check Mate Collum!

Government last week took over the running of a Chinese-owned Collum coal mine after revoking its licence because of safety lapses. Mining Minister Yamfwa Mukanga says the government has cancelled all three licences held by Collum Coal mine. GRZ would "continue operating them until a suitable investor is found". Hon Yamfwa Mukanga says, the mine has a poor safety, health and environmental record. It has failed to consistently provide employees with approved personal protective equipment. He added that it did not have emergency medical treatment facilities such as ambulances or a first-aid station underground.

As well as the safety issues, the company had failed to pay royalties or properly declare how much coal was produced. The mine in question has been controversial. The Minister said, "Collum coal mine owes Government a lot of unpaid mineral royalties...last year alone, the debt came close to close to KR5 million (K5 billion)....We will look at how much the mine owes Government and what they have invested and work things out". The key phrase there is"last year alone". One wonders how many other mining houses are in similar position, without paying mineral royalties.

Also since Collum has been acting illegally and owes money, presumably there's little compensation. What now needs to happen is that ZCCM-IH should invite bids for partnership like it did in 2009 with Maamba, when Nava Bharat won. But this should be a 50-50 deal. In general this is a fantastic. Collum mine has been a very nasty stain on conscience of Zambia's mining industry. It has come to represent what happens when money is put ahead of human life. This is a decisive decision. 

Equally important is that the Minister has signalled clearly that "Government is not interested in nationalisation", which is clear and definite communication to assure all investors. The Ministry of Mines has made tremendous progress in many areas in recent months. We have seen ZCCM-IH brought back on track. ZEMA's integrity has been restored. The labour movement is no longer fighting their employers. This latest move will again add confidence that Government values human life. We also have recent the signals that Government want higher share in mining companies, alongside a revised fiscal regime. Its not perfect, but I think there's reason to be hopeful.