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Friday, 31 January 2014

Copper Colonialism in Zambia

Foil Vedanta have today released a report (embedded below) on the operations of Konkola Copper Mines (KCM) in Zambia. The report reveals that, contrary to popular opinion in Zambia, Vedanta (KCM's parent company) is not Indian but wholly British owned and controlled, and is making large profits at KCM. The report demonstrates Vedanta's pattern of buying undervalued state companies, polluting, and operating without permission all over the world. It also reveals how investment companies like Blackrock have controlling interests in Zambian copper as key shareholders behind Zambia's biggest mining companies.

Foil Vedanta's(1) report 'Copper Colonialism – Vedanta KCM and the copper loot of Zambia'is a groundbreaking study of copper mining in Zambia, focusing on British mining company Vedanta, KCM's parent company. The report reveals that Vedanta made approximately $362 million, or 12.9% of their total group revenue, from KCM in 2013 (according to the company itself and analyst reports)(2). The authors, who visited Zambia in December, note the number of misconceptions about this company in Zambia – where Vedanta has created the perception that they are an Indian company, and are making such a loss at KCM that they may need to be rescued by the state. In fact KCM are one of the highest profit making subsidiaries of the parent company.

Thursday, 30 January 2014

A guide to mining taxation in Zambia

I was looking through my papers from last year and I discovered that I hadn't shared this very helpful guide to mining taxation on Zambia. If I remember correctly, it has a particularly good section on effective tax comparisons between Zambia and other countries.



AUTHOR
Chola Mukanga | Economist
Copyright © Zambian Economist 2013

Wednesday, 29 January 2014

Democracy in Africa

Editor's note : The article below is taken from VoxEU publication 'Democracy in Africa' by Thorvaldur Gylfason, a professor of economics at Iceland University. 
A man's admiration for absolute government is proportionate to the contempt he feels for those around him.
Alexis de Tocqueville
Until the second half of the 19th century, there were so few democratic states around the world that they could be counted on the fingers of one hand.

Under the auspices of the Polity IV Project, political scientists at the University of Maryland in the US have charted the progress of democracy since 1800, assessing democracy in terms of – among other measures – electoral competitiveness, openness, and popular participation.

Tuesday, 28 January 2014

The Proposed Creation of INDECO

Editor's note: This is a guest post by Henry Kyambalesa (PhD), a resident contributor to Zambian Economist. He is a Zambian academic currently residing in Colorado, USA. This article is a response to comments received by the author on his previous piece published here. 
From the late 1960s to 1991, the Zambian economy was managed by means of socialist state policies, which barred both local and foreign private inves tors from certain commer cial and indus trial sec tors of the econo my. Dr. Kenneth D. Kaunda made the policy pronounce ments which ushered in an era of both parastatal and state enter prises in his April 1968, August 1969, and November 1970 addresses to the Nation al Council of the United National Independence Party.

Naturally, the monopolistic position enjoyed by state and parastatal companies culminated in com placence and gross ineffi cien cy because, in the absence of competi tion, they appar ently did not find it necessary to seek or use innovations and technological inven tions that would have improved the quality and quantity of their outputs.

This, in part, prompt ed the next govern ment of the late President Frederick J. T. Chiluba to embark on economic reforms upon his inaugu ration in November 1991. The reforms were designed to ensure that investment laws were clear, transparent, and accessible. These reforms included the following:
  • Abolition of price controls;
  • Abolition of exchange rate controls;
  • Privatization of state-owned companies;
  • Liberalization of interest rates;
  • Provision for 100% repatriation of profits;
  • Removal of quantitative restrictions on imports; and
  • Removal of restrictions on investment in all sectors of the country's economy.
The reforms were designed to create a market-based economy—a private-sector-driven economy.

Monday, 27 January 2014

IMF on Zambia's Poor Financial Management

The recent IMF Article 4 report paints a bleak picture of Zambia's poor public financial management :
"...The recent [IMF] assessment found a deterioration in [Zambia’s] Public Financial Management (PFM) , including reporting and quality control. Procurement practices have also deteriorated, with single-source contracts for some large projects. While the rollout of the Integrated Financial Management Information System (IFMIS) has continued, its implementation, as well as that of the Treasury Single Account (TSA), has been weak, and only release-based fiscal data are available. In addition, consolidation of financing data with the Bank of Zambia (BOZ) needs to be improved..."

Saturday, 25 January 2014

The Auditor General's Report for 2012

Most pleased again to lay our hands on the heavily trailed Auditor General's report on the accounts for the financial year ended 31st December 2012. As always, well worth the read, and huge thanks to a friend who tracked the soft copy for our benefit. When I have read through it I will flag up any points worthy of note. 



AUTHOR
Chola Mukanga | Economist
Copyright © Zambian Economist 2013

Friday, 24 January 2014

Stadia Mania Zambia

Government is pressing ahead with construction of more stadiums in Livingstone and Mansa. The construction of a new stadium in Livingstone will start in the first quarter of 2014.  The Mansa stadium plans were revealed by Home Affairs Deputy Minister Nixon Chilangwa as a personal promise from Mr Sata. Mansa was allegedly chosen because of its "readily available abundance of good accommodation" (Source : ZANIS).

These latest stadium initiatives are coming off the back of ongoing construction in Mongu and the pending completion of Heroes Stadium in Lusaka. Government has already slated Solwezi for a stadium having completed preliminary studies and drawn a strategic plan for the project.

Government believes that building sports stadiums is a key way of "taking development to the people". The new "provincial stadiums" all cost in excess of US$50m each. Levy Mwanawasa Stadium (LMS) at a cost of $70m and Heroes Stadium at a cost of $94m. The Chinese contributed to funding LMS but the rest of the cost has been picked up by tax payers.

Thursday, 23 January 2014

Chikwanda is Wrong

It appears that Finance Minister Alexander Chikwanda is addicted to intellectual and moral error. Here is what he said recently in the Post on mining companies and borrowing :

"...we are putting in place measures to generate enough revenue so that we can avoid borrowing. Of course, some people are saying windfall taxes for the mines but that is a 'fetish' which some people want to hang on to whether it is logical or not. We do understand that contribution of the mining sector is very low at five per cent but we shouldn't just look at taxes; there are other factors like having the mines generating 70 per cent of foreign exchange and creating jobs. Ideally, we want to see the mines contributing about 10 per cent and ZRA is being strengthened to ensure efficient revenue collection." (The Post)
This is economic bumbling. Such language does not mean anything, but designed to fool the economic illiterate. Of course people are easily fooled because his statement has gone unchallenged for over a week! So, what do we make of the latest Chikwanomics?

Wednesday, 22 January 2014

IMF on Zambia's Fiscal Deficit

The recent IMF Article 4 report suggests that Zambia will again exceed its fiscal deficit set out in the Budget 2014 :

IMF stressed that the proposed 2014 budget does not take sufficient steps to start addressing the large fiscal deficit. The budget submitted to Parliament in October calls for a deficit of 6.2 percent of GDP in 2014, above staff’s recommendation of 5 percent. The budget aims to increase domestic revenue by about 1.3 percent of GDP, mainly through non tax measures (including bringing revenue from FRA and other government agencies on budget, raising road tolls, and introducing a surcharge on money transfers).

Contrary to [IMF] advice, the [Zambia] budget proposes raising the Personal Income Tax (PIT) tax-free threshold to K3,000 from the current 2,200, which will generate a revenue loss of about 1 percent of GDP [Under the new PIT tax-free threshold, only about 33 percent of employees in the formal sector are expected to pay income taxes]. The budget also proposes a wage freeze for 2014 and 2015, as well as a net recruitment freeze for 2014 and limits FRA activities to maintaining a strategic reserve.

Monday, 20 January 2014

Zambia: Socialism Belongs to the Archives!

Editor's note: This is a guest post by Henry Kyambalesa (PhD), a resident contributor to Zambian Economist. He is a Zambian academic currently residing in Colorado, USA. 
The fate of less-developed countries (LDCs) in general, and that of African countries in particular, has become one of modern civilization's major sources of concern. The extreme and persistent poverty, hunger, disease, illiteracy, and unemployment which are currently commonplace in the typical developing country are certainly unprecedented in human history. And, very unfortunately, there are clearly no easy answers or quick fixes to the seemingly self-perpetuating problems facing the developing world.

The recent revelation that the Patriotic Front (PF) government is seriously considering the prospect of establishing an Industrial Development Corporation (INDECO) is, no doubt, disconcerting to some of us who witnessed the rampant shortages of commodities, smuggling, and stunted economic growth associated with socialist policies during the UNIP era.

Saturday, 18 January 2014

Debtmania Zambia

The planned $1bn Eurobond before Christmas did not materialise. It is due any moment in the near future. In meantime GRZ has already been very active on borrowing from other sources. Last month alone Zambia borrowed over $200m. The publicly announced borrowing include :

A loan agreement with European Investment Bank (EIB) worth $102 million (€75m) to support improvement to water and sanitation infrastructure in the Copperbelt where most existing water infrastructure is more than 50 years old. The money will go to Mulonga Water and Sewerage Company (Source : New Europe).

Thursday, 16 January 2014

MF - Zambia Watch (January 2014)

Always good to start the year with a recap of where we left things in 2013. There's no better summary than the press release below from the IMF on Zambia which was released on 19 December 2013 and the Article 4 Report embedded below. The general picture is that GRZ has a lot of work to do in 2014. It faces significant challenges which urgently need addressing. We will pick up the details as we look at the Article IV report in more detail in future posts :
Press Release No. 13/535
December 19, 2013

On December 11, 2013, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Zambia.

Zambia has achieved strong and sustained economic growth over the past decade due to improved macroeconomic management and increased copper production; however, risks have over the past year increased with rising fiscal imbalances and lower reserve coverage. Robust output growth continued in 2012 at slightly above 7 percent, driven by agriculture and services, but is slowing in 2013 due to a weaker harvest. Expansionary fiscal policies, mainly from spending on subsidies and wages, have raised the projected 2013 deficit to about 8½ percent of GDP. Rising imports together with weakened copper prices are expected to move the current account into deficit, and international reserve coverage has fallen to 2.3 months of next year’s imports.