Business Etiquette

The one single mechanism that either binds people together in harmony, or sets them at poles apart in conflict and misunderstanding, is effective communication. The basis of effective communication is a level of agreeable etiquette that promotes dialogue and agreement.

Much of the conflict around the world is characterized by arrogance and entrenched positions as expounded by the public pronouncements in Zimbabwe, South Africa, Pakistan, the USA, and in South America. Conflict and instability impact negatively on business development in any country. Businesses are very sensitive to risk and political pressure, and tend to shy away from these characteristics if they appear to threaten viable and sustainable economic activity.

In a nutshell, the questions of effective communication, timely responses, positive positioning, the transfer of functions, inclusivity, and sensitivity to other parties are all very important aspects to promote harmony and positive development in any economy.

Our former late Head of State made several state visits to China and India and was able to share Zambia’s development agenda with his hosts thereby effectively soliciting support for Zambia. China responded by providing in excess of USD800 million investment in the mining industry and a new economic zone to be established in Chambeshi. India has also responded positively and offered to encourage Indian businesses to invest in Zambia with particular emphasis on participating in Zambia’s Multi Facility Economic Zones. Japan has offered assistance to Zambia in the form of funding the development of the Lusaka Chalala Multi Facility Economic Zones. The Business Etiquette in this regard is to encourage the Head of State to seek support from the outside world, but to then follow through by passing on the technical responsibility of implementation to the relevant Government Agency with an oversight progress reporting link to State House.

Our Cabinet Ministers often travel around the world to establish trade and business links between Zambia and selected countries that are indentified to be of strategic importance in our efforts to advance the development of our own economy. Memoranda of Understanding are signed and official trade and commerce between the two countries is then promoted thereon. The Business Etiquette best suited to promoting development is to encourage economic activity between the two countries and to desist from labelling selected investors as bogus investments. We should be acknowledging our own weaknesses in the areas of the giving out of work permits and self employment permits. We should also take full responsibility for our weaknesses in monitoring labour laws and practices, and intervening where necessary. We should be consistent with our policy on investment and not make wild utterances for political expediency which usually has a very negative impact on investment promotion. We must be sensitive to the fact that a Minister’s statements either supports the Governments’ economic development policy, or if to the contrary, spell out a new unilaterally declared Government policy. A Minister represents the views of the Government and therefore spells out the current Government policy at every public presentation. This also applies in respect to our perceived national views on the SADC Free Trade Agreement and the COMESA Free Trade Area.

Our collaborating partners play a significant role in affecting and influencing the business climate in Zambia. Partners that focus on Economic Partnership Agreements endeavour to keep the Zambian Government engaged in dialoguing on trade relationships. The standard Etiquette in this engagement process is to highlight the pro’s and con’s and leave the decision making to the Zambian Government and her private sector. Typically, collaborating partners tend to drive the process with Aid packages linked to Guidelines and Benchmarks that promote the decisions they would like to see come out. The World Bank’s Doing Business Report is one such mechanism. The 10 Indicators selected to assess a country are not necessarily the most significant indicators to local investors. The indicators are more relevant to foreign investors and tend to be biased towards developing world specific problems. For instance, no credit is given for free foreign exchange regimes that are now characterising most African countries as opposed to the tighter regimes in Europe and North America. No credit is given to the lower cost of labour on the African continent as compared to the costs in the west. No credit is given for the availability of land and natural resources that are abundant in Africa as opposed to the land shortages in developed countries. No credit is given for the wider latitude for profit making in African economies in comparison to the tighter competition in developed countries. These all impact very positively on Doing Business in Africa compared with the developed world. The Doing Business Report therefore may be a disincentive for investment in a particular country rather than a challenge to get countries to improve their investment profiles. One might therefore question the value and negative business impact that this report has on our economy with our standing of 100 out of 181 countries.

In the last decade we have experienced some interesting outbursts from Diplomats accredited to Zambia that could be considered undiplomatic at the least, but certainly of very poor Business Etiquette. Accredited Ambassadors and High Commissioners to Zambia have confused their personal ideas with the official position taken by their own Governments. Many diplomats around the globe have had to resign because of making public statements that either put their Governments to ridicule in the public domain or making statements that cross the Diplomatic Etiquette line. The very argument that we have advanced to ask our own Government Minsters to be mindful of their utterances in the media is also valid for all diplomats accredited to Zambia. The Diplomatic interventions on the future of Indeni Oil Refinery, the Genetically Modified Foods debate, Zambia’s influence on the Zimbabwe question, and most recently the local airline industry woes, are all interesting examples of poor Diplomatic Etiquette that only results in unnecessary business damage. Today we see that our Government and people have developed a phobia against the EU-EPA and consequently expect to be threatened about the consequences of not signing this suspicious document.

Our Permanent Secretaries in various Government Ministries play a pivotal role in promoting and institutionalising dialogue amongst stake holders. The Business Etiquette expected from our Permanent Secretaries (PS) is to constantly encourage dialogue between the private sector and Government so that all policy and regulatory development can be collectively done to ensure compliance and stakeholder buy in. The PS is the integrator for all interests to be considered and synthesised into the Government systems. The PS has a duty to also educate both the politicians and the private sector about various domestic and international instruments and policies to promote progressive participation and a common understanding of the issues. The current information blackout on the three known Economic Zones leaves much to speculation, innuendo and cons

The private sector sometimes pampers itself by expecting to be engaged in useful production at all times without investing in the policy and regulations making mechanisms. In, many instances the policies and regulations are aimed at private sector operations. It is therefore folly for any business to be too busy to participate in the various processes. It is also folly for any business to expect to be supported and facilitated by the Government in any meaningful way if no taxes are collected and all Government decisions are made solely on the input from Civil Servants and politicians.

The private sector is often sensitive to Business Etiquette in respect to delivering goods and services to the public. It is a well known rule that cost, quality of service, reliability and customer care form the basis of a successful company. It is of primary importance for the private sector to adopt some new Business Etiquette that promotes and supports constant engagement with the Government, and that encourages the various business associations to rally together on common issues that must be debated at national level. The challenges of the One-Stop-Shop program, the full operationalisation of the Zambia Development Agency, the impact of the Citizens Economic Empowerment Commission, and the overall improvement of the business climate in Zambia, require a private sector inclusivity attitude which will enhance co-operation and co-ordination during the various dialogues. Collaboration is essential at this particular time as we step into yet another Free Trade Area, endure the electricity load shedding exercises, succumb to the ever increasing fuel prices, prepare for the 2009 Fiscal Budget, and usher in a new Head of State.

Published 23 September 2008

Stability

The Presidential By-election date has been set for October 30 and all relevant political parties have put their candidates in the race in an attempt to finish as number one on polling day.

The business world is looking forward to seeing formal stability in the political sphere by Monday November 3which will mark exactly one month after the interment of the late President Levy Patrick Mwanawasa.

On the ground there has been much controversy and debate in respect to the local airline industry. In addition, the farming sector has lamented at the cost and availability of fertiliser for the forthcoming planting season which is around the corner. On the investment front, we note that some large investments are planned for Nchelenge District in the palm oil agriculture sector. Electricity tariffs have once again come on the table for adjustment upwards. A mining investor has juts completed a feasibility study for the treatment of Uranium in North Western Province. The North Western Railway company is seeking Government support to construct a railway line from Chingola to the Angolan Border.

It is quite obvious that business is taking place and plans are being unfolded every day in various efforts to keep the economy going and constantly looking for new opportunities to exploit.

Much of what is going on in the economy hinges on a stable Government being in place to lend support where required, and to give guidance where necessary.

Government is faced with the fertilizer issue in various ways. Donations of fertilizer by friendly countries could undermine the fertilizer manufacturing companies and importers such that although things may work out alright this year, no private sector investment will go into fertilizer next year. The whole distribution program must be carefully thought out taking into account the businesses that survive on fertilizer and a sustainable intervention so that next year we do not face the same problems. It therefore becomes very important for Government to be calm, stable, and focussed on dealing with these business related matters because one mis-understood decision by Government can send a particular sector spiralling into recession.

It is important to remove the politics from any decision that will impact on business development, and even more important to offer solutions that will be viable, sustainable and that makes good business sense. In this regard a level of stability and professionalism is required that will not tilt the business environment and alter the playing field. Some caution must be exercised when allocating vast resources to any investor, since the size of land or loans may compromise and undermine other players in the sector.

Some investments must be considered with a developmental view. For example the current wrangle to build a railway line from Chingola to the Angolan border is not just a business venture. It is a lifeline for many people in the North Western Province and it will impact on the cost of doing business in the Mining industry in Solwezi and Lumwana. A solid and stable Government will play a very crucial role in selecting the best option for development to benefit the vast majority of Zambians.

The energy crisis is hitting at us every day. We have pages upon pages of power outage schedules printed in the local media informing us of our daily power blues. Now the cost of electricity is being discussed once again with a demand for tariff hikes. Businesses can no longer plan as electricity costs continue to soar. Electricity like oil based fuels, impact on the production costs of almost all industries in Zambia. This issue will not be tackled in any meaningful way until we have a focussed Government in place to assess the situation, make the necessary changes to the administration chain and take the necessary decisions to implement a recovery plan. At the moment we are toying with Private Public Partnerships, World Bank proposals and various options as time goes by and the electricity crisis gets worse every day.

We must acknowledge that any local or new investor wanting to do big things in Zambia will be challenged by the shortage of electricity. This will force them to either scale down their plans or put the whole idea on hold until a solution to cover the power deficit is found. The media highlights new mining operations opening up around the country. We have huge and ongoing investments in the cement sector. There are dozens of new Tourist hotels, lodges and camps sprouting up across the country. The adequate supply of stable power is now a deciding factor for investment in Zambia.

There are many challenges that we must address in order to make Zambia the place to do business in. Most of our requirements are not anything special but plain necessities for any developing economy. We must have proper roads, we must have adequate electricity, we must have cost effective energy resources, we must have functional Government systems, we must have efficient regulatory and monitoring Government agencies, and we must have a vibrant financial services sector.

Many of these requirements are developed on a stable and focussed Government in place.

Published 9 September 2008

Kafue Gorge Higher

Zambia is currently groping with the electricity deficit across the country. Every sector of the economy is affected and residences are plagued with power cuts for at least five hours every other day. Industry is forced to cut production hours due to power rationing to factories.

There is a definite pool of losses being experienced in the economy in respect to lower production in industry, the resultant damage to electrically powered equipment due to power surges at cut off and re-connection times, and the escalated costs of production because of labour charges paid for non productive workers.

A quick glimpse at the many hardware and motor accessory shops around the country reveals that many types and sizes of electricity generators are on display for quick sale to mitigate against power cuts in offices, business premises, factories and homes.

The generators are petrol and diesel fuelled depending on the size and work load. This growing option for power in view of the prospects that the Zambia Electricity Supply Corporation (ZESCO) is only expected to generate sizeable power to feed the nation in 2015 is fast developing with the consequences of increasing Zambia’s oil based fuel bill and a big cost to the consumer that has to put between 10litres and 20 litres of petrol or diesel per day. This works out to a cost of between K100,000 per day and K200,000 per day. In one month this figure escalates to a massive K3,000,000 at the low end. That is more than ten times the cost of our monthly ZESCO bill and a huge fuel burden to the nation.

The current power deficit is therefore very damaging to the development of the country and to Zambia’s competitiveness as an investment destination within the region. Zambia’s products become much more expensive to produce and cannot compete with other produces in the region and in the global economy. For the private sector this scenario spells doom and gloom.

ZESCO is currently upgrading its existing power stations that have capacity to generate more power and the Kafue Gorge Power Station will be the first to pump out more electricity albeit not enough o satisfy demand. The Kariba North Bank Power Station is currently undergoing upgrading and will generate an additional 360MW with an investment of USD243 million. Sino Hydro of China is carrying out the works for this upgrade project. This work is expected to be completed in 2011and the additional power will be injected into the national grid at a time when our electricity demand will probably have gone up by another 30 percent if we look at the trends in new mining investments and large industry development as captured by the Zambia Development Agency. We will therefore still experience a power deficit.

In 2007 Government was considering two developers to construct a new Kalungwishi Power Station at our northern border with the Democratic republic of Congo. The developers had majority ownership by Eskom of South Africa and the expected cost of the power station was billed at approximately USD1.2 billion even though no exact figures for production size were released to the general public. This leaves much to speculation on the cost benefit analysis.

In 2006 Zambia completed a Feasibility Study through ZESCO to develop a 750MW Power Station at Kafue Gorge Lower and a 120MW Power Station at Itezhi-Tezhi. At that time the estimated costs for the two projects were USD500 million and USD100 million respectively. The rule of thumb at the time was to calculate the development and building costs of a hydro electric power station at USD1 million per Mega Watt. Zesco’s costings were therefore quite conservative, but not impossible if costs were obtained from manufacturers of the required equipment around the world. In the same year our Minister of Commerce who was well aware of the electricity demands of the emerging mines and industries sounded the warnings that Zambia was facing a looming power shortfall which would be felt in 2008 if no new sources of electricity were developed urgently. He called for immediate gigantic investments in new power station to avert a power deficit and the slowdown of investments that were on the Ministry’s drawing board.

In 2003 Sino Hydro signed a Memorandum of Understanding with ZESCO to build a 660MW Power Station at Kafue Gorge to be called the Kafue Gorge Lower Power Station. These figures authenticated the Feasibility Study carried out by ZESCO earlier and the timeline was pegged at five years. The prospect for the power station to come on line before 2009 was considered to be very high as Sino Hydro had built many power stations in Africa within record time.

Where are we now? What are the prospects for a large new power station by 2010? How have the costs changed with time? Where do we get the financing for any new projects?

At the moment we seem to have gone back to the drawing board to scout for new construction companies, new financiers, new feasibility studies, new business plans, and new cost calculations.

The current favourite financiers are the World Bank as principal lender for Kafue Gorge Lower Power Station, supported by possibility Copperbelt Energy Corporation as a smaller co financier. The World Bank however, insists that a new Feasibility Study for the project must be carried out before any financing can be offered. The European Investment Bank and Tata of India are the favourite financiers for the Itezhi-Tezhi Power Station. This power station will be a ZESCO Tata Public Private Partnership. The fate of the Kalungwishi Power Station is not clearly outlined. It may have stopped at just the idea stage. The bottom line is that not much has happened since 2006 and no ground has been broken at Kafue Gorge but some rumblings are taking place at Itezhi-Tezhi.

We are told that Kafue Gorge Lower Power Station will be completed and functional by 2015 and Itezhi-Tezhi Power Station will only come on line by 2012. The power load shedding and power deficit will be with us up to 2015 if all goes as planned. The possibility of delays is always with us depending on how our political system develops and how the economy performs over the next seven years. Any political or business turbulence in Zambia could push the projects back several more years.

The Itezhi-Tezhi Power Station project has seen some escalation in development costs. The figures however are not very far from the initially projected costs. The Kafue Gorge Lower Power Station development costs have lunged from an estimated USD600 million to a missive USD1.5 billion even before the Feasibility Study that the World Bank insists should be done is completed. This expensive USD6 million Study is financed by the Zambian Government and is being carried out by the International Finance Corporation which is a division of the World Bank. It is not likely to be seen as an independent study that can be used to solicit financing from any other sources, but an in-house document to confirm the World Bank’s gestimate of USD1.5 billion project costing. There are conflict of interest issues with this arrangement as the client is Zambia, and Zambia should be free to choose the best consultants that will do an objective and professional Feasibility Study. The World Bank will then have to be guided by Zambia’s Feasibility Study and not a document developed by their own institution as the lender of finances. The money is not a grant but a loan to Zambia. The Sino Hydro offer was to finance 85 percent of the Kafue Gorge Lower Power Station project with prospects to bring it up to 100 percent.

What is the final analysis? We do expect that due to increased metal prices the costs for building new power stations in 2008 will be higher than the estimates of 2006. But are we satisfied with twice the costs? What is the cost of Money borrowed from the world and the European Investment Bank? What risks do we run with our developing industries in view of the extended completion time lines for new power stations? Why are we shunning the China offer even though we see that Sino Hydro is building power stations all over Africa at much lower prices and in record time? Why have we discarded the Memorandum of Understanding that was signed in 2003? CEC is ZESCO’s largest customer and the ZESCO Chief Executive is also a shareholder of CEC. What impact will the investment of CEC in a new power station in partnership with ZESCO have on ZESCO’s corporate governance and conflict of interest issues?

One may conclude that the China offer with easy terms and low interest rates to develop power stations in Zambia does not offer ZESCO management any personal perks and benefits, but puts all the resources into a cost effective power solution for Zambia. On the other hand, the World Bank offer will no doubt come with lots of seminars, conferences, project vehicles, and trips abroad with accompanying per diems that will benefit all those top notch engineers involved in the project for years to come.

A quick look at power stations built in Africa gives us a graphic indication of how our neighbours have been faring. The Guinea Kaleta Dam Power Station producing 238MW cost USD257 million. The Ethiopia Tekeze Dam Power Station producing 250MW cost USD224 million. The Sudan Merowe Dam Power Station producing 1,250MW cost USD1200 million. Some African countries have spent USD2 million or more per Mega Watt on power stations but one can clearly see that these countries are fraught with corruption and will have been recovering from a war situation. Conversely, most of the Asian countries and Eastern European countries have spent less than USD1 million per Mega Watt. There is an indication that these countries put much emphasis on due diligence and accountability in respect to public investments on behalf of the people. This information is available on various web sites for public consumption.

Must the Zambian people pay through their children and grand children for the poor judgment of the officials in the energy sector? Are we going to rename the project Kafue Gorge Higher because of the escalating costs? Is this the legacy that the late President Dr Mwanawasa leaves for his people? The incoming President and his administration will have to tackle these issues as a matter of urgency.

Published 2 September 2008