Taking Stock

The year has come an end and most people use this time to take stock of the year in an effort to make some assessment of achievements and failures.

In business this is even better reflected by the sizes of bonuses given to workers. No bonuses means business has been bad through the year. A small bonus suggests that the business ran sustainably and some motivation is given to the workers to encourage better performance in the upcoming year. A large bonus generally signifies that the business has performed very well and both management and workers go away for the season’s holidays with fat wallets and happy faces.

It is important however, to look back at the last twelve months and pick out weaknesses, threats, strengths, and opportunities for the business. This analysis should be done not only by businesses, but even by government and the public at large, in workplaces.

The current world economic order demands that governments and their private sectors should continuously reflect on their strategies as the global and regional economies evolve and bring up new challenges and new opportunities.

The Information and Communications Technology (ICT) sector is a good example of a rapidly evolving sector. Investors in this sector must keep stock of what is going on in the sector within the domestic environment, and what new technologies are being rolled out in the more developed world which will soon affect business on the home front.

Zambia in particular faces some interesting challenges when we take stock of the changing economy during 2009. Copper prices have risen from a start of year low of around USD3,000 per tonne to a year end high of almost USD8,000 per tonne. The ongoing rainy season has so far produced fairly consistent rain fall in most parts of the grain growing areas thereby promising another bumper harvest of maize and other cereal crops. In 2009, Zambia and many other regional states signed up as members of the COMESA Customs Union. The closed Luanshya Mine and Albidon Nickel Mine were taken over by new investors during the year. A local airline shut down operations after operating for only a few years. Two prominent political parties entered into a political compact in readiness for the 2011 general elections. The privatization of ZAMTEL has been firmly decided and an option for new shareholding has been floated both in Zambia and abroad. The Zimba to Livingstone road stretch is still being worked on with motorists continuing to use the buses rather than their own cars to spare their vehicles unwarranted damage. The new economic zones have been talked about and pledges from investors have been registered during 2009. South Africa is putting final touches on the upcoming 2010 world cup preparations. The last twelve months have been punctuated with ZESCO power failures and fuel shortages, with Indeni being abandoned by its French equity partner.

This stock take of events and options offers Zambia some opportunities to develop some short and medium term strategies for business development in the country.

The rising copper prices challenge us to seek new opportunities on how we can best employ the copper taxes on diversifying the economy. In this vein, we must look at how we can use the economic zones on the Copperbelt to add value to copper through processing and the manufacture of finished goods for export. In addition, higher copper prices impact on other subsidiary industries that support the copper mining sector. These subsidiary industries have the potential to reengineer themselves to become more efficient and cost effective partners to copper mining companies. Value addition to copper is open both on the Copperbelt and in Lusaka where two new economic zones are being developed.

In the face of the COMESA Customs Union implementation within 2010, Zambia should be considering massive investments in food processing and packaging to supply the domestic economy and the region. Food availability has always been a challenge for developing countries and Zambia has the potential to become the food basket for the region.

The looming implementation of the COMESA Customs Union converts sovereign and protected markets that are currently the preserve of individual member states, into one giant zero tariff market of over 200 million people. The zero tariffs between members states means that countries with strong manufacturing industries will sell to their neighbours with no tariff or quota restrictions. For Zambia, this threat of being a market for our stronger neighbours should propel us into investing in manufacturing in a big way. Our banks and government should be in the forefront of financing, facilitating, and motivating manufacturing for the country to benefit from the Customs Union.

Although for the economy it is good to see new investors take over the mines in Luanshya and Mazabuka, for the general population and other economic activities, this means more power cuts, rationing, blackouts, and a disruption to life in general. No short term plans have been put into the public domain on how Zambia will manage energy in the forthcoming years. No new electricity generation units have been ear marked with supported investment, and no backup plans for fuel disruptions have been put in place to keep industry and national productivity on course.

It is hoped that the Zimba road will soon be repaired and normal traffic can start to run to the tourist capital. The 2010 world cup preparations in Southern Africa are in advanced stages but Zambia is still not seeing the opportunities. We have not made any special concessions for 2010 visitors to the continent in respect to Visa fees and easy access into Zambia. Our banks have been sluggish in deploying Point Of Sale (POS) units in as many business houses as possible so that any foreign visitor can easily spend his or her money in Zambia. Our hotels, motels and lodges have not offered their accommodation on special world cup rates to attract visitors to Zambia. We have not entered into special arrangements with other airlines to absorb as many world cup fans as possible via Zambia.

Although we all acknowledge that 2010 is a pre election year for Zambia, it is hoped that the focus will remain on building the economy and that we will use all the opportunities that are before us. If Zambia is distracted by electioneering, politicking, and pleasing the masses for votes, then the lessons of 2009 will not positively affect the economy and the country will throw energy and resources into pleasing voters in the short term while the country prepares to go into an economic recession in the medium term because we would have ignored the opportunities and allowed the threats to thrive.

Published 29 December 2009

Big Or Efficient?

The last few years have provided some insights into how large corporations are run worldwide. The strongest sense of ownership has been in the minds of the top management executives who are generally detached from the major workforce and stay out of reach of the shareholders.

The recent financial crisis shows us how big corporations have left themselves exposed to the extent that only government bailouts could save them. It is quite evident that internal monitoring and control systems did not work as efficiently as expected because the tell tale signs of a crisis did not trigger any responses.

In some cases, large corporations were knowingly exposed to financial risks by the top executives, in an effort for the executives to continue to enjoy affluent life styles. These signals have been echoed when management of bailed out corporations in the USA and the UK worked towards paying themselves bonuses out of tax payer’s money.

Essentially, the big corporations often become independent, non accountable entities that dance to the tune of the controlling management of the day. These companies become less efficient, they tend to focus on cutting costs in areas where production should be most encouraged, and there is an unclear sense of ownership by neither the general workforce nor the management. This development is similar to that of building a government with the pressures of political expediency and cronyism.

Even the best organized big corporations are not easy to manage during times of crisis. The successful investments in Dubai have shown the world how oil money in a desert country can build a vibrant trading economy. As the global crisis unfolded across the world, even Dubai could not stand alone. The end of 2009 saw Dubai reeling as large corporations began to crumble quite rapidly to the extent that a huge cash injection of USD 10 billion was solicited from Abu Dhabi to keep the Dubai trading haven afloat. Only time and good management will tell if Dubai will survive the credit crunch.

Small and Medium Enterprises (SME’s) across the world have undergone the same pressures to survive. Often there is not enough available cash to keep the businesses afloat. The businesses are generally too small and therefore have a low production output that renders them un-sustainable. Many SME’s do not follow any best practice standards and therefore capture very small markets. SME’s tend to find themselves quite remote from the suppliers of their raw materials because they are typically located in small industrial parks whilst suppliers usually operate in developed industrial estates. These and other reasons may be the basis on which the majority of SME’s collapse within three years of starting up business.

Medium Sized Companies (MSC’s) offer a model that can be both efficient and sustainably productive to levels above the minimum thresholds. MSC’s typically employ between 100 and 200 workers. In the most prolific economies of the world, MSC’s are usually owner run and managed with the husband taking care of operations and production, while the wife looks after finances and marketing.

The industrial city of Shenzhen in China takes full advantage of the value of MSC’s. Industrial parks housing about twenty MSC’s are normal. Some parks focus on production of inputs for other parks. Other parks produce the finished goods for the consumer. The close proximity of supplier and processor in addition to easy access to the mega port of Shenzhen provides the basis for a cost effective and efficient strategy for mass production for export.

The city of Shenzhen has even gone a step further. Many MSC’s have built worker’s dormitories within the vicinity of the factories to allow for cheap housing and to reduce the cost of worker’s transport to the factories. The vibrant high tech economy of Shenzhen has created an attraction for young people from all over China to move there in search of jobs, opportunities to develop, and to build their futures.

The reality is that even in the face of the global economic crisis Shenzhen is still rapidly growing and expanding every day. Businesses have had to tighten up somewhat, but trade, production, and exports are constantly and sustainably increasing.

Zambia’s new economic zones can offer options for large multinationals to invest. Alongside these large investors MSC’s and SME’s must be supported, facilitated, and encouraged.

The focus on big companies often costs the country much more than to develop MSC’s that are more stable, more efficient, better run, better managed, more productive, and above all, are locally owned.

The MSC for many developed economies is the backbone of the country. The Asian Tigers, the successful economies of Korea, Japan, China, and India, are all strongly founded on a vibrant and aggressive MSC base.

Developing countries must re-address the question of attracting big businesses or efficient companies to develop a sustainable growing economy.

Published 22 December 2009

State And Development

1. Role of Government in Economic Development

The concept of having a Government in place is to maintain some order in society. Law and order, an Army to protect the nation from outside aggression, and the development of logistics to support and facilitate a better life for all are part of the roles that every Government pledges to undertake. For the private sector, a conducive and motivating environment is necessary for economic activity to take place and thrive. Government therefore must put in place measures that protect investment and ensure some stability and predictability in the business environment. One basic instrument that endeavours to develop this stable and conducive environment for business to flourish is the National Constitution. Subsidiary laws and regulations that affect private sector development are hinged on the spirit of the National Constitution.

2. Government Policies and Strategic Development Plans

Zambia has over the years developed several development plans that have characterised the country’s economic development agenda. Structural Adjustment Policies and National Development Plans have been hatched and rolled out over the past four decades with various achieved results. The annual fiscal National Budget is a sub set of the medium term development plans and is generally aimed at achieving specific benchmarks that should lead the country along the road to prosperity. For Zambia, a longer term plan is in place in the name of Vision 2030 which highlights the national goals to be achieved by the year 2030. Ideally, the various plans ranging form annual budgets to the long term vision should be interlinked with developed synergies such that a strategic development program is carried out that allows the outputs of one program to become the inputs for subsequent programs thereby promoting a seamless long term set of achievements that continuously build the nation both economically and socially.

3. Socio Economic Infrastructure

For any nation to prosper there are some strategic socio economic infrastructure requirements that must be in place. Any country demands that basic roads, energy sources, access to land, communications, human resources, and water must be in place as pre requisites for economic development to take place. Many developed countries have put the burden of developing these socio economic infrastructures squarely on the shoulders of Government to whom all citizens pay taxes. National tax money is expected to finance national infrastructure that may be too expensive for individuals or companies to develop. National infrastructure is also expected to be for the service of all citizens and residents, and not developed as a money making Government venture. To this end, Police services are seldom charged over the counter, Immigration services at border posts are never charged to citizens, most Government departments provide services to the public free of charge, and roads, water and sanitation services are largely paid for through the national budget. A quick research in developed economies indicates that even electricity supply is Government owned in an effort to keep the cost of private sector production as low as possible.

4. Privatization and Commercialisation

As developing economies emerge out of the socialist era and embrace free market economics, many Government owned and public run institutions have been privatised or commercialised. In many cases the privatised entities have been asset stripped within a few years and the entire business is liquidated on the basis that it was never viable. Clever business investors made quick money and the nation lost valuable economic development assets in the process. The privatisation program was largely a failure due the possibility that the Government was not well prepared to privatise, or that corruption characterised much of the privatisation effort. Remaining parastatal companies and statutory institutions were re-engineered to become commercialised. To some commercialisation means that the entity will operate in an accountable fashion as most private companies run. This suggests that budgets are drawn and benchmarks are met during the fiscal year. The aim of commercialisation is to run an institution as cost effectively as possible while maintaining the highest standards possible. To others, commercialisation allows them to extort huge fees and levies to show a profit at the end of the year. This becomes a huge burden on the private sector when the institution demanding these fees is a monopoly that must be engaged by law.

5. Private Sector Support Government bodies

The Zambia Development Agency is the foremost Government agency that was established to promote private sector development in the country. The ZDA Act to date has some ambiguity that is left to individuals to interpret, thereby sowing seeds of doubt in the investor community. Although the ZDA endeavours to do its best to promote private sector investment in Zambia, the very fact that the board is dominated by Government officers, renders the agency quite subordinate to the whims and fancies of aggressive Government ministries. As a result, the ZDA has not been in the forefront of marketing the new Economic Zones currently being developed in Zambia.

This exercise is being carried out by the Commerce Minister and the Finance Minister who do not have the follow through capacity, nor the internal information on synergies and linkages to the domestic economy.

The Citizens Economic Empowerment Commission is an institution that aims to give Zambians citizens preference in developing the economy. The efforts of the CEEC are not linked to the initiatives for the Multi Facility Economic Zone’s and will soon be undermined by the rapid developments that are taking place in respect to the COMESA Customs Union where the citizens of all member states must be treated equally within the union. Furthermore, the CEEC has no capacity to manage funds and therfore depends on commercial banks which only add to the cost of borrowing.

The Development Bank of Zambia has not been able to realise its full potential as a private sector development support institution. DBZ can develop products that facilitate the private sector to borrow from other commercial banks by offering loan guarantees and other instruments that can be backed up by Government. Options for Bid Bonds, Performance Bonds, and Advance Payment Guarantees are only a few options for DBZ to adopt as part of their services to the business world. DBZ can pilot Greenfield investments in an effort to open new economic activities such that other commercial banks can confidently offer financing in new economic areas.

The various statutory Government bodies such as the Zambia Bureau of Standards and the Zambia Weights and Measures Agency are not currently useful to the private sector as they do not offer information and inspection services for voluntary and mandatory standards. The issue of counterfeit goods versus similar goods is not articulated for the public good. The challenges of regional integration are not addressed in respect to standards and packaging. By the same token the Zambia Competition Commission does not focus enough on the developing monopolies within the economy nor does the Consumer Protection Agency challenge importers and manufacturers on issues such as non Zambian power plugs, or product warranties and guarantees that are not exercisable in Zambia.

The Bank of Zambia has not yet fully grasped the various responsibilities to ensure that export earnings are officially accounted for in Zambian banks. Furthermore, Bureau de Changes are not supervised to offer a consistent and fair forex trading service to the public. BOZ does not have a good control on the timelines for electronic funds transfers, local cheque clearing, up country cheque clearing, and currency speculation within commercial banks. These grey areas all make doing business in Zambia more costly to the private sector.

The Government has now embarked on a new Private Public Partnership program which looks to engage the private sector in major development decision making processes that involve economic development. The roll out of this initiative is yet to bee seen and hopefully will employ the vast knowledge and experiences of the private sector to save the country huge amounts of money and develop much more viable and sustainable programs that will primarily focus on infrastructure development.

6. Regional Integration

Zambia is a member of the COMESA FTA and the SADC FTA. Zambia has recently signed up for the COMESA Customs Union which will remove all borders amongst member states. No strategy for supporting and developing the domestic economy has yet been articulated by Government in the face of the impending launch of the Customs Union in 2010. The Customs Union may undermine all CEEC efforts, ZDA efforts, and our domestic programs to develop the local economy, if no strategy is put in place. Zambia looks to the North South Corridor program to develop regional communications infrastructure and has had a focus on the developing the Zambia-Malawi-Mozambique Growth Triangle. Strategic planning and partnership between the Government and the private sector is essential for any regional integration initiative to bear fruit.

7. International Trade packages

Over the last decade Zambia has been a party to several trade initiatives that offered promise to expand the country’s international trade network. The United States Africa Growth opportunity Act and a similar initiative by the Canadian Government have not produced much result for the Zambian economy. The private sector has not been forthcoming in exploiting these initiatives mainly due to the limited opportunities promoted and the lack of finance to engage with the two North American countries. The European Union however, has been a relative success in providing markets for the Zambia private sector under the previous Cottonou Agreement which is now being replaced by a new Economic Partnership Agreement. The EPA discussions have been ongoing for the last two years and now that the principle EU negotiator has moved to another posting, the discussions are likely to be prolonged for a few more years before some meaningful agreement is achieved. The private sector is expected to be central in the negotiations as it is the private sector that will be subjected to the provisions of any agreement signed.

8. World Trade Organisation and International Standards Organisation

The WTO is in the throes of difficult discussions in respect to the Doha Development Round of talks. Furthermore, issues of special status of developing countries are being discussed in an effort to find a way forward for countries like Zambia to adhere to WTO provisions and yet continue to grow our own economy. The global economic crisis has now brought another dimension to the WTO as countries like China, India and Brazil begin to take up more trading market shares of Europe and North America. On the horizon are impending discussions and agreements in respect to Intellectual Property Rights which will affect the giant production nations of China and the USA. Zambia is ill equipped to deal with these negotiations and may need to partner with the private sector in order to negotiate meaningfully at the WTO.

9. Asian Tigers and African Wonders

History shows how developing countries in Asia put in place some programs that promoted their private sector such that after 20 years, these countries developed very rapidly and became middle income nations popularly known as the Asian Tigers. The Asian Tigers developed through a collaborative effort between the Government and the private sector to exploit every possible opportunity for economic development. The strategy took into account the natural and human resources in the economy and focussed on the comparative and competitive advantages with a high input on skills development. The Asian Tigers also invested much of their resources in economic development rather than social development. The premise was that if economic development was rapidly achieved, then social development would follow with the proceeds of a strong economy.

Mauritius followed a similar pattern but focussed on the African continent as a source for raw materials and developed many services that the continent did not offer. Today Mauritius is mainly a services economy specialisating in financial and insurance services which it offers to the African continent. Mauritius has a relatively small population and therefore does not carry such a huge social services burden.

Botswana has an economy that is almost solely based on diamond production. This high value natural resource allows the country to invest in housing, roads, telecommunication, and offers the private sector easy financing for economic activity. The Botswana economy is not very diversified and many rural people are very poor.

Angola and Rwanda offer some new ideas for economic development. Both countries have engaged foreign partners to work with their Governments in developing socio economic infrastructure in return for investment concessions in oil drilling and access to other mineral resources. Angola has a program to build all its major highways and railway systems through a Government to Government agreement with China. The private sector in Angola will consequently grow much more rapidly and will begin to contribute to economic development more so than is the current case. Since oil and other minerals are finite resources and will one day be exhausted, the necessity for the private sector to grow and be productive is essential in the long term.

Zambia can pick up a few lessons from around the world, but more relevantly from our neighbours where Government engages the private sector to develop it into the engine for growth as it recognises that natural resources will one day run out and the country will have to prosper on the productive capacities of its people.

Published 8 December 2009

Woman Resources

Last week the Association of African First Ladies met in Lusaka to discuss among other things, the plight of women in their child bearing years in respect to Maternity Leave.

The appeal made at this meeting was to extend Maternity Leave from the current 3 months to 6 months after delivery, and 1 month before delivery, thereby totaling to 7 months of Maternity Leave.

It is a well accepted fact that expectant mothers must be given time off from work to rest and prepare for childbirth in an effort to ensure a healthy baby is safely delivered to the community. It is also acknowledged that the first three months of life are the most crucial, and a mother should be allowed to nurse her baby during this tender period.

The call for an extension to Maternity Leave is therefore quite rightly acknowledged. However, there are challenges that this appeal invokes in the workplace and these challenges must be adequately addressed.

Every Zambian would like to ensure that parents spend as much time with their children as possible in an effort to protect children from the growing dangers of child abuse that modern society has generated. Parents note their responsibility to pass on values and culture, and would like to ensure that proper nutrition is made available to their children.

Sadly, this privilege is slowly eluding many parents as jobs and earning capacity start to take centre stage at the expense of nurturing and guiding the family. These are the consequences of urban development and changing values.

However, it becomes necessary to interrogate the appeal made by our First Ladies and look at options and opportunities to develop a new strategy to cater for changing times and demands in respect to women as part of the greater labour force, and women as mothers too.

It is interesting to note that many women in high profile jobs such as lawyers, bankers, architects, and accountants are less pressurized by the prospect of bearing a child and the Maternity Leave that they would require to safely deliver their babies to the world. This is largely so because many of these women can work from home using the internet, e-mail, the telephone, and even essential work being brought home by the office for special attention. This arrangement has been going on for many years now and there is an unwritten acceptance of it.

The challenge is for those mothers to be, that are in hands-on jobs that require their physical presence on the shop or factory floors. This is where the difficulties lie. How does a business survive when a female employee is off work for 7 months on full pay? Where do the resources come from to pay the temporary gap filling employee who stands in for 7 months? What challenges are there in respect to training and the learning curve for temporary employees? What production losses are experienced in this period?

These are all tough questions and the answer may lie in assessing the options and the evolving influence of women in the work place. This challenge is not only for employers, but for the entire nation, because child birth is a national issue resulting in the development of national human resources.

It must be acknowledged that women comprise at least half the workforce, and in many cases exceed this quota. In Zambia, tourism, agriculture, manufacturing, and the services sector employ more women than men.

Mining at the moment is dominated by male employees but this represents only one sector out of five.

Most hotels, lodges and guest houses employ more women than men because of the first impression challenges that usually either attracts a customer or repels prospective business, and the natural ability and appreciation that women have for cleanliness, tidiness, and service.

Peasant farming and commercial farming manual work is generally carried out by women country wide. The cut flower industry specifically employs women because of their delicate touch and ability to pack flowers without damaging the petals or stems. This is also true for picking and packing of fruit and vegetables.

Ironically, the expectation that women may not be prominent in manufacturing is a myth. Many manufacturing companies prefer to employ women in the light manufacturing sector which characterizes most of Zambia's manufacturing industries. Plastic irrigation pipes and their components, medicines, nuts and bolts, detergents and oils, and food processing, are all women dominated manufacturing activities.

The services industry is fast becoming a women's world as more women lawyers, doctors, economists, bankers, travel agents, insurance brokers, and sales persons are employed every day.

The argument for taking care of our women folk who are also the custodians of our future generations cannot be more evident. The appeal by our First Ladies should trigger some innovative thinking during these 16 days of activism on the rights and well being of women world wide.

There is an opportunity to develop some social security safety nets for women that can integrate with the employers such that the challenge and burden of a 7 month Maternity Leave option can be shared amongst all the stakeholders and a solution can be found to convert the appeal into a lived reality.

The Nordic countries have developed their own solutions to the extent that beyond Maternity Leave they have introduced Paternity Leave to enable the father to also play a significant role in the nurturing of the new born child.

Zambia and the region can adopt and adapt some strategies from the developed world and infuse them with our own cultural practices such that the recognition of women as a positive resource in development can be acknowledged through positive action, rather than mere statistics which do no pay the bills or nurture society as a whole.

Published 1 December 2009

Energy Red Card

Zambia continues to struggle with a self made energy crisis as a result of poor planning and investment, exacerbated by the global economic recession and the rising cost of crude oil.

In addition, the rainy season is upon us and the demand for energy, both in the form of oil based fuels and electricity, will increase exponentially in both the productive sectors as well as the average domestic households.

Lusaka is characterised by long queues at petrol stations as the fuel shortage continues, and during the 24 hour day most households and major industry experiences power outages. This has now become normal to us, until we are reminded about the abnormality in a developing country by outside visitors, who question whether the situation is acceptable.

Indeni Oil Refinery is gasping to stay operational as the private investor pulls out and Government assumes 100 percent control of the plant. Problems of plant maintenance and the non availability of specific refining requisites have crept up and one only expects to hear more challenges emerging as the saga unravels. The basic situation is that there is no fuel coming out of Indeni and the country has to rely on imports of finished fuels from South Africa and other sources. The queues which we were told would be temporary are fast becoming a normal feature of the country’s status. There seems to be no solution in sight.

Electricity is an ongoing challenge as fire guts part of the Kariba North Bank power station which now requires at least 6 months to rehabilitate and upgrade. The Zambia Electricity Supply Corporation (ZESCO) is now faced with additional costs of repairs, and the replacement of transformers and sub stations where the supply units have been damaged due to overloading and other disasters that affect the electricity supply industry.

The energy crisis is not unique to Zambia. South Africa and Uganda are grappling with similar problems. In Uganda, the Government has stepped in to resolve problems with the Umeme private distribution project which included addressing the high tariff systems and issues with the billing system that have pointed towards fraud. The South African trade unions have risen up to challenge the Government for allowing the tariffs for electricity to be increased by 45 percent every year for the next three years. Industry and private sector experts have argued that a 45 percent tariff increase would cause price spirals upwards for almost all commodities and services. In addition, mining smelters would shut down, and inflation would be pushed up by 2 percent. Mining operations costs would go up by 15 percent of which electricity costs would account for 25 percent of total running costs. This could be the way Zambia will go too.

Electricity deficits result in selective supply strategies which naturally impacts greatest on the common man. Households suffer the most as high density residential areas are the worst hit while low density urban areas will usually enjoy relatively consistent supply of electricity.

Zambia’s energy crisis demands some new and innovative thinking in respect to current management of the resources, and committed investments in the short term and long term development of energy sources. This is not happening in any meaningful way. There are no partnerships between ZESCO and the local television and radio stations to manage electricity more prudently and to engage the consumer in the exercise. We have no concrete plans for developing new electricity generating resources but see value in supporting intermediary distributors that will only add to the cost of energy, and probably develop similar problems as those experienced in Uganda, at Umeme.

We may be better off taking a lesson from Angola, where foreign investors have been invited to exploit oil resources on condition that all the roads and railway systems be re-built as part of the deal. Rwanda is working on a similar program to engage investors in a more developmental partnership than to just focus on energy production taxes.

Now the World Bank and their bunch of experts have added to the energy debate by making recommendations that do not take into account the vision of the country, nor the requirements on the ground to facilitate economic activity that is the engine for private sector growth. The only useful comment coming from the World Bank is that infrastructure growth which includes the supply of electricity, will support an increase in Gross Domestic Product.

World Bank comparisons of Zambia’s electricity tariffs with those of Chad is ridiculous. Zambia has 40 percent of the region’s water while Chad has very little water resources. Water and electricity should be Zambia’s comparative advantage. We do not see Saudi Arabia comparing the price of diesel with Zambia. We do not see the port of Durban comparing sea shipping costs with Zambia’s airfreight costs.

It is nonsense for a World Bank expert to note that Zambians who have access to electricity do not have problems paying for the commodity, but at the same time the experts acknowledge that very few people in Zambia do have access to electricity. Does it not occur to our foreign experts that the benchmark cannot be the minority ‘well to do’s’, it must be the majority ‘have nots’.

Zambia should be striving to electrify almost all industries in the nation. Electricity is a commodity that Zambia produces and can produce more of. Electricity can run all our industries, households, mining activities, and even mass transport railway systems.

Electricity and oil based fuels are development inputs and this is acknowledged all over the world. The United Kingdom, the United States of America and all of Europe run the electricity sector through Government and quasi Government institutions. Some Pseudo private ownership is sometimes noted as private sector investments in the energy sector. Examples are, British Energy in which over 90 percent ownership is camouflaged in seemingly private ownership which cannot be traced. All USA nuclear power stations have Government oversight seemingly to cover public safety (radiation monitoring and waste disposal) but it is well known fact that the Government will finance any developmental costs in the public interest. Where does the World Bank and other misguided experts get the notion that electricity can be a privately run utility in a developing country where low cost energy is the pre-requisite for development?

It is time to pull out the Energy Red Card. Red card to the World Bank! Red card to the Minister of Energy and his team! Red card to the misguided perception that energy is just another business! Zambia is held to ransom when fuel and electricity are not available at a cost that will facilitate and support development.

Published 24 November 2009

Holding Hands

As Government has joint hands amongst the various ministries to change the 2010 budget cycle so that programs can be streamlined over the 12 month fiscal year, regional groupings get together to negotiate various partnership agreements, and the World Trade Organization is poised to enter yet another round of trade negotiations that impact every country on the planet.

The private sector is yet to make the same alliances and rally numbers and muscle to present a united front to Government on various issues affecting the development of private enterprise.

The efforts of the Zambia Association of Chambers of Commerce and Industry and the Zambia Business Forum to adequately harness the various private sector interests and make the appropriate representations to Government and other development partners, has not yielded the desired results.

Manufacturers have a representative body that champions the cause for manufacturing and endeavours to promote domestic production of goods and services. The cries from manufacturing companies are continuous as they jostle for support and facilitation to expand the country’s manufacturing base with the goal of not only supplying the domestic market, but to also export to the region and beyond.

Much as manufacturing is an important development activity as outlined in the Fifth National Development Plan, the plight of manufacturers is not responded to with the urgency that is required. The threat to manufacturing posed by the COMESA Customs Union and other Economic Partnership Agreements is not adequately registered in the minds of Zambians. Manufacturers need to hold hands with other sectors of the economy to make their case for domestic manufacturing across the country and even in the new Economic Zones being promoted by Government.

The Construction sub sector is currently experiencing a relative boom with growth rates recorded of 10 percent during 2009. This sub sector is closely related to manufacturing as it is dependent on cement, sand, stones, steel, and timber amongst other requisites.

Construction will only continue to register growth if the cost of construction material can be kept low enough to render the sub sector cost effective. In addition, opportunities for construction work for Zambian companies should be encouraged and supported through pro active threshold project levels, joint ventures, and mechanisms for procurement of plant and machinery.

The work of the National Construction Council may be commendable, but an option exists for the sub sector to hold hands with other players in the economy to ensure that construction is supported through different mechanisms such as manufacturing.

The Transport sector has witnessed a rapid growth in the last two decades. Buses and trucks have dotted the highways across the country as they ferry passengers and goods to every corner of the country. Inner city transport is still an unresolved challenge as mini bus routes force commuters to travel to the city centre hub before branching out to another suburb. Very few options exist for commuters to travel across the city from one neighbourhood to another. This travel paradigm makes commuting costly and time wasting.

The transport sector has an option to hold hands with other sectors to develop a more commuter friendly routing system, to resuscitate the Njanji Commuter railway system, and to collaborate on building new stations at strategic places within our various cities.

The future of our intercity railway network is yet to be determined. Holding hands to collectively find a way forward in the railway sub sector is the country’s greatest challenge.

Agriculture has always been the focus of Zambia’s food security program. Crop production annually requires adequate supplies of seed and fertilizer. Irrigation systems support farmers to grow crops all year round. Challenges for livestock development and fisheries have yet to be addressed. The global debate on Genetically Modified Organisms (GMO) in the agriculture sector is still ongoing.

The Agriculture sector needs to hold hands with the manufacturers and the transporters to develop a sustainable agriculture support system. The banking sector and the various proponents in the GMO debate must hold hands with the Agriculture sector to find solutions to the annual problems of insufficient financing and quality of harvests.

The Mining sector has done reasonably well on its own with strong Government support. New mines are emerging and old mines are being recapitalized. However, the mining industry is not adequately integrating with the wider economy to transfer the benefits of mining to other economic activities.

There is need for the mining sector to hold hands with the manufacturing sector and other sectors to form strong and sustainable alliances that benefit all sectors and consequently develop a stronger and more diversified economy.

Tourism is challenging Zambia as the 2010 World Cup prepares to roll out after the first quarter of the year. Tourism development demands the full cooperation and support of other sectors. A promising tourism industry requires a cost effective transport system, a quality food supply chain, a pro tourism banking system, adequately packaged tourism attractions, and a supportive Government policy.

The tourism sector must join hands all round to collaborate and partner with many sectors of the economy to develop a tourism program that will attract tourism from near and far. The challenges are hefty but teamwork can provide the answers to developing a predictable and sustainable tourism industry.

There are however, several cross cutting services that either support economic development, or can retard development. The nation must hold hands to acknowledge the importance of cost effective and reliable communication systems across the country. Telephone and internet communication is essential for development as they offer information and knowledge that is vital to business development.

The banking sector and the insurance sector are essential for business to flourish. These sectors must be part of the link of hand holding partners for economic development.

The impact of energy in respect to availability and affordability is essential for any long term and sustainable economic activity to prosper.

Cost effective energy, communications, and raw materials are the three common pre requisites in any environment for economic activity to develop.

There is definitely a case for all sectors of the economy to hold hands and plan the future together.

Published 17 November 2009

Tax Audits

The Zambia Revenue Authority (ZRA) have undertaken to audit the books of investors in the mining sector for the obvious reason that they want to be confident that the taxes being collected from the sector are reflective of the actual business activity.

ZRA expected to collect K7.6 trillion but instead only managed to collect K7 trillion even though the price of copper has risen substantially within the last 6 months.

The pre-emptive explanations that support the possible reasons for lower tax collection could be the poor performance of trade taxes, or the rapid depreciation of the Kwacha against major currencies, or indeed the general global economic slowdown. These explanations are probable but do not generally trigger an audit operation.

The norm is that when the ZRA suspect that a tax payer is not declaring the correct figures for trade and profit, then a tax audit is usually conducted. Mining is no exception and one can simply consider the sector for possible areas where the figures may not inspire confidence in the ZRA and therefore persuade them to launch an audit.

The ZRA acknowledge that after the removal of Windfall taxes a Variable Profit tax was introduced which by definition, requires that mining operations be audited to verify their tax obligations to Government.

If the comments by Caritas Zambia at their recent conference on ‘Exploiting our Natural Resources’ are anything to go by, then the issues of secret agreements between the Government and selected mining investors must be a thing of the past and all agreements must be put in the public domain for all to see and evaluate. Additionally, the stated short fall in revenue collection from the mining sector of 75 percent on Windfall taxes and 92 percent on Company taxes begs that the books be re-looked at, to either arrive at a more realistic figure for budget planning, or to be more accurate on the figures for tax collection.

The realization that mining operations damages the environment and eventually negatively affects the residents in the mining communities, should be enough motivation to ensure that taxes from this sector are correctly collected and used to develop the nation and invest in the future economies of these mining areas.

On the drawing table are new investments in mining from Brazil with collaboration from South Africa, coming to the Konkola North Project which will develop and open pit mine with an expected production capacity of 44,000 tonnes of copper concentrates per year. Already on the ground are the new mining investors in Luanshya Copper Mines and at the Munali Nickel mines in Mazabuka. North Western province is experiencing a mining boom with several new investments in copper mining activities.

Siavonga is also opening up to mining of uranium at Mutanga and Dibwe thereby establishing yet another sub sector of the mining industry. The target in this sub sector is to export uranium oxide to the developed world where it is expected to fetch very good prices.

The picture in mining is quite clear. There is going to be a proliferation of mining activity across the country within the next five years and yet the tax regime governing this sector is not clearly up to speed.

In the name of liberalization and free market economics, Zambia has allowed the mining sector to literally decide what taxes they want to pay because they are not compelled to account for all export earnings through export receipts via Zambian commercial banks. All countries around the world insist on these export earnings to be initially recorded in home based banks, before the money can be employed in any other business activity.

The recorded revenues from mining exports gives the ZRA a basic idea of the turnover of the company and some simple assessment criteria can be employed to arrive at an acceptable figure for tax payments to Government. The option is always open for the tax payer to argue any special mitigating and convincing circumstances that would result in lower taxes being paid than that calculated by the tax office.

The reality is that for too long, has the mining regime been one of handheld investors being allowed to walk on the red carpet for investment, while all the normal procedures and benchmarks are set aside to allow the investment to settle very comfortably. Well, the salad days are over, mining like any other investment is open to all and sundry.

Investments in the mining sector must pay their taxes like any other business. Accountability and transparency must prevail for tax purposes. If ZRA does not get a meaningful tax return from the mining companies, then the legacy that Zambia will inherit from all the mining activity around the country will be gigantic potholes, polluted rivers, and desolate waste lands.

We may actually fulfill the prophecy that the meek will inherit the wasted earth while the powerful inherit the minerals and useful resources.

Published 10 November 2009