Linkages

This is an interesting time of the year as the budget for 2010 is being discussed within Government circles, and Sixth National Development Plan (SNDP) is being formulated to cover the period 2011 To 2015.

The private sector and civil society are also articulating their aspirations and hopes for 2010 as snippets of the budget are released to the public.

The question a reasonable manager will ask in the midst of all these dialogues is, what are the linkages between the budget goals and the investment being made in the economy to realise these goals? What are the linkages between the Medium Term Expenditure Framework (MTEF) covering 2008 to 2010, and the national budgets? What are the linkages between the MTEF and the Fifth National Development Plan (FNDP)? What are the linkages between the FNDP and our Vision 2030 goals?

Results based planning demands that these linkages be in place and that they are strongly established such that they become benchmarks for Government monitoring and evaluation, and where required, generate interventions that keep the plans, projects, and programs on course.

With these ideas in mind we can all step back and look again at the current dialogue that is going on in respect to Zambia’s economic development agenda.

If we look at the recently released Green Paper articulating the MTEF 2010-2012 and the budget for 2010, we note that last years budget was developed on the theme ‘Enhancing Growth through Competitiveness and Diversification.’ It will be interesting to see how last years theme will link with this year’s theme that is yet to be officially announced. Hopefully, there will be some natural linkage that will describe in one phrase what the economic game plan for 2010 will be.

The 2010 budget looks to continuing to enhance rural development and key sub sectors including tourism, agriculture and manufacturing. The manufacturers look to Government to support their development and growth through reduction, and in some cases, removal of taxes on inputs and raw materials for manufacturing. They also call for a rationalisation of some imported products that land in Zambia cheaper than the importation of the sum of the components that the products are made of. This situation promotes import trade and discourages local assembly or manufacturing.

Calls were made for zero rating all inputs for products that are Value Added Tax (VAT) exempt, because the current scenario is that the import VAT component only adds to the cost of the final product to the end user. Manufacturers clearly call for provisions in the budget that will place the manufacturing sector as a significant contributor to the economy as per the aspirations of the FNDP and the Vision 2030.

Similar expressions have been articulated by investors in the Tourism and Agriculture sectors.

The budget however does not have clear linkages to support this view. Investments will be made in developing infrastructure covering roads, hospitals, and schools in an effort to stimulate growth and development, but the main issues presented to the Government by the private sector are yet to be addressed. The expectations are that the 2010 budget will respond to this challenge since Government has stated it will target new growth opportunities and diversify exports in the agriculture, manufacturing and tourism sectors.

The 2010 budget does however, look to opening up new farming blocks which directly links to the aspirations of the FNDP and Vision 2030. The concern with this endeavour that currently focuses on the Nansanga Farming block, is that the articulated goal is to attract foreign investment into Zambia without placing much emphasis on supporting and facilitating Zambian farmers into the program. It will be folly to expect Zambia’s aspirations to be met by only foreign investment. Will the 2010 budget address this concern?

Government seeks to promote agriculture through programs that will support irrigation, livestock development, fisheries development, inputs for small scale farmers, and provision of the relevant extension services. One cannot help but conclude that this focus is considered small scale farmer targeted, and commercial farming still attracts more Government attention.

It may be useful to recognise that in many parts of the world including India and china, the small scale farmer is the heart and soul of agriculture production and domestic food security. Again, the linkages between all forms of farming and the goals of our FNDP and Vision 2030 should be clearly noted and strategic investments in developing these linkages must be made. The calls by the farming sector for Government to zero rate all agriculture equipment, machinery and inputs is therefore a serious call to be considered in the 2010 budget.

It is encouraging to note that government expects to formally operationalise the Warehouse Receipting System for selected agriculture produce. This is a very positive benchmark towards stimulating food production in the country to achieve self sufficiency in a sustainable manner.

Mining has been on the negotiation table much of 2009 and the proposed investment in the Mines Safety Department is not only very welcome, but stands out as an indictment on how irresponsible we have conducted ourselves as a nation in protecting our people working in the mining industry. This new endeavour links in with the mandate of the Ministry of Mines and the goals of our vision for safe mines development in the foreseeable future.

The Government plans to recapitalize the Zambia Wildlife Authority (ZAWA) and develop the roads in the National Parks and Game Management Areas. This is long overdue as Government investment in developing the tourism sector which is supposed to be one of the main economic pillars of the FNDP and the national economic diversification program.

The MTEF articulates that Government plans to expand electricity generation in order to support private sector growth. Although there is emphasis to attract private sector investment in the electricity generation sector, case studies across the world clearly show that this sector demands public investment much like in the case of road construction. There is a social economic dimension to both road building and electricity provision. The desired goals of the fiscal budget, the FNDP and even Vision 2030, are largely based on the premise that there will be adequate electricity to support domestic consumption, commercial activities, and industrial production nationwide. To this end, the cost of electricity becomes a direct factor impacting on the price of the goods or services produced by the Zambian based private sector.

The linkages between the aspirations of all our economic and social development plans and the cost of electricity does not seem to be acknowledged by our economic planners and least of all by ZESCO. ZESCO continues to market the Cost Reflective Tariff argument as the basis for attracting private sector investment. No attempts are being made to rationalise and streamline the high cost of running the company which may be the reasons why the tariffs are being revised upwards every few months. The sums are simple; the higher the electricity tariffs, the higher the cost of production, and the slower the economy will grow.

Government must give this issue more serious thought and be wary of the new free market thinking on strategic energy resources, if Zambia is to avoid a parallel energy crisis much the same as the current economic crisis that the world is currently experiencing. It is worth recognising that the economic mess that world is in today is because of the advice of some seemingly clever, free market sub prime economic wizards, that looked smart at the time.

ZESCO will do well to focus on managing the current electricity capacity by innovating ways of bringing the public on board to use electricity more efficiently, wisely, and sparingly, rather than to always look for a way to increase their revenues at the tax payers cost.

Caution must be taken when looking at the expectations of revenues in the 2010 budget. Domestic revenues are pegged to be K11.5 trillion from K9.3 trillion in 2008. This is a tall order as this expectation is not linked to the current slowdown in domestic private sector businesses.

The revenue projected in 2010 in respect to Grants is K 13.8 trillion as compared to K12.8 trillion in 2009. Again, how do these figures link to what is going on in the developed world where these grants are sourced from? There is a high possibility that these revenues will not be realised as our cooperating partners struggle with the economic pressures in their own countries.

Zambia has a growing informal sector that now rivals the formal sector. How can we link this to financing the fiscal budget? What options are there for a graduated flat tax to be paid by informal enterprises? How are we linking the 2010 budget with the new COMESA Customs Union initiative to ensure that Zambia emerges a winner? How positively placed will Zambia be when we sign the Interim Economic Partnership Agreement with the EU later this year?

Government has described how it intends to right-size itself so that the Civil Service will become respondent to the private sector needs and rightfully become the link to enhanced economic development and prosperity. Hopefully the 2010 budget will articulate this program more lucidly.

It is important to capture the final message that is passed on to the country in the MTEF and Budget 2010 Green Paper. A challenge is thrown to the private sector to take advantage of the newly created opportunities by Government to create wealth, by fully and aggressively participating in the development agenda of the nation.

The private sector is further challenged to rise up and expand its capacity so that it can ably participate in Government programme of rebuilding the country.

The response to these challenges is squarely based on how meaningfully Government can link its programs to address the concerns and requirements of the private sector.

Published 22 September 2009