Cloudy Skies

The rainy season in Zambia seems to have come to an end, and the dark clouds bearing rain up in the skies, have transformed into dark clouds bearing the local incoming winter.

This strange weather pattern has removed the warm days that come right after the rainy season, and brought in the cold well before its due date, which is usually at the end of May. Zambia has therefore remained with cloudy skies from the last quarter of 2009 right through into the second quarter of 2010. Can it get worse?

Europe is plagued with its own dimension of cloudy skies as the eruption of the volcano in Iceland spews its infernal rock and mineral guts in the form of a fine dust into the atmosphere. These clouds of ash have formed into treacherous lairs that have clogged the European skies and lay in wait to ambush and choke any airplane engine that might hazard a close encounter.

The two latest incidents of airplanes being brought down by volcanic ash clouds were experienced in the 1982 and in 1989. In both cases the airplanes were forced to conduct an emergency landing because the engines were shut down and the aircraft would otherwise crash.

The 1982 incident involved a Boeing 747 Jumbo Jet that flew through a volcanic ash cloud which was formed as a result of the eruption of Mount Galunggung in Indonesia. All four engines failed, and much later outside the ash cloud, they were restarted with one engine failing once again, but the aircraft was diverted off its original course and safely landed in Jarkata.

The 1989 almost brand new Boeing 747 en route to Tokyo, Japan suffered failure of all four engines when it flew through a thick cloud of volcanic ash which was earlier spewed by Mount Redoubt in Alaska. Similarly, the crew anxiously grappled with the engines to restart them and take the aircraft down safely.

The airline industry has just emerged out a global recession and until the Iceland volcano ash clouds appeared in the skies, there was optimism that business would grow in the face of an unfolding World Cup in South Africa, and the expected increase in both passenger traffic as well as cargo during 2010.

Instead, Europe and the rest of world have been hit by a disruption of traffic in the order of about 1.2 million passengers per day resulting in daily revenue losses of about USD400 million. In addition, Iceland stands right in the path of intercontinental air traffic between Europe and North America.

The greatest impact of air traffic disruptions therefore have been on flights between Europe and North America, on flights within Europe, and on flights in and out of Europe.

These kinds of losses begin to stress the patience of big businesses such as the airline industry. Choices between erring on the side of too much passenger safety considerations which may lead to possibly dragging the airline industry into bankruptcy, and risking calculated flight schedules with strong monitoring and evaluation precautionary processes to test the effects and implications of flying through the Iceland volcano ash clouds whilst keeping the airline business sustainably productive, are tough life or death choices that affect both passengers and businesses. Only time will tell which will have been the right way to go.

Unfortunately Zambia and the sub continent are not immune to the effects of the ash filled cloudy skies of Europe. The World Cup 2010 is just around the corner and any disruptions to passenger traffic in Europe will result in disruptions in passenger traffic to Southern Africa.

The backlog of passengers on waiting lists in Europe will have to be cleared. Some passengers will have spent too much money resolving travel arrangements which were disrupted by the ash clouds and will not enough resources left over to spend in Southern Africa during the soccer extravaganza.

Shall we now receive fewer visitors than expected before this cloudy skies saga? Will there be adequate airplanes to fly visitors to Southern Africa? or will we see more efforts being focused on normalizing the flow of air traffic in Europe and North America? Will air fare prices remain the same as before the cloudy skies? or will they be increased to make up for the losses?

Currently Zambia and other countries in the region are looking to do some last ditch efforts to suck in the World Cup visitors to our various tourist sites and attractions.

Last month’s Lusaka Tourism Expo witnessed a new airline from the region open its doors in Zambia offering several flights a week from Joburg to Ndola, Lusaka, and Livingstone.

Our own cloudy skies policy may have to be challenged at a time when un-usual circumstances demand un-usual solutions.

What opportunities are there for our regulators of the skies to entice the current airlines to introduce more flights a week? Is there a way that we can have the airlines into Zambia upgrade their aircraft to larger passenger carrying models as a way to increase the entry rate of tourists? Can we open up more options for international flights into Lusaka, Ndola, Livingstone and Mfuwe? What packages can we offer to the 2010 tourist in the non traditional tourist cities of Lusaka and Ndola?

Currently Zimbabwe’s Vic Falls town flies in fifty percent more tourists from South Africa than Livingstone does. This has been achieved by simply persuading the South African carrier to operate larger passenger carrying capacity aircraft.

The cloudy skies in Zambia can be turned into sunny and happy skies filled with tourists, only if we take the right action at the right time. And the time is now.

The choices to be made by Zambia and Europe in respect to the cloudy skies are similar. Europe is looking for ways to re-populate their skies with aircraft filled with passengers and cargo.

Similarly, Zambia needs to find innovative ways to populate her skies with aircraft and passengers destined for Zambia’s tourist and business destinations.

The difference is that if Europe makes the wrong choices passengers may indeed fall out of the skies, whereas for Zambia, if we make the wrong choices tourists will definitely not come out of our skies.

Published 27 April 2010

Audited Accounts

Last week the accountants and tax collectors met at the Mulungushi International Conference Centre in Lusaka as part of a series of planned meetings to discuss the demand by the Zambia Revenue Authority for the submission of Audited Accounts with annual tax returns at the end of each financial year.

The meeting produced some hue and cry from the public on this newly introduced hurdle, to be faced by local businesses, which could possibly affect this year’s tax returns, as the country ended the business financial year on 31 March 2010.

A scrutiny of the Companies Act under chapter 388 of the Laws of Zambia reveals that actually this demand for Audited Accounts to be produced is enshrined in Part VIII Section 164 (3) which reads;

‘The directors shall take reasonable steps to ensure that the annual accounts of the company and, if it is a holding company for which group accounts are required, the group accounts, are audited as required by this Part within the time allowed by subsection (1). Sub section (4) further reads ‘The directors shall cause the auditors' report relating to the annual accounts that is furnished to the directors in accordance with this Part to be attached to, or endorsed upon, the annual accounts.

The interpretation of the word ‘company’ is contained in Part I and reads; ‘company’ means - (a) a company incorporated under this Act; or (b) subject to section four and Division 14.3, an existing company; ‘company limited by guarantee’ means a company incorporated as such, being a company satisfying section nineteen.

In a nutshell, the production of audited accounts is a requirement under the law, but only for companies incorporated under the Act. This generally means Limited Liability companies and companies Limited by Guarantee although there may be some special companies that are incorporated but are unlimited. This requirement applies both to private companies and public companies.

Now that the legal issues are dispensed with, the next question is; how does this legal requirement which is now demanded by the Zambia Revenue Authority impact on the private sector in particular?

For the medium to large corporates this requirement is part of their year to year activities and forms part of their annual due diligence and performance analysis program which focuses on improving the productivity of the company and protecting the interests of the shareholders or guarantors as the case may be. No dust is kicked up by this demand for audited accounts and life goes on as before.

As for the medium to small entrepreneurs, a new hurdle will have been introduced that will demand a higher level of book keeping which requires qualified accountants that cost more money to the business. In addition, the cost of an audit by an accredited or recognized auditing firm is likely to be a large burden that will add to the cost of doing business. Figures of between a low of K 5 million and a high of K 30 million were thrown across the room during the private sector – public sector debate on the issue in Lusaka.

However one wants to interpret this development, it is clear to see that there is a cost that companies will have to bear which may escalate even higher if the auditing firms decide to hike their charges across the board in response to this new revelation within the law. After all, business is all about seizing the opportunity to maximize profits where possible.

Part of the rationale behind the running of a series of meetings across the country to discuss this issue, is to receive the various views, concerns, criticisms, and comments on the way forward for Zambian registered companies.

It is extremely important to address this issue with an open mind and a spirit of nation building by both the private sector and the various arms of government and the public service.

Open and candid discussion and debate can chart a path for the private sector that should prevent hundreds of companies that constitute the medium to small businesses from de-registering as limited liability companies and re-registering as sole traders to avoid having to produce audited accounts for tax purposes. This undesirable move renders many companies unable to borrow from the banks in any meaningful way, blocks a clear pathway for equity partnerships and joint venture, and leaves firms and families exposed to economic storms as the country integrates with the region and the global economy. In the case of Zambia, this shift could account for more than 90 percent of all businesses registered and active.

Some smart planning and strategic engagement must be implemented with all stakeholders to ensure that Zambia promotes economic growth and higher productivity within the solutions agreed upon.

Options to research how this issue has been handled in Europe with special focus on the United Kingdom and her former colonies across the world, may offer some insights and possible solutions for Zambia, aside from simply following the law of the day.

Across the world, laws are made every day, amended every day, and in some cases repealed every day, when they do not support the aspirations and positive evolution of the people they govern.

Published 20 April 2010

Shooting Ourselves In The Foot

The common discussion at various economic development tables across the world is the one of ownership, partnership, and equity.

In Zambia this discussion is highly developed and even runs the risk of being over discussed.

Two key factors seem to always surface in the economic development discussion; taking responsibility for ones self whether an individual or a nation, and strategizing to benefit in the medium to long term as opposed to the short term.

Currently, a World Bank diagnostic study is being done on the railway systems in Zambia with a view to finding some way to improve the sector. This very comment suggests that the study is not Zambia owned but World Bank owned, and it smacks of a foreign solution to a local problem. This intuition is flavoured by experiences on the ground in many African countries.

Key benchmarks of the study will include investment requirements, rail transport tariff structures, profitability, competitiveness, and recommendations on the way forward for the railways sector which will incorporate financial investments amongst other logistics.

The four month study is being conducted by the World Bank and pronouncements indicate that the experts will come from the bank and most probably not from Africa.

The ingredients and style of this work have not changed much over the decades as the World Bank and possibly Zambia; continue to perceive that the bank has the knowledge and knowhow to turn things around for the better in the railway sector.

History shows a quite different success rate for World Bank projects around the world, but Africa continues to shoot herself in the foot by ducking the responsibility of taking ownership, having very little equity, and developing hardly any strategy to achieve the desired goals. In other words, let the World Bank study, design, recommend, and finance where possible.

Recent experiences reveal financing pull outs by the World Bank for the Oshiwara rail project in India, and another rail project in Azerbaijan during 2009. In 2009 the Nanguang rail project in China was funded by the World Bank and is expected to be completed by 2014. Indications show that the Chinese are in full control of the project and take full responsibility for its design and completion. There may be some lessons for Africa to learn in these external experiences.

The discussions and debates that the plight of the railway sector in Zambia fuels, is part of the realignment mechanism to engage the country to move from passenger status in the strategy, to driver and prime mover of the development program.

The opportunities that the 2010 World Cup offers to southern Africa are many.

Another possible foot shooting option faces the sub region as motions of price fixing in the airline industry surface in the media. The opportunity of abundant air travel business in the region during 2010 and the strategy of keeping the flow momentum going for the foreseeable future, begin to be undermined when the South African and Zambian Competition Commissions suggest that there may be collusion in price fixing and monopoly practices to maximize profits during the 2010 World Cup season.

In other parts of the world the opportunities for an overwhelming influx of business in the air travel sector would generate options for innovative and capturing products that will serve the public beyond the aftershocks of the World Cup frenzy.

The birth of budget airline services that operate contrary to the conservative and traditional class models for air fares can be experienced in southern Africa during 2010 if a long term business strategy approach is taken.

The tried, tested, and not so profitable flight schedules that leave aircraft parked and non productive at airports during the nights can be challenged this year as more customer segmented schedules can be designed to cater for the wider profiles of air travelers that range from business executives to back packer students on a cheap adventure tour.

The business persons operating in Africa often shoots themselves in the foot and misses the opportunity to truly prosper during times of plenty, but cries foul when life goes back to normal and the state is expected to protect the weak and visionless in a new world where globalization and liberalization are viewed as the cornerstones of positive economic development.

Shooting oneself in the foot is a choice, unlike the popular myth that suggests that it is an act of misadventure and un-intentional action. The long term reality of shooting oneself in the foot is that we soon develop a nation of handicapped people that have limited productivity and rapidly become their own worst enemies.

Published 13 April 2010

Talking Tax

Last week the Zambia Revenue Authority (ZRA) hosted a Taxpayers Appreciation Day which also marked the end of the business financial year.

The event served to discuss various issues pertaining to tax collection by the ZRA, and to recognize good and consistent tax payers that would be role models for the private sector to encourage voluntary compliance.

It was with this spirit that the ZRA chose to register the theme ‘Recognizing and Encouraging Voluntary Compliance in Revenue Collection’.

The Taxpayers Appreciation Day carried to the private sector various messages which included government’s intolerance to tax evasion and corruption, in addition to recognition that domestic taxes were increasingly growing each year and now accounted for 70 percent of the national budget.

Encouraging pronouncements highlighted the initiatives by the ZRA in establishing a Large Taxpayers Office (LTO) and the Medium and Small Taxpayers offices.

Other interesting programs pursued by the ZRA are the ongoing internal Integrity Committee that focuses on professional conduct of ZRA officers, and the newly introduced electronic payment solution that operates on a commercial banking platform that allows taxpayers to make on-line payments to Customs for taxes in respect to imports. This e-payment facility is open to all importers big or small, and will soon be offered by several commercial banks that would like to provide the service to their customers.

The ZRA has come a long way since their establishment just over 15 years ago. ZRA officers are slowly beginning to be recognized as any other organ of the government machinery, as opposed to the old days when they were labeled an unquestionable extortionist force that preyed on the hard working business person.

The pace at which the ZRA is moving may be too slow to realise the government’s desire to motivate voluntary tax compliance which will rely on taxpayers and all citizens filing tax returns at the end of the financial year as is common in most developed economies.

There is reason for ZRA to fast track voluntary compliance through some pro-active initiatives that will encourage registration for tax and hassle free compliance. It must be recognized that tax registration does not necessarily result in tax payments. This has been acknowledged by the ZRA but it is also generally accepted that tax evasion is much worse than tax delinquency where taxpayers acknowledge that they owe specified taxes to the ZRA but do not have the cash in hand to make the required payments. A payment plan can always be developed to liquidate the debt to ZRA on a negotiated and manageable timetable.

There is a desire to prevent tax evasion, and to encompass the informal sector in the tax base. These goals suggest that the ZRA would incur lower costs in tax collection, and that the formal sector would be less pressurized to pay taxes that are necessary to finance the national budget.

In other words, if more people and companies paid tax, then the tax burden on each person or company would be less. This is a desirable goal especially for the existing taxpayers.

Government has made calls for the ZRA to establish Stakeholders Forums which would become a platform for taxpayers and the ZRA themselves to dialogues, debate, and formulate tax collection policies, procedures, and processes.

These wish lists from government and the ZRA require some investments that will develop the required attitude and culture from both members of the public and private sector, and the tax collection system itself.

First, the ongoing initiatives to simplify tax collection and payment systems are commended.

Second, the efforts in keeping the tax collection machinery in the ZRA operating on professional lines are helpful and go a long way to building partnerships between the taxpayer and the ZRA.

Third, the Revenue Appeals Tribunal has been a positive vehicle for recourse to be accessed by taxpayers that feel the ZRA has treated them unfairly.

Fourth, the establishment of a Stakeholders Forum will be useful in bringing out tax issues faced by the public and private sector, and will also assist the ZRA to communicate more effectively with the taxpayers that they serve.

Fifth, many countries in the region and more prominently South Africa, offer tax amnesties from time to time. These amnesties motivate delinquent taxpayers and tax evaders to clean up and re-register with the aim to be only tax compliant, and to actually pay the taxes that are due. The reasoning behind this initiative is that if a company is operating outside the tax net then they will stay there for as long as they can until they finally liquidate the business to avoid the penalties that may befall them if discovered by the tax authorities. As a result, many companies are voluntary deregistered and many more companies are newly established without the credit worthiness of longer established businesses. These new companies find that they cannot borrow from the banking sector and the country suffers from much slower economic development. The tax amnesties remedy this by allowing the wiping off of the books, and a fresh and committed start is offered to businesses that can keep their business track records and there after become better taxpayers with a more rapid growth rate. ZRA would do well to consider this option to widen the tax base within the formal sector.

Sixth, the challenge of bringing the informal sector into the tax system is no small achievement. It also comes with a price. The price is that if every small trader and individual will pay some form of tax, then the government had better establish a very good system for service delivery to the public which will be the benchmark for returns to the public for tax paid. Demanding tax in itself suggests that the level of accountability to the public will also have to improve to avoid the entire initiative being ignored and undermined by the general public.

Several mechanisms and options are available for collecting tax from the informal sector with simplest being a monthly, or quarterly, or annual payment that is determined by the business level that the informal business is engaged in. A street vendor will be liable for a base level of tax. A Ntemba will pay a slightly higher tax level. A market stall will remit an even higher tax payment, and so on. The innovations in technology now make it possible for names, photographs, and bar codes to be printed on tax receipts, certificates, or badges that can easily be issued at post offices and can be authenticated with handheld bar code readers that may be carried around by tax inspectors.

As the new tax year begins to roll out this month, some of these ideas, innovations, and options may be considered by the ZRA, and with government and public support, Zambia may rapidly fund her own national budget from domestic resources and really put the economic independence that has eluded the nation squarely in the hands of Zambians.

Published 6 April 2010