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

Bricks and Mortar

The nation comes to the end of the year and is plagued by various energy deficits that slow down the national economic development agenda.

The situation is compounded by the shortage of builders cement in the domestic market, such that prices have rocketed from the recommended retail price of around K55,000 per 50kg pocket to a high of K75,000, and a general norm of K65,000.

This situation appears to be quite strange when we note that LaFarge in Chilanga has doubled its production capacity as a result of the plant upgrade which has been their pride and joy.

Where is the extra production going to if not into the domestic market?

The plant sells to the domestic market 2 to 3 days per week and sells to the export buyers on the remaining working days. Technically, this suggests that half the production goes into the domestic market whilst the other half is set aside for the export markets.

The plant upgrade therefore, is not targeted for the benefit of the Zambian market. It may be argued that business is business, irrespective of which markets the production goes to. And this is acceptable as long as there are no barriers to other investors entering the industry to fill up the shortfall demanded by the Zambian market.

At a management level, domestic distributors buying in bulk on a preferential price and quantity basis should be discouraged from opening retail outlets and engaging in insider trading within their own business group purely to maximize their profits by enjoying both distributor profits and retailer profits at a time when cement is selectively allocated and therefore removes the free market spirit. This may explain why cement is selling at K65,000 instead of K55,000 thereby costing the nation an additional 20 percent.

The current status is that there is an artificial shortage of cement in the country which delays projects, increases the cost of project completion, and escalates the costs of doing business in the construction sector.

Furthermore, construction pre-payments made by the real estate development promoters become more expensive when the funds are borrowed from the banks. Much working capital is eventually tied up in either pre-payments to the suppliers, or bulk purchases to cater for future cement needs. However one describes the cement supply business, it amounts to very poor use of resources, the cost of which is finally borne by the economy at large.

What is a possible way forward? The easy answer is to open up our borders and import as much cement into the country as industry and development demands. This route places the country at the development mercy of our neighbours, and ignores the opportunity that Zambia has to exploit our capacity to produce cement to build the entire region. The COMESA Customs Union will probably demand this open border policy in so far as cement is concerned.

The more difficult route is to take stock of what is happening in the domestic economy in respect to the current supply and demand of cement, and to assess the medium and long term cement requirements as a consequence of the national strategic development plans. The exercise can become the basis for developing a strategy for the cement industry in the country.

A quick look at the 2010 national budget, the Fifth National Development Plan, and the draft Sixth National Development Plan, gives us a clear message that construction is top of the agenda for both economic development and social services development throughout the country.

The 2009 budget recorded the construction sector has having the highest growth rate at around 10% during the budget year.

It is clear from public reports that mining is developing fairly rapidly with expansion programs, old mine rehabilitation programs, and new mining investments targeted over the next five years.

Manufacturing is poised to grow as the new Multi facility Economic Zones are developed and as the competition from the COMESA Customs Union begins to impact on the country.

Agriculture is booming as seen from the 2009 figures and the new investments in new farming blocks will demand more construction work for feeder roads, sheds, dams, ponds, and silos.

Tourism is earmarked to grow as Government invests in upgrading airstrips and airports around the country. We expect to see new lodges, guest houses and hotels mushrooming up around our game parks, lakes and rivers.

Government has an ambitious program to build new health centres and hospitals, schools, power stations, roads, and water works either directly or through subsidiary entities such as ZESCO and local councils.

Quite clearly, the nation has a challenge to fast track the production of cement to meet the nation’s aspirations for development.

In order to meaningfully encourage and facilitate rapid development in the cement production industry, Government may have to reconsider the stance of restricting foreign investment in this sector and open the doors to serious investors. There have been a handful of medium and large investors looking to develop cement production plants in the country but none of them has yet put a pocket of the product on the consumers table.

If Zambia is interested in maintaining and surpassing the current level of infrastructure development in the country, then some foresight and immediate action is required to create an enabling environment that promotes and supports competition in the cement production industry.

Published 3 November 2009

Energy Management

The Global Recession is something that Zambia could not avoid. Low copper prices were yet another issue that Zambia had no control over in the last two years.

Can we say the same for energy? What explanations do we have for the continuous electricity crisis in the country? What excuses can we give for the fuel crisis that crop up every other month?

Over the last few years we have made management and board of director’s changes in the Zambia Electricity Supply Corporation (ZESCO). In the last ten years the private investment component in the Indeni Oil Refinery moved from the Italians of Agip to the French of Total and now there is talk of a third new investor picking up where the French want to pull out.

When Total first expressed interest in buying the Agip shares, they performed their due diligence like any other professional multinational before taking the plunge. It was clear that million of dollars would need to be pumped into the company to upgrade the plant and possibly expand the processing and production capacity in order to operate efficiently and profitably.

Zambia and Zambians later smelled a rat when Total, through their Middle East and Africa Vice President, started complaining through the media about the huge amounts of investment that was needed in order for Indeni to be put right. At the same time the media reported that Total was lobbying for a national contract to import processed fuels in an effort to build Zambia’s strategic fuel reserves which would be a backup fuel supply during times when Indeni would be in shut down mode for maintenance, or when there were problems with feed stock supply to the refinery.

To many Zambians the writing was on the wall. Total was seen to be an investor in the fuel sector that wanted to renege on its commitment to continue to run Indeni, and was not keen to pump in capital to improve its performance and productivity. The ranting in the media about huge costs was considered a ploy to back out of the deal with Government. Furthermore, the effort to supply finished fuel products to Zambia was noted to be another maneuver to relegate Zambia back to the pre Indeni days of importing fuels rather than feed stock. Zambians felt that Total was doing what other investors in other parastatal companies had done in the past. Buy, operate for a while, import from home country, demobilize, and shut down. This perception has been reinforced by Total’s silence in responding to calls by the public who want to know why Zambia is not importing crude oil from Angola for processing at an upgraded Indeni in Zambia.

What ever the business pressures and motives of the investor in Indeni are, we cannot say that we were unaware of the difficulties. The same applies to the Zambia Electricity Supply Corporation (ZESCO). Our neighbours in Zimbabwe, South Africa, and Botswana have navigated through the same energy crisis that Zambia is in. Today they are more energy stable than we are. So we should be asking ‘what are we doing wrong’? Or maybe the question is ‘what are they doing right’?

What seems quite clear is that our neighbours did not try to wish the energy problems away. They planned, strategized, committed, implemented, and held key people accountable for successes or failures.

Systems of energy management were immediately implemented especially when energy was in short supply. This meant that the scarce energy was being utilized as efficiently as possible by the nation. Working links were established between the energy suppliers and the media in involving the public to use energy more efficiently and suffer the consequences of blackouts and shortages if they did not cooperate.

Short term upgrades and expansion programs were immediately launched to relieve the pressure and stress on the energy reserves and generation systems, with the full knowledge that more robust medium and long term strategies would have to kick in the near future.

A clear appreciation was acknowledged that energy was a socio-economic resource that was necessary for building the economy and therefore needed to be as cheap to industry as possible to support the low cost of production in the different sectors of economic activity. This acknowledgement challenged the energy sector which was predominately Government run, to assess the role of private sector investment which looks for a high rate of return on investment in a relatively short time. This was noted to be very difficult in a sector that is acutely monitored and regulated by a statutory body of Government.

Our neighbours had their State Presidents keep a sharp eye on their Energy Minister to ensure that the sector was serving the development demands of commerce and industry. Where the Minister was found wanting, then the President would either crack the whip or make strategic changes in an effort to keep the wheels of industry turning.

Due to these efforts, Zimbabwe has propelled its industry from ten percent production to fifty percent production within the last nine months. South Africa is stable in respect to fuel and electricity supply. Botswana is not experiencing power outages or fuel shortages even though the country is currently going through an economic crisis.

Where does that leave Zambia? The scenario on the ground is that the country swings from power outages to fuel shortages on a regular basis. The hardware shops are packed with generators and solar lighting products to offer Zambians alternative electricity sources. Generators naturally extend the pressure on fuel supply and just help to make things worse. In some areas residents are busy queuing up for fuel at the available petrol station while at home there is no electricity so the cooking is being done on charcoal fires. The argument for bio fuels has become hotter than ever in an effort to allow people to develop their own energy sources thereby slowly pushing Government out of the way.

The ZESCO management, the board, and the Energy Minister continue to operate as if electricity shortages are normal. There is no sense of urgency or pressure that the public can visibly see to be convinced that our colleagues are taking things seriously. Nobody seems to be worried about losing their jobs probably because they are confident that Zambia and Zambians will tolerate the ‘post war’ like supply of electricity. No concerns seem to be acknowledged that factories and industries will not grow or expand because they cannot rely on a continuous electricity supply. ZESCO has even gone to the extent of issuing public notices that they will not take any responsibility for compensation for equipment damaged due to power fluctuations and erratic supply.

In the fuel sector, we will continue to swap one investor for another because the Energy Ministry is not holding the investors accountable to their commitments when signing the share purchase agreements. The regular but unplanned shut downs at Indeni appear to be just one of those things that nobody should complain about. It does not seem to bother the Energy Ministry that Zambians are wasting precious time and money looking for fuel when they should be producing goods for export and to feed their families. There are levies in place to finance the holding of strategic fuel reserves in the many depot tanks across the country. Why are they all empty? Who is responsible? Are we going to have these shortages regularly because we cannot keep reserves to back up supply when they are problems at Indeni?

The climax of the energy crises in Zambia is epitomized by the recent intervention of the State President before he left for Uganda. Firstly he had to apologize to the nation for the fuel shortage on behalf of his Energy Ministry, secondly he had to take charge of the Energy Ministry and instruct the Government to take the necessary steps to redress the shortage, and thirdly he had to literally indicate that he had no confidence in the Energy Ministry and therefore had to go out of his way to intervene in the ongoing energy crisis. In short, the President had to step up and micro-manage the Energy Ministry.

Zambia is a country that makes very good pronouncements and articulates very interesting development rhetoric. The energy sector is the backbone for agricultural, industrial, and mining development in the country. The time has come to acknowledge that we cannot continue to blame the energy problems on the lower ranks. Changes have been made to managements; changes have been made to boards, now it is time to make the changes at the very top if we are to prosper in the coming years as we launch the COMESA Customs Union and roll out our much talked about Economic Zones.

Published 27 October 2009

Public Private Partnerships

As 2009 draws to a close and we sprint through the last quarter of the year, some significant developments will mark the end of Zambia’s 45^th year of independence.

The Public Private Partnership Bill is expected to be enacted by parliament and assented to by the President before December. This legislation will usher in a formal framework for Public Private Partnerships in developing the nation.

It must be noted that business waits for no person or indeed for no legislation. To this end, Public Private Partnerships (PPP) have been in existence without any formal legislation for many years already. Schools, Universities, Hospitals, Pension Schemes, and many other products and services have been established under an un-written PPP relationship, in the spirit of doing business, and at the same time providing products and services to the public that would have been normally developed by the Government.

The PPP legislation enhances this ongoing effort and offers opportunities for structured and accelerated development if implemented with commitment and vision.

The last quarter of 2009 is likely to see the enactment of the Agriculture Marketing Bill too. This legislation attempts to rationalize the marketing of Zambia’s staple food crops and other agriculture produce with a special emphasis on formalizing the implementation of the Warehouse Receipting Program. The Warehouse Receipting Program will enable farmers to store their crops in fumigated and protected warehouses and still borrow finances from financial institutions against the warehouse receipt to enable them continue farming while their crops are in the process of being marketed.

This initiative constitutes the basis of another PPP model that develops collaboration between the private sector and the Government in the trading triangle of farmers, warehousing system, and the banking sector.

The Zambia Development Agency Act has recently undergone some amending to expand the opportunities for developing, managing, and investing the in the Multi facility Economic Zones (MFEZ) program. Again, the MFEZ roll out presents options for PPP implementation in developing the zones, managing the zones, and pro-actively marketing the opportunities for investing in the zones to both domestic and foreign investors.

The PPP initiative is not limited to the mining sector. The 2010 budget articulates programs for developing and upgrading airports around the country that will have a positive impact on enhancing tourism. Therein lays opportunities for PPP in construction work of the airport terminal buildings which will largely accommodate private companies in the tourism and related sectors.

The PPP story is therefore very useful as a tool for rapid economic development in Zambia, in addition to developing a mechanism to for public private dialogue and collaboration with a common goal. The common goal is one of economic and social development across the country.

The challenge is to recognize that the PPP program is not a ‘one size fits all’ remedy to resolve all our development needs. And yet the PPP idea is like a pair of shoes that one selects very carefully to be used to walk across specific terrain. Our challenge is to work out what terrain is applicable to PPP initiatives.

The 2010 budget appears to be a little too optimistic about the power and application of the PPP concept so it may be wise for us to take step back and re-assess where, how and why we want to apply it in the sectors that we have earmarked.

The rule of thumb is that the PPP concept works well in areas and sectors where private business naturally flourishes. Unfortunately the opposite is not necessarily true, whereby the PPP concept will thrive where the Government traditionally invests tax payer’s money. Government traditionally invests in sectors where there is strong regulation and control in the public interest and this is arguably the way it should be.

As Zambia looks to 2010 some good opportunities are available for PPP investments in developing programs to enhance tourism during the World Cup season in Southern Africa.

2010 also offers options for Zambia and Zambians to collaborate using the PPP model to make sure that the COMESA Customs Union serves the interests of the Zambian economy by developing strategies for trading with the member states such that Zambia expands her export markets and volumes.

China has taken full advantage of the PPP concept by working with her private sector to invest across the world in mining, construction, agriculture, and manufacturing to such an extent that China has the fastest growing economy of the world and holds foreign reserves in excess of two trillion US dollars.

The marketing of the PPP concept has been done. Now Zambia is faced with the challenge of strategic implementation with the new perception that a meeting point must be agreed upon where the public interest is served, and the private focus on making a profit is addressed.

Part of the PPP implementation process is to take stock of the work to be done with a view to setting aside the programs that are earmarked for tax payer investment through the Government mechanism, and selecting those programs that have the profile to return a profit on investment for the PPP program.

The wise always consider the concept development phase as the easy part of any initiative because it only carries the spirit and vision. The difficulty and the Devil are in the detail. So it promises to be, with the Public Private Partnership.

Published 20 October 2009

Reacting To 2010

The 2010 budget has been presented and the economic programs for the next 12 months are now on paper awaiting debate and ratification by Parliament before being implemented in January.

2010 is a pre-election year leading to the 2011 Presidential and General elections. It is quite obvious that many resources will go towards preparing the Electoral Commission of Zambia for the tripartite elections. It is also obvious that the campaigns will kick off next year by all political parties to please and attract the voting public in an effort to win the necessary votes to form the next Government. History reminds us all that vast amounts of money are poured into this exercise at the expense of structured development.

As the elections campaigns kick off in 2010, so does the World Cup dominate the African sporting calendar with the spotlight being on South Africa in particular and Southern Africa in general.

Many European and South American teams will scramble to South Africa and her southern region neighbours to finalize their master plans to lift the prestigious trophy by the end of the tournament. South Africa and her Southern Africa Customs Union (SACU) neighbours have invested resources in providing training bases for the World Cup visiting teams and are likely to reap the benefits of increased tourism.

Zambia may have to react to the challenges of the 2010 World Cup event by making some

overnight provisions. We have to assess whether the 2010 budget opens up options for attracting the massive flow of tourists into the sub continent. Is the 2010 budget providing for Visas on demand at our ports of entry to facilitate the attraction of South Africa bound tourists to visit Livingstone and the rest of the country? If we have not made any meaningful provisions to tap this opportunity, then we may have to react to the challenge with some creative interventions.

The 2010 World Cup will push the demand for accommodation throughout the region. Zambia has not responded to the anticipated demand and we do not have an up to date audit of bed spaces available in the country. If the 2010 budget has not addressed this issue then we may need to react to the evolving opportunities by persuading both Central Government and Local Government to collectively motivate and market the establishment of Guest Houses and Lodges to cater for the influx of visitors in 2010. The motivation exercise may have to waive the ‘red tape’ that is associated with licensing and permits, and the Local Councils may have to allow the ‘free’ erection of sign posts for these business investments. The Finance Ministry can inject a new enthusiasm by removing taxes during 2010 on the operations of Guest Houses and Lodges.

In order for Zambia to link to the 2010 euphoria, it will be necessary for regular flights to be established during the World Cup period. If the 2010 budget has not focused on this challenge, then another reactive investment may have to be made to open the skies to airlines that are willing to connect Zambia to South Africa and other parts of the world that will fly in those tourists that have put the World Cup in their plans for next year. This should not under play the impact of road transport that can cater for regional travel to and from South Africa

As the SACU prepares to engage with South Africa for the 2010 World Cup, Zambia has

joined other Common Market for Eastern and Southern Africa (COMESA) countries to launch a Customs Union in 2010.

The COMESA Customs Union poses some key challenges to member

states as it potentially offers an open market covering nearly 20 countries. Learning from the experiences of SACU, the weaker economies in a Customs Union will have to strategically re-engineer their economies to become equitable partners in the union or allow themselves to develop into markets for the stronger economies.

As for Zambia, the 2010 budget will need to make provisions for programs to support the rapid development of the Zambia manufacturing sector in an effort to build national capacity to produce and export into the Customs Union. If we have not catered for the Customs Union in our 2010 budget, then we may have to react by introducing some new initiatives to build and strengthen our capacity to manufacture, to process our food crops, and to package various commodities so that we can favourably compete with the better organized manufacturing economies of Kenya and Zimbabwe.

2010 promises to exhibit the first Multi Facility Economic Zone (MFEZ) in the country. Hopefully, the 2010 budget addresses the gap for Zambian investors to meaningfully and actively participate in this program. The media reports the increasing number of foreign investors taking up space in the MFEZ’s but there are no statistics given on domestic investors participating in the Zones.

Once again, if the 2010 budget does not address this anomaly, then some reactive measures may have to be introduced to attract and absorb Zambian investment if sustainable development is to be achieved.

As the details of the 2010 budget are released it is hoped that the concerns around responding to the challenges of 2010 will be addressed. It is better to have a ‘storm in a tea cup’ brought about by perceptions, anticipation and nail biting expectations, than to be in a situation where the country is forced to react to the emerging challenges that had not been strategically planned for in the budget.

Reaction is often very costly and is seldom done in the most cost efficient manner. Too often, reactions are always too late, and the opportunities are often missed, but the legacy of reactions tend to be poorly researched and constructed actions that create more public harm than good.

After going through the 2010 budget, is there an opportunity to plan some reactions for 2010?

Published 13 October 2009

Mines Suppliers

Local businesses on the Copperbelt that commonly refer to themselves as Mines Suppliers have emerged from tough times during the period of low copper prices.

The copper mining industry slowed down in 2008 and many suppliers found themselves discarded as suppliers to the mines as mining activity rapidly contracted in many mining operations, and in some areas such as Luanshya and Mazabuka, the mining operations came to a complete halt.

Dialogue with former mines suppliers at the time, revealed that many local companies had to shut down their business activities and look for other ways of earning a living and keeping family and children in rented houses and at schools. The Copperbelt was glum and the economic mood was one of despair.

A post-mortem of the mines suppliers’ predicament brought up some interesting information that characterised the sector.

It is quite evident that many mines suppliers thrived on the prolific spending by the mining companies in respect to transport, raw material, spare parts, machinery, out sourced maintenance, and several other services. This phenomenon generated a lavish life style amongst the mines suppliers such that many companies were relatively reckless in their spending patterns. This was evidenced by the number of luxury vehicles on the Copperbelt, the influx of speed boats, motor cycles, and quad bikes for recreational purposes, and the large number of people travelling for the Copperbelt to South Africa that necessitated as many flights out of Ndola as they were from Lusaka en route to Johannesburg.

Nightclubs, bars, guesthouses, and restaurants enjoyed the patronage of Copperbelt residents who exhibited lavish expenditure patterns on drinks and food as a result of the cash flow emanating from the mines suppliers.

The mines suppliers seldom put money aside in savings to cater for rainy days because they believed that the mining industry would always be there to offer business each day.

Very few mines suppliers considered diversification to spread their business risks. The thinking was that any other business was either too complicated or the profits margins were too small. Again, mines suppliers saw the mining sector as an all weather industry that would always be there for them.

Most mine suppliers invested in nonperforming assets that also depreciated in value very rapidly. State of the art music systems, luxury motor vehicles, and cutting edge ICT products were the main targets for excess cash in the hands of mines suppliers. The conversion rates for these assets into cash would seldom be better than 50% value.

Within six months into the mining sector slump Zambia experienced mines suppliers going bust and many supplies having to survive on borrowed resources. Vehicles were being sold at give away prices, children were being relocated from upmarket schools into Government schools, and recreation was being relegated to Shebeens.

In 2009, the mining industry has taken a turn for the better and copper prices have more than doubled on the world metal markets.

The mining companies have become somewhat cautious in their spending patterns and have in some cases, engaged consultants to perform price verifications for commodities and supplies quoted by mining suppliers. This has had the impact of reducing the profits made by mines suppliers even though the mining companies are expanding at unprecedented proportions.

Furthermore, many mining companies are demanding extended payment plans for goods supplied by the mines suppliers thereby compelling the suppliers to find outside capital to finance the imports. The income becomes more irregular and is disbursed in tranches, and the cost of money becomes dependent on the options offered by the banking sector.

Currently, mines suppliers are back in business and are challenged to rethink their futures. One hopes that the ‘ego patting’ exercise will not kick in whereby mines suppliers want to prove to the Copperbelt that they are in top form by recklessly spending on trivial luxuries.

The experiences of 2008 should be motivation to re-strategize such that the profits that are realised from this new copper boom are usefully invested in productive activities that will support the mines suppliers in times of difficulties.

It will be good to take a leaf from the employees on the Copperbelt that today will focus on how to make their companies more profitable and sustainable, than to dwell on yearly salary increases that are not performance related.

It is said that ‘It is forgivable to make a mistake once, but to repeat the same mistake signifies incompetence’. The mines suppliers are now being put to the test and the game is one of ‘do or die’.

Published 6 October 2009