Culture And Relationships

Zambia goes to the polls this month and many people on the streets are looking for the leader that will respond to their dreams and deliver us from poverty, hunger and disease.

There is an old proverb that states ‘The Mango does not fall far from the Mango tree’.

It can be interpreted as the son is just like his father, or the daughter is just like her mother. Further still, one can conclude that our leaders are a reflection of our people.

This understanding tells us that if corruption and short sightedness is the big issue in Zambia amongst our leaders, then corruption and shortsightedness is the big issue for all Zambians. This analysis is based on the fact that all our leaders come from within our communities and therefore corrupt leaders naturally will reflect corrupt communities.

People would like to do their best for their relatives and friends. They offer help and assistance where they can, and enjoy being referred to as the benevolent relative or friend in social circles. Part of this way of life comes from our African cultures of ‘do what you can for your friend, neighbor, and relative, so that in turn they can return the compliment during your time of need’. This idea is supported by our focus on funerals. We generally will attend almost any funeral house, especially when we are middle aged, because we recognize that soon we will the one in the coffin and would like others to attend our own funeral to wave us ‘bon voyage’ to the hereafter. Our relationships are also much broader than in the Western sense, because cousins are referred to as additional brothers and sisters, maternal aunts are looked at as additional mothers, and fraternal uncles are considered as additional fathers.

There are many good reasons for these cultural connections and relationships that assist to maintain a civilized society where human beings are central to communal development. As a result, Zambia has very few Old People’s Homes because the broader family is still available to take care of the elderly at home. Children are relocated from the biological parent’s home to an uncle’s or aunt’s home to grow through puberty in recognition that a more understanding yet firm hand will be exercised by the head of the household in guiding our children through this confusing and often very difficult time. Elders mediate domestic and community conflicts. They address misunderstandings between couples when the need arises. These are considered a noble and revered basic service and duty to the community, unlike in Western cities where one has to find the resources to visit a paid Counselor or Therapist.

In the business world and in national politics however, there is a compelling argument for certain aspects of culture and relationships to be kept out of the development process if the company or country is to move steadily ahead and prosper for the benefit of all.

We have all experienced the agony of employing friends and relatives that do not qualify for the job in our own businesses. We have also experienced the pressure that we are subjected to by the high expectations of these friends and relatives who want to be paid handsomely purely because they are related to us in one way or another. No doubt, we have all paid the price of these careless decisions.

The Zambia Electricity Supply Corporation (ZESCO) is a public company that has suffered its fair share of the effects of relationships. The relationship between the Chief Executive and the company that represents ZESCO’s largest customer would not receive any Corporate Governance approval if subjected to the opinion of business strategists. The relationship between ZESCO and a consulting firm on energy related matters including price hikes, that finally turns out to be connected to a new energy buyer to supply power to the North Western Province, brings out some aspects of integrity, conflict of interest, and issues of national interest in the contracts that ZESCO may sign.

We have witnessed the difficulties in appreciating the value of signing Economic Partnership Agreements (EPA’s) with the European Union (EU). But on the other hand, we have noted that some interim documents have been signed on the basis that not signing would lead to certain barriers being put in place to block Zambian exports to the EU. This is a prospect that Zambia cannot ignore.

The World Bank (WB) has clearly indicated that it can only lend money to Zambia to build a new Power Station at Kafue Gorge if a Feasibility Study paid for by Zambia is carried out by the International Finance Corporation (IFC) a sister organization to the World Bank. The value of the Feasibility Study will not be to support Zambia’s quest to find any other financier except the World Bank, because the Study will be seen to be biased towards the World Bank’s views.

We have experienced over the years how ‘Donor’ projects and programs have derailed local development initiatives because of our focus on the funding that accompanies these ‘Donor’ initiatives.

Zambia currently experiences difficulties in private sector consensus on economic development issues and several other pro private sector programs, simply because we now have two umbrella organizations representing the private sector. The Zambia Association for Chambers of Commerce and Industry (ZACCI) and the Zambia Business Forum (ZBF) both endeavor to represent the private sector at Government level and at various international and regional forums that engage Zambia with outside collaborating partners. The voice of the private sector is now fragmented and there appears to be no unity of purpose and representation when tackling important economic development issues. The donor in some way has put a ‘jackal in the hen house’ to cause confusion and distract the national agenda from one of development, to one of turf protection and empire building. The eventual losers are the members of the two organizations who are predominantly Zambian, while the mess maker moves on to another country.

Business and economic growth is very sensitive to the implications of Culture and Relationships in a given society. We have seen that in Asia, people are prepared to work long hours to make a living and in turn develop their economies very rapidly. In Europe, the social security mechanisms protect the workers at the cost of higher taxes for all. In the USA, workers can be laid off for not reporting for work for a couple of days without an acceptable reason. In the above examples the work culture is designed around the resources that the particular nation has at its disposal. In Europe, if a leader is tainted with the suggestion of a scandal, that leader will immediately resign his or her post to protect the integrity of the institution. In the USA on the other hand, leaders tend to use the courts of law to determine whether they are right or wrong and leave very little to morality and ethics. In Asia and Africa, there is a tendency to wait for the Head of State to make the final decision irrespective of whether it is right or wrong, immoral or unethical.

The scenario in Zambia is one of discretion and gut feel. A leader can decide against good democratic and governance principles to make place for a friend or relative in the Political Party, Government system, or indeed in a State Enterprise.

Leaders market themselves as individual political and economic acrobats that can resurrect a country from poverty to prosperity. In the background the Civil Servants just smile and standby for the new blunders to be made.

Zambia must look inwards to her own people and cleanse and purge the nation of the negative impacts of Culture, the destructive tendencies of compromised private Relationships, the damaging consequences of abdicating our development agenda to ‘Donors’ and ‘Collaborating Partners’, and generally selling the nations assets to a few privileged few at the expense of future generations to come.

The International Standards Organization (ISO) is currently struggling with definitions and mechanisms to mainstream Social Responsibility across the social and economic spectrum of all societies. The future and prosperity of our countries may in a small way be influenced by our top leadership, but the major contribution comes from every single Zambian out there that must actively challenge the processes that affect our lives and hold every public official and ourselves accountable to the nation.

Published 14 October 2008

Fuel For Growth

Fuel prices have edged downwards over the last few days as the prices of oil come down from an all time high of around USD150 per barrel to a new price in the USD90 per barrel price range.

Of course, the Oil Marketing Companies (OMC’s) seldom bring prices down even when the oil prices go down, but the Government or the Energy Regulation Board (ERB) usually have to intervene to protect the interests of the consumers from the monopolistic fuel pricing mechanism.

The demand for oil based fuels is rising every day and the commodity is quickly being depleted wherever it is found. The logical conclusion is that fuel prices are going to continue to rise for the foreseeable future, until an alternative energy source is found, or new technologies are developed that are not reliant on oil fuels.

It is safe to say that in Zambia we expect fuel prices to go up, and stay up, during at least the next twenty years.

Besides producer prices escalating, what other issues are there affecting oil based fuels, that we may need to consider?

The cost of fuel is impacted by our tax regime which places 40% tax on all imported fuels. This makes our fuel prices one of the highest in the region. The prospect of bringing the taxes down on fuel is rather slim as this is a cash cow for Government revenues. We must be able to offer a compelling argument that would convince Government to reduce the taxes and make up the revenue shortfall from some other revenue generating mechanisms. The simple notion that a reduction in taxes on fuel will lead to more production, thereby generating more business turnover, thus resulting in more taxes being collected in the medium term, is flawed if cheaper fuel leads to higher consumption for leisure and unproductive activities. A well thought out strategy must be developed that convincingly offers a very high probability of success. The strategy would necessarily encompass widening the tax net across all economic activity which is a difficult program to implement considering the poverty levels, un-employment levels, and the vulnerable status of most small to medium enterprises.

Statistics show that the bulk of our fuel consumption is in the Transport Sector which gobbles up 53 percent of imports, followed by the Mining Sector that consumes 27 percent.

A just argument therefore exists for re-designing our Transport and Mining fuel usage, taking into account the current demands, and the future requirements for the next 20 years.

An obvious option is to invest in the Railway Network by rehabilitating the existing lines and expanding the network to major import and export ports at the relevant borders. This upgrade to the Railway Network will remove the necessity for large trucks to transport goods across the country, and in the process, destroying our fragile road network as they currently do today. In addition, many travellers will have the option of travelling by train to major centres around the country, after which they can use various buses to get to the specific locations required. The passenger bus business will continue to grow due to the fact that trains are much slower, they do not make several trips a day to all locations, and the rail network does not cover all cities and towns. The pulling capacity of one train is equivalent to at least 150 large 30 ton trucks and yet the locomotive engine consumes the fuel used by 5 truck engines. The mathematics naturally tells us that the fuel consumption ratio per ton is about 30 times cheaper by train than by trucks. The 53 percent fuel usage could therefore be reduced to around 15 percent, when we consider that cars, light trucks and buses will continue to operate as they currently do, and the numbers will increase over time.

At some point in the future the usage of fuel in our trains could be brought down to zero if we get our electricity generation capacity up to par and electrify our Railway Network.

The Mining industry and other manufacturing processes can be re-focused on another fossil fuel namely; Coal. Zambia has vast reserves of Coal at Maamba and this form of fuel should be our strategic energy advantage. Most of China’s electricity is generated through Coal fired power stations. Much of China’s industry is fuelled by Coal. The Mining industry and other industries can turn to Coal for a sustainable and predictable supply of fuel for their furnaces. The pricing of Coal will be much more stable than oil fuels, and the availability is not only domestic, but also easily accessible along the line of rail.

In addition, the various options for Bio Fuels are available to Zambia. Jatropha and other crops can be grown everywhere in Zambia such that the possibility of small community fuel refineries can be set up to service the local needs of the farmers, businesses and other domestic fuel requirements. This will go a long way towards eliminating Charcoal Burning in the country side that is responsible for environmental degradation in developing countries. The culture of agriculture will be entrenched in all the rural areas thereby leading to national food security and the elimination of hunger.

It may be useful to take a close look at what is happening in the region in respect to fuel pricing strategies. In Zambia we have traditionally kept our petrol at high prices because we argue that petrol is generally consumed by cars for leisure. We have tried to keep the prices of diesel lower than that of petrol on the understanding that diesel is an industrial, commercial, and agriculture fuel that drives the economy. In other neighbouring countries, it is considered that commercial, and industrial activity is profitable thus demanding a higher price for diesel over petrol. It is understood that high petrol prices hurt the consumer whilst higher diesel prices can be borne by businesses. A special distinction is made between the price of diesel for trade and commerce, and the lower price of diesel for agriculture uses. The agriculture diesel is often referred to as Agriculture Fuel for tractors, water pumps, etc. This option for fuel pricing may be useful to consider for Zambia.

In many Asian countries a deliberate effort is made to keep fuel consumption rates as low as possible to reduce the fuel import bill where possible. As such, very low customs duties are levied on motor vehicles that are 1300cc or lower as an incentive to motivate the public to buy and use small cars in their daily lives. The larger engine capacity vehicles attract much higher customs duties, whilst the commercial and industrial vehicles are levied a more reasonable duty rate that encourages investment in the development of industry. This mechanism works towards reducing the fuel consumption for pleasure and leisure activities, but does not compromise the need for heavy vehicles, equipment, and machinery to support economic activity.

There are many discussions that focus on the possibility of Zambia procuring its oil stock from Angola for refining at Indeni Oil Refinery. Too often, the easy answer is that we are not sure of the composition and quality of the Angolan oil, and its suitability to be processed by the Indeni Plant.

When will we stop speculating and do some proper research to clearly identify the suitability of the Angolan oil? Shall we continue to guess on this option or shall we invest in data and information to make the right choices for Zambia? The Angolan crude oil option offers the closest source of oil to Zambia. Initiatives are already underway to rehabilitate and reconstruct the derelict Banguela Railway line that runs from Angola’s Lobito Bay to Zambia’s North Western Province. Local investment is being channelled to building the North Western Railway link that will connect Chingola to the Banguela Railway line. Railway tankers can therefore transport the crude oil from Angola to Indeni in the medium term, and later, a pipeline such as Tazama can be laid between the oil storage farms in Angola and Indeni.

The challenge at Indeni Oil Refinery is to first rehabilitate the plant so that it can process the one million litres design capacity, instead of the current 600,000 litres that is considered maximum. The Tazama oil pipeline can transport over one million litres of feed stock to Indeni to keep the refinery operational continuously. The second challenge at Indeni is to research and asses the upgrade work and investment that will be required to refine Angolan crude oil, if at all possible or feasible. The motivating reason for considering Angolan crude oil is that it will be no more expensive than other suppliers, but the proximity to Zambia will cut down on the transportation costs, thereby making the landed cost of feedstock at Indeni much cheaper than is the current scenario.

In order for Zambia to be stable in fuel supply and to avoid expensive costs of procuring oil feed stocks, refined fuels, and the associated cost of short term finance, we must constantly do ‘Fuel Demand Forecasts’ for the nation. These forecasts will compel us to invest in strategic reserves of both oil feed stocks and refined fuels for periods that will allow the refinery to shut down for maintenance or repairs, without causing massive upheavals in the economy. It is imperative for Zambia to plan for her fuel needs to support and facilitate smooth and sustainable economic growth.

Published 7 October 2008

Business Etiquette

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

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

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

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

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

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

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

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

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

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

Published 23 September 2008

Stability

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

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

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

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

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

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

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

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

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

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

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

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

Published 9 September 2008

Kafue Gorge Higher

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Published 2 September 2008

Business After Mwanawasa

23^rd August marked a very important day for me yet again. This time it was the day when our late President Dr Levy Patrick Mwanawasa’s body arrived at the Lusaka International Airport after a ten hour flight from Paris, France.

The people of France had returned our fallen hero back to Zambia to be put to eternal rest at home. The French Airforce Airbus touched down at 09.00hours witnessed by a solemn crowd of Government officials led by the Vice President, and a large complement of the Diplomatic Corps.

The mood on Saturday was unified. The nation wore dark clothes signifying a dark day in the history of Zambia. Many citizens and friends crowded the Airport to receive the late President and many more people lined the Great East Road route from the Airport to Mulungushi International Conference Centre to catch a glimpse of the Hearse and to pay their last respects to our departed President as his motorcade slowly proceeded towards the Conference Centre. Nearly all the vehicles on the roads drove around with full headlights switched on in the traditional way of signalling a funeral procession. Indeed, the nation was in full mourning and united in one purpose; to lay our late President to rest in the most respectful manner that we know.

At the Mulungushi International Conference Centre, the Armed Forces silently stood at attention while their late Commander In Chief was driven passed. The casket was placed in the Main Conference Hall where he was set to Lie-in-State. It was appropriate that the Mulungushi International Conference Centre was selected as the first stop for the late President, because although the venue provided for many members of the public to pay their last respects, it is also the venue where the late President dialogued and made many national decisions that would affect Zambia’s economy. This venue was his somewhat public office where everybody and anybody would interact with the late President and his Government.

The day’s events were extremely moving, and the rest of the country will no doubt be accorded the same opportunity to pay their last respects as the late President’s body is taken from province to province across the country.

Since the announcement of the death of our President on 19^th August 2008, the media has been asking questions about what legacy did he leave in respect to economic development? What happens to business now? How will his demise affect investment in Zambia? What are the prospects in the post Mwanawasa era?

The truth is nobody can foretell the future. But one thing is for sure, Zambia shall continue in one form or another. The world has not come to an end here.

Much as we mourn and acknowledge our bereavement in respect to the passing on of our late President, we must continue to live and improve our lives.

The late President was a champion of Regional Integration as evidenced in his pronouncements in his role as Chairman of the Southern African Development Community (SADC). Late President Mwanawasa supported the work of the Common Market for East and Southern Africa (COMESA) and was an advocate for the Free Trade Areas. Those of us that remain behind are challenged to continue with this legacy of working with the SADC, COMESA and the African Union to unify the continent and create a One Africa economy. Business in Zambia recognises that opening access for Zambian companies into the region will benefit the country and allow the companies to grow much bigger due to the larger regional markets.

The late President stood to attack and eradicate corruption in Zambia. The Task Force on Corruption and the various Capacity Building programs in public institutions must continue their noble work and serve the nation with the same vision that the late President held. The development of business in Zambia is dependent on clear and meaningful systems in all Government offices so that the private sector can predict what level of service they will receive. Businesses are cognisant that corruption eventually destroys an economy as we have seen in parts of West Africa, South America, and South East Asia. The short term gains of corruption are soon eradicated by the long term and irreversible losses.

It must be granted that the death of any incumbent President will cause some discomfort to the economy as a sense of uncertainty sets in. Private Business is very sensitive to political upheavals and is quite quick to pull out if uncertainty prevails for too long. Zambia must not let the late President down by causing unnecessary political tension that would lead to investor flight out of the country. A stable Government must be maintained. The Vice President must carry out his functions as Acting President diligently throughout the 90 days provided for by the National Constitution. The ensuing Presidential Elections must be managed calmly and professionally to continue to give confidence to business that Zambia is the place where to do business.

Zambian businesses must do their part too. Yes, we expect that Zambians will mourn the death of the late President. As we do so, we should continue to run our businesses and expand and create wealth and jobs as our contribution to the memory of the late President. The success of the Zambian economy will no doubt be the success of the late President’s policies.

Life and Business during Mwanawasa was a challenge. Life and Business after Mwanawasa will be a challenge too. The loss of our President ends one chapter in Zambia’s history but also marks the beginning of a new era for development. Zambia has a development plan (FNDP) and a vision (Vision 2030). The new administration will have to consider the country’s future and continue the work that was started by the late President and possibly improve on these national programs for development. The balance between budgeting for consumption and budgeting for development is always a critical mechanism. The hidden liabilities in incurring national debt must be clearly outlined to avoid getting into the debt trap once again. The challenge of spreading development across the nation and into the rural areas has always been a difficult one. The negotiation of domestic development against the impact of regional integration must be constantly monitored and intervention programs must be put in place to put Zambia in a position to benefit from the integration process rather than become a victim of it.

Businesses after Mwanawasa will be as a result of our own choosing. We can dwell on the demise of our President and fold our arms and withdraw, or we can appreciate the good work he did and set out to do, and opt to continue his legacy with vigour and dedication to his memory. The choice is for those of us that are still living. We are faced with the proverbial glass. Is it half empty? Or is it half full?

Published 26 August 2008

EU And Business

The Zambia Federation of Employers recently ran a workshop to discuss the various opportunities for the European Union (EU) to support Zambian businesses.

The EU has traditionally funded infrastructure development projects in Zambia such as the ongoing program to rehabilitate the Zimba to Livingstone road that currently prevents many Zambians and tourists from visiting the tourist capital for fear of wrecking their vehicles. The impact of a useable road between Lusaka and Livingstone will be to enhance the number of visitors to Livingstone therefore bringing in more business to the tourist economy. Businesses in the Southern Province will definitely improve once this road is repaired. This project has been on the drawing board for several years now and the initial cost of works has now doubled due to delays and procrastination in implementation. The usual reasons for these delays are due to EU complex funding procedures and Government bureaucracy in moving the implementation process. The escalating costs clearly reflects that time wasted, is money wasted.

The EU is also heavily engaged in funding road rehabilitation between Katete and Chipata in the Eastern Province. Again, this road link to Malawi and Mozambique is an important access route to the Indian Ocean and our trading partners in the Eastern part of Southern Africa. The current efforts to open up the Nacala Corridor in Mozambique and other business opportunities between Zambia and Mozambique will not result in much, if the road network to the East is not viably useable.

The EU has supported the Health and Education sectors for many years and several schools are now land marks of EU presence in the local economy. There are some problems coming out of the support to the Education sector as is evidenced by schools infrastructures being used as holding pens for goats, pigs and chickens in some areas. This phenomenon discourages the EU from rendering support to this sector as the goals of the support are not being met by their Zambian partners. The challenge on the Zambian side is to ensure that the infrastructure set up for schools is indeed used to educate our children and not be used a s kraals for livestock development. On the other hand, it can be argued that the form of education that is prescribed for Zambia may not be the most beneficial to the majority of the Zambian people. We may want to re-asses the education curricula to encompass some life skills such as Agriculture Science, Wood Work, Health Science, and other subjects which will empower our youth with useful knowledge to help them through life. This is important when we consider that every year we throw about 200,000 Grade 12 graduates onto our streets to survive with no prospects for further education. Relevant education is therefore an aspect that we must consider as we evolve our education system in Zambia. The EU has opened a window for support to the private sector through the funding of Private Schools and Private Medical institutions in a move to complement the efforts being made by Government to provide social and developmental services across the nation. The EU has invested 7 million Euros in the recently completed Soweto Urban market project in Lusaka, but concerns about the maintenance and economic use of this infrastructure produces some anxiety amongst the stakeholders.

Water and Energy are two key sectors that EU support is now focused on. Currently six to eight water projects run by Non Governmental Organizations (NGO’s) are received funding from the EU and the options are open for the various Water Companies to apply for support. The Itezhi-tezhi Hydroelectric Power project is receiving 100 million Euros of funding from the EU to embark on the power station being built by the state enterprise Zambia Electricity Supply Corporation Limited (ZESCO) in partnership with Tata of India. The EU has put funds into Rural Electrification programs and supported Interconnect projects to distribute electricity across the country where possible. This support has largely resulted in farming communities being connected to the national grid to power their irrigation and processing equipment in the various farm blocks. The opportunities for Zambian businesses in this regard has been to apply for EU funding for Solar Energy development, Bio Fuel production and possibly Wind energy development through Windmill generators. These options have not been explored or exploited widely and aggressively by the private sector.

Some ten years ago, the EU funded the Agriculture sector by financing the building of a Horticulture and Floriculture export warehouse at the Lusaka International Airport. This facility has been a great asset to the Zambian Agribusiness sector and continues to be the conduit for Zambian exports of fresh vegetables and cut flowers to the EU markets in Europe. Chartered cargo aircraft fly in to ship Zambian produce out to the EU, and the entire operation is managed by the Zambia Export Growers Association (ZEGA) which ensures that a business perspective is always applied to the export facility so that the service can operate sustainably into the future. It must be highlighted however, that the cut flower sector has taken a heavy blow in Zambia with more than 60% of the investors in the sector closing down their operations. Many exporters have complained about the difficult funding package that they were given by the EU, others have complained about the volatile markets in Europe, and yet others have lamented about the impact of the US dollar to Euro relationship which has caused many foreign exchange losses for them. Another analysis shows the impact of other producers and exporters in Africa that are fighting for the same markets as Zambian exporters. Countries such as Kenya and Ethiopia have been able to take larger chunks of the cut flowers markets in Europe than Zambia has. One might reflect and consider that maybe, the cut flowers industry is not the most reliable industry to invest in as it is prone to many external factors in addition to simply, the change in fashion around the world. There may be a lesson in this experience for Zambia.

Some EU programs have just ended and there is an opportunity to assess the value of the programs in Zambia and whether we can improve on such programs in the future, or how we can take the model successes into our own development agenda.

The EU Mining Sector Diversification Program (MSDP) has come to an end and all the guests at the closing out ceremony went home with a CD containing the success story of the nearly 30 million Euro program. Many beneficiaries of the program will tell you that they enjoyed the trade visits to the USA, India, Canada, South Africa, China and several other countries over the years. But they will also tell you that they are no better off now than they were 10 years ago. In fact many people are more miserable now than they were 10 years ago because they were exposed to the opportunities out there, but here was no mechanism in place to take advantage of those opportunities. Countries such as Ethiopia, Botswana, Egypt, and Kenya make sure that once their people are exposed to some opportunities, the programs also invest in mechanisms to exploit those opportunities so that some tangible results can be realized from the programs. The MSDP program did not go all the way but stopped at exposure only. Today, many beneficiaries of the program have small loans totaling to about 9 million Euros which may not be paid back as the program has wound up and follow up will be difficult. Much of the information and knowledge collected during the program life cycle has only become useful public information after the program has closed out. The EU would have been more effective if they had launched some pilot projects in sectors that would have had a big impact on engaging local Small and Medium Enterprises (SME’s) and, become models for other private sector investors to emulate. Zambia has vast Marble deposits and these have not been looked at seriously. Zambia offers opportunities in Mining Tourism in the Amethyst Mines of Mapatizya outside Kalomo. This is where MSDP could have put its resources and left a legacy of profitable and sustainable development rather than this one of unpaid loans and a handful of CD’s. This experience is another opportunity for the EU to learn from the program failure and change the way it supports Zambia in the future.

Under the 9^th European Development Fund (EDF) Zambia was supported by an Export Development Program (EDP) which wound up early this year. The fact that the program concentrated on exports, by definition, excluded many Zambian SME’s from receiving support. It is a well known fact that over 80% of economic activity in Zambia is carried out by SME’s. SME’s are not export driven and therefore the EDP program did not help as much as it could have if it were designed to support the majority of Zambians. Loans were given out to businesses during the run of this program and as in the MSDP case; the chances of loan recovery after project closure are virtually nil. We are told that 4 million Euros left over from the EDP fund in cash and assets have been passed on to the Zambia Development Agency to support private sector development in the country. It must be acknowledged however, that any funding that was budgeted for under EDP, and was not disbursed within the program cycle, is an indication that the program did not deliver as expected

Currently, the EU is running a Capacity Building Program within Government, the Private Sector and the Social Sector NGO’s. There is much good being done through human resource development activities in Government. The Private Sector and other NGO’s are being funded in respect to program delivery, but not necessarily in the areas of sustainable service delivery to the membership. This weakness may be as a result of the ‘Donor’ syndrome which many of us suffer from including our collaborating partners themselves, but possibly also from the fact that the EU has traditionally supported development from a benevolent facilitative perspective which does not inject a spirit of self reliance and sustainability. This may be an area that the EU may want to redress as they continue to roll out their Capacity Building Program.

The 10^th EDF is placing 650 million Euros for Regional Infrastructure development such as bridges, border ports, roads and railways. This is welcome commitment to support the efforts of other financiers which include the African Development Bank, the African Development Foundation, and the World Bank. Under the 10^th EDF support to Zambia will be 50% towards Direct Budget Support, 15% towards RoadSip 2, and 15% to the Health sector. Zambia will have the flexibility to use the Budget Support funds as we see fit. The European Investment Bank will commit 50 million Euros to Private Sector Development in the Tourism and Agribusiness sectors in addition to others that may be put forward by the business community. Options to develop our Sanitary and Phytosanitary processes in respect to the export of agriculture products to the EU are open for funding.

Businesses are encouraged to engage with the EU Centre for the Development of Enterprises (CDE), EU-ProInvest, and indeed the EU Commission Headquarters in Brussels in order to solicit support for funding, capacity building and trade linkages.

Published 19 August 2008