ADVANTAGES OF TOLL GATE FEES

Today we feature an article written by a Zambian, based in South Africa and it reads:

There has been a debate in Zambia as to whether we are ready to have tollgates or not. Some corners of society argue that Zambia does not have the capacity to build such infrastructure.

Firstly, Zambians need to understand what a toll gate is, how a toll gate is built and how it operates.

Secondly, to the average Zambian, having to pay for a service that is generally perceived to be free seems to be an absurd thing.

Why should one pay for a road when they want to move from one place to another. To understand this one needs to know what a toll road is.

This is a privately or publicly built road for which a driver pays a toll (a fee) for use.

To build roads costs billions of kwacha.

Tollgates are necessary as the money raised from this will be used to maintain the roads and assist us in meeting the demands of social services.

Toll roads therefore will reduce the total net cost to the economy, ensuring greater opportunities for prosperity and growth.

ADVANTAGES OF TOLLGATES

 Procurement and dedication of funds: Toll road schemes are more costly for road users than obtaining funds through taxation or a fuel levy, but the funds can be obtained much sooner.

Toll roads enable the public sector to contract the private sector for the construction, operation and maintenance of the road for a period of 25 to 30 years.

It is in short a self-generating form of income, the Zambian Government will play a moderating role and just ensure the laws are adhered to and roads are safe.

Improved road:  The road is usually upgraded and expanded before it is tolled. This expansion provides increased capacity and thus reduced congestion.

The upgrade of a road generally also improves the safety and decreases accidents. Expansion of roads like the Great North and Great East Roads in this regard would be a good thing.

Tolls also act as a form of congestion charge. It rations the use of the road to those with the highest need to travel.

Job creation and gross domestic product (GDP): Toll roads can significantly increase Gross Domestic Product (GDP) over the lifetime of the project. A toll road project leads to direct (constructors, builders, architects) and indirect (toll road attendants, ambulance services at toll points, casual workers) job creation.

We are so much in need of job creation in Zambia as the population is ever-increasing.

Encourage the use of public transport: Government will make revenue if they are to invest in the public sector like a modern train service and bus service because people will use them to avoid unnecessary toll fees.

This is a spill-over effect of tollgates.

Other major advantages of toll roads relates to funding, road condition and job creation.

Disadvantages

The disadvantages of toll roads are mostly related to user reactions. An increased load might be imposed on the alternative routes due to traffic diversion. Public transport will not be advanced, since toll roads encourage public vehicle use.

It has been revealed that society generally reacts negatively towards toll roads in the first few years after implementation. This is because the public finds it difficult to pay for things which were originally provided for free of charge.

Tolling is experienced as a sudden real expense, while the savings in running costs, services and saved time are not immediately notable. As soon as users get used to the tolls and realise the benefits, their attitudes will improve drastically.

The advantages far out-weigh the disadvantages so it tells us something

Why do I pay taxes and now also tolls? When we pay taxes the money is used for the service which government renders to us all. Taxes are used to pay for these services, whether we make use of all of them or not.

Tolls on the other hand, will pay only a portion of road that we use in other words it is a user-fee. Toll fees are used directly on the road, which is a benefit to the motorist.

Taxes will not be used to fund a toll road and therefore this will reduce the tax obligation of the individual.

Why do we have to pay tolls on an existing road, which was paid for out of taxes?

Road performance depends on how, what and when maintenance is performed.

Roads deteriorate over time due to environmental influences such as weather, ultra-violet radiation, overloading etc.

Tolls are not levied on the value of the current asset (road), but only on the initial and future improvements, including operations and maintenance. Funds derived from taxes are used on other things.

What will the toll fees be used for?

The tolls collected on a specific road will be used to, inter alia, and repay the loans obtained to finance the building, upgrading or improvement of the road. In addition, it provides a dedicated on-going revenue stream, which enables the road to be adequately maintained and improved, independent of tax based revenues.

What do I get from using a toll road?

Toll roads are built and maintained to the highest possible standards. Therefore, you are assured of a smooth ride, saving you on the running costs of your vehicle and saving you time. Improved security ensures you a safe and pleasant journey.

Conclusion

In conclusion, Zambians should understand four realities about the transportation infrastructure situation facing us.  Firstly, the time for continuous expansion of the capacity of road networks is reaching saturation point and new ways of managing traffic and infrastructure should be implemented.

Secondly, public funds are not enough to sustain or maintain roads at the current or anticipated future levels based on the prevailing interest to expand traffic and the road network.

Thirdly, borrowing to build and operate a heavily subsidised transportation infrastructure is not sustainable.  Fourthly, the rapid expansion of fleet of cars on our roads is simply unsustainable.

Zambians should actually learn from other countries such as South Africa and Morocco which have some of the best roads world-over.

Edwin Hatembo Jr.

(The author is Zambian student doing a course in International relations in South Africa.)

For comments/other contributions call: 0955431442, 0977246099 or email: jmuyanwa@gmail.com.

Ends…

 

 

 

 

 

CHEQUE TRUNCATION SYSTEM FAILS

 

IN February this year I wrote that the Bank of Zambia (BoZ) has become a major channel of economic makeover under the current government administration.

With the advent of the new administration in September 2011 the Central Bank became a critical driver of change and has since then recorded debatably more innovations than any other government wing.

Before the end of the year, the BoZ revised the minimum statutory capital requirement from K12 million or $2.3 million to about K104 million for local commercial banks and to about KR520 million or $100 million for foreign banks.

The reserve ratio for both local and foreign currency deposits were pegged at five per cent from eight per cent while the core liquid assets ratio came down to six per cent from nine per cent.

Systematically, the BoZ introduced the Policy Rate in March last year while transforming the Base Lending Rate (BLR) into a mere lending interest rate.

On December 19 2012 the BoZ announced the capping of the effective annual lending interest rate that commercial banks can charge any borrower which currently is pegged at 18.25 per cent.

The BoZ moved a step further and introduced a cap on the effective annual lending interest rates that non-bank financial institutions it licenses charge their customers.

The Central Bank implemented the Kwacha rebasing and effective January 1 2013 Zambia has had a new currency.

The BoZ had become more proactive, the performance which has enabled it to achieve all these feats.

This year, one of the major measures is the Cheque Truncation System (CTS) for all commercial banks which was intended to completely change this mode of payment and revolutionalise the cheque clearing system.

Cheque truncation is the conversion of physical cheque into a substitute electronic form for transmission to the paying bank.

Instead of manually moving the cheque from one bank to another for payment, under the CTS banks use electronic images thereby bringing down the time required for processing.

The BoZ in partnership with the Bankers Association of Zambia (BAZ) and the Zambia Electronical Clearing House Limited (ZECHL) introduced the CTS in the country with effective from February 1, 2013.

The Central Bank said this is an efficient method of clearing cheques using images between banks as opposed to sending physical cheques presented for payment in a bank by individuals or corporate bodies.

The implementation of the cheque truncation was supposed to benefit banks and the public in a number of ways.

“To facilitate implementation of the new cheques clearing system, BAZ has introduced new cheques with enhanced security features which are consistent with the operational requirements of the CTS.”

“In addition to the standard features of a cheques which will include the name of the bank or branch on which the cheques is drawn, date, amount, bank code, name of drawer ,crossing, Magnetic Ink Character Recognition (MICR) code line, the new cheque will have the following distinct features, ” the statement from the BoZ read in part.

According to the BoZ the CTS were supposed to:

•             Eliminate the cumbersome physical presentation of cheques, save time and cost associated with handling physical cheques.

•             Shorten and standardise the clearance period across the country to one day meaning the value of the cheque will be given a day after the date the cheque is deposited.

•             Improve the velocity or speed of cash flow between the transacting parties in the economy because of reduced clearing period.

•             Reduce risks associated with manual handling and physical movement of cheques.

•             Reduce the incidences of cheque-related frauds.

•             Introduce efficiency in the work processes for banks because of the reduction in the work-time and manpower required at the branches manning the activities.

•             Encourage the wider use of cheques in settlement of payments.

Nine months down the lane, however, the system seems to have lamentably failed to live up to the promise of efficiency.

Instead of the one day  a cheque should have been taking to clear, it still takes three to four days to do so while the payees are waiting.

From my interaction with some bankers and other related professionals I gathered that there was lack of preparedness on the part of the commercial banks before implementing the CTS.

The lack of preparedness was as the result of a short notice from the BoZ on the measure.

As the results by February 1 2013, most banks had not acquired the necessary facilities for the exercise and even up to now some of them do not have.

Other observers feel the commercial banks have just “sabotaged” the exercise saying they had showed some resistance right from the start.

Whatever the reason, the fact is that the CTS has failed to work, resulting in the authorities reverting to the old system and deferring it to next year, while banks which are able to implement it are free to do so even now.

For comments/other contributions call: 0955 431442, 0977 246099, 0964 742506 or e-mail: jmuyanwa@gmail.com.

ZAMBIA: 2014 BUDGET REVIEW

 

BY JAMES MUYANWA

THE 2014 National Budget underscores the need to balance between augmenting expenditure towards programmes directly benefiting the people on one hand and adhering to fiscal discipline on the other.

Coming against the backdrop of the expected bigger fiscal deficit of 8.5 per cent for 2013, the 2014 budget is a mitigation of this year’s economic performance.

In the main it is a full embodiment of Patriotic Front (PF)’s economic belief which is, however, pressured by various distressing circumstances including the poor harvest of most crops including the staple food, maize, in the 2012/13 farming.

Another inflationary pressure comes from the payment of the subsidy on fuel which occurred before the provision was removed in May 2013.

Through the 2014 National Budget which was unveiled by Finance Minister Alexander Chikwanda last Friday, the government targets to achieve real Gross Domestic Product (GDP) growth rate of above seven per cent.

The GDP growth is expected to close this year at six per cent from seven in 2012 which was the initial projection under the 2013 budget.

As already pointed out that target for 2013 will not be achieved mainly because of the drop in agricultural output and the seven-per cent fall in the prices of copper on the international market.

The most consistent feature of the budget by the PF is the job creation target and next year, just like last year, the government aims at creating at least 200,000 jobs.

About 58,000 new ones were created in first three quarters of 2013 and it would be interesting to get the final result as to how many jobs will have been created this year by December 31 2013.

The government, however, indicates that the 58,000 are only those engaged in the formal sector and do not reflect those created in the economy as a whole.

On inflation which, currently stands at seven per cent, the 2014 budget projects to bring down the figure to not more than 6.5 per cent. This is an upward adjustment of the target from not less than six per cent projected for this year.

Internationally, the government aims at increasing the international reserves to more than three months of import cover.

It currently stands at US$2.7 billion which is $200 million more than last year’s and translates into three months import cover.

Another important target is the maintenance of the fiscally sustainable public external debt which limits the amount of serving and paying off to 30 per cent of the GDP.

The government’s external debts stood at a staggering $3.13 billion as at end of last month up from $3.08 billion by end of September 2012.

To be able to achieve most these targets the government proposes to increase domestic revenue collection to more than 21 per cent of the GDP.

This is critical, considering that nearly K30 billion of the almost K43 total budget will be domestic revenue with grant only amounting to K2.63 billion of the total resource basket.

To cap it all on the 2014 macro-economic targets, the government proposes to limit domestic borrowing - currently standing at K18.52 billion - to 2.5 per cent of the GDP and contain overall deficit of the budget to not more than 6.6 per cent of the GDP.

That is a tall order considering that in this financial year, the deficit which was planned at 4.3 per cent of the GDP ballooned to 8.5 per cent as already indicated.

In terms of sectors the country recorded mixed results in this farming season in terms of crop and livestock production.

The situation was compounded by the outbreak of the army worms at the time of planting and lower than normal rainfall in the southern part of the country, resulting in the drop in maize output.

Last year’s lower prices of cotton frustrated the farmers, resulting in major decline in its production.

The country, however, posted higher production in burley tobacco, soya beans, wheat and sunflower as well as in the livestock sub-sector.

The number of heads of cattle in the country has grown by 10 per cent reaching almost four million while poultry rose by 18 per cent to over 92 million.

In 2014 the government envisages diversification of the sector.

“It is Government’s desire to see the agriculture sector grow to its full potential with our many small-scale farmers graduating to become prosperous medium to large scale producers.

“To this end, Government will continue constructing multi-purpose dams and irrigation schemes to limit dependence on rain-fed agriculture,” Mr Chikwanda says.

It will next year continue revamping the Nitrogen Chemicals of Zambia (NCZ) plant to extend the operations towards the production Urea and ultimately localise fertiliser production.

For tourism, which is another priority sector, the main highlight under the 2013 budget was the co-hosting of the 20^th session of the United Nations World Tourism Orgasanisation (UNWTO) general assembly.

 To ensure successful hosting the government had provided targeted tax incentives for the tourism sector.

In 2014, it will continue building on the raised international profile, through  the promotion of product diversification and further investment in facilities.  

The aim is to diversify the tourism base by improving accessibility to national parks, heritage sites and natural attractions.

Streamlining of licensing procedures and enhancement of capacity in the hospitality industry will be scaled up.

The Government says it is committed to developing the creative arts industry and the hologram to protect income rights of musicians and film makers has been established aready.

In 2014, Government will complete works on national film policy.

In the manufacturing sector the promotion of diversification will be doubled up especially for products with export market potential.

This will be done through the speeding up of the development of the Multi-Facility Economic Zones (MFEZs).

Measures to enhance the facilitation of value addition in manufacturing with a view to exploiting regional and international export markets as well as creating more jobs for our youths will be intensified.

For mining, copper production in the country increased by 13.2 per cent in the first half of this year despite the seven-per cent fall in the prices of the commodity on the international market.

This is attributable to improved mining production techniques, the opening of Lubambe Mine and the scaling up of production at Mulyashi Copper Mine.

The government is, however, wary of the fraudulent reporting by some mines indicating that the trend will not be tolerated anymore because the country needs to benefit more from the sector in terms of income through appropriate tax.

In 2014, the Government will continue to implement the Link Zambia 8000 programme and work is progressing well on over 1,500 kilometres of roads.

The programme is expected to promote development of local contracting capacity and create 24,000 jobs throughout the country.

Then there is the Pave Zambia 2000 programme which was launched last month.

The Government further plans to rehabilitate over 1,300 kilometres of the core feeder road network in the country to open up the rural areas.

For energy, the Government will continue working with the private sector to increase installed electricity generation capacity and improve the transmission infrastructure.

Projects include the extension of the Kariba North Bank Power Station which will add 360 megawatts of hydro power to the installed capacity.

By the end of this year, 180 megawatts will be added and the balance will come on stream in 2014.

In addition, the Ndola Energy heavy fuel generating project is nearing completion and will contribute 50 megawatts by the end of this year.

With respect to Itezhi tezhi, the government had secured financing and works have progressed, while for the Kafue Gorge Lower power station, the tender process to engage a strategic equity partner is in progress.

Itezhi-tezhi is expected to come on stream in 2015 with 120 megawatts.

The Kafue Gorge Lower power station with the capacity of 750 megawatts is expected to come on stream in 2019.

“To support these investments, Government will continue with its policy of attaining cost reflective electricity tariffs while ensuring efficient service delivery.

For fuel, two provincial fuel depots will be completed this year and the third one in 2014, with subsequent installations in other provinces.

While efforts to upgrade Indeni Oil Refinery will continue in 2014, Government will also explore other options including construction of a new refinery with ample capacity to meet the ever-increasing demand of the economy.

In coming up with the 2014 Budget, the government has managed to attain some semblance of the balance between the needs of the social sector and those intended to spur economic growth. 

MFEZs TRIGGER ZAMBIA'S INVESTMENTS

ON this column today, I feature an article by a guest writer. Enjoy the reading!

By JUDITH NAMUTOWE

 THE Government has continued to score success in meeting its mandate  of promoting trade and investment in Zambia.

 This is evidenced by the growing number of both local and foreign  investors that have continued to invest in all sectors of the economy  in the country.

 China is one of the major sources of these investors in Zambia having  set up more than 280 business enterprises mainly in construction,  mining and mineral processing, manufacturing, agriculture,
infrastructure development, tourism and resource extraction.

 Projects include, the Chambeshi MFEZ and the Lusaka East MFEZ being  developed by China Non-Ferous Metal Mining (Group), Zhongui mining  with investment estimated at US$5.3 billion, Bank of China and China  Henan Construction Company among others.

Although long distance exists between China and Zambia, traditional  friendship between the two countries is deep.

With the joint efforts of Governments and enterprises from both  countries, Zambia-China economic and trade cooperation has enjoyed  rapid development and fruitful results have been achieved.

To date, China has invested more than US$2.1 billion in Zambia in  areas of mining, agriculture, finance and light industry, hence  Chinese investment in Zambia has formed an industrial system of
exploitation, smelting, processing and trade.

But despite Zambia being well endowed with an array of natural  resources ranging from agricultural products to minerals, most of  these resources have remained unexploited and are usually exported in
raw form.

The Zambian Government has recognized the inadequate capacity of the  local manufacturing sector to add value to the raw materials due to  low investment.

 So, it is promoting value addition to Zambia’s natural resources  through processing in Zones and cluster development in the country,  which lead to sustainable economic growth, job creation and wealth  creation.

 The development would also lead to improved investor confidence and  ultimately benefit Zambia through skills and technological transfer,  increased Government revenue and increased  joint venture
partnerships.

  The major vehicle through which China is helping Zambia achieve that  is the Zambia-China Cooperation Zone (ZCCZ) which is the first Chinese  overseas economic and trade cooperation zone established in Africa.

 It was established in 2007 with an investment of US$900 million under  the framework of China-Africa Cooperation Forum.

 About 26 Chinese and Zambian enterprises which settled in the Zones  have paid nearly US$200 million to the Zambian Government in a form of  taxes.

 Recently ZCCZ hosted the first-ever Zambia International Construction  Materials and Light Industries Products Trade Fair and Investment  Forum at the Lusaka East MFEZ under the theme “Value Addition Through  Zambia-China Economic Cooperation.”

ZCCZ managing director Baosen Zan hailed the country’s economic growth  which has been attributed to the massive infrastructure development  currently being undertaken in the local construction industry.

 He said it was undisputed that Zambia’s economic growth was greatly  accredited to the booming real estate and infrastructure development  in the construction industry.

 Mr Baosen said this was why ZCCZ decided to bring to the fair latest  building materials that would benefit the local construction industry.

 The fair which run from September 19 to 23, 2013 provided an  opportunity to the local business community to have a wide exposure to  various state-of-the-art products and meet manufacturers in person.

 The fair also presented a unique opportunity for the booming Real  Estate Industry in Zambia. It will further afford construction  materials wholesalers, retailers and consumers alike  an opportunity
to have access to rich  and abundant types  of construction material  and industrial products with high quality on the world market.

 More than 300 participants from Zambia, China, United Kingdom,  Botswana, South Africa, India and Zimbabwe attended the Investment  forum which was organised by ZCCZ, Zambia Development Agency b (ZDA)  and the Ministry of Commerce.

A total of 90 enterprises participated and showcased their various  products and services while the value of the scheduled orders was  estimated at US$3,000,000 with the biggest business order being in  heavy equipment sector.

  A number of companies have since expressed interest to set up their  presence in Zambia and in particular, Lusaka East MFEZ, among them  Beijing Sunway and Jihai Agriculture who have since set up their  operations in the zone.

 The Zambia-China bilateral trade volume is expected to rise above the  US$3.6 billion recorded in 2012, with the implementation of China’s  offer to increase Zambia’s duty-free export to China to 95 per cent of  its total export items.

China’s investments in Zambia have been on steady increase and about  500 Chinese companies, big or small have been set up in Zambia.

About US$2.6 billion of Foreign Direct Investment (FDI) have been  channeled into Zambia’s economy, creating more than 50,000 job  opportunities.

 The special economic Zones have played a crucial role in China’s  industrialization and economic boom since opening and reform policies  were initiated by late architect Deng Xiaopening in 1978.
It is hoped that using zones, Zambia will follow China’s path and  record similar success in terms of economic development.

 The southern African country could do as well as China has done, or  even better, because it can draw on China’s experiences and avoid any  mistakes.

 For comments/other contributions call: 0955 431442, 0977 246099, 0964
742506 or e-mail: jmuyanwa@gmail.com.
Ends…

IT WILL BE TIGHT 2014 BUDGET

IT looks like it will be a tight budget!

Yes, the 2014 National Budget looks like it will be a stiff one due to the current economic trends including the deficit which is expected to stretch from about 4.3 per cent of the Gross Domestic Product (GDP) to about 8.5 per cent.

From my perusal of current reports by the Ministry of Finance, the International Monetary Fund (IMF) and the World Bank it is obvious that the major job for Finance minister, Alexander Chikwanda (below),  as he presents the budget on Friday, will be more of where to get the resources than what to spend it on.

The deficit has been compounded by two opposing factors, the reduction in the revenue collection by the government chief tax collector, the Zambia Revenue Authority (ZRA) and the increase in expenditure.

Government expenditures this year is expected to be above the budget as the result of the payment made on fuel subsidies which were incurred before the removal of the provision in May.

The unprecedented salary increment for civil servants which was effected last month has also added to the fiscal pressure as well as other expenditures.

On the flip side, on average, the ZRA has been failing to meet the collection targets due to various factors which could not be the subject of this column.

Realistically speaking the government will, under the 2014 national budget, need more funds to cure these fiscal ills than it will be ready to give out.

Yes, like the IMF observed, to address the fiscal challenges the government will have to use a combination of stepped-up revenue collection and tight expenditure controls.

This is more so since the government aims at reducing the deficit to about five per cent of GDP, similar to what was originally planned for 2013.

Ensuring that this budget is adhered to will be another important thing for macroeconomic stability and hence the foundation that will support continued strong growth of the Zambian economy.

That said, I feel the 2014 National budget will require stakeholders and other interest groups including civil servants to be realistic and water down their expectations in terms of increased direct benefits.

At the risk of sounding like a pessimist or indeed a prophet of doom, I would say that I am not expecting much in terms tax rebates on both personal income and the corporate one.

Last year, the government increased the pay as you earn (PAYE) exemption threshold from K2,000 to K2,200 per month.

The K200 increment translated into 10 per cent and I cannot foresee the threshold being increased by a bigger figure for next year than that.

In short the government will have to ensure that it sets aside more funds on production than on consumption to help bridge the current deficit.

Coming at the time when the mine houses who the major contributors to the GDP are grumbling about the current mining tax regime, there will be no “free money” in this budget.

They have been complaining that the current mineral royalty is too high saying the situation has been compounded by the high electricity tariffs being charged by the power suppliers.

In terms of expenditure the government is expected to stiffen the various fiscal disciplinary measures to ensure that spending agencies stick to the budget.

Interestingly the stakeholders including the general citizenry will also be looking out to see how the government will hand the issue of the removal of subsidy on fuel.

This is with a view to seeing which sectors will attract the funds which could have otherwise gone towards the offsetting of the subsidies.

Some provision is expected on the resuscitation of the closed parastatals as well as on beefing up the capital levels for government-sponsored banks to support the local business and farming communities.

Having allocated K3.4 billion for road construction throughout the country in this year’s budget the government will ensure that projects are completed.

For comments/other contributions call: 0955431442, 0977246099 or email: jmuyanwa@gmail.com.

2014 NATIONAL BUDGET TO REMEDY CURRENT DEFICIT

THE Zambian economy is this year expected to post mixed results with some splendid macroeconomic indicators amid stunted growth.

Zambia is among Africa’s fastest growing economies and for the last few years its economic performance has continued to be positive, registering the Gross Domestic Product (GDP) growth rates of 6.8 per cent in 2011 and 7.3 per cent in 2012, for instance.

The rate of inflation has remained within the single-digit bracket and last month slid to seven per cent from 7.1 per cent the previous month, according to the Central Statistical Office (CSO) latest data.

Generally, the international economic bodies like the International Monetary Fund (IMF), the World Bank and World Economic Forum (WEF) are happy about the strides the government and the private sector are making in meeting some of the benchmarks.

Recently the WEF named Zambia as the continent’s number seven most competitive economy.

Last week on Tuesday an IMF team which visited Lusaka during September 17-24 period to conclude the 2013 Article IV Consultation discussions with Zambia praise the government for the country’s economy.

Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with its member countries, usually every year.

A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff
prepares a report, which forms the basis for discussion by the Executive Board.

The team said that the Zambian economy has continued to expand at a rapid pace with overall output growth, however, projected to reduce from 7.2 per cent in 2012 to six per cent under the current national budget

The 1.2-per cent is attributable to lower agricultural production. The yield for maize, the country’s staple food for instance, has gone down from 2.7 million tonnes recorded in the 2011/2012 farming season to 2.5 million tonnes in 2012/2013.

This reduction is partly attributed to poor rainfall distribution, especially in southern, eastern, Lusaka and central provinces and the army worms which raided some fields during the season.

In a statement, the IMF team led by John Wakeman-Linn (above) noted the continued increase in Zambia’s copper production amid the lowering prices of the commodity at the internatioal market.

The team had met with Finance Minister Alexander Chikwanda, Bank of Zambia (BoZ) Governor Michael Gondwe, and other senior government officials, as well as representatives from the private sector and civil society.

“The Zambian economy has continued to expand at a rapid pace, although experiencing pressures in some areas. Overall output growth is projected at 6 percent in 2013, with the decline from 7.2 percent
growth in 2012 largely due to lower agricultural production.

“Copper production has continued to increase strongly despite lower prices on the international market, and the economy has also benefitted from high levels of foreign direct investment and rapid
growth in non-traditional exports,” reads the statement at the end of the mission.

There is, however, need for the Zambian authorities to heed to the team’s advice on how to resolve the various challenges haunting the economy.

These major economic challenges are in fiscal area hence the need for the government and spending agencies to adhere to fiscal discipline to ensure that the rest of the budget is executed prudentially.

As noted by the IMF team, the government expenditure in the 2013 national budget will be considerably above the budget due to various factors including the cost of fuel subsidies incurred before the removal in May 2013.

Other factors are the newly-effected increased salaries for civil servants as well as the costs related to the running of and debts by the Food Reserve Agency.

“The main economic challenges are in the fiscal area. Government expenditures in 2013 will be significantly above budget, including from fuel subsidies incurred before retail prices were raised on May 1, the civil service wage increase that came into effect this month, and costs of covering the Food Reserve Agency’s operations and outstanding debt,” partly reads the statement.

The government has a shortfall in revenue on the projected figures.

On aggregate the budget deficit for 2013 is now expected to rise to about 8.5 per cent of GDP as opposed to about five per cent it usually hovers around.

To remedy the situation, the government is in the 2014 national budget expected to introduce measures to increase revenue and tighten expenditure controls.

These and several other measures are expected to help reduce the budget deficit in 2014 to about five per cent and ensure the economy remained buoyant.

“The mission very much welcomes the authorities’ plans to comprehensively address the fiscal challenges in the budget for 2014. With a combination of stepped-up revenue collection and tight expenditure control, the draft budget aims to bring the deficit to about five per cent of GDP, similar to what was originally planned for
2013.”

Ensuring that this budget is adhered to will be important for macroeconomic stability and hence that is the foundation that will support continued strong growth of the Zambian economy.

The IMF advises that, to maintain strong economic growth, it will also be important to safeguard competitiveness and build bumpers against external shocks.

For the increase in the salaries for civil servants to remain economically meaningful there should be a corresponding rise in production and productivity by the workers.

The workers, therefore, have to ensure that they earn (work for) their salaries so that they could help in maintaining or even increasing the competitiveness.

“Last year’s sharp increase in minimum wages and this year’s large pay award to civil servants are putting upward pressure on labor costs in both the private and the public sectors.

“Competitiveness may suffer if the higher wages are not matched by higher productivity. In addition, while recent progress in this area is encouraging, a further build-up of reserves from the current level of less than three months of imports is needed in light of risks stemming from a potentially deteriorating external environment,” further reads the statement.

The IMF Executive Board is expected to complete the 2013 Article IV consultation in late November or early December 2013.

On the same issue, Zambia’s Secretary to the Treasury Fredson Yamba says the Government has set out an extensive capital expenditure programme aimed at increasing investment in education, health, transport, energy, water and sanitation as well as social safety net.

These projects are an important prerequisite in achieving meaningful economic growth, poverty reduction and social justice.

According to Mr Yamba, in addition,  there would be a divergence from the over-reliance on the mining sector to the other areas of comparative advantage such as manufacturing, tourism, agriculture and agro-processing to ensure that growth was broad based and inclusive.

MR Yamba

The mining sector has remained Zambia’s economic mainstay for some time now, accounting up to about nine per cent of the GDP and hence the need to change the scenario through economic diversification.

Mr Yamba says the 2013 fiscal deficit was unavoidable as Government had to clear the backlog of arrears on fuel and maize subsidies as well as higher wage bills.

By and large, the broad medium term goals of the economic policy for Zambia now seem to be the maintaining of strong growth, lowering the budget deficit and keeping hold of low inflation rate to ensure stability in the prices of commodities locally.

NEW MINING POLICY TO MEET RISING CHALLENGES

TODAY, I will focus on some developments in the mining sector by looking at the recently launched Mineral Resources Development Policy (MRDP).
The policy, which was launched on September 19 2013, is a revision of the 1995 Mining Policy which was designed to facilitate the development of private-driven mining industry through the privatisation of ZCCM mining units.

Generally, the 1995 document was ascribed with the injection of US$5 billion Foreign Direct Investment (FDI) which followed between 1996 and 2011.

In terms of new entrants, the policy accounts for Lumwana Copper Mine, Kansanshi, Muliashi and the closed Munali Hills Nickel Mine.

It accounts for various other developments in the sector including the new smelters, increase in production and exploration works.

While the production indeed rose by an average of 16 per cent between 2000 and 2011 from 250,000 tonnes to 819 574 tonnes per year for copper, the sector’s contribution to the Government coffers in terms of revenue was insignificant.                                            LATE President Mwanawasa
 

For instance, while the sector contributes about nine per cent to the GDP its tax input into the government treasury is a paltry 1.1 per cent of the GDP.
In my view, this is chiefly due to the incentives in tax holidays which were given to the large-scale mining firm through the Development Agreements (DAs), which also resulted in feeble fiscal and regulatory frameworks.

It is for this and many other reasons that the Government chose to revise the 1995 Mining Policy to come up with another which will, hopefully, address the emerging challenges well after the privatisation of the sector.

The low contribution of the sector to the local treasury had in 2008 led to the introduction of the windfall tax by late President Levy Mwanawasa which was, however, removed by former President Rupiah Banda.                                                                                  
“The minimal contribution of the mining sector to the treasury despite high metal prices and increasing production is one of the major challenges the MRDP has addressed,” partly reads the 12-page policy.

Under the policy the Government needs to achieve a strategic repositioning of the mining sector to balance between the interests of Zambians as natural stakeholders and those of the investors.

I notice that this policy seems to rely deeply on the Vision 2030 for Zambia.

It will contribute towards the creation of a sustainable and organised mining industry which will be more beneficial to the country by attracting more investments, integrating the sector into local economy and ensure high standards of health, safety and environment protection.

I think all these are key to the running of a modern economy.
Among the guiding principles for the implementation of the new policy include government’s commitment to ensuring sustainable exploitation of mineral resources and commitment of a free-market enterprise economy.

Others are the application of modern tenets of transparency, checks and balances and accountability as well as adherence to international conventions and the promotion of Citizens Economic Empowerment (CEE).

In all these, the government aims at attracting private sector participation in exploration works, attracting the empowerment of Zambians to become shareholders in the mining sector and promoting the integration of the mining sector into the local economy.

To meet these aspirations, the Government will enhance the ability of the sector growth and create wealth through exploration and actual mining while maintaining an efficient computerised mining cadastre system for the mining rights administration.

Further, the Government will regularly update the legal framework for the mining sector in line with the ever-changing environment and promote large scale mining in the country.

The small scale mining, which is currently performing below par, will be developed by, among many other things, facilitating access to finances to ensure the players blossom into large scale entities.

To move the sector relevant and responsive the local needs, the Government will integrate the mining sector into the local financial system by enhancing the contribution of the sector to the national economy.

This will be done through the encouragement of the cluster development to link the sector with broader economy while also promoting linkages between the sector and other economic areas like agriculture.
 

Other strategies under the policy include the improvement of the institutional framework, enrichment of value addition, local auctioning of the gemstones, human resources development, research and development.
             FORMER President Banda

The accountability and transparency in the management of mineral resources will be bettered by strengthening the country’s membership to such bodies like the Extractive Industry Transparency Initiative (EITI).

To promote the CEE in the sector, the government will encourage major big mines to float their shares on the Lusaka Stock Exchange for citizens to buy the shares while further ownership will be created through the CEE Act.

Interestingly, some legislation will be reviewed to reserve certain categories of mining and  mineral rights for Zambians while at the same time reserving a portion of mineral royalty for the development of host communities.

This is as should be and the policy should be supported by all well-meaning citizens.

For comments/other contributions call: 0955 431442, 0977 246099, 0964
742506 or e-mail:
jmuyanwa@gmail.com.