ERB SHOULD REDUCE FUEL PRICES

A LOT of issues needing attention have arisen in the past one month or so.

Since October 10, 2014 when Finance Minister Alexander Chikwanda presented the 2015 national budget to Parliament, many other issues  have arisen and, therefore, we could not do full justice to the proposed budget.

Within the proposed budget there are many contentious issues which  call for attention but the entire national document was overshadowed by the commemoration of the country's Golden Jubilee.

Presented on October 10, exactly a fortnight before the main Golden  Jubilee celebration on October 24, the proposed budget had to, obviously, be shelved as we focused our attention on the 50-year
commemorations.

Just when we thought we would return to the normal calendar, tragedy struck with the death of President Michael Sata on October 28 2014.

 Definitely, whole the attention had to be shifted to that loss and Policy Analysis had to look Mr Sata's personal economic contribution  to the nation in last week's article as a tribute to him.

In the coming weeks, God permitting, we will focus on some of the remnant issues from the year while also glancing at the 2015 national budget.

We will tackle some of the issues which have arisen in the last one month or so and highlight the contentious provisions of the 2015 proposed national budget.

From the proposed budget we will look at issues like the much-talked about proposed tax regime for the mining sectors to try and evaluate its impact on the mining houses and the entire economy.

We will equally look at some other tax measures which have been proposed, targeting various other sectors.

There are seemingly other hot issues like the government's resolve to address the current imbalance on the annual allocation of resources which is skewed towards consumption through the public service workers emoluments.

Given the requests and queries I have been receiving from the readers on the mooted offloading of some of the government shares in ZCCM - Investment Holding to the public, we will have to revisit the issue soon.

Some readers have been asking as to how they can participate in the imminent acquisition of the shares and many other aspect of the ZCCM - Investment Holding shareholding.

 For instance, Mr John Misumbi wrote to me from the Copperbelt Province on October 29 2014 saying:

 "How does someone like me purchase or acquire shares in listed company like ZCCM-HI or any other company?"

This has to be looked at with other related issues.

The current situation following the death of Mr Sata has also raised various policy issues which need to be tackled.

At an appropriate time, we will, therefore, have to weigh up on whether there is a possibility of economic policy shift in the country and some of the pitfalls we need to avoid.

These and many other issues will definitely draw us towards the end of the year when we will have one or two articles summarising the 2014.

 Before that, however, I would like to focus on the Competition and Consumer Protection Act number 24 of 2010 and how it is being  implemented by the Competition and Consumer Protection Commission.

 *****

 Still on the issue of consumer rights, the oil prices on the international market have been falling for some time now and from about US$115 per barrel in June, 2014, they are now hovering around
$81 per barrel last week.

 In some African countries, like South Africa, the reduction in the wholesale prices of oil has triggered drops in the pump prices of petroleum products, as a ripple effect.

 In Zambia, however, the Energy Regulations Board (ERB) has been quiet on the matter and yet it is supposed to ensure that Zambians also benefit from the falling prices of the essential commodity.

This has led to various alert local consumers through the Zambia Consumer Association (ZACA) to call on the Government to address the issue.

The authorities in Zambia should emulate South Africa where the petrol prices recently decreased by 45 cents a litre with diesel prices lowering by 60 cents for every litre.

This was the second reduction in the prices of these essential commodities following the first one sometime back.

Zambian fuel users need a relief considering that the prices of petroleum products in the country are said to be among the highest in the region, at K10.63 per litre for petrol, K10.01 per litre for
diesel and K7.48 per litre for kerosene.

 For comment call: 0955431442, 0977246099 or email: jmuyanwa@gmail.com.

PERSONAL EXPERIENCE WITH LATE PRESIDENT SATA

BY JAMES MUYANWA

DEFINITELY, the current crop of politicians especially the opposition has a lot to learn from late President Michael Sata in terms of handling public gatherings.  

Mr Sata knew how to handle the media – both the hostile and friendly ones – and made sure he got the best in terms of attention out of any public appearance.

He did not allow anyone to subdue his political clout and as a result his speech always had a keen audience.
 

At public debates while in opposition, he made sure he identified himself with the audience, sometimes at the extent of taking on the moderator.

As a moderator you always had difficulties to stay in charge of the meeting where he is featuring.

He had his own way of answering the questions, especially the complicated and sensitive ones. 

I was privileged to host Mr Sata who - while in the opposition - in 2004 appeared during the hardest public discussion I have ever chaired.

Somewhere in May 2004, during my five-year posting in the hub of the Copperbelt, Kitwe, I was elected Kitwe Press Club president.

The mandates for the position included chairing public fora on which we invited dignitaries from the various backgrounds especially politicians.

The fora were both a fundraising tool, as we charged some entry fee for the audience, and a professional platform to bring the leaders and the led together to discuss various issues of national importance.

Our executive committee was like a child born running, as, upon our inauguration, we started planning for these meetings mainly targeting political and labour movement officials.

Between May and August 2004, we had invited the likes of the late United Party for National Development president Anderson Mazoka, Zambia Congress of Trade Unions president Leonard Hikaumba and officials from the two then warring trade unions in the mining sector.

LATE MAZOKA

While Mr Sata’s political esteem in most parts of the country was, by this time, not any better than exemplified by the results of the 2001 general elections when he managed a paltry 3.3 per cent of the total votes cast, on the Copperbelt it was soaring in leaps and bounds. 

That we - as organisers of the discussion – would learn the hard way on the day of the meeting!

My colleagues in the executive committee got in touch with the officials then surrounding the Patriotic Front (PF) president who showed interest in convincing him to turn up for the event.

Throughout the week we kept in touch with them but a day or two before the actual event Mr Sata offered to talk me as “a fellow president,” on phone.

“Mr President how many people are you expecting as members of the audience?” he inquired on phone, catching me napping as we did not even know the capacity of Edinburg Hotel hall.



HIKAUMBA

I vaguely answered before he went on to inquire on specifics like starting time, who would chair and the duration of the meeting.

After assuring himself of our preparedness he told me we would meet on the day of the meeting at 18:00 hours, 30 minutes before the commencement of the discussion.

By 17:00 hours on that actual day, it had dawned on us that we had a challenge ahead of us because the venue was almost full.

By 17:30 hours the place was full with some people sitting right under the high table.

At 18:00 hours, true to his word, he was outside the hotel and called us.

When we went downstairs we found him with a horde of officials who surrounded him with cadres chanting slogans.

He mockingly asked us how the attendance was so far but before we could answer, he started loudly laughing at us saying we had thought he would not attract a big audience.

We had arranged for a room with the hotel management where he could go and fresh up waiting for 18:30 hours but he refused saying, “if the people are already there why should we wait?”

We had troubles to access the high table because there was nowhere to pass as a sea of people had filled up the entire hall including the doorway.

After struggling, we managed to reach for our seats and caught our breaths.

For me, at this point, work had just started because I had to control the crowd which was still swelling with those still outside demanding that a bigger venue should be quickly found because they could not manage to miss the discussion.

Further pressure emanated from my guest who was busy exchanging pleasantries with the members of the audience even before the meeting could start.

After delivering his unwritten statement for about 15 to 30 minutes we went into question-and-answer session, which proved even more challenging.

More challenging in the sense that I would be picking  a set of questioners on one side while Mr Sata would also be busy on other side saying:

“Iwe mwandi njipusha, ninshi tabalekusontela?” (You, I ask me! Why are you being sidelined?)

The bombshell for us, however, was yet to come.

As a way of enhancing our operations as a club we had designed pledge forms on which members of the audience would fill in indicating their support in cash or in kind.

For some reasons, when I was approached by one of my fellow leaders, I advised that on that day we should not pass the forms round but being a democrat they carried the day since I was the only one who objected and had no convincing reasons. 



I don’t know how the pledge form caught Mr Sata’s eyes.

“What is that form for? Pledges?” he rhetorically inquired and without waiting for the answer, he publicly directed Mr Charles Chimumbwa who was, I think, party national treasurer or secretary at the time, to contribute K2 million (now K2, 000).

LATE SATA

Mr Chimumbwa publicly announced that he would hand over the money the following week on Monday and one of us should travel to Chingola where he was based.

That stirred hullabaloo against us by fellow professional, then ruling MMD officials and other people who accused us of having been bought by the PF.

Before we could address the accusations we had to deal with the immediate issue of whether we should go and collect the money and after a heated debate we resolved to get it since it was publicly offered to the club and there was no strings attached to it.

For Mr Sata the meeting was an opportunity well utilised to effectively sell himself and his party by convincingly answering all the questions posed to him amid some public relations chores.

For the club, however, somebody had to pay the price of organising such a successful meeting, featuring an opposition leader and I think I paid a full price, which is, however, not the subject of this article. 

SATA: INSIGHTFUL ECONOMIC THINKER

ALTHOUGH he had no known advanced professional qualifications in economics, he showed deep understanding of economic issues.

His economic strategies looked like wishful thinking or indeed mere daydreams when he espoused them while in the opposition.

Yes, President Michael Sata astutely understood economic concerns, albeit with preoccupation on how the economic achievements could
benefit Zambians.

To some learned experts his economic arguments, at first, may not have looked sensible as they were, seemingly, contrary to what they read in the books of renowned authors like Adam Smith, who is considered to be the father of modern economics.

I remember calling him in 2008 for a story on the foreign exchange market and what he would do on the performance of the Kwacha, should he one day rule Zambia.

In his typical manner, instead of directly answering the question, he first lamented as to why the Zambian Kwacha was relatively the weakest currency in the region.

He said Zambians parted away with stacks of money when exchanging the Kwacha with any other currency in the region.

As a panacea, he said there was need to (I cannot remember the actual word used here) rebase the Kwacha to make it stronger against other currencies and once in power he would do just that.

Some economic experts I contacted to balance up the story scoffed at him.

Upon winning the elections, I believe his duty was now to champion the Kwacha rebasing idea among his ministers, some who could have had doubts on its feasibility.

In January 2012, Finance Minister Mr Alexander Chikwanda announced that Government was going to rebase the Kwacha by cropping off three zeros and introduce coins for lower-value denominations.
                                      

So, effective January 1, 2013, Zambia has had a rebased Kwacha.

At one time while campaigning in Old Mkushi, Mr Sata told the people of the area, which he would later declare Luano District, that once elected he would take economic development closer to the people by creating more districts.

By the time of his death, Luano and 31 other areas were being transformed into fully-fledged districts.

In 2008 I covered him during his campaigns for the presidential bye elections of that year in Mkushi and Kapiri Mposhi, where he told the people his government would recapitalise the TAZARA and Zambia Railway Limited (ZRL) networks.

The ZRL network is being turned round while for TAZARA, it was just a matter of time.

On-going projects, including the imminent reopening of Kabwe's Mulungushi Textiles sounded like mere fantasy some four years ago but now they are a reality.

In all these projects, Mr Sata's major aim seemed to have been the creation of jobs while ensuring economic sustainability.

He seemed to have understood that sustainable jobs could only be attained once the economy was buoyant and shunned quick-fix job creation policies.

In areas like banking, his main objective seemed to have been to ensure the people of Zambia fully benefited from the operations.

As I wrote in September 2013 in a tribute towards the Patriotic Front (PF)'s two years in government, the Central Bank seemed to have become a critical driver of change and recorded undeniably more innovations than any other government wing.

By December 2011, the BoZ had revised the minimum statutory capital requirement from K12 million or US$2.3 million to about K104 million for local commercial banks and to about K520 million or $100 million for foreign banks.

The reserve ratios for both local and foreign currency deposits were reduced to free more funds to the banks for onward lending.


It introduced the Cheque Truncation System (CTS) for all commercial banks to reduce on the period of encashment.

Mr Sata's main headache in this sector was the sky-rocketing interest rates and the access to the finances by Zambians with no collateral security.

We, therefore, saw government's reduction of the corporate tax for the commercial banks from 40 per cent to 35 per cent, provided a K65-million relief to banks under the 2012 National Budget.

This was in the hope that banks too would pass that to the borrowers through reduced lending rates.

The BoZ remained systematic on the matter and introduced the Policy Rate in March 2012 which helped to cap the lending rate.

At first, the BoZ policy rate was vague as its effect on the market could not be quantified leaving everyone confounded as to its importance.

But soon, the scenario was to change with the use of the policy rate to cap the lending interest rates being charged by the banks, making borrowing more affordable, but with room for improvement.


Later, a similar move was made on non-bank financial institutions on January 3, 2013, prompted by the extortionate interest rates some institutions had continued to charge their customers.

In all these measures, the government wanted to ensure that splendid economic indicators for the country have a bearing on the living standards of the people.

Previously, these indicators were mere statistics and somewhat contradictory to the standard of living for the people who became poorer amid splendid statistics.

The situation is now different because of the policy measures by the government under Mr Sata who, apart from having been a shrewd politician, proved to have been an insightful economic expert.

For comment, call: 0955431442, 0977246099 or email: jmuyanwa@gmail.com.

FARM BLOCS TO SPUR RURAL ECONOMY

 

Today we feature an article on farm blocs by my junior colleague, JAMES KUNDA, who writes that:

The Government has embarked on a programme to open up viable farm blocs in various parts of the country for people to be involved in primary production of crops and promote value addition after harvest.

Through the Zambia Development Agency (ZDA), Government is implementing a number of strategies including courting of local and investors to implement the concept which also aims at supporting economic diversification away from mining.

So far, Luena farm bloc in Kawambwa district of Luapula Province and Nansanga farm bloc in Serenje district in Central province have been identified as areas that contain portions of land degazetted for the development of farm blocs.

Four investors have since expressed interest to invest in the Luena farm bloc which has the total area of 100,000 hectares of land, with the Government planning to run the facility as an out-grower scheme.

According to Luapula Province Permanent Secretary Chanda Kasolo, the core-venture has 10,000 hectares of land, two major farms of 5000 hectares each, 14 commercial farms of 2000 hectares each and 900 small holderfarms of 50 hectare each.

The four investors among them Sakiza Spinning Limited of Kitwe and Senekai Group from South Africa have shown interest in investing in the farm bloc.

The investors who have already been to view the area are however yet to formalise the application processes before they can be considered.

                                                 

    Kasolo

Luena bloc has the potential to contribute significantly to the country’s economy because it is ideal for vegetation which in any form can be sold locally and exported.

ZDA recently announced that it would re-advertise the more than 17,000-hectare Nansanga farm bloc for private sector participation.

“The core venture, which is 17,500 hectares of land, will be advertised and we will soon invite private sector partners,” said ZDA director general Patrick Chisanga.

All in all, the implementation of farm blocs is strategic because Zambia posses enough arable land, classified as medium to high potential, ideal for production of grain, vegetables and cereal.

Apart from having a friendly rainfall pattern, Zambia enjoys 40 per cent of the water bodies in the Southern Africa Development Community (SADC) region and this enhances the country’s ability to support all-year round agricultural production.

Zambia is in dire need of innovative concepts that will help the country stimulate growth in agriculture production to improve the country’s Non Traditional Exports (NTE’s).

As at December 31, 2013, NTE’s stood at US$3.6 billion representing an increase of 27 per cent from the previous year.

Despite the improvement which can be categorically described as good, the Zambian economy has remained reliant on the mining sector with copper contributing the bulk of exports.

This calls for extensive strategies to empower the private sector that must in turn seize the opportunities in the export industry and expand their productive capacities from the farm blocs.

Government thus needs to source money that will be used to support farm blocs just like is being done with the value chain clusters under the Citizens Economic Empowerment Commission (CEEC).

CEEC has already covered a number of districts through the value chain identification project supporting a number of local entrepreneurs in sectors such as aquaculture and peanut butter production.

The Ministry of Agriculture and Livestock has been talking of issuing a $1billion Eurobond to implement the National Agriculture Plan (NAP).

Through the NAP, Government can provide financing to cooperatives that the farmers will have formed while operationalising the farm blocs and identify specific projects for value addition.

It is important to stress that agriculture is a viable economic venture that can promote trade between countries and Zambia already enjoys the market share when it comes to agricultural exports in the SADC region.

With enhanced performance from the farm blocs, it would be much easier to penetrate other lucrative markets on the African continent and beyond.

There are a lot of economic benefits that result from enhanced trade inter-country trade such as the recent quoting of the Kwacha on the Johannesburg Stock Exchange (JSE).

This will strengthen the currency against economic shocks and stabilize the rate of inflation thereby keeping commodity prices within optimal levels.

For contribution call: 0977 246099, 0955 431442 or e-mail: jmuyanwa@gmail.com

 

AUDITOR GENERAL's OFFICE AT 50

AS a tribute towards Zambia's Golden Jubilee, this week I want to look  at one of the fundamental constitutional offices of the Republic - the  Auditor General's office.

 The Office of the Auditor General (OAG) has posted immense successes  during the last 50 years of Zambia's Independence amid diverse  challenges.

Dating back to pre-independence era, it has gone through major changes particularly since 2003 when its major and unprecedented restructuring drive began.

                                                                 OFFICE HOLDERS

Zambia has had only three nationals serving as Auditors General since Independence, the situation which can be attributed to the security of tenure for the office and the suitability of its holders.

Because it was difficult to find a suitably qualified auditor  immediately after Independence in 1964, a white man, Mr John Bourne, occupied the office until 1972 when the first Zambian was appointed.

According to information obtained from the OAG recently, during the British rule, the country was under the constitutional responsibility  of the Secretary of State for colonies who established the colonial audit service and appointed it's Director-General.

The colonial audit service was not part of the office of the Comptroller and Auditor-General in the United Kingdom, but an internal audit function intended to assist the Secretary of State in managing
the affairs of the colony.

After independence, the colonial audit service became the Audit Office to provide external audit for the government, and the colonial audit staff remained as civil servants in the Audit Office.

The head of the colonial audit service became the Auditor General and the Office remained a department under the Ministry of Finance.

Mr Bourne ran the office until 1971 and he was succeeded by the first Zambian, Tubbs Nundwe (late), who occupied the office from 1972 to 1992.

Not much is recorded in that 20-year period except the fact that following Independence, the nation established its own Constitution whereby the appointment of the Auditor General and the functions of
the OAG became constitutional.

In 1995, Mr Frederick Siame was appointed by the new government of President Frederick Chiluba and served up to 2002.

Dr Anna Chifungula, who currently occupies the position, was appointed as the first female Auditor General for Zambia in 2003.

                                                                 REFORMS

Dr chifungula's ascendance to the office seemingly heralded the beginning of major reforms as late President Mwanawasa kick-started his regime, was the only chartered accountant for the entire
establishment in 2003.

Interestingly, she now heads the institution with more than 200 other professionals holding that qualification or better.

A peek into her reign shows that Dr Chifungula could be ascribed as the pioneer of the reforms in the office following her appointment in July 2003.

In a document dubbed "Working life for Anna O Chifungula," the Auditor General whose public service spawned in 1975, says, when she was appointed, the office had only 96 audit staff to cater for the entire country.

"I felt as if I had been demoted coming to a place that looked more dead than alive, but [then] Secretary to Cabinet, Mr [Leslie] Mbula convinced me to give it a try," said Dr Chifungula who, prior to that served as Ministry of Finance Permanent  Secretary among other top
positions.

Dr Chifungula says she immediately embarked on the recruitment of auditors because the 96 were too few, considering that the audit reports were four years behind.

The morale among the workers was low while the institution was least funded and, therefore, she signed an agreement with the Norwegian government for financial and material assistance to the office.

                                                    SUCCESSES AND RECOGNITION

The staff requirement at the time was 214. In November 2003, 18 auditors from outside the civil service were recruited.

"In December 2003, we managed to complete and edit the 2000/2001 and 2002 reports. This involved working with a team of 20 dedicated officers, who included my current Deputy Auditor General, Mr [Ron] Mwambwa ... through the nights to produce those reports," she says.

The OAG then embarked on further recruitment and retraining of the officers with 200 new entrants reporting for work by April 1 2005.

Two Deputy Auditors General, seven directors, 11 deputy directors and nine assistant directors were also employed.

New departments were further created, thereby increasing the staff establishment to 580 and with nearly 350 auditors mostly paid by the Norwegian Government.

 "Currently because of the continued assistance from the Netherlands and Norway, we have trained and retained 200 chartered accountants, who have ACCA, CIMA or ZICA professional."

In 2008, provincial offices were built and the following year district auditors were also recruited for 36 districts.

Currently, the OAG has 460 well-qualified auditors while the new buildings are able to accommodate all staff.

In the last 10 years the office has produced all the reports on time, that is, by December 31 of each year.

Special reports such as parastatal reports, performance, information technology audits and forensic audit reports are also being produced timely.

Dr Chifungula when she was conferred with honorary doctorate degree

In terms of coverage, the audit has increased from 20 per cent in 2003 to 85 per cent in 2013.

"I was awarded a life time achievement award by ACCA in 2008 and in 2013, the Zambia Institute of Chartered Accountants also bestowed such an award on me."

 For five years - from 2007 to 2012 - the office was appointed by the European Union (EU) to assist in the reconstitution of the Audit Office of Liberia.

She says that the work that has been put into the office has resulted in its recognition as it continues promoting good governance and accountability.

 For contributions call: 260 0955 431442, 0977 246099, 0964 742506 or
email: jmuyanwa@gmail.com.

GOVT SHOULD INCREASE ITS SHARES IN MINES

A FEW years ago, then Mines Minister, Wylbur Simuusa was quoted by the local media as having said that the government wanted to increase its shareholding in mining firms up to 35 per cent.

The report was received with approval by a cross section of the Zambian society especially those who believe in mixed economic system.

Of course the mines’ owners and some liberalists were skeptical about that as they thought that could be the beginning of the much-dreaded nationalisation by the new government then.

While the idea has died a natural death, the logic still lives on and it will continue to exercise the minds of many a Zambian for a long time to come.

The logic was and still is that since the government is seemingly not getting enough from the mines in terms of taxes, direct investment into the sector would accrue benefits for Zambians especially whenever the prices of copper and other metals go up.

Currently, Zambians are more of spectators - over their own resources - when it comes to the performance of the local mine, except for dividends through the only mining investment vehicle for the government – the ZCCM Investment Holdings.

SIMUUSA

The economic performance of ZCCM IH, therefore, gives a tip of an iceberg vis-à-vis the operations and achievement or failure of the mines.

Take for instance this year, the firm has declared the first dividends since its conversion into an investment holding company for the Zambian government.

The total dividends it has declared translate into K250 million while it raised K257 million as capital.

Other feats the firm has recorded include the rise in revenue by 163 per cent on the year to K803 million from the K481 million the previous year.

The profit after tax went up by 57 per cent to K892 million from K568 million while the total asset value rose by 20 per cent to K8.7 billion from K7.3 billion.

The company’s splendid performance continued in various other financials.

Considering that the Zambian government currently owns about 87 per cent of the total shares in this company with the minority shareholders holding the rest, most of the dividends will go to the Zambian government.

Indirectly, the ZCCM IH’s splendid performance should be reflective of the performance of the mining houses in which it holds some strategic shares.

ZCCM – IH wholly owns the Ndola Lime Company (NLC) while has 35 per cent shares in Maamba Coal Mine and 20 per cent each in Kansanshi mining in Solwezi, Konkola Copper Mine (KCM), Copperbelt Energy Corporation (CEC), Lubambe Copper Mine and CNMC Luanshya Copper Mine.

Further, the holding firm has 15 per cent shares each in NFC Africa Mining and Chibuluma Mine while it has 10 per cent in Mopani Copper Mine and Chambeshi Metals.

To put it in the most simplistic manner, if all the mining companies in which ZCCM IH has shares were each to declare K100 million dividends today, the investment holding will get the whole dividend from NLC.

It would get K35 million from Maamba and K20 million each from Kansanshi, KCM, CEC, Lubamba and Luanshya mine and so on.  

Eight-seven per cent of the amounts the ZCCM-IH would receive would be for the Zambian people through the government while the rest or about 13 per cent would be for the minority shareholders located in more than 20 countries in the world. 

The question which begs for an answer is, instead of relying on taxes to reap from the good performance of the mines why can’t the government increase the shareholding in all these firms?

Despite the expected uproar, this will ensure that the government fully benefit from any unprecedentedly good performance while in the time of price slump, of course, it will share in the woes with the mines.

At this juncture it should be noted that the Government is about to offload 27 per cent shares in ZCCM IH to remain with only 60 per cent in line with the Lusaka Stock Exchange (LuSE) listing requirement which limit a single shareholder to a maximum of 75 per cent shares in a listed firm.

Given that the 27 per cent shares will be sold to the Zambian citizens, however, the move will financially empower the citizens and should not be seen as a loss in any way since it would be like government transferring the shares from itself to its own citizens.

Contribution call: 0977-246099, 0955-431442 or e-mail: jmuyanwa@gmail.com.

NATIONAL BUDGET REVIEW

By JAMES MUYANWA

THE K46.7-billion 2015 National Budget which was presented to Parliament yesterday looks balanced.

 In coming up with his fourth budget since the Patritotic Front (PF) came into the office in 2011, Finance Minister Alexander Chikwanda seems to have been evenhanded in reconciling the scarce resources and the ever unlimited needs.

 The question of resources has been become even more imperative considering that more than 88 per cent of the total funds or K41.3 billion of the K46.7 billion required to fully implement this
financial plan will be locally sourced.

 Following Zambia's attainment of the lower middle-income country status more than three years ago, the cooperating partners have been reducing their financial support to the country while concession loans have become rarer.

 Therefore, it has become of essence to engage in balancing acts between needs and the resources as well as among the competing areas of expenditure.

 For instance, to ensure mitigation between wage bill and public service workforce, the government has maintained the freeze it placed on the public service wage bill while on the other hand effecting the recruitment public service workers.

 Another area where balancing is seemingly at play is in the mining sector where Mr Chikwanda has introduced a new tax regime which will enable  the tax collector, the Zambia Revenue Authority (ZRA), to collect more taxes from the mines.

 To balance that act, the government will, most likely, amend the contentious ZRA Value Added Tax (VAT) Rule number 18 to relax the requirements for refunds.

 If amended the rule, which has resulted into the government withhold the refund of US$600 million, will enable the ease recovery of the funds by the affected mines thereby mitigating the effects of the new tax regime.

 Elsewhere, it is also superb that the government has decided to lead by example in observing the Lusaka Stock Exchange (LuSE) requirement that no single shareholder should have more than 75 shares in any firm.

 By deciding to reduce its shareholding level in the ZCCM - Investment Holding to 60 per cent and offer the 27 per cent shares to Zambians, the government has scored a double.

 It has shown its adherence to good corporate governance while at the same time endeavouring to economically empower its own people.

 In terms of sector allocations, the K587 billion proposed for the Local Government Equalisation Fund seems to be a good start toward fiscal decentralisation.

 This will holster the efforts toward the long-awaited and much-talked-about decentralization, more so since the allocation will be based on the revenue collected within the local jurisdiction.

 Following the creation of new 32 new districts and one province in the country, the allotment of the K500 million for the carry-over of infrastructure development in these areas is a step in the right
direction.

 Under economic affairs, the K5.6 billion apportioned towards the road works look too colossal but massive also is the road projects which are going on in the country!

 At the end of these roads Zambia will boast of having come up with the most expensive single road project in Africa in the Mongu-Kalabo Road.

 Another remarkable allocation is what has been made towards the agricultural sector where the Farmers Input Support Programme (FISP) is earmarked to receive K1.1 billion.

 A further K255 million will be for E-voucher System for farmers in the input they receive and another K993 million for strategic food reserves.

 In line with President Michael Sata's speech when he officially opened the current Parliamentary session, the Ministry of Finance proposes to spend K650 million on the constructions of additional students' hostels at three public universities and one college.

 This will help tone down the accommodation shortage among students and related to that, is the increase in the allocation for bursaries from the current K156 million to K200 million.

Given the current demand for the bursaries at the universities, however, the increase seems to be too low to help resolve the situation.

 Under the revenue estimates and measures the doubling of the presumptive tax payable by individual operators of public service vehicles is seemingly too much.

 Albeit it has not been adjusted for the past one decade, the increase should have been staggered over some years.

 Various stakeholders have been calling for the increase of the specific duty on refined edible oil to encourage the consumption of local products and safeguard the local manufacturers.

 The increase of the duty to K2.20 per kilogramme from the current 85 ngwee, for that reason, is definitely uplifting to these stakeholders.

 Heartwarming to local manufacturer too is the increase of customs duty on explosives from  the current 25 to 30 per cent.

 The removal of the five per cent customs duty on jet fuel will help attract more airlines to introduce routes to Lusaka and other  international airports in the country.

 This will help in the transforming of Lusaka as a regional hub for most of the airlines while at the same time promoting the attraction of tourists to the country.

 Given the incessant outcry on the current mines' contribution towards the local economy, the review of the current mining tax regime has been inevitable.

 It can only be hoped that the redesigning of the mining tax regime will address most of the concerns which have been raised on the contribution of the mines.

 Truly, it has been bold of the government to go ahead and effect this tax regime which will see the national coffers gain additional K1.7 billion next year.

 What is unknown, however, is if there any means to ascertain the  source of the final metals whether from the open pit or from the  underground mining for the new mineral royalty purposes.

 It will be interesting to learn what mechanism the government has put in place to curb cheating by mines, especially those operating both open pits that will attract 30 per cent mineral royalty and
underground mines which will only attract eight per cent.

 What would prevent mines from cheating by over-declaring the outputs from the underground mines and under-declaring those from the open pit mining!

NATIONAL BUDGET PREVIEW

                                                   By JAMES MUYANWA

FINANCE Minister Alexander Chikwanda will today unveil the 2015 National Budget which is estimated to be between K43 billion and K46 billion.

The 2015 budget, which will be Mr Chikwanda's fourth but the third truly Patriotic Front (PF) one, will be debated on by Members of Parliament up to early December this year when it is supposed to be
adopted ahead of its effective date of January 1 2015.

It is highly probable to be above K43 billion since the 2014 one was K42.68 billion and lower than K46 billion because under the 2015-17 Medium Term Expenditure Framework (MTEF) the government projects a total budget of K45.98 billion for the year.

Of the total budget, about K34.3 billion or 18.9 per cent of the Gross Domestic Product (GDP) is expected to be domestically generated revenues as the grant category shrinks to about 0.8 per cent.

The big amounts of the budgets in the recent-past years have been locally financed.

As Mr Chikwanda indicated in the 2014 national budget, the government will continue with the wage freeze to try and keep the public service wage bill within manageable levels by saving about K17 billion, next year alone.

This will create more fiscal space for developmental and service delivery expenditures.

In the main, the aim is to reduce expenditure on personal emoluments as a share of domestic revenues from the current 52.5 per cent to ultimately 45.8 per cent in 2017.

Going by the provision of the MTEF and other documents from Ministry of Finance, including the Revised Sixth National Development Plan, it is clear that the Activity-Based Budgeting will be abandoned in preference for Output Based Budgeting which looks at the actual deliverables expected on the ground.

In sectoral terms, the economic affairs is yet again expected to take up a big chunk of the allocations with the road infrastructure likely to account for a large part, what with the Link Zambia 8000 and other on-going major road works.

Following the increase in the number of farmers under the Farmer Input Support Programme (FISP) to 1,000 per year, that programme will also take up a major portion of the resources in this category. Not forgetting the Food Reserve Agency (FRA) allocation!

To increase power generation, transmission and distribution considerable amounts of funds are expected to be allocated to Zesco and the Rural Electrification Authority.

Similarly, the Citizens' Economic Empowerment Commission will surely receive a sizeable amount for onwards disbursement to the economic participants.

Under the general public services the notable entry will be the financing of the mooted Local Government Equalization Fund, through which funding will be channeled to the local councils under a new arrangement based on domestic revenue generated.

Given the government's commitment towards the education sector, the funding to that cardinal area is expected to increase from the K8.6 billion it was allocated this year.

The funds will facilitate the procurement of school requisites and the recruitment of teachers to improve the pupil-to-teacher ratio.

Other interventions under this function will include the phased construction of primary and secondary schools, new universities, hostels at existing universities and teachers' accommodation.

The health sector, which received K4.2 billion under the 2014 budget, is another significant sector which is expected to receive augmented figures.

This will be for the usual health service delivery and to help finance several other innovations which are going on in this field.

On the revenue side, some changes are expected on the current mining tax regime to accommodate or address various issues which have arisen in the past few years.

The issues will include the continued assertion by citizens that the mining sector's contribution toward the local national economy is not as much as it should and the way forward on the now contentious Zambia Revenue Authority Valued Added Tax (VAT) Rule 18.

Others are the 10-per cent penalty on the export of semi-processed mineral products and capital allowances.

As a recent statement by Parliamentary Media Liaison Officer Mathew Mukelabai indicated, the House is during this session expected to pass a number of budget-related legislations to authorise the executive to spend the 2015 Budget and to operationalise government policy statements.

The expected bills include the Appropriation Bill, the Customs and Exercise (Amendment) Bill, the Income Tax (amendment) Bill, the Property Transfer Tax (Amendment) Bill and the VAT (Amendment) Bill.

Obviously, the employees countrywide are expectant to hear any changes in the Pay As You Earn (PAYE) threshold which will fully exempt a few more workers from not paying the personal income tax all together.

However, not much is expected in that area given the tight financial situation and, therefore, expecting another K800-per-month increase in exemption threshold would be expecting too much.

Through the adjustment of the threshold and the tax bands last year, the government forewent K957 billion which is being retained by the employees.

Generally, the macroeconomic targets for 2015 will not significantly vary from the current ones and within the projections of the MTEF
period.

The government policies are not anticipated to depart from the focus on the creation of at least 200,000 jobs per year as a way of reducing poverty and inequality on a sustainable basis.

This will, however, only be possible through investing in sectors that have been identified to best promote employment, add to productivity in the economy, lead to higher economic growth and develop the rural parts of the country.

The specific broad socio-economic policy targets could be a real GDP of more than seven per cent from this year's projection of 6.5 per cent, maintenance of single-digit inflation of about seven per cent and increase in the international reserves to more than three months of import cover.

Others could be the need to increase the domestic revenue as a percentage of the GDP thereby reducing on borrowing to ensure some semblance of self-sustainability.

The 2015 national budget is likely to target reducing borrowing to two per cent of the GDP while at the same time narrowing the deficit to 4.4 per cent of the GDP.
 

WHAT OF WINDFALL TAX? ...Unpublished article meant for october 8 2014

LAST week we featured the abridged version of the now Zambia Chamber of Mines (ZCM) submission on the mining sector budget proposals for  the 2015 national budget and 2015-2017 Medium Term Expenditure Framework (MTEF).

 The proposals narrowed down to how the mines should be made to pay lower taxes and obviously contained nothing on how the mines should pay more or effective taxes to the Zambian government.
This is understandable in that the chamber's main preoccupation is to  safeguard the interests of the mining houses in Zambia, sometimes even  at the expense of the nation.

 Just to refresh the readers' minds the chamber's proposals were on the now controversial Zambia Revenue Authority Value Added Tax (VAT) rule 18, capital allowances, premium discounts, the 10 per cent export duty on concentrates and VAT on importation of cobalt concentrates.

 To balance up on the proposals I will today look at the flip side of the chamber's proposals from where I have fished out an old and yet still contentious issue of the need for windfall tax.

 There are always arguments from the Zambians that the mines are not contributing as much as they should to the local economy, hence the enduring calls for windfall tax.

For instance last year, the Government collected mineral royalty of only K1.8 billion which was 8.4 per cent lower than projected,according to the 2013 Annual Economic Report.

In the year when the mines earned more than US$7 billion from the metal exports, the K1.8 billion mineral royalty was far below the K5.7 billion raised from the Pay As You Earn (PAYE) for the same period.

The paradox is that since early 2000s, mining investments have risen;with over US$10 billion in Foreign Direct Investments (FDI) since privatisation but the boom has had no corresponding soar in mines' contribution to the nation.

According to the 2013 International Council of Mining and Metals report on Zambia, in 2011, new FDIs into mining accounted for 86.2 percent of the total FDIs while export of copper mining accounts for over 80 per cent of export earnings.

This is a high share even in comparison to other mineral-dependent countries.

Within the overall balance of payments, copper export earnings are partly offset by foreign exchange outflows some of which are highly suspected to be through transfer mispricing and other dubious routes.

This is further compounded through investors' profit repatriation and suspicious debt servicing, which counter the balance of payments inflows from mines.

According to some Bank of Zambia data, Zambia's external trade surplus which is around US$2.7 billion is offset by external (outward) transfers of US$1.5 billion annually.

The perennial story is that local observers argue that the contribution of the mining sector to the national economy can be augmented.

It is for that reason that the government, through the Mining and Minerals Act 2008 introduced the windfall tax.

This, according to Investopedia, an on-line investment education resource, is a tax levied by governments against certain industries when economic conditions allow those industries to experience above-average profits.

Windfall taxes are primarily levied on the companies in the targeted industry that have benefited the most from the economic windfall, most often commodity-based businesses.

As with all tax initiatives instituted by governments, there is always a divide between those who are for and those who are against them.

This short-lived tax was abolished a year later and will, seemingly, never come back.

In mourning it, its strong campaigners, however, contend that it is the best way of ensuring that the investors plough back resources into the host country.

They dismisses assertion that the windfall tax is counter investment saying that the level at which the tax starts operating is over and above the production costs leaving profits for the investors.

For instance, in 2008 it was based on the prices of copper on the international market meaning that the higher the prices the higher the taxes.

Then the grading were 25 per cent tax when the copper price is at least £2.5 per pound, 50 per cent when the copper price is three pound per pound and 75 per cent for £3.5 per pound.

The country lost out on revenue about three years when the copper prices went as high as $10,000 per tonne.

The prices used were those prevailing at the London Metal Exchange (LME) to ensure uniformity and predictability.

Another advantage about the windfall tax is that it is self-adjusting meaning that when the copper prices are extremely low there would be no charge at all as it will cease to operate.

Unlike the taxes on profits which can easily be manipulated by overstating the cost of production, as it is allegedly happening now, the windfall tax is not determined by the expenditure levels of the
mines.

Arguably, the windfall tax is the only way the government would ensure that the mining investors contribute meaningfully to the local economy especially considering that minerals are wasting assets.

As a follow up to the ZCM proposal I propose the reintroduction of this contentious tax in the 2015 national budget which is expected to be unveiled by Finance Minister Alexander Chikwanda in two days' time.

For comments call: 260 0955 431442, 0977 246099, 0964 742506 or email: jmuyanwa@gmail.com.

CHAMBER OF MINES' PROPOSALS TOWARDS 2015 NATIONAL BUDGET

TODAY, I have decided to feature an abridged version of the Chamber of Mines of Zambia (CMZ) submission on the mining sector budget proposals for the 2015 national budget and 2015-2017 Medium Term Expenditure Framework (MTEF).

The document reads:

Following the call by the Ministry of Finance to stakeholders to make submissions on tax and non-tax revenue measures to be considered by Government as it prepares the 2015 National Budget and 2015-2017 Medium Term Expenditure Framework, the CMZ ... we would like to put forward the proposals below for inclusion in the overall submissions.

VALUE ADDED TAX (VAT) RULE 18

Measure: We propose amendments to Rule 18, specifically amending sub-section (ii), to read as follows:

"Rule 18 of the principal Rules is amended by the deletion of sub-rule (1) and the substitution therefor of the following:

 (1)     Unless the Commissioner General shall otherwise allow, a taxable supplier claiming that a supply is zero-rated under the Second  Schedule to the Act on the grounds that the supply is an exportation
of goods, shall produce to an authorised officer-

 i.      Copies of export documents for the goods, bearing a certificate of shipment provided by the Authority or Import documentation into the next country of passage or destination provided by the customs authority of that country.

 ii.     Tax invoices for the goods exported;

 iii.    Proof of payment, made by the customer, for the goods;

 iv.     Documentary evidence, proving that payment for the goods has been
made into the exporter's bank account in Zambia; and

 v.      Such other documentary evidence as the authorised officer may
reasonably require."

a)      Reason: Current VAT practice as guided by Rule 18(1) VAT (General) Rules, 1997, allows an export of goods from Zambia by or on behalf of a taxable supplier to be zero-rated, subject to provision of evidence of exportation as the commissioner general may require.

In its current format, Rule 18 prescribes, among others, the following documentary evidence to support exports:

"ii)    certified copies of customs import documents at the country of destination, bearing a certificate of importation into the country of destination by the customs authority for that country;"

Finance Minister Alexander Chikwanda is expected to present the 2015 National Budget to Parliament on Friday next week.

The mining sector has had no problems producing documentation all the way up to the border or point of exit as these documents are within our control.

The mines, however, have had difficulties with fulfilling sub-section (ii) above as they sell their products to commodity traders, who have their own commercial arrangements with various customers all over the world.

In addition to the fact that they cannot trace documentation in the final country of destination for the goods as they have no access to the final customers, it is further implausible that the ZRA would demand documentation beyond what its own officers have verified as exported as indicated above, and would instead want to rely on third party documentation from other tax jurisdictions.

The failure to provide documentation required in (ii) above has resulted in the ZRA withholding huge sums of their VAT refunds, which has resulted into various operational problems with severe impact on cash flows impacting very negatively on their ability to fund critical expansion projects as well as normal operations.

Specifically, the withholding of this VAT has resulted into inability to fund critical expansion projects, corporate social responsibility projects as well as maintain cash flow to support normal operations.

CAPITAL ALLOWANCES

Measure: The capital allowances on mining plant, machinery and equipment should be reverted to 100 per cent per annum for the cost to be fully claimable within one year.

Reason: Under Section 33 of the Income Tax Act currently, capital allowances are claimable at the rate of 25 per cent on cost and upon commissioning of an asset, meaning that this cost can only be claimed
in full after four years.

In the mining industry, it is not uncommon for expansion projects to take for instance three to four years before completion and commissioning.

During this period of construction the companies will be spending money without getting any tax relief on what they spend.

Even upon commissioning of an asset, it will still take another four years for them to fully claim the related capital allowances.

PREMIUMS DISCOUNTS

Measure: The Reference Price for sale of metal products between related parties should allow adjustments for premiums and discounts that are made based on the quality of the metal products at
finalisation.

Reason: The Income Tax Act under Section 97A currently requires an adjustment of all sales between related parties to the LME price, even when the price actually charged is justified based on international best practice.

This has resulted in finalization adjustments for premiums and discounts not being taken into account, despite this being a commercial reality.

 The Act should therefore be amended to permit use of alternative prices where these are commercially or otherwise justified.

 EXPORT DUTY ON CONCENTRATES

Measure: The government should consider revoking the tax on concentrates exports.

Reason:  The revoking of Statutory Instrument number 89 that allowed concentrate exports to be duty exempt need to be re-introduced as a good number of mines had large stocks of concentrates which for some technical reasons could not be processed locally.

These include high insol materials that may not be able to be smelted locally and Government needed to understand that the industry only exported the concentrates it could not technically and/or economically treat.

This would also help tackle the perception that companies were smuggling other metals within the concentrates.

VAT ON IMPORT OF COBALT CONCENTRATES

 Measure: The Government should reintroduce permanent VAT deferment on cobalt concentrate imported.

 Reason: Due to shortage of higher grade cobalt concentrate in Zambia, Zambian processing/tolling plants have to import most raw materials from the Democratic Republic of Congo to maintain cobalt production in Zambia.

 Currently Zambia produces approximately seven to eight per cent of the world's cobalt metal. Over 90 per cent of this is produced from imported cobalt concentrate.

 For comments call: 260 0955 431442, 0977 246099, 0964 742506 or email:jmuyanwa@gmail.com.