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.

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.

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.

INTEREST RATES: ANOTHER FEAT UNDER PF TWO-YEAR RULE

IN the last two years, the Patriotic Front (PF) government seems to have effectively utilised the Bank of Zambia (BoZ) as a major channel of economic transformation.

With the advent of the new administration in September 2011, the Central Bank became a critical driver of change and has since then 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 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.

BOZ LOGO

On December 19, 2012, the BoZ announced the capping of the effective annual lending interest rate that commercial banks can charge any borrower. 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 single most important innovation the Central Bank has implemented is the Kwacha rebasing whose upshots affect all Zambian nationals and residents. 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. For this year, it has introduced the Cheque Truncation System (CTS) for all commercial banks whose implementation, however, seems to have not achieved the desired goals and I will soon dedicate a week to look at that.

 The government’s main headache in this sector was the sky-rocketing interest rates charged by the commercial banks and the access to the finance by Zambians with no collateral security to talk about. We, therefore, saw government’s reduction of the corporate tax for the commercial banks from 40 per cent to 35 per cent which provided a relief of K65 million to banks under the 2012 National Budget.

 This was in the hope that banks too will pass on that to the borrowers through reduced lending rates. Generally, most of the measures in this sector have been aimed at helping to reduce the lending interest rates and avail more financial resources to the members of the public through the facility. But at first, the interest rates remained high, while the loans did not seem to have reached the targeted people.

The BoZ remained systematic on the matter and introduced the Policy Rate in March last year while transforming the BLR into lending interest 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.

 On December 19, 2012, the BoZ announced the capping of the effective annual lending interest rate for commercial banks effectively providing the maximum interest rate chargeable by the banks on loans. This has made borrowing from commercial banks more affordable and equitable to different classes of borrowers, including those in the low-income bracket.

According to the BoZ, this cap is arrived at by adding a factor of nine per cent to the monthly Policy Rate which stands at 9.75 per cent for this month. Wary that not all borrowers rely on the commercial banks for loans, 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 move, which was announced on January 3, 2013, was prompted by the extortionate interest rates that some non-bank financial institutions had continued to charge their customers. The capping of interest rates, therefore, is aimed at making borrowing from non-bank financial institutions affordable and equitable, especially to the vulnerable micro-borrowers.

The maximum effective annual lending interest rate for non-bank financial institutions designated as micro-finance service providers by the BoZ will now not exceed 42 per cent.

 The maximum effective annual lending rate that will be charged by all other non-bank financial institutions will not exceed 30 per cent.

 In all these measures, the BoZ seems to be ensuring 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 scenario has now, however, changed and all citizens can enjoy the lower interest rates being charged by both commercial banks and non-banking financial institutions.

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