Breaking the past: a plan for reform & wealth creation in Zambia

By Thrift Wise-ZAMBIA today is at an important economic and political crossroads. Many citizens are asking what has happened to our great nation? In 2009 we are in a situation where a politician can utter insults and speak about ‘Kasama belonging to Bemba’s’.

Politicians are daily hurling insults and threats against each other forgetting the suffering masses? Where is our country going? Where are the patriotic national leaders to speak up on behalf of the people? The country is in a shameful state where we do not respect the rule of law and, parts of the media and civil society have become toothless mouthpieces’ of foreign interests. It is important that we acknowledge the truth and not bury our heads in the sand.

Zambians need to hear debates on the issues that affect their well being and not mindless arguments about who did what and where one comes from etc…

At independence in 1964, Zambia had one of the most vibrant economies in Sub-Saharan Africa, which was supported by a strong mining industry. Today, Zambia has more than two thirds of its people living below $1 per day and GDP per capita is now one of the lowest in Sub-Saharan Africa. We are now classified as a Least Developed Country and a Highly Indebted Poor Country (HIPC). The Government has in the past been bold enough to undertake severe fiscal and monetary policies to achieve the HIPC Completion Point and generate more foreign aid. However, this success has been on the basis of a foreign imposed austerity programme that bears no relation to the reality on the ground for the ordinary Zambian.

Zambia is not poor and we can reverse all these negative statistics within 10 years if we unite and use our natural resources in a prudent manner. What is required is a locally owned and developed National Plan of Action (not foreign prepared and donor dependent Vision 2030) and the Political Will to implement the right policies over a sustained period of time to create the conditions that will allow the country create wealth and through that defeat poverty.

I urge all peace loving progressive Zambians to rally around this plan and let us focus on securing the future of our children rather than fighting over power. Our plan should be to restructure the economy to: create jobs, provide adequate incomes and to meet the basic needs of our people.

The Government should be commended for achieving the HIPC Completion Point and receiving debt relief of just over $2.5 billion. However, that does not signify economic growth or development. According to Government, as a result of this achievement and the recent rise in the price of copper, some few sectors have been able to benefit from this, however, we still have many Zambians wallowing in absolute poverty and donors still funding the bulk of our education and health sectors which allows them to behave with impudence and meddle in Zambia’s sovereign right to exist as an independent nation.

What does this all mean for the poor Zambian living on a dollar a day? NOTHING EXCEPT MORE POVERTY AND DESPAIR! If the economy is improving, it must be reflected in the ability of the people to have access to basic needs.  That is how true development should be seen and measured.

MINING INDUSTRY

The status of the mining industry in our country is a critical issue to reforming our economy. The nation has been taken for a ride for too long and we will not benefit at all from the current high copper and cobalt prices that will remain so for the next 10 years at least. The new mining companies have been given tax concessions that will take between fifteen and twenty years before they become taxable. Today our hardworking miners are worse off than previously when the price of copper could barely allow ZCCM to make a profit.

Baluba copper mine in Zambia

Baluba copper mine in Zambia

If we had a caring prudent Government it would immediately re-introduce a windfall profits taxes albeit at a lower level and increase mineral royalties so that the nation could earn some real income from the extraordinary performance of the copper/cobalt and other metal markets. This is a very common measure. The British Chancellor has imposed it last November on the North Sea Oil companies. Nigeria has also consistently imposed such a tax whenever the price of oil has risen above a certain level. Further, as Government we would ensure that the bulk of the windfall tax revenue would go towards improving the welfare of miners and towards social economic infrastructure development in the rural areas of Zambia . Angola also has significant revenue from its oil industry and the South African economy is built on the backs of the black miners who labour daily to produce the gold and the platinum.

In contrast Zambia has not been able to diversify its economy nor benefit fully from its resource base. All we do is plan around pleasing donor countries rather than doing detailed resource management plans that would efficiently utilise our abundant natural resource base. Our approach has been quite dogmatic rather than dynamic and our development has been unduly oriented to urban areas much more than to rural areas. The attention given to rural areas in terms of fertiliser distribution has not been matched by meeting the cry of the majority rural people for road infrastructure, health and education facilities, livelihood opportunities, etc. Why is our economy stagnant in the midst of all this wealth and natural resources? The answer begins with the size and expenditure of Government. Zambia must address this issue squarely and without fear or favour. The size of Cabinet in this country is untenable and needs to be dealt with in a non-partisan manner. We will never see true progress until we remove this cancer from our public finance management system.

Our central goal for reform and development must be to create a strong, dynamic and balanced economy that should:

Ø      Plan to achieve a GDP growth rate of 10% per year and single digit inflation below 5% from the second year of the reform agenda;

Ø      Immediately reduce the size of Government by reducing the number of Ministries to only 17 each supported by only one Deputy Minister. Some of the current Ministries would be restructured into Statutory Government Agencies or Departments headed by Directors or Director Generals. The recommended streamlined structure is shown below:

Table 1: Recommended New Cabinet Structure

1.

President

2.

Vice President

3.

Min. of Agriculture and Cooperatives

4.

Min. of Commerce, Trade & Industry

5.

Min. of Defence

6.

Min. of Education

7.

Min. of Works and Transport

8.

Min. of Environment, Natural Resources, & Tourism

9.

Min. of Finance & Economy

10.

Min. of Foreign Affairs and International Cooperation

11.

Min. of Health

12.

Min. of Home Affairs

13.

Min. of Labour & Social Security

14.

Min. of Lands & Housing

15.

Min. of Local Government and Rural Development

16.

Min. of Mines, Energy and Water Development

17.

Min. of Science, Communications & Technology

18.

Attorney General

19.

Solicitor General

20.

Governor, Central Bank

21.

Secretary to the Cabinet

Ø      Reduce PAYE Tax rates for the lowest paid workers and adjust the tax bands to increase the tax credit threshold and encourage companies to recruit more workers.

Ø      Reform labour policy and enact a modern and enabling Employment Act that reduces the current liabilities that discourage companies from employing people on a permanent basis rather than the current casualisation of labour

Ø      Reduce the corporate tax on agricultural and non-traditional exporting companies earnings from the current 15% to 10%

Ø      Reduce the rate of VAT across the board

Ø      Increase mineral royalty tax to 6% for all mining companies. This was the original rate before Government granted concessions to the former ZCCM mining companies

Ø      Reduce corporate income tax and remove all discretionary exemptions. Corporate tax should be a flat rate of 20% for all companies except non-traditional exporters who will enjoy a lower rate

Ø      Implement a country wide rural infrastructure development programme based on a labour intensive Public Works system

It is only by addressing the above that our economy will be capable of sustained growth. We have indeed made progress with policies, but stumbled in terms of implementation. Our skill level and institutional reform has not kept up with policy leaps; in fact, we have more bureaucracy today than before. The absence of a simple system that is competently executed has proved to be a tremendous impediment for investors large and small, local and foreign. We cannot use old institutions to administer new systems! Zambia needs to vigorously pursue economic policies that reduce administrative burdens in industry and commerce, while raising living standards and creating good paying jobs for ordinary Zambians. A ‘pro-poor’ budget should be one that reduces taxes on the lowest earners rather than the highest earners, and removes import duty on key inputs that are used to produce locally. The budget should also aim to reduce corporate tax in order to stimulate increased investment, which would lead to more jobs.

We should also make it easier and cheaper for small businesses to register formally and begin to pay tax at a very low rate in order to encourage compliance. It is important that in developing our budgets we ensure that any measures we propose are sustainable and improve the economic environment to encourage private investment rather than discourage it. More importantly, a pro poor budget must address the high recurrent expenditure of Government by imposing performance measures and targets that reward prudent management of Zambia ’s scarce resources rather than is the case now.

Further, public servants should be subjected to more stringent performance indicators and Government must vigorously implement activity based budgeting. The Public Sector Reform Programme must be implemented more effectively so we can have a streamlined public sector that focuses on delivering services to the intended targets, including streamlining and decentralising the policymaking process right down to the district level and giving more autonomy to the provincial administrations. The message to development partners, the private sector and policymakers in Zambia is that the only sustainable path to meeting the MDGs is by generating more domestic revenue, involving the private sector, and thus boosting economic activity, job creation and incomes.

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