HH: 2016 budget fails to inspire anyone

The 2016 budget presented by Hon Alexander Chikwanda fails to inspire anyone. The failure to inspire is as a result of the fact that it is blatantly skewed towards the Executive and proposes little that will materially improve the situation of the majority of Zambians who have seen a marked decline in their standard of living in recent months.

For starters this budget, much as it appears to have increased, is actually a reduction in real terms on last year because the kwacha has devalued by 45% since then. Thus the purchasing power of this budget is nearly 40% less than last year’s budget. What do we mean? Last year the budget was ZMW46.7 billion (US$7.4 billion) while the ZMW 53.1 billion for this year translates to only US$4.6 billion. In a country that imports 80% of what it consumes, even down to the bitumen we use for road construction, the question is how will we pay for all these goods and services?

When one analyses the budget speech and the Yellow Book, the theme does not seem to be properly represented. In fact, “Fiscal Consolidation to Safeguard Our Past Achievements and Secure a Prosperous Future for All”, is a far cry in this dispensation. How have they killed our past? Simple. When the PF arrived in office the external debt was US$1.1 billion, it’s now at US$6.3 billion, while domestic debt has doubled from ZMW13.8 billion to ZMW26.5 billion. The result is we are now condemned to spend more each year on paying the interest on our debts than on vital areas such as healthcare. For example, the 2016 budget has allocated ZMW 7.1 billion to service external and domestic debt interest, but only ZMW 4.4 billion on health! To therefore say we safeguard our past is an insult to the intelligence of the Zambian people who are much wiser.

In addition to the high interest payments, questions remain regarding the creation of a sink fund. We are not sure how this will operate, but if the idea is to grow it to US$750 million to pay off the first bond, we need to be serious in how we invest that money. If it ends up with cadres again, we are not safeguarding our future at all.

There is also no demonstration that this budget will reduce on expenditure aimed at consumption. There is not a mention of that in the current budget. To therefore claim that the budget deficit will reduce is an over statement by the Minister.

The specifics:-

The Economy

The Zambian economy needs to grow at over 10% in order to make any meaningful gains. This growth must be derived at least in part from agriculture, primarily because 80% of our people are employed in the sector and the potential for the expansion of value-addition sub-sectors, as well as productivity increases, is clear. The next sectors that must be targeted are the manufacturing and energy sectors. This is how we thought this budget should have been structured.

Agriculture

Our expectation was simple. We expected the budget to address the value chain. This means from production, through value-addition and all the way to the market. Crop productivity is not as a result of over reliance on maize, it’s often because of poor agriculture practices due to lack of extension services, in addition to the late delivery of inputs and payments by government and the FRA. In some instances all farmers need is to be educated on the type of seed to use to makes a difference. We therefore expected that the Minister would propose the reinvigoration of extension services coupled with a stable agriculture marketing system backed by law. For a long time our farmers have been at the mercy of exploitative businessmen who have taken advantage of the FRA that fails to pay farmers on time.

Of the over 2 billion kwacha allocated to agriculture, less than 1% is dedicated to extension services. The rest is FISP and Grain Marketing. What is interesting is the level of investment in irrigation, which has IDSP whose product is aimed at commercial farmers. When will government attend to the poor people of Zambia who are most in need of support?

Energy

Zambia currently has a huge power deficit. Our people are very depressed that the Government, which claims our situation is an act of nature (drought), can still go back to the same power generation means (hydro). All the pronouncements made by the Minister sound logical and good on paper, but we are faced with an el-nino phenomenon this coming season. That implies a drought, how then will these power stations run?

Our expectation was that more incentives would be given to alternative energy producers. We are still talking of non-renewable energy such as Kenya’s 5-year project to develop a 1 Gigawatt (1000 Megawatt) solar power plant. What is fundamentally different between Zambia and Kenya we ask? The important differences here are that they have two things, the first is a robust private sector and the second a cost reflective tariff. As long as Government, through Zesco, continues making an offer price that is less than the market price, to Independent Power Producers (IPPs) there will be no uptakers in this sector and we shall continue to struggle with power production. What we expected were real incentives, not cosmetic measures such as the ones announced in the budget.

 

Manufacturing

This, according to our manifesto is a top priority. Manufacturing does not just mean mega factories, but it can even mean small cottage industries that add value to our products. We have in mind agricultural produce as a starting point. There is no justification for Zambia to import peanut butter or long life milk for example. These are products that can be manufactured here in Zambia as long as proper value-addition strategies, such as financial products and market linkages, are put in place. Zambia cannot be importing what it eats when we have a hardworking cadre of farmers that can produce nearly all the products that we see on the shelves of multinational supermarkets.

Tourism

We can tell the Minister upfront that Zambia’s tourists should not only be considered to be those who use aircraft, but also the 15 million Zambians that live in Zambia. To therefore mention that we will have a national airline as a way to promote tourism is missing out on this huge tourist cadre. What we need in tourism is to start developing products for the Zambian tourist as well. This could include financial products, and tax incentives on hotel and tourist facilities that take in Zambian tourists. The focus must be on sustainable and income generating tourist products, not a national airline when airport upgrade projects are still running well behind schedule.

Mining

Commodities go through cycles all the time. What is clear, however, is that Government has failed to capitalise on the years of high copper prices, as well as to plan in advance for a downturn that could have been anticipated. The sustained high copper prices from 2006 were driven largely by a single user; China. Despite several warnings that the economy of China was beginning to overheat as early as 2009, the warnings were largely ignored. We should have shored our economy against this hiccup. One way was to immediately embark on diversifying the economy and developing industries that produce import substitution. To try to “fatten the cow on the marketing day” is highly unlikely to achieve the intended results.

Our advice is this; let Government provide incentives to the mines to ameliorate the dual situation of poor copper prices and most importantly load shedding. What has caused the strain on the mines is load shedding more than anything else. In the 90’s copper was selling for less that US$2,000 a metric ton. But the mining companies largely survived. The PF took over when copper prices were at US$8,300 prices. Where were they to now start talking of diversifying from copper?

Education

The Minister intends to continue building infrastructure. There is something wrong with this approach to quality education. Education can happen anywhere, actually in developed countries there have what they now call home schooling. The reason is simple, populations grow and the Government can only provide so much infrastructure.

What we expected from the Minister was to allocate money to quality education and education that imparts skills on the learners. But what is even worse is that the education budget has been cut by ZMW290 million. What this means is that the education budget in purchase power parity is down by over 40% given the kwacha to the dollar has slid as much as 45% from this time last year. Our expectation was again that there would be student loan reform and increased involvement of the private sector in this issue. Students need to be sponsored, and the amount allocated is not going to solve this problem.

Health

Again this issue has been reduced to infrastructure development. Health economists will tell you that it’s cheaper to prevent illness than to cure it. That is why the adage prevention is better than cure applies here.

What we expected again was health care reform that includes a robust national health care insurance system. The shortages of drugs in hospitals, the shortage of human resources cannot be resolved by building more hospitals. We can run a successful health care system if we address primary care. The people sleeping on floors at UTH and other major hospitals can be treated at primary care level hospitals if only they were functional. This is what we expected the PF to do, not a story of infrastructure only again.

Conclusion

As we stated at the outset this budget is not pro-poor. The Government has taken away from social sectors an amount of 7.1 billion (13%) that would have been used for investment in order to pay interest on debts that have delivered little material benefit to the majority of Zambians. They are anchoring the health of the economy on an out-dated method for calculating debt sustainability. We cannot be looking at GDP when we do not have a mechanism for collecting taxes due to us. We can tell you now that this budget will not do anything to the high poverty levels experienced in this country. As a matter of fact we shall have a poorer Zambia and yet more hunger by the time UPND takes over Government next year.

Hakinde Hichilema

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