Six months ago we wrote at length about how the various inconsistencies of the PF Government were bad for growth and investment. Since then the negative impacts of this haphazard and reactive approach have increased, fuelling inflation, driving down the value of the Kwacha and leading to job losses, but yet the inconsistencies continue and we are no clearer on the PF vision for Zambia’s economic and social development.
In our last analysis we considered the impact on the mining sector of the numerous changes to the mining tax regime since the PF took power. In the last few weeks we are seeing the unfortunate result of a Government that has mismanaged the sector and failed to set out a clear vision for Government and business to work together and protect those who work in the industry, either as miners or contractors. Government has been inconsistent both in the matter of repaying VAT refunds owed to the mines and in the dismissal of workers by the mines. The PF said they would repay the VAT refunds and have not, and they said they would not allow the retrenchment of workers but they have. Our mining sector is now broken. At a time when the cost of living is higher than can be remembered by most, thousands of miners and their dependents are pushed to the limits for survival.
One item the PF Government has been consistent in is its habit of borrowing large amounts of money for consumption. However, after the recent budget statement from our Minister of Finance and press conference given by President Edgar Lungu we had understood that the time of borrowing endless amounts of money that we have no secure way of repaying was coming to end. Those who have seen the news this weekend will share our shock at the announcement that the PF Government is borrowing a further $418 million from China. The loan will be used to contract a Chinese firm raising questions about how many, if any, jobs will go to Zambians. How is it consistent to acknowledge that these debts are already putting our economy and currency under great strain and yet continue to borrow as if there is no problem? How do we need to borrow more again so soon after the third Eurobond of $1.25 billion which was raised only in July this year? Do the PF not realise the potential and capacity Zambia has to generate resources locally, rather than relying on borrowing?
Everywhere we look we are seeing the introduction of policies one minute and their reversal the next, whether it’s the increase in fines and fees for traffic offences and services which were raised in September and then reversed in October, or the incorporation of our national airline which was incorporated in July and then scrapped in November.
The analysis we provided in May remains just as relevant and true today:
‘The current situation in Zambia where tax and other policies and their implementation have changed without consultation or considering the reputational risk to the country’s economy is not only dangerous but very harmful to Zambia. It is apparent that the PF Government runs the country on an adhoc basis. Policies are arrived at without due care and skill. This is unacceptable in a country endowed with professionals such as finance professionals, economists, lawyers, geologists, and investment analysts who can help the Government weigh-up the likely outcomes of policies before they are implemented.’
Unfortunately the one policy the PF Government appears to be committed to is its “no-look-outside” policy; only willing to consult PF sympathisers. They are fishing from a pool with limited talent and skills. It is no wonder economic growth has been on the decline since the PF took over power: the Kwacha has fallen by over 56% (4.95 to 7.46 per USD). The kwacha is one of the worst performing currencies in the world due to high depreciation and high volatility, and the country is faced with a high fiscal deficit due in part to the huge VAT refund arrears which are equivalent to the entire health sector budget for 2015. This is happening in an economy that exports one thing; copper, and imports everything because of the continued failure of Government to take any action to support manufacturing and value addition.
A UPND-led Government knows the value of public money and will make decisions based on the end result for the Zambian people, rather than taking short-term populist decisions that will later cause us damage. We know that good leaders listen, consult and are not afraid to engage experts, are capable of explaining their decisions to the people. Good leaders debate issues with fellow politicians rather than relying on personal attacks to defend their position. When the PF is called upon to explain their stance, they have always rushed to call people names in response and we expect the same reaction to this policy brief.’