Situmbeko Musokotwane reflects on recent Economic Summit

Situmbeko Musokotwane reflects on recent Economic Summit

By
Situmbeko Musokotwane ( Former Finance minister)

Finally, the Economic Association of Zambia (EAZ) conference in Livingstone is over and concluded. It was dubbed “the Future of Economic Diplomacy. Supporting Inclusive Growth and sustainable Development in Africa”. President Lungu and other foreign dignitaries graced the occasion which was also attended by many business executives.
I was invited to the conference. However, my conscience did not allow me to participate so I stayed away. Why?
EAZ hosting a conference is totally in order and is good. EAZ has been doing that since, from my recollection, the 1970s. Such meetings provide a good platform for discussing economic and other national issues. But the importance of EAZ must now, as before, extend beyond being mere organizers of economic conferences. Anyone, including professional organizers of all types of conferences are able to organize such.
Beyond conferences, the public also expects to hear well-reasoned, professional and coherent statements from EAZ on the key economic issues of the day. In this regard, EAZ is expected to stand in the same league as other professional associations. When there are important legal issues in the land, the public look forward to statements from the Law Association of Zambia (LAZ) to give direction. Same for other institutions like the Press Association of Zambia (PAZA) for press issues, and the Engineering Institute of Zambia (EIZ), for engineering issues, etc.
Sadly, it is that professionalism; the well-reasoned and coherent voice from EAZ on public economic issues that I miss these days. To the contrary, some statements coming from EAZ are greatly disturbing. This is not to say that there should be no differences in opinions among economists. Those will be there and it is healthy that it is so. However, there are certain things where honest differences should be narrow, if there have to be there at all. Here are a few examples of positions taken by EAZ that have been troubling and, in my opinion, should not have led to differences in opinions from others.
Firstly, take the issue of the national indebtedness. Since 2013 the economic fraternity has been cautioning the Zambian government against the pace at which the country was borrowing. They advised the government to slow down on borrowing, both from the external and the domestic sources. The fraternity giving cautionary advice included local economists. Advice also came from reputable international bodies like the International Monetary Fund, the World Bank and the African Development Bank, and indeed from the world financial media.
Shockingly, EAZ was very loud in stating that it did not see anything wrong with the growing debt problem that the other economic groupings were seeing. EAZ told the government that its debt parameters were alright. Yet, because the government was continuing to borrow strongly the parameters were deteriorating rapidly. Zambia’s indebtedness has now spiraled out of control, a development which has once again been confirmed by the Board of the IMF last week. Today, the heavy national indebtedness has become Zambia’s biggest national economic problem.
The effects of the debt crisis in Zambia are now evident even to the non-economists. As more money has been used for debt service, less has remained in the country for other important uses. In fact, the only reason why the government has not defaulted on debt is because it is suppressing funding for national domestic priorities. Last week, Parliament approved supplementary budget for the year 2019 to the tune of K9.8 billion. Two thirds of this new spending will be utilized for servicing debt. Where will this money come from? Not from new taxes revenues but from cutting expenditure lines across most ministries. The details of what will be cut are not available. The general story from this supplementary budget therefore is that ministerial and provincial budgets are being cut to accommodate debt servicing.
In many rural schools, children are failing to attain learning targets because there is no money to hire enough teachers. The ques of the separated government workers awaiting to be paid their terminal benefits is getting longer. Government is failing to offer public sector workers sensible salary increments commensurate with the risen cost of living. Employees of some public institutions, including those from universities where ironically many members of EAZ are employed are having to endure delays in the payment of their salaries. Various services from the government are failing. All this is because debt servicing is taking most of the government money, leaving too little for everything else.
For all this EAZ advised the government that the debt parameters were ok. It is reasonable to assume that part of the reason why the government continued to strongly borrow in spite of the contrary advice from many quarters was that it accepted the opinion of EAZ, a local professional association, to the effect that the country’s debt parameters were still in order. If this was indeed the case then EAZ would qualify to be an accomplice in bringing about our debt crisis and all its negative consequences.
A second issue is on the ongoing dispute with the mining firm, Vedanta and public approach to mining in general. As far as I can tell, Vedanta has had serious challenges endearing itself to its mining communities. Not surprisingly, it has had few, if any, to sympathize with it. But many people rightly worry about the approach the government is using in handling the affair; and whether the approach is robust enough to stand legal challenges from Vedanta. A procedural error in handling the stand-off has the potential to bring about huge costs in compensation, a result that could undo the financial benefits of the intended divorce with the company.
Particularly worrying during this episode is a story attributed to the President of the EAZ. The report says “President of the Economics Association of Zambia Lubinda Habaazoka has suggested that Zambia should nationalize some mines without compensation. Dr. Habaazoka contended that nationalization of the country’s mining assets can lead to economic growth” (Lusaka Times July 22, 2019). I have not seen any denial of the story so I assume the statement is true.
This statement suggesting nationalizing some mining assets without compensation was made less than a week before the EAZ hosted the international conference in Livingstone on Zambia’s ailing economy. Among the stated objectives of the conference was to show case Zambia as an attractive investment destination. The suggestion to nationalize mines without compensation when you are hosting a conference to attract investors is definitely a big contradiction that will undo one of the objectives of the conference. This is troubling because why bother to attract investors on one hand while threatening to national business assets without compensation on the other?
The list of troubling positions taken by EAZ on the Zambian economy does not end here. But, in closing, we touch on one more item albeit very briefly. This is on the replacement of VAT by sales tax which the association championed against the opinion of most business houses and relevant professional associations. The newly appointed Minister of Finance has opted to stop the change-over as of now while studying the matter further. Supposing, at the conclusion of the review, the Minister decides to retain the VAT, will EAZ now shift to praising VAT instead of the sales tax that they have been praising?
Regarding the just ended conference itself, EAZ left the impression that the organization is still struggling to appreciate and believe that there is a debt crisis in the country whose effects are biting already. Not only was the matter not given the sufficient attention it deserves. But ironically also, EAZ presented a long list of national needs and requirements and urged the government to finance those items. Really? At a time when there are arrears on salaries for some public workers? When we are unable to employ enough teachers? When there are many infrastructure projects abandoned mid-way for lack of funds? When the country is failing to fund public universities? Amidst all this EAZ adds additional items requiring financing without stating where savings can be made. Would it not have been more prudent for EAZ to help the government and the public at large to get into a discussion of how to arrive at intelligent ways of setting priorities for funding when money is tight? This absence of a spirit of prioritizing in EAZ is disappointing.
EAZ needs to understand that the general public perceive it as the voice of the respected, pragmatic and sensible economic consensus. As a professional association, they are uniquely placed to praise or to criticize anyone based on sound professional arguments. That privileged position should however be used very carefully so that now, as before and in future, the association should be seen to be have views that the public can depend on for pragmatic economic direction. An economist friend from my generation said of the Livingstone conference: “I cannot go there and be seen to be endorsing the thinking of the current EAZ”. It was like he and I had telepathic reflections on the matter.

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