The Zambian 2013 economic uncertainty

Prior to the 2011 elections it was very clear for all objective Zambians that the economic outlook of Zambia was promising. Reputable rating agencies attested to this and all the favorable statistics where there for all to see. The MMD government heavily campaigned using this record but failed to capitalize on it. Of course the counter argument from the opposition was that the 6% growth did not trickle down to the majority of the poor Zambians whilst other opposition leaders like Hakainde Hichilema (HH) have always insisted on 10% GDP growth as the practical target to enhance substantial development.

The PF government won the election using an over-ambitious, if not bogus development agenda. People’s hopes were definitely raised and expectations were very high. Despite the peaceful handover of power by the incumbent Rupiah Banda (RB), the first one year transition by the PF was been marred with controversy, drama and questionable decision making. The transition by the PF was even described by the reputable rating agency (Moodys) to be “unclear” and subsequently resulting into a slight downgrading for the Zambian economy.  

Uncertainty

If there’s one thing an investor (local or foreign) considers in any business decision is risk. Risk helps businesses project sales and their borrowing ability. If Government is seen to be unstable and unpredictable in the policy making and implementation process, the risk profiling of the country changes, to the benefit of other competing Foreign Direct Investment  destinations. A good example is how Zambia has benefited from Zimbabwe’s instability over the last 10 years.

In the 90 days we witnesses the state house influenced threats to takeover ZAMTEL and ZANACO. The then newly appointed Mines Minister Wilbur Simuusa, was even proposing a Government takeover of 35% of the mines in Zambia. Are we sure these irrational decisions or statements by PF are not hampering Investor confidence right now? A lot more decisions by PF have dented Zambia’s reputation as a stable economy. Things like cabinet reshuffles and removal of ambassadors and deportation corporate executives have definitely impacted the way we related to stakeholders.

Economic policy

The economic agenda of the country seems to be continuously in a limbo. A lot of people are familiar the MMD development plans, vision 2030 and many other programmes but not the PF manifesto. Inept change management abilities of the PF officials were confirmed by their Secretary General Wynter Kabimba when he urged Government officials to go back and read the PF manifesto. There are two concerns with Wynter Kabimba calls, firstly whether the PF is abandoning the development plans or not, and secondly whether the President is in charge of his cabinet or not, as this was the call the President was supposed to make, not a Politician who was not even in Government at the time.  What Government needs to do is provide direction through the head of the cabinet. No one would be confident in their economic policy implementation if president spends more time politicking or his cabinet are always on campaign trips for by-elections.  The governments flip flop on the windfall tax, Chinese investor and the constitution making process is enough evidence of the lack of proper economic policy direction. Confusing priorities like a stadium in Mongu in the midst of low economic activities is a strange economic initiative.

 

Civil servants

It always makes sad reading to see how the PF have continued to demonise the civil service. Hardly six months into power, the PF officials started a shameful scheme to create vacancies for their unqualified cadres. These civil service snubs sometimes come from the Vice President, Guy Scott. Clearly this is a scheme to shift blame or hide the PF incompetences. To this day the Vice president has never explained what amounts to frustration of government efforts by the civil servants, whom we know to be the poorly paid but hardworking nurses, doctors, teachers, agriculturalists and many more. The PF government is high guilty of de-professionalizing the civil service given the cardres who have ‘infiltrated’ government.  

Monetary Policy

Two of the major decisions made by PF in relation to addressing interest rate issues have been the reduction of corporate tax on bank’s income from 45% to 35%. The second has be the introduction of policy rate and subsequent capping of lending rate in the recent past. We cannot ignore the attempt to curb dollarization through SI 31. Whilst these decisions are well intended, they were not well thought out. Firstly the reduced taxation has not increased access to finance or made borrowing cheaper, this was a dribble by key lobbyist Mizinga Melu, because any SME still faces the same borrowing challenges. The policy rate is very ineffective at this stage, again the Government should be aware that banks are so tricky in the way they price these loans. Just arrangement fees and other charges greatly increase the effective cost of borrowing beyond the officially stated rates.  The SI 33 was introduced without adequate consultations, BOZ responsibility is to maintain confidence in currency through controlling inflation and exchange rates that is what will curb dollarization, again forceful measures were preferred.

Currency rebasing

This has turned out to be destroying all the progress made by the MMD to reduce cost of doing business.  Firstly, it’s ridiculous to expect this cost to be borne by businesses alone and secondly it’s ridiculous for BOZ to tell the public that the cost on the part of Government would be the same as normal cost of the scheduled printing of money.  The lack of sincerity by BOZ in the process has been greatly appalling. One wouldn’t fathom why the previously attempted rebasing couldn’t work due to the economic crisis but the ongoing rebasing is okay with the euro zone problems. As previously put out, creating confidence in currency does not come with cancelling zeros, but controlling inflation and exchange rates.

2013 outlook

Governance

The first year of PF was exhibited high levels of inexperience, lack of consultation and needless constitutional breaches. In 2013 we should expect the current antagonism between opposition and ruling party to continue since this is only in its infancy. A presidential address or press conference is unlikely and generally we should expect PF to continue to rule according to their delusional thinking.

Agriculture

With the background of a poor marketing season, followed with a delayed input support programme, the performance of the agriculture sector will be below average. The sensitive issues will be the mealie meal prices in 2013. This could be worsened by the possibility of stock piling by suppliers or traders in anticipation of lower harvest in the next marketing season.

Budget overrun

The likelihood of Government overrunning their budgets cannot be doubted. Government has spent money on unbudgeted activities like, by-elections, districts creation, unscheduled termination of civil servants’ and ambassadors’ contracts, etc. Even in cases where the finance minister has announced tax reduction during budget presentation, we have had instance were the compensation revenues in the budget have not been identified.  

Inflation

The November inflation rate stands at 6.9%. The extent to which this rate has adjusted for minimum wages spiral effects on transport and cost of commodities remains to be seen. What will the spiral inflation coupled with rebasing entail? Experts need to clarify this.

Rebasing priority or not

This is a question that bothers most people and some explanations from BOZ are sometimes less convincing. It’s really strange why BOZ fails to state the real cost of the whole process. There appears to risks to this rebasing which are not well mitigated. Firstly, the risk that banks and business will pass on this cost to their customers. This is real problem and in most cases has already happened given that several banks revised their tariffs in the last one year. And BOZ’s promise to stop banks from passing on the cost simply lacks any credibility let alone legal backing. The next risk is the artificial inflation, which might degenerate into a real inflation problem. What has been set up to prevent unreasonable rounding up of prices by venders wishing to avoid coins or lower denomination? I see this been a problem which at one point lead to the shunning of K20 noted even when they were still legal tender.

Happy 2013

Anonymous Author

These are not views of economic or legal expert; readers are therefore encouraged to make their own judgments         

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