As soon as the news that “Sata is dead” spread across the internet like bush fire, it felt as if the earth quake had hit Zambia. No it can’t be! Shocking! – exclaimed many. Yet no man is immortal. God calls us to rest when the time comes. So, good bye comrade.
But look at the “impossible to fill” vacuum you’ve left us. Without you, Zambia will never be the same again. The journey that you began will remain incomplete. Oh dear brother! Why had it to be now?
Friend or foe alike in the country will remember you for whom you were, and for what you did for us. Your pragmatism and resolve in attacking problems left an indelible mark in the eye of anyone who cared to follow your progress.
Who in our Lusaka will ever forget your tenure as its governor? The ‘can-do’ man of action that changed its landscape. What about your turn as the Minister of Health? Unstocked pharmacies and dispensaries got drugs.
At Plot #1, not only that the darkest corners of our land have been lit and clean water flowed, you have embarked on building road networks from Kaputa to Namushakende. This program will no doubt facilitate and unleash socio-economic development even in the far flung areas of our country.
So why did the Angels have to take you away so quickly even before you had time to complete your agenda?
Comrade, you moved from party to party since the birth of our nation in an effort to do your bit for the country. You were the King Cobra who got things done. Somewhere in UNIP (United National Independence Party), MMD (Movement for Multiparty Democracy), or in your own PF (Patriotic Front) – you contributed heavily towards a united and peaceful Zambia.
Believe it or not, like it or not, the welfare of people and their happiness in a country you have been a part of, is much better than its African peers.
We’ll miss the Michael Chilufya Sata, the master campaigner – someone, who through simple but effective jokes communicated well with ordinary folks. Surely there must have been some love affair between you and the people.
It is no doubt then that through your PF vehicle, you leapfrogged to the top clouds and became the Head of State. The highest office in land. Who would not admire your hard work ethic and perseverance? By steering PF to its ultimate goal, taught us to be determined and never ever to lose hope.
In the short span of time you’ve held the instruments of power and supreme authority over us – your qualities of patriotism and selflessness have been outstanding. You fought for the poor and against all forms of vices such as corruption and disease.
Are there any doubting ‘Thpmases’ regarding your contributions and legacy? Of course! There are a few who’ll murmur that “Sata/PF” revolution has failed to produce a constitution; created too few jobs for the young; and failed to reduce the gap between the rich and the poor. Eh! Your halfway performance through your mandate is an excellent “work in progress”. And don’t forget, you can’t please everybody.
Indeed, Mr. Sata, you left Zambia better than you found it. Farewell my brother and thank you so much. You’ve done your share in shaping and molding our economy. It will be long before our tears dry out. We’ll miss you. May Your Soul Rest In Peace! (MYSRIP).
Roughly 50 years ago, Zambia, known as Northern Rhodesia during colonial period lies north of Southern Rhodesia (now Zimbabwe) got that name from Cecil Rhodes the first British industrialist in the area. These two countries were part of old Central African Federation of Rhodesia and Nyasaland, the later being Malawi.
This federation fell apart in 1963 because Zambia and Malawi’s freedom fighters did not want to be part of it. Consequently, in 1964, Zambia won its political independence – the one we are celebrating currently.
If those born in 1980s visited their grandfathers back in the 1950s and 60s – here is what they would find. An impoverished Zambia (ZED) – not that poverty has completely been eliminated, it was a country of less than four million black Zambians or Africans as they were called with some few thousand whites or Europeans, plus a sprinkling of Asians (Indians). Whites, who were first class citizens held administrative jobs and controlled the economy. These people lived in exclusive quarters in low-density areas – the Kabulongas of today. Because of segregation, hardly any black Zambians lived in these “green-land” houses except those who were cooks, domestic servants or garden boys.
Asians and Coloreds (the half-casts, mixed race or Euro-Africans), the second class citizens, lived in their own quarters closer to whites or on top of their garages or shops in case of Indians. The second class citizens shared a bit of spoils from the economic booms.
At the bottom of the ladder were Africans (black Zambians) 3rd class citizens, who were piled up in small and poor houses in high-density areas or compounds such as Chilenje or Matero in Lusaka; Twapia or Kabushi in Ndola; and Buchi or Jamboree in Kitwe.
Since these [compounds] were located away from town centers, each compound had one or two beer halls, where Africans could congregate to socialize and drink opaque beer [Chibuku] or listen to radio programs or soccer. The late Dennis Liwewe became an icon by broadcasting soccer matches on radio.
Segregation was so stiff and enforced such that – blacks were not allowed to shop in whites-only shops, butcheries and clubs. Lusaka and Golf clubs were only for European members. If there was any black who was admitted or played cricket or golf, it might be those few Africans who graduated from UK universities and brought home white wives.
President Kenneth Kaunda (KK) up to day does not eat meat because he was denied entry into ‘whites-only’ butchery in Lusaka. In fact one of the early political tactics of UNIP (United National Independence Party) or its pre-cursor ANC (African National Congress), was to organize protests in front of whites-only supermarkets like Booth North Ltd, later known as CBC Shops or in front of big hotels like Ridgeway, Lusaka and cinema halls.
Also Africans were not admitted to whites-only hospital wings, except in the crowded and unequipped common man sections. Since whites had access to government vehicles or were able to afford a personal car, buses [operated by Thatcher & Thompson, later known as UBZ] were only for blacks. But bus conductors were usually whites of Coloreds. When Europeans needed to travel in groups special buses or mini-buses were hired for them. At the time since the roads were poor gravel ones, a journey from rural provinces could take sometimes up to a week.
From back then up to today, although Zambia has been a major copper producer, unfortunately value addition is almost nil. Hence the manufacturing sector is small. In those days if you did not get a job in copper mines – you either remained in rural areas as a peasant or ventured to go outside Zambia to look for a job. There was a recruiting program known as Wenela. Many able bodied men mainly from Northern, Western, & Eastern Provinces and Malawi went to Southern Rhodesia and South Africa to work.
Those Africans (black Zambians) who were lucky to get a job on the copper belt (C/B) – because of color-bar (discrimination), were often badly treated by Europeans at the job place. Europeans looked down upon Africans such that sometimes they spit on them. But since management and virtually all supervisory jobs in industry went to whites – Africans had little recourse. Native Courts available to Africans had no power to preside over such cases.
The same situation existed in the Her Majesty’s civil service, where the highest ranked black was AAA (African Administrative Assistant). Discrimination against Africans and suffering was rampant. This bred discontent. Labour unrest became common on the C/Belt. To complement efforts taken on by Trade (labour) Unions, political parties bloomed. ANC led by Harry Mwanga Nkumbula was the first serious political party formed by Africans. Later a group led by KK broke off to form ZANC a splinter which eventually became UNIP.
While both ANC and UNIP used civil disobedience and non-violent methods to protest, poor results forced UNIP to become more militant. Kenneth Kaunda fought vigorously for the rights of Africans. In particular he fought against the Central African Federation and the poor representation of Africans in the Legislative Council (Legco). UNIP demanded a constitution which could guarantee adult suffrage. This was the only way to achieve majority rule.
Between1959 and 1962, protests became more and more violent. It is this period which was bloodiest and when our forefathers suffered most. ChaChaCha protests – destruction of roads, bridges, some property and loss of life took place then. It is also at this time when mostly youth [imposa mabwe] or modern day cadres made their biggest contribution to the struggle. At times when political leaders were put behind bars in attempt to paralyze their organizations, women had to bear their breasts in streets to get them released.
Given these protests, as a way to compromise, the Colonial Office came up with a so-called 15-15-15 constitution. UNIP & ANC representing Africans and UFP [United Federal Party] for Europeans signed on to move forward.
The 1962 15-15-15 formula for seats in Legco meant that : – i) 15 members of Legco were to be in Upper Roll reserved for Europeans. ii) 15 members in Lower Roll, were for Africans. And iii) 15 members in the National Roll could come from whites, blacks, or Asians races based on a formula requiring some votes from another one’s race.
But the problem with this constitution was that – it did not provide universal adult suffrage to guarantee Africans the right to majority rule. The objective to achieve majority rule therefore became a priority for those who participated in the political struggle. Such freedom fighters were many and came from all corners of the country.
Notable amongst those heroes are: – KK, Mwanga Nkumbula, Simon Mwansa Kapwepwe, Grey Zulu, Chitandika Kamanga, Kapasa Makasa, The Winas (Arthur & Sikota), Mainsa Chona, Munukayumba Sipalo, Nalumino Mundia, Peter Matoka, Aaron Milner, Lewis Changufu, Ali Simbule, Mukuka Nkoloso, Lawrence Katilungu, Timothy Kankasa & Mama Kankasa, and Mama Chikamoneka – to name only a few.
Other personalities who were not necessarily politicians but helped in accelerating the attainment of independence include : – Elijah Mudenda, John Mwanakatwe (1st African graduate), Dr Mashekwa Nalumango, Isaac Mumpanshya, Samuel Mbilishi, Robinson Puta, Sir Gore Brown, Simon Katilungu, Mubiana Nalilungwe and Tom Mtine.
The blood loss, suffering and struggles of these many people – young or old, man or woman, rural villager or urban miner, students or business man – eventually produced the political independence which was granted on October 24th, 1964. On that day Zambians became free to rule and determine their own fate. At this stage the economy remained in Europeans’ hands. This is probably what led Kaunda to nationalize it.
The Easy Times
Since then, 50 years ago, the country has gone through a series of governments and regimes to produce the present day Zambia. Today we’ve comparatively, a fairly stable African state. In spite of minor disruptions – short lived parties like UPP (United Progressive Party) and attempted coups [like the Captain Solo’s].
Remaining peaceful and fairly democratic, tourists flock to it to enjoy the sun, game and exotic fauna. It is also a popular destination for foreign investors. This year (2014) Zambia has recorded US$3.3 billion in FDI (Foreign Direct Investments). Other promising macroeconomic indicators are – Real GDP growth of about 7.1%; Real GDP per capita growth of about 3.8%; and CPI inflation of only 6.8%. [Source: Government Statistics].
Credit must first of all be given to UNIP and its leader KK, the founding father of the nation for the liberties we are enjoying. In a country of over seventy ethnic backgrounds, Kaunda managed to build a united country under the banner – “One Zambia One Nation”. In gatherings he often sang his popular tune – ‘Tiyende pamodzi ndi mutima umozi” [let us move together as one united people].
UNIP should also be praised for having laid a solid foundation in governance and the development of infrastructures in education, health and agriculture. Any Zambian older than mid-fifties probably received free education up to university level. The University of Zambia (UNZA) and its University Teaching Hospital were built soon after getting independence.
UNIP’s Zambianization policy, also helped black Zambians to gain confidence in managing their own affairs. In fact when it comes to governance, Zambia was recognized as a role model to other newer states such as Zimbabwe, Angola, Mozambique and Namibia. Economic infrastructure development was done through para-statal companies such as – ZIMCO, ZCCM, INDECO and its many subsidiaries.
However, as is always the case with any overstaying – coupled with other factors such as: lower copper prices, excessive allocation of resources on geo-political affairs, inefficiencies born out of socialism (á la Humanism), power drunkenness, and dictatorial tendencies – Zambians got fed up with KK and his UNIP rule.
By late 1990s many Zambians had moved to urban areas, running away from poverty and poor lives in rural areas and/or attracted by bright lights and better health facilities. As population in cities rose when food production did not much it, food crises became common. In the meantime, the treasure’s chest was depleted due to low commodity prices and frozen donor aid because of KK’s anti-free enterprise policies. Consequently shortages of basic items such as sugar, cooking oil, bath soap and others became severe. Due to ques, riots began occurring.
In 1991 under the leadership of Fredrick Chiluba (FTJ), MMD (Movement for Multiparty Democracy) removed Kaunda from power. The policy regime of MMD combined with personal philosophy of Chiluba – strangely an ex trade unionist (from labour movement), brought in a complete liberalization of the economy. Price controls, foreign exchange rationing, and private property prohibition, were all lifted. MMD ushered in a belief in market power.
At first, people were worried about losing benefits of a ‘nana state’. But as time went on, people adjusted themselves and got used to the power of private initiative. So long as provision of public goods such as roads and hospitals etc., remained the responsibility of government. Although Chiluba was heavily criticized on corruption and for allowing SAP (Structure Adjustment Program), today, you’ve “tutembas” on nearly every corner or passage. People are finding ways to survive in this free economy.
It was during MMD’s era when free independent press like The Post was permitted.
Presidents who came after Chiluba – Levy Mwananwasa (Levy) and Rupiah Banda (RB) have both continue with FTJ’s private enterprise policies. From there onwards, it is up to the younger generation to take the mantel and move the country towards full economic independence. This task won’t be that easy in today’s competitive global village.
The Zambia of today is markedly different from the pre-independence one. Major cities like Lusaka, Ndola, and Kitwe have modern Malls. Shoprite, Pick-N’-Pay, Spar and a chain of franchises found in any Mall anywhere in the West, also operate in Zambia. Manda Hill and Arcade in Lusaka, are as modern as can be. The McDonalds, KFCs, and Wimpys are also represented.
On the other hand, although some few roads in suburbs are yet to be tarred, the floods of cars on these roads are of any conceivable models. All types of SUVs, Lexus, Toyota, BMWs – you name it, they’re all there. President Michael Chilufya’s (MCS) goal of 8000 miles to connect all major towns and rural councils around the country would make life easy even for those people living in rural areas. If accomplished, then PF’s (Patriotic Front party) other goal of wealth distribution would be realizable.
Diseases like TB (tuberculosis), malaria, and smallpox which were common during colonial days, have been nearly eradicated. Even HIV/Aids, which was not too long ago an epidemic – is now manageable. People can live with it for years so long as they’re on ARVs. The establishment and improvement of hospitals and clinics around the country, has also improved peoples’ well being. Life expectance is now longer.
Although primary education is not as free as in the UNIP days, literacy rate is reasonably high (61.4%). Impressive also is the explosion of universities. There are now over twenty universities in the country – some of which meet international standards.
When in the Federal days people used old saucepans radios to listen to broadcasts, stereo shortwave radios are now available. Large screen LCD TVs are used to watch news bulletins, sports or movies. Lusaka alone has over ten radio stations, which has facilitated the explosion of Zambian music.
And finally, because of the abundance of cell phones, land lines are a thing of the past and probably only available in government or corporate offices. Providers like MTN, AirTel, and Zamtel have made every Jim & Jack to own a cell. Indeed, this technology has made life better even for those living in rural areas because communication has become easy.
Today’s Zambians of all races intermarry and live side by side in harmony. In spite of these many achievements, there are still challenges such as approval of the new constitution. But as they say – Virginia baby, we’ve come a long way. Therefore, everybody can see that we’ve got so many things to be thankful for. Let us celebrate!!
It is nice to feel that one comes from a country like Zambia which is blessed with abundant natural resources and minerals like copper (cu), cobalt, uranium and others. But the celebratory mood soon dissipates when especially one looks at the situation in the long run – for these resources can get exhausted.
Take copper for instance, this is not only a waste resource, but since it is finite, at some point later, it will therefore be exhausted. What happens then? As one politician lamented, once all the profitable minerals are taken out all we’ll have left with will be “big holes” in the ground. Some estimates put our love affair with copper to end in 50 years. That means my 7 year old granddaughter will only be 57 years old then. What will she live on there after?
This situation is compounded because while copper life is going good, currently hardly any savings are being made for neither a rainy day nor any substantial investments; are being undertaken to diversify our economic activities away from copper. When debating on windfall taxes – Hon Yamfwa Mukanga (Kantanshi Constituency MP) said, “We need something to show to our children when copper is gone that – this is what we built from the copper taxes”.
Today, probably more than 90% of our GDP is generated from copper proceeds. In short, no copper no economic growth and no growth, no reduction in poverty. It is that simple.
And we should not forget about the reprehensible damage caused by mining activities. Environmental degradation always occurs. So while we mine other ills and hazards are also being created. We have heard stories of poisonous gas fumes in Mufulira, contaminated Kafue river, and not to ignore the huge copper waste dump in Nkana. All the bad by-products produce a social cost. But who is going to pay for these costs? These costs are externalities to the producer and are never taken into consideration. Corporate social responsibility is not on the agenda of many companies.
When air is polluted and drinking water is full of toxic effluents and chemicals – our health is compromised. So, even if all the profits from minerals were to be surrendered to us, it would be too late – for everybody would be dead by then.
If the long-term prospects are bleak because of depletion – in the medium to long-term, we’ll also be faced with problems of substitution effects. That is, as the price of copper soars, consumption of this commodity is bound to plateau. Why? In due course, persistently high price would force copper consumer industries in China, India, Japan and elsewhere to look for other cheaper substitutes. All profit making organizations in free enterprise, behave that way. They aim for cutting costs to boost their profits.
As we speak, already copper has lost some market to alternative materials like aluminum and plastics. When the price of expensive nickel fell from $50,000 per tone to below 50 percent more of it got used instead of copper. Hence, the higher the copper price, could eventually outstrip its viability for use in say construction piping.
In addition, architecture, plumbing and other energy efficient methods have impacted copper demand somehow. In China perhaps the largest consumer of copper, they have started using simpler fabricated products for roofing. Plumbers have switched to PVC tubing instead of copper. Simply put, due to inventions and/or new technology, we could one day wake up and find our copper completely obsolete or 100% replaceable.
We should also not ignore the fact that economic growth even in China has began to slow down. Mind you, we don’t even know how much stockpiling Chinese have been doing. We can’t bank our hopes only on the fact that China continues to consume some 65% of all world produced copper to feed its modernization program for electricity and infrastructure expansion.
From experience, we should also know that eventually, the total world demand is bound to fall – along with the price. We can recall that copper prices fell drastically in late 70s/early 80s under Kenneth Kaunda’s rule. Also if we were to take into account the impact of excessive supply on the price from other producers (whose decisions are beyond our control) like: Chile, Mexico, Peru, Russia, DR Congo, and China itself – [if it so wished to influence prices], we can’t be banking on perpetually good copper prices.
In summary – these are some of the issues we should keep in the background I think, when we discuss this sensitive but import matter of windfall taxes.
The Big Debate
In our local media – newspapers, TV, Radios and discussion forums on the internet – especially the social websites: a heated debate is raging on regarding different forms of mineral taxes: royalties, operating profits taxes, and in particular – WINDFALL TAX a form of taxing the revenues. Revenues in this case concerns copper earnings. And the question is: should Zambia levy these revenues, and if so, by how much? Should our concern only be limited to profits?
This serious debate has developed into two distinct camps – one pro and the other against, basically the re-introduction of windfall tax (WT). Unlike LAZ who offer their opinion on important national issues, our EAZ stays silent. I have taken liberty to offer my own opinion.
The sharpest salvo on WT came from the current PF Minister of Finance – Hon Alexander Bwalya Chikwanda (ABC or Alex), who has labeled those seeking the re-introduction of the 25% windfall tax as “lunatics”. [The Post, March 22, 2012]. Alex thinks that production costs – including sea and inland costs are already enough burdens on producers. As such, then we shouldn’t levy them more – apart from the merger 6 per cent royalties he proposed in the budget.
This position is probably not shared by some of the PF “back bench” or “freshmen ones”, especially those who faced the youth and miners in the campaign like Hon Wylbur Simuusa (Nchanga Constituency MP)
As one might expect, the sharpest response to counter this, comes from none other than the former Minister of Finance under Pres. Patrick Levy Mwanawasa (Levy) – Ng’andu Magande. Curiously both men happen to be economists. Magande who by the way first proposed windfall taxes sharply argues that: Windfall Taxes are a must if Zambia is to raise sufficient revenue – while the going is good with copper prices for investments and the diversification program. He adds that – “moreover PF was propped into power on the promise of re-introducing the very WTax”. [The Post, March 23, 2012]. So why chicken out now, he asks?
In addition Magande strongly feels that, re-introducing WTax now would be a good policy direction – without which otherwise the investors’ confidence would be affected. He further feels that, flip flopping on WT question puts pressure on the Zambian Kwacha.
A third force in this discussion comes from the previous MMD government people – best represented by ex Minister of Finance – Hon. Dr Situmbeko Musokotwane. Without explicitly saying whether he is for windfall tax or not, Musokotwane however charges that – so long as PF government fails to immediately re-instate the WT as they promised during the September campaign, getting to power would be seen as by “false pretences”. [The Post, December 7, 2011].
Under Pres Rupiah Banda (RB), Musokotwane was the strongest voice fighting against the re-introduction of windfall tax, even if many people still remained skeptical. In fact, there are many Zambians who accused both Musokotwane and RB as being unpatriotic sons for opposing the windfall tax. The inspiration for what I call “RB/Musokotwane doctrine” was based on the premise that – China would continue propping up Zambia financially, hence, sources of budget money was secure.
Along these lines – i.e. being either in favor of or against WT, let me now discuss some main themes I see pertain to either side. For those seeking more details, there is a robust debate on this topic on Zambian Economist. [see www. zambian-economist.com]. About a year or two ago, Chola Mukanga (Cho) – founder of Zambian Economist, presented an excellent discussion on WT in an essay form headed: Eight Reasons for Rejecting Higher Mineral Taxes. Cho discussed in detail pros and cons for each reason.
My attempt here is therefore not to repeat that discussion but just to draw distinct boundaries between those who support the re-introduction of WT and those who don’t. A foundation we shall fall back on later when I go through the economic analysis.
Among the arguments raised by those who are against higher taxes (the Musokotwane group) – increasing windfall taxes, include:-
• This camp contends that there is no investor who could risk their capital if at all they cannot expect good returns. By extension, this group therefore sees low taxation as a strong incentive for attracting more investments.
• They argue that unless you have favorable tax holidays, concessions, and exemption or low both royalties and windfall taxes, you cannot expect to attract foreign direct investments (FDI). [The assumption here being that the bulk of investments would have to come from outside].
• Regarding the viability of taxes, Prof Clive Chirwa, a presidential aspirant (Bolton University) – [see Zambian Economist, Nov, 2010], observed that: “good investors with a heart will accept tax of eight per cent on royalty and 25 percent on windfall tax”.
• But this group believes that if the PF government re-introduces a 25% windfall tax that would be scaring away new investors.
• In cases where agreements and other concessions have been signed between the Zambian government and the mining investors – those should not be broken, terminated or tampered with. Doing so would not only be regarded as violation of ‘Rule of Law’, but would be sending a bad signal to the investors. According to this view, the rule of law means respecting international agreements, which are legal contacts. These must remain binding no matter what.
• This side also opines that – reviewing, renegotiating the contracts and worse still, unilateral cancellation of these agreements is inimical. That can only happen at the peril of destroying investor confidence. Never mind that Zambia is a sovereign country with security concerns of its own. To them, investor long-term stability is more important than what is in Zambians’ interest.
• Rather than taxing mining operations to death, this side prefers designing/inventing other non-mining sources of government revenue. But having a country which is so skewed towards mining, with virtually no other viable alternatives, does that bother them? Yet the perceived alternatives – agriculture and tourism, are still in the development stages. The manufacturing sector initiated during KK’s days, is also almost non-existent. Since there is also this notion that, if you heavily tax private corporations you impede economic development, raising revenue from firms is not an option either. And above all, in Zambia, only a small number of the population has personal incomes you can tax (miners and civil servants).
• Further, you cannot count on collecting any taxes from the grey (cottage) industries either. And when it comes to excise taxes – i.e. from custom duties and tariffs, the larger portion of this would come from imported vehicles. But to encourage the importation of goods promotes externalization of a valuable hard currency to car manufacturers. In short where would the government get large enough revenues if not from minerals?
• It is also important to note that when the opponents of windfall taxes and MMD accuse PF government of not having a common voice on WT and co-ordinated economic policy as Musokotwane charges – they are simply playing politics. They want to use the pretext of WT as a tool to politically weaken PF. In another sense, appearing to oppose WT is a good strategy for them – by first appeasing the investor community and second, by confusing PF members some of whom also oppose windfall taxes.
When we switch sides to those who favor windfall taxes, you have many voices. Magande has turned out to be the staunchest critic of anti-WT group.
• Perhaps the most sound argument raised by this group is that – since copper is exhaustible, unless we use it prudently now when commodity prices are good, we’ll regret later. And so, while the going is good, we must make sufficient revenue from it so that may be, we can diversify to other areas in our economy.
• Andrew Sardanis, the brain child behind both Indeco Ltd & ZIMCO (Zambia Industrial and Mining Company) – therefore he knows a thing or two about international business, said that : “it is an injustice for the Zambian government to only collect US$77.6 million from copper exports valued at US$2.9 billion”. [see Zambian Economist, Oct, 2011].
• If we are to reduce poverty and youth unemployment, which are so rampant in Zambia – minerals extraction sector, whose infrastructure is already in place, has the biggest potential for solving some of these problems. Empowering of people can only occur through creation of jobs.
• The advice coming out of this group to PF government is that – since the request of re- introducing windfall tax was posed to the Zambian people during the elections and that it was massively endorsed by them, negating on it, is breaching peoples wish. Mine Workers Union of Zambia (MUZ), has for example, been openly urging PF government to implement WT without delay. [The Post, December 1, 2011].Otherwise they warn that – the political fortunes of PF party can be lost by this one issue.
• This w-tax side also observes convincingly that – since the copper prices have shot to the roof, currently around US$8,000 per tone – [Bloomberg listing puts it at $3.78 per lb], given the production costs of only about US$3.000 per tone, implies that investors are making handsome profits. Must the profits be excessive to maintain the presence of investors, they wonder? As we shall demonstrate later – unless the company is making huge loses, operations ordinarily continue, so long as the expenses for fixed investments are being covered.
• Moreover, the windfall tax proponents feel that – it is not the investors who are opposed to WT per se, but Zambians themselves who, for some strange reasons, are scared to face them. Whether it is the fear of “masters” syndrome or are compromised because of bribes received or rewards promised – no body knows exactly.
• If investors are not technically opposed to windfall taxes, could then the delay in bringing it back depend on incompetence of our bureaucrats or due to unpatriotic or confused political leadership? We wish that someone can unearth this anomaly. Perhaps Dr Musokotwane can share with Zambians battles our negotiators face when they discuss with investors. Citizens are entitled to know the arguments investors make when condemning WTaxes.
• The long-term stability argument raised by anti-WT voices is also not that strong because as far as Zambia is concerned, that should not be an issue since everyone knows that the country is an oasis of peace. In fact Zambia is probably the most stable country in Africa.
• In addition, the pro-WT makes it known that – raising money for capital investments through borrowing and/or from donors, would not be the preferred route. Why not? Yes, it is because when you get heavily indebted to foreign partners (remember HIPC?) – you do not only lose control and eventually sovereignty, the debts keep on piling up exponentially. The interest rates are raised at will by the lenders, bankers or outside capital sources. [This might even include loan sharks and speculators].
• Being swallowed into international debts they contend – has a lot of risks among them being exposed to potential blackmail. Greece is a classic example of what might happen, if we put emphasis on borrowing. Further, those who harbor ideological or philosophical issues would even tell you that – transferring wealth from State/public owners to the private ones is the worse sin one can commit against ordinary and innocent citizens. Besides, this also worsens the gap between the ‘haves’ and the ‘have-nots’, which has been growing for decades.
In summary, although I have expressed the differences between the two opposing stands eloquently – that is not what the ordinary Zambian is looking for. What they need is the convergence of the two sides into one camp – to map out a sound and fair common ground so that a single public policy prescription can be crafted. Squabbling is a sign of immaturity and cannot benefit the ordinary people. Therefore, unless we can come up with some consensus on policies, which can yield substantial economic development – nobody wins.
In the next section, using economic reasoning, I am presenting some ideas which should be considered by both sides. Hopefully, facts will speak louder than mere words.
The Economic Analysis
Let’s begin by considering a simple model in production process. Financial Times and other Business Bulletins, estimate the production of a tone of copper to be around US$3,000. The total cost (TC) to a firm is composed of a portion of fixed costs (FC) and that of variable costs (VC). Where by fixed ones are those costs for doing business which is constant regardless of the level of production or productivity. Rent and fixed capital equipment are good examples. And respectively, variable costs are those which increase as the level of work/production increases. That is, the more copper bars you produce, for ex., the more workers a company would need. These are the basics we must know.
Thus, fixed cost plus variable cost divided by units produced determines (is equal to) the total cost per unit. That is: FC + VC/ UNITS = TC per unit.
Immediately, the picture emerging from this relationship is that – first, total cost (TC) per unit falls as more units are produced. For example, if the fixed cost (FC) for producing a tone of copper is estimated to be $2,000 per tone and respectfully variable cost (VC) is $1,000 per tone – producing say, 500,000 tones, would be at a total cost per unit of $0.006 per tone. But a 700,000 MTones production level drops this per unit total cost to $0.004 per tone. This implies that the higher production level (i.e. the lesser per unit cost), results in greater profits.
Secondly, even if variable costs were to go up, so long as a higher production level is also being achieved, profitability would still be maintained. Consider another example – if variable cost go up from $1,000 to $1,500 per tone – the per unit total cost for 500, 000 tones, would be $0.007 per tone – while as a 700,000 MTones level reduces it further down to $0.005 per tone.
Now to a profit making enterprise, the question of revenue comes in. These firms have to also examine carefully marginal revenue (MR) – which is the additional revenue a firm receives for making and selling an additional unit of output. That is why in perfectly competitive markets – for profit making’s sake, the price of the product is set to be at least equal to its marginal revenue (MR). Where the total revenue (TR) is the price of the product (P) multiplied by the quantity (Q) sold. [i.e., TR = P x Q].
To keep it simple, I do not go into details analyzing how the law of demand impacts the marginal revenue (MR). It is sufficient here only to know that in general, the price determination in the market is influenced by supply and demand forces. Having considered the marginal revenue side, the company then has to relate it to the marginal cost (MC) side.
Where – the marginal cost is the additional cost incurred to make one more unit of output. Thus, companies will continue employing more workers up to the point when the law of diminishing returns sets in. Ordinarily, as you add more units of labour, you should expect to get more output. The limit a company aims for is when any additional worker/labour unit, causes MC to rise, because at that point, the firm begins to react. Otherwise they’d be losing money.
Why is this discussion important you might ask? Yes, we want to know what guides the decision making of profit-making investor firms. So that people can be able to form their own informed opinions. A politician may also be interested in knowing about these dynamics. For instance, when does a corporation decide when to pull out or stop operations? Is it when a firm is losing money or what?
To an economist, not necessarily so. A company may find it cheaper to continue producing even when they are making loses. How come? Take today when the price of copper is very good, over US$8,000 per tone. Assuming the total cost to be around $3,000 (the price being quoted in many news bulletins) – huge profits of $5,000 per tone is being made. [$8,000 – $3,000 = $5,000]. Very lucrative indeed! So the question of anyone pulling out is quite remote.
And since in the case of Zambia there are no barriers to entry – that, there are no regulatory obstacles or licenses being denied – any willing investor is free to come. Therefore, you can be rest assured that more companies will continue flocking to the country, so long as there is still a large cake of profits to be shared. That is the way free enterprise capitalism works. Competition for profits rules.
But suppose the price of copper now dropped to only US$2,500 per tone. Using the same total costs of $3,000 from our example above ($2,000FC + $1,000VC] – this yields a negative profit (loss) of $500. [$2,500 – $3,000 = $ – 500.00]. But note that – even at this low copper price (a loss), companies would still prefer to remain open, because it is better to lose $500 than losing $2,000 which is the fixed cost the company has to incur anyway.
Therefore, so long as the company’s loses are less than $2,000 (the fixed cost) – it makes plenty of business sense to continue. That is, those companies already in operation in Zambia will not close if they can at least continue to recoup those investments made in plants and other equipments. You can take this word to the bank. [And bear in mind that, since re-capitalization or replacement of depreciated equipment is not done yearly, the fixed costs remain unchanged].
The shut-down point to both economists and business CEOs is when total revenue (TR) exactly equals total variable costs (TVC). Or that, as long as a firm’s revenue is sufficient enough to cover all the variable costs and leave something extra towards fixed costs. You DO NOT STOP operations before this situation is violated. You continue to produce so long as MR is greater than or equal to MC. This is standard operating procedure for firms running profitable businesses.
There are more elegant ways to illustrate this shut-down point, such as through elaborate mathematical equations, but I leave that for another day.
Let me now discuss issues related to deplete table resources, and describe how windfall taxes come into play. A non-renewable resource such as land or minerals – at least in the long-term, is fixed. That is, regardless of price offered for it, you cannot get more of it. Once used up completely, that is it. It is gone! For economists, anything whose supply is fixed – has a supply curve (S) which is perfectly inelastic. A change in price does not change supply]. Therefore vertical as illustrated by line SS in Fig 1.
But as demand of this type of a resource increases – its demand curve (D) illustrated by line (DD) shifts right. This again is easily illustrated in Fig 1 – as demand rises, the price of say land (its rent) shifts up (increases) from P2 to P3. The practical example is that – when the demand for land for say growing food such as maize goes up, it means that the price of having or using that land also rises. That means then that, the higher the prices on say mealie meal leads to more land being used or cultivated for growing that maize.
More specifically, if the price of pieces of land or plots down town rises, makes the owners of that land instant millionaires. If property rights were reviewed and zoning done in compounds like Kanyama and Chawama – if these truly become part of down town Lusaka say, those people owning those plots could become rich. But since these people are relegated to being squatters, they continue to remain as paupers. Transpose this in Zambia as a whole; you get a sense of how our mineral resources are being treated.
From diagram one, we can also see that – initially when the demand for land is very low (at D1D1), land would be free (at q1) since the demand is less than supply. At a low demand, everyone can have any land he/she wants because supply is plentiful. Many people in rural areas survive because of this economic principle. But as demand rises to D2D2, land begins to get scarcer and its price (P2) – rent, gets higher. And similarly, when that demand shoots up to D3D3, its rent (price) – rises yet more to P3.
Note then that: considering Zambia as a whole, due to fixity of supply, the price of our natural resources can shoot to infinity, but you cannot say create more land. What you have just gets used up (exhausted). That is why land or any other non-renewable resource, is considered priceless. This is the way we should be looking at our mineral resources.
As we scrutinize our resources more, we discover that – in the short and intermediate period, land or minerals, which in true reality are FIXED, can be assumed to have upward-sloping supply curves (not vertical as we saw earlier). Demand curve (DD) is as usual, downward slopping. How come? Yes, it is because, in practice and everyday mining operation – the supply curve of say copper (or oil) production looks that way. It appears that way because when it is more difficult to recover or extract these resources from the ground – using advanced technology and modern equipment; you get more output as you go along. This gives an impression as if resources are unlimited. In that sense then, supply is upward (increasing) from a presumably fixed-supply resource. This assumption of an upward-sloping supply curve is demonstrated in Fig 2.
What we observe from this graph is that – as demand raises (from D1 to D2), a shift outward, the economic rent (or land rent) goes up. What does this tell you? It suggests clearly that as the demand for a non-renewable resource increases, naturally its economic also rises.
It is this economic rent which is of interest to our discussion on windfall taxes. The higher the economic rent (or simply land rent); of course, the better it is or should be for the land holders (or owners of resources). Where these resources are publicly owned, it’s the government which becomes their custodian. Then the objective here is to get as much of this rent as possible. Those who propose the 50/50 sharing principle when it comes to sharing of mineral wealth should therefore weigh their demands armed with this reasoning.
The last economic analysis I have is this: assume that Zambia discovers a large pool of oil or gas in Luangwa valley. As stated earlier, oil being another good example of a non-renewable resource – has similar characteristics. Rent generated in the market for oil is illustrated in Fig 3.
As explained above, we have to assume an upward-slopping supply curve (SS) for oil with downward slopping demand curve (DD). Where supply curve (SS) and demand curve (DD) cross (intersect) each other (point E) – determines the equilibrium price and quantity. The equilibrium being the ultimate position of neutrality – once reached, no other strategies or adjustments make economic sense.
At equilibrium, the shaded area (PEPe) on the left side of the supply curve (SS) represents the producer surplus or rent for oil. To capture this rent or portion of it thereof is what government attempts to do by charging the oil companies – royalties or some other form of taxes on profits. Ignoring collection of this surplus would not make any economic sense. It would simply be a loss of revenue to the government.
Therefore, what are some of the conclusions we can draw from this long discussion above? I hope that in some way, we can use it to settle the controversies surrounding windfall taxes, royalties, and other mineral taxes. From my discussion, few things should be clear: –
• Zambians sitting on huge mineral resources ought to find a way of rewarding themselves something from that ownership.
• That, while investors are welcome, they should be seen to pay a fair share for using (renting) these resources belonging to Zambia. Therefore, so long as the sharing is fair, there should be no problem.
• That, it is up to Zambians to know what it is entitled to and claim it accordingly. If they don’t, they will have nobody to blame. Information and economic methodologies exist which Zambia can use for bargaining.
• But as corruption grew in the country and Zambians’ discipline on public policy enforcement got weakened – investors got emboldened. They became adamant and cared little about transparency. No wonder there have been cases of some of them even refusing to pay taxes, Imagine! Where are compliance officials and the judicial system to supervise enforcement?
• In order to settle disagreements on windfall taxes and other mineral taxes or concessions, we need what some people refer to as: “full buy-in” and a transparent “all-party” tax policy. A consensus position which must be presented to the investors.
• We cannot continue with a situation whereby investors are basically defrauding Zambians. And since the world is getting more complicated and unfriendly, we must find nationals who are not only smart, and technically savvy individuals but courageous enough to face exploitive investors. The Zambian people are counting on Pres Michael Sata’s PF government – whose rhetoric so far is at least very encouraging.
• As we saw in the analysis above, as demand for copper (our resources) grows, the rate of extraction also grows – encouraged by good prices. If Zambia does not take advantage of this opportunity – then the allocative effect of that is that – more wealth will be shipped out of Zambia to other already richer countries.
• Conversely, when poor prices set in – this will slow down extraction and therefore economic benefits accruing to us. Even the small revenue we get would disappear. Once more the country would be in a more difficult situation, depending on economic aid and donations.
• In my discussion, there was an insinuation that – given a corruption-free environment, the discussion on windfall tax would not be as controversial. For, no normal profit making firm would find the Zambian conditions – including paying of WTax unfavorable. The super high copper prices of today should encourage even more companies to invest in Zambia.
• If Zambia hesitates or makes a bad decision on this important question of windfall taxes, which shall we blame – is it “kindness”, “ignorance” or “fear” factor? Although Standard & Poors has awarded a B+ grading for Zambia’s current future outlooks, Fitch a short while ago downgraded its Bonds. Some of these are nothing but scare tactics to be watched.
• With US$8 – 10,000 per tone copper price, handled properly should for once, give us the power of the purse. In high prices ought to lie our strength at the negotiation table. If we relent, we’ll again let opportunity pass us by and revert back to our customary position of taking dictations. Must we always succumb to manipulation by others? Why can’t we be the manipulators?
• Finally, because of the fact that minerals are exhaustible, charging a reasonable amount of taxes today, for a rainy day, should be understandable. Revenue is needed now so that the country can diversify and prepare for the day of reckoning (Armageddon) – which will for sure eventually arrive.
Therefore, it is no longer wise to allow investors to invade Zambia and let them exploit its resources at will. We must do something about it. Feedback or comments are welcome. Cheers!!!
On Friday May 9th 2014 at a Lusaka Cresta Golfview Hotel – a book titled “The Family Question and Other Plays”, was launched. This important book is a collection of eight most outstanding works and plays written by Prof. Dickson Mwika Mwansa (Prof. Mwansa). Prof. Mwansa is the former Vice-Chancellor of Zambia Open University.
This launch was witnessed by many notables from the academic circles like Prof. Lyson Tembo, Diplomats as well as politicians. Unfortunately due to conflicting government engagements, VP Dr. Guy Scott who was supposed to be the guest of honor – could not attend.
Note that, on October 24th this year, marks exactly 50 years since when Zambia attained political independence from our colonialists – The British. When Britain ruled us, she made sure that everything under its influence: – land and its people, where effectively controlled. Zambia’s development path therefore, was culturally and socially determined by them.
It is therefore, quite refreshing to welcome works like that written by Prof. Mwansa. In essence Mwansa, 50 years after independence, he is liberating us from British – cum European cultural bondage. Our minds and thoughts were somehow arrested by this foreign intruder. Our traditions, customs and morals – basically our rich history, was buried under this cloud of dominance.
Through theater arts and drama, Prof. Mwansa has opened up our minds so that we can reflect and see what has been happening to the Zambian society at large. Plays like: Father Kalo and the Virus or Builders and Destroyers amply demonstrate this point.
In “The Family Question and Other Plays” – Prof. Mwansa makes an attempt to try and revive some of our lost glory and respectability. Using theater arts and drama in combination with his vast experience as an educator, Mwansa touched on every conceivable societal issue. That is, social issues and problems which are facing us today are highlighted.
Notable among those themes discussed are: corruption, abuse of power, moral decay resulting even into epidemics like HIV/AIDS, breakdown in love and marriages, and not to forget about ethnicity and politicking. In some clever and craft way, somehow, Mwansa has touched on all of these societal headaches – poverty and the like.
Through a potpourri of acts and scenes, Mwansa is able to entwine issues and in a simple way, show us what is happening to the Zambian society.
Speaker after speaker at the launch among them – ZAOU Vice – Chancellor, Prof. Mutale Musonda, Prof. Lyson Tembo, Prof. Steward Crehan, Mr. Ghankanani Moyo, and Mr. Mark Chona among others, lauded and echoed the innovative and pioneering efforts taken in the publication of this collection.
All of these people and those who attended did not only welcome this important book, but one hopes that more of its kind will follow soon. Indeed, the coming out of this volume poses a great challenge to not only other writers, but also to the whole entire Zambian youth. It is time they took up the mantel and moved things forward – hopefully we don’t have to wait for another half a century.
While the Madalas during the UNIP days had the courage to chase the colonialists, the youth too must take the challenge a step further – the intellectual way.
Fifty years ago, youth specialized in throwing stones. Those of today should specialize in reading. As someone said, “if you want to hide some knowledge from Zambian people – put it in a book” because they don’t read. But a society which does not read remains backward.
In sum, the shape of the Zambian culture, morals and other pillars on which society can be built, should be paved and determined by the Zambian sons and daughters wherever they happen to be including the Diaspora. It is too important a task to leave it up to others to do it for us. Moreover if we fail to savage our past history, who will? Let’s follow Professor Mwansa’s example by digging deeper into finding out who we are as a people.
I therefore see “The Family Question and Other Plays” – as a lovely gift to the Zambian populace at this time when we are celebrating the golden (50th) birthday of our nation. Cheers!!
Lusaka, May 16th 2014.
Kaela B. Mulenga
PS – Prof. Dickson Mwansa can be reached at c/o ZAOU, or through WWW.Xlibrispublishing .co.uk
Today Nelson Mandela popularly known as Madiba is being hailed as a moral authority when it comes to issues like: democracy, racial-equality, common decency, humanity and fighting oppression because he took a principled stand on all of these.
It is such a huge honor for Africa to have someone becoming literally an instantaneous Saint. No wonder over one hundred presidents and Heads of States and other dignitaries have come to pay their last respects to this man. The outpouring of tributes from all over the world is simply miraculous – rivaling only to the funeral of beloved Pope John Paul II in 2005. Eulogies delivered by Statesmen like Barack Obama and Noble Laureates of Bishop Desmond Tutu stature have been touching.
Tata Madiba has now gone in history as the peace icon of the century. What Madiba stood for and fought against is what should generate interest mainly in people of the African stock. Who is this man the world has fallen in love with? What did he do for the world?
Fifty years ago not so many people regarded what he was involved in as Messianic. The Apartheid leaders and some Western countries saw him as a terrorist. Only few people in positions of influence were prepared to support his struggles. Yet Mandela for a long time he has been fighting against all forms of injustices. His enemy No. 1has of course been Apartheid system which he saw as encompassing the entire humanity.
Racial tension and oppression of man by man have been at the centre of the present day human conflicts. The whole Africa is engulfed into it. So is – North America, Latin America, Europe, and Asian countries. Everywhere in one form or another, it involves relations between black and white, one race against another, one class against another, rich against poor or master versus servant.
Because the late Mandela was involved in all of these struggles, that’s why he was often quoted as saying – “during my lifetime I have dedicated myself to the struggles of the African people…., I have fought against White domination, and I have fought against Black domination”. The later being a reference to some African leaders who themselves became oppressors of their fellow black citizens.
But as soon as the Apartheid project was abandoned in the early 1990s, Mandela was the first one to preach reconciliation. Ever since his release from Robin Island prison in February 1990, Madiba has been inspiring people to love one another. He has not only led by example but he has continued to make sacrifices thereafter.
Mandela’s trajectory should even be well known to Zambians. Why? Yes, because we have Kenneth Kaunda (KK) who when it was difficult for many people or countries to see what kind of a man Mandela was, he did. If Mandela stood on the correct side of history, so should Kaunda be.
Half a century ago, many people including some Zambians, blamed the stand Ken took – which included the allocation of state resources towards the political struggles of those countries in the sub-region still under colonial rule or tormented by Apartheid. Mozambique, Angola, Zimbabwe, Namibia and of course South Africa are countries in Southern Africa Kaunda vowed to support. In these countries black Africans were not only discriminated against, but were also disfranchised
Although Zambia had attained its political independence in 1964, KK felt that this was meaningless until when other countries in the region were also free. It is this vision and foresight which makes our KK in some way an equal to Madiba. Both have capacity to see what many of us couldn’t see especially if it means looking into the far future. Because they (KK & Madiba) are convinced about the “truth”, it therefore then becomes easy for them to commit and make sacrifices.
The tenacity, with which Madiba’s “Long Walk to Freedom” is known for, has got its roots from identifying what is right or wrong. Madiba was hundred percent correct that Apartheid was wrong and that it should be fought against. His famous quote – “I’ve cherished the ideal of a democratic and free society in which all persons live together in harmony and with equal opportunities…”. And if achieved is indeed “an ideal for which he was prepared to die”. [20 April 1964, Rivonia trial].
Kaunda often preached that – ‘oppression of man by man is wrong’. And that ‘God’s people should not be made to suffer any injustices’.
As Madiba saw it many years ago, and now of course many people agree – Apartheid was evil. For the sake of those who aren’t sure of its roots – Apartheid or ‘apartness’, commonly known as the “Policy of Separate Development”, was introduced in South Africa in 1948 when the Afrikaner National Party, under the leadership of Daniel Francois Malan formed government.
To implement this policy, about hundred (100) laws designed to keep blacks and whites separate were put in force. The main idea being to make blacks ‘hewers of wood and drawers of water forever’. Hence, one of the key elements of Apartheid was to maintain white domination over blacks. In essence blacks were no better than slaves of sorts.
According to the Boers or the Afrikaners – a white tribe of Africa, arrogant and xenophobic, they thought that they had a right to chastise and even kill blacks. They saw Africa as a place, ‘where the strong eat and the weak are eaten’. Apartheid built on this principle – that’s why Mandela’s ANC in its crusade against it, decided to abandon the Ghanaian tactic of non-violence. They replaced it with armed struggle using Umukonto we Sizwe – ‘the Spear of the Nation’.
If Afrikaners didn’t have to confront combatants like Nelson Mandela, they would have to this day continued to believe in their mystic Christian mission to save the Dark Continent.
Like fundamentalist Moslems, who misinterpret Koran to suit their goals – Afrikaners, as is confirmed by one of their own – Journalist Rian Malan in his book – “My Traitor’s Heart” (Vintage Books), ‘stern and unforgiving passages from the Old Testament are used as divine justification for their crude behavior and way of life’.
Boers a descendant group from the Dutch, who established a Dutch colony (to facilitate trade of Dutch East India Company) at the Cape of Good Hope – now Cape Province, is known for cruelty. They often expressed their hatred against the so-called “dark-skinned heathen” a.k.a. blacks. Their Dutch language degenerated into a vulgar dialect known as Afrikaans.
These race-hating and anti-black white savages would rather die than accord black people equality before the law. That’s why you had pass laws. Mandela was incensed by these.
To expand their influence, the Boers fought their way into the interior of Africa, often clashing with black African tribes – mainly Zulus, Xhosas, Bushmen and Hottentots tribes. Bushmen and Hottentots were nearly completely wiped out. Those who survived were enslaved or became servants and animal herdsmen.
The leader of the Boers frontiersmen was a fellow by the name of Dawid Malan, a fornicator who ran away from Cape Town government with a black slave woman called Sara. [Apart from white wives, having black concubines was a common practice amongst Boers. Maybe that’s why you have so many coloured (mixed race) in the Province]. When and how Afrikaners became completely anti-black is not quite clear.
But over the years, wars between Boers and Africans were many and sometimes very bloody. At the peak of the British Empire, especially when gold and diamonds were discovered around the present day Johannesburg, British joined in the fights. Where Afrikaners won the battle, Boer Republics were established.
You can imagine how Afrikaners felt in 1948 when they won the instruments of governance over the whole of South Africa. It is perhaps that year when the fate of Madiba was decided. This system had to be fought at all costs.
The enforcement of this Apartheid policy fell under the direction of General Magnus Malan’s military machinery. Another Malan. Coming into existence were pass laws, censorship, job reservations, disfranchisement of non-whites, immorality laws and repression of all kinds – all intended to put the black man down, and keep him that way forever. The idea was to remove any chance of black people to come up and challenge whites.
To an Afrikaner, white supremacy had to be maintained all the time. This is the system, Nelson ‘Madiba’ Mandela fought against in whatever way he could including 27 years of incarceration. Steve Biko tried to use Black Consciousness and other non-violent means, but was killed. Even those who tried to use civil disobedience perished at Sharpeville massacre. Many others like those students protesting against Afrikaans lost their lives in this process against racial segregation. It was tough!
Thus, as millions of people around the globe participate or tune in to celebrate Madiba’s life, let’s not forget what he stood for. By reconciling and shaking hands with his adversaries, he demonstrated the softness of his heart and respect for humanity – shaming and exposing those who oppress fellow human beings. Accepting one another as equal human beings is perhaps his most profound legacy he has bestowed on us.
As he takes his final steps to his resting place in Qunu, I am sure that – for a long long time, there won’t be many people like him.
We thank you Tata and adios Papa Madiba till we meet again in heaven. MHSRIP!!
Toronto — December 12th, 2013
A recently received twit from one of my readers asked me to comment on PF’s taxing policies. I suppose this is a relevant topic now because of what is going on between the PF government and KCM. Jobs, profits and government revenues are all intertwined.
Mineral taxing issues for Zambia have been exhaustively discussed in several of my on-line blogs on UKZAMBIANS site and elsewhere. I normally make comments to complement the excellent tax debate found on Zambian Economist (ZE). But somehow the message I propound hasn’t sank in with our taxing authorities. Let me elaborate.
I do realize that copper prices do sometimes rise and other times they fall. And that consumer preference does change. Indeed things do happen. With no investors and when customers turn away from buying copper, we lose revenue. I know that. Therefore I am quite concerned about the dependence on copper, which after all one day may no longer be in demand.
In this situation, the solution according to me – would be to diversify away from copper now, and develop a more balanced and integrated economy. But you cannot diversify if you do not have the financial resources. Therefore apart from user fees of all sorts – borrowing and taxing seem to be the main options available to governments for raising revenue.
I prefer that we go the taxing route rather than borrowing money from abroad. I totally agree with Zambian Economist’s position [available on Zambian Economist site] – that the biggest drawback Zambia faces is the lack of a long-term tax strategy, which should transcend different Zambian administrations. Zambia is not the only country producing copper – so models on which we can base our taxing policies are already available else where.
In developed market economies, taxing issues are used to sway voters. Lower taxing doctrines are identified with countries where ideologies tend to be socially conservative or Republican. In these countries, household and corporate taxes are lower. On the other hand, liberal or social democratic governments tend to favour higher and progressive tax rates – for, they argue that – that is necessary to encourage national income redistribution.
In fact the two-party political system in USA and UK for example, is driven by tax regimes.
In developing countries like Zambia, where the economies are still weak, and that survival is in general based on raw materials and natural resources – mineral taxes and royalties together with commodity export taxes become important. Rather than selling policies to voters as they do in DCs [Developed Countries], LDCs [Less Developed Countries] politicians have to demonstrate to the investors, the fairness and attractiveness of their tax regimes. Otherwise nobody comes to invest.
In addition, although only a small portion of populations in poor countries have formal jobs, nevertheless, everybody is affected by the taxes levied. Surely even those who are unemployed reap some benefits from roads or flour milling plants once built. In short developed or not, the decisions government makes regarding taxes, therefore, become crucial. Government needs huge amounts of resources to get rid of poverty.
In Zambia we need a taxing policy which can remain in place regardless of which political party or leader is in power. This helps to remove confusion. So far every government which comes in thinks that it knows what is best and has all the solutions. In the meantime while this anomaly persists, foreign investors have a field day extracting all the profits they can get from the country. The differences over the inclusion of windfall tax in the government’s revenue making tool box, is a typical example.
The government of Pres Patrick Levy Mwanawasa managed to introduce the windfall tax without any uproar from investors. But Pres Rupiah Banda’s (RB) administration reversed it. And Pres Michael C. Sata’s PF government, in spite of the fact that in 2011 they campaigned to support it – refused to re-introduce it. This sends a confused message to the investors.
An explanation why Zambia behaves this way is not clear, but there are some hints we can consider. First, I do not believe that Zambians are convinced that minerals – as non-renewable resources will one day get exhausted. Or maybe they fail to visualize that once these resources vanish, it is imprudent not to be ready for that fateful day. Indecision has contributed significantly to the prevailing instability.
Second, we seem not to be convinced that – even though our largest copper consumers would not dump us, China and India like everybody else are also subject to business cycles. This means that their economies too are vulnerable. Irrespective of commodity prices trend, they too will have to be dictated to by the booms and bursts pattern. As the prices rise or fall, they make adjustments in consumption, which means that at some point, their economies would also stop growing. As they reduce purchases of copper, we go down with them.
As sellers of the raw commodities, our goal then should always be to take advantage of boom times. Hence, during periods of good commodity prices, that should be the time when we can maximize revenue and in return economic development. A diversified, balanced and integrated economy should be the priority then.
Third, in spite of Zambia being in the mining business for over 100 years, we seem not to have all the necessary information and critical knowledge on which to base important (production or financial) decisions. Consequently each new investor who comes along continues to bully us because they know that we lack data or info to counteract their actions. The pomposity of Mr. Kishore Kumar of KCM demonstrates this. Although we’re living in an information age, facilitated by the arrival of internet, unless one is aggressive, mining information – on mineral prices, costs, inventories, etc., remains a challenge.
Given accurate price and cost information, this could assist Zambia in designing clever tax policy/laws and/or working out effective compliance strategies.
When agreements are being entered into, investors irritatingly continue to manipulate cost information to get favourable terms from our authorities. This is in addition to the false promises they (investors) make concerning job creation argument to get operating licenses.
During negotiations, somehow, the investors’ demands overshadows – their access to untapped resources, cheap labour, use of local infrastructure and the large profits they end up reaping during boom years. These people would raise anything they can get, pointing to issues like the cost of doing business in the country and others as a way to demonstrate that they’re making sacrifices on our behalf when in fact not.
What I am trying to point out here is that – from the outset, investors’ exploitation techniques never stops. Fearful of losing investments, which in turn admittedly is the source of jobs for the people – our governments soften up and give in. Licenses are granted and soft, instead of fair tax codes are imposed.
Thus to please investors, we keep on dancing to their tune. Avoiding windfall tax together with charging lowest corporate taxes, from our point of view, lowers government revenues and hence, brings in fewer resources for development projects.
As if that was not enough, foreign companies, through various means dodge paying taxes. Sometimes they cook books or use tax heavens or schemes to manipulate accounting reports to avoid taxes. In some cases they simply use advanced digital technologies when transferring funds abroad, which our unsophisticated officials fail to detect.
It is against this background I hope that our Finance Minister should reshape Zambia’s taxing codes. Some of the things government must address should include: –
A plan to raise sufficient tax revenues during the booms so that we can buffer the valleys of the business cycle. I hope it is not too late. Reliance on foreign borrowing, especially when we are approaching a valley, comes with a lot of disadvantages. One obvious one Zambia has experienced before is that – once the public debt gets too large, the little foreign exchange the country earns goes towards paying only interest rates. This leaves the principal as a burden on the future generations.
We also know that, although a small portion of what is borrowed might go towards infrastructure development, the bulk of it is consumed and not invested.
And by its very nature, foreign debt ties in a country’s hands, making “sovereignty” difficult to manage. When we were fighting against colonial domination, I never knew that we would surrender control of the economy back to them in less than 50 years. The benefits of the 7% economic growth are accruing to expatriates and foreigners rather than the local Zambians.
If Zambia is to make ends meet, fair rewards must be reaped from the natural resources we possess, at least when the commodity prices are good. This means putting in place fair tax codes (emphasis on fair) and plugging all tax loopholes so that everyone complies and pays what is due. Otherwise Zambia will never earn its fair share from its natural resources.
We also need knowledgeable locals who can challenge investors when it comes to cost structures, commodity movements and trends, and international mineral and royalties’ regimes. Some of these competencies are available around the globe – but it is now becoming doubtful if PF government has an interest in reaching out for them. A lot of brains in Diaspora are being wasted. The consequence of this is that – expatriate influence will continue to dominate policy direction.
Otherwise if we continue on current policies, we’ll never get rid off tax policy headaches, that is, allowing foreign investors to continue taking advantage of our weaknesses. Being resolved to attain fairness is noble. Failure to challenge investors where challenge is due, is weakness. And we should not forget that these foreign investors will always be backed by not only their powerful home governments, but also by the World Bank. For us, none other than ourselves will cover our backs. Let us put self- interest above being nice and civilized.