The Speech President Lungu Should make on the State of the Economy

“President address” to the nation on the State of economy

By Kalima Nkonde

( Readers, please note that this is a satirical article and is not a real address by the President but rather the writer’s analysis on some of the issues that the President ought to be talking about or actions that he should consider taking. This is an advisorial article)

Good evening country men and women. I humbly present myself to you as your servant and would like to report to you as my employers about the state of our economy. To day, 25th June,2015 marks five months since I took over the reins of power on 25 January,2015 and I believe it has been enough time for me to get to know the economic challenges that the country faces . I want to take this opportunity to share them with you and inform you of the measures that I intend taking.

First and foremost, I wish to state from the outset that I am making this speech specifically on the economy because it is my top priority as our politics have become rather toxic and are better left to less mortals. You will agree with me that you elected me to make your lives better and too much politicking will not bring food on your table. My address will depart from my predecessors’ approach in that I will accept mistakes we have made and engage in self criticism of our party as the Governing party. I believe that it is by admitting mistakes that we can take corrective action. The main economic challenges that we face, countrymen and women are as follows:

• Unemployment,
• Excessive Government borrowing
• Government expenditure and general waste
• Big government
• Poor Performance of the Kwacha
• High cost of living
• Poor approach to economic management

I intend to address each of these in more detail as outlined below:

Unemployment

Country men and women, the current high unemployment rate is a major source of worry for me and I spend sleepless nights agonizing about our youths on the streets. It is my top priority both in the short term and in the long term. I am mindful of the fact that we promised our people jobs during the 2011 election compaign and we have yet to fulfill that promise. I have consulted widely inside and outside Government circles about practical solutions to this problem and not just text book solutions. I have particulary been impressed by the short tem practical suggestions for immediate employment creation that my brother ,Kalima Nkonde, a retunee from the diaspora made in one of our on line publications a few months ago and which I noted and over 95% bloggers supported. The following are some of the short term measures that my Government intends to implement immediately to create jobs for Zambians:

• We will require Mining houses to create indirect jobs by procuring their supplies from Zambian owned companies. We will make sure that they comply with this and intend to put strict monitoring mechanisms. We will also ask them to instruct their captive foreign suppliers especially for equipment and other imports to relocate to Zambian mining towns like Solwezi, Kalumbila and others so that we are not exporting both jobs and copper. This will result in skills transfer and employment creation. Fellow Zambians, we have made so many concessions to the Mining houses such as the cancellation of windfall tax, reduction of Royalty tax from 20% to 9%, cancellations of SI33, SI55 at their instigation and so on and so forth. It is time they gave Zambia something in return in form of indirect jobs which does not cost them anything!
• My government will increase the percentage foreign contractors in infrastructure projects subcontract to Zambians from 20% to 30%. We will stiffen penalties for Zambians who sell contracts to foreigners after being awarded the reserved allocation.
• The cost of borrowing in Zambia is astronomical. We will reduce domestic borrowing so as not overcrowd private sector and also help reduce interest rates. I have instructed Bank Of Zambia to find ways and means to reduce to cost of borrowing so that our SMMES can borrow cheaply and create jobs
• My Government will engage immediately the governments of Angola and DRC so that we can create a market for our agriculture products and thereby create thousands of jobs in our agriculture, livestock and allied industries
• My Government will engage our Southern African neighbours so that we realize some benefits from the Liberation struggle. We have not benefited economically from the liberation struggle and we should engage in aggressive economic diplomacy with countries like Namibia, Angola, Zimbabwe, South Africa, Botswana, Mozambique and sign bi lateral agreements for the most favoured nation status with them so that our goods and services can be exported there in preference to other countries without subjecting them to rigorous tariff and non tariff barriers! Our Citizens should also have preferential immigration status and should not be harassed like others who never contributed to their liberation! We kept their leaders and spent money and lives for their liberation and surely one good turn deserves another ! We paid dearly for these countries and our economy has never fully recovered because of the sacrifices we made!
• We will ensure that we stop importing products that can be produced in Zambia such as potatoes, tomatoes, onions, beans, cooking oil etc from countries like South Africa and other countries so that we create jobs here in Zambia instead of exporting them like retails chains in our malls are doing and as well as support our currency, the kwacha.
• My Government will introduce an internship programme and encourage the private sector too by trying to absorb graduates for a period of two years for them to gain experience and be marketable. The graduates should be paid less than the market value during the hands on experience. This will address the issue of graduates being rejected by the market place due to lack of experience. We will encourage the Private sector to enter the programme and we will give them tax and other incentives to employ college and university graduates so we reduce youth unemployment in the short term.
• We will strictly monitor the Zambianization programmes of foreign companies especially the mines. It appears some of them have taken advantage of the lack of monitoring by our Labour department. We monitor corruption in the granting of work permits by Department of labour so that permits are only given to qualified foreigners. We have been too liberal in granting work permits to foreigners for jobs that can be done by Zambians!

In the long term, I have instructed the Ministry of Labour to contract a consultant to study the unemployment situation in Zambia and make recommendations on how we can mitigate the problem and ensure our unemployment rates are below 10%. I should be clear countrymen and women, the creation of jobs in a market economy lies with the private sector. As Government, we will facilitate job creation through putting in place progressive policies. Government should not be a major source of employment!

Excessive Government Borrowing

My fellow Zambians, when we took over as PF, we found a foreign debt of $1.2billion and now it is $4.8 billion.Our domestic debt is K 20 billion and our combined debt of domestic and foreign debt is about $8.8billion.The rate at which we are borrowing is unsustainable at best and irresponsible at worst. I want to put a stop to this.

At the current borrowing rate, we are condemning our future generations to economic malaise. We do not want to be caught up in the debt trap again. We all know what excessive borrowing does to a country. Greece is the modern example on how a country’s sovereignty and pride can be compromised when you are heavily indebted .

You are at the mercy of its creditors and you lose respectability! It is not a question of saying we are below internationally acceptable limit of debt to GDP ratio as justification! I do not buy that! The effect of excessive borrowing especially for a consumption oriented and a small economy like ours includes diverting resources from social sectors to debt servicing. And in the case of domestic borrowing, we are crowding out the private sector therefore killing employment creation and like Bank of Zambia Governor recently pointed out, it is even causing interest rates to go up! As you know the Bretton Woods institutions – the World bank and IMF have also cautioned us about the rate at which we borrowing and our lack of strategy for servicing the same.

It is time we listened and took action. I would have wanted to stop most of the planned borrowing but in the light of the loss of revenue from the mines through reduced royalty taxes, we will have to borrow to bridge that gap. We intend to issue the last $2billion Eurobond but this time, we will ensure substantial money in invested in sectors like agriculture, manufacturing and tourism where we can get immediate results and earn foreign exchange through exports rather than infrastructure projects that are long term. I have, however, suspended the bulk of domestic borrowing so that we do not crowd out private sector and increase interest rates.

Government expenditure and general waste

Country men and women, I have discovered that we are not spending our tax payers’ money wisely and responsibly. As you know, we are running a record budget deficit. In the first six months of 2015, our budget deficit was K20 Billion instead of the projected K8.5 billion. In simple terms, we are spending more than we are earning! We are living beyond our means!

The IMF and economic commentators have advised us to cut our costs, postpone projects, reduce civil service salaries, reduce benefits that do not add value but we have not listened, it is time we listened and took tough decisions because that is what leadership is all about. Our financial management leaves much to be desired. All past governments and ours have focused too much on the sources more revenue without looking at the expenditure side of the equation especially recurrent expenditure.

My Government intends to address the expenditure side vigorously with immediate effect. The time of waste in Government is over. In order to show that I am committed to cost cutting, I will start from State house. May also inform you that I am following the General Mohammed Buhari of Nigeria’s example in cost cutting. He has decided to sale nine (9) presidential aircraft in order to cut government expenditure in Nigeria and send signals to all the ministers and civil servants that reduction of wasteful government expenditure is one way of reducing fiscal deficit! We leaders need to lead by example! You cannot ask people or ministers to forgo benefits or allowances when you are wasteful as a president.

First and foremost, my motorcade will be cut by 50% because the number of vehicles and personnel involved me in escorting me cannot be justified for security and economic reasons! It is sheer waste of money! In addition, my delegations on trips both local and foreign will also be drastically reduced .The savings of these measures in terms of fuel, maintenance, allowances and other related costs will be massive and runs in millions of kwacha.

In general, there is just too much waste in our Government system and we can easily reduce these costs without effecting anything negatively. Our Cabinet is also too big and we will have to address this at one time or the other though not immediately as most of my colleagues need these jobs otherwise they may die prematurely.I have, however, put everybody on notice that Government is there for service and jobs !I have noted the following as a major sources of waste:

• The number of trips locally and foreign by Government officials which are entirely motivated by Per diem are just to numerous.
• We are buying expensive vehicles which are expensive to maintain and they consume a lot of fuel
• The abuse of Government Vehicles which are used for private purposes and outside office hours!

I intend to send a delegation of technocrats to our neighbour, Botswana so that we can learn how our colleagues control costs in the Government system and we would have to emulate their thrift culture in utilizing public funds for the benefit of the poor. The savings from the reduction in waste will be used for medicines in hospitals and for scholarships to poor students so that we do not have situation where our young people commit suicide due to lack of sponsorship despite having excellent results.
In regard to Capital expenditure, we have no choice apart from cancelling or postponing some infrastructure projects as our revenue has reduced due to cancellation of the Royalty tax to the mines. The cancellation of projects will have no impact as some of current projects have no discernible economic value whatsoever. We have roads, bridges leading to nowhere! We should have had road projects leading to the Angolan border or to places like Kolwezi in DRC where trade could have been promoted and ZRA could been raising revenue from the border posts but these were not prioritized.

Big government

Fellow Zambians, my Government is just too big and unsustainable. Although big Government is related to Government expenditure, I want to address it separately for emphasis. The civil servants salaries make up 50% of our total expenditure for the country! The larger the civil service, the more inefficient and bureaucratic it becomes and it leads to poor service delivery. Although the creation of districts is important for service delivery to our people but this needs to be in a rational and phased manner and not the way we have been doing it.

It has been ad hoc and knee jerk kind of decision making without regard to the impact on budget and source of revenue for such projects. The rate at which we have been creating districts and building related infrastructure has just strained our government revenue and created economic problems for us unnecessarily.

The economic problems we have are purely self inflicted because of lack of informed decision making from 2011 to December,2014. Our economic decisions have been more influenced by politics rather than economic imperatives. There are those of us in PF who think that creation of districts and big government is the way to create jobs!

This is voo doo economics. Government should not the biggest employer . Job creation should be private sector driven as they are a source of revenue and economic growth .

Kwacha Performance and need for export diversification

Country men and women, when we took over in 2011 the kwacha exchange rate to the dollar was K4.86 and now it is S7.40 to a dollar which is about 52% depreciation over the three half year period. Since January,2015, our currency has depreciated by 19% .

The currency has not performed well. The 2015 drastic depreciation, however, has been largely due to market manipulation and arm twisting tactics by the mining houses due to the impasse of the Royalty tax and the VAT refund. It does not take a genius to know what they were doing.

They withheld the dollars by not bringing them into country through their export earnings which affected supply of forex and at same time, they demanded more forex for their imports using borrowings from the local market which increased demand for forex unreasonably thereby affecting the exchange rate adversely.

This is the major explanation for our currency to have lost so much value at a higher rate than other currecncies in this period. I do not deny that other factors like the dollar’s general strength and lower copper prices did affect our currency but the rate of depreciation was largely artificial. As you know, we depend on copper for 70% of export earnings.
Fellow Zambians, in order to improve kwacha performance my government will have to restrict some imports, reduce number of foreign contractors engaged so as to reduce externalization, monitor ( not control) inflows and outflows of forex from the mines without appearing to be reintroducing foreign exchange controls just like South Africa does, instill market confidence through policy consistency, diversify economy from being predominantly mining to agriculture, tourism and manufacturing,

High cost of living

Fellow Zambians, it is not a secret that the cost of living has gone up since we took over in 2011. The price of mealie meal, for example, has gone up from K37 since we took over to K75 or K80 in some areas.

I know mealie meal prices have more than doubled mainly due to removal of subsidies. But we need to bit the bullet in some of our decisions by ensuring that we avoid subsidizing consumption but instead subsidise production so that it can have economic multiplier effect on inflation, job creation, export promotion and economic growth
The other major costs faced by most our countrymen and women are escalating costs like rentals, health care, electricity, transport, water, school fees etc.! The recent planned strict enforcement of withholding tax on rentals by Zambia Revenue Authority (ZRA) is likely to affect a great number of our people’s cost of living as landlords are going to pass the 10% tax on to tenants!

I am not comfortable with this tax as the timing is insensitive given that we just reduced mining houses’s Royalty tax by close to 100% ! I would propose that tax on rentals is reduced to 2.5 % and landlords have to pay it not tenants so that compliance and administration is easier and cost of living is not affected.
Fellow Zambians, I feel your pain. I know how it feels to go hungry. I have a humble background like the majority of you ! Do not forget that I was one of you just a few years ago before I got elected as a Member of Parliament and so I can relate to your hardships and that is why I will do everything in within my power to improve your standard of living so that you all able to have three full meals in a day!
Let me outline some of the measures that my Government will take to bring the cost of living down. The major drivers of our cost of living is the price of fuel and the Kwacha exchange rate. We will review the fuel supply chain and remove middle men as well as look for alternative sources of fuel like brotherly countries of Angola and Nigeria.

As you have noted. I have met President Dos Santos and General Buhari already and so the process has started. In regard to mealie meal prices, we have negotiated with the Chinese to install milling plants in all the ten provinces of our country which will bring prices down. We are also going to reduce imports for goods that we can produce locally so that we avoid imported inflation while at the same time boost local production and promote employment creation. I also feel our taxation system needs to be fair! We cannot have employees contributing through pay as you earn tax (PAYE) more than companies -especially the mines- to the treasury.

Approach to economic management

Our general economic management has been flawed in that we never consulted with stakeholders nor instituted studies/consultancies to help us make informed decisions before we implemented certain important policy measures. I have come to understand that the economy is so interdependent that one needs to be careful before one makes a decision . One needs to have an helicopter view of things and understand the multiplier effects of their decisions.

We made so many knee jerk decisions on most policy and infrastructure decisions which have had un intended and disastrous consequences that we are experiencing now.

The problems we are facing are not because of external forces alone but mostly due to our mismanagement of the economy. My government will clearly outline our economic policy and my vision for the country in my state of the nation address in due course so that investors and everybody will know where we are going as a country.
Countrymen and women, before I took over the country in January,2015, the Country was heading in the wrong direction as exemplified by the following:

• FDI started drying up as some investors postponing or cancelling their investment plans and ZDA can attest to this.
• Business confidence by both local and foreign investors was low
• Paralysis in civil servants and heads of department for fear of being fired either in national or public interest
• Abuse of public order act by executive
• Dictatorial tendencies which we saw under UNIP had started creeping in
• The country was highly polarized and the ugly face of tribalism had started rearing its ugly face and there was general tension in certain parts of the country as they felt excluded
• Inconsistent and unclear economic policies
• There was impasse of the constitution making process

I have addressed and still addressing the above issues in one way or the other and changed the country’s trajectory. I wish to point out that the problems that we have now are a result of poor decisions that we made between 2011 and 2014 and they will take a bit of time to resolve but be rest assured that I will turn the Zambian economy around .

Conclusion

In conclusion, I would like to remind fellow Zambians that I am a Lawyer by profession and I have a law degree from UNZA and I obtained a distinction at the University of Zambia and so I am not an intellectual light weight! Ask anybody who went to University including Fred M’membe of the Post Newspaper or Hakainde Hichilema of UPND or Edith Nawaki and possibly ask them what grades they had! Whoever went to UNZA in the 1970s and 1980s , can attest to the fact that it is not an easy achievement.

I wish to assure you fellow Zambians that even if I am lawyer, I can manage the economy of our country well as I do not have a know it all attitude like some of my critics. You do not have to be an economist with a masters degree or a PhD like some of our self styled economic managers in the opposition who claim they can run the economy better by virtue of the economics degrees they have !

President Bill Clinton of the USA a lawyer like me, during his tenure of office, presided over the creation of 20 Million Jobs, the lowest unemployment rate in 30 years of 4.3%, the lowest poverty rate in 20 years, first budget surplus of $70 billion in 42 years, highest home ownership ever and made America debt free! President Barack Obama, a lawyer like me oversaw the worst financial crisis since 1930s in 2008 and he has stabilized the USA and the world economy.

The USA economy is creating jobs every month. He provided health care to over 14 Million Americans through the Affordable Care Act which his critics called Obama Care ! Both of these are Lawyers like me but they were of great intellect like me and used it wisely! They are my role models as Presidents! I believe in order to succeed, all a leader needs is to surround himself with the best possible brains, some of whom may even be smarter than him and not “yes” men.

Fellow Zambians, I can assure you that I have changed the direction our country was taking since taking over. We were going in the wrong direction prior to January,2015 but we are now going in the right direction and there is plenty of evidence to that effect.

Let me be clear, I have made some mistakes and I am still learning but I am a fast learner and so my learning curve is short. To engage in a bit of politics and have a dig at my opponents – my learning curve is not as long as some of my learned colleagues in the opposition. They have lost so many elections but they still have not found the formula to winning and getting to the highest office.

I did it at one attempt like President Clinton and President Obama! I listened and strategized and did not have foolish pride like them and that is how I made it !I wonder why they have not resigned like Eddie Milliband of Labour and Nick Clegg of the Liberal party in the UK and to give others in their Parties a chance!
I thank you for finding time to listen to me.

The writer is a product of the early 1980s University of Zambia- Ndola Campus called UNZANDO then (now Copperbelt University ) and he is a financial management consultant and a Chartered Accountant by profession. He recently returned back home with a hope of contributing in a small way to the country through rational economic debate based on his exposure and investing in the country. He has lived in the diaspora in England, South Africa and Botswana for over 25 years. He is an independent, non partisan and patriotic Zambian