The Lungu led economic Annus Horribilis comes to an end!

By Kalima Nkonde

There is no doubt that most Zambians from all political persuasions would agree that 2015 will go down as the “ annus horribilis” – a Latin word meaning a “horrible year’, economically. One can run out of words to describe the extent to which the Zambian economy has deteriorated in the last twelve months: it has been horrendous and catastrophic. It was gratifying to hear President Lungu take responsibility during the last press conference on November 26,2015; unlike in the past when he did not want to. He said that regardless of the causes of the problems, the responsibility to solve them was his!

“It is the responsibility of this government and the buck stops at me! It does not matter that I am only 10 months in the Office as President dealing with historical problems going back to the period of privatization in 2000,” He said.

I have been a regular economic/financial columnist on the Lusaka times for most of the year and I would like to wrap up the year by reviewing the performance of the Zambian economy in a layman’s language using a few indicators for the record. The review of the year will cover employment, inflation, exchange rate, public debt, interest rates, economic growth, budget deficit and the energy crisis. The article will highlight the status of the Zambian economy as we close the year and the measures that the government has lately announced in order to turnaround the economy.

Employment

The level of unemployment has certainly gone up. Due to lack of reliable statistics, it is difficult to get an accurate picture of the overall rate of unemployment in Zambia. The latest available unemployment rate according to the World Bank is 13.30% for 2013! But we all know that many people have lost jobs this year. The mining sector is a good indicator.

In April, 2015, 400 Contract workers with Murray Roberts were retrenched at Lubambe mines in Chililabombwe. In June, 2015, Mine workers Union Secretary General Joseph Chewe regretted the retrenchment of 500 contract workers of Chantele mining Services working for Kansanshi mines in Solwezi adding that he expected more retrenchments of contract employees as notices had already been given. “So we are talking of a range of over 1,500 workers that are being laid off at Kansanshi mine ,” he said. In August, 2015, 1,480 construction jobs were lost at First Quantum Mines owned Kalumbila Mines at its Trident project.

According to the international press, Mopani had announced way back in September, 2015 that it intended to retrench 8,760 workers (4,300 direct and 4,460 contractors).The confirmed retrenchments in November, 2015, however, have been that of direct workers of 4,300 and nothing has been said about contract workers who are even easier and less sensitive to retrench!

In November, 2015, Konkola Mines retrenched 2,503 contract workers. It follows that in total, a rough estimate of about 15,000 Zambians (direct employees and contractors) would have lost their jobs in the mines by the end of 2015. According to Bloomberg News, it is estimated that the Zambian Copper Mining Industry provides 62,236 jobs; nearly half of them contract workers. It follows that about 24% of the mining workforce must have lost jobs in 2015!

Inflation

The rate of inflation has for the first time gone into double digits. It has gone up from 7.7% to 19.5%. This is also reflected in the increase of the cost of living for all Zambians. It has become increasingly difficult to balance budgets in 2015. The prices of almost everything have gone up and some of them have doubled making life very difficult for ordinary Zambians regardless of their political affiliation.

Exchange rate.

The Zambian Kwacha has depreciated from K6.47 to a USD in January, 2015 to about K11 in December, 2015.This represents a 70% depreciation rate in a 12 month period which is extraordinary by any standards! The kwacha has been the worse performing currency in 2015. The currency hit an all time low of K14.63 to a dollar on the interbank market on 10 November, 2015 before closing at 14.50. It has, however, stabilized following the announcement of the long overdue fiscal measures by President Lungu and some monetary policy interventions by Bank of Zambia.

Public debt

Public debt is one of the major short term and long term problems that Zambia faces. At the last count in July, 2015, the total government debt was $9.75 billion made up of $6.05 foreign debt and $3.70 billion domestic debt. Due to the depreciation of the kwacha, the $6.05billion foreign debt has gone up in kwacha terms from K45 billion at exchange rate of K7.50 in July,2015 to K67 billion at the current rate of K11 to a dollar. Our foreign debt has increased by K22 billion in kwacha terms or 49 % within six months merely by exchange rate difference – the kwacha depreciation! There lies one of the dangers of reckless foreign borrowing !

There is no doubt that more debt has been contracted since July,2015 and so our foreign debt could be much higher than the $6.05 billion! The Zambian public does not know the current level of foreign debt because Government is borrowing from bi-lateral countries, mainly China and the borrowing is shrouded in secrecy due to the potential political fall out. There is no doubt that given the kwacha depreciation and additional debt contraction since July,2015, the level borrowing has exceeded the so much talked about – by Mr. Chikwanda and other government officials – benchmark of 40% of GDP; which they used to defend and justify further borrowing in the past. We are slowly but surely drifting towards the debt trap and this should be an election issue!

According to the recent Post Newspaper reports, Zambia owes China alone $3.0billion! Our Country is being mortgaged to the Chinese and all Zambians of good will should be concerned about this development! Zambians should not be surprised and blame China, if their future leaders in 30-40years time, decide to bring 100 million Chinese and demand citizenship once we fail to pay their debts! Remember, China’s planning horizon is 50 years and the leaders who may be there then may just demand that and Zambia’s future generations will not forgive us! Zambians will become a minority in their country like indigenous people of Pacific islands like Fiji and Solomon’s Islands or the Indians in the Americas found themselves! Let us not be naïve! You must have heard the Chinese Ambassador urging us to increase our population a few weeks ago so us to improve our economy!

Interest rates

The Bank of Zambia increased the policy rate from 12.5% to 15.5% due to the increase in inflation to 14.5%. The inflation has since jumped to 19.5% and we should expect further interest rate hikes by BOZ in the first quarter of 2016 if the inflation rate does not go down. Commercial bank lending rates are currently hovering between 25% and 28%. It is impossible to borrow for businesses at such interest rates. In any case, due to the liquidity squeeze imposed by the Central Bank to support the kwacha, Commercial banks do not have money to lend to the private sector. This will negatively impact on businesses expansion plans and job creation going forward.

Economic growth

The Government’s forecast economic growth for 2015 as per Budget speech was 4.6% but the World Bank and rating agencies , who are much more credible, have forecast Zambia’s year end economic growth rate at about 3%. This is a drop 57% from the growth rate of 7.0% that was budgeted for by Finance Minister in October, 2014. The implication is that fewer jobs will have been created and the government could not have raised enough money through taxes from companies and employees during the year due to reduced economic activity. Zambia has also not been able to attract as many foreign investors as in the past due to the reduced economic growth rate.

Budget Deficit

During the first half of the year, Government was said to have exceeded( overspent) the budget by K20 billion Kwacha. The original budgeted deficit was K8.5 billion. The difference is 135% above the target! The widening budget deficit is the single most important variable affecting our economy negatively. The Finance minister has projected a deficit of 6.9% of GDP for 2015 but it does not take a rocket scientist to predict that the budget deficit for 2015 will be in double digits as well and will be above 10%. The austerity measures announced by President have been very welcome but were long overdue. Had he listened to most us, and implemented them earlier, we would have had a lower budget deficit at end of the year and the kwacha and the economy would have been in a much better shape than now!

Energy crisis

The energy crisis has caused havoc among Zambian businesses and households. The load shedding has been a night mere. Electricity tariffs have gone up by as much as 200% from K0.51 per kilowatt hour to K1.54 for some domestic users. The electricity tariff increases are even higher for businesses. There is no doubt that people and institutions will cut on electricity consumption and switch to cheaper alternative sources of energy and I expect load shedding to either disappear in the next few months or reduced drastically! That is how Adam Smith’s laws of economics work! Our politicians may be shocked that load shedding may go “naturally” or reduce measurably due to the increased cost of power.

Fuel prices have also gone up after having been reduced in January,2015 for election purposes. There are expected to go up as announced by the President in the near future.

Economic turnaround measures by the President Lungu

President Lungu’s administration had resisted to take any fiscal policy measures ,for political reasons, to complement the monetary policy measures by the Bank of Zambia in order to address the budget deficit and the depreciating kwacha, despite calls from experts including this writer. The IMF came and made same suggestions but he did not relent. The tipping point came when the Kwacha hit the record low of K14.50 mark to a dollar and was still sliding; inflation skyrocketed to 19.5%; 4,300 miners were declared redundant at Mopani and another 2,503 at KCM! He must have realized that his “do nothing strategy” will result in electoral defeat in 2016. He had to act!
On 26 November,2016, he announced far reaching measures meant to turn around the economy. These measures are the ones he should have announced in his speech to Parliament in September,2015 instead of the aspirational 2030 and 2064 speech he made. The austerity measures included the following: stopping of procurement of new infrastructure projects including roads, shelving of projects which had been contracted but yet commenced, spreading implementation of current projects over a longer periods of time, removal of fuel and electricity tariffs, cancellation of the ill conceived national airline project, reduction in foreign and local trips by civil servants, suspension of the opening new missions abroad, review conditions of service of constitutional office bearers and many more measures meant to reduce both capital and recurrent expenditure of government and consequently the budget deficit.

In the light of the President’s speech on austerity measures, one should be more optimistic about the economic prospects for 2016 if and only if the pronouncements are followed through and implemented. The signs are already there as the kwacha is showing signs of stability. The market sentiment has certainly improved a bit following the speech. However, economics and politics are interrelated and it is important that the PF gets its politics right. Good governance such as rule of law, freedom of speech and assembly, press freedom etc is required to ensure market confidence is restored and sustained.

It is gratifying that President Lungu has realized that the economy is not stupid like I warned several months ago in one of my articles “Is the Economy stupid, Mr. President”. Any President who ignores the economy, however, popular he may be, can lose an election as President George Bush(snr) found out in 1992 after winning the first Gulf war !There is no doubt that the President’s press conference of November 26,2016 was a capitulation .The austerity measures he announced although progressive, were done reluctantly. It is hoped that he has learnt a few lessons about management and leadership.

First, in leadership, for one to succeed, you need to surround yourself with brilliant and the best brains in your inner circle and not play mates, so that they give you quality advice. It is apparent that the quality of advice he was getting from the inner circle at State house was poor thus the embarrassing policy and strategy reversal! How come some of us saw the economic melt down months ago! He should also learn that economic populism is a wrong strategy and it just leads to economic ruin and backfires on a politician sooner or later! KK’s fast track and wholesale nationalization is an example; so is Mugabe’s unmitigated land reform programme and now the PF’s ambitious, massive infrastructure projects! Economic management is about proper planning and implementing prudent policies and not playing to the gallery!

It is also hoped that the President has learnt that leadership is not a popularity contest but requires one to be bold, firm and decisive and not to be unduly influenced by political debts owed to others! The importance of timing in making decisions cannot be understated and doing nothing and waiting for things to sort themselves just does not work. There is need to be proactive, foreseeing problems rather than being reactive and adopting a fire fighting management style which results in closing the stable when the horse has bolted!

Conclusion

In conclusion, I urge all fellow Zambians as we enter 2016, to be tolerant of each other regardless of the different Parties they may belong to. Let us agree to disagree. The hatred, the insults, the violence, the illiteracy and lack of reading culture especially among the youth that I have seen since I came back is very alien to the Zambia that I grew up in! The current Zambia, is where dishonesty, lying, stealing, corruption etc are treated as normal! There are many of us who are, indeed, the endangered species because our value system is so different from the one currently obtaining in Zambia!

I would like urge the President and Political Party leaders who are in our generation – 50 and above – to lead by example and stop the rot of barbaric and jungle politics currently obtaining in Zambia! It is rather tragic that in Zambia, politics has attracted as leaders, people who are at the lowest ebb of Abraham Maslow’s hierarchy of needs, which is physiological. Most people are motivated to enter and stay in politics by physiological needs – as Mr. Daniel Munkombwe shamelessly admitted sometime ago- rather than public service and common good!

Lastly, let me reiterate that this writer is independent of any Political Party, although some of his views may sometimes coincide with the ruling PF Party or the Opposition! He does not even know any of the leaders or where their various Political Parties offices are and he is not interested to know. The views expressed in the articles are his and do not represent any Political Party’s views.

It was, therefore, unfortunate that the last time he wrote a general article criticizing the Opposition as a collective, for its ineffectiveness in providing economic checks and balances; some overzealous MMD media official took it personal wrote an emotional and incendiary statement which was in bad taste. He accused this author of being an attack dog of the UPND! It was such a cheap and disgusting personal attack on him and the innocent UPND. In my language, the words of wisdom state that ” Imbila ya mumushi tabayasukila” (roughly meaning: wise men do not answer or respond to a general announcement in a village ).I give credit to the PF and other Political Parties who have not taken my views as personal and ill intended. They have rather learnt from them or dismissed them! It is important to have people in a country whose allegiance is to the country. Independents decide elections in other countries.

The writer is a Chartered Accountant by profession and a financial management expert. He is an independent and non partisan commentator. He has lived in the diaspora in England, South Africa and Botswana for over 25 years.