President Lungu Power reversal welcome but worrying!

By Kalima Nkonde

President Lungu’s power tariff reversal welcome but perennial policy inconsistency damages investor confidence!

The recent reversal of the increased electricity tariffs by President Lungu following an outcry from both domestic and commercial users is certainly a welcome move and this writer is a grateful beneficiary. It, however, raises a lot of questions on how our economy is being managed and the President’s decision making process and judgment.

The President directed ZESCO and Energy Regulatory Board ERB to review tariffs on 26 November, 2015, Press conference at State house.

“In the work of reduced power generation, the Government has had to import emergency power in 2015 to sustain the country’s economic activities. Between September, 2015 and the end of the year, the Government will have spent $40million for emergency electricity imports. Again this is unaffordable. To reduce the pressure on the Treasury, I direct the Ministry of Energy and Water development, Energy Regulation Board and Zesco to implement the new electricity tariff schedule and progressively move to full cost reflective tariffs thereafter.”

On 3rd January,2015, through his Spokesman Amos Chanda, directed ZESCO to revert to the old tariffs , following the public outcry especially domestic users whose tariffs had gone up by over 200%!

The reversal welcome as it may be, is a cause for worry because first and foremost, it is not the first policy reversal that the President and the PF have made since they came into power in 2011. I will outline about ten major policy decisions that they have reversed, most of them quite progressive in my books, given my exposure with other economies, if a proper process of in depth analysis and consultation had been carried out!

President Lungu and the PF leadership ought to know that tough decisions are never popular like Ted Turner, the founder of CNN noted in his biography, “ Call me Ted”.

“The nature of my job called for decisions that weren’t always popular(tough decisions seldom are) but I did my best to make them quickly and to keep things moving forward.”

In my books, the PF has made the about ten policy reversals since they came into power. This article is not bout debating the merits and demerits of the policies but merely to demonstrate the flip flopping nature of the PF administration which sends negative signals to the market.

First, the President instructed ZESCO to increase tariffs and hardly a month passed , the policy has been reversed. Surely, didn’t they expect an outcry with a 200% – 300% increase? Or they just superficially looked at absolute numbers of an increase from K0.50 to K1.54 per kilo hour as being negligible?
Second, Government increased fines and fees for traffic offences and there was an outcry from the public as the new fines were said to be too high. In October,2015, Government Spokesman, Mr. Chishimba Kabwili announced Cabinet reverted to the old ones.

Third, in the course of 2015, Agriculture and Fisheries Minister, introduced the ban on the importation of cooking oil to protect local manufacturers. The policy was reversed when the prices of cooking oil shot up.

Fourth, in the 2014 Budget, the government introduced two mineral royalty tax regimes which increased the mining royalty to tax to 20% for Open Pity mines and 9% for underground mines. The President reversed the taxes to their original levels.

Fifth, a statutory instrument SI 33 was introduced which prohibited, the quoting, paying and demand in foreign currency. This was later reversed.
Sixth, a statutory instrument S155, required the Bank of Zambia to monitor inflows and outflows of foreign currency. There was an outcry from the business community especially the mines and this policy was reversed.

Seventh, VAT rule 18 was originally introduced in 1997 and required exporters seeking VAT refund to produce proof of export. The Government introduced an additional rule of proof of sale which supposed to be reasonable. There was an outcry from the mines and it was reversed.

Eighth, the government introduced a cap on commercial bank interest at 18% in 2012 to force banks to lend at lower rates and reduced their corporation tax rate as compensation This has also been reversed as Banks are free to add a premium above the policy rate set by Bank of Zambia.

Ninth, the Government decided to set up a National Airlines despite objections from experts, World Bank, IMF and the evidence that all national carriers in Africa were loss making apart from Ethiopian airlines and are just a drain on the Treasury. They have since reversed the decisions as they now realize it is expensive!

Tenth, in March 2013, Agriculture and Livestock Minister then, Bob Sichinga announced a Cabinet decision to remove maize subsidy in order to reduce government losses and pressure on Treasury. In March,2015, the new Agriculture Minister Given Lubinda announced that the Government will subsidise maize so as to reduce the price of mealie meal. Indeed, the Food Reserve Agency has been selling maize to Millers at low prices.

The announcement of policies and reversing them later, just like the careless and knee jerk statements about exchange controls, nationalization of mines and millers, price controls etc just sends wrong signals to the market and it is not good for business. Foreign and local investors want to operate in an environment of certainty and predictability in order to plan bette.

The inconsistency in policy gives the impression that the Government is not on top of things and the leadership does not know what they are doing. It is like the country is being run by trial and error. It will be a stretch to find a Government in the World that makes so many policy reversals like our Government does! PF can qualify to go in the Guinness book of World record on this score!

The latest reversal, good as it may be to domestic consumers, opens up a pandora’s box of worrying questions on the economic management of the country such as: what is the decision making process at the Presidency and Cabinet? Is there any economic analysis that is done before policy decisions are made with different scenarios evaluated? Does the President understand the policy speeches he reads, its implications and does he ask questions about the effects of policy options?

Is our country being run a trial and error and ad hoc basis? Is there a robust debate in cabinet about economic issues and do our Ministers and Deputy Ministers have basic knowledge on how the economy works? Are Zambia’s economic policies being driven by politics and winning the 2016 elections only rather than long term interests of the country?

To end on a light hearted note, in the view of the latest policy reversal, one will be reduced to conclude that there is no in house capacity in the PF administration for economic management.

It would, therefore, be recommended that the Government outsources the management of the economy to a team of Zambian professionals like the writer who are ready, willing and able to run the economy and provide the informed advice that the President needs. In the past, people have talked about Czars, Think tanks, Economic Council at the Presidency given the low caliber of most the people that President Lungu inherited and appointed, and his lack of managerial experience, as a solution, but alas they have been ignored!