Tuesday, June 25, 2024

New Zambian leader will have to make copper glisten for all

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Claude Kabemba
Claude Kabemba

By Claude Kabemba

Whoever wins the election will have to reinvigorate the economy, which is under serious strain following the collapse of the copper price.

Zambians go to the polls to elect a new president on August 11. The country is celebrated as a beacon of democracy on the continent, yet the election campaign is being marred by political intimidation and sporadic violence.

There is great expectation that the poll will be free and fair and the results will be accepted by all parties.

I have no doubt Zambians will rise to the challenge. But the big question everybody has avoided is how the party that wins can reinvigorate the economy, which is under serious strain following the collapse of the copper price.

Both main parties, President Edgar Lungu’s Patriotic Front (PF) and the opposition United Party for National Development (UPND) led by Hakainde Hichilema, have not clearly articulated how they plan to deal with this challenge.

Whoever wins will have the daunting task of stabilising the economy and giving hope to the people of Zambia who are facing poverty, unemployment and increasing inequality. As the continent’s second-largest copper producer, Zambia is heavily dependent on the copper price.

The recent commodity boom gave Lusaka false hopes and diverted its attention from finding alternative economic sources. The collapse of the copper price was immediately followed by a rapid decline in growth.

Zambia is also facing a serious energy shortage which has contributed to the economy slowing down. In the short and medium term, there is no silver bullet. The only strategic intervention available is to introduce reforms in the mining sector that have the potential to translate abundant copper resources into wealth for all.

The current mining policies have not been beneficial to Zambians. The country still has policies that encourage the pillaging of the country’s mineral wealth.

Zambia’s current trade and investment strategies, which encourage foreign direct investment in the mining sector, are overgenerous and misaligned with the revenue generation.

Zambia’s tax regime gives higher tax exemptions and the country is losing more than a billion a year in foregone tax revenue. It loses 10 percent of its GDP annually from corporate tax avoidance practices.

The country’s tax regime doesn’t allow an excess profit tax, which resulted in Lusaka not benefiting optimally from the last resources boom. When the government attempted to introduce a windfall tax in 2008, mining companies threatened to dis-invest.

What Zambians have failed to understand is that even at the peak of the copper price increase the country did not collect enough revenue simply because many mining companies pay almost zero tax due to excessive exemptions.

It is hence understandable that even though the country experienced an economic growth rate of between 5 and 7 percent for many years, it did not translate into social and human development for Zambians.

The country has extreme income inequalities. With a Gini coefficient estimated at more than 0.75, 68 percent of the population live below the poverty line with 45 percent classified as extremely poor.

In terms of income per capita distribution, less than 20 percent of the national income is shared by 70 percent of the population. These negative economic indicators are on the rise as economic growth shrinks.

It’s expected that economic growth will slow to 3 percent by the end of the year. It’s clear Zambia’s political stability and the consolidation of the electoral democracy have not translated into better lives for Zambians.

The two major parties are scared to touch the mining issue in their election campaign. The challenges that Zambia faces in its mining sector are compounded by the weak state capacity to manage the sector. Beside the weak capacity to tax the sector, Lusaka is not able to monitor mining companies to detect bad behaviour and sanction them.

The concerns of communities affected by environmental damage, displacement, water and land pollution and other harmful practices are matters of public interest, but companies are never punished. The government has been powerless and docile in the presence of multiple human rights abuses by mining groups. Companies know how to silence the government by threatening to close the mines.

Whoever wins the elections will have to introduce fundamental changes to the way the economy is managed, especially the mining sector.

Mr Claude Kabemba is Director of Southern Africa Resource Watch and this article first appeared in the Sunday Independent of 24 July 2016.

11 COMMENTS

  1. Baba, re-dependence on copper is a dangerous policy push. Its time to seriously get in full throttle of growing the Agriculture sector with investment in mechanized farming, tourism, manufacturing and pushing for integrated services delivery opportunities for and with developed economies. Look at India a country that has robustly grown its technology sector now support services to western economies in need of tech gurus. India earns billion from what in the Western is called offshore model. Zambians are smart, If we build smart infrastructures, they could start replacing the Philippines and Vietnamese who are hard to understand yet absorbing all support service cash cow. This model can help create smart and rewarding jobs,.

    • @1 Senior Citizen,spot on!Yes copper can provide capital to grow other industries but we need to seriously devise our survival strategies on other industries away from copper! I once worked with an American who told me that Zambians could do very well in establishing offshore industries since we have a young population which is trainable and easier to work with due to friendly culture and relatively better command of English language than popular outsourcing destinations!Even beyond that we should be thinking about our central location and strategically position ourselves.In the past ,KK had strategically positioned Zambia as an inevitable interlocutor in the region so now we need to use our position to become an inevitable economic player in the region!

    • I totally agree that Zambia needs to diversify. Zambia cannot remain in perpetuity a mining economy. Copper is being depleted. The mining sector needs to be demystified and the government must aggressively invest in other sectors such tourism, agriculture and manufacturing. The argument here is not that Zambia abandons the mining sector but use it strategically to promote other sectors. Copper and other mineral resources give Zambia an opportunity for mobilising revenues for growth and structural transformation. The question for the new government will be where to start with the reforms?
      Fortunately for Zambia and all African countries, there exists a mining blue print, the African Mining vision (AMV), which provides clear and globally tested approaches for a transparent, accountable…

  2. ..cont’d..In the past ,KK had strategically positioned Zambia as an inevitable political interlocutor in the region so now we need to use our position to become an inevitable economic player in the region! Let us look what countries like Rwanda are doing and yet they have no great natural resource base compared to Zambia!

  3. No serious thinkers in Zambia starting with Proffs. Doctors and others are all jokers. Come to UNZA and see the rot.

  4. The main reason why Zambia did not benefit from the copper boom is your own tax rules. You started out with a rule allowing immediate expensing of all investments. Since the miners invested far more than the surplus of the production, there was very little taxable income after deductions. When you changed the rule, you decided on four years expencing time for investments in mines. Mines that will last for at least twenty years. If the rule had been expensing investments over ten years, there would have been taxable income in the mining industry during the boom years.
    Observed from the outside, the tapping of Lake Kariba is close to madness. Every meter you let the water table drop, reduces the energy you can get from the water flowing into the lake. When you produce from a river, you…

  5. I totally agree that Zambia needs to diversify. Zambia cannot remain in perpetuity a mining economy. Copper is being depleted. The mining sector needs to be demystified and the government must aggressively invest in other sectors such tourism, agriculture and manufacturing. The argument here is not that Zambia abandons the mining sector but use it strategically to promote other sectors. Copper and other mineral resources give Zambia an opportunity for mobilising revenues for growth and structural transformation. The question for the new government will be where to start with the reforms?
    Fortunately for Zambia and all African countries, there exists a mining blue print, the African Mining vision (AMV), which provides clear and globally tested approaches for a transparent, accountable…

  6. I CANT IMAGINE ANOTHER 5 YEARS OF LUNGU IF BY ANY RIGGED CHANCE HE WINS. THIS MAKES ME SO SAD AND SICK. I AM TELLING YOU MY FELLOW BLOGGERS ON THIS BLOG, ASK ME 5 YEARS FROM NOW IF SOME OF YOU WILL STILL BE ALIVE, WE WILL CONTINUE THE SAME CYCLE AND THE AUTHOR OF THIS ARTICLE WILL WRITE ANOTHER ARTICLE 5 YEARS FROM NOW WITH THE SAME CONTENT, IF HE DOESN’T DIE OR IF LUNGU DOESN’T DIE BECAUSE NOTHING WILL CHANGE BUT INSTEAD IT WILL BE WORSE. IF LUNGU WINS OR IF YOU VOTE FOR HIM ON AUGUST 11TH, MY MESSAGE IS HERE SIMPLE TO YOU ALL RELATIVES IN ZAMBIA WHO ASK FOR DOLLARS FROM ME.,, FORGET. IZA MUNYOKOLA NJALA.

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