Saturday, April 20, 2024

The Alternative to The Fuel Price Hikes

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By Sean Tembo – PeP President

1. This country has experienced two major price hikes by the new dawn administration; firstly in December 2021, allegedly to remove subsidies and secondly a few days ago, allegedly as a result of the Russia-Ukraine war. These two increments have seen the pump price of petrol go up from around K17 per liter to the current K26.50. This represents a 55.9% increment in fuel prices within a period of 3 months. The highest ever in the history of this nation.

2. Our argument has been that such a huge increment in fuel prices is inimical to the economic interests of this nation because fuel is a key production input and its surge in price has many adverse trickle down effects to pretty much all sectors of the economy. When fuel goes up, transport goes up, and since transport is a key input in the production of almost all goods and services in the economy, prices inevitably go up resulting in a higher cost of living for the people. And since people’s incomes are largely fixed, a high cost of living inevitably results in reduced demand for goods and services in the economy, which results in economic stagnation and job losses. It has been common folklore among business people in the past 7 months to complain that business is very slow. People simply do not have the purchasing power to actively participate in the economy.

3. But could there have been an alternative to the 55% fuel hike in the past 3 months? Our view is that yes, there was an alternative. Government could have generated additional revenue from other sectors of the economy and used that revenue to subsidize our fuel so as to keep the price at around K17. The obvious sector which we have talked about in the past is the mining sector. With copper prices at an all time high, Government should have increased its collection of revenue from this sector and used that money to subsidize our fuel. Since the mines are making supernormal profits at the moment, they would’ve had no basis to complain.

4. But Government instead decided to give the mines a de facto tax holiday, using the argument that such a tax holiday will attract more investment into the mining sector, and that we shall remove the de facto tax holiday when we reach annual output of 2 million metric tonnes of copper. Currently we are at around 800,000 metric tonnes of copper per annum, so if it takes 10 years to reach 2,000,000 metric tonnes, then it means the mines will not pay any tangible tax until then. I don’t know if l am the only Zambian who finds such kind of reasoning strange. With the world demand for copper being on an upward trend for the unforeseeable future due to the advent of electric vehicles where copper is a major input, there is no need of giving the mines a tax holiday incentive for them to invest in the sector. The supernormal profits that they are making now and which they will continue to make in the unforeseeable future is an incentive enough. No need for a tax holiday whatsoever.

5. But apart from the mining sector, there are other sectors which Government can additionally tax in order to raise additional revenue to subsidize fuel. One such sector is mobile money. The projected annual volumes for mobile money transactions by value for 2022 is in excess of K200 billion. That means if Government imposed a 1% tax on mobile money transactions, they could easily have generated about K2 billion which could then have been used to subsidize fuel and keep the price at around K17. Additionally, our mobile data is one of the cheapest in the SADC region, and Government can easily generate in excess of K1 billion by increasing the tax on mobile data. This additional tax revenue would have been enough to subsidize our fuel and prevent the 55.9% increment that we have witnessed since December 2021, as well as the damage that it has caused to the economy.

6. Unlike fuel, mobile data and mobile money transactions are not key production inputs in our economy. That means any increase in these items will not result in a significant adverse trickle down effect to the entire economy. For instance, no bus operator will increase fares because mobile data prices have gone up. Similarly, the shelf price of chisense will not go up at Soweto market simply because mobile data prices have gone up, and neither will your landlord increase the rent because mobile data prices have surged upwards, he sure will when fuel prices go up.

7. So at the end of the day, the trick is to tax those sectors that you can get away with, so as to subsidize the sectors that are too sensitive to be subjected to price fluctuations. That is the art of managing the economy. You cannot have a situation whereby if there is an upward surge in oil prices on the world market, you just directly pass it on to consumers without any regard to the potential damage to the rest of the economy. That is not managing the economy. If we are just going to pass over all external fluctuations, then there is no point of even having a Minister of Finance. We might as well scrap the position and save costs, because the Minister is not managing the economy. He is not adding any value to the economy. The economy is on autopilot.

8. The Minister of Finance should either start managing the economy or he should resign his position so that the country saves some money in terms of the salary and allowances that taxpayers pay him. The Minister is deadwood. The citizens of this Republic cannot continue to pay for the deadwood in that office.

11 COMMENTS

  1. Very wise analysis. Those with ears , eyes and 5 senses will listen and take the message. Those with stubborn tribal characters will insult and disrespect this wise man. Sean has more common sense than hh and entire upnd cabinet

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  2. In trying to full fill their promises, Upnd have tried to confuse the citizens by 1) Introduce free education.
    2) Increase CDF
    3) Employment of civil servants.
    Since there’s no money to finance these projects so they have picked on fuel ( no money is coming from the mines remember). What they don’t realize is that fuel is the engine of all these projects. You have free education but you can’t afford food due to high prices, so what have gained?

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  3. Ati increase mine taxes & mobile money tax to subsidize fuel ? Does this guy realize it’ll also hurt Zambia’s debt servicing and hurt poor consumers ? Its a rob Peter to pay Paul empty analysis.

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  4. The government of HEHH is rightly concentrating on a raise in production levels for all sectors of the economy to ride this rough patch………..

    Taxing everything to cover abysmal and failing production was the PF way……….

    We have confidence zambia will emerge stronger from this rough patch………..

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  5. tembo should go back to school. he does not understanding issues probably he should hire a civc education teacher from a nearest to educate him. no wonder his party is not progressive

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  6. It would be great for Zambia to achieve 2000 000 to 3000 000 metric tons per year. A feat we have never achieved. If the investor whispered to our finance minister that give us tax holiday, in turn we will come and increase production to 3 000 000 metric tons then we have been duped. Come year 2026, we will be between 1 000 000 and 1200 000 metric tons at best. Safe to say 900 000 metric ton per year is realistic. We encourage everyone to dream big but 3 000 000 tonnes per year is being duped big.

  7. Is this what ACCA graduates have to offer.
    I had so much respect for them.
    But look at Sean Tembo , Christopher Mvunga. Its a disaster

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  8. #7 Garlic even if they increased tonnage they wouldn’t tell Government. Even now they don’t declare true figures.

  9. The price of copper reached the highest, in the past 5years, on May 11th 2021. That was still during PF GRZ. It was until March 7th 2022, when the price spiked to break the record from previous year. So in reality, the price of copper during UPND tenure has not significantly increased compared to how it was increasing during PF government. On average it has remained the same from when PF was in government.
    So Mr. Tembo, please stop giving the impression that prices of copper have increased while UPND has NOT benefited. Those are just lies, I don’t think we can trust these people to be in government. HH or UPND had a reason to talk about copper prices increase during PF tenure, because the upward trend from March 17, 2020, to May 10th, 2021, was significant.

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  10. Sean. Offering alternatives is very good. However, you loose me, like any foolish politician in Zambia, when your alternatives analysis is presented as gospel or sure proof and also when you more or less call the Minister of Finance a “moron”. Why not just make your points. Firstly, I am a corporate business manager practicing at very high level in the US and can tell you that it’s fact that the war in Ukraine has adversely affected world economies including the US where we are experiencing record high fuel?? prices. The agra industry is also affected. If the “mighty” US is experiencing shocks of the war, what about Zambia? Answer the question yourself? Secondly, tax havens for the mining sector, right or wrong, where created by the previous government and are contractual. Fact is…

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