Tuesday, June 18, 2024

If properly taxed, the mines can pay off all our debts within the next 5 years

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By Sean Tembo – PeP President

1. When the New Dawn administration was ushered into office in August 2021, the Zambian economy had some weaknesses and threats as well as opportunities and strengths. Let us delve into alternative decisions that could have been made and how those compare with the economic decisions that were actually made by the New Dawn administration in the past 9 months.

2. In terms of weaknesses and threats the key one is too much borrowing by the previous regime. As at August 2021, Zambia’s domestic debt ( treasury bills, government bonds etcetera) was around K80 billion ($4.5 billion). Our foreign debt ( Eurobond etcetera) was about $13 billion and our domestic arrears (owed to suppliers and contractors of various goods and services to Government) was about K30 billion ($1.5 billion). So in total, the country owed about $19 billion, which excludes Government guarantees to parastatals such as ZESCO. So perhaps, we could just round it up to $20 billion.

3. In terms of strengths and opportunities, there are several. Firstly the New Dawn Government benefited from a Special Drawing Rights (SDR) allocation from the International Monetary Fund (IMF). Because of the adverse impact of the COVID-19 pandemic on the world economy, the IMF decided to give grants to almost all countries across the world, as a way of improving liquidity and spurring world economic growth. Zambia was allocated 937,600,000 SDR which translates to about $1.3 billion at an exchange rate of 1SDR = $1.387. This money was a free gift from the IMF, and it was reflected in the Bank of Zambia (BOZ) account on 24th August 2021; the same day that President Hakainde Hichilema was inaugurated at Heroes Stadium. Consequently, this gift from the IMF increased Zambia’s foreign reserves from about $1.6 billion to about $2.9 billion. For the record, this is the highest amount of foreign reserves that Zambia has ever had since March 2009. Also for the record, when the MMD were voted out of office in 2011, they left about $2.5 billion in foreign reserves at the Bank of Zambia. So to put it into context, the UPND administration inherited more foreign reserves ($2.9 billion) from the PF, than the PF administration inherited from the MMD ($2.5 billion).

4. The second key opportunity that existed at the time the New Dawn took office in August 2021, which actually still exists until now, is the high copper prices of up to $13,000 per metric tonne. The last known study in the mining sector established that Zambian open pit mines were able to make a net profit when copper prices were above $2,500 per metric tonne, and underground mines when the price was above $2,950 per metric tonne. This means that when copper prices reach as high as $13,000, the mines make supernormal profits. The Zambian people have a right to benefit from those supernormal profits. Late Former President Levy Mwanawasa responded to the high copper prices that existed around 2006 by introducing a windfall tax. This ensured that Zambia as a country benefited from the high copper prices. To the contrary, the New Dawn administration decided to give a de facto tax holiday to the mines. Their argument is that such a de facto tax holiday will encourage mining companies to invest more in the sector in future. One would have thought that the high copper prices on the world market would be an incentive enough to any prospective mine investor. A Sean Tembo administration would have fully taxed the mines. We could easily raise as much as $4 billion more per annum in tax revenue from the mines, at current copper prices. This money can fund our national budget without the need for an IMF loan.

5. The third key opportunity that existed at the time that the New Dawn assumed office in August 2021, which has perhaps diminished by now, is international goodwill. President Hakainde Hichilema came with all the right credentials, at least on paper. Based on the apparent success that he had scored running his personal businesses, the international community expected that he would extend his business acumen to turning around the Zambian economy. However, goodwill being an intangible asset, it is difficult to acquire but very easy to lose. In my opinion, President Hakainde Hichilema lost the goodwill when he gave that interview to CNN, a day after he was sworn into office, where he recklessly said that the previous administration was hiding debt, and that the economic damage was bigger than he expected. Immediately, international bond yield rates for Zambia dropped significantly by more than 100 basis points. After realizing the damage that had been done, President Hichilema told his spokesperson Anthony Bwalya to issue a statement the following day to assure international bond holders that Zambia will still uphold its financial obligations. But the damage had already been done. The international markets hardly responded to Anthony Bwalya’s assurances. Suffice to mention that the President subsequently failed to prove that there was any hidden debt. A list of creditors that was subsequently published by the Ministry of Finance indicated that the debt disclosures made by the previous regime were infact accurate. Therefore, President Hakainde Hichilema unnecessarily alarmed the international business community, much to the detriment of our country.

6. The fourth key opportunity that existed at the time the New Dawn administration was taking office in August 2021 is that as at that time, the previous administration had only defaulted on two debt payment obligations. One for about $43 million and another for about $56 million, both totaling about $99 million. Given the fact that the New Dawn had just benefited from the $1.3 billion SDR gift from the IMF, they should have cleared this $99 million overdue debt obligation, so that Zambia is no longer in default. However, they did not do that. Instead, they continued to default on subsequent loan repayments, with the total overdue amount now rising to more than $300 million, compared to the $99 million which they inherited from the previous regime. Meanwhile barely 3 months from today, on 22nd September 2022, the country will be required to pay the $750 million Eurobond, as it will mature. The ideal situation would have been to refinance about half of this amount and pay off the other half. But the New Dawn administration has since lost the goodwill that they had with the international community, therefore any attempts to refinance are unlikely to succeed. Even the IMF appear to have lost faith in the current administration. Although for obvious diplomatic reasons, they cannot say it out loud.

7. Apparently, all the above are issues which we consistently and continuously advised the New Dawn administration on, but to no avail. If properly taxed, the mines have the potential to generate enough tax revenue to pay off all our debts within the next 5 years. But instead, our debts are accumulating, we have continued to default carelessly and the mines continue to go scot-free without paying an appropriate amount of tax. Indeed, you do not require to be an extremely brilliant person to successfully run Zambia’s economy, clear the debts and reduce the cost of living. You just need to be a man of integrity who will put the interests of the nation above personal interests.

38 COMMENTS

  1. Well written article Sean. The future is indeed SET. Could you elaborate more on point 4 on the production cost for a ton when the last study was done and compare with the current cost now?
    BMW told us PF left empty treasury kanshi mwali $2.9billion. Hmmmm Bally ulebako serious!

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  2. Very true. We are letting our treasures pass through our fingers. Foreigners will keep draining us of our resources while we remain broke and they grow their wealth. Every bourgeois knows Africa is the place for rich pickings

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  3. Wow………….wow……….

    Just look at all his points………

    Everyone of them is assuming or expecting free money………….

    Nothing about hard work to develop……..

    Nothing about enhancing the manufacturering base to create jobs………

    These are the people who are a curse on zambia………..always expecting free money.

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  4. More wisdom and sense from the wise man from the east. It seems only those from the east are providing wisdom and gems. It must be true that the wise are from the east.

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  5. What Sean doesn’t know or is not just pointing out is that these guys have committed themselves to the people who sponsored them. It’s by God’s grace that we still have peace, because if they had lost the last elections, we wouldn’t even be debating anything like we’re doing.

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  6. “…..to about $1.3 billion at an exchange rate of 1SDR = $1.387. This money was a free gift from the IMF, and it was reflected in the Bank of Zambia (BOZ) account……”

    “…….So to put it into context, the UPND administration inherited more foreign reserves ($2.9 billion) from the PF, than the PF….”

    “….is the high copper prices of up to $13,000 per metric tonne. The last known study in the mining sector…..”

    If that is not planning to run a country on chances and good luck , I don’t know what is………..

    That is why people say if Zambians all relocated to germany or Japan and the Germans or japs all relocated to zambia………

    In 10 years you will be expecting aid from the country zambia……….

    Too much of a free mindset.

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    • The problem with the young man – Alexander Nkosi s brilliant as he is – is that he seems to have somersaulted the moment the UPND came into power. One wonders whether he is lobbying for a position.

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  7. This thuggish writer Sean Tembo supported PF which brought us into this massive hole.No wonder he only got like one percent Zambian voters support.

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  8. To complain now that PF brought this misery upon us is being dishonest. People voted for Upnd because it ASSURED THEM OF A QUICK REVIVAL… nothing was said about all these excuses they giving us everyday…. PF isn’t the ones increasing the price of fuel and neither are they in charge of anything.

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  9. BLAH BLAH BLAH IF THIS IF THAT ??
    IF ZAMBIANS LEARNT TO WORK DILIGENTLY AND WITH MORAL AND ETHICAL CONDUCT
    WE WOULDNT BE IN THE POSITION EITHER
    ALSO WHICH ONE WOULD PUT THE SAVINGS IN A BANK WITHOUT A DESCENT INTEREST RATE

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  10. #11  Deja Vu 
    June 13, 2022 At 6:14 am

    “To complain now that PF brought this misery upon us is being dishonest. People voted for Upnd because it ASSURED THEM OF A QUICK REVIVAL… nothing was said about all these excuses they giving us everyday…. PF isn’t the ones increasing the price of fuel and neither are they in charge of anything…”

    All things being normal or bad , there was going to be a quick fix, but the looting was found to be on an industrial scale ………

    All systems of governance were corrupted , 90 % of GRZ employment was on tribal grounds……..

    Putting theses things right are taking longer than expected because of the amount of damage done……….

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  11. but the looting was found to be on an industrial scale ………
    SO SO TRUE !!!
    AS BAD AS SOUTH AFRICA NEARLY CONSIDERING OUR SIZE
    GUPTA’S NOW DETAINED>>> ZUMA DISGRACED
    WHAT IS HAPPENING HERE ??

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  12. Sounds really interesting, very interesting-only 5years? But why didnt you and your PF do it in 10years. You say 5 years kaili so which you had another full 5 years to spare.

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  13. Besides that, who took this debt kansi? was it UPND? If its not UPND then the one who took it must come and pay chapwa. There is no good samaritan when it comes to debt bane, You took the money alone and eat with cadres(Including Sean Tembo himself these are the culprits who ate the debt money) and they all need to pay,that house he jst built, its from the salary he was receiving from PF. Investigations in the long run are coming to you too Sean Tembo-you were on GRZ payrol when u were not directly employed by GRZ,You ,CHilufya Tayali, Winter Kabimba, Nakacinda, Findlay etc

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  14. Good piece of theory, when you mention of the mines to be taxed, which ones do you have in mind, only FQM right? Which is better to make sure we tax FQM to the maximum or entice more to come so that we dont only broaden the tax base but create more employment and raise the standard of living for more Zambians? Ama theory aya are not far from dreams of allucinations!

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  15. I used to believe ACCA produced well rounded business professionals.
    Why should anybody buy copper from Zambia and leave copper from Chile(5.6 million tons per year) , Peru(2.2 million tons), DRC(1.8 mllion tons), China(1.8 million tons),USA(1.2 million tons) etc
    Whats so special about copper produced from Zambia in Sean E Tembos eyes?
    You think Chile can tell China or the USA , please remember to buy copper from Zambia,
    World trade does not operate like that.

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  16. 13 flag Spaka I dont think Zambians are interested in these excuses. So you go in with a lot of promises without knowing the extent of the damage you were promising to fix. You cannot be serious running a country with such myopic sight. Ok if you think the extent of the damage is beyond then get out and we will put in somebody to fix without always referreing to PF. PF is not your solution, they are gone. You went to fix , so fix and not ati we didnt know the extent of the damage. Tell that to kids not matured people. Just fix, that what you went in to do and not pointing what PF did here or there. That talk will not put food on peoples’ tables and they need food NOW.

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  17. Please sell those ideas to the electorates if you think you have a point. Do not take us for fo0ls. The Mine owners struggle hard to raise colosal amounts of money for investments and they have to pay it back. The equilibrilium, in a real scenario is a Win Win situation.

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    • The mystery surrounding the mines is a creation to make people believe it’s impossibble to run a mine. While seasoned mines will keep on telling you that they are making losses, the junior or new mine owners will be paying all taxes. Take time to visit zra to confirm what I am saying here.

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  18. #19  Abena 
    June 13, 2022 At 12:42 pm

    “13 flag Spaka I dont think Zambians are interested in these excuses. So you go in with a lot of promises without knowing the extent of the damage you were promising to fix. You cannot be serious running a country with such myopic sight. Ok if you…..”

    The extent of the damage done by PF is far reaching and beyond your wildest dreams………….

    Nothing was left intact and free of corruption and caders………..

    Winning an election in a country that has strong civil society bodies that offered checks and balances to the previous GRZ is one thing………..

    But stepping to govern a country were audits have to be done in every GRZ department were corruption , tribalism were on an industrial scale is taking time………

    Every…

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  19. Every where you look ……….

    Unbelievable cases of looting on a grand scale are being uncovered………..

    And everywhere means everywhere………

    Lungu and his gang were paying ghost companies to work that was not done , companies that ceased to exist……….

    Or putting recites and bills for non existent institutions………

    • Mention these institutions and ghost companies. The ACC would like to have a job.Otherwise you are just hallucinating excuses

  20. I sure do hope that HH resolves the problems on the Copperbelt even if that means taking a less nationalistic approach. Our fellow citizens that reside there know the challenges, the standard of life has deteriorated and the reality is that ZCCM-IH cannot increase production without borrowing to finance this. It is deplorable that we have turned a practical problem into a political gimmick.

  21. Too many “empty heads” / chikopos on this forum – go read Alexander Nkosi response to this nonsense of an article. Sean and his surrogates in PF were in govt for 10years, the whole 10 years! They almost ran out of mine anymore mine to tax

  22. #22.1  Straight from the Ruins
     June 13, 2022 At 6:33 pm

    “Mention these institutions and ghost companies. The ACC would like to have a job.Otherwise you are just hallucinating excuses..”

    Where do you think the $33 million went to to dig a university foundation in Northern ?

    The broker lungus GRZ used to upthe price of that gulf stream jet from a max of $65 million to $365 million is not known…….

    The list is endless……….more will come to light after the ring leaders in zambia start dancing……….

  23. This article is completely useless because it is predicated on a faulty, false and misinformed position. Off late zero Tembo has on various fora been saying that US $ 2.9 billion in Reserves that Pf criminals left at the Bank of Zambia is what is defined as RESERVES no, that is IMPORT COVER, in simple terms this means money which Zambia needs to pay for its IMPORTS for a specified period and the international best practice is that each country should have six months Import Cover. That $2.9 billion is Import cover for 1.5 months. I am very shocked that Zero Tembo has been peddling these stupid lies without being challenged by Economists. Reserves is money you remain with after you have paid your liabilities, its money you put aside to be spent in future. In Botswana and Saudi Arabia it…

  24. is called THE SOVEREIGN WEALTH FUND. I invite all Economists to put a stop to this absolute nonsense from zero Tembo, he is misleading the Public.

  25. Also, if this money was really what Zero Tembo would want us believe, why didn’t the most incompetent, corrupt and theiving President Lungu pay obligations on Euro Bonds. Why did the exchange rate go crazy in his final days, why couldn’t he construct the Lusaka-Ndola Road from the so called RESERVES. Zero Tembo needs a brain transplant. By the way is this petty man married, does she counsel him?

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