Zambia risks economic meltdown: Government needs COVID-19 economic impact mitigation dialogue

By Kalima Nkonde.

The impact of Cov-19 requires all Zambians and residents to pull together. Zambians regardless of their political persuasion should use their brains to come up with ideas that can help our leaders with solutions. There should be a time out for partisan politics and finger-pointing. This article is my humble contribution to a body of ideas. I hope it helps in a small way.

The Covid-19 pandemic has two major impacts-public health (life) and economic health (livelihood). It is important that the nation addresses both, and a proper balancing act is done so that solutions are found for both. Of course, the public health issue does rank higher than the economic health of the country but the latter cannot be totally ignored.

I would like to leave the public health solutions to the health professionals and focus on the economic issues which is within my area of competence. This analysis is indifferent to whether the country goes to full lock down or maintains the status quo -partial lock down. However, maintaining the status quo, based on experience of other countries, appears to be the riskiest option with more dire consequences – both health and economic – should the worst case scenario materializes. It may not have been the wisest decision but you never know, as the decision makers have more information than all of us.

It is public knowledge that Zambia’s economy is already in a very bad shape even before the coronavirus pandemic. The Covid-19 pandemic, however, will make the current bad situation much worse as it will affect almost all areas of the economy. We need to involve more players for ideas how the economy can be saved. There is also need for decisive leadership to take timely and bold action.

In the past, as a country, we have been poor at managing risk. We have tended to wait until something happens to act rather than planning ahead and anticipating what is likely to happen. We can ill afford to have this attitude with Covid-19. Zambia needs to anticipate the economic impact of the pandemic with proper scenario planning. This is a prerequisite in uncertain times. The approach ensures that mitigation measures are put in place in advance, awaiting implementation at appropriate times.

COVID -19 economic impact on Zambia

The overarching negative economic impact of the Covid-19 pandemic is the reduction in the country’s economic activity. The reduction in economic activity is such that, in my view, Zambia is most likely to go into a recession despite the revised projected growth rate of 2.0% for 2020 announced by the finance minister. We are coming from a very low base and so a recession is a very distinct possibility. The Organisation for economic cooperation and development (OECD) does share my view.

“Even if you don’t get worldwide recession, you are going to get either no growth or negative growth in many economies of the World,” Said Secretary General of OECD, Angel Gurria.

The worldwide shutdown will disrupt commerce and supply chains as factories are shutdown. Our trading partners such as China and South Africa will be adversely affected which may result in possible shortages and subsequently price hikes. The Chinese economy’s growth is expected to slow down from 6.0% in 2019 to 3.5% in 2010.

It is a given that the reduction in the growth of the economy mentioned above means nothing to an ordinary and non technical person reading this article. It is, therefore, important to amplify and simply the effects so that people can relate them. The major negative economic impacts that ordinary Zambians are likely going to face due to covid-19 are: increased unemployment, the continued depreciation of the kwacha, rising cost of living and worsened shortage of cash (liquidity). To further simplify these effects, it means businesses closing down and unable to pay tax and wages, people losing jobs, people losing their source income as they go without wages, banks foreclosing on people’s loans for failure to meet installments and people losing properties, people being evicted from houses for failure to pay rent, people going hungry as they cannot afford food as it is expensive, people unable to pay for utilities like rent and water. As for the government, it will mean impairing its ability to pay civil service salaries, service debt and pay suppliers due to reduced tax revenue. All in all, Cov-19 has the potential to cause unprecedented havoc in the economy and untold suffering.

The above are the matters that should be focused on when mapping out strategies for mitigation measures. And it goes without saying that it is not possible for the government to have all the knowledge, skills and resources to handle this alone. The involvement of other players is important and the approach has to be holistic and not just focus on one area of giving incentives to big business.

Proposed approach to tackle Covid-19 economic impact

The approach I am recommending is premised on the fact the Zambian government, as the situation stands now, is not the strongest financially in the Zambian economy. In Zambia, multinational companies, the Chinese government, Western cooperating partners and the Bretton Woods institutions, are the stakeholders with the financial muscle and intellectual capacity to help. These are the stakeholders who should be involved and formally engaged from the get go. It is this respect that I would suggest that the government convenes an economic indaba that can come up with a comprehensive plan and commitments for economic mitigations measures in the light of the Covid-19 pandemic.

The major weakness with the current government approach is that it has not been inclusive, at least as far as the public is concerned. If it has been, then, it has not been publicised, and therefore very ineffective in communicating to the people. The Coronavirus pandemic is one where the government can ill afford to operate with an exclusive attitude in coming up with solutions by having very limited consultations with stakeholders who may have more knowledge on what needs to be done than the Cabinet or the Bureaucracy. We can ill afford our government to make uninformed decisions. There is need to have a high level, analytical and consultative approach in dealing with this matter whose consequences are a matter of life and death.

First and foremost, there is a need to sit down with the private sector and discuss what measures they can put in place to help in safeguarding jobs and to protect the economy. The exclusive announcement of measures by governments without the buy-ins and commitment from those targeted may have zero impact as the government may be offering what the private sector do not need. The measure will just be a loss of revenue by the government with no benefit to the ordinary Zambians.

I would highly recommend that the government engages the private sector in particular, as represented by ZACCI, Bankers Association, Chamber of Mines, Manufacturing Association etc and ask them to make proposals how they intend to contribute to mitigation measures for the coronavirus economic impacts. In the current situation, the government should not be the only giver as it just does do not have the capacity.

This is the time the multinational companies should be asked by Zambians through their government, to take a leaf out late of US President Kennedy’s leaf by: “Asking NOT what the Zambian government and people can do for them, but what they can do for Zambia”. This is not the time for minor public relations social contributions of personal physical equipment (PPE) contributions, sanitisers etc by multinationals but for bigger contributions and sacrifices on their part. This is the time they should shelve dividends to their shareholders and take care of the country that has provided them with riches over the years.

It would also be a smart and high impact move if the republic President invited all the Chief Executives and Captains of the industry of major companies in Zambia and to a meeting and ask them for solutions and meaningful contributions to the mitigation measures of the pandemic. They should make commitments for the same in advance and in writing.

It is commendable that the government intends to engage the IMF, World Bank and Western cooperating for assistance which is likely to straddle public health and economic health impacts of the pandemic. It is also advisable that the government takes advantage of the Cov-19 situation to ask our Chinese friends to reschedule all their loans and give Zambia a repayment holiday.

Mitigation measures that government, Banks, Mines and other Multinationals can offer

There is no doubt that the Zambian government cannot provide economic stimuli like the $2 trillion dollar rescue package by the USA or the payment of 80% of wages for private employers like the United Kingdom government or 90% wages like Denmark or the suspension of rent, taxes, water and electricity bills like the French plan, to keep their businesses afloat; but there are measures that can be taken within our local context by consultations with stakeholders. What is important is that instead of just making announcements from the Ministry of finance or Bank of Zambia, there is a need to involve others to contribute or getting their buy-ins.

The current administration through the Minister of finance, Dr. Bwalya Ng’andu announced a number of steps meant to minimise the economic impact of Corona virus mostly targeted at big business but very little for households and small businesses. The measures include the setting of contingency funds and plan to mobilise funds from various stakeholders. There are also tax concessions to mines and a few economic sectors. These are commendable steps but I would have preferred a more comprehensive approach that looks at the entire economy including commitments to save jobs directly. The measures are indirect measures that one may not even measure their impact and are based on the goodwill of the recipient. It would have been better if they had been offered to big businesses as part of negotiations to extract some concrete commitments from them.

I would suggest, for example, that major employers undertake not to lay off their employees but keep them on their payroll for say four months? The mining houses can for example, have a moratorium on forex retentions abroad through reduced retentions and sending 80% – 90% of their revenue to Zambia for three months to help the kwacha exchange rate. The international banks could offer small businesses and households loan repayment holidays (home, vehicle, personal etc) for a couple of months or some other form loan restructuring such as extended repayment holidays so as to help with liquidity. There is a myriad of actions that could be undertaken by the private sector but the government needs to engage them in dialogue and negotiate with them for contribution. There are countries that have done that.

It is vitally important that the government shows goodwill by implementing drastic expenditure cuts in remuneration and benefits of top earners. It should also announce further austerity measures and the suspension high profile vanity projects like the National airline and demonstrate the savings from such measures which should be diverted to COV-19 related mitigation measures. All in all, the 2020 budget needs to be revised and reprioritised with different line items.

Conclusion

The essence of the article is that Zambia is faced with an extraordinary situation that requires extraordinary action and sacrifices by everybody- Zambians and residents alike. It is a mistake for government to think they can solve this problem alone. A smart approach is a consultative approach possibly through an indaba that should include Unions, Cooperating partners, Employers’ representatives, and NGOs. The Indaba does not have to be necessarily in a physical conference given the social distancing measures that are being recommended. ICT tools such as Cisco WebEx, skype, zoom cloud meetings, etc could be used to facilitate the same. Alternatively, the government could invite important economic players to present papers with recommendations on what measures they would recommend to the government to take in order to save our economy from collapse.
Zambia cannot avoid waiting to take action depending on how the infection rates escalate because the negative economic impacts are a virtual certainty. There must be innovative ideas out there on how Covid-19 economic impact can be mitigated. It may be a smart move to form a COVID-19 Economic Task Force to complement the Public health one. The time to take action is now-this week.

The writer is a Chartered Accountant by profession. He is an independent, non- partisan finance and economic commentator/analyst and a genuine Patriot.