By Ms Chileshe Mange

The Centre for Trade Policy and Development (CTPD) commends the decision by Cabinet to approve the publication and introduction of the Public Procurement Bill, 2020 in the next Parliamentary sitting.

In a Press statement issued by the Chief Government Spokesperson Honourable Dora Siliya on the decisions made by Cabinet at the 17th Cabinet Meeting held at State House on 23rd July, 2020, it was announced that the Procurement Bill has been approved for publication and introduction in Parliament during the next sitting.

If passed into legislation, the Procurement Bill will repeal and replace the existing Public Procurement Act No. 12 of 2008. This, according to the Press Statement has been necessitated by the need to enhance legislation on public procurement by including provisions that will strengthen enforcement mechanisms in the regulation of procurements, while also enhancing the participation of citizens in public procurement, through the use of electronic systems in the process.

Among the functions of the Procurement Bill is the strengthening of the oversight and regulatory role of the Zambia Public Procurement Authority. Given Zambia’s external debt stock (which as at February 12, 2020 stood at USD 11.2 Billion) and the rising fiscal deficit, a situation not made easier by the outbreak of the COVID-19 pandemic, it is imperative now more than ever that the legal framework manage the organizational operations of public expenditure. According to the World Bank Zambia’s debt to Gross Domestic Product (GDP) ratio is expected to reach 92 percent by the end of 2020 and 98 percent by the end of 2021 in the absence of prudent financial management and fiscal policy reform.

Aside from the fiscal and political structure of public finance management, the functions of several institutions such as procurement authorities and/or regulators play a critical role in the way that public funds are spent and managed. Public procurement, which typically, in the absence of debt servicing, is the second largest public expenditure after salaries. Public procurement is an essential tool for government considering its link with the pillars of effective governance which include, improved public service delivery, value for money, and an enabling environment for private sector-led growth thereby contributing directly to improving a country’s business, investment, and social environments. The foregoing also speaks to another of the Procurement Bill’s functions which is to enable and allow Zambians to participate in matters pertaining to procurement and contribute to the development of the country.

For these reasons, CTPD is encouraged by the announcement by Cabinet that the Procurement Bill has been approved for publication and introduction at the next Parliament sitting. It is noted however, that the National Planning and Budgeting Bill of 2019 (the “Planning and Budgeting Bill”), is currently at the second reading stage in Parliament. The Planning and Budgeting Bill is a crucial piece of legislation which provides for an integrated national planning and budgeting process; as well as strengthened accountability, oversight and participation mechanisms in the national planning and budgeting process. The enactment and implementation of one without the other would therefore be ineffective.

In a nutshell however, the undertaking to enact robust legislation in relation to public procurement is particularly welcome as it will enhance the overall legal framework in respect of public debt and expenditure and the management thereof. Together with the Procurement Bill, the Planning and Budgeting Bill represent a positive step in Public Finance Management reform.

The Author is a CTPD Senior Researcher-Legal, a not- for –profit, membership based trade policy and development think tank. The organization was established in 1999 and existed as the civil society trade network (CSTNZ), until 2009 when it was rebranded as the Centre for Trade Policy and Development (CTPD).

By: Munyumba Mutwale

‘Confidence, not paper or digital money, is the key currency of any capitalist system’
Mal Fletcher – Australian futurist and social media commentator

 

A few days ago was August 20th, my mother’s birthday, and it was a day of joy, cake and presents. All to celebrate the life and journey of a wonderful woman in our lives.

That is the beauty of Birthdays. They always seem to be the happiest day in the world. I guess that’s why we put the word ”HAPPY” before the word birthday.

Once I got back to my desk to close out the day and run my daily market analytics, I saw another birthday coming, and boy was this one, not a happy one. You see, on that same day, the Kwacha turned 19. Now This birthday was not a day of joyous celebration but a day of doom, gloom and despair because deep down we all know that 19 was the final barrier between the simplicity of childhood and the rapid growth of adulthood, also known as your 20s. Anyone above the age of 30 knows that once you pass 20, it’s like the years fly by so fast. I’m 33, and turning 20 felt like it was just yesterday, but seven felt like it was such a long time ago. The same phenomena seems present in the world of currencies. It appears that they age, or devalue, faster and faster. Currencies are oddly like Children. You want them to stay five years and innocent forever because you know the older they get, the more complex they become to manage.

Yes, in March 2020 it did trade at 19, but there it just reached 19 in a quick and rapid devaluation. Still, this time has now settled at 19 in a slow and steady depreciation, meaning backtracking would be very difficult because this represents a market consensus of the currencies value.

Let me take you back ten years ago, in 2010 when the Zambian kwacha was trading at an exchange rate under K5. Yes at the beginning of 2010 the Zambian kwacha was an under 5. During the decade, the Kwacha had experienced its first minor devaluation of the period, that was back in 2013. Then, came another more significant devaluation, which took place during the period of 2014-15, and then finally, since 2018, it has been on a sustained devaluation path. All this has been mainly driven by a decline in confidence in the Zambian economy. This decline came from the fact that the source of geosynchronous global growth (geosynchronous is just a fancy way of saying most of the economies of the world are growing at the same time) and Zambian economic growth, that being China was starting to run out of gas, and with no economic growth source of its own, Zambia’s future was uncertain, and the currency was just reflecting that.

You see, currencies are funny in that people run so many technical and intense quantitative models to try and predict their movements but, to quote former CEO of Credit Suisse, Tidjame Thiam,

‘The Currency is nothing but the reflection of Economic Growth or the prospects of economic growth of a country. They act, move or behave almost like a listed company share price, totally driven by sentiments of growth.’

For all the eloquent blabbering we economists love doing, currency valuation is a very simple thing, we just like the sound of our voices and sounding like the smartest people in the room. The value and direction of a nation’s currency is simply derived from the level of local economic activity in a country. The more local economic activity there is in that country, the more transactions are needed to facilitate that level of economic activity. The more local economic transactions done in the country, the more a medium of exchange, namely that nation’s currency, is needed in order to facilitate those local transactions and that’s the demand for the currency. Simply put, the faster your economy grows the more money you need, and therefore your currency appreciates. THAT’S IT.

Now I am going to give you a brief Zambian economic history lesson. If one goes back into history, you will discover that Zambia was one of the first African countries to establish Bilateral economic relations with China under the administration of the Late President Mwanawasa and this reflected, almost instantly, in our economic growth prospects. This, in turn, was the actual source of the booming 2000s or the Golden Mwanawasa era as we all would like to remember it as. That age of economic prosperity was more because, since 2002, the Zambian Economy was actually chained to the Chinese economy, and China was experiencing rapid economic growth acceleration from 1999 – 2008.

During this period the Kwacha also experienced sustained appreciation between 2004 – 2008, where the Kwacha moved from 4.8 to 3.7. However, when 2008 came, it appeared the party stopped and with the end of Chinese Acceleration so too came the end of Zambian Economic Acceleration and Currency stability. Since 2008 we have entered the age of devaluation, and we have never stopped. With that, all the confidence behind the Kwacha slowly vanished.

As Chinese economic growth declined from its 2007 peak of 14%, simply because China has just run out of growth, so too did the Zambian economy. As the Zambian economy declined, the currency devalued. So with growth already on a downward trajectory, it appears a combination of load-shedding and droughts, further weakened us, and finally, the coronavirus just came to finish us off. However, the key underlying factor has always been that the Zambian economy has never gone through a period where it has created its own economic growth internally and organically.

As much as we link the 2000s to the late President Mwanawasa’s policies, who did, in all honesty, do a remarkable job on the economic stabilisation side of the equation, it was mostly a combination of China-driven geosynchronous growth and Chinese trade and investment in Zambia that did most of the heavy lifting. In reality, no Zambian administration has ever managed to work out the endogenous Growth side of the Zambian Economy. All the administrations of both past and present, have only worked on the strategy of making Zambia conducive to receiving or experiencing the benefits of externally driven growth, but have never managed to crack the code of making the Zambian economy generate its own economic growth through the rise of booming local enterprises.

Now, the period of 2010 to 2020 has simply given the people of Zambia a look at what’s underneath the hood of the economy and guess what, there was no engine in the car this whole time. Our economy has been like a car being towed this whole time, and when I say this whole time I mean since 1964, and the tow truck has either been the Global Economy, a specific trade and investment partner, such as China, or the Government. However from 2010 to now, our government has since maxed out on credit, and the global economy, along with China, has slowed down to such a grinding halt, that there has been no economic force remaining to pull us forward. But in this whole picture, there has never been a period where Zambia has been a purely local entrepreneur-driven economy to give global capital confidence in times where the global economy is not there to prop up the Zambian economy.
All this can be seen in last year’s quarter by quarter economic growth figures, in which the Zambian economy moved from 2.3%, in the first quarter, to almost no growth of 0.2%, in the 4th Quarter. So even without the Coronavirus economic slowdown we were heading for a recession. All the coronavirus did was give the economy an added nudge down the mountain it was already fiercely tumbling down, thus accelerating the process and exaggerating the immediate impact.

Now I’m gonna have to be brutally honest with you. The Kwacha hitting 20 is inevitable, and now it’s really about what we do after that, which will make the real difference. It’s this decision that will determine whether we go into free fall or whether we reign it in and avoid repeating the depression of the 80s and 90s. And Yes, we are in the exact same set of circumstances that led to the economic downturn that introduced the Zambian depression that lasted until 2002. There was a Global Recession in the 80s, there is a Global Recession now, which mind you was already coming with or without the Coronavirus. There was a declining Kwacha in the ’80s, and there is a declining Kwacha Now. There was rising inflation in the 80s and there is rising inflation now. There was growing unemployment in the 80s, and there is growing unemployment now, which has been growing for the larger part of the last decade. There was expanding and unsustainable public debt in the 80s and there is expanding and unsustainable public debt now. For all intents and purposes, it appears we have brought the 80s back.

So we are now at a crossroads, and we have a choice to make. We can either sit here cosmetically prettying our economy up while indefinitely for the next rising global economic superstar to come along and allow us to hitch a ride on its economic acceleration wave, a strategy, by the way, we have proudly been using since 2002, or we can finally decide to take control of our economy and start learning as a country how to create economic growth for ourselves by ourselves. We can choose to learn the hard lesson that an economy cannot sustain growth through a series of exogenous shock factors, but it can only do it through the growth and efforts of its own organic private enterprises. We have to recognize how unsustainable it is to run an economy like a car with a faulty battery that needs to be jump started every single time the world has a slowdown, and there we are stuck, looking for someone with jumper cables to help us out. We have to make the tough decision to finally end all reliance on the outside world. That would mean no more touring world like a musician with a new album in search of FDI, like we have been doing for the past three decades. We have to decide that we are no longer going country to country with a begging bowl asking for aid and assistance, Like we have been doing for the past three decades. Most importantly, and i cannot stress this point enough, we definitely must put an end to any and all reliance on external debt. Zambia has to behave as if the World has closed every door and avenue indefinitely and dig deep within itself to find its own organic sources of private-sector growth, namely from the innovations and enterprises of the people. Everything, and I mean absolutely everything, Every product, every input, every service, every supply chain, every innovation, you name it, has to start coming from within, and has to come from Zambia’s people. That’s if we don’t want to repeat the mistakes of the 1980s and the depression that came after.

Make no mistake, the Kwacha heading for its 20th birthday is just one of many warning signals of an imminent economic threat, and the next two decades of the Zambian economy are hanging in the balance of the decisions we make now.

The Author is a Financial Economist with over ten years of experience in the Zambian Financial and Capital Markets in and with companies and institutions such as the Lusaka Securities Exchange, Securities and Exchange Commission, Aon Zambia and many other participants. He is also a freelance economic journalist from Lusaka who writes about currency, commodities, macroeconomic policy and markets from the Global and Domestic Perspectives. He can be found on Twitter at @MutwaleM.