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.
