By Dr. Lubinda Haabazoka

In economics, there are several ways one can reach the promised land. The easy way would normally be with the help of others while the hard way would be choosing to go it alone.

Like in politics, economists can be divided into two: Liberalists and Conservatives

Liberalists believe in 100% private sector control of the economy with the government have a very limited role. A typical example of a liberal economy is that of the United States.

Under this paradigm, the strong survive and capital thrives.

Conservatives on the other hand believe in a strong presence of government in the economy and believe that government in the economy should be there to protect small and unsophisticated citizens from exploitation by big capital and monopolies.

The ordinary Uncle Joe and Auntie Agatha are on the streets.

To be honest, liberalist concepts are more favorable to a country because they promote hard work amongst citizens and help build a strong private sector as evidenced in the United States.

The Zambian Case Study

Unfortunately for poor countries such as Zambia, a 100 % liberal direction cannot benefit a large section of the citizens, it’s foreigners that own Capital, and all we can provide is labor.

One can argue that we are the second-largest copper producer in the world, therefore, there’s hope but the mineral resources in Zambia—until KCM and Mopani transactions—are foreign-owned so the benefits from the mines elude us.

The Challenges of IMF Policies in Zambia

The reason why IMF policies fail in Africa is that the IMF fails to defend the interests of ordinary people in the countries they implement their policies. They often put the interest of the IMF first, not ordinary Zambians.

There is a very huge miss when it comes to understanding economic development as propounded by the founders of economics.

Economic development models do not have “a one size fits all approach.” Each country is unique and Africa as a continent is even more unique from the rest of the world.

When foreign capital goes to the USA or UK, the host governments keep tight control over those resources and they definitely get their fair share in form of taxes. When capital comes to Africa, it is overstated and governments get nothing from that in form of taxes.

How Does Africa Get it Wrong?

One of Africa’s biggest problems is the lack of lobbying power! Africa, Zambia included always bargains from a weaker position such that it ends up begging.

Have you ever heard the IMF mention that Africa should own its mineral resources? Have you ever heard the IMF seriously tackle the issue of illicit financial flows?

Have you ever heard the world bank fund the construction of a factory? Have you ever heard the IMF give money to build a new company to be owned by locals? No.

But they will always tell us that we should borrow from them so that we have enough forex reserves to balance our payments. They tell us that once we get an IMF package, we shall get the credibility and FDI will flow into Zambia. Let’s ask questions – Which African country has developed with the help of FDI or an IMF bailout?

Capital knows that it can only operate in countries that are playing on its own rules. So capital engaged the IMF and other strong international funders to drop up rules that favor them.

When those rules are drawn up and a country implements them, money flows into that country. Unfortunately by the time the money is flowing in, all profits go out because of tax concessions that are negotiated! A country actually does better as it has stable exchange rates and rapidly increasing GDP growth figures. But unfortunately, wealth never trickles down to the locals because apart from labour, other factors of production remain in foreign hands.

Lessons Learned

Countries that have learned this trick have advanced their economies. The trick here is to implement self-centered policies aimed at wealth creation amongst locals. But doing it quietly is very important because lobbyists are so powerful that Russia and China now are under sanctions. Sanctions because these countries have chosen not to be conformists. They have decided to create a parallel world order under BRICS to which SA is a member.

The Case of China In Continental Economics

To me, reducing the IMF debate to politics is a waste of time and missed opportunity. The discourse should be on how to prioritize wealth creation amongst citizens. Can you create wealth by increasing energy costs for your business? Can you create wealth by reducing taxes from your mineral resources?

You see, we can’t also push China away because it is set to be the number one superpower and largest economy above the United States soon. Yes this is going to happen in our lifetime.

We had Greece rule, then Rome, then Persia, then England, then USA/Soviet Union, now the USA so it’s now China’s time. The question is, what is our role in global economics? How do we prioritize our citizens? How do we win in this situation?

For me, we are not making bold decisions as the one Kaunda made. Bold decisions to get all mines and own them, build INDENI, build Mansa Batteries, build all the many factories.

Today our bold decision as mentioned by the IMF boss is that we have agreed to remove subsidies and probably privatize one or two companies then get $1.4bn. This is where I am getting worried. I am getting worried because I was born to solve huge and complex issues.

I was born to help create models in my country like never been seen before. Create a modern 24-hour economy. Create a sovereign wealth fund to fund infrastructure development. Create a Zambian Silicon Valley. Create a Zambian-dominated mining industry. Create an agriculture sector not dependent on rain.

These are the ideas we need to start discussing as a country.

But as long as discourse remains political and not serious, then we might as well follow the Clive Chirwa’s to the diaspora!

The author is an Economist, Consultant, Researcher and respected Academician of local and international repute.

By Felix Nkulukusa Secretary to Treasury

In graduate school, when I was doing my MA in development economics, one of the professors, Prof Monteal, taught me about economics being the simplest subject because there is no right or wrong answer as every answer depends on the assumptions one makes.

What is interesting with big brother Mumba’s viewpoint, thou, is that he is advocating for a status quo of maintaining non-deductibility of mineral royalty for purposes of income tax in order not to lose $182 million which, in his view, then solves the problems we have.

Interesting though is that we have had this non-deductability status of mineral royalty for years now, collected the ‘$182’ million every year and we still have the fiscal challenge.

I take it the assumption here is that we can do the same now that it’s UPND in power and the results will be different.

In my view and this is the argument I made way back in 2013 when I was PS in the Ministry of Finance and I appeared on a radio Phoenix programme with a colleague from a CSO who was arguing against the removal of subsidies (am sure one can get the recording from Radio phoenix if one desires to). At that radio programme, I talked about the need for reform in fuel and electricity subsidies, arguing that these subsidies benefit the rich more than the poor.

Zambia’s subsidy on fuel is about US$67 million per month or US$800 million per year and on electricity is over US$40 million per month or US$500 million per year.

This means that the Treasury is using about US$107 million per month or US$1.3 billion per year on fuel and electricity subsidies.

What is even more interesting is that more than 60% of the fuel and/or electricity in Zambia is consumed by the mines with only less than 2% of the two products being consumed by the ordinary and vulnerable people who are genuinely supposed to be subsidised. This means that the mines are being subsidised by US$780 million every year in fuel and electricity while the ordinary and vulnerable Zambians are only getting a subsidy of partly US$26 million per year.

My argument in 2013, which is the same argument I have today, is whether it makes sense to subsidise fuel and electricity in the current structure or we should remove the subsidies on these products and use the resources to better target and support the poor people, be it in supporting or providing bursaries and meal allowances to the vulnerable pupils and students attending school, enhancing education and health services, particularly in rural areas including providing medicines and personal in health facilities to provide Premier health care treatment to the Zambian people, enhancing social protection programmes such as social cash transfers etc.

The broader question in my view is who are real beneficiaries of the current structure of our subsidy programmes? Is it the students in schools, colleges and universities, is it the poor Zambians that deserve government assistance or is it the same multinationals but speaking through the poor to try and maintain the status quo?

Should the government focus on arguing on whether or not to maintain non-deductibility of mineral royalty to retain the US$182 million or we should be fixing the haemorrhaging of over US$1billion per year in subsidies going to the unintended beneficiaries?

Let me also take this opportunity to explain in simple terms what the non-deductibility of mineral royalty means. Let us assume a mining company produces one tonne of copper which it sells at $10,000. Let us also assume its cost of production is $3,000 for operation and $2, 000 for salaries to its workers. Let us further assume that the company pays ZRA $2,000 in mineral royalty tax. The question is what is this company’s profit on which it has to pay its corporate tax at 35%?

Under the current law, which big brother Mumba is propagating, ZRA will only allow the company to deduct operational costs and salaries to be deducted from the company revenues meaning that ZRA will tell the company your profit is 5,000 i.e 10,000 less 3,000 (operating cost) less 2,000 (salaries). ZRA then charges company income tax at 35% on 5,000.

But the actual profit the company has made is 3,000 because it paid 2,000 to ZRA as mineral royalty in addition to its own costs of 5,000. Now, that tax on the 2,000 which the company paid to ZRA but ZRA refuses to recognise receipt of it for purposes of determining profit to be taxed is what is amounting to $182 million. This is the money that mining companies have paid to ZRA, charged on the money that the mining companies already paid to but ZRA as mineral royalty. In simple terms, the government is double taxing the mining companies.

Under the new law that comes into effect on 1st January 2022, the Government is now saying that if a mining company pays mineral royalty to ZRA, ZRA should allow and recognise this payment (deductibility) in arriving at the profit to be taxed.

Is the current law a good law or we should change it as is being proposed by the Government? Well, it depends as Professor Monteal says. For big brother Mumba, it’s a good law because it gives us $182million today. For me, it’s a bad law because it denies us investment that should make us reach 3 million tonnes of copper production and in turn increase our taxes from the mines from the current under $1 billion to between $4 and $6 billion depending on the copper prices.

In short, it depends on whether we need the $182 million now and forego $2 billion tomorrow or we need the $2 billion tomorrow and we can forgo the $182 million now.