Thursday, November 7, 2013

Deficit Budgeting in Zambia: A Worrisome Return to Unsustainable Debts?


Deficit Budgeting In Zambia: A Worrisome Return to Unsustainable Debts?

By: Dr Mbita Chitala ; Executive Director – Zambia Research Foundation

In fiscal 2014, Finance Minister Alexander Bwalya Chikwanda  has announced that our national budget of K42,682,030,000 will be partly funded by a huge deficit of K10,516,870,000 in addition to domestic revenue of K29,538,540,000 and hoped for grants from donors of K2,636,630,000.

It should be noted that the projected GDP of Zambia in 2014 will be K135,744,646,000 according to the MTEFF, and  our 2014 budget will be K42,682,030,000 which  is 30.7% of our GDP

What observers see as worrisome is the impact of the huge deficit financing that represents 24.6% of the budget and 7.2% of GDP on the economy of Zambia. Does this mean a return to unsustainable borrowings where the country joined the HIPC group of counties or it is the beginning of growth of our economy.

The management of the public debt,  and its growth is currently a controversial issue in the debate over responsible fiscal policy. There is a continuing controversy as to whether governments should entertain deficit financing. The simple answer is that deficit financing of any national budget can be either good or bad depending on how it is managed.

What is Deficit Financing/spending?

Deficit financing is when a government spends in excess of tax receipts. In order to fill the gap of their deficit budgets, governments usually borrow or print money. In Zambia, the Bank of Zambia on behalf of government will issue Treasury Bills and Bonds which will be bought through open market operations. Furthermore, the government can also borrow from other governments, multilateral institutions as well as from private money market institutions or simply print currency to fill the gap.

Public Debt in Zambia

Deficit financing is part of the problem of public debt management. In the period from 1978 up to 2004, Zambia’s debt burden increased at a rapid rate because of borrowings. The public debt for Zambia has been growing exponentially.

In 1978, external debt stood at US$999.5 million reaching US$3.3 billion in 1980 and further increasing to more than US$7.2 billion in 1990. The external public debt went down during the early 1990s reaching US$3.7 Billion in1992  but climbed back to more than US$7 billion by the end of 1996 and reaching US$7.2 Billion in 2004.

 On the other hand, domestic debt stock in 1978 was a mere US$378.5 million. In 2003, it had risen to ZMK3.9 Trillion while in 2004, it stood at Zambian Kwacha 5.5 Trillion. In 2011, Zambia’s internal debt was K13.122 billion while as at September 2013, the internal debt has jumped to an all time high of K17.8 billion and the end year 2013 figures will certainly be higher.

The total external debt alone represented over 120 percent of Zambia’s Gross Domestic Product (GDP) in 2003. The external debt service of US$462 million in 2003 represented about 11 percent of GDP, 15.4 percent of total exports, about three times the national education budget and about four times the health budget. Indeed, the projected debt service without any debt relief agreement with the major creditors in 2004 and 2005 would have been US$470 Million and US$475 Million  representing 8.8 percent and 8.3 percent of Zambia’s GDP, respectively.

However, because of various debt cancellations and relief, the external debt service was reduced to ZMK229 billion and ZMK152 billion in 2003 and   in 2004 respectively. 

President Mwanawasa left a legacy of a sustained public debt management after  inheriting an unsustainable debt which in 2005 reached $7.2 billion. After successful negotiations with all creditor organizations (multilateral institutions, Paris Club and London Club), Zambia was able to enjoy the debt relief under HIPC which saw our external debt reduce to about $500,000,000 in 2007.

Soon after the demise of Mwanawasa, the administration of President Banda started borrowing. In 2009, the total public debt was K15,620,570,000 which was 24.17% of GDP and comprised of K9,502,060,000 domestic debt and K6,118,510,000 external debt. The public debt continued increasing and in 2011, the total public debt rose to K21, 310, 830,00 (K13,122,410,000 domestic debt and K8,188,430,000 external debt).

Zambia’s public debt has continued to rise after the PF took over government. As at 31 December, 2012, Zambia’s external outstanding debt was $3,068,133,946.13 of which $2,944,687,444.08 was debt outstanding and the arrears comprised $78,540,177.05 of principal and $44,906,325.00 of interest. The consolidated domestic debt for 2012 is not yet available although an additional K1, 324.3 billion had been budgeted for borrowing in 2013. And for the 2014, the government plans to run another budget deficit by borrowing K10, 516,870,000 or 24.6 % of the budget or 7.5% of GDP.

The above policy regime is bound to not only increase our total indebtedness but may start creating another unwarranted debt overhang which will not be sustainable. A time after borrowing comes when the burden of annual repayments of loans and interest as percentage of current receipts will become unpayable when they fall due.  In the current situation, the government has been failing to redeem the public debt when it falls due and have tended to accumulate expenditure arrears in both the domestic debt and the external debt.

The challenge the government faces is on expenditure management, to devise a domestic and external debt management strategy that will ensure that the high debt stock and rising debt service burden shall not adversely impact on the country’s economic growth. Unless the government uses the debt so acquired prudently in programs that add to our GDP, the country may get back to the HIPC condition where our country would lose its credit worthiness and become a pariah in the world of civilized nations.

However as already stated, deficit financing by governments can be both good and progressive or bad and retrogressive depending on how the contracted debt is managed.

Arguments against Deficit Financing

Many critics of the PF government have objected to deficit financing arguing that it is bad policy. These fiscal conservatives contend that a government should always run a balanced budget and if need be, it should have a surplus budget to pay down any outstanding debt. This position has its origin from Adam Smith (1723-90) and was further advocated by Milton Friedman (1912-2006) of the Chicago School of Economics. This view is also associated with the gold standard where all currencies were fixed against gold. The idea is that a government must spend what it has.

Some critics have not only faulted state borrowing especially deficit financing for being inflationary, but also contended that it overburdened future generations. David Hume (1771-1776) was one of the first scholars to address the subject and criticized the idea of deficit financing. Adam Smith  devoted forty pages of his work “The Wealth of Nations” criticizing the principle of deficit financing. David Ricardo (1951) also condemned public debt creation by governments and noted that this principle tended to destroy capital. This criticism was extended further by J.S. Mill (1915) who viewed the public debt as a double burden which had to be opposed.

Generally, all these classical scholars opposed the idea of public debt creation and ascribed to the need for states to adhere to balanced budgets. These protagonists based their approach on the principle of strictly controlling growth in the money supply and argued that this approach was the one sufficient and essential condition for the control of inflation.

The basic flaw of this monetarism was revealed in practice, not because it was ineffective in bringing down inflation, but because it could only do so by means of strangling the real productive economy, and then could not prevent a recurrence of inflation in the event of a sustained revival of growth.

Other critics contend that deficit financing is inflationary and this is a bad thing. Governments normally print money to pay off debts when they fall due and thereby increase money supply which fuels inflation. This view is criticized by Keynesians who argue that deficit financing may not be the only factor that can be inflationally. There are other factors such as supply side shocks. An example for this is  an oil crisis. Inflation therefore depends on monetary policy.

 Furthermore, deficit financing is opposed as it is seen as an unnecessary way of creating public debt. In the case of Zambia, the government will borrow by using the Bank of Zambia to sell treasury bills and bonds as well as compel Bank of Zambia to printing money. The government also plans to borrow from foreign governments such as China as well as multilateral institutions such as the World Bank, IMF, ADB and from the Euro bond market. The burden of this debt on Zambia shall be the principal and the interest which shall be paid to holders of treasury bills and bonds and other promissory notes as well as to the external debt to be contracted. This ostensibly will restrict the government from being able to cut taxes or raise its expenditure.

A further argument against deficit financing is that spending today will require increased taxation of citizens in future to pay the debt. It is contended that it is unfair to burden future generations with suffocating debt obligations.

Some political economists also believe that government deficit financing takes away loanable funds from banks and thus push up interest rates. The high interest rates tend to crowd out or discourage private investment cancelling the so called fiscal stimulus and impeding growth of the economy.

Most observers agree that for domestic debt, the borrowing should not create unnecessary and costly distortions in the economy. If the domestic debt affects the economy adversely through high interest rates, it may in turn lead to a slow down on economic growth.  The central point is that whereas borrowing domestically is healthy, it must be within limits because excessive borrowing could be distortionary and it would tend to slow capital formation.

Furthermore, a large public debt can create adverse effects on national income. A large government debt can clearly be detrimental to long run economic growth. First, as the debt accumulates, more and more private capital is displaced resulting in lower national output. Secondly, additional taxes are levied to pay interest on rising debt stock resulting in inefficiencies which in turn leads to lower output. Taking the two together, output and consumption will grow slowly than they would had there been no large government debt and deficit.

Arguments for Deficit Financing

The arguments for deficit financing are espoused by those who advocate the administrative control of prices and wages as the most appropriate means of controlling inflation. John Maynard Keynes (1936) in his seminal work “The General Theory of Employment, Interest, and Money” debunked the classical view that low levels of demand in an economy were self-correcting.

Keynes advocated that when an economy was in or likely to go into recession, the central government must engage in deficit spending. This doctrine meant that a government could borrow money to spend on public works and other public goods. In so doing, the government would expand overall demand. Keynes further advocated expansionary monetary and fiscal policies, meaning, the use of expanding money supply and lowering taxes to stimulate economic activity.

Broadly speaking, Keynes advocated the management of demand to maintain full employment in the economy. Said differently, John Maynard Keynes (1883-1946) argued that that deficit financing is desirable and necessary. A country should run deficits when there is recession to compensate for the shortfall in aggregate demand. When an economy has high unemployment, an increase in government purchases creates a market for business output, creating more money in people’s pockets and encouraging increases in consumer spending. This multiplier effect further increases demand for goods and services and raises the GDP and employment opportunities. Deficit financing works as a stimulus in an economy and will encourage companies to invest more capital and in the process they will be assured with reaping high profits.

It is important to note, however, that deficit financing  can stimulate demand if the government’s deficit is spent on such things as capital items that will in turn increase potential output in the long run

The Post Keynesians such as the Chartalists even go further and contend that deficit spending money is what is taxed at the end.  A government cannot bust its budget as a national budget is simply an account of national spending priorities.

Furthermore, it is argued that deficit financing is necessary for monetary expansion in an expanding economy such as has been the case for Zambia for the last ten years. If the economy grows as it has been at more than 7% of GDP annually, the money supply should also grow. And this can only be accomplished by deficit financing. If this is not done, it may lead to a credit bubble and a financial crisis. Deficit financing is acceptable but it depends on the level of GDP growth.

The Neo- Monetarist Argument

The Keynesian advocacy of deficit financing has however been opposed by the so called neo-monetarists who take the view that the control of inflation in an economy is more important than reducing unemployment. This view is closely identified with the ideas of the Nobel Prize-winning Professor Milton Friedman who also greatly influenced the now failed Structural Adjustment Policies of the World Bank and the IMF.

The neo-monetarists advocate tight monetary and fiscal policies and the balancing of state budgets. They warn of the future consequences of debt accumulation and its burden upon later generations. Neo-monetarists contend that debt finance places an unfair burden on future generations, firstly, by reduced capital formation when resources shift from the private sector to the public as occurs when the state borrows domestically. Secondly, by sadling future generations with an obligation to service the foreign debt.

The weakness of the neo-monetarist conception is that they confuse the tasks at hand. The question is not whether a government can repay the debt, because public debt and the economic management are a continuing undertaking. When a debt issue matures, it is paid off as the necessary funds are obtained by issuing new obligations. The issue rather is how interest service will affect the economy and how outstanding debt enters into the liquidity structure of the economy.

World Experience

 The reality on the ground is that all countries incur public debt of one type or another purely on the basis of necessity. For instance, over 80 per cent of Organization of Economic Cooperation and Development (OECD) governments borrowing was in the form of marketable instruments such as government bonds and treasury bills. On average, since the year 2000, OECD countries have been running budget deficits of around 4 per cent of GDP. Even prudent Asian governments, including Japan, have been running budget deficits of an estimated 3 per cent per annum during the decade 1980-90. The OECD predicted that by 2008, its members would be sitting on central government debts totaling 86 per cent of their combined Gross Domestic Product (GDP).

This situation repeats itself in almost all developing countries. For instance, in the United States in the 1950s and 1960s, the country’s debt exceeded its GDP. However, this is the time the USA experienced long prosperity. President Obama’s stimulus program in the USA that has been used to defeat the recession is anchored on  huge government deficit spending.

For a country to engage in deficit financing, it means that the private sector is in surplus. In other words, deficit spending will permit the private sector to accumulate net worth. This is why all governments run budget deficits.

Deficit financing: Good or bad

The majority of economists would agree that if a government borrows in order to deal with a recession or spends on public investment on infrastructure, education, public health, on public goods that will advance capital accumulation, then such deficit financing is bearable, beneficial and even necessary. If on the other hand deficit financing is for current consumption such as wages and so on, this would tend to suffocate the economy.

The challenge for Zambia is to ensure that the debts being contracted by the PF government are  expended on programs that will allow Zambia accumulate investable surpluses for capital accumulation and expanded reproduction. What is necessary is therefore to ensure that government expenditures are productive in the sense that they should contribute to the growth of national income.

Furthermore, the government may wish to address the need to create a debt management policy and strategy which may include creating a professional debt management office, reform the legal, institutional and administrative framework, and adopt best practices in public debt management.

End

 

Sunday, November 3, 2013

Nuclear Energy and the Fate of Mankind


NUCLEAR ENERGY AND THE FATE OF MANKIND

By. Dr. Mbita Chitala

Executive Director- Zambia Research Foundation

 

The study by the Zambia Council of Churches entitled “The Revelation: A Review of Ionizing Radiation Protection Act 2005”, offers a good starting point for our policy makers to  reflect  and take preventative action and address the dangers posed by uranium mining, milling and transportation in Zambia.

Uranium Mining in Zambia

Presently, Zambia has three companies mining uranium. The first company is the African Energy Resources (AER) which owns the Chirundu Mine in Kariba Valley and has outlined over 11.1 Mlb of U3)8 (5,035t) in resources at Nyame and Gwabe resource.

The second company is the Denison Mine Zambia Limited (DMZL) which owns the Mutanga and Dibwe deposits in Siavonga District.

The third company is Lumwana Mining Company (LMC) owned by Barrick Gold. The company mines uranium as a by-product of its copper mining at Malundwe and Chimiwungo in North Western Province. It has about 3800 tu indicated resources at 0.079% of u and 2570 tu in inferred resources.

Once mined, the uranium ore in rock form is taken to the uranium mill where the ore is crushed, mixed with water and ground into fine particles. The mixture is then put through a chemical procedure to purify it. This process produces uranium oxide U3O8 – a yellow compound called yellow cake which can be exported. In Zambia, we are still piling the yellow cake as no policy on exporting has yet been formulated.

Nuclear Fission Discovery:

The discovery of nuclear fission by the German Physist Otto Hahn in 1938 and the realization that the energy from fission could be used to produce a nuclear explosion, has become one frightening scientific discovery which if not well managed, can lead to the self annihilation of all mankind and life as we know it. The science behind all this is well understood. Fission occurs when a neutron enters the nucleus of an atom of uranium or plutonium isotopes. When fission occurs, the original nucleus is split (fissioned) into two nuclei called fission products. A self-sustaining fission chain reaction can be produced in this way. The larger the quantity of Uranium 235 or Plutonium 239 (this results when Uranium 238 absorbs some of the neutrons produced in the fission process to become isotope Uranium 239) that is fissioned, the greater the explosive yield of the nuclear explosion.

A fission or atomic bomb has only been used once in Japan at Hiroshima and Nagasaki on 6th August, 1945 by the United States of America when more than 250,000 people were killed.

Nuclear Fusion

Nuclear fusion on the other hand, occurs when nuclei of hydrogen isotopes fuse together to form nuclei of helium. During fusion, neutrons are produced and energy is released. In a boosted weapon, these fusion neutrons are used to produce more fission in the Plutonium 239 and produce explosive power of up to 50 KT. The fission weapon in this case acts as a trigger in these hydrogen bombs or thermonuclear weapons. In 1962, the then USSR exploded one at its test site at Novaya Zemlya with an explosive yield equivalent to that of 3,000 Nagasaki weapons. These weapons have not yet been used to kill human beings.

Nuclear weapons

There are about 30,000 nuclear weapons in today’s world. The USA and Russia each deploy about 9,000 nuclear weapons. The other countries with nuclear weapons include China (400), France (350), UK (200), Israel (200), India (60), Pakistan (35). The USA and Russia possess aggregate deliverable nuclear arsenal of about 19,000 warheads of almost 10,000 Mt. The total nuclear arsenal, including tactical weapons, warheads in stock comes close to 50,000 warheads and 15,000 Mt.

Furthermore, there are about 30 countries operating 438 nuclear power reactors for generation of electricity. These countries include South Africa, Argentina, Brazil, India, Mexico, Pakistan, Israel, Japan and so on. The dangers of breakdown of these reactors and endangering the life of human beings and life in general are best illustrated by the recent history of Japan at its Fukushima facility and earlier at Chernobyl  in the Ukraine where nuclear fallout killed many people.

In addition to the nuclear countries mentioned above, North Korea and Iran have also been involved in active nuclear proliferation. The North Korean facilities at  Yongbyon include a processing plant to remove plutonium from spent reactor fuel elements, a plant to make reactor fuel elements and two nuclear power stations.

Iran’s program are carried out in secrecy and has not been allowing inspections from the UN watchdog in Vienna. The UN system has placed Iran under sanctions and isolation. It is hoped the current talks in Vienna can succeed in persuading Iran to subject itself to international inspection to ensure that it abandons the idea of producing nuclear weapons. The claim that its program is for peaceful purposes needs to be tested by subjecting it to verifiable inspection.

For North Korea, it has always said that it retains the right to have nuclear weapons. This is a dangerous argument. The recent events in the Korean Peninsula where North Korea threatened to unleash its nuclear arsenal on South Korea and the United States, poses a challenge to mankind  on the dangers of nuclear energy.

North Korea is an extraordinary closed and sensitive country. I last visited North Korea in 2002 when I accompanied the then Vice President Lupando Mwape on a state visit.  North Korea has had a nuclear program since 1965 when it began operating a small nuclear research reactor at Yongbyon Nuclear Facility. At that time, Zambia also had a small reactor in Lusaka. Many countries operate these reactors, called , Research and Test Reactors - to produce radio isotopes for medical, industrial and agricultural use and training Physicists and Engineers. Radio isotopes are used in medicine to diagonize and treat diseases; in industry, to radiograph large structures; and in agriculture, to kill pests and sterilize male insects to reduce their numbers. The small reactor at the former Zambia National Council for Scientific Research appears to be inactive or it may have been decommissioned.

Possible Nuclear Armageddon

Our earth is a small spaceship in the universe which cannot survive a nuclear war, even for a limited one of 100Mt. If such is unleashed on the Korean Peninsula in anger for instance, calculations by scientists show that the dust and smoke will spread to engulf the whole earth carrying in its wake, a destruction of life unparalleled and shall imperil the future of humanity. Scientists have estimated that about 100Mt nuclear threshold is the currently defined as critical to produce a “nuclear night” – when air temperature will drop to below freezing leading to “nuclear winter” or the abrupt exceptionally harsh and prolonged cooling of the air over our earth- freezing all living things surviving nuclear fires.

The main consequences of nuclear war leading to ecosystems degradation include the following: Radiation shock which will range between 500-1,000 rads and will kill off all mammals and birds and cause serious damage to all plants; Huge fires would wipe out all forests and farms; Oxides of nitrogen and Sulphur will form into acid rain to devastate soils and waters; Enhanced UV radiation doses will damage the ozone layer which shields the earth from UV radiation from the sun and will suppress photosynthesis which in turn inhibit and damage any survived animal’s immune system and kill all bacteria in the surface layer of the soil.

International Instruments

The key international instrument to prevent proliferation of nuclear weapons is the 1970 Nuclear Non-Proliferation Treaty. As of today,  a total of 190 parties have had ratified the NPT including the five nuclear powers. North Korea withdrew from the NPT in 2003. Israel, India and Pakistan are also outside the NPT as they all doubt the effectiveness of the IAEA safeguards to verify compliance with the treaty.

Progressive human beings have consistently argued that nuclear weapons and warfare is a crime against humanity and must be abolished. The report in the Post Newspaper of 18 October, 2013 reporting that that Zambia’s Ambassador to the United Nations Dr. Mwaba Kasese Bota called for the ban and elimination of nuclear weapons is a progressive stand. It is gratifying to note that Zambia is state party to the Treaty on the Non Proliferation of Nuclear Weapons (NPT) and the Comprehensive Nuclear Test Ban Treaty (CTBT).

There are other treaties that attempt to manage nuclear proliferation. The Convention on the Physical Protection of Nuclear Material signed in 1980 by 145 state parties is one such other treaty. In Africa, there is the African Nuclear Weapon Free Zone Treaty or the Treaty of Pelindaba which Zambia has since ratified.

However, Zambia has not yet adopted the “code of Conduct on the Safety and Security of Radioactive Sources” or the “Supplementary Guidance on the Import and Export of Radioactive Sources”. Furthermore, Zambia has as yet to ratify the “Radiation Protection Convention, 1960 Number 115” and the “Occupational Cancer Convention, 1974, Number 139. The ratification of these conventions by Zambia has become necessary now as miners and other citizens at the various mines that are currently mining radioactive substances have become vulnerable to radioactive contamination.

Challenges

The biggest challenge humanity faces is to abolish all nuclear weapons. It is possible to use nuclear energy safely to advance humanity’s civilization. However, this advancement does not include the development of self annihilation instruments such as atomic bombs.

In Zambia, the challenges we face are include the following:

1.       We must ratify all the essential treaties as presented above in this essay.

2.       With so much uranium, Zambia can start a peaceful and safe nuclear program to enrich Uranium 235 to be used in electricity generation, medicine and agricultural research. This will involve us investing in a conversion plant to separate isotopes of U 238 and U 235 and so on. We could then export this enriched uranium and earn a lot of foreign exchange.

3.       Our country needs to come up with a policy on mining of uranium and other radioactive mineral ores. The current vacuum is dangerous as it allows mining companies such as the Lumwana Mine for instance to continue discharging radioactive tailings into the Lumwana river and contaminating the water without any safeguards. Worst still, there is no policy for the compensation of workers or citizens that may suffer contamination.

4.       Zambia must streamline the eight pieces of legislation that currently  address mining of radioactive substances.  

5.       The Radio Protection Authority which currently has only 4 employees from an establishment of 44 needs to be revamped.

6.       It is important that the Radiation Protection Authority is also re-aligned from mere Hospital Administration to include other functions such as regulation of exploration, mining, milling and transportation of ionizing radiation materials. Currently, we do not have an institution that  is tasked to regulate these potential dangerous activities.

End

Monday, September 24, 2012

ZAMBIA'S DEBUT US$750 MILLION: A NOVEL WAY TO DEVELOPING FINANCING ?


By. Dr. Mbita Chitala; Executive Director: ZAMBIA RESEARCH FOUNDATION

 

The news that Zambia has managed to secure a US$750 million Euro Bond is both good for Zambia and Africa in general. The Zambians that led the offer must be thanked and lauded.

Two views define Portfolio Investment (PI) such as the Euro Bond that we have raised from international capital markets.

1.       The most prominent and popular view raised by many Zambians and Neo Liberals is that PI will for the first time give our government access to this vast pool of capital that is available on the global financial market for development. The money so obtained is competitively priced and efficiently allocated without corrupt tendencies associated with foreign direct investments and bank borrowing. The Euro bond  will promote economic growth of Zambia.

 

It is further argued that the Euro bond in its form is superior to foreign bank borrowing as it has no contitionalities and external control disadvantages like the one Zambia has been subjected to by the IMF and World Bank under Structural Adjustment Programs.

 

2.       However, in reality, Portfolio Investment (PI) such as our Euro Bond  can and may serve our development if it is used to finance investment projects. Our government is therefore challenged that this is strictly adhered to.  In real life, the Euro Bond will be  allocated by global capital markets in accordance with rate of return criteria and not necessarilt to advance economic development of Zambia.

The Deputy Minister has argued that the money so obtained from the bond will be in the Bank of Zambia soon and will be used as part of the national budget. This appears to be one way of utilizing the money. However, this will introduce unnecessary political costs.

 

In other countries, governments appoint investment bankers and fund managers to invest the money in projects that have high returns. In other words, portfolio investments  is advanced to the private sector. And because of this, the investments so made are usually in speculative projects like commercial real estate development rather than in public goods such as roads and railways. Because of this speculative content of Portfolio Investment, such investment may tend to widen inequality between citizens.

 

It should also be pointed that portfolio investment made through investment bankers has other unacceptable behaviors. For instance,  the investment bankers have been known to create derivatives and other instruments which they trade on without the authority of the owners of such bonds. In a financial crisis, this behavior can be very devastating to the holders of the debt as we have experiences in Greece. In other words, the investment bankers tend to create difficulties which may for bond holders where there is insufficient management. This is the case in Milan, Italy where they are a subject of criminal investigation by authorities.

 

Furthermore, if this high value Euro Bond is not regulated by our government, it has the potential of increasing  macro economic instability. A collapse in speculative bubbles in stock markets can lead to a financial crisis and increase in poverty rates and income inequality.  Asset volatility can increase uncertainty, induce systemic instability and can therefore create vulnerability to the financial crisis and allow regressive capital flight from Zambia; Kwacha currency depreciation that will adversely affect export performance; debt service unsustainability and a return to pre HIPC syndrome where our country became vulnerable to a devastating debt overhang;    and asset price deflation.

 

Furthermore, Portfolio Investment  such as the Euro Bond can introduce constraints on policy autonomy in our country. The investors will usually forbid government from implementing an expansionally monetary policy which is the policy direction that works. They will oppose policies that result in reduction of interest rates as this will be seen to be abating or cohorting with the hated inflation. In other words, our government will not be allowed to enact laws or policies that restrict investor freedom

 

3.       The policy advice one can give is that, in general, the PF government has started well. The government must  as soon as possible  create a development vision by stating explicitly their industrial strategy, design policies in sectors and design performance targets and incentives. It will become apparent if this is considered, that, the government will need to create strategies that regulate capital inflows and outflows. Our country may consider advancing blunt restrictions on Portfolio Investment as is the case in China, India, Chile and others or introduce temporary controls as occurs in many countries that attempted to use global bonds such as the Euro Bond to develop their infrastructure. We must address our tax system  so that it influences the composition, and/or maturity structure of the portfolio investment so that we restrict capital flight and stop continued underdevelopment.

End.

Tuesday, September 11, 2012

Programs/ Projects Advocated by the Think Tank during the election campaign of the PF in the 2011 General Elections

Programs/ Projects Advocated by the Think Tank during the election campaign of the PF in the 2011 General Elections Desirous to support the election campaign of the Patriotic Front, a Think Tank outside the PF main stream organization, provided a framework of the campaign after analyzing the PF Manaifesto. Whereas the PF Manifesto was a Letter of Intent, the Think Tank actualized the desires contained in the manifesto into programs on which the public could reasonably evaluate the use value of the PF promises. The group of PF campaigners in the Think Tank comprised among others, Mr. Bob Sichinga, Dr. Mbita Chitala, Mr. Mike Mulongoti, Col. Panji Kaunda, Mr. Pius Mambo, Mr. Simusa and others. Presented below were the undertakings advocated by the Think Tank members on behalf of the PF campaign. Sector Objective Strategy Programs/Project as per PF Manifesto Comments/suggestions Administrative and sovereignty Central administration Capacities building in the public services Public sector restructuring - Provide in budget for fund to Start Constructing Houses for Civil Servants. - Raise salaries/improve conditions of service - Raise pension payments to minimum wage and peg rates to inflation 1. Professionalize Civil Service 2. Implement recommendations of Salaries Commission 3. Retire appointments based on nepotism PS, DC, Diplomats, Parastatals 4. Reintroduce civil service examinations and reintroduce merit appointments 5. Seek advice from other civil services such as India and the UK 6. Annul appointments based on nepotism in Civil Service, Police and other arms of government 7. Create new Ministry of Planning in the Presidents’ Office to coordinate Capital Budget Foreign Representation Improve the country’s image abroad and attract foreign investment Rehabilitating & building or purchasing of permanent chanceries & residences in a number of countries - Reduce/streamline foreign missions - Develop career diplomacy - De-nepotize appointments 1. Recall appointments based on nepotism. 2. Professionalize service Barotse Agreement 1964 Permanently resolve the question 1. Appoint a committee to draft government position within 30 days or appoint a Commission of Enquiry to advise government on the way forward 2. Negotiate with the Litunga and enter into a new agreement within 90 days - on lines of Tanganyika/Zanzib or right to self determination of Barotseland outside Zambia, or annulation of BA 64 and replace it with federalism as is in Mozambique and RSA or provide governance on lines of the Royal Bafokeng Nation in RSA. Anti Corruption 1. Reenact Art 37 of the ACC Act. 2. Zero Tollerance policy against corruption 3. Appoint tribunal to complete all plunder cases within three months 4. Re visit the Chiluba Case and appeal the London Judgement to the Supreme Court 5. Constitute a Task Force to investigate the Banda regime abuses Information Services Collect and disseminate information in the public interest Boost reception in rural areas, and insure availability of high quality and consistent production of print media - Enact Freedom of Information Act - Implement IBA and ZNBC Acts - Professionalize ZNBC on lines of BBC - Autonomy of Times of Zambia and Zambia Daily Mail 1. Repeal Statutory Instrument 111 to allow for liberalization in Telecoms 2. Increase funding to Zambia Information Services to enable them disseminate government information 3. Re Nationalize Zamtel Legal and Constitutional matters1 - Establish Committee of Experts to review all past recommendations and draft new constitution and subject this to referendum within 90 days - Establish office of public defender in each district to replace legal aid - Improve conditions of service - Rehabilitation of police , prisons and military camps 1. Complete drafting new constitution within 90 days 2. Conduct Referendum within 180 days 3. Birth of 3rd Republic within 180 days 4. Redeem judicial system by professionalizing it 5. Annul appointments based on nepotism Electoral Reforms - Enact a new electoral Act to provide for appointment of commissioners by Parliament, political party representation, registration of parties and funding of parties 1. Implement Electoral Reforms as advised by Electoral Advisory Committee and Mung’omba Constitutional Commission Law and Order Promote good governance Creating a society in which all citizens have opportunities to realize their full potential and to exist in dignity and harmony - Establish Constitutional Court, Resident Magistrate Courts at all Districts and Traditional courts. - Parliament to appoint tribunals - Improve conditions of service of the military, Police and other law enforcement agencies 1. Rehabilitate Homes of Army, Airforce, ZNS, Police and Prisons 2. Provide a fund for Home Ownership of officers 3. Revamp Police Service by ending appointments based on nepotism Defence and Security 1. Professionalize the wings Local Government & Regional Administration Improve the quality of life in both rural and urban areas Improving the quality of life in both rural & urban areas - Create new admin system of ward village councils, District Chiefs Councils and Provincial Chiefs Councils. - Resolve Barotse Agreement Question - Subsidize water, - create social housing scheme, - upgrade squatters, public works. - Increase funding to councils - Lusaka and Copperbelt road rehabilitation - Urban tram construction 1. New Agreement with Barotse Royal Establishment 2. Repeal the Local Government Act to provide Establishment of Provincial Governments and Assemblies 3. Capitalize Fire fighting Departments of all local councils 4. Constitution to create devolved on lines of system of government 5. Improve funding of Local Authorities and introduce system of Executive Mayors to be elected by rate payers Economic Sectors Finance and National Planning - Develop a Transitional Development Plan - Promote reduction of interest rates - Control inflation - Lower taxes to promote compliance - Lower PAYE - Exempt or zero rate VAT on food, transport, education/materials, agriculture inputs and medicines - Reduce VAT - Re negotiate with mines on a fair, equitable and enforceable tax regime - Reduce company tax - All loans to be ratified by parliament - Strive to be independent of foreign aid - Introduce Activity Based Budgeting - Dismantle domestic debt - Increase budget to social sector , infrastructure and empowerment funds 1. Abolish discretionary tax holidays 2. Reduce Company Tax and PAYE 3. Abolish nuisance levies such as TV levy, Commodity Levies by Councils 4. Broaden Tax Base by abolishing tax holidays, stop capital flight thru capital controls, abolish transfer pricing introduce progressive VAT, introduce taxes on financial speculation – forex, stock transfers,short term capital flows 5. Reduce rates of presumptive tax, turnover taxes, withholding tax on rentals, taxation of marketeers and small scale traders 6. Reduce and or abolish some charges imposed by central authorities such as ZICTA,ERB, PACRA, ECZ, ZAWA, Road Traffic Authority, Immigration, Zambia Bureau of Standards,, Tourism Licences 7. Reduce taxes on Petroleum and Electricity 8. Policy of joint venture ownership on basis of 70% Zambian and 30% foreign. 9. Ensure all forex earnings are banked and reported in Zambian banks. 10. Kwacha to be convertible on current account transactions only as is in India and China & Taiwan. 11. Transform ZCCM-IH into an active investor. 12. Create a sovereign fund from excess earnings on metals. 13. Re introduce BOZ Management of interest rates 14. Re introduce BOZ management of Exchange rates by way of currency pegs and capital controls 15. Ensure BOZ is imbedded and politically accountable to promote growth, employment and social welfare. 16. Enact a Budget Act 17. Expenditure policy to be expansionary on industry, agriculture, infrastructure and social programs. 18. Introduce Zero Based Budgeting 19. Exit from External Dependency on donors 20. Establish Public Debt Commission 21. Re Nationalize ZANACO as a strategic national asset or create another national bank . Agriculture Promote development of small & large scale commercial Promoting smallholder productivity, improving rural infrastructure, rehabilitating feeder roads, promoting cooperatives - Subsidize agriculture. - Land tenure security in rural areas. - Livestock restocking - Disease control, tsetse fly eradication. - Water provision - Agriculture commercialization 1. Settle more than K1.2 Trillion to Bank s borrowed in2010 2. Purchase 2011 Crop 3. Insure disposal of or Sale of FRA 2010 Reserves 4. Capitalize Lima Bank as a national strategic farmers bank 5. Restock Cattle in all provinces. 6. Develop outgrower scheme. 7. Increase Farmer Support pack by providing 4 and 4 and ensure community accountability Commerce, Trade & Industry Boost the development & competitiveness in the manufacturing industry Amending the customs and excise duty - Establish fund for Small Businesses. - Establish special industrial zones, parks - Establish Industrial Development Commission. On lines of INDECO - Enact legislation to protect Zambian entreprenuers - Re capitalization of NCZ 1. Establish a Small Business Bank 2. subsidize interest rates 3. Steam line Empowerment Commission to be focus for indigenous capital formation 4. Reduce tax on capital items used in manufacturing 5. Enforce Citizen Empowerment Act 6. Foreign Investment via joint venture with Zambians only 7. Stream line Indeco Properties Ltd and ZIMCO properties Ltd and incorporate a new Industrial development parastatal as investment wing of the state Energy Promote optimum supply & utilization of energy with emphasis on indigenous forms while maintaining a safe & healthy environment Rehabilitating the major energy infrastructure promoting rural electrification, and promoting the wider use and dissemination of renewable energy technologies - Scale up hydro power construction. - Promote solar, bio-fuels, wind - Expand rural electrification. - Rehabilitate Indeni, TAZAMA pipeline, - Lower petroleum taxes - Unbundle ZESCO - Promote oil, gas exploration 1. Invest in Hydro Power – complete Kariba expansion, Lower Kafue and Itezhi Tezhi aswell as Kalungwishi etc 2. Unbundle ZESCO 3. Let Local Councils to retail electricity 4. Reduce electricity rates 5. Reduce petroleum rates Environment & Natural Resources Manage & utilize resources in a sustainable manner Improve the quality of life in both rural and urban areas, insuring people’s participation - Control deforestation - Bee keeping Development 1. Set up waste disposal authorities in councils and empower them 2. Recapitalize ZAFFICO to expand plantations 3. No foreign ownership of Land except as joint venture with Zambians Mining Attract investment for the development of both large and small scale mining Producing geo-science maps of the country, privatizing state owned mining companies, providing information on availability & uses of agro, industrial and building minerals - Create fund for Zambian miners. - Establish center for marketing minerals. - Create a plant hire scheme - Equitable and fair taxation of mines – consider windfall taxes 1. Reenact new and fair mining tax to allow for windfall taxes. 2. Enact new Mining Tax code to allow for windfall taxes and other royalties. 3. Abolish Development Agreements 4. Implement policy of joint ownership of all mines with at least majority Zambian interest- 70/30 % 5. Convert at least 40% of annual copper production into finished products in Zambia. 6. Establish Mining Council of Zambia as a Think Tank 7. Establish a Sovereign Fund from excess earnings on metals 8. Transform ZCCM-IH into active investor 9. Mining companies to be required to house workers and invest in social welfare. Tourism Facilitate, co-ordinate & support the country’s tourism development Improving the infrastructure - Employ village scouts - Establish community funds - Infrastructure development - Establish Tourism Development Fund 1. Establish a revolving Tourism Fund for citizens Transport & Communication Improve existing infrastructure& develop new ones Rehabilitating& maintaining existing infrastructure, constructing new facilities - Road construction - Bridge construction to replace pontoons - Create maintenance camps - Ring roads for cities - Re negotiate concession on Zambia Railways and invest in railways on PPP basis - National airline on PPP basis - Construct airports, harbours and canals - Establish District Works Departments - Establish fund for Zambian contractors 1. Repeal SI 111 of 2010 to liberalize telecoms 2. Set up system for Toll roads 3. Construct at least one major road per province within three years 4. Construct railway to North Western Province, spur from Nseluka to Mpulungu, Chipata to Mpika 5. Establish national airline 6. Nationalize Zamtel as a strategic industry Social Sector Education Increase access to and improve quality & relevance of education at all levels Rehabilitating & expanding infrastructure, constructing new ones where necessary - Construct nurseries in all wards. - Free and compulsory education from grade 1 to 12. - Raise education budget from 18% to 23%. - Re introduce apprenticeship system. - Construct institutional houses - Raise salaries of staff to regional levels. - Mortgages and loans for teachers - Construct at least one university per province - Provide bursaries to all students in tertiary tied to future repayment 1. Introduce massive country wide adult literacy campaign to ensure illiteracy is more than halved within three years 2. Employ new teachers including retirees Health and Nutrition Improve access to and quality of health services for all Rehabilitating health institutions, controlling epidemics and chronic diseases, providing drugs and medical equipment/supplies - Raise budget allocation to 15%. - Abolish user fees - Rehabilitate all hospitals - Establish ICU s In all hospitals - Improve conditions of service - Expand training facilities - Ensure medicine availability - Enact new law to fill vacuum left by repeal of NHS Act 2005 - Reduction of HIV/AIDS infections 1. Rehabilitate all hospitals 2. Hire new staff including retirees to man hospitals and clinics 3. Establish a social safety scheme for vulnerable such as lactating mothers, invalids 4. Free anti retrovirals and other essential drugs Community Development & Social Welfare Improve the quality of life of the poor and vulnerable Promote entrepreneurial development and income generation - Increase funding to ZAD - Free govt. services to all disabled - Subsidize and provide grants to vulnerable, welfare centers, libraries - Conduct a nationwide adult literacy campaign 1. Establish a Social Safety Fund for poor people 2. Conduct a National Literacy Campaign to reduce Illiteracy from 60% to 20% in three years Employment & Welfare Institute measures that will mitigate poverty Providing safety nets for the retrenched and youths, improving conditions of service and health schemes for employees - Abolish casualization of labour - Create law on out sourcing services - Reestablish Labour Department to maintain register of skills - Pay all retirees within 24 months - Re adjust pension to inflation - Create employment opportunities (6 million Zambians un/and underemployed as only 500,000 in formal sector). 1. Create Public Works program 2. Implement a Zambia National Service scheme for all school leavers 3. Create 2 million job opportunities in 3 years Housing & Resettlement and Land Facilitate the provision of housing for ownership, establish resettlement schemes in all provinces Supporting institutions which provide low cost housing, developing necessary infrastructure in resettlement schemes - Create National Housing Fund to support councils and central government construct houses. - Establish land audit commission - Establish Ground Rent Tribunal - Regularize ownership of all untitled land - Provide for security of land tenure in rural areas 1. Rezone land to ensure cities and towns access land for housing development 2. Construct more than 2 million houses in five years 3. Land for Zambians Foreign ownership by way of joint venture with Zambians only Science & Technology Improve vocational and technical education Rehabilitating existing infrastructure, providing modern equipment, developing relevant training materials, retaining technical & professional staff - Revamp NSIR - Revamp and re-equip training and research institutes 1. Set up Centres of Excellence 2. Rehabilitate UNZA, CBU and all Colleges 3. Set up a University in each Province Youth, Sport & Child Development Provide the services in the areas of youth, sport and child Providing sporting infrastructure, improving service delivery in the youth training and production centers, improving child welfare - All school leavers to have access to vocational training - Introduce apprenticeship - Construct District Training centers in all districts - Establish a Youth Fund - Gender affirmative action - Establish National Arts and Cultural Centers at District, Provincial and National levels - Provide law for protection of property rights - Allocate in budget funds for construction of sports facilities - Lower tax on sports manufacturers - Introduce sports scholarships 1. Construct sports stadia in all districts 2. Introduce National Service for school leavers and young people Water Supply & Sanitation Improve water supply and sanitation facilities Rehabilitating and maintaining existing water & sanitation facilities - Rehabilitation of water supply and sanitation systems in all districts - Procurement of plant and equipment for dam construction - Development of ground water 1. Reduce water levies charged by corporations 2. Construct public toilets in all districts 3. Provide land for burials and disposals in all districts Church and NGOs - Church and state to be mutually inter dependent - Promote civil dialogue 1. Secularity of the state to be upheld in terms of citizens rights and freedoms

Tuesday, July 17, 2012

HOW TO CREATE JOBS IN ZAMBIA

By Dr. Mbita CHITALA – Executive Director- Zambia Research Foundation;
 www.mbitachitala.blogspot.com; 0976 030398; mbitachitala@yahoo.co.uk

It appears that it is only now that everybody has realized that the unacceptable unemployment and underemployment in our country Zambia must be addressed before our country is destabilized. The IMF and the ILO on May 21-22, 2012 held a National Conference “Towards a New Growth Strategy for Employment, Decent Work and Development in Zambia” where they continued feeling sorry for Zambia without offering any tangible programmatic advice.

The African Development Bank on 9 July 2012 also hosted a “High Level Policy Dialogue Seminar on Youth Employment“ in Lusaka where many Cabinet Ministers from our country and others from Angola, Madagascar, Malawi, Mozambique and Mauritius attended. Prof. Mthuli Ncube, the Vice President of the African Development Bank (AfDB) warned the participants that “Youth unemployment has become a potential source of social, economic and political instability of nations.

Today’s young people face a real and increasing difficulty in finding decent work. This was evident in the last two years, with youth-led movements from Africa to Europe calling for social justice, freedom and jobs.” Addressing the delegates, the Zambian minister of Finance, Alexander Chikwanda said, “Youth Unemployment is a ticking time bomb for all of us.” He added, “We need to create a healthy workforce with the right skills to meet the challenges of a modern economy, this can be achieved by encouraging productivity and entrepreneurship. This will require the joint efforts and solidarity of both the public and private sectors. As government, we need to provide the necessary governance and accountability, as well as building the credibility of the State.”

The Zambian minister for information, broadcasting and labour, Fackson Shamenda, concurred, “There is a lack of co-ordination in our efforts to address the issue of youth unemployment. We need to find appropriate mechanisms to better co-ordinate our programs if we are to achieve our goals.”

These cries continue to be made by many of our citizens with a hope that someone will come up with a program to address the crisis. Poverty It has been an evident fact for many years that poverty, unemployment and underemployment continue to present major challenges for the Zambia. Our country’s GDP growth rate in 2010 was 7.6 per cent, projected to be 6.8 and 7.7 per cent respectively in 2011 and 2012. With increase in copper prices and hence exports, the current account deficit has narrowed to less than 2 per cent of GDP.

The above notwithstanding, growth has not been translated into meaningful human development. Widespread poverty, unemployment and underemployment still ravage our people. Poverty is particularly widespread in rural areas, where over 80 per cent of the population live below the poverty line, compared to 34 per cent in urban areas. Poverty, especially in rural areas, is characterized by high vulnerability to shocks that often erode development gains or exacerbate existing poverty.

The most recent Living Conditions Measurement Survey indicates that 64 per cent of all Zambians live below the poverty line. Half of these cannot afford the basic minimum food requirement and are, therefore, classified as extremely poor. Life expectancy at birth in Zambia remains low at 47.3 years, Adult Literacy rate of 15 year olds and above is 71.4% and Zambia’s HDI rank for 2011 was 150 out of 169 countries.

Why should there be so much poverty and suffering amidst so much wealth? What should be done is the necessary question for all policy makers to address to eradicate this poverty. And it starts with achieving full employment of our people. Unemployment The formal sector in our country has been steadily diminishing as the main source of employment in Zambia since 1992 when our country conducted a thoughtless privatization. As a percentage of the total labour force, formal sector employment has been declining over the years from 75 percent in 1975 to 10.3 percent in 1999 according to the report by the CSO, (Selected Socio-economic Indicators, 1999).

In addition to the parastatal demise and downsizing of the public service forced on Zambia by the Breton Woods Institutions and the Paris Club creditors, many jobs were destroyed. From a peak of almost 900,000 formal employment in Zambia before privatization, the country’s formal employment went downwards towards 350,000 after privatization. The destruction of jobs in the Mining Industry was particularly symptomatic of the crisis.

A study by ODI in 2009 observed as follows: “There is some homogeneity in the response of the mining companies to the crisis. The mines have closed mining units, laid off workers, reduced the scope of work done by mining contractors and suspended contract labour and recruitment. In addition, mines have suspended overtime work, renegotiated supply contracts so as to reduce supplier prices, deferred payments to suppliers and contractors and deferred exploration and non-essential capital expenditures. Mopani Copper Mines has …reduced the scope of work for contractors by 40% and the use of contractors’ labour by 30%, and has suspended hire contracts and recruitments. The mine expects to lay off 215 workers at Nkana and 467 workers at Mufulira during 2009. Konkola Copper Mines has reduced expatriate staff by 18%. It has laid off workers. Total job losses at Konkola Copper Mines in 2008 could be estimated at 6667 workers. Chambeshi Metals closed down Luanshya copper mines, with 1719 workers laid off. The Chambeshi smelter was closed, and 240 workers and 267 contract workers lost their jobs. First Quantum Minerals has renegotiated its supply contracts. It has deferred other non-essential exploration and capital expenditure programmes and has reduced working hours from 12 hours to eight hours per shift, with 70 workers laid off. (Excerpts from ODI. 2009. Global Financial Crisis Discussion Series Paper 10: Zambia )

Since the end of privatization, getting employed in the formal economy has continued to elude many Zambians. Our streets are full of many educated and skilled Zambians who have chosen to be part of the lumpen working class or reverted to backward subsistence farming. In aggregate terms, according to the Central Statistics Office (CSO) Census of Population and Housing (2000), the number of persons engaged in informal sector activities in 2008 was approximately 3.6 million, which, as a percentage of the total labour force stood at about 79 percent. Figures from the Labour Force Survey of 2008, with the reference period being 2006 indicate that of the 5,410,619 people in the labour force, only about 522,176 were in formal employment, with the rest unemployed or having to eke out a living in the informal economy.

 In 2009, the Employment and Earnings Inquiry Report published by the CSO estimated that Zambia had 671,246 workers in the formal sector. Of these, 66% were employed in the private sector (442,378 workers), 21% or 139,234 in Central Government, 5% in Local Government and about 8% in parastatal companies. On average, it would appear that out of the total working population of about 7 million in our country’s total population of 13.5 million, only about 650,000 Zambians are in formal employment and the rest about 6,350,000 in informal operations.

However, using the narrow international definition followed by the ILO, unemployment in Zambia has been established to be at 13% . However, recognizing that many people have been out of work for so long that they have stopped looking for jobs, broad unemployment must be higher. With the decline in formal sector employment, the informal sector has become the principal source of employment and livelihood for most Zambians. This is a sector where people survive under the doctrine “One for oneself and God for us all”. It is a sector in the towns of lumpen elements, crooks, prostitutes, vagabonds, all that mass of humanity hovering between suicide and insanity. In the rural areas, they are essentially subsistence cultivators often dependent on state aid to make them survive just sufficiently.

It is evident that for the rural people to progress from their torturous lives and enter the civilized world, they must transcend their peasant existence and be farmers or workers in the formal economy. Similarly, the lumpen elements in the towns must be facilitated to get formal jobs or be enabled to be small entrepreneurs.

Youth Unemployment

As concerns young people who every policy maker appears to be afraid of, and who comprise the future of Zambia, the Central Statistics Office reported that unemployment is a more serious problem in the young age groups of 12.-14 (19.9 percent); 15-19 (22.6 percent); 20-24 (20.8 percent) and the 25-29 (13.9 percent). The peak is in the age-groups 15- 24. Given that young people (under 25 years) in Zambia comprise about 63 percent (roughly 6 million) of the total population, youth unemployment must be a special concern for Zambian policy makers. In fact, every year, over 240,000 school leavers are entering the labour market without hope of finding a job.

Incidentally, youth unemployment in Zambia highly correlates with poverty since our country has no social (unemployment) benefit system that would otherwise cushion the youth from deprivation due to unemployment. Indeed, crime and other forms of juvenile delinquency can be traced to unemployment-related deprivations.

Youth unemployment should therefore be a matter of special concern to the PF government and all those political parties that want to form government to address. The PF won the 2011 elections on the promise to deal decisively with this youth unemployment and it is important they actualize their program urgently.

Employment analysts have argued that the Zambian economy must generate more than 400,000 new jobs in net terms per year to ensure that the unemployment rate does not rise. To absorb new entrants into the labour market, the economy should generate more than 600,000 net new jobs per annum. This is the challenge that the PF government must address. This is also the challenge of all political entities that want to rule us to provide answers to.

Without doubt, it is only by creating jobs for people that a country can meaningfully eradicate poverty. In developed democracies, this is the litmus taste for an efficient and effective governance system on which political parties contest for power.

The battle of ideas is between neo-liberals who advocate for monetarist programs of austerity and perfect markets and the supply siders who advocate growth and creative state intervention. History is on the side of the later as the current global financial crisis attests.

Existing Policy Framework on Employment The official policy document on employment in Zambia is the National Labour Market and Employment Policy which was developed by the Ministry of Labour and Social Security and some stakeholders many years ago in 2000. The policy document identified policy areas for improving the functioning of the Labour market and promoting employment. The main strength of the policy document was its recognition of the need for a coordinated approach to employment promotion. The policy suggested an institutional framework for coordinating and implementing a national labour market and employment policy. The policy was however a still borne document as it died as soon as it was drafted and no attempt to put it in practice has ever been made. The policy remains unimplemented largely on account lack of political will and financial constraints.

A related policy document that broadly dealt with employment were the Poverty Reduction Strategy Papers (PRSP). However, a major weakness of the PRSPs was that they had in themselves no strong foundation of employment-targeted programs. At best, employment was treated as a sector issue, linked to programs of agriculture, tourism, industry, mining, transport, roads, energy, water, environment, HIV/AIDS, education and health. Employment promotion in the PRSP was not assigned a major role as a means of improving access to income and lowering poverty rates. Rather, it was regarded as a by product of sector policies - which sector policies could not address the challenge of employment by themselves.

Without addressing employment creation the PRSPs were doomed to fail in poverty eradication. They continued the neo liberal structural failures we have witnessed for many years which have prevented our country from making a meaningful take off.

The PRSPs also failed to adequately analyze the dynamics of the informal economy or present a well-orchestrated approach to poverty reduction for working people in informal employment. It is hoped the PF government will soon come up with a more realistic developmental program to address employment creation.

The provision of employment for Zambians is also articulated in a number of policy documents, including the following:- . The Vision 2030 of becoming a prosperous middle-income nation by 2030; Zambia Decent Work Country Programme (Z-DWCP), 2007 – 2011 and 2012-2015; . The Sixth National Development Plan (SNDP, 2011-2015), as well as its predecessor – the Fifth National Development Plan (FNDP, 2007-2010); The Private Sector Development (PSD) Reform Programme; and The Micro and Small Enterprise Development (MSME) Policy. It is not known whether these policies are part of the PF government’s programs as their implementation is yet to take root. It would be useful if the PF government could make a categorical statement on their attitude towards these policy documents, so that, if need be, new documents which are consistent with their manifesto provisions are prepared.

What is consensually agreed by all Zambians is that employment opportunities must be created and this require supporting infrastructure to be established. What Should be Done? As inferred in this article, it appears employment creation has been relegated to the margins of economic policy and yet it is supposed to be the basis on what any progressive macroeconomic policy is anchored on. The thrust of a limited number of employment initiatives has been through the implied benefits of economic growth.

The assumption that high GDP growth has resulted in job creation, has not been so for Zambia. There is growing evidence of jobless growth in Zambia which challenges the wisdom of relegating employment to the margins of economic policy. That is why there is a compelling reason to change our attitude of lassie faire and adopt a more direct and integrated approach to employment promotion is necessary.

Our Government is advised to adopt a direct approach to employment promotion by designing and implementing an Employment Strategy that is anchored in a workable National Economic Plan. This strategy shall guide the nation on job creation in the short, medium and long-term and provide for an institutional mechanism for coordinating and linking macro, micro and all sector strategies and programs on employment. It would be patriotic and progressive that the Hon AB Chikwanda, Minister of Finance convinces his colleagues to ensure that in his 2012/13 fiscal budget estimates, employment creation is placed at the center of the macroeconomic framework, and not as a residual of it. In this way, an employment strategy will become one of the most potent tools for fighting poverty.

Policy analysts and observers have shown that in addition to the constitution and good governance, the other urgent challenges of the PF government is to create 600,000 net new jobs per annum; to raise the proportion of the labour force in the formal sector employment to 50% by 2015; to reduce the official unemployment rate from 13% to 7% by 2015 and also raise labour force participation rate. In the literature, countries that faced such difficulties as Zambia currently faces, introduced employment creation programs.

The earliest job creation programs were conducted in the United States and Germany.
United States:
The first large scale job creation programs in the United States were introduced as part of the New Deal during the Great Depression. Departments like the Civil Works Administration, Public Works Administration, Civilian Conservation Corps, , and most prominently the Works Progress Administration created thousands of jobs for the unemployed.

In 2011 President Barak Obama, in an opening bid for re-election discussed using innovation economics as the basis for his jobs creation program.

Germany:
Although Adolf Hitler in the early 1930s saw the construction of autobahns primarily as a military advantage, construction of the Autobahn system provided employment for the masses affected by the crisis of the Weimar Republic The construction of the Autobahn had a side benefit of creating a new tourist industry.

For our country, we certainly must come up with a job creation program that is effectively and efficiently managed. The following programmatic suggestions are made;
1. The Rural Roads Program could be expanded and must involve maintenance of feeder roads along the lines of the PUSH project;
2. The Clean Towns Project which could be introduced and this could involve painting public buildings and city clean-ups and create more than 5,000 net new urban jobs by 2015;
3. Promoting micro and small enterprises in the informal economy consistent with Article 20 of the PF Manifesto which is very clear on this. Alll that is needed is plain implementation. The fact that the informal economy has become such a sizeable place of work should make it a special target for actions to reduce poverty. In this regard, special attention could be paid to the following: . Coordinating efforts that offer assistance to micro and small enterprises. Within this context,
- access of small entrepreneurs to credit and to land resources should be facilitated through cooperation between government and the private sector. There is no justifiable reason to suspend the work of the Citizen Empowerment Commission. To the contrary, if Managers have been found wanting by the PF government, they should allow the normal course of Law to visit the accused. There is no justification to close the institution as the case is now. Zambia suffers opportunity costs. . - Providing financial support for technical training, business development, and credit access programmes institutions involved in Small Scale Enterprise promotion. It is important for the government to create an institution on the lines of the repealed Small Industries Organization which during its heydays was phenonmenal in supporting entrepreneurs .The current system where the ZDA took over the work of SIDO/SEDB and has marginalized SSMEs development and promotion was a disservice to Zambia’s efforts to promote industrialization programs.
- Registor and mentor 1,000 small enterprises and train more than 5,000 entrepreneurs in business and technical skills.
-  Building more industrial estates and premises for small enterprise manufacturing and trading. The formation of more industrial estates such as the Chinika complex and Makeni Complex in Lusaka can help realize this in an organized way.
  4 Supporting agriculture and rural development strategies to create 20,000 net new jobs for rural people and that more than 500,000 small farmers are organized in out grower schemes by 2015: within this, special attention should be paid to:
. The building of feeder roads, bridges and communication networks using labour-intensive methods. . Construction of residential houses (3 million national deficit) and public buildings- introduce government guaranteed social housing scheme to lacal councils as advocated by Art. 4 of the PF Manifesto.
. Land reform and extension services
. Construction of dams and irrigation facilities using the Rural Investment Fund.
  . Supervised agriculture (e.g. out grower schemes) which must be undertaken using labour-intensive methods.
  . Setting up community level organizations (or cooperatives) in order to facilitate the supply of inputs and access to finance, marketing, extension and veterinary services.
. Establishing more Integrated Resource Management Projects using village action groups along the lines of the Luangwa Integrated Development Project. .
  . Use of village- level processing technologies for various oil seeds such as sunflower, castor and groundnuts and the setting up of agro processing industries in rural areas.
- Ensure that the proportion of workforce employed in non-agricultural industries is raised from 20% in 2009 to 65% in 2015
. Setting up of lapidary facilities in the small-scalegemestone mining areas and create 1,000 job opportunities.
  - Tax the Mining companies equitably and fairly by re introducing windfall taxation
  - Implement the Zambianization Policy to ensure that unless the skill is not available in Zambia, all employment shall be performed by Zambians.
5. Preserving jobs in the private sector by means of revising the tax regime and maintaining a constant monitoring of trade-offs in policy in order to ensure that no objective is achieved at the significant expense of another. Criminalizing the minimum wage as Statutory Instrument 35 signed by the Hon. Minister would appear to be inconsistent with advancing job creation and should therefore should be cancelled.
6. To strengthen the employability of labour, special attention should be paid to:
  - Strengthening the availability of skills by supporting a substantial increase in private sector expenditure on training, augmenting skills and infrastructural development through an Infrastructure and Employment Investment Programme and by improving the interface between labour market needs and the education system.
- Improving the functioning of the labour market by establishing a Labor Market Information System (LMIS). A data base for the labour market must be established.
- Youth employment and skills development; The announcement by Minister Kambwili that the government plans in 2013 to introduce a compulsory six months youth national service skills development program will go a long way in supporting this initiative. The currently underutilized infrastructure in the Zambia National Service (ZNS) provides a ready avenue for both short term mopping up measures as well as long-term skills training initiatives. More than 250,000 School Leavers can be given skills at the Zambia National Service every year.
  - Introducing a youth learner ship wage and a youth training subsidy for companies providing youth apprenticeship programmes and on-the -job training. There can be 100,000 young people receiving private sector on- the –job training every year by 2015and have a minimum of 150,000 youth on the TEVETA managed apprenticeships every year. This is consistent with Art. 9 of the PF Manifesto which provides for the government to collaborate with industry to provide learner ship/apprenticeship practical training.

The Challenge The most famous equation in physics is Einsteins’s E = MC squared. The equivalent for macroeconomis is GDP = C + I + G + NX (or X – M) where, C represents personal consumption on goods and services; I denote investment and refers to new business investment in both public and private sectors; G denotes government budget (i.e. revenue less expenditure); and NX denotes net exports.

According to many observers including our own Dambisa Moyo in her book “How the West Was Lost (2011)”, it is the process of managing those indicators that makes a difference in any country. A country must strive to deal with consumption by increasing savings which in turn will impact on increased industrial production and increased exports while at the same time, there is assurance that the government fiscal position ensures that any deficit can be financed.

An industrial policy aimed at providing supportive measures to promote sustainable enterprises is a historical necessity. The fact that in Zambia’s 1998 GDP which has not changed substantially ever since comprised consumption about 88%, investment constituted about 14.4% , government net revenue constituted about negative -6.6% and net exports constitutes negative -9.0% should make policy makers worried that their GDP is skewed towards consumption at the expense of production. There is need to change this so that net exports and investment take a bigger share in the GDP equation. The average United States GDP comprises for instance of about 70% consumption, investment of 15%, net government revenue of 15% and net exports of 5%. This is the norm in many rich and middle income countries.

So far, our country has been failing to address successfully the unemployment crisis. We agree with Daron Acemoglu and James Robinsom (2012) in their recent book “Why Nations Fail” that “nations fail because their extractive institutions do not create the incentives needed for people to save, invest and innovate.” Pp372 It is also true as Greg Mills in his insightful book “Why Africa is Poor” (2010) that Zambia is poor because its leaders make this choice. Zambia is not poor because it has been denied the market and financial means to compete, that it has no technical expertise, that Zambians are lazy, that Zambia lacks natural resources, that Zambia has no private sector, that Zambia’s population density is too low, that the land holding structure impedes entrepreneurship and that Zambia’s governance structures are weak. All these reasons are neither here or there. Our country is poor because those who have had power to rule over us made choices that condemned us to continued poverty.

As Zambia is part of the global village, we can learn a lot from the experience of other countries that have implemented employment creation programs. As noted in this essay, Job Creation Programs are undertaken by a government of a nation to assist unemployed members of the population in securing employment.

A cornerstone of Keynesian economics, job creation programs are especially common during times of high unemployment as is the case in Zambia presently. They may either concentrate on macroeconomic policy in order to increase the supply of jobs, or create more efficient means to pair employment seekers with their prospective employers. In the appendix, we have presented case studies of several countries that have successfully implemented job creation programs.

In 1933, John Maynard Keynes (1883-1946) published “The Means of Prosperity” in which he argued that unemployment could be reduced by counter cyclical public spending when an economy is down. This contradicted the classical treatment of unemployment to let wages go down until the demand for labour caught up with supply and to cut back on spending to compensate for the fall in tax receipts. Keynes believed, as many of policy makers do, that these policies were mistaken. Governments must intervene by spending money in public projects like roads and so on. And this is the theoretical premise on which job creation programs are anchored.

The best advice to our policy makers in Zambia is to adopt growth policies and abandon austerity programs that have not seen us make any meaningful headway against poverty eradication since we adopted structural adjustment programs. END

Appendix: Global Examples of Job Creation Programs

In this last section,we to present as an appendix a summary of studies conducted by other researchers. I am particulary indebted the study by Stephen Devereux and Colette Solomon Employment creation programmes: The international experience, Economic and Labour Market Analysis Department, International Labour Office, Geneva,August 2006. A summary of their cross country survey is presented in the following analysis. Even as the following is discussed and recommended for Zambia to consider adopting, it should be noted that, while the experiences of other countries with employment creation programmes is instructive and informative, each programme is designed and implemented in a particular context, and the impacts of each programme are highly context-specific. There is no guarantee that a programme that was successful (or unsuccessful) in Argentina or South Africa will succeed (or fail) elsewhere. Any lessons (or ‘non-lessons’) that are drawn for employment creation programmes from this cross-country review must therefore be drawn with caution, and carefully adapted to various diverse local circumstances between and even within countries.

One useful ‘lesson on lesson learning’ from South Africa is that successful experiences can be replicated across provinces, but that mechanisms for sharing and learning these lessons should be integrated into programme design. It is equally important to build in mechanisms for learning from mistakes and approaches that fail to achieve the intended objectives: ‘learning from failure’ is as important as ‘learning from success’.
Argentina:
The Government has formulated a Social Emergency Programme, one component of which is the Jefes y Jefas de Hogar workfare programme which started in 2001. The Programa Jefes had reached around 2 million beneficiaries by the end of 2003, providing them with about US $160 per month in exchange for work in community projects or training. The transfer amount was set low enough to target poor people and also not to discourage them from seeking more permanent jobs. The Programa Jefes was intended for unemployed household heads who have children at home. The design and implementation of Jefes builds on the success of its predecessor, the Trabajar programme. Targeted at the poor unemployed, Trabajar provided wages to beneficiaries in return for their work on small infrastructure projects proposed by local governments and NGOs. It was carried out over a period of six years, from 1997 to 2002, across all of Argentina’s 23 provinces.

The Labour Emergency Programme (PEL), started in 2001, provides temporary employment and vocational training to the unemployed, through projects that either create employment or affect employment creation. It contains a sub-programme for Community Development, which aims at creating productive employment for vulnerable women, especially heads of households. Activities specifically include those which are not traditionally performed by women, such as bricklaying, building and carpentry.
Bangladesh:
While the long-standing Food-For-Work (FFW) programme is the main employment creation programme in Bangladesh, the Rural Maintenance Programme (RMP) provides an interesting contrast and raises important considerations. The FFW programme is an umbrella of different projects which is implemented by several ministries with donor assistance. Donor support to the programme has been declining and, of the total foodgrains allocated under the programme in1999/00, about 60 per cent was provided by the Government. Since 1975, the FFW programme has created both food-waged employment to landless and marginal farmers during the slackagricultural season, as well as land infrastructure such as rural road construction and maintenance, irrigation channels, flood control and embankments.

 In addition, the FFW Programme has had long-term development impacts such as improved nutrition and increased agricultural production. The RMP is a relatively small cash-based project run jointly by CARE Bangladesh and the Local Government Engineering Department (LGED). Poor women are given year-round work, such as the maintenance of rural earthen roads. Work has been undertaken on 75 per cent of such roads in the country. An average of 60,000 destitute women per year have been supported by the programme.

The RMP is funded with the proceeds of Canadian wheat monetized at the port of entry. While the FFW programme has clearly had demonstrable positive impacts on food security, the RMP programme has a zero leakage rate and is more cost-effective than FFW, because commodity handling costs are greatly reduced.

The RMP has also had important long-term developmental impacts, both economic and social. For one thing, introducing bank accounts for poor women has facilitated their savings behaviour and provided them with access to formal financial institutions, which they would not otherwise have had. Secondly, women have also been given an opportunity to negotiate and self-manage infrastructure maintenance activities. Thirdly, in 1992 RMP began a phased approach which allowed women to stay in the programme for four years, after which they are expected to ‘graduate’ out of RMP into self-supporting income-generating activities.

India:
Employment Guarantee Scheme of Maharashtra (EGS): The EGS was introduced in 1972/73, when the State of Maharashtra faced an acute drought. It was given statutory status in 1979. The EGS Act provides that any adult person in rural Maharashtra has a right to work as an unskilled manual labourer, provided they register at the local level as a person seeking work. The State must provide work within 15 days of being demanded. The permissible works are rural, especially agricultural, infrastructure (which includes minor irrigation works), soil conservation, afforestation, de-silting of tanks, stone-cutting and road construction and maintenance. Wages are paid at piece rates and, while initially lower than market wages, in 1985 a Minimum Wage Act was passed to regulate EGS wages.

Financing for the EGS is raised from additional taxes imposed on citizens of Maharashtra by the State administration, which are paid mainly by the urban professional classes. Jawahar Rojgar Yojana (JRY): Launched in 1989 by merging two operational programmes, the National Rural Employment Programme (NREP) and the Rural Landless Employment Guarantee Programme (RLEGP), JRY was the biggest employment programme ever sponsored by the Government of India. A centrally sponsored scheme, like its predecessors, 80 per cent of JRY funding came from central government. An important and novel innovation is that 80 per cent of the combined central and state budgets for JRY were released directly to the Village Panchayat, to be utilised for village works, with the remaining 20 per cent being spent by the District Rural Development Agency (DRDA). This devolution of power and funds to the village level was considered a bold initiative.The primary objective of JRY was the generation of gainful employment for rural unemployed and under-employed men and women living below the poverty line. The secondary objective was to create a base for sustainable employment by improving rural economic infrastructure, and creating direct community and social assets for the poor, particularly scheduled castes and scheduled tribes. There was a stipulation that 30 per cent of employment opportunities should be given to women. JRY was initially dispersed throughout India, without any specific focus on ‘backward areas’ until late 1993, when it started to concentrate on ‘backward districts’.The JRY has been restructured and renamed, and is no longer an employment creation programme, but a rural infrastructure development programme.

Under the Jawahar Gram Samridhi Yojana (JGSY), as it is now called, each Gram Panchayat has the responsibility of preparing an annual action plan for taking up works, according to the felt needs of the people. The stipulation that 60 per cent of the budget be allocated to wages and no more than 40 per cent to materials is no longer operative. However, the types of works that are taken up at the village-level are inevitably labour-intensive.

The Employment Assurance Scheme (EAS): Broadly modelled on the Maharashtra Employment Guarantee Scheme, the EAS was launched in 1993/94 in 1,772 identified backward blocks located in drought-prone, desert, tribal and hill areas. EAS outlay in 1994/95 was Rs.8.5 million per block.The primary objective of this programme was the creation of additional wage employment in lean seasons. The secondary objective was the creation of durable economic and social assets. There per cent on minor irrigation, 20 per cent on rural roads and 20 per cent on construction of school and pre-school buildings (anganwadis).

EAS was restructured in April 1999. It is a single wageemployment programme and is no longer demand-driven. Fixed annual outlays are made for each state. These are based on the incidence of poverty, with the poorer states receiving relatively more funds. Allocations are based on an ‘index of backwardness’, which gives 50 per cent weight to the inverse of agricultural productivity and 50 per cent to the proportion of scheduled castes and scheduled tribes in the population. While 70 per cent of the funds allocated for each district are further distributed among the blocks, 30 per cent is retained at the district level to be used in areas of distress or those experiencing labour migration.

Another successor scheme to JRY is the intensified JRY (IJRY) programme. Based on criteria like low agricultural productivity, commercial and industrial backwardness and a high concentration of scheduled castes and scheduled tribes (SC/ST), 120 districts have been identified as IJRY districts. In 1994/95, outlay per district on IJRY was Rs.73 million.

Finally, the JRY ‘umbrella’ scheme subsumed special innovative projects, and aimed at addressing specific problems faced by the rural poor in each district. The Ministry of Rural Development earmarked Rs.1,000 million for this scheme in 1994/95. In 2005, under its National Common Minimum Programme, the Government of India made a commitment to enact a National Rural Employment Guarantee Act. This will “provide for the enhancement of livelihood security of the poor households in rural areas of the country by providing at least one hundred days of guaranteed employment in every financial year to every household whose adult members volunteer to do unskilled manual work” (Government of India,2005). Employment shall, as far as possible, be provided within a radius of five kilometres of the household’s village. Each State Government will prepare an Employment Guarantee Programme, which will include the undertaking of productive works that contribute to the creation of “durable assets”. Wages will be paid either wholly in cash or in cash and in kind.

Indonesia:
 In response to the financial crisis, was a package of emergency job creation measures, collectively known as Padat Karya, to provide assistance to those who had lost their employment in the formal sector. This initiative was in effect a revival of earlier labour-intensive job creation programmes, also referred to as Padat Karya, which had built infrastructure such as village roads, schools and irrigation channels throughout rural Indonesia during the 1970s and 1980s. As with the earlier interventions, the Social Safety Net was not one single job creation programme, but a variety of disparate projects grouped together.

What these projects had in common was that they theoretically drew on labour-intensive methods, to undertake small-scale village-based infrastructure or public works projects, thus providing opportunities to local unemployed or under-employed labour. Since its re-launch in 1998, Padat Karya has expanded to comprise 13 sub-programmes, involving 8 executing agencies and reaching more than 300 districts. It is mainly funded through reallocated funds from ongoing loans from donor agencies and other redirected resources, as well as from other newly designed initiatives. In response to criticisms that the Social Safety Net schemes were poorly planned and hastily implemented, several new initiatives have been developed, including new employment programmes that emphasise empowerment and use community-based approaches to generate employment and incomes.

South Africa:
Unlike many parts of the world where unemployment is largely cyclical – e.g. seasonal due to slack periods in agricultural production – in South Africa the causes of unemployment are structural and historical, which presents particular challenges. One response has been the Government’s launch of the Expanded Public Works Programme (EPWP) in April 2004. Coordinated by the Department of Public Works, the EPWP is a nationwide initiative aimed at creating temporary employment for hundreds of thousands of unemployed South Africans, developing the skills of the unemployed, and providing essential social services and physical infrastructure to disadvantaged communities. The EPWP covers all spheres of government and state-owned enterprises, and involves reorienting line budget functions and conditional grants, so that government expenditure results in more work opportunities, particularly for unskilled labour. There is agreement that the EPWP must make use of appropriate technology, should substitute machines for labour wherever possible, should not displace existing permanent jobs, and that all opportunities must meet a real demand for services.

 Tanzania:
The Dar es Salaam experience: After the serious failure of public-sector solid waste collection in Dar es Salaam, a city consultation identified solid waste management as the key priority within the city. Over the last years, the Dar es Salaam City Council, with support from ILO and others, has made significant progress in tackling the problem. The government has adopted by-laws regulating the waste collection and the three municipalities in Dar es Salaam have formally advertized, tendered and awarded contracts to micro-enterprises for waste collection and street sweeping. The households generating the waste pay directly to the waste collection enterprises.

 Much has been achieved in terms of employment creation, income generation, social integration, waste collected and disposed, area covered and environmental cleanliness in general: • More than 2000 jobs have been directly created and 50 micro enterprises are involved in waste collection, some of which are community-based enterprises. These jobs are primarily held by poor women and men. Child labour in waste collection has been eliminated where formal waste collectors are operating effectively. • The cleanliness of the city has been improved and the waste collected and disposed on the official waste dumpsite has dramatically increased since 1995 and now covers 40 % of the total household waste generated in the city: END