SHOULD ZAMBIA RE-INTRODUCE WINDFALL PROFIT TAX

INTRODUCTION
The lamentation of Dr. Mathias Mpande in his article “Explaining Windfall Tax” which appeared in the October Issue of the Zambian Economist is a clever explanation as to why Zambia must address the issue of mining taxation. The fact that the mining industry which provides over 80% of Zambia’s export earnings but contributes less than 2% to government revenue, is a clear misnomer and according to Dr. Mpande, “this is what is paralyzing our state, causing corruption, extreme poverty and suffering of 99% of our Zambians”. While agreeing with the main thrust of Dr. Mpande’s argument, this article attempts to put the issue of windfall tax into a historical context and argues that Mwanawasa’s bold attempt at resolving a historical injustice against Zambia has been betrayed by the recent revisionism as espoused by the new Minister of Finance Musokotwane who not long ago was Mwanawasa’s economic adviser.

ZAMBIA’SCOPPER/COBALT PRODUCTION AND SALES
Zambia has continued to be one of the global leaders in both Copper and Cobalt production /sales. After the privatization of ZCCM, production and sales figures for both copper and cobalt have varied. Observers have noted that definitive production/sales figures are not available as the Ministry of Mines has not been capable of auditing the industry effectively. The IMF have estimated the following production figures and value of the metals from information allegedly supplied by the Ministry of Mines. In 2002, copper productio was 337.7 MT and sales were US$ 510 million while cobalt production was 3.9 MT and sales was US$ 50 million. In 2006, copper production was 498.3 MT and sales of US$ 2,938 million while for cobalt, production was 4.7 MT and reported sales of US$ 146 million. From 2007 to date, there has been no cooper and cobalt production figures reported. However the IMF estimated that Zambia's projected earnings from copper alone would be US$ 3,407 million in 2007, US$ 3,785 million in 2008 and US$ 3,658 million in 2009.


It is obvious that during this period of copper boom, Zambia does not know or has been prevented to know with exactitude the quantity of metals it produces and sales. The privatization process has made this fact worse as mining companies now are at liberty to export unrefined copper/cobalt metals and in this way circumvent honest statistical reporting. Zambia now un acceptably loses a lot of Gold, Silver and other minerals in this way. It is in this environment that the Late President Mwanawasa and his government attempted to institute fiscal policy reform to enable Zambia to benefit from the God given mineral resources which will waste away within twenty years of our life time living the next generation with hazardous gaping holes with nothing to show for. In the current debate on this, two viewpoints can be discerned, namely, the Mwanawasa Doctrine and the post Mwanawasa Revisionism.

THE MWANAWASA MINING TAX DOCTRINE
After being hesitant for almost six years, Mwanawasa was finely convinced that Zambia was getting a raw deal from its minerals. On 1st April, 2008, his Government finally gave effect to the Mines and Minerals developed Act 2008 and also passed the Income tax (amendment) Act 2008. Hitherto, Company Tax rate for Mining was charged at 25% of Company profits In reality however, the Copper Mining Companies since they were privatized have hardly declared any profits as they claimed that they were still carrying forward their losses and claiming depreciation on large capital investment. The Zambian Government had, under duress, agreed not to alter the 25% Tax rate on profits for a stability period of 20 years. Because of this, Zambia hardly received anything from the Mining Company who for instance in 2001 only paid a paltry K 4 Million as Company Tax. Mwanawasa wanted to change this historical injustice and the starting position was by way of addressing the mining tax regime of Zambia. Among other changes, the MMD government addressed the following:

Firstly, Section 2 of the Mining Minerals Development Act introduced the definitions of energy minerals industrial Minerals Mineral royalty and Mining operations. This was to avoid deliberate misinterpretation of the intention of the changes.

Secondly, Section 133 amended the Mineral Royalty rates and introduced the definition of norm value and gross value. The norm value was defined as the average LME or Metal Bulleting or any approved money exchange market cash price per metric tonne multiplied by the quantity of the metal sold or produced. The gross value was defined as the realized price for a sale free – on – board at the point of export from Zambia or point of delivery within Zambia.

The Mineral Royalty rates were increased from 0.6 % to 3% of norm value of base metals produced or recoverable under the license; 3% of gross value of Industrial and Energy Minerals; and 5% of norm value of the precious stones and 5% of the gross value of the gemstones produced under the license.

Furthermore, to ensure that Tax was collected, the ZRA Commissioner General was empowered, if he felt the realized value had been under declared, to charge royalties in accordance with the mechanism of section 97A to 97 D of the income TAX.

To ensure compliance of the law, section 142 of the Act also prohibited the disposal of Minerals and provided penalties for contravention.

To stop the continued pillage of Zambia’s resources, Section 160 provided that existing development agreements would henceforth cease to be binding on the Republic of Zambia and also removed the proviso on paragraph 3(1) (e) of the charging schedule which made all Mining Companies including those with Development Agreements unfairly or crookedly signed with the Government to start paying Income Tax at the rate of 30% instead of 25%.
Many Patriotic Zambians heralded the Mines and Mineral Development Act 2008 as the best of the Mwanawasa heritage, which had the potential of making Zambia benefit from its Minerals fairly. Previously, Zambia had been a victim of transfer pricing where Mining Companies directly or indirectly sold Zambia’s metals to associated parties at under valued cash prices. For Tax purposes, the Commissioners general was now empowered to use the reference prices to determine Tax obligations.

INCOME TAX AMENDMENTS
Further more, the Manawasa Government effected changes in the Income Tax Law by passing the Income Tax (Amendment) Act, 2008 and amended the Tenth schedule on windfall Tax. The amendment introduced a schedule for the Computation of Windfall Tax. This applied to any person carrying on Mining operations of base metals or precious stores its computation started at two times the average cost of the Mineral. In other words, a breakeven point was first established and the trigger point was at a double cost to this. Although this was unfair for Zambia, it was still a progressive beginning.

For Copper, the First Trigger Price (FTP) was US$ 5,512 meaning that the agreed break even point cost was US$ 2,756. And yet in the mining circles, the real breakeven point for copper production in Zambia is between US$1,000 and US$!,500 per tonne. The Second Trigger Price (STP) was US$ 6, 614 and Third Trigger Price (TTP) was US$ 7,716. Windfall Tax was then paid as follows: If the monthly average price (MAP) (i.e weighted average LME price for the month) did not exceed the FTP, Windfall Tax would not be paid . If MAP was between FTP and STP the Windfall Tax to be introduced was 25% or US$ 2.50 per pound . If MAP was between STP and TTP, the Wind fall rate for this would be 50% or US$ 3.00 per pound and if it exceeded TTP Windfall profit would be 75% or US$3.50 per pound. The measure was intended that whenever prices of the metals increased beyond 2 times the cost of production, Zambia would also gain.

For cobalt, the First Trigger Price (FTP) was US$55,116, the Second Trigger Price (STP) was US$77,162 and the Third Trigger Price (TTP) was US$88,185. As with the copper costing, the provision for windfall taxation were 25%, 50% and 75%.
VARIABLE TAX
The Mwanawasa tax regime also provided for Variable Tax which was charged where assessable income from mining activities exceeded 8% of the total sales. As is normal in many countries, all companies including mining companies pay a normal company tax. In Zambia, it has been 30% of the profits. However for Zambia, there was an additional proviso that the assessable income from the mining operations did not exceed 8% of the total sales value of the year. Where assessable income exceeded 8%, variable tax rates became applicable. This was 15% for profits above 8%. In other words, income tax on profits up to 8% was 30% while any profits above 8% would be charged at 45%. Variable Tax is a net-profit based tax that was specifically to work under all price and cost scenarios. And this is the tax that shortly after the demise of President Mwanawasa, the new government of President Banda opted to adopt and caused Parliament to abolish the windfall profit tax regime in 2009.

THE CONTROVERSY
Two positions have emerged, namely, to sustain the current tax regime or revert to the windfall tax regime. The Minister of Finance and National Planning Situmbeko Musokotwane who earlier had been Mwanawasa’s principle economic adviser and who had been nominated by the new President to be Minister, has been the greatest proponent of the new tax regime of the mines. In his 2009 National Budget Address, Musokotwane defended the abolishment of windfall taxes. “Mr. Speaker, the current mining tax regime was introduced last year aimed at providing a stable and robust tax system that works during periods of both high and low prices and cost. This regime was intended to ensure that the nation received a fair return from its resources, while mainting a globally competitive mining industry.” Having said this clearly progressive statement, Musokotwane then contradicted himself and said “Sir, having consulted with the industry and other stakeholders, and in light of the impact of the global crisis on the mining sector, I propose the following refinements:…(a) remove the windfall tax and retain the variable profit tax, which will still capture any windfall gains that may arise in the sector…”

Many observers have defined this position as a very unpatriotic apology. Musokotwane completely discounted the view that the two tax systems were not applied concurrently nor did he reflect on the loss of income to Zambia. In 2008, it was estimated that Zambia would earn not less than US$415 million from windfall taxes. With the new variable tax, the country is unable to even estimate what Zambia would get. What is factual is that Zambia is the loser. Silvia Masebo, the Chongwe MMD Member of Parliament pleaded with her own MMD government to re introduce windfall tax in a passionate speech in Parliament quoted in the Sunday Post, October 25,2009 at page 3 as follows: ”We continuously sound apologetic to those wanting to invest in the mining sector. We have been complaining about little resources, but it is in the mines where the money we need is. We have heard our colleagues on the left (opposition) say they objected the removal of windfall tax. I want to make it clear that even those of us on the right (Ruling Party MMD) are for the re-introduction of windfall tax because that is where money for development is.” Masebo continued her speech by recalling the bravery MMD exhibited when they introduced the regime. “II recall how we suffered as MMD last year to introduce this tax. Our late President Mwanawasa had to take a break and drink water when he was opening the National Assembly because he had to make an important announcement. We introduced the windfall tax, and it is sad that a few months later, we have shifted. May I appeal that this government re-introduces the windfall tax on mining…”

FUTURE PERSPECTIVES
It is apparent that the abolishment of windfall tax was not well thought out. The irony that Musokotwane continues to defend the revisionism even as he was the principal adviser to its introduction in 2008, begs the question. The Mwanawasa government fiscal regime introduced on April,1,2008 aimed at making Zambia receive fair shre of mining profits and rents through the introduction of windfall profit tax, variable tax and increased mineral royalties. In implementing, the windfall tax and the variable tax did not apply at the same time. In 2008 when this was implemented, Zambia found itself with a surplus budget and in a letter of Intent to the IMF dated 7th May,2008, the then Minister of Finance Peter Magande committed government to save K722 billion in a separate Mining Resource Account (MRA) at the Bank of Zambia (BOZ) to be used a stabilization fund to smoothen expenditures over time. It was estimated that the country would earn more than US$415 million that year. The windfall tax regime was supported by all donors notably the Bretton Woods Institutions, the Scandinavian countries, the EU, and DFID. Other organizations such as Oxyfam heralded this as a new beginning to mineral rich countries. The Musokotwane revisionism has worked against the new resource nationalism being practiced by all progressive countries that want to eradicate poverty and underdevelopment in their countries. The choice is whether Zambia should benefit fairly now by way of fair taxation or leave a situation where in twenty years time, our generation will leave a heritage for our children, hazardous gaping holes with nothing to show for.
Dr. Mbita CHITALA

Does Zambia's Electoral System Need Reform?

DOES ZAMBIA’S ELECTORAL SYSTEM NEED REFORM?
(Published in Zambian Economist, June, 2009, Volume 1 Lusaka, Zambia)

1. Introduction

Zambia faces many challenges in attempting to improve its electoral system so that the system becomes and is seen to be fair and efficient.

These challenges include improving voter registration (by revising the voters roll, computerizing the system and adopting a system that does not need using an NRC); Improving electoral participation ( motivating individual voters, doing away with institutional bottlenecks such as creating possibility to cast a vote in any constituency/ district/ province other than where you registered, allowing advance voting and voting by mail etc; provision of sate subsides to political parties and son on).

The purpose of this article is not to discuss these challenges but to contribute on the currently raging debate on the need for Zambia to have a Parliament that is representative of the votes cast and a President who is elected by the majority of voters to ensure that there is legitimacy be in leadership.

2. Parliamentary Elections

In the Zambian Electoral system, the country is divided into 150 single-member constituencies. Representatives are elected to Parliament by the first-part- the post (FPTP) (single majority) method which awards seats inn the National Assembly to the candidates with largest number of votes in each constituency. Under this system, the strongest party in the National Assembly may have an absolute majority of seats with less than an absolute majority of votes cast. This has been true in Zambia since 2001 where the combined votes of opposition parties were more than those of the ruling MMD. However, considered on its own, the MMD in all the past three general elections had both absolute majorities in terms of votes cast as well as seats awarded when compared to other individual parties. In the 2008 general elections for instance, using presidential votes cast, a total of 1,791,806 votes were cast and the MMD candidate Rupiah Banda obtained 718,359 ( 40.90%) votes, PF candidate Michael Sata had 683,150 (38.13%) votes, UPND candidate Hakainde Hichilema had 353,018 (19.70%) votes and the Heritage Party candidate Godfrey Miyanda had 13,683(0.76%) votes.

Generally, the current Electoral system favors parties whose support is concentrated ethnically (geographically) and tends to discriminate against parties with support spread across the constituencies. In the 2008 Elections for instance, support for MMD was greatest in all rural areas other than in Southern, Luapula and half of Northern Province. The PF support was on the copper belt, Lusaka Urban, Kabwe Urban, Luapula and half of Northern Province. The UPND: support was in Southern Province and two constituencies in North Western Province. The Heritage party was neither here nor there as they were largely considered as spoilers.

3. Proportional Representative
On account of the tendency towards sectarianism and other difficulties of First Past The Post in Parliamentary Elections, many people including the Mungo’mba Constitutional Review Commission recommended the adoption of the Proportional Representation system which in various forms is used in most Western Countries in electing their National Legislatures.

An example of how the Proportional Representative system works may suffice to explain this voting approach. Presently, Zambia constitutes 150 constituencies for which 150 members to Parliament are elected. In the 2006 presidential elections, there were seven (7) parties that contested. The total presidential votes cast which were closely related to parliamentary votes cast were 2,740, 178. If this figure was divided by 150 seats, a seat in Parliament would be awarded to a party with 18,268 votes. In this case, the MMD should have been given 64 seats instead of 43. UPND should have been given 38 seats instead of 26. The HP should have been given 2 seats and APC 1 (one) seat. Similarly in the 2008 elections using presidential elections result, the total votes cast were 1,791,806 which could have meant 11,945 votes per constituencies. In this case, MMD should have been awarded 60 seats instead of 74, the PF 57 instead of 39, the UPND 30 instead of 21 and the Heritage Party at least one seat.



4. Advantages of Proportional Representation
The country has been advised to adopt a form of Proportional Representation electoral method for the following reasons.

1. Political parties will gain representation in Parliament in proportion to their share of votes cast. In real terms, there will be one entity Zambia. Voters will cast votes for parties who in turn will allocate from their lists designated representative per constituency won. On account of this , costly bye-elections will also be done with as parties will simply replace candidates from their lists whenever a vacancy occurred.
2. More parties are likely to gain representation as this electoral method will stimulate voters to take part in elections which will lead to higher voter turnouts. In the 2006 presidential elections, the Heritage Party should have been awarded at least 2 seats and that of APC at least one seat. For argument sake, this could have enabled Gen. Godfrey Miyanda and Mr. Winwright Ngndo to be Members of Parliament and usefully participates in our country’s governance rather than be relegated to history.

3. Bye-elections shall be avoided in both Parliamentary and Presidential elections since there will be only one elect ion and the President will have a running mate in his/her party.

4. The Proportional Representational system will strengthen political parties as organizations and enhance their role in the Zambia political process
5. Presidential Elections (50 + 1)

It was only in the 1995 Constitutional Amendment which in spite of being challenged by many Zambians, President Frederick Chiluba’s administration forced the amendment that provided for the election of the Republican President by a simple majority rather than the absolute majority that was previously provided in the Constitution since 1964. Because of this change, all subsequent victories by Presidential candidates have been on a basis of minority votes. It appears Zambia’s public opinion is strongly of the view to change this and adopt the marjoritarian approach

In 2001, President Levy Mwanawasa won the Presidential elections with a mere 28.69% of the total votes Cast. In the 2006 elections, President Mwanawasa again won by 42.98% of the votes cast. In the elections of 2008 following the demise of President Mwanawasa, Vice President Rupiah Banda won by 40.09% of the votes cast. Because this electoral process creates a President voted by less than the majority who cast votes, many countries have adopted systems where the last two of the candidates re-contest in a re-run of the elections to determine the real winner. Many Zambians are advocating a return to this electoral process of the 50 + 1 method.

The return to marjoritarian doctrines of electing a President is opposed by a section of our society who has advanced cost considerations and the danger of destabilizing the country on sectarian/tribal lines. It is also possible that these opposers are afraid of allowing the opposition to gang up in the re-run to win a majority vote. If such a thing happened, it is possible to have a President from one party who may have no majority members in parliament. This may lead to the formation of a minority government where the government may fail to pass critical legislation which may be opposed by the largest party in the house. This may lead into a costly constitutional crisis that may require parliament to be dissolved and for another costly general election to be held.

6. Recommendations
It is recommended that, as the National Constitutional Conference completes its work on our new constitution, they must be alive to the public demand for the 50 + 1 marjoritaanism doctrine as well as the merits of Proportional Representation. Adoption of proportional representation is the most democratic method of electioneering and is recommended to be adopted in respect of parliamentary elections. With respect to Presidential elections, whereas, it would be cost effective to emulate the South African method where a President is first elected by his/her party and confirmed by parliament, the public opinion in Zambia seems to be the demand to elect a President and his/her running mate by the whole country as is the case in the United States of America on the basis of 50 + 1 marjoritaanism. Both approaches have been tested and provide enormous challenges for Zambia.

Capital Flows and Zambia's Domestic Economy

CAPITAL FLOWS AND ZAMBIA’S DOMESITIC ECONOMY

By Dr Mabita Chitala

The question to be answered is weather there is need for Zambia to regulate its International Trade and regulate the movements of foreign exchange (forex) with the aim of reducing its exposure to financial speculators and the growing global financial turmoil. Should Zambia continue linking up to international financial markets or should it selectively de-link? What strategic choices are open to Zambia.

THE 100% FOREX RETENTION

David Punabantu writing in the Zambia Economist Magazine of June, 2009 Vol. 1 pp5-7 wondered why the Bank of Zambia has continued unlawfully the policy of 100% forex retention by mining companies other than Mopani and other exporters which measure has tended to be discriminatory, stiffed the spirit of competition and allowed the continued plunder of Zambia’s resources. Punabantu lamented that this Policy which was initially introduced as short term measure by the late Minister of Finance Emmanuel Kasonde in the early 1990’s has now become a permanent policy of Government with all its draw backs such as abating capital flight, making commodities in Zambia unnecessarily expensive and negatively affecting the level of domestic investment in Zambia. Punabantu correctly argued for a change of this disastrous policy to one which is common in all other countries where ownership of forex is only possible through local currency (Kwacha) purchase for Goods and Services originating from a country such as Zambia. In other words, forex must first come to Zambia and be changed into Kwacha as used to happen when Zambia experienced the highest growth rates before 1990s. Exporters could then use their Kwacha to purchase Copper and other Exports from Zambia in the same way a Euro wishing to buy any product from the United States must first be converted into United States Dollar and vice versa if it is in Europe. Punabantu correctly concludes that Zambia’s 100% forex retention policy is not only against national development, but not market driven and tends to abate the pillage of Zambia’s Resources. Zambian policy makers are advised to take a leaf and learn from the experiences of countries such as Chile which abandoned this policy and required all exporters to bank their forex earnings in a local bank for a period not less than three months. In fact, Zambia appears to be the only country in the world with such a policy.

STATE CONTROLS

The present government policy buttered by IMF conditionalities has been to compel Zambia to make its currency freely convertible for all Current as well Capital Account transactions. Capital Account convertibility (CAC) of the Balance of Payments (BOP) or the freedom to convert Kwacha to forex assets and vice versa at market determined exchange rate or as the IMF has defined it, “the freedom from exchange controls on capital transactions on balance of payments”, continues to be a subject of controversy amount policy makers.

As it is well, the Current Account of the BOP (statement of transitions between Zambia and the world) comprises of visible trade {Exports and Exports},invisible trade {Exchange of Services} and unrequited transfers such as gifts. The Capital Account on the other hands refers to the exchange of capital in form of Loans, Portfolio Investment FDI and changes is official reserves. Transactions in the Capital Account can therefore impact on the composition of national capital of a country, that is, make a country lose control of its economy to foreigners and adversely affect its national sovereignty.

Zambia’s Policy has been to follow the no-liberal view which considers as bad policy state controls that restrict transactions on both the current and Capital Accounts. Therefore normal Current Account Controls such as restriction on imports such as providing quotas and tariffs or requirements to deposit export proceeds in Zambian Banks; and Capital Account measures such as restrictions on various harmful kinds of capital flows by licensing outflows or restricting use of forex including use of multiple exchange rates - all these are considered by neo liberal practitioners as undesirable as they allegedly distort markets and result in allocative inefficiencies, waste, black markets and are costly to maintain.

Neo liberals see many advantages in free flows of capital such that a Country like Zambia would have the chance and potential to access global savings in a variety of non- debt-creating forms, possibility of Zambians holding international diversified portfolio and the country being able to access greater liquidity sources and deeper markets. This thinking is anchored on the Efficient Market Hypothesis {EMH}which holds that “capital markets generate asset prices that, given available information, are best estimates of the present value of future income streams from capital assets.”

The above thinking when measured with the reality on the ground is of course flawed. Financial markets do not behave in the perfect manner but are grossly influenced by speculative behaviors.

The neo-liberals however still maintain that Zambia’s Financial System is still weak characterized by all vices such as insider trading, corruption and weak Corporate Governance and has not sufficiently liberalized financially. The standard recommendation of the IMF has been to compel Zambia to reduce its Capital Account deficit by borrowing. (Current Account Deficit = Capital Account Surplus + Drawing down on reserves). Within the confines of the so called Letter of Intent signed with the IMF are conditions such as compelling Zambia to keep interest rates high in order to allegedly attract capital inflows and improve investor confidence. Other policy measures Zambia has been forced to implement include fiscal prudence and consolidation, bringing inflation to single digit levels, maintain sustainable current account deficits and reserves, complete trade liberalization, strengthen prudential regulation and supervision and liberalization of the Capital Account.

The above prescription by the IMF and their neo-liberal friends in Zambia are wrong. The truth is that the Globalization of Finance Capital and the spread of footloose capital via FDI, Portfolio management, Debt contracting and so on, is a culmination of the process of unequal Capitalist Development in the world. Current Globalization has been shifting control of national markets of multinational corporations and financial intermediaries. Zambia’s domestic market is restrained. Interest rates are kept high to discourage Zambia’s domestic private investment. There is need for Zambia to adopt policies that promote full employment and growth. There is need to selectively de-link from Global Capital that threaten the achievement of the above. Evidence every where shows that free capital mobility has not been associated with high rates of growth. Neither trade openness nor outward orientation been associated with higher growth rates or reduced vulnerability.

CAPITAL CONTROLS

The current Global Financial Crisis offers further debate about Zambia’s Economic and Financial Policies, the effects of Financial liberalization and the power of International Finance. The key features of the Global Finance architecture comprise of several features. First, the dominance of Investment Banks, mutual funds, pension funds and hedge funds; Second, securitization or transfer of capital via the sale of stocks and bonds; Thirdly the expansion of new instruments such as arbitrage (taking advantage of forex or interest rate differentials to turn a profit) and derivative trading (buying and selling all the risk without trading the asset itself). Such is the case in instruments such as futures, forward contracts, swaps and options; and hard to monitor transactions made over the counter by telephone or computer and not via exchanges and are mostly off balance sheet transactions, namely, not reflected in assets and liability statements.

The growth of this form of global finance capital has seen the dominance of finance over industry and the system of leveraged buyouts which further confirms that volatility will continue to be central to the world capitalist system.

In terms of economic Governance Policy, Zambia was forced by the Breton Woods institutions and the Paris Club to adopt structural adjustment policies (SAPS) which made Zambia more open to Capital inflows. Tight fiscal and monetary policies including lifting exchange controls and liberalizing the Capital Account were imposed on Zambia. The arguments for unfettered Capital flows or complete capital account liberalization through Portfolio Investment{PI}and FDI as championed by neo-liberals is meant to enable Zambia acquire Capital and Technology. Further, it is assumed that because the resources will be allocated by markets, there will be both enhanced efficiency and Policy discipline. The experience of Zambia is that under its floating exchange rate regime, sudden inflows of capital tends to put pressure on the Kwacha to appreciate and under mine its balance of payments position by causing imports to rise and exports to fall. The conditionalities that are attached to these Capital inflows also tend to exhibit undue influence over domestic policy making where policy space is reduced. Furthermore, the Capital outflows or flight that inscrutably result, has tended to put pressure on Zambia as the Kwacha always depreciates, the country faces debt service difficulties, stock values reduce. the Current Account deficit increase, and generally Zambia’s macro economic vulnerability and Financial instability is aggravated. In other words, such policy regime of unfettered financial liberalization has tended to increase poverty and inequality amount Zambians. As is well recognized, opening up to global port folio flows can result in stagnation of an economy.

STRATEGIC CHOICES

The history of economic evolution of all developed countries shows that complete Capital Account convertibility and freedom of capital movements is that the last stage of opening up the economy. Until this stage is reached, various forms of capital control are necessary and inevitable until a certain level of development is reached. It has been extremely unclever for Zambia to completely liberalize before reaching that level necessary for this. Even today, Capital Controls (measures that manage the volume, composition, or allocation of capital flows and/or maintenance of restrictions on investor entrance or exit possibilities) are necessary. All industrialized countries utilized Capital Controls until they reached developed levels in the 1970s. Currently, China and India - the most successful emerging economies use extensive capital controls. Other Counties include Brazil in 1960’s, Chile and Colombia in 1990’s Malaysia in 1994/1998 and even South Africa.

It is acknowledged globally that Capital Controls tend to promote financial stability, promote desirable types of investment that create jobs and enhance democracy and national autonomy by reducing the power of global speculators from exercising undue influence ever domestic policy and exploitation of national resources.

Zambia’s Policy of excessive preoccupation with inflation is misplaced. Issues of growth and employment should take priority. Monetary policy must be one that responds to needs of the Middle Class and Ordinary household in the real domestic economy rather than to the foreign Investors, hedge Funds, Banks and speculators who currently dominate Zambia’s financial “bubble” economy. Fiscal policy frame work must be one based on a progressive taxation system instead of the regressive regime that currently holds sway. The continued reliance on foreign financial flows as an option for progressive domestic taxation is neither desirable nor a sustainable development strategy. Zambia needs an economic policy rooted in domestic savings and a domestic market by enhancing and expanding the purchasing power if its people and not by being dependent on external aid, grants or loans as agents of growth. Zambia needs to adopt a discriminatory approach to Foreign Financial flows. The FDI that has come most of it by way of mergers and acquisitions, has had limited effect on employment creation. It has negatively impacted on Zambia’s balance of payments and there hardly has been any technological transfer.

National capital controls for Zambia is therefore an essential element to make sure that Zambia is able to ensure that its forex outflows are not exceeded by or grossly mismatched with its forex earnings and, overall, to allow Zambia a measure of economic and political sovereignty in this era of borderless globalization. The current global consensus is that Capital controls are essential in today’s world of integrated Financial Markets. All Asian Governments have cleverly imposed Capital Controls and cut interest rates and have continued to promote fiscal expansion. Free Capital mobility as argued by the IMF and their neo liberal friends through their agenda of Capital Account liberalization, has not been associated with high rates of growth and poverty reduction. Free flow of capital endangers the autonomy of countries such as Zambia.


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IMPLICATIONS ON ZAMBIA’S PARTICIPATION IN THE AFRICAN UNION GOVERNMENT –THE UNITED STATES OF AFRICA

IMPLICATIONS ON ZAMBIA’S PARTICIPATION IN THE AFRICAN UNION GOVERNMENT –THE UNITED STATES OF AFRICA

MEMORANDA REQUESTED BY THE COMMITTEE ON NATIONAL SECURITY AND FOREIGN AFFAIRS OF THE NATIONAL ASSEMBLYIN THEIR LETTER DATED 15TH APRIL, 2009: By Amb. Mbita CHITALA PhD

INTRODUCTION
I feel greatly elated at the same time humbled to appear before the Committee on National Security and Foreign Affairs which has set itself the task to study Zambia’s membership to the United States of Africa. I have been assigned the task of dealing with the following question: “what are the security, economic, political and other benefits of Zambia’s participation in the United States of Africa and what are my recommendations for the way forward regarding Zambia’s membership?” This question requires the response to questions such as: Why do Africans since the days of slavery and colonialism been yearning for a United Africa? What are the benefits and what constrained the realization of this dream?
I must admit from the very outset that this is the first time in my non-public life to address a committee of our National Assembly. It gives me a curious sensation to do so, since great clarity of the issues is required and furthermore, this is a subject of current passionate debates by Africans both at the African Union Summits and the press. At a personal level, I was recalled as Ambassador to Libya in 2008 for having inadvertently commented on the historical necessity and inevitability of the Federated United States of Africa.
I would like to submit that in the case of our country, our policy position on the United States of Africa question has always been ambivalent. Our first government in 1964 supported Mwalimu Nyerere’s gradual approach on African Unity as opposed to Kwame Nkrumah’s push for a revolutionary approach. This world outlook has continued in all our governments of UNIP and MMD where it is contended that the formation of an African Union Government must be “ based on a Multi- Layered approach” whereby after basic contradictions at the national level are resolved- i.e. national consensus reached - the next step shall be to identify and clearly assign specific roles to states, sub-regional entities and the continental framework. This approach is based on the principal of “gradual incrementalism” in which the Regional Economic Communities ( REC’s) shall be used as the building blocks for the continental framework. This approach is of course reactionary and non sustainable as we have argued elsewhere in the appendix to this presentation.



This paper is prepared as a contribution to the committee on National Security and Foreign Affairs of the National Assembly of Zambia who in their letter dated 15th April,2009 requested me to provide the following information.
(i) The security benefits of Zambia’s involvement in the United States of Africa;
(ii) The economic and political benefits of Zambia’s involvement in the United States of Africa
(iii) Any other benefits of Zambia’s involvement in the United States of Africa
(iv) Disadvantages of Zambia’s involvement in the United states of Africa ; and
(v) Recommend the way forward regarding Zambia’s membership to the United States of Africa
I am unable present the “disadvantages of Zambia’s involvement in the United States of Africa” as requested in (iv) above as, in my view, there are absolutely no disadvantages to the Scheme. I am alive to the arguments raised by thousands of people on the internet and general press following my article I published in the Tripoli Post on 26 January, 2008. The arguments included such outlandish assertions like: Africa cannot unite because of its diverse cultures, languages, ethnicity, racial composition between Arabic North, Nilotic North East, Negroid Western and Bantu South; that Africans are cursed by God to be inherently quarrelsome and stupid; that globalization will make it impossible for Africans to unite; and that Africans fear the loss of their sovereignties and therefore never subscribe to the African Union Government. These and many other opinions are simply detractions to a progressive initiative that has the capacity to finally address Africa’s poverty and underdevelopment. The arguments should therefore be contemptuously ignored.

BACKGROUND
1. It is a recognized fact that the African Continent (without distinction to race, language or religion) has been central to the development of the world in terms of epistemology (development of knowledge), the arts and spirituality. Africans have also suffered systematic degradation through slavery, colonialism and now neo-colonialism Slavery and the colonial system were hated by Africans and hence since the late 19th and early 20th centuries, there evolved Pan Africanism, initially as a reaction to many centuries of slavery and later against European Colonialism in Africa.

2. The drive for Africans to regain their dignity began with the development of formal Pan Africanism after the 1900 London conference organized by Henry Sylvester Williams. Other notable organizers of Pan Africanism included W.E.B Dubois-co-founder of the NAACP-convened the first Pan Africa Congress in 1919. Other meetings took place in 1921 (in London, Paris and Brussels), 1923 ( in London and Lisbon) and 1927 ( in New York).

3. In the early 1940’s , Kwame Nkrumah together with George Padmore, Jomo Kenyatta and Hastings Kamuza Banda sponsored the 5th Pan-Africa Congress in Manchester, England and fostered African Leadership of the Pan -African movement and the struggle for independence of African colonies then.

4. In 1957, Ghana became the first sub-Sahara African State to gain independence with Nkrumah as Prime Minister and Nkrumah created a Pan- African secretariat to organize for
- Total African Independence and
- Continental Political Union
The Pan- African movement was based on three pillars:-
- Shared historical and cultural values
- Political freedom
- Collective self sufficiency

5. In May 25, 1963, representatives from 32 African Nations met in Addis Ababa, Ethiopian and founded the OAU, now the African Union as a loose federation of independent African States. Political differences among the independent African Nations and their poverty kept political Union from becoming a reality.

6. In 1965, Nkrumah clashed with Mwalimu Nyerere over Nkrumah’s call to establish a Union Government in Africa. The OAU embraced Mwalimu Nyereer’s approach that assumed regional federations would step by step metamorphose into a united Africa as opposed to Kwame Nkrumah’s push for a revolutionary approach. This reactionary position ushered in the stage in Africa of destructive coups and costly secessions.

7. Since becoming politicaly independent, the small balkanized states of Africa have attempted to address their poverty and underdevelopment including national security but have been unsuccessful and there is now a realization that they must act collectively.

8. The continent now comprises of 53 countries and since the founding of the OAU, the African states have been following Nyerere’s line of graduality on Africa Unity. Some successes were achieved following this line. Some of the important milestones of the OAU included the work of the Liberation Committee and the freedom fight in countries still under colonial rule and the struggle against apartheid in South Africa and minority rule in Rhodesia.

9. Africa’s search for collective self reliance and development have included advancing several programs such as the Lagos Plan of Action ( LPA), The Final Act Lagos ( FAL), the Abuja Treaty establishing an African Economic Community ( AEC). All these were attempts to unite Africa economically ever a period of 34 years. The AEC treaty also called for the creation of a PAN African Parliament (PAP), an Economic, Social and Cultural Council ( ECOSOCC) and an African Central Bank ( ACB). Progress towards the creation of these institutions has been, anything, but successful on account of political indecisiveness by Africans and their misguided love of the so called national sovereignty, which in reality has been the continuation of the hegemony of comprador and despotic neo colonial forces in service of global capitalism.

10. As regards Africa‘s integration, the Conference on Security ,Stability, Development and Co-operation in Africa ( CSSDCA) which was established in May , 1991 stressed the integration of all governance matters including popular participation by African peoples. Again, these were lofty unrealizable ambitious as history has testified.

The most advance has been in the creation of divergent and irrational Regional Economic Communities (REC’s). As at 2009, there were 14 overlapping RECs with duplication of programmes, cross-cutting membership and corresponding inefficiencies as follows:

SACU (Swaziland, Botswana, Lesotho, Namibia, South Africa);
SADC(SACUCounries, Mozambique, Tanzania, Malawi, Zambia, Zimbabwe, Mauritius, Seycheles, Congo DR, Angola)
IOC(Reunion,Madagascar,Comoros,Seycheles,Mauritius)
EAC(Kenya,Uganda,Tanzania,Rwanda,Burundi)
COMESA(Comoros,Madagascar,Seycheles,Mauritius,Swaziland,Angola,Rwanda,DRC,BurundiMalawi, Zambia, Zimbabwe,Ethiopia,Kenya,Uganda,Djibouti,Eritrea,Sudan,Egypt,Libya)
IGAD(Somalia,Djibouti,Eritrea,Sudan,Ethiopia,Kenya,Uganda)
CEPGL(Burundi,Rwanda,DRC)
UMA(Algeria,Mauritania,Libya,Morocco,Tunisia)
CEN-SAD(Libya,Morocco,Tunisia,Somalia,Djibouti,Eritrea,Sudan,Egypt,CAR,Chad,Gambia, Nigeria,Liberia,GuineaBissau,BurkinaFaso,Benin,Mali,Niger,Senega,Togo,Coed’Ivoire,Uganda)
CEMAC(Cameroon,CongoRep,Eq.Guinea,Gabon,CAR,Chad)
ECCAS(SaoTomeandPrincipe,CEMACcountriesandCEPGLcounties)
ECOWAS(Cape Verde, Ghana,Nigeria,Gambia,Liberia ,Guinea, and UEMOAcountries)
UEMOA(Burkina,Benin,Mali,Niger,Senegal,Togo,Coted’Ivoire,GueneaBissau)
MRU(Liberia,Guinea)
This multiplicity of overlapping membership of RECs coupled with institutional weaknesses of the RECs,the political problems arising from fears of by some members of domination, is a real danger to peace and stability as these SECs will continue to competefor the same economic space and engaged in wasteful duplication of effort. The danger for armed conflict is ever present as occurred in balkanized Europe.

11. Against this background, African countries at the Lusaka summit in 2002 agreed to move towards Political Union and, as a first step, established the African Union (AU) which was launched in July, 2002 in Durban, South Africa to replace the OAU. In theory, political union is the highest form of the integration process. The African Countries also launched the NEPAD as an economic program to support African infrastructure development. In both cases, progress has been very slow.

12. The African Heads of states have since concluded that the “necessity for eventual Union Government is not in doubt.” However, two viewpoints in arriving at Union government still persists. One view is that the Union government should be based on the principle of “gradual incrementatlism” and that the RECS should be used as the building blocks for the continental frame work. The other view argues for the establishment of a Union Government as a political transitory arrangement towards the United States of Africa. Such a union should possess Executive Authority on matters delegated by union members as is the case in the European Union In the current scenario, the functions of the Executive Council of the AU are supposed to include the following:
- Foreign Trade,
- Energy, industry and mineral resources
- Food, agriculture, animal resources and livestock production
- Forestry, water resources and irrigation
- Environmental protection
- Humanitarian actions and disaster response and relief
- Transport and communications
- Education, culture, health and human resource development
- Science and technology
- Nationality, residency and immigration matters
- Social security
- African awards, medals and prizes
Even on these common sense objectives, there are still some African countries that are still dragging the integration process backwards.

13. The need and rationale for African integration is well known. The elements that should necessitate this historical inevitability include the following:

a) Pooled efforts and joint approaches is the only road that will allow African Countries to be really in charge.
b) The small size of National markets in African countries is a major handicap in attracting private investors. A common market can reduce this disadvantage
c) The emergence of regional trading blocks such as the EU, NAFTA, and elsewhere gives added impetus to African integration.
d) Most African Countries have porous and artificial borders that make it difficult to implement economic reforms which are not synchronized with policies in neighboring countries. African Integration will resolve this negativity.
e) The idea of one African Economic policy will be a great unifying idea.
f) Engaging all African Countries in Co-operative ventures will build African solidarity so necessary in reducing the incidence of conflict.

14. The constraints that adversely have been affecting the drive towards African integration and co-operation can be summarized as follows:

I) National Level
a) Lack of political commitment to actually implement agreed measures. This arises from actual or perceived conflict between national and African objectives.
b) Inappropriate economic and political polices which have tended to constrain the development of consensus in governance matters and economic policy.
c) Limited administrative and managerial capabilities and capacities to plan and manage continental projects and programmes and ensure consistency between national and continental programmes.
d) Donor conditionalities which rob African countries of policy space but rather aggravates or deepens ties and subserviency to donors
e) Inability to convince civil society of the long-term benefits of continental projects and programmes which h may cause discomfort in the short term.
f) In ward- looking development strategies such as import –substitution strategies that encourages protectionism rather than trade creation.
(ii) Continental level
(g) Over –ambitious objectives
(h) Low level of development in most countries
(i) Weak transport and communication links
(j) Over lapping and inadequacy institutional arrangements. Institutions virtually lack resources.
(k) Differences in levels of development of the countries and lack of means to implement compensatory policies.
(l) Uncoordinated structural adjustment programmes.
(iii) International level

(m) Conflicting actions of donors in their drive to dominate African countries.
(n) Lack if support or outright hostility to projects and programmes that advance Africa’s integration. Donors fear that Africa’s integration may become a hindrance to multilateralism and neo – colonial control.

15. Security Benefits of Zambia’s involvement in the United States of Africa Initiative

In roughly 60 years, Africa has experienced some eighty coups d’ etats and countless number of coup attempts. Zambia alone has been a subject of at least five coup attempts. Civil wars have erupted in more than twenty countries and are still ranging on a large scale in Somalia, Sudan, Ethiopia, Mauritius, Congo, Burundi, Niger, Britrea and so on. Zambia also suffered after 1973 the Mushala insurgency which led to widespread internal dislocations in North Western Zambia. Ten African countries have been subjected to external military interventions. The continent remains a fertile ground for mercenaries and an object of external security manipulation. Almost all African countries lack the capacity to curb the flow of arms into their countries and many of them lack capacity to deal with any large scale security crisis whether domestic or external. As examples attest in many of these countries, internal conflicts will soon end up in a state of anarchy that will further compromise the security of Africa in general.

The major causes of Africa’s security problems in addition to governance issues are essentially two.
a) Africa’s fragmentation into small unviable states without capacity for effective security management and
b) Africa’s balkanization which has been compounded by artificial borders tends to perpetuate a tenuous sense of nationhood.
Generally, the outcomes of Africa’s security problems have resulted in four dimensions:
a) The loss of human life and widespread suffering of the people.
b) The destruction of Africa’s resources
c) The unnecessary high budget expenditure levels for the military infrastructure and
d) The dominance in Africa of foreign powers.
The combined effects of these two limitations on the security of Africa has been border disputed leading to cross boarder armed conflicts and tribal or ethnic rivalries.

What Africa requires is an environment within which a harmonious evolution of society takes place. Peace and stability in Africa can only be further enhanced if a federated union of Africa’s states is established. The effects of peace and stability on the process of integration are best demonstrated by the European integration process. The launching of the process took place in a context of restored stability after two world wars caused by national rivalries. The council of Europe – founded in 1944 led to a situation where European countries sought to bury their differences in order to integrate their economies so that they could have bigger markets and be more competitive as well as provide assurance for security. With the treaty of Rome signed, first by six members, the European Union has expanded to nine, then to 12, then to 15 and now to 28 countries. And this Union is now the Central factor of maintaining peace and stability in Europe. In North America, thiere is the NAFTA and in Asia, there is the ASEAN.

16. Economic and Political benefits.

As is well known, most of the national economies in Africa are classified as micro-economies: Individually, in the context of globalization, they can not rid their populations of poverty and underdevelopment, because of their small markets, and inability to generate national development. This is most true for Zambia as well. In general, 15 African countries are landlocked and transport and communication on the continent is still rudimentary. Only 5 countries have a population of more than 30 million. 8 countries have a population of less than 1 million each .14 countries have a population of between 1 and 4 million. It shows that the national markets of Africa’s 53 states are not only too small to attract FDI flows but are also too Balkanized to generate meaningful economies of scale in diversification efforts. It is really possible for Zambia alone to bargain with China or India or the EU on any thing meaningfully?

On the other hand, considered as a union, Africa has a potential market of over 700 million people, a natural resource base of huge dimensions and a diversity unsurpassed by any other continent. Africa’s integration is an essential and indispensable part of the strategic policy approach to eradicating poverty and underdevelopment. The unionization of Africa into the USA will enable national economies of such countries like Zambia to build capacities in all critical areas. The present status quo of policy reforms without strategic direction are inadequate if Zambia wants to meet the challenges of the global economy of the 21st century.

17. The Future Perspectives

As is well appreciated, all continents on earth are moving towards integration. In all cases, there is agreement on limited surrender of national sovereignty to super national organs. Let there be no mistake. Whereas Europe, the Americans and Asia need economic integration for strength and prosperity, Africa needs it as matter for survival. Many African states are simply too small to form viable economic investment markets or trading partners. Africa needs a federated union government as argued in the appendix to this text.

For a country like Zambia, in a accepting and reaffirming the Constitutive Act of the African Union, the country committed itself to accelerate the integration process. At the national level, it must be seen to creating structures for this. There is need to build the necessary constituency for advancing political integration. It would for instance be progressive to set up a Ministry in charge of integration as an important conduit to harmonize instruments, institutions and programmes of the Union Government. A national Association or Commission for the union government could be set up as a way of building the national constituency and popularizing the idea. It is advisable for Zambia to play the lead in this as it is a historical necessity and inevitability.

END









APPENDIX
Opinion: The Federal Union of African States Must be Established NowBy Ambassador Mbita Chitala26/01/2008 16:29:00 Available on Internet



Introduction
This presentation addresses the subject of the historical necessity and inevitability of the federated African state. The central argument of the article is that continental integration and empowerment can only succeed if the coordination of efforts is at a continental level through first, the formation of one all African State, that is, by way of a political decision and that economic integration shall only be complementary.
This article does not discuss the benefits that will be derived from Africa’s political integration (insure peace keeping, combat disease, environmental concerns, poverty, corruption, oversee good governance, equi-distribute Africa’s wealth) as this is already a settled argument nor does it discuss the method and road map for achieving this historical inevitability as this is a detail to be designed by professional managers.
This write up is aimed at imploring African leaders to make the political decision and establish the united one African state as they meet at Addis Ababa, Ethiopia on 31 January, 2008.
Status of Africa’s Unity
Post independence Africa presents a divided and balkanized states, weak, and for more than four decades has continued to be a play ground for unabated abuse, exploitation and oppression of its peoples by other more organized political regions as exemplified by the hegemonic control the Europeans and Americans still hold on Africa.
Africa’s age old yearnings for political and economic integration have been thwarted, of course variously explained by many factors and interest opinions. These factors include the influence of self-seeking, narrow-minded nationalist African leaders who have continued to opt for personal glory and fame at the expense of the larger Africa using the legalistic excuse of sovereignty, the influence of the vestiges of colonial aberrations and neo-colonial psyches and dominion where Africa in the international division of labour has continued to play the role as a supplier of raw materials and net importer of manufactured commodities which in the process condemns Africa to continue being exploited by way of unequal exchange.
In the area of consciousness, cultural imperialism has been ensuring that Africa is divided between two blocs – Anglophone and Francophone – and this division has been sustained by the former colonial powers variously such as establishing institutions like the British Commonwealth with their British Council, and the French Francophone with their Alliance Francais.
These have continued to sew divisions among Africans by false ideologies such as the Christian-Moslem dichotomy, the Arab-African dichotomy and the ethnicity or tribal ideologies that are used to divide and weaken Africans. With globalization, Africa has further deepened its integration to the global finance capital from a weak stand point where it cannot get an equal share of the benefits of globalization.
African countries have attempted to unite the many small post colonial social formations to address this issue of poverty, underdevelopment and insecurity of Africa but often have fallen short because of the above reasons or because they used unsustainable unworkable methods such as desiring to have economic integration before political unity.
The most notable attempt was the Abuja Treaty – Regulation CM/464 of the 26th OAU Council of Ministers who wanted to create five regional communities who would play the role of the future continental common market. The recommendation was based on the realization that integrating 53 differently ruled African States would be unsustainable because of the unripe consciousness, the influence of geography, ecosystems and operational precedence. This attempt failed and more regional communities continued being formed.
In pre-Abuja Treaty, there were 8 Regional Economic Communities (RECs) including SACU, MRU, ECOWAS, CEPAL, ECCAS, IOC, IGAD and UMA. In post Abuja Treaty, more RECs have been established. These include SADC, UEMOA, CEMAC, COMESA, CEN-SAD, EAC.
All these have been set up in spite of duplication of programmes and their multiplicity, cross cutting membership and inefficiencies have compromised African integration. An attempt towards rationalizing them has failed because of lack of political will and resentment and opposition by the established public service supported by entrenched rules and contracts.
It is unacceptable for African leaders to continue procrastinating or making lame selfish excuses of going to consult their peoples and so on such as has been the case in the last ten years. There is no need for these countries to hold referendums as Muammar Gaddaffi challenged his colleagues at the Accra Summit.
The opposition to integration that was exhibited by Kenya, Nigeria and South Africa in Accra is regrettable as it was based on the false assumption that these three countries would on their own develop to be sub imperialist powers.
It is gratifying that Liberia, Senegal, Ethiopia, Chad and Libya came strongly for immediate political unity. The rest remained look warm. It is no wonder the Africans in South Africa and Kenya have already shown their leaders what they think of their acts in Accra. What is required as the first act is to agree on political integration by establishing the Federated Union of African States.
This was the consensus that was reached after the transformation of the OAU into the AU on 9th September, 1999 at Sirte in Libya where all African Leaders committed themselves to the establishment of the United States of Africa.
“Those who want to move on a snails pace or are opposed to Africa’s political integration should be left out for now. Their own nationals will deal with them in due course and compel them to join the bigger good – the Federated United States of Africa.”
It was therefore amazing at the meeting in Accra, Ghana in July, 2007 that about 50% of African countries continued to give lame excuses at delaying this historical necessity which has as a result continued the tendency of the marginalization of the continent in global affairs as well as deepened the underdevelopment of its people.
As the leaders go to meet again in Addis Ababa on January, 31st, 2008, all progressive Africans are hoping that the final solution to African Unity and integration will be found. Now, Africa has entered the globalization process from a point of weakness.
New constraints have emerged, particularly with timeframes imposed by initiatives such as the EU, the WTO, China and so on. It is therefore imperative that a new momentum and initiative within a better structured continental framework with improved follow up on both the political leadership and rationalization and implementation of one African economic set up be launched.
Political Integration First, then Economic Integration
Former Zambian President Dr Kenneth Kaunda and former Algerian President Ben Bela are the only two Africans still living who can attest from first hand account the ideals yearned by Africa’s founding fathers of a strong and independent one African State that was championed by African heroes such as Kwame Nkrumah, Patrice Lumumba, Toure, Gamal Abdul Nasser, Emperor Haile Sellassie, Jomo Kenyatta and other African patriots.
These ideals have been taken up by a few progressive African leaders notably Muammar Gaddafi of Libya, and the Senegalese President Wade who have been trying to persuade fellow African leaders to move forward on this African integration process. In the last ten years, Libya has had to spend a lot of money and effort trying to have the project realized.
Muammar Gaddafi and the leaders of this progressive tendency have been opposed by a conservative fringe whose chief response has been that they are not ready or they must first consult their people or that they are afraid of losing their sovereignty or simply remain non committal. This bloc has been lukewarm and has chosen the road towards Africa’s integration by first strengthening regional economic groupings and assumed that the integration process will ripen on its own. The logic of this route is to further divide Africa. This is the route championed by African colonial masters now united as the European Union.
It has been argued by some African leaders and supported by neo colonial think tanks at the secretariats of the Economic Commission for Africa, the African Union and the United Nations that the challenges Africa faces is for the Regional Economic Communities ( RECs) to harmonize their programmes so as to attain convergence and ultimately the African Economic Community.
Even though the REC’s are not among the organs of the African Union (AU), it has been argued by these think tanks that they can still be used as building blocks of the African Union government as they were anticipated to be for the African Economic Community under the Abuja Treaty.
It has been obvious from all and sundry that such an approach would forever thwart the advancement of the African confederation and would play in the hands of Africa’s enemies who want to continue subjecting the continent to age old disadvantages such as imperialist exploitation and marginalization of the Africans in global affairs.
To the progressive Africans, it must be obvious that this incremental approach is not only unsustainable but must be overthrown and be replaced by a Nkrumah/Nasser and currently Gaddafi/Wade approach that argues for “seek ye the political kingdom first, and all would follow”.
The argument that Africa should first rationalize and harmonize the more than fourteen (14) regional economic cooperation groupings and use them as the basis for advancing to Federal Africa is a view point that is against historical experience.
In practice, it is utter mechanistic nonsense and is a road to continued balkanization of the continent, weakening Africa and ensuring that it continues to be a market for imperialist capital. Only political unity can advance the economic integration agenda and break the suffocating tentacles of imperialism which have for the last 200 years constrained Africa’s advancement.
The only Question at Addis Ababa and Africa’s Prayer
It is important that Africans, as they meet at Addis Ababa on 31st January, 2008 realize that unless they create political space in the sense of an all Africa Federal State, all what Africa has always aspired for will be in vain. We will have to wait for another generation to attempt at unity again. What a waste of ten years investment of our time and resources!
At the Accra Summit of the African Union in July, 2007, the decision to establish the federated State of Africa was postponed for six months to allow for further national consultations. About 50% of African States mainly in the CEN-SAD group were for the immediate establishment of the United States of Africa. Another group mainly from the SADC area was lukewarm to the ideal and politely opposed the immediate creation of the African Union State.
They regressed to the outdated Abuja Treaty argument of basing unity on the gradual development of regional groupings.
Today, Africa faces the challenges that Nkrumah and his colleagues faced at the beginning of this argument which resulted in the creation of two blocs – the Casablanca and Monrovia blocs among African leaders. The question then was principally how to advance the decolonization of Africa.
The bloc led by Nkrumah, Nasser, Nyerere, Haile Sellasie, Ben Bella, Kaunda, Toure, Lumumba and others won the day against the African reactionaries who advocated for some regulated independence. Today, there are about 53 politically independent African States – most of them are weak and are simply outposts of imperialist exploitation and subjugation.
It is necessary, nay, a historical inevitability that Africa must first address and achieve political unity under one State for any meaningful progress to be made towards playing any equal role in the global community. The harmonization and rationalization of the REC’s will also follow naturally as politics will lead.
The argument which has been advanced by some of our leaders that political unity will only be reached if and when all African States accede to the ideal by way of consensus is obviously, not a useful position. For practical reasons, this 100% unanimity is utopian as some African States are under the hegemony of imperialism or are simply reactionary and/or will never be allowed by their imperialist masters to accede to Africa’s political integration. These countries should not be allowed to hold progress of other Africans. They should no longer delay this movement towards Africa’s emancipation and unity.
Those who want to move on a snails pace or are opposed to Africa’s political integration should be left out for now. Their own nationals will deal with them in due course and compel them to join the bigger good – the Federated United States of Africa.

END

THE FINANCIAL CRISIS AND A CALL FOR THE RETURN TO THE MIXED ECONOMY

THE IMPACT OF THE GLOBAL ECONOMIC CRISIS ON ZAMBIA’S ECONMY AND THE OPERATIONS AND STABILITY OF THE FINANCIAL MARKETS IN ZAMBIA OR THE FINANCIAL CRISIS AND A CALL FOR THE RETURN TO THE MIXED ECONOMY

MEMORANDA REQUESTED BY THE COMMITTEE ON ECONOMIC AFFAIRS AND LABOUR OF THE NATIONAL ASSEMBLY IN RHEIR LETTER DATED 19TH MAY, 2009: BY Amb. MBITA CHITALA PhD, Chairman, Zambia Research Foundation, P.O. Box 35443, Lusaka, Zambia. Cell: 0976 030398, Email: mbitachitala@yahoo.co.uk

1.0 Introduction

The causes of the current systemic crisis of capitalism and the way forward for countries such as ours are a matter of great debate and any meeting by citizens organized to discuss and seek solutions is always useful. I feel greatly honored to appear before the Committee on Economic Affairs and Labor to orally brief you on the issues of the impact of the global economic crisis on our country and the challenges that our country faces. I am not surprised to notice that many Zambians are currently yearning for change in the way we have been conducting our economic policies. In this recession where economic activity has slowed, there is a slowdown in our GDP growth rate, slowdown in investment, low capacity utilization in our industries, and there are low real incomes of households and lower profits for companies, governments usually respond by adopting expansionary macro economic policies, such as increasing money supply (monetarists) increasing government spending (Keynesians), decreasing taxation (supply side economists) while laissez faire economists recommend that governments should not interfere with the so called market forces. What should be apparent in our country is the fact that the current international financial crisis points to the collapse of laissez faire economics and discredits market fundamentalism. This collapse of the Chicago School of Milton Friedman further implies the fact that Zambia, as is the case in many African countries, must break free from these failed neo-liberal policies and their institutions that have promoted them and define its own path of growth and development.

2.0 Causes of the crisis

The US sub prime mortgage crisis and the bursting of other real estate bubbles around the world were symptoms that helped create the global financial crisis. The real cause was however imbedded in the vagaries of the international capitalist system. The so called globalization simply refers to a phenomenon where the world is controlled by the financial oligarchy or what my good Egyptian friend Professor Samir Amin described as the “financiarized” groups – the oligopolies who do not produce profit, but rather, they just swipe the monopolies rent through financial investments. My other Ugandan friend Professor Dani Wadada Nabuere, in agreeing with Amin correctly argued that the core of the crisis is over-extension of credit on a narrow base resulting in a phenomenon where money has become detached from the material base of a money commodity that can measure its value such as gold or silver.

What do these observations by these eminent African scholars mean in reality? To understand this, we must go back in history. After the Second World War, the expansion of the world economy was based on the United States Dollar which provided the link between money and the gold standard. This link collapsed in the 1970s under the reign of President Nixon and the US Dollar became the global currency, but without a backing to this currency from a money commodity like gold as was the case previously.

Since the collapse of the gold standard, there has been unmatched expansion of global credit – growth of paper money and monetary instruments such as derivatives, future options and hedge funds at a faster rate while the productive base grew at a slower rate. Consequently, the “financial bubble” which the world has been experiencing lately became the logic of this imbalance. Samir Amin estimated that “the gross amount of financial instruments in 2008 amounted to Two Thousand Trillion Dollars while the world Gross Domestic Product (GDP) was Forty Four Thousand Trillion Dollars. This phenomenon was what precipitated the crisis. The growth of “speculative capital” has over-run the growth of “productive capital”. In other words, there are currently large amounts of credit circulating without the backing of any production at all. This “loose money” has completely run wild and is in a wild search to be given value. In other words, the owners of this “fake” money, those holding United States Treasury Bills and bonds, want to preserve their wealth and prevent themselves from financial collapse.


3.0 Results of the Global crisis

Capitalism or more appropriately, this aging capitalism cannot re-invent itself. It is doomed by its greed to wither away. Its logic has resulted in or engendered global stagnation of production with its side effects of recession in the north and economic depressions in the south. The shrinking wages, the increasing levels of unemployment, the worsening of poverty and disease of many nations of the South – all this is symptomatic of aging capitalism gone senile.

For the Northern countries, the only way their aging capitalism can stay afloat, is by these states nationalizing many of their key banks and corporations which can no longer survive because of the shortage of liquid cash. The world is now witnessing a situation where these capitalist countries are being forced to move back in the direction of central planning and management of economies - a phenomenon they hated so much not long ago.

Furthermore, this systemic crisis of capitalism is leading to a rapacious struggle for the earths resources. The 15% of the planets population who currently consume 85% of world resources want to continue with their opulent life styles at the expense of the rest. That is why the United States under President Bush wanted to continue with its global military control of the world by establishing Coricom on the African continent to secure the exclusive access to Africa’s resources against impediments that India and China may wish to introduce. Similar clouds of war as occurred in pre 1914 and 1938 are building up and the world should be preparing for self destructive acolyptic wars.

With respect to Zambia, the Hon Minister of Finance and National Planning Dr. Situmbeko Musokotwane informed the Indaba on Global Economic Crisis on 4th April, 2009 that “our banking system has not been severely affected by the crisis”. At the same time, Musokotwane informed the meeting that “the initial impact of the global crisis on the Zambian economy was felt in the foreign exchange market. Quite a contradiction. The Minister could have been more candid. He further informed that the government has earmarked 1.8% of GDP or about K750 billion as domestic borrowing and defined it as a stimulus. He also called the K101 billion that the government would fore go on PAYE tax cuts and VAT revenue on agricultural implements as part of the stimulus. This, of course is not adequate. In the financial sector,the truth is that , Zambia’s banking and financial sector , as has been the whole economy, continued to suffer severe shocks and need stong government intervention. A few areas could include the following areas;
a. As a result of capital flight combined with reduced forex inflows from copper exports,the Kwacha has been depreciating. Between July and end December, 2008, it depreciated by over 60 percent. The effect of this meant that imports became expensive, which in turn led to depressed production and loss of income from small traders who simply collapsed. It is strange that the Minister appeared elated at this outcome when he informed the Indaba that “it was important (necessary) that depreciation did take place so as to re-establish a new equilibrium between reduced supply of foreign exchange and the demand for it.” This mechanistic approach to the welfare of our people is not consistent with the duty of maximizing the benefits to people as is required of all governments.
b. The financial houses, particulary the indigenous institutions that depend on debentures from the commercial banks and other asset managers have all become insolvent as these big largely foreign banks and houses have continued to recall their debentures. There is need to rescue the indigenous financial institutions by converting their provisions into debt by way of bond sales and other uninflationary ways.
c. Large job losses in the financial sector and in companies that borrowed, as they too, are becoming insolvent following the recall of loans on account of defaults explained or induced by this credit crunch, is the result of this crisis. It is of course worse in the Mining Sector where government could provide a stabilization trust fund to, among other functions, insure that all miners losing their jobs are guaranteed some living income.
d. To stabilize the exchange rate, there is need to stabilize the capital account in order to reduce the country’s vulnerability to global markets which has been worsened by denationalization of the banking system and dollarization of the economy. There is need to control capital flows without restricting outflows or restrict For instance, a compulsory interest free deposit before repatriation can be introduced as is the case in countries such as Chile. It is also possible to introduce a forex register to minimize tax evasion and capital flight.

4.0 Collapse of market fundamentals

It has now dawned even to our most zealous market fundamentalists that markets are not impersonal beings. They are man-made forces influenced by greed and selfishness. Markets do not have self-correcting mechanisms. To most honest people, this neo-liberal dogma has collapsed. The devastation caused by the current international financial crisis where tax payers have been forced to spend Trillion of Dollars to clean the toxic mess left by this collapse is a clear attestation to the collapse of market fundamentalism. Now, the ghosts of John Maynard Keynes and Karl Marx are coming back to haunt the neo-liberals. Now, policies such as nationalizations of Banks and Financial Institutions, rescue plans for companies, the need for state intervention and attacks against unbridled capitalism – are now the real thing in global practice. The economist magazine of 2nd February, 2009 eulogized Karl Marx and put him on their cover page with the question “what would Marx think?”

The lesson for our country is that we must strive to free ourselves from the shackles of neo-liberal capitalism and explore new paths of development. In all religions of the world, countries are moving away from this discredited neo-liberal paradigm. Gordon Brown correctly characterized it as the collapse of the Washington Consensus. Of course, this change will require the political will of our leaders who must be willing and able to explore alternative development policies and programs. Our own Guy Scott prescription (The Post of 14 April,2009) that we must continue with the failed paradigms of the Washington Consensus is obviously a misreading of our history and a road to continued disaster.


5.0 SAPs are discredited

The G20 group of nations who met recently in London realized that the priority of all nations must no longer be inflation but jobs and economic recovery. The IMF and the World Bank who forced our countries to adopt Structural Adjustment Policies (SAP) have now changed their views and they are now supporting fiscal stimulus – that is, expansionary fiscal policies, rescue plans and nationalization. These policies have since 1980s been denied to Zambia and all developing countries as these policies could impede the interests of global capitalism.

We must challenge and reject all the failed SAP policies. This is the same conclusion arrived by the Prof. Joseph Stiglitz Commission appointed by the UN General Assembly. We must use both fiscal and monetary measures to mitigate the impact of this financial turmoil. We must restore capital controls and reverse liberalization of the capital account which, since 1993 in Zambia, simply opened doors to speculative capital flows, tax evasion and capital flight and has contributed to lowering of Zambia’s domestic savings while increasing our dependence on foreign aid.

We must do away with fiscal and monetary austerity as prescribed by the Breton Woods Institutions as this has been choking our economic expansion and limiting our public investment and social spending. We should learn from President Obama’s USA that stimulus policies in times of crisis are a historical necessity; while fiscal restraint has no economic logic.

We must reject trade liberalization and restore protection of our domestic market. Trade liberalization has simply increased Zambia’s external dependence, destroyed our domestic industries, accelerated our de-industrialization and led to the deterioration of our terms of trade. Our ability to feed ourselves has been compromised by the foolish conditionality that we must invest in cash crops at the expense of food production. The forced privatization translated into massive job losses and social exclusion of our people. We must learn from what is happening in the USA, Latin America and Asia where governments are taking back what was sold off to foreign interests in order to restore their people’s sovereignty over their nations’ resources.

6.0 The need for a Developmental State

President Ronald Reagan in the 1980s wrongfully stated that the state was a “part of the problem and not of the solution”. As a result of this policy prescription, there was massive de-regulation and assault on the state, public service and ownership. Zambia and many African countries were subjected to devastating Structural Adjustment Programs (SAPs). Our countries were characterized by the so called Washington Consensus, as being “predatory, wasteful, rent seeking, corrupt and inept”(Thandika Mkandawire 2001 o.p.cit). They tried to weaken our states and forced us into imposed fiscal austerity programs, downsizing of our public service, dismantling our public sector and privatizing all state enterprises. These were policies to nowhere. It is now apparent that a strong developmental state is an indispensable and indisputable agent of development. It is now clear in all observations of countries’ experiences, that deregulation and market fundamentalism are part of our problems. We must restore the role of a strong and active interventionist state.


7.0 Financing Development

Since it is foolhardy to expect external sources of finance to develop our country, we must raise resources internally. This policy prospective is also the view of the AFDB who have recommended that our countries must boost domestic resource mobilization, increasing domestic savings. The ecumenical organization Christian Aid (2008) in their publication “Death and Taxes: the true toll of tax dodging”, noted that our country has been losing billions of tax revenue due to lack of enforcing agreements with foreign mining companies who have been resorting to various means to avoid paying taxes. Our country has a large enough tax base to fund our own development. Judicious use of our pension funds as well as prudent use of our annual budgets can meet all our developmental needs. The argument as advanced by some right wing scholars that we must attract Foreign Direct Investment (FDI) is not sustainable as none will come however much we try.

8.0 Restoration of our self-confidence

How does Zambia get out of the mess? The conditions for a genuine positive answer to this question must be a return to the mixed economy where state capitalism co-exists with strong social democratic policies. We must return to democratic socialism (not totalitarian communism which is easy to vilify). The dream for democracy and socialism has been the dream of the pioneers of the Democracy Movement (MMD) in their draft program which was substituted later by the doctrines of Milton Friedman and the Chicago school of economics – privatization, deregulation and cuts on government services. We must address our budget expenditure policy to reduce wastage by re-introducing Government Stores and eliminate unnecessary costs. It is unbelievable that a rim of paper that costs K18,000 in normal shops is bought by government departments at anywhere above K70,000. Tarring a kilometer of road which averaged $200,000 in the sub region is anywhere above $1 million in our country. Since the current foreign banks that dominate our financial sector has failed to channel their money to productive priority and welfare-enhancing economic sector, we must set up state-owned banks to address this limitation

We must restore our self-confidence and trust in our own people and aggressively accelerate regional and continental integration of Africa. We must institute a public works program to address the employment needs of the more than five million Zambians that are currently unemployed or underemployed and many who hover between suicide and madness. We must nationalize those mining companies that want to stop mining and place their mines on care and maintenance, as well as increase our stake in all the other mines which must be declared strategic to our nation. Our government must raise capital and invest in power generation and restructure ZESCO, re-introduce an agricultural marketing board, re-capitalize NCZ, re-establish an agricultural bank, empower our own middle class, and invest in the social sector. The truth is that we are our own makers of our history and foreign aid as we have known it so far tends to make us complacent and non creative.


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