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.

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