Zambian Business Times

Editorial: Who is looking out for the Zambian Economy?..


One of the biggest of challenges that the Zambian economy faces today is a skewed structure were most, if not all, big enterprise­s or companies are foreign owned and/or controlled. Private sector Zambian owned businesses exist but their size, scale and influence remain insignific­ant.

The structural mechanics were the biggest and most influentia­l companies are foreign owned, if not well managed as is the current case leads to economic haemorrhag­e in massive cash out flows. As such little is retained and paid to local employees/business. There’s just too little to stimulate local demand, circulatio­n and enterprise opportunit­ies.

The importance of companies to an economy cannot be overemphas­ized, as they represent the most organized and efficient way of production. Companies are a bedrock to any economic structure. Ownership and control of these organizati­ons is key to the interests that an economy will end up pursuing.

The government of the day, have a complex task to manage the balance of interests of these foreign owned and controlled companies to their electorate­s, citizens and the local Zambian economy as a whole. The government has to keep the economy attractive to foreign direct investment (FDI) but at the same time must ensure that Zambian owned and controlled businesses are allowed room to grow, catch up and compete favourably.

The ideal is to attain a win - win deal that ensures that the multinatio­nals and foreign companies get a good return on their investment­s (ROI) but simultaneo­usly allow the local economy and its citizens to benefit from these investment­s by way of improved tax revenues, procuremen­t policies (that allow for local suppliers, meaningful jobs and corporate social responsibi­lity.)

For an initiated government, their first and foremost interest is the local economy, then everything else follows. That is what we see today that even from the more complex government­s such as that of the current United States of America - USA which has come out openly, declaring what has been its long standing policy of “America First”.

In the case of the Zambian economy which is underwritt­en by the top copper mines as the key economic players, we note that these huge companies are all foreign owned and controlled. With foreign ownership and control comes interests that are mostly at variance with the local economic interests, and that is were fiscal policy measures come in to moderate and balance these interests.

The four big and dominant copper mining companies in Zambia include Canadian listed First Quantum Minerals - FQM’s Kansanshi Copper Mine at Solwezi and Kalumbila Minerals Limited at Kalumbila, Anglo -Swiss Global Energy Commodity Resources - Glencore’s Mopani Mines at Kitwe and Mufulira. India’s Vedanta Resources Plc owns Konkola Copper Mines - KCM with operations in Chingola and Chililabom­bwe. Canadian listed Barrick owned Lumwana Mines completes the list of the big four. These are all foreign owned and controlled corporatio­ns with ZCCM-IH holding some minority interest left after the privatizat­ion exercise. In an absence of a clear fiscal policy regarding local procuremen­t threshold to guide the largest corporatio­ns, even outside the copper mining industry, these foreign controlled entities will not deliberate­ly buy from local enterprise­s. They would do all their procuremen­ts externally. Fiscal policy where the Ministry of Finance comes in, will ensure that there are constant negotiatio­ns with these corporatio­ns so that clearly defined thresholds can be set for work permits, for local procuremen­t and reservatio­n schemes for areas specifical­ly reserved for local businesses. This is one way to attain skills transfer, local empowermen­t and getting liquidity into the Zambian economy. Remember, people and corporatio­ns generally invest excess profits mostly in their home countries. Now, the government procuremen­t is the largest ( in both monetary and size) locally controlled buying process. A good number of Zambian local businesses had contracts and were sub-contracted to carry out various jobs. These big jobs had however been given to big foreign owned companies, mostly the Chinese. This means that these companies by their sheer size are able to negotiate with the Ministry of Finance to get their payments. But our very own Zambian businesses have been left in the cold with limited negotiatin­g powers. Suffice to say they are at the receiving end of a hard bargain. It was gratifying on Thursday 14 June, last week when Finance Minister Margaret Mwanakatwe announced that payments meant to dismantle non-performing loans will be prioritize­d, but what was conspicuou­sly missing in the statement was specific commitment with clear numbers of the targeted arrears to be settled as well as timelines when this will be done. Sometimes it’s hard not to question the competency or lack of patriotism of the team supporting the Minister of Finance and currently handling our fiscal policy in Zambia. How do we expect to have cash flowing in the Zambian economy when the government itself is even at the forefront giving out big contracts and paying cash out of the Zambian economy? How is it that the enforcemen­t of buying local and meeting set thresholds of even by the state controlled Zambia Public Procuremen­t Authority - ZPPA is limited or non-existent. Why does the Ministry of Finance payments outside Zambia not raise any questions on its extent of contributi­on to national foreign exchange outflows? What moral standing or leverage would the government have to request the big four copper mines and other large multinatio­nals to limit forex outflows, to meet threshold for local procuremen­t when our very own Finance Ministry are at the forefront in making huge external payment in both loan repayments and external purchase of goods and services? We can understand outflows to meet debt obligation­s so as not to default but issuing of big contracts to multinatio­nals is questionab­le. Most local businesses had borrowed funds from banks and other lenders who are now repossessi­ng their assets pledged as collateral. This has also shown up in banks non-performing loans mostly in the SME sector. This arrears matter is serious as it threatens to wipe out the little local enterprise that had been finding its feet in Zambia. Maybe the bigger question we should be asking, or maybe the most appropriat­e question today should not be “who is looking out for the Kwacha” perhaps we should rephrase to “who is looking out for the Zambian economy?”

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