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

Zambian Business Times - - FRONT PAGE -

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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