Maravi

More discourse on the budget

More discourse on the budget
Written by Editor

On the front cover of this year’s budget are three artist’s impressions of the planned Lusaka Multi-Facility Economic Zone. It looks like a cross between a Mongol encampment on the steppes of central Asia and a Stalin-era railway station. Is this what the future of Zambia looks like?

Turn the page…Inside, the first five pages are devoted largely to looking back, and can be safely ignored. The first bit of target setting comes on page six, where in paragraph 40, it is declared that five per cent growth would be realistic for 2009.

This growth target is absurd since almost every developed economy in the world is likely to shrink this year by a few per cent and global average growth is unlikely to exceed one per cent on the most optimistic reckoning. Economically speaking, Zambia is the tip of the tail of the global dog.

When the dog is happy we find ourselves merrily flicking from side to side; when the dog is miserable we find ourselves coiled up in a dark and smelly place. We will be lucky to shrink by less than five per cent, given the depth of the global recession, which George Soros now says is effectively a depression of similar severity to the one in the 1930s. Still, facing up to reality was never a strong Zambian characteristic, far less a New Deal one.

After this, some waffle follows; what Americans call “motherhood statements”, general points that nobody can dispute about the importance of public-private partnerships, diversification etc.

Then we come to some overall numbers on page eight. The total amount to be spent under the budget is K15.3 trillion. This is nominally a lot more than was spent in 2008, by over K2 trillion. But whether it really is more depends upon what inflation rates and exchange rates one assumes. Let’s just note that there is no sign of any cutting back, of any austerity, in this budget. It is as if that dog was reasonably happy.

What is going to save Zambia from the economic incinerator, apart from the recession just going away and leaving us in peace? First, agriculture.

The new finance minister Situmbeko Musokotwane plans to carry on subsidising fertiliser for maize to the tune of K435 billion; enough on reasonable assumptions to more than double the amount distributed this year, which in its turn was double what was distributed last year. It is plain that this year the system was overloaded and a lot of fertiliser ended up with the wrong people or in Malawi.

How on earth will it cope with a redoubling? The minister acknowledges the problem but does not give the solution. In addition to fertiliser, there is K100 billion for the Food Reserve Agency for collecting and storing maize; so all in all more than half the agriculture budget is for subsidising maize. There do not appear to be any subsidies for any other crop. Diversification indeed!

The other main leg of “diversification” and non-copper growth is tourism. Here, Musokotwane has decided that the bulk of public investment in tourism should go into servicing Kasaba Bay on Lake Tanganyika; it is a part of the Sumbu National Park. Just under K50 billion is on its way to fix Mbala and Kasaba Bay airports, mend the road and electrify the area. Another billion kwacha is allocated to making a plan for Kasaba (which will presumably tell us after the fact whether the money should have been spent in the first place).

Anyway, even without a plan, Musokotwane knows that “more than 12 world class hotels” will be built. This does not seem a sane expectation, and it is worth going into the matter a little deeper since Kasaba seems to be flagship and touchstone of this budget.

Kasaba Bay used to be a marginally well-attended resort in the days when white residents of Zambia could not get their money out of the country (if they could they would have gone to Mauritius); and when Zambia Airways charged a heavily sub-economic fare of only US $50 to get there.

Today, it is defunct. The park is heavily depleted, save for the very large crocodiles which prevent you from swimming or water skiing. Some people like to fish, yes, but are there really 12 hotel-years of fishermen ready to fly to the back of beyond in all types of weather to prove the adage that if you give a man a fish he will eat for a day, whereas if you teach him to fish he will lie on his back in a boat drinking beer for the rest of his life?

The answer is No. And that is without taking into account the Congolese who wander over the border looking for mealie meal to swap for their AK47s. Kasaba is very beautiful, but…

President Rupiah Banda earlier this year visited Kasaba Bay, taking as a guest a white Zimbabwean safari operator called Charles Davy who mentioned that he would invest US $8 million when given the concession. Well-placed sources say this deal is as good as done and dusted and Musokotwane is simply following orders. Is the same true of the K30 plus billion for the tarring of the Chipata-Mfuwe Road? This is long overdue and thus welcome, although a few cynics will undoubtedly point out that Rupiah’s own farm is on the very same road.

Our manufacturing sector will also grow, thanks to creation of tax-free zones (MFEZs) although this was last year’s story. This year, there is a K30 billion contribution to infrastructure and some tax adjustments to make them even more tax-free that they were already. Has anyone done a proper social cost-benefit analysis of these “enclaves”?

ZESCO is to raise its tariffs, reaching cost-recovery levels by next year. Let’s hope we are talking about a new, sparkling efficient ZESCO, or “cost-recovery” might imply a ridiculously high level of tariffs.

Now, we’ve exhausted the interest of the first 13 pages and there is nothing of special interest (or bigger than Kasaba Bay) for the next nine pages. Social services and non-mining tax are areas of little change, for example. Then we come to page 22. Here we find a little gem: an increase in customs duty for cell phones to protect the one small assembler of these things in Lusaka (para 140). Who is he?

And we find a list of measures that are supposed to relieve the impact of low copper prices upon the mining industry. These comprise: removal of windfall tax, allowing consolidation of hedging and mining income for tax purposes.

This is really a very strange list. The first measure, the windfall tax, does not apply when copper prices are low. It only cuts in when they are at almost twice their current level and the mines are making super-profits. What has it got to do with these hard times? The second measure is just technical. The third, an increase in capital allowances, is only relevant when mines are investing in fixed assets (i.e. growing production or reducing labour needs) which they are not and will not under the present pricing picture.

A much better idea would have been to offer pro-employment tax allowances; for example permitting deductions from profits tax for keeping workers in jobs, or creating new jobs. After all, jobs are what Zambia needs, not job cuts.

There may be some more interesting things hidden away in the Yellow Book (the actual budget). But it is a fair bet that sight of this will do little to alter the fact that this is an unimaginative budget which will keep us in a dark smelly place until Superman or Obama saves us from ourselves. And do not hold your breath waiting for that to happen.

Well, tomorrow we will check what is in the Yellow Book.

Labels: 2009 BUDGET, MFEZ

posted by MrK @ 4:44 AM