Maravi

Mongu-Kalabo road: an economic analysis

Mongu-Kalabo road: an economic analysis
By Robert Sanyikosa
Sun 06 Mar. 2011, 04:01 CAT

Economic infrastructure such as roads, harbours, dams, airports and railways have been important catalysts for accelerated economic development everywhere; and much of the underdevelopment, poverty and backwardness in Zambia can directly be linked to the country’s failure over the years to realise this.

If Zambia did realise and the country was able to get from its natural resources sensible revenues, much like other resource-endowed countries like South Africa, Botswana, Russia, Saudi Arabia, and with its small population of only 13 million (2010); and invested this money in infrastructure, instead of borrowing, the country would well be taking its seat among these emerging economies.

But of course, Zambia gets peanuts for her resources and must borrow for any infrastructure investments, rather ironic and certainly nothing can be worse and more embarrassing than this. Needless to say, Zambians seem quite happy day in and day out to sign loans - which I suspect pretty soon will start choking this country and negatively affect economic development with the possibility of the country seeking a second HIPC – while they see their resources literally fly away.

But the fact that Zambia must borrow for most of the infrastructure projects requires that there must be prudence in the application of these loans because loans have a huge opportunity cost. In other words, each loan obtained for a given purpose has use in an alternative area. If you borrow for a stadium, you forego a university, for instance; because you cannot have both. The choice therefore, is to apply the loan in the area in which it will derive the highest possible net benefits to the economy, both in the short and in the long terms. Optimal choice is also important because, as I suspect most Zambians do not know, each and every loan obtained on their behalf by the government must be repaid with interest and this is done solely through taxes to be paid by every Zambian, whether they even know about the project or not, whether they live in a rural area or not, whether they will directly benefit or not.

Each person and those children unborn must pay taxes to repay the loan. Taxes are what each Zambian pays through VAT on almost everything: excise duty on beer (except diplomats, by international convention; the military, because they protect us; and Members of Parliament at their Motel, they make the tax laws), PAYE on salaries, corporate tax, import duties, road tax, ZNBC TV levy (for better TV!), fuel levy, carbon levy, various fees for government services.

So even a person in rural who does not know about the PSCAP project at Cabinet Office for which government has borrowed money, will end up paying for that loan, if not in his time, his children and grand children will surely be made to pay. It is as simple as that, as day follows night. He will pay whenever he buys salt, cooking oil, school uniforms and gets on a bus! This is the reason why firstly, money obtained through loans must be used prudently and secondly why every Zambian must decide to show interest in every loan transaction that government enters into, without exception. In any case, why should anyone be made to pay for things they do not know?

But economics is this and more when it comes to choices that a country makes. As a matter of fact, the choices a country makes on investments, the type of investments, dictate and set the pace for its economic growth. This is all based on the principle of opportunity cost; like I stated already, ensuring that resources are directed in areas with the highest net benefits to the economy, compared to their alternative use.

While this is critical to the job of an economist and an important cornerstone of economic way of thinking and economic theory, unfortunately in Zambia, there is no evidence of such realisation in the various ministries and government agencies responsible for making these choices. Things are done and choices made pretty much on instinct and often for political expediency; without any semblance of economic analysis being applied. I would be quite happy to be shown an economic analysis comparing alternative investment areas before a choice was made. Simply, choices are made without any comparison with other investment options. Therefore, feasibility studies only look at technology choice. In other words, economic theory and economic analysis play no part and have been thrown to the wind.

A cursory look at the so-called Vision 2030 (which aims in twenty years to bring Zambia to what it was forty years ago – a Middle Income Country!) and even the recently launched Sixth National Development Plan (SNDP) confirms the lack of application of economic analysis and more.

It is difficult to see what government economists spend their time doing. This is part of the reason why investments made in Zambia have not been of greater impact on the economy, and why still the country is one of the poorest in SADC, in spite of never experiencing natural or man-made calamities.

Economic analysis also allows the maximization of benefits and minimisation of costs, both tangible and intangible.

With proper economic analysis, Zambia would have electrified the railway from Chingola to Livingstone because more hydro power is being produced, it is renewable and cheaper, rolling stock ensures higher economies of scale, reduces substantially wear and tear of roads as more copper (from which we gain nothing) is produced, hence less taxes to be paid by ordinary Zambians to subsidise the mining companies using the roads, ordinary Zambians and tourists would travel and transport their goods faster and cheaper by rail! The net benefits to the economy both in the short and long run from electrifying the railway is far higher than, borrowing for a stadium, for instance.

The Mongu-Kalabo road is one such investment that I can use to illustrate deficiencies in the use of economics to make optimal investment choices. The choice of Mongu-Kalabo road has been made because of my knowledge of the project, having been part of a team of consultants, from Rhodes University in South Africa, which undertook the Environmental Impact Assessment study (EIA) and I was the economist on the team.

Zambia has secured a loan (to be repaid with interest) of about K1.3 trillion (US$350 million), approximately 4 per cent of the national budget, for the construction of the approximately 74 km road about 50 km of which passes through the Barotse Flood Plains to connect Mongu to Kalabo. The road has already cost Zambia more; on two occasions initial parts of the road have been washed away and money gone down the drain (loans).

There has been no functional road between the two towns and consequently it takes four or more hours of rugged 4x4 driving on some of the worst possible terrain in the dry season (May-November) while during the rainy season (December-March) the plains flood and it becomes impassable to vehicles except boats while people shift up lands.

What are the benefits? Certainly reduction in time of travel from Mongu to Kalabo to about 40 minutes all year round. However, travellers on the stretch of 50 km through the plains, only for the dry season, as the floods cannot allow stop-overs along villages, people will have shifted!

Therefore, for half the year, the tarred road is only useful to direct travellers between the two towns and nothing in between (certainly no schools can be built in the flood plains just because there is a tarred road). Safe and pleasant travel will ensure. Most importantly, Kalabo will have access to more goods and services, cheaper due to reduced transport costs, from Lusaka, the Copperbelt and the rest of Zambia through Mongu; even though those goods and travel to Livingstone, Southern Province and to Namibia, Botswana, Zimbabwe and South Africa, will still use the Kalabo-Senenga road (130 km) to Sesheke.

In a significant way, the road will have important multiplier effects. In economics, the multiplier of a direct investment like road construction is high and its effect immediate. It is also assumed that the road will employ local people and they will supply food to construction workers.

There are some assumptions that Kalabo has potential for mineral wealth and the road will allow explorations and mining of, some say, diamonds. There are also benefits that allude to opening up of Zambia to Angola for trade through Kalabo. All these seem on face value plausible arguments.

But in the former case, if there is potential for mineral wealth, which I have no reason to doubt, then the owners of those mines who stand to benefit, should build the supporting infrastructure, should they find it critical to their making profits. This is what is happening in Canada, where mining companies are building road and railway infrastructure in mineral rich North Canada, instead of putting the burden on Canadian taxpayers. And the Canadian government can well afford to build with its own money if it so wished, why should Zambia borrow to subsidies foreign mine owners?

The best example of a good investment is what Mr. Enoch Kavindele is doing in North-Western Province where he plans to open up a huge copper mine and he is building a railway line to support that. And recently I read, an iron ore firm in Mumbwa is planning to build a railroad from Mumbwa to Lusaka to transport its ore. These railways, which I hope will be electrified, will transport more than minerals, they will transport ordinary people and their goods cheaper, faster and safer.

Beyond anything else, these are the spin over benefits that come with sensible investments, a country benefits. As a matter of course, Zambia must insist on mining firms to build railways on which to transport their minerals; after all, they own the mines and reap all the profits, makes economic sense. This can even make up for their apparent tax evasions and transfer pricing as well the destruction of Zambia’s environment well into the future, long after they have abandoned the mines, due to low prices, new technology or having exhausted our resources.

With regard to the latter, opening up to Angola, it seems to me to be a long term option. Much of that part of Angola is yet of any use, abandoned after the war, far away from the major cities and really of less significant economic value to Zambia, yet. In any case, the Kalabo-Senenga Road still opens up to Angola. If it is about oil, this is uncertain and no studies have been conducted to know the economic feasibility of oil imports from Angola, so it is a wild cat. Certainly not a basis to build a road.

But what are costs to the economy arising from this rather unique road in the sense that it passes through the flood plains. It is important here to acknowledge that a similar road the Serenje-Mansa Road has similar features, passing through rather plainy areas. But the difference ends there. The socio-economic livelihoods of the whole of the Western Province revolves around the Barotse Flood Plains and have been so for generations. The Plains are the epicenter of culture, language, traditions (including the famous Kuomboka Ceremony), and hold huge fish and animal resources that have sustained the economy for centuries. The potential for the economic contribution by the Plains has not been fully realized or exploited.

For instance, the potential for modern and functional harbours to support tourism and even water transport. The most important cost is the real risk that the Barotse Flood Plains will never be the same again after the road is built; that the Plains will lose its innocence and with it its culture, traditions and economic livelihoods for nothing much in return except savings in travel time. This much we established during the EIA.

In other words, when benefits are compared to costs, there will be a net loss to the economy in Western Province and on a larger scale to Zambia as a whole. In addition, these costs are irreversible and permanent. What value do you place on the loss of culture and traditions, these are priceless.

Firstly, the ecosystem in the plains is extremely delicate, with humans and nature depending on each other for sustenance. A slight interruption in this balance will disrupt all this. It will be appreciated that sometimes even in normal years, the Kuomboka has failed to take place due to the over flooding. Imposing an artificial structure in the plains is likely to disturb the eco balance.

And even here I am not sure there has been any model built with computer simulations on how the flow of water will shift with the road construction. The road, which will have to have huge embankments, will have the immediate effect on the flow of water across it. The change in speed of the flow of water will affect the breeding pattern of fish; the grazing pattern of animals up lands; result in causing swampy environment for the breeding of mosquitoes and has the potential to disrupt the holding of the Kuomboka Ceremony.

These are all permanent and irreversible changes in the ecosystem. I was surprised when I read the recent (2009) EIA by the Environmental Council of Zambia (ECZ) to notice such important omissions like these in the study, which I think was done specifically to justify the project but professionally not up to scratch. These costs extend to everything in Western Province. But this is only at the micro economic level.

At the macroeconomic level, the national level, it is important to look at the opportunity cost of the borrowed K1.3 trillion. And in doing so, to bear in mind what I stated already, the lack of economic analysis in the choice of investment projects in Zambia. Western Province like all provinces in Zambia are low on development, even the highly subsidised maize is only supported by good rainfall not by efficient production systems.

Therefore, the needs are immense in both the social and economic sectors and it is all so apparent when recently I visited Luapula and North-Western provinces. So I would imagine what can be done with K1.3 trillion in the Western Province; and from the view point of economics, what would be the benefits to Western Province and to Zambia arising from K1.3 trillion loan in its alternative use? This is what I came up with.

Kalabo can still be connected to Mongu (and not all parts of Western Province by the way) by two undertakings, none of them mutually exclusive. The first is to build modern harbours (like Cape Town, why not?) in Mongu and Kalabo to allow more use of the water transport for people goods and tourists. A fibre glass boat making project can also be set up in Kalabo or Mongu to make and repair passenger and cargo boats.

This would allow easy flow of people and goods between and along the two towns safely and pleasantly through the rainy season. At the same time, tar the 130 km Kalabo-Senenga road, (a distance of Kabwe to Lusaka) so it connects 100 km to Mongu, an already tarred road. This will also open up for human settlement and commercial activities along the Kalabo Senenga Road, much more than along the Kalabo-Mungu road through the seasonally useful plains.

Zambia can still have its passage to Angola through Kalabo (it has not got to only pass through Mongu). People in Kalabo can have more access to more towns (Senenga, Sesheke through to south) than just Mongu and Kaoma. There will certainly be more distance to cover than if it were direct, but there is always minimum distance to cover, anyway. But all of these firstly, without destroying the ecosystem and the environment, therefore ensuring the culture and the traditions remain pretty much intact; only with increased benefits. In economics, when an action results in benefits for one without making the other person worse off, it is an efficient system. So there will be nothing lost, but everything gained.

And in my estimate, using regional costs for road construction rather than the highly exaggerated and economically not justifiable costs in Zambia, at about US$200,000 per km of tarred road, Mongu and Kalabo can be connected for US$ 26 million (K130 billion). Recently Egyptians confirmed road construction costs about US$180,000 per km of tarred in Egypt and my analysis is that Ethiopia, with the same cost structures as Zambia and also landlocked, spends only US$ 200,000 per km and so do countries in Southern Africa. I hereby challenge the National Council for Construction (NCC) and the Engineering Institution of Zambia (EIZ) to demonstrate how a tarred road in Zambia must cost upwards of US$700,000 to now, the unimaginable and incredibly out of this world, US$1 million per km. I also request the Zambia Competition Commission (ZCC) to investigate apparent explicit collusion among contractors in Zambia in obtaining government contracts in road construction; because certainly no private individual can part away with such ridiculously exorbitant money except government. In any case where would a poor country like Zambia with so many poor people get such money? I think it is important for Zambians to be more patriotic about their country and not allow greed to impair their sense of fairness.

The modern harbours on both sides can be estimated to cost K80 billion. The fibre glass factory can be estimated at US$ 2 million (K10 billion). Big boats can even start sailing all the way along the Zambezi both down and upstream. These two undertakings will still add up to a paltry K220 billion from the K1.3 trillion loan.

When I heard that the new Lusaka General Hospital cost K3.6 billion, I figured that if it were to be completed, with modern equipment fitted, doctors and nurses houses and other facilities, I would estimate the total cost to about K10 billion.

Zambia could then decide to have a hospital of that nature in each of the seven districts of Western Province and it would cost only K70 billion. With more money left, Zambia could construct boarding high schools like Kabulonga Boys (not the so-called Basic Schools), and equip them with modern laboratories and teachers houses and sporting facilities for an estimated K25 billion each one each of the seven districts of Western Province and this will set back the country only K170 billion.

And the big one, Zambia can build her second purpose-built public university in Western Province, complete with all the faculties, student hostels and laboratories and equipment for K400 billion. And for the ordinary people, to take them out of their poverty, which I believe is a result of lack of knowledge, implement a solar electrification programme to allow hundreds of thousands of villagers in Western Province access electricity immediately (not the piece meal of Rural Electrification Programme or ZESCO), so that their children will read at night, they can watch TV and see how the other world lives, they can use fridges and cook without destroying forests. This will also have the effect of increasing demand for goods and services and support production. The solar project can cost K150 billion.

Zambia can also buy lap tops for K50 billion to connect all the school going children in Western Province to the internet, and to tele-education. Then Zambia can several modern kindergartens for each public primary school in Western Province for K50 billion. The total of all these would come to K1.11 billion, still under K1.3 trillion! Many of the feeder rural roads can be rehabilitated with the remaining K190 billion.

This is the opportunity cost of K1.3 trillion in its alternative use. It does not take an economist to see that clearly the net benefits to the economy are higher in its alternative use than in constructing the road through the plains. And I am certain many Zambians will be happy to foot the bill by borrowing for this kind of investment in the Western Province. And economics is as simple as this. The choices are not complex, it is the knowledge to know and the will to do so.

The author is an economist and may be reached . Email: rsanyikosa@hotmail.com)

Labels: INFRASTRUCTURE, MONGU, NEOLIBERALISM, ROADS, TAXATION

posted by MrK @ 4:56 AM