Maravi

We have been given everything we need to develop

COMMENT - 'We' weren't given anything. It is important to understand that Zambia does not exist in isolation. The same forces that keep Zambia from developing are the forces that keep Malawi, Zimbabwe, South Africa, Botswana etc. from developing. The Biggest item are the austerity measures that have been applied to African economies for decades now. Massive liquidity gaps keep money out of the hands of entrepreneurs. Privatisation of the mines means our economies do not benefit from the sale of natural resources, even when prices are at record highs. Development Agreements steal billions of US dollars from the Zambian revenue authorities. Neoliberal economics are about the stealing of natural resources, while providing an intellectual cover to justify this theft.

We have been given everything we need to develop
Fri 31 Aug. 2012, 14:10 CAT

Sylvia Masebo is right when she says that Zambians are poor because they have failed to harness their country's natural resources for their benefit.

Our people are poor not because the territory in which the Creator deployed them has no resources. We have been given everything that we need to develop and live a good life. We have all sorts of minerals. We have abundant water resources. We have enough arable land. And we have a good population comprising a high percentage of energetic youths. What can one ask for from the Creator? Vonse vili mbwe, vili mbwe mbwe!

But we have learnt from life that it is what we make out of what we have, not what we are given, that separates one person from another, one community from another, one nation from another.

Being endowed, as a nation, with all the most valuable natural resources guarantees us nothing. It offers us instead the opportunity to succeed and live well as well as the risk of failure and continue to wallow in poverty.

Being endowed with immense natural resources as we are, is then both a promise and a challenge. It is a promise that as free human beings, working together we can harness the natural resources of our country in a manner that will serve our aspirations for economic opportunity and social justice. It is a challenge because our success in beneficiary exploiting our natural resources rests upon our shoulders as citizens of this country and on no one else.

It is us, the citizens of this country, who, finally, must take responsibility for the way in which our natural resources are exploited. In the end, we will get the economic benefits we deserve.

And we shouldn't lose sight of the fact that resource-rich Third World countries, especially on our continent, have, on average, done poorly. But progress is possible if we get economic and political support.

New discoveries of natural resources in our countries raise an important question: will these windfalls be a blessing that brings prosperity and hope, or a political and economic curse, as has been the case in so many of our countries?

On average, our resource-rich countries have done even more poorly than countries without resources.

They have grown more slowly, and with greater inequality - just the opposite of what one would expect. After all, taxing natural resources at high rates will not cause them to disappear, which means that our countries whose major source of revenue is natural resources can use them to finance education, healthcare, infrastructure development and redistribution.

[And other economic sectors, especially agriculture and manufacturing. The biggest loss is not even the billions of dollars of revenues, but the tens of billions of dollars in postponed development, opportunity cost. Industries not built, dams not built, cities not developed, children not educated. That is the real cost. - MrK]

It is also worrying that though resource extraction is often expected to create more jobs, very few jobs are being created and unemployment is rising/

[It is not expected to create more jobs, we are being told by the bribe taking politicians that 'they will bring jobs', as a substitute for them not bringing in tax revenues. The problem is that they cannot even put a dent on unemployment, as Zambia has as workforce of 5.5 million, and all the jobs in the mines are just 40,000, 0.7% of the workforce. All the while, these natural resources belong to the people collectively. They are our resources, and they're being stolen to pad corporate bank accounts in Switzerland and the Caymans. - MrK]

And our dependence on resource extraction has in some way made us not to aggressively pursue sustainable growth strategies.

[The 'some way' being the fact that the country bleeds $3 billion a year or more in mining profits. That is money that is not available for re-investment in the Zambian economy. - MrK]

We have over the years failed to recognise that if we do not re-invest our resource wealth into productive investments above ground, we are actually becoming poorer.

There are well-known antidotes to these problems: careful investment of resource revenues, including in our people, strict borrowing and transparency so that citizens can at least see the money coming in and going out. But there is a growing consensus that these measures, while necessary, are inefficient. We need to take several more steps in order to increase the likelihood of a resource blessing. We need to do more to ensure that our people get the full value of their country's resources.

And here, there is an unavoidable conflict of interest between the foreign natural resource companies and the interests of our people: the former want to minimise what they pay, while the latter need to maximise it. We therefore need well-designed and transparent deals which can generate much more revenue than these sweetheart deals we have entered into. The contracts we enter into should be transparent and should ensure that if prices soar - as they have repeatedly - the windfall gain does not go only to the company.

Unfortunately, we have already signed many bad contracts that give a disproportionate share of our resources' value to private foreign companies. But these deals can be re-negotiated; and if that is possible, we can impose a windfall profit tax.

All over the world, countries have been doing this. Of course natural resource companies will push back, emphasise the sanctity of contracts, and threaten to leave. But the outcome is typically otherwise. A fair renegotiation can be the basis of a better long-term relationship. We know that dealing with these companies is not easy. They have the money and with that money, they have hired our country's best brains to represent them, to lobby for them. At the end of the day, we are pitted against our own people who represent them as consultants, directors and so on and so forth. They have powerful representatives in all key institutions of the state. So it is easy for them to get what they want.

There are countries that have succeeded in renegotiating such contracts. Botswana's renegotiations of such contracts laid the foundations for its remarkable growth for the last four decades. Moreover, it is not only developing countries that renegotiate; developed countries such as Israel and Australia have done so as well. Even the United States has imposed a windfall profits tax.

Equally important, the money gained through natural resources must be used to promote development. Our old colonial powers regarded our countries simply as places from which to extract resources. Some of the new purchasers have a similar attitude.

Infrastructure - roads, rail roads and ports - has been built with one goal in mind: getting the resources out of the country at as low a price as possible, with no effort to process the resources in the country, let alone to develop local industries based on them.

But we know that real development requires exploring all possible linkages: training local workers, developing small and medium sized enterprises to provide inputs for mining operations, domestic processing and integrating the natural resources into our countries' economic structure. Of course, today, we may not have a comparative advantage in many of these activities, and some will argue that we should stick to our strengths. From this perspective, our comparative advantage is having other countries exploit our resources.

That is wrong. What matters is dynamic comparative advantage, or comparative advantage in the long run, which can be shaped. Forty years ago, South Korea had a comparative advantage in growing rice. Had it stuck to that strength, it would not be the industrial giant that it is today. It might be the world's most efficient rice grower, but it would still be poor.

Companies will tell us to act quickly, but there is good reason for us to move more deliberately. Our resources will not disappear, and commodity prices have been rising. In the meantime, we can put in place the institutions, policies, and laws needed to ensure that the resources of our country benefit all our people.

We are a very lucky people, creation has given us everything we need to prosper. The resources we have been endowed with should be a blessing, not a curse. They can be, but it will not happen on its own. And it will not happen easily. We need to exert maximum effort and work intelligently to get the best out of our country's natural resources.

Labels: SYLVIA MASEBO, WINDFALL TAX

posted by MrK @ 12:20 AM