Maravi

(THE ECONOMIST) Sata pack
Worries about politics are growing in one of Africa’s zippiest economies
May 18th 2013 | LUSAKA |From the print edition

A VISITOR led blindfold to the Levy Junction Mall in Lusaka, Zambia’s capital, might think he had pitched up in a middle-class suburb in Johannesburg. The pristine shopping centre is filled with South African retailers from Pick n Pay, a grocery chain, to Mugg & Bean, a coffee shop. The traders on Mwumba Road, a short drive away, serve a broader class of shoppers but are no less busy. If you need a part for a uranium-enrichment plant you might find it here, jokes one local businessman.

Lusaka’s bustle is a reflection of Zambia’s thriving economy. GDP has risen at an average rate of almost 6% a year in the past decade, while inflation has dropped from more than 20% to below 7%. Until quite recently Lusaka had no shopping malls. It now has ten and more are planned. The potential is enormous. Zambia is rich in arable land, water, gemstones, as well as copper, its main export, which China wants in abundance.

A flaw is that this new-found prosperity has not been widely shared, which helped a populist veteran politician, Michael Sata, to an election victory in 2011. Zambia’s tax take from mining is poor. Its biggest export market is not China but low-tax Switzerland, where copper trades are booked. Prosperous Lusaka pulls in rural migrants but copper-belt towns are less of a draw because mining uses more machines than manpower; 61% of the population remain in the poorer countryside. President Sata presents himself as their champion. But his imperious style has lately left business folk nervous and others dismayed.

One concern is that the liberal policy on foreign investment is under threat. The finance minister, Alexander Chikwanda, recently signed a law giving the central bank power to monitor cross-border capital. Proceeds from exports worth $10,000 or more must be remitted to a bank in Zambia within 60 days of shipment. Capital that flows out of Zambia in dividends or offshore savings will be similarly tracked. The use of foreign currency in domestic transactions was banned by an earlier statute.

Mr Chikwanda says the goal is to know precisely how much money is flowing in and out of Zambia, so he can verify that the right amount of tax is being paid. It is not, he insists, a disguised attempt to impose capital controls. “It is controls that lead to capital flight,” he says. “When you know you can take the money out, you don’t worry.” Locals can still hold dollars in Zambian bank accounts even if they can no longer use them in shops. Their widespread use, say officials, had undermined the central bank’s hold on the economy.

Foreign investors would be less anxious about this were it not for the bullying manner of the president. Mr Sata dominates his government, rarely delegates, is impatient with dissident ministers and is inclined to throw his weight around. He is no diplomat. He told off George W. Bush, the former American president, for tardiness. Mr Sata’s predecessor, Rupiah Banda, whom he defeated in the election of 2011, was stripped of immunity from prosecution in March and is now on trial for corruption. Interpol has cancelled a request for the arrest of Mr Banda’s son for lack of evidence. Opposition leaders have been detained for public-order offences. A coalition of Mr Sata’s opponents filed a 26-page charge-sheet to the Commonwealth in January. It claimed that the president wants to impose a one-party state.

Mr Sata is scarcely a model democrat. He supported Frederick Chiluba’s thwarted bid in 2001 to alter the constitution so he could serve a third term as president. But it is not yet clear that Mr Sata’s rule marks a step-change in Zambian politics. For sure, he uses the Public Order Act, a dismal piece of colonial-era law, to harass opponents and disrupt rallies. But so did his predecessors. Mr Sata was himself detained when in opposition. And his threats and bullying have not had great success. In general, charges are quietly dropped or fail to stick for lack of evidence.

Nor are his opponents much cowed. Hakainde Hichilema, leader of the United Party for National Development, recently called Mr Sata’s outspoken vice-president, Guy Scott, the “most stupid white man” he had ever seen. “If it was really a one-party state he would be locked up for that”, says Mr Scott, perhaps forgetting that Mr Hichilema is no stranger to the police station.

A few well-heeled Lusakans think the choice is between Sata-style populism now and something worse later, if inequality goes unchecked. There are signs of more measured decision-making. An original draft of legislation required the central bank to regulate as well as monitor capital flows. The word “regulate” was removed after lobbying from financiers. Mr Chikwanda says he has resisted pressure for a windfall mining tax. Taxes on the low-paid have been reduced. Fuel subsidies have just been removed, a risk rarely taken by populist governments.

Such fiscal rectitude is all the more surprising as bond investors are throwing cheap money at African governments. In September Zambia raised $750m in dollar bonds to spend on improving road and rail links, after receiving orders of $12 billion. Investors seem inclined to give Zambia the benefit of the doubt.

From the print edition: Middle East and Africa

Labels: HAKAINDE HICHILEMA, MICHAEL SATA, THE ECONOMIST MAGAZINE

posted by MrK @ 3:01 PM